SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]|_| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1997_____________
or
[ ]|X| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________July 1, 1999 to _______________December 31, 1999
Commission file number 0-14787
WATTS INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-2916536
--------- ----------
(State of incorporation) (I.R.S. Employer Identification No.)
815 Chestnut Street, North Andover, MA 01845
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 688-1811
Securities registered pursuant to Section 12(b) of the Act:
CLASSClass A COMMON STOCK, PAR VALUECommon Stock, par value $.10 PER SHAREper share
Name of exchange on which registered: New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 NoNo___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]|_|
Aggregate market value of the voting stock of the Registrant held by
non-affiliates of the Registrant on August 12, 1997February 21, 2000 was $402,994,121.$231,360,868.
As of August 12, 1997, 15,836,460February 21, 2000, 16,903,484 shares of Class A Common Stock, $.10
par value, and 11,199,1279,485,247 shares of Class B Common Stock, $.10 par value, of the
Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
- -----------------------------------Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on October 21, 1997,April 26, 2000, are incorporated by reference into
Part III of this Report.
1
PART I
Item 1. BUSINESS.
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GENERAL
- -------General
Watts Industries, Inc., (the "Company") designs, manufactures and sells an
extensive line of valves for the plumbing and heating and water quality
industrial, and oil and gas
industries. Watts has focused on the valve industry since its inception in 1874,
when it was founded to design and produce steam regulators for New England
textile mills. The Company was incorporated in Delaware in 1985. Today, the
Company is a leading manufacturer and supplier of plumbing and heating and water
quality valve products, which account for approximately two-thirds of its sales.products. The Company's growth strategy emphasizes expanding brand
preference with customers, focusing on code development and enforcement,
internal development of new valve products and entry into new markets for
specialized valves and related products through diversification of its existing
business, and strategic acquisitions in related business areas, both domestically
and abroad.abroad, and continued development of products and services for the home
improvement, do it yourself (DIY) retail market.
As previously announced, on October 18, 1999, the Company spun-off its
industrial, oil and gas businesses into a separate publicly traded company,
CIRCOR International, Inc. ("CIRCOR"). Under the terms of the spin-off
transaction, the Company distributed to shareholders a tax-free dividend of one
share of CIRCOR common stock for every two shares of Company common stock owned
as of the record date by that shareholder (the "Distribution"). The Company was incorporated in
Delaware in 1985.will
continue to manufacture and distribute plumbing and heating and water quality
products through its three geographic business segments: North America, Europe,
and Asia.
On May 11, 1999, the Company's Board of Directors voted to amend the
Company's By-Laws to change the Company's fiscal year from June 30th of each
year to December 31st of each year. This report on Form 10-K covers the
transition period of July 1, 1999 to December 31, 1999 ("fiscal 1999.5").
References to fiscal years 1999 and 1998 herein refer to the twelve months ended
June 30, 1999 and June 30, 1998, respectively.
The business description which follows describes the general development
of the Company's plumbing and heating and water quality business for fiscal
1999.5. The Company's former industrial, oil and gas businesses were spun-off
from the Company on October 18, 1999 and are described, as appropriate, as
discontinued operations. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for further information on these
discontinued operations.
The Company's plumbing and heating and water quality product lines include
safety pressure relief valves, water pressure regulators, backflow preventers
for preventing contamination of potable water caused by reverse flow within
water supply lines and for fire protection equipment, thermostatic mixing
valves, ball valves, automatic control valves, water distribution manifolds,
zone valves, thermostatic radiator valves, check valves, and flow control valves for water
service primarily in residential and commercial environments, and metal and
plastic water supply/drainage products including stop valves, tubular brass
products, faucets, drains, sink strainers, compression and flare fittings, and
plastic tubing and braided metal hose connectors for residential construction
and home repair and remodeling; backflow preventersremodeling, and drain systems for preventing contamination of
potable water caused by reverse flow within water supplylaboratory drainage and
high purity process installations.
The Company's former industrial, oil and gas product lines and fire
protection equipment;included steam
regulators and control devices for industrial, HVAC and naval/marine
applications; pneumatic valve and motion switch products for medical,
analytical, military and aerospace applications; ball valves, solenoid valves,
cryogenic valves, pneumatic and electric actuators, strainers, relief valves,
check valves, and butterfly valves for industrial applications; and needle
valves, metering valves, plug valves, tube fittings, floating and trunnion ball
valves, pipeline closures, specialty gate valves, oil field check valves, and
large ball valves for the oil and gas, industry.and chemical and petrochemical
industries.
Within a majority of the product lines the Company manufactures and
markets, the Company believes that it has one of the broadest product linelines in
terms of the distinct designs, sizes and configurations of its valves. Products
representing a
2
majority of the Company's sales have been approved under regulatory standards
incorporated into state and municipal plumbing and heating, building and fire
protection codes, and similar approvals from oil and gas industry standards agencies andhave been obtained from various agencies
in the European market have been obtained.market. The Company has consistently advocated the development
and enforcement of performance and safety standards, and is currently planning new investments and implementing additional
procedures as part of its commitmentcommitted to
providing products to meet these standards.standards, particularly for safety and control
valve products. The Company maintains quality control and testing procedures at
each of its manufacturing facilities in order to produce products in compliance
with code requirements. Additionally, a majority of the Company's manufacturing
subsidiaries have either acquired or are working to acquire ISO 9000, 9001 or
9002 certification from the International Organization for Standardization
(ISO).
On September 4, 1996 the Company divested itself of its Municipal Water
Group, which includes Henry Pratt Company ("Pratt"), James Jones Company
("Jones"), and Edward Barber & Co. Ltd. ("Barber"), pursuant toMarch 9, 1999 a Stock Purchase
Agreement dated June 19, 1996. On September 5, 1996, a wholly ownedwholly-owned subsidiary of the Company acquired
Consolidated Precision CorporationCazzaniga S.p.A. ("CPC"Cazzaniga") located in Riviera Beach, Florida. CPC manufactures controlBiassono, Italy near Milan. Cazzaniga,
which had twelve (12) months sales prior to the acquisition of approximately $35
million, is an integrated manufacturer of plumbing and heating products
including water distribution manifolds, zone valves, manualcheck valves, and actuated
shutoff valves, cryogenic filters, valve manifolds,their
principal line of thermostatic radiator valves. The manufacturing plant features
a yellow brass forging foundry, high speed chucking machines with robotics,
automatic screw machines, and bayonet fittings forextensive automated assembly machines contained
within a 211,000 square foot facility. During fiscal 1999.5, Cazzaniga's
products were added to the cryogenic, ultra high purity,Company's European distribution channels and industrial gas markets. The sales of CPC for
the twelve month period ended May 31, 1996 were approximately $2,500,000. On
January 3, 1997, a wholly owned subsidiarysome of
the Company acquired Ames Company,
Inc. ("Ames") located in Woodland, California. Ames manufactures UL/FM backflow
prevention valves for use in fire protection equipmentCompany's other European manufacturing and automatic control
valves to control the pressure and flow of water and other fluids. Ames had
sales of approximately $27,000,000 for the twelve month period ended December
31, 1996. In June of 1997, the Company sold its vitreous china and faucet
business to a joint venture in which it has a 49% minority interest. In fiscal
1997, sales of these products amounted to approximately $15,000,000. Since the
Company will use the equity method to account for its investment in the joint
venture, these sales will not be included in itswarehousing operations were
consolidated net sales in the
future.into Cazzaniga's facility.
The Company relies primarily on commissioned representative organizations,
mostsome of whom maintain a consigned inventory of the Company's products, to market
its product lines. These organizations, which accounted for approximately 70%73% of
the Company's net sales in the fiscal year ended June 30, 1997,1999.5, sell primarily to plumbing and heating
wholesalers and DIY Market accounts, and steam, industrial,
oil and gas distributors for resale to end users in the United States and
abroad.accounts. The Company also sells metal and plastic
water supply/drainage products including valves, tubular brass products,
faucets, drains, sink strainers, compression and flare fittings, plastic tubing
and braided metal hose connectors for the residential construction and home
repair and remodeling industries through do-it-yourself plumbing retailers,
national catalog distribution companies, hardware stores, building material
outlets and retail home center chains ("DIY Markets") and through the Company's
existing plumbing and heating wholesalers. The industrial product line is sold to domestic process industries
through distributors and to aerospace and aircraft industries through special
distributors and manufacturers' representatives, andIn addition, the oil and gas product
line is sold to domestic oil and gas industries through stocking supply stores
and internationally through commissioned
agents. The Company also sells
products directly to certain large original equipment manufacturers (OEM's) and
private label accounts. The Company alsoaccounts, and maintains direct and indirect sales channels for
water valves, steam valves, relief valves, shut-off valves, check valves, butterfly valves,
ball valves and flow meters to the power generation, maritime, heating, ventilationirrigation, and
air-conditioning, irrigation, fire protection
and refrigeration industries and
utilities.industries. The Company believes that sales to the residential construction
and
to the oil and gas marketsmarket may be subject to cyclical variations to a greater extent than its other
targeted markets. However, because the Company sells into different geographic
areas, and to large and diverse customers, anythe potential adverse effects from any
cyclical variations tend to be mitigated. No assurance can be given that the
Company will be protected from a broad downturn in the economy. There was no
single customer which accounted for more than 10% of the Company's net sales in
the fiscal year ended June 30, 1997.1999.5.
The Company has a fully integrated and highly automated manufacturing
capability including foundry operations, machining operations, plastic injection
molding and assembly. The Company's foundry operations include metal pouring
systems and automatic core making, yellow brass forging, mold making and pouring
capabilities. The Company's acquisition of Cazzaniga adds yellow brass forging
and machining capabilities to the Company's European operations. The Company's
machining operations feature computer-controlled machine tools, high-speed
chucking machines with robotics and automatic screw machines for machining
bronze, brass, iron and steel components. See "Properties" below. The Company has invested heavily in
recent years to expand its manufacturing base and to ensure the availability of
the most efficient and productive equipment. The Company is committed to
maintaining its manufacturing equipment at a level consistent with current
technology in order to maintain high levels of quality and manufacturing
efficiencies. As part of this commitment, the Company has spent a total of
$79,166,000 on capital expenditures over the last three and one-half years. The
Company has budgeted $17,500,000 for fiscal 2000 primarily for manufacturing
machinery and equipment. See "Properties" below. The Company has also
substantially completed its implementation of an integrated enterprise-wide
software system in most of its U.S. and Canadian locations with a focus on
inventory management, production scheduling, and electronic data interchange.
This has enabled the Company to provide better service to customers, improve
working capital management, lower transaction costs, and improve e-commerce
capabilities. Capital expenditures were $29,742,000, $31,080,000,$10,293,000, $21,532,000, and
$27,980,000$23,056,000 for fiscal 1997, 1996,1999.5, 1999 and 1995,1998, respectively. Depreciation and
amortization for such periods were $20,828,000,
$21,574,000,$9,225,000 $17,456,000, and $20,345,000,$15,341,000,
respectively.
FiveThree significant raw materials used in the Company's production processes
are bronze ingot, brass rod, and cast iron, carbon steel and stainless steel.iron. While the Company historically has
not experienced significant difficulties in obtaining these commodities in
quantities
3
sufficient for its operations, there have been significant changes in their
prices. The Company's gross profit margins are adversely affected to the extent
that the selling prices of its products do not increase proportionately with
increases in the costs of bronze ingot, brass rod, and cast iron, carbon steel and stainless steel.iron. Any
significant unanticipated increase or decrease in the prices of these
commodities could materially affect the Company's results of operations. However, increased sales
volume, an active materials management program,The
Company manages this risk by monitoring related market prices, working with its
suppliers to achieve the maximum level of stability in their costs and related
pricing, seeking alternative supply sources when necessary and passing increases
in commodity costs to its customers, to the diversity of materials
used inmaximum extent possible, when they
occur. Additionally, on a limited basis, the Company's production processes have somewhat diminished the impact
from changes in the cost of these five raw materials.Company uses commodity futures
contracts to manage this risk. No assurances can be given that thissuch factors will
protect the Company from future changes in the prices for such raw materials.
See Item 7A. "Quantitative and Qualitative Disclosures About Market Risk."
The domestic and international markets for valves are intensely
competitive and include companies possessing greater financial, marketing and
other resources than the Company. Management considers product reputation,
price, effectiveness of distribution and breadth of product line to be the
primary competitive factors. The Company believes that new product development
and product engineering are also important to success in the valve industry and
that the Company's position in the industry is attributable in significant part
to its ability to develop new and innovative products quickly and to adapt and
enhance existing products. During fiscal 1997,1999.5, the Company began development of
severalcontinued to
develop new and innovative products to enhance market position and is currently
implementing newly identifiedcontinuing
to implement manufacturing and design programs to reduce costs. The Company
cannot be certain that its efforts to develop new products will be successful or
that its customers will accept its new products. The Company employs
over 100approximately 38 engineers and technicians, which does not include engineers
working in the Chinese joint ventures,venture, who engage primarily in these activities.
Although the Company owns certain patents and trademarks that it considers to be
of importance, it does not believe that its business and competitiveness as a
whole is dependent on any one or more patents or trademarks or on patent or
trademark protection generally.
The Company's financial information by geographic areabusiness segment is
contained in Note 1416 of Notes to Consolidated Financial Statements incorporated
herein by reference. From time to time, the Company's results of operations may
be adversely affected by fluctuations in foreign exchange rates. Backlog was
$104,559,000$28,889,000 at February 14, 2000 and $24,255,000 at August 15, 1997 and $97,917,000 at August 16, 1996.14, 1999. The Company
does not believe that its backlog at any point in time is indicative of future
operating results. Available funds and funds provided from the Company's
operations are sufficient to meet anticipated capital requirements. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", below as it relates to the impact of foreign exchange rates and
capital requirements.
As of June 30, 1997,December 31, 1999, the Company's domestic and foreign operations
employed approximately 3,9002,898 people, plus 750830 employees in the Company's joint
venturesventure located in the People's Republic of China. There are approximately 139no employees that
are covered by collective bargaining agreements in the United States andor Canada.
The Company believes that its employee relations are excellent.
EXECUTIVE OFFICERS
- ------------------Executive Officers
Information with respect to the executive officers of the Company is set forth
below:
Name Position Age
---- -------- ---
TIMOTHYTimothy P. HORNEHorne Chairman of the Board, Chief Executive Officer 61
and Director
59
DAVID A. BLOSS, SR. President, Chief Operating Officer and Director 47
FREDERIC B. HORNE Corporate Vice President and Director 47
KENNETH J. MCAVOYWilliam C. McCartney Chief Financial Officer, Treasurer and Secretary and Director 57
ROBERT45
Michael O. Fifer Corporate Vice President 42
Robert T. MCLAURINMcLaurin Corporate Vice President of Asian Operations 66
MICHAEL O. FIFER68
Lester J. Taufen General Counsel and Vice President of Corporate Development 40
WILLIAM C. MCCARTNEY Vice President of Finance 43
SUZANNE M. ZABITCHUCK Corporate CounselLegal Affairs, 56
and Assistant Secretary 42
4
Timothy P. Horne joined the Company in September 1959 and has been a
Director since 1962. Mr. Horne served as the Company's President from 1976 to
1978 and again from 1994 to April 1997. He has served as Chief Executive Officer
since 1978 and he became the Company's Chairman of the Board in April 1986.
David A. Bloss, Sr., was appointed President and Chief Operating Officer in
April, 1997. HeWilliam C. McCartney joined the Company in 1985 as ExecutiveController. He was
appointed the Company's Vice President of Finance in July 19931994, and has been a Director sinceserved as
Corporate Controller of the Company from April 1988 to December 1999. Mr.
McCartney was appointed Chief Financial Officer, Treasurer and Secretary on
January 1994.1, 2000.
Michael O. Fifer joined the Company in May 1994 and was appointed the
Company's Vice President of Corporate Development. He was recently appointed
Corporate Vice President. Prior to joining the Company, Mr. BlossFifer was for five years associatedAssociate
Director of Corporate Development with the Norton Company,Dynatech Corp., a diversified high-tech
manufacturer, of
abrasives and cutting tools, serving most recently as President of the
Superabrasives Division.
Frederic B. Horne, brother of Timothy P. Horne, joined the Company in 1973
and has been Corporate Vice President of the Company since August 1987 and a
Director since 1980. Mr. Horne served as the Company's Vice President and
General Manager from 19781991 to August 1987.
Kenneth J. McAvoy joined the Company in 1981 as Corporate Controller. He
served as the Company's Vice President of Finance from 1984 toApril 1994. He has been
the Chief Financial Officer and Treasurer since June 1986, and has been a
Director since January 1994. Mr. McAvoy served as Executive Vice President of
European Operations from January 1994 to June 1996. Mr. McAvoy has also served
as Secretary or Clerk since January 1985.
Robert T. McLaurin was appointed Corporate Vice President of Asian
Operations in August 1994. He served as the Senior Vice President of
Manufacturing of Watts Regulator Co. from 1983 to August 1994. He joined Watts
Regulator Company as Vice President of Manufacturing in 1978.
Michael O. FiferLester J. Taufen joined the Company in May 1994January 1999 as Associate Corporate
Counsel. He was recently appointed General Counsel and was appointed the
Company's Vice President of Corporate Development.Legal
Affairs, and Assistant Secretary. Prior to joining the Company, Mr. FiferTaufen was
Associate Director of Corporate Development with Dynatech Corp., a
diversified high-tech manufacturer, from 1991 to April 1994.
William C. McCartney joined the Company in 1985 as Controller. He was
appointed the Company's Vice President of Finance in 1994, and he has been
Corporate Controller of the Company since April 1988.
Suzanne M. Zabitchuck has been Corporate Counsel of the Company since joining
the Company in December 1992. Ms. Zabitchuck was appointed Assistant Secretary
in August 1993. Ms. Zabitchuck was associated with The Stride Rite Corporation,
a shoe manufacturer,employed for 13 years at Elf Atochem North America, Inc. serving as its Associate General CounselSenior
Counsel.
Product Liability, Environmental and Clerk
immediately prior to joining the Company.
PRODUCT LIABILITY AND ENVIRONMENTAL MATTERS
- -------------------------------------------Other Litigation Matters
The Company, like other worldwide manufacturing companies, is subject to a
variety of potential liabilities connected with its business operations,
including potential liabilities and expenses associated with possible product
defects or failures and compliance with environmental laws. The Company
maintains product liability and other insurance coverage which it believes to be
generally in accordance with industry practices. Nonetheless, such insurance
coverage may not be adequate to protect the Company fully against substantial
damage claims which may arise from product defects and failures.
James Jones Litigation
On June 25, 1997, Nora Armenta sued James Jones Company, Watts Industries,
Inc., which formerly owned James Jones, Mueller Co., and Tyco International
(U.S.) Inc. in the California Superior Court for Los Angeles County with a
complaint that sought tens of millions of dollars in damages. By this complaint
and an amended complaint filed on November 4, 1998 ("First Amended Complaint"),
Armenta, a former employee of James Jones, sued on behalf of 34 municipalities
as a qui tam plaintiff under the California False Claims Act. Late in 1998, the
Los Angeles Department of Water and Power ("DWP") intervened. Of the remaining
33 named municipalities, four (Burbank, Pomona, Santa Monica and South Gate)
chose to intervene shortly before the Court-imposed deadline of July 15, 1999.
The municipality of South Gate recently withdrew its intervention and will
participate as a non-intervening city. The case will now go forward with the
municipalities that have intervened.
The First Amended Complaint alleges that the Company's former subsidiary
(James Jones Company) sold products that did not meet contractually specified
standards used by the named municipalities for their water systems and falsely
certified that such standards had been met. Armenta claims that these
municipalities were damaged by their purchase of these products, and seeks
treble damages, legal costs, attorneys' fees and civil penalties under the False
Claims Act.
The DWP's intervention filed on December 9, 1998 adopted the First Amended
Complaint and added claims for breach of contract, fraud and deceit, negligent
misrepresentation, and unjust enrichment. The DWP seeks past and future
reimbursement costs, punitive damages, contract difference in value damages,
treble damages, civil penalties under the False Claims Act and costs of the
suit.
One of the First Amended Complaint's allegations is the suggestion that
because some of the purchased James Jones products are out of specification and
contain more lead than the `85 bronze specified, a risk to public health might
exist. This contention is predicated on the average difference of about 2% lead
content in `81 bronze (6% to 8% lead) and `85 bronze (4% to 6% lead) alloys and
the assumption that this would mean increased consumable lead in public drinking
water. The evidence and discovery available to date indicate that this is not
the case.
5
In addition, bronze that does not contain more than 8% lead, like `81
bronze, is approved for home plumbing fixtures by the City of Los Angeles, and
the Federal Environmental Protection Agency defines metal for pipe fittings with
no more than 8% lead as "lead free" under Section 1417 of the Federal Safe
Drinking Water Act.
The Company intends to contest this matter vigorously, and discovery is
currently under way. Presently, the Company cannot determine whether any loss
will result from this litigation. See Note 14 of the Notes to the Consolidated
Financial Statements.
Product Liability
Leslie Controls, Inc. and Spence Engineering Company, both former
subsidiaries of the Company, arewere involved as third-party defendants in various
civil product liability actions pending in the U.S. District Court, Northern
District of Ohio. The underlying claims have been filed by present or former employees of various
shipping companies for personal injuries allegedly received as a result of
exposure to asbestos. The shipping companies contend that they installedCIRCOR assumed these liabilities in their vessels certain valves manufactured by Leslie Controls and/or Spence
Engineering which contained asbestos. Leslie Controls is also a defendant in a
similar matter pending inconnection with the
Superior Court of California, San Francisco
County. TheDistribution, and the Company has resort to certain insurance coverage with respect toindemnification from CIRCOR for
these matters. Coverage has been disputed by certain of the carriers and,
therefore, recovery is questionable, a factor which the Company has considered
in its evaluation of these matters. The Company has established reserves which
it currently believes are adequate in light of the probable and estimable
exposure of pending and threatened litigation of which it has knowledge. Based
on facts presently known to it, the Company does not believe that the outcome of
these proceedings will have a material adverse effect on its financial
condition, results of operations, or its liquidity.claims.
Environmental
Certain of the Company's operations generate solid and hazardous wastes,
which are disposed of elsewhere by arrangement with the owners or operators of
disposal sites or with transporters of such waste. The Company's foundry and
other operations are subject to various federal, state and local laws and
regulations relating to environmental quality. Compliance with these laws and
regulations requires the Company to incur expenses and monitor its operations on
an on-goingongoing basis. The Company cannot predict the effect of future requirements
on its capital expenditures, earnings or competitive position due to any changes
in either federal, state or local environmental laws, regulations or ordinances.
The Company is currently a party to or otherwise involved within various
administrative or legal proceedings under federal, state or local environmental
laws or regulations involving a number of sites,sites. During the quarter ending March
31, 1998, the Company received an administrative order from the New Hampshire
Department of Environmental Services (the "NHDES") with respect to management
and storage of process wastes and various recordkeeping and permit renewal rules
at its Franklin, New Hampshire operation. The NHDES has acknowledged compliance
with its administrative order and has proposed monetary assessments which are
currently being negotiated for the items identified in some cases as a participant
in a group of potentially responsible parties. Four of these sites,the administrative order.
With respect to the Sharkey and Combe Landfills in New Jersey, the San Gabriel Valley/El Monte, California
water basin site, and the Cherokee Oil Resources Site in Charlotte, North
Carolina, are listed on the National Priorities List. With respect to the
Sharkey Landfill, the Company has been allocated .75% of the remediation costs,
an amount which is not material to the Company. No allocations have been made to
date with respect to the Combe Landfill or San Gabriel Valley sites. The EPA has
formally notified several entities that they have been identified as being
potentially responsible parties with respect to the San Gabriel Valley site. As
the Company was not included in this group, its potential involvement in this
matter is uncertain at this point given that either the PRP's named to date or
the EPA could seek to expand the list of potentially responsible parties. With
respect to the Cherokee Oil Resources Site, the Company has elected to
participate in a de minimis settlement. In addition to the foregoing, the Solvent
Recovery Service of New England site and the Old Southington landfill
site, bothLandfill sites in
Connecticut, areall of which were on the National Priorities List but,as of the date of
the Distribution, and which were discussed in the Company's previous reports
filed with respect
thereto,the Securities and Exchange Commission, CIRCOR assumed all liability
associated with these matters in connection with the Distribution and the
Company has resort to indemnification from third parties and based
on currently available information, the Company believes it will be entitled to
participate in a de minimis capacity.
With respect to the Combe Landfill, the Company is one of approximately 30
potentially responsible parties. The Company and all other PRP's received a
Supplemental Directive from the New Jersey Department of Environmental
Protection & Energy in 1994 seeking to recover approximately $9 million in the
aggregateCIRCOR for the operation, maintenance, and monitoring of the implemented
remedial action taken up to that time in connection with the Combe Landfill
North site. Certain of the PRP's, including the Company, are currently
negotiating with the state only to assume maintenance of this site in an effort
to reduce future costs. The Company and the remaining PRP's have also received a
formal demand from the U.S. Environmental Protection Agency to recover
approximately $17 million expended to date in the remediation of this site. The
EPA has filed suit against certain of the PRP's, and the Company has recently
been named a third-party defendant in this litigation.these matters.
Based on facts presently known to it, the Company does not believe that
the outcome of these environmental proceedings will have a material adverse
effect on its financial condition or results of operations, or its liquidity. The Company has
established balance sheet accruals which it currently believes are adequate in
light of the probable and estimable exposure of pending and threatened
environmental litigation and proceedings of which it has knowledge.operations. Given the nature and
scope of the Company's manufacturing operations, there can be no assurance that
the Company will not become subject to other environmental proceedings and
liabilities in the future which may be material to the Company. See Note 14 of
the Notes to the Consolidated Financial Statements.
Other Litigation
Other lawsuits and proceedings or claims, arising from the ordinary course
of operations, are also pending or threatened against the Company and its
subsidiaries. Based on the facts currently known to it, the Company does not
believe that the ultimate outcome of these other litigation matters will have a
material adverse effect on its financial condition or results of operation. See
Note 14 of the Notes to the Consolidated Financial Statements.
6
Item 2. PROPERTIES.
-----------
The Company'sCompany maintains 22 facilities worldwide with its corporate
headquarters located in North Andover, Massachusetts. The manufacturing
operations include four casting foundries, two of which are located in the
United States, one in Europe and one at Tianjin Tanggu Watts Valve Company
Limited ("Tanggu Watts"), a joint venture located in the People's Republic of
China.China, and it maintains one yellow brass forging foundry located in Italy.
Castings and forgings from these foundries and other components are machined and
assembled into finished valves at 2216 manufacturing facilities located in the
United States, Canada, Europe and the People's
Republic of China. Many of these facilities contain sales
offices or warehouses from which the Company ships finished goods to customers
and com-
missionedcommissioned representative organizations. The Company's corporate headquarters are
located in North Andover, Massachusetts. The vast majority of the
Company's operating facilities and the related real estate are owned by the
Company. The buildings and land located in Nerviano, Italy and Tianjin, People's Republic of
China and the land located in Suzhou, People's Republic of China
are leased by Pibiviesse S.p.A. ("PBVS"), Tanggu Watts, and Suzhou Watts Valve Co., Ltd.
("Suzhou Watts") respectively, under a lease agreements,agreement, the termsremaining term of which
are 6
years, 30 years, and 30 years, respectively. Additionally, during fiscal 1997
the Company relocated the operations of Jameco Industries, Inc. ("Jameco") to
the Company's Watts Regulator plant in Spindale, North Carolina and began to
consolidate the operations of PBVS into one location at Nerviano, Italy.is approximately 25 years.
Certain of the Company's facilities are subject to mortgages and
collateral assignments under loan agreements with long-term lenders. In general,
the Company believes that its properties, including machinery, tools and
equipment, are in good condition, well maintained and adequate and suitable for
their intended uses. The Company believes that the manufacturing facilities are
currently operating at a level that management considers normal capacity. This
utilization is subject to change as a result of increases or decreases in sales.
Item 3. LEGAL PROCEEDINGS.
------------------
Item 3(a). The Company is from time to time involved in various legal and
administrative procedures. See Part I, Item 1, "Product Liability,
Environmental and EnvironmentalOther Litigation Matters".
Item 3(b). None.See Part I, Item 1, "Product Liability, Environmental and Other
Litigation Matters".
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
There were no matters submitted during the fourthsecond and final quarter of the
fiscal year covered by this Report to a vote of security holders through
solicitation of proxies or otherwise.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
------------------------------------------------------------------
MATTERS.
--------
MARKET INFORMATION
- ------------------Market Information
The following tabulation sets forth the high and low sales prices of the
Company's Class A Common Stock on the New York Stock Exchange during fiscal
19971999.5, fiscal 1999 and fiscal 19961998 and cash dividends paid per share:
High Low Dividend High Low Dividend
---- --- -------- ---- --- --------
1997 1996
---- ----
First Quarter $19 7/8 $15 1/2 $.07 $25 5/8 $22 3/8 $.0625
Second Quarter 24 1/4 19 .07 25 1/8 20 .0625
Third Quarter 26 3/8 23 .0775 23 5/8 16 5/8 .07
Fourth Quarter 26 1/2 21 1/4 .0775 20 5/8 17 7/8 .07share. The
prices of the Company's Class A Common Stock reported below were retroactively
adjusted to reflect the effect of the spin-off of CIRCOR on October 18, 1999. No
adjustments were made to the dividends reported.
High Low Dividend High Low Dividend High Low Dividend
----------------------------- ----------------------------- ----------------------------
1999.5 1999 1998
------ ----- -----
First Quarter $16.32 $13.07 $.0875 $17.84 $12.10 $.0875 $20.36 $16.60 $.0775
Second Quarter 16.09 12.63 .0875 15.13 11.74 .0875 21.05 17.97 .0775
Third Quarter -- -- -- 12.47 8.99 .0875 23.02 19.12 .0875
Fourth Quarter -- -- -- 14.58 9.95 .0875 22.70 15.31 .0875
7
There is no established public trading market for the Class B Common Stock
of the Company, which is held exclusively by members of the Horne family and
management. The principal holders of such stock are subject to restrictions on
transfer with respect to their shares. Each share of Class B Common Stock (10
votes per share) of the Company is convertible into one share of Class A Common
Stock (1 vote per share). Aggregate common stock dividend payments for fiscal
1997, 1996,1999.5, 1999, and 1995,1998 were $7,992,000, $7,793,000$4,656,000, $9,358,000, and $6,951,000,$8,936,000 respectively.
While the Company presently intends to continue to pay cash dividends, the
Company expects that the payment of future dividends necessarilyshould reflect the reduced
revenue and earnings base. The spin-off of CIRCOR reduced the Company's annual
revenue base from approximately $800 million to $520 million. The payment of
future cash dividends also depends upon the Board of Directors' assessment of
the Company's earnings, financial condition, capital requirements and other
factors.
See Note 8 of Notes to Consolidated Financial Statements incorporated
herein by reference regarding restrictions on payment of dividends.
The number of record holders of the Company's Class A Common Stock as of
August 12, 1997February 21, 2000 was 232.179. The Company believes that the number of beneficial
shareholders of the Company's Class A Common Stock was in excess of
approximately 4,5004,000 as of
August 12, 1997.February 21, 2000. The number of record holders of the Company's Class B Common
Stock as of August 12, 1997February 21, 2000 was 11.
9.
Item 6. SELECTED FINANCIAL DATA.
------------------------
The selected financial data set forth below should be read in conjunction
with the Company's consolidated financial statements, related Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein.
FIVE YEAR FINANCIAL SUMMARY
(Amounts in thousands, except per share information)
Six Months
Ended
12/31/99(1)(2) 1999 1998 1997 1996(1) 1995 1994 1993(2)1996(3)
-------------- ---- ------- ---- ---- -------
Selected Data
Net sales from continuing operations $ 720,340 $ 640,876 $ 576,851 $ 444,484 $ 398,688$259,110 $474,458 $442,077 $447,235 $411,261
Income (loss) from continuing operations 48,460 (53,765) 42,463 39,400 24,92316,468 29,454 28,123 26,515 (24,824)
Income (loss) from discontinued operations, net of taxes (1,266) 6,502 25,246 25,232 (25,461)
Net income (loss) 15,242 35,956 53,369 51,747 (50,285)
45,738 41,010 27,274
Total assets 622,083 656,294 676,394 546,722 526,119
Total487,078 637,742 552,896 526,366 370,454
Long-term debt, 128,359 163,150 144,240 98,244 103,434net of current portion 123,991 118,916 71,647 94,841 111,715
Income (loss) per share from continuing operations 1.77 (1.82) 1.43 1.33 0.83operations-diluted 0.61 1.10 1.03 0.97 (0.84)
Income (loss) per share from discontinued operations-diluted (0.05) 0.24 0.92 0.92 (0.86)
Net income (loss) per shareshare-diluted 0.56 1.34 1.95 1.89 (1.70)
1.54 1.38 0.91
DividendsCash dividends declared per common share 0.175 0.350 0.330 0.295 0.265 0.235 0.20 0.16
(1) Fiscal 1996 includes an after-tax charge of $92,986,000 related to:
restructuring costs of $25,415,000; an impairment of long-lived assets of
$63,065,000; other charges of $13,753,000 principally for product liability
costs, additional bad debt reserves and environmental remediation costs; and
additional inventory valuation reserves of $9,508,000 (see Item 7 - "Management
Initiatives").
(2) Fiscal 1993 includes an after-tax charge of $7,471,000 related to cumulative
change in accounting method and other unusual charges.
1) On May 14, 1999, the Company filed a Form 10-Q in which it reported its
decision to change its fiscal year end from June 30 to a calendar year. As
a result the Company is reporting a six month transition period ending
December 31, 1999. See Note 2 of the Notes to the Consolidated Financial
Statements.
2) Fiscal 1999.5 net income includes an after-tax charge of $861,000 related
to restructuring costs.
3) Fiscal 1996 net income includes an after-tax charge of $44,682,000 related
to: restructuring costs of $22,390,000; an impairment of long-lived assets
of $24,603,000; other charges of $9,878,000 principally for product
liability costs, additional bad debt reserves and environmental
remediation costs; and additional inventory valuation reserves of
$6,566,000.
8
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION -----------------------------------------------------------
AND RESULTS
OF OPERATIONS.
--------------------------
MANAGEMENT INITIATIVES
- ----------------------
In fiscal 1996,On December 15, 1998 the Company re-evaluatedannounced its strategyplan to spin-off its
industrial, oil and decided to
restructure itsgas business in an effort to improveas a separately traded public company, CIRCOR
International, Inc. Under the efficiencyterms of the Company's
worldwide operations as described below:
DIVESTITURE
- -----------
As part of this strategy, the Company decided to divest itself of the
Municipal Water Group of Companies,spin-off, which consisted of Henry Pratt Company,
James Jones Company, and Edward Barber & Company Ltd. This divestiture was completed on
September 4, 1996 resulting in an after-tax gainOctober 18, 1999, the holders of $3,208,000.Watts common stock received one share of CIRCOR
common stock for every two shares of Watts stock held. The proceeds were used primarily to reduce long-term debt, fund the Company's share
repurchase program and fund acquisitions. This divestiture will enable the
Company to focus its acquisition and growth strategies on its core markets,
namely plumbing and heating and water quality, and industrial, and oil and gas.
The results of
operations of the Municipal Water Group have been reportedrestated to reflect CIRCOR as incomediscontinued operations for
all periods presented.
On May 11, 1999, the Company's Board of Directors voted to amend the
Company's By-Laws to change the Company's fiscal year end from discontinued operations.
IMPAIRMENT OF LONG-LIVED ASSETS
- -------------------------------
During fiscal 1996June 30 to a
calendar year. As a result the Company recordedis reporting a $63,065,000 impairmentsix month transition
period ending December 31, 1999.
Results of long-lived asset loss. The impairment charge mainly pertainsOperations
Six Months Ended December 31, 1999 Compared to
the Company's
Italian subsidiaries and was the result of the potential non-deductibility of
goodwill amortization coupled with decreasing margins and operating profits. In
connection with the re-evaluation of its business strategy in Italy, management
concluded an impairment had occurred and recorded a loss by reducing the value
of affected long-lived assets, primarily goodwill, to fair value, as determined
using a discounted cash flow approach.
RESTRUCTURING ACTIVITIES
- ------------------------
The Company also decided to undertake certain restructuring initiatives
aimed at improving the efficiency of certain of its continuing operations. The
two most significant initiatives are the consolidation and downsizing of
Pibiviesse S.p.A. ("PBVS") and the relocation of Jameco Industries, Inc.
("Jameco").
The Company initiated a plan to consolidate and downsize the operations of
its PBVS subsidiary in Italy. The downsizing has occurred, and the consolidation
will be completed during fiscal 1998. PBVS has experienced an improvement in
sales volume and gross margin in fiscal 1997, even though the restructuring
efforts are still on-going. The Company also decided to relocate the
manufacturing operations of Jameco from Wyandanch, New York to a Watts Regulator
plant in Spindale, North Carolina. The expansion of the Spindale facility, which
will house the Jameco activity, is complete, and the manufacturing machinery and
equipment has been relocated. We expect this transfer to be fully completed in
early fiscal 1998.
The $25,415,000 of restructuring expense recorded in fiscal 1996 includes
$9,300,000 of severance; $8,400,000 of asset write-downs for assets to be
abandoned or sold; and $7,715,000 of exit costs. The $7,715,000 of exit costs
are comprised primarily of lease and other contract termination costs and plant
closure costs.
It is expected that the restructuring plan will be substantially complete by
the end of fiscal yearSix Months Ended December 31, 1998 although unanticipated events could affect the cost
and timing of the restructuring plan.
OTHER MATTERS
- -------------
In fiscal 1996, the Company recorded a $13,753,000 selling, general and
administrative expense charge, principally for product liability costs,
environmental remediation requirements and additional bad debt reserves. Also, a
$9,508,000 inventory write-down was recorded during fiscal 1996 to reduce
inventories to their estimated market value.
CONCLUSION
- ----------
The effect of the aforementioned fiscal year 1996 charges is summarized
below:
(In thousands)
--------------
Inventory write-down charged to cost of goods sold $ 9,508
Selling, general and administrative expense charge 13,753
Impairment of long-lived assets 63,065
Restructuring expense 25,415
---------
111,741
Income tax benefit (18,755)
---------
After-tax charge $ 92,986
========
RESULTS OF OPERATIONS
- ---------------------
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO
- -------------------------------------------
FISCAL YEAR ENDED JUNE 30, 1996
- -------------------------------
Net sales fromfor continuing operations increased $79,464,000 (12.4%$31,531,000 (13.9%) to
$720,340,000. An analysis of this$259,110,000. The increase in net sales is as follows:
1997 - 1996
(In thousands)
Domestic
-Internalattributable to the following:
Internal Growth $43,256 6.8%
International
-Internal Growth $25,297 3.9%
-Exchange Rate Effect $(8,037) (1.3%$19,896,000 8.7%
Acquisitions $17,061,000 7.5%
Foreign Exchange ($5,426,000) (2.3%)
------------------- ------
Total International $17,260 2.6%
Acquisitions $18,948 3.0%
-------- ------
Total Increase $79,464 12.4%
========Change $31,531,000 13.9%
=========== ======
The increase in net sales from internal growth is primarily attributable
to increased unit shipments in the North American segment. The growth in net
sales from acquired companies is due to the inclusion of oil and gas valves andthe net sales of
Cazzaniga S.p.A. of Biassono, Italy, which was acquired March 9, 1999. The
foreign exchange impact reflects the adverse affects of the Euro's devaluation
during the period. Excluding Cazzaniga, shipments in the European plumbing and
heating valves.market were 9.2% higher than last year.
Watts monitors its net sales in three geographical segments: North
America, Europe and Asia. As outlined below, North America, Europe and Asia
accounted for 73.9%, 22.6%, and 3.5% of net sales, respectively, in the six
months ended December 31, 1999 compared to 77.1%, 19.1%, and 3.8%, respectively,
in the six months ended December 31, 1998. The Company's net sales in these
groups for the six months ended December 31, 1999 and 1998 were as follows:
(in thousands)
12/31/99 12/31/98 Change
-------- -------- -------
North America $191,349 $175,448 $15,901
Europe 58,651 43,497 15,154
Asia 9,110 8,634 476
-------- -------- -------
Total $259,110 $227,579 $31,531
======== ======== =======
The increase in North America is due to increased unit shipments of oilsales. The increase
in Europe is due to the Cazzaniga acquisition and gas valves is supported by a strong
worldwide oil and gas market. The increased unit shipmentssales, which
were partially offset by the devaluation of plumbing and
heating valves is primarily associated with increased demand from plumbing and
heating wholesalers and increased penetration into the home repair retail market
(DIY). The increased sales due to acquisitions is primarily attributable to the
acquisition of Ames Company, Inc. ("Ames") of Woodland, CA in January
1997. The Company intends to maintain its strategy of seeking acquisition
opportunities as well as expanding its existing market position to achieve sales
growth.Euro.
Gross profit from continuing operations increased $33,194,000 (15.6%).
Excluding the $9,508,000 of inventory write-downs recorded in cost of sales last
fiscal year, gross profit would have increased $23,686,000 (10.7%$11,338,000 (13.8%) to $245,392,000$93,257,000 and decreasedremained
constant as a percentage of net sales from 34.6%at 36.0%. This increase is attributable to
34.1%. The
gross profit percentage was primarily, among other things, adversely affected by
decreased absorption of fixed expenses that occurred becauseincreased net sales during the period.
9
During the period ended December 31, 1999 the Company reduced
production levelsrecorded a
restructuring charge of $1,460,000 before taxes. The charge was comprised of
severance costs of $1,299,000 and contract termination costs of $134,000 and
other exit costs of $27,000. The Company is consolidating certain existing
Italian manufacturing and warehouse facilities into the Cazzaniga facility in
Biassono, Italy. The Company expects these projects, which include the
termination of 29 employees, to achieve inventory reductions.be completed in fiscal 2000. The decreased absorption was
partially offset by improved gross margins for oilanticipated
annual savings from these actions is $750,000. As of December 31, 1999, 10
employees have been released and gas valves due to
increased sales volumes and factory efficiencies.$192,000 has been paid in severance.
Selling, general and administrative expenses inincreased $5,441,000 (9.6%)
to $62,239,000. This increase is primarily attributable to inclusion of the
year ended June 30, 1996
include a $13,753,000 charge for product liability costs, environmental
remediation and additional bad debt reserves. Selling,selling, general and administrative expenses excluding this chargeof Cazzaniga and increased $9,786,000 (6.6%) to
$158,984,000 and decreased as a percentage of net sales from 23.3% to 22.1%. The
increase in spending is primarily attributable to increased commissions and variable
selling expenses, associated withprimarily commissions and freight costs.
Operating income in the six months ended December 31, 1999 increased
sales and the inclusion
of the expenses of acquired companies.
The Company's effective tax rate was favorably effected in fiscal 1997 by
tax planning strategies and utilization of foreign net operating loss carry
forwards. During fiscal 1996, the Company's effective tax rate was unfavorably
effected by the substantially non-deductible nature of the long-lived asset
impairment loss.
Earnings from continuing operations increased by $102,225,000 when compared$4,437,000 (17.7%) to fiscal 1996, and by $9,239,000 (23.6%) when the $92,986,000 after-tax effect
of the items described above under "Management Initiatives" are excluded from
the comparison. The Company's return on average stockholders' investment,
excluding the gain on the sale of the Municipal Water Group, was 14.9% for
fiscal 1997 compared to 9.6% in fiscal 1996 (as adjusted to exclude the 1996
items described above).
The Company experienced an unfavorable impact$29,558,000 due to the change in foreign
exchange rates since June 30, 1996. This change did notincreased gross profit. Without the
restructuring charge operating income would have a material adverse
impact on the results of operations or the financial condition of the Company.
RESULTS OF OPERATIONS
- ---------------------
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO
- -------------------------------------------
FISCAL YEAR ENDED JUNE 30, 1995
- -------------------------------
Net sales from continuing operations increased $64,025,000 (11.1%) to
$640,876,000. An analysis of this increase in net sales is as follows:
1996 - 1995
(In thousands)
Domestic
-Internal Growth $11,759 2.0%
International
-Internal Growth $ 4,697 0.8%
-Exchange Rate Effect $ 3,145 0.6%
-------- ------
Total International $ 7,842 1.4%
Acquisitions $44,424 7.7%
-------- ------
Total Increase $64,025 11.1%
======= ======
This increase in internal growth was primarily attributable toby 23.5% and
increased
unit shipments of plumbing and heating and water quality valves in the United
States and Europe. The increase in sales from acquisitions was primarily
attributable to the acquisition of Anderson-Barrows Metals Corporation of
Palmdale, CA, PBVS of Nerviano, Italy, and Etablissements Trubert S.A. of
Chartres, France.
Gross profit from continuing operations increased $1,486,000 (0.7%) to
$212,198,000 but decreased as a percentage of sales from 36.5%11.4% to 33.1%12.0%.
This
decreased percentage wasThe Company's operating income by segment for the six months ended
December 31, 1999 and 1998 were as follows:
(in thousands)
12/31/99 12/31/98 Change
-------- -------- -------
North America $21,645 $18,151 $3,494
Europe 7,252 5,682 1,570
Asia 731 822 (91)
Corporate (70) 466 (536)
------- ------- ------
Total $29,558 $25,121 $4,437
======= ======= ======
The increase in North America is due to increased net sales. The increase
in Europe is primarily due to increased net sales and the Cazzaniga acquisition,
which were partially offset by the restructuring charge.
Interest expense increased $1,783,000 in the six months ended December 31,
1999, primarily due to increased levels of debt associated with the acquisition
of Cazzaniga.
The Company's effective tax rate for continuing operations increased from
32.1% to 35.2%. The increase is attributable to the inclusion of $9,508,000
in costs related primarily to inventory write-downs to market value. Gross
profit from continuing operations exclusive of these charges would have been
$221,706,000 or 34.6% of net sales. This decreased percentage was primarily
attributable to lower gross margins experienced within the Industrial and Oil
and Gas group as a result of competitive pricing and unfavorable manufactur-
ing variances. In addition, unfavorable manufacturing variances associated with
reduced production levels caused by lower sales volume experienced within the
steam group adversely impacted the Company's gross margin. The inclusion of
certain acquired companies which operate at a lower gross marginoperating in
higher tax rate jurisdictions than the rest of the Company, also adversely impactedtax planning
strategies favorably impacting fiscal 1998 only and a revised tax structure
required to effect the gross margin. Gross profit was also
adversely affected by increased raw material costs of bronze ingot, carbon and
stainless steel, which, due to competitive pricing pressures, could not be
completely recovered through price increases.
Selling, general and administrative expenses from continuing operations
increased $29,350,000 (22%) to $162,951,000. This increase is primarily
attributable to the inclusion of a $13,753,000 additional charge for product
liability costs, environmental remediation and bad debt reserves discussed above
and the expenses of acquired companies.
InterestDistribution.
Net income from continuing operations decreased $1,228,000 (63.6%for the six months ended December
31, 1999 increased $1,243,000 (8.2%) to $702,000 due$16,468,000 or $0.61 per common share
compared to decreased levels of cash and short-term investments.
Interest expense from continuing operations increased $592,000 (6.3%) to
$9,960,000. This increase was primarily attributable to$0.56 per common share for the increased levels of
debt incurred in association with the acquisitions.
The effective tax rate from continuing operations, exclusive of the
restructuring, impairment of long-lived assets and other matters, decreased to
37.1% in fiscal 1996 from 37.7% in fiscal 1995.
Net income (loss) from continuing operations decreased $96,228,000 (226.6%)
to $(53,765,000).six months ended December 31, 1998 on
a diluted basis. Net income from continuing operations exclusive of the
impairment loss, restructuring charge and other matters referred to under
"Management Initiatives" above, would have increased $2,103,000 to $17,329,000 or $0.64 per
common share on a diluted basis. The impact of foreign exchange, primarily due
to the devaluation of the Euro, decreased $3,242,000 (7.6%net income $0.02 per common share on a
diluted basis in the period ended December 31, 1999.
For the six months ended December 31, 1999, discontinued operations
generated a net loss of $1,226,000 ($0.05 per share), compared to net income of
$8,419,000 ($0.31 per share) for six months ended December 31, 1998. Results for
the six months ended December 31, 1999 were negatively impacted by an after tax
charge of $2,433,000 for spin-off related costs, including professional fees,
facility relocation costs and income tax costs associated with the reorganizing
of the Company's legal entity structure in anticipation of the spin-off.
Excluding this charge, discontinued operations would have had net income of
$1,207,000 ($0.05 per share) for the six months ended December 31, 1999. Net
sales for the discontinued operations for the six months ended December 31, 1999
were $76,957,000, a decrease of $3,699,000 (4.8%) from the comparable period in
1998. The decrease in net sales is primarily attributable to lower demand for
oil and gas valve products. Declining prices, resulting from increased
competition; reduced manufacturing levels, resulting in lower absorption of
fixed manufacturing costs; and costs associated with the integration of acquired
companies negatively impacted operating profits during the six months ended
December 31, 1999. Additional details of the spin-off transaction are provided
in the Notes to the Consolidated Financial Statements (Note 3).
10
Results of Operations
Twelve Months Ended June 1999 Compared to
Twelve Months Ended June 1998
Net sales from continuing operations for the twelve months ended June 30,
1999 increased by $32,381,000 (7.3%) to $39,221,000.$474,458,000 from $442,077,000 in the
fiscal year ended June 30, 1998. The changeincrease in net sales is attributable to
the following:
Internal Growth $25,455,000 5.7%
Acquisitions $10,095,000 2.3%
Divestitures ($3,386,000) (0.8%)
Foreign Exchange $217,000 0.1%
----------- ----
Total Change $32,381,000 7.3%
=========== ====
The increase in net sales from internal growth is primarily attributable
to increased unit shipments in the North American segment. The growth in net
sales due to acquired companies is primarily attributable to the inclusion of
Cazzaniga S.p.A. of Biassono, Italy, which was acquired in March, 1999.
Excluding Cazzaniga, shipments in the European segment were consistent with the
prior year.
The Company monitors its net sales in three geographical segments: North
America, Europe and Asia. As outlined below, North America, Europe and Asia
accounted for 77.8%, 19.4% and 2.8% of net sales, respectively, in the twelve
months ended June 30, 1999 compared to 78.1%, 18.7% and 3.2%, respectively in
the twelve months ended June 30, 1998. The Company's net sales in these groups
for fiscal 1999 and 1998 were as follows:
(in thousands)
6/30/99 6/30/98 Change
-------- -------- -------
North America $369,193 $345,346 $23,847
Europe 92,247 82,837 9,410
Asia 13,018 13,894 (876)
-------- -------- -------
Total $474,458 $442,077 $32,381
======== ======== =======
The increase in net sales in North America is primarily due to increased
unit shipments. The increase in Europe is due primarily to the acquisition of
Cazzaniga.
The Company's gross profit increased $11,788,000 (7.4%) to $171,713,000.
The increased gross profit is primarily attributable to increased net sales.
Gross margin remained consistent at 36.2% in both fiscal 1999 and 1998.
Selling, general and administrative expenses increased $7,021,000 (6.2%)
to $119,875,000. This increase is attributable to the inclusion of the expenses
of Cazzaniga, and increased variable selling expenses including commissions and
freight costs.
Operating income from continuing operations increased $4,767,000 (10.1%)
from $47,071,000 to $51,838,000 primarily due to increased gross profit.
The Company's operating income by segment for the twelve months ended June
30, 1999 and 1998 were as follows:
(in thousands)
6/30/99 6/30/98 Change
------- ------- ------
North America $38,536 $36,754 $1,782
Europe 11,228 8,258 2,970
Asia 1,608 1,984 (376)
Corporate 466 75 391
------- ------- ------
Total $51,838 $47,071 $4,767
======= ======= ======
The increase in North America is due to increased net sales. The increase
in Europe is primarily due to the inclusion of Cazzaniga.
11
Other expense from continuing operations increased $1,256,000 to
$1,688,000. This increase is attributable to the Company's share of losses
related to its equity investment in Jameco International LLC. Increased minority
interest expense resulting from the improved performance at the Company's joint
venture in China also contributed to the increase in other expense.
Income from continuing operations increased $1,331,000 (4.7%) to
$29,454,000. This increase is primarily attributable to the income generated by
acquired companies and increased gross profit from existing companies.
The Company's consolidated results of operations are impacted by the
effect that changes in foreign exchange rates did not have a materialon its international
subsidiaries' operating results. Changes in foreign exchange rates had an
immaterial impact on net income in fiscal 1999.
Net income from discontinued operations was $6,502,000 ($0.24 per share)
for fiscal 1999, compared to $25,246,000 ($0.93 per share) for fiscal 1998.
Fiscal 1999 results were negatively impacted by an after tax charge of
$6,166,000 for spin-off related costs, including professional fees, facility
relocation costs and income tax costs associated with the net results of operations or the financial conditionreorganizing of the
Company's legal entity structure in anticipation of the spin-off. Excluding this
charge, discontinued operations would have had net income of $12,668,000 ($0.59
per share) for fiscal 1999. Net sales for the discontinued operations for fiscal
1999 were $321,711,000, an increase of $33,822,000 (11.7%) from fiscal 1998. The
increase in net sales is primarily attributable to the inclusion of net sales
from acquired companies. Excluding the impact of acquisitions, net sales of
domestic oil and gas valves declined 29.8% and net sales of international oil
and gas valves declined 20.9% during fiscal 1999. Declining prices, resulting
from increased competition; and reduced manufacturing levels, resulting in lower
absorption of fixed manufacturing costs, negatively impacted operating profits
during fiscal 1999. Additional details of the spin-off transaction are provided
in the Notes to the Consolidated Financial Statements (Note 3).
The Company also recorded a charge to discontinued operations of
$5,000,000 ($3,000,000 net of tax), for legal expenses associated with the
litigation involving James Jones Company. LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------James Jones Company was a subsidiary
of the Company in the municipal water works division until September 1996 when
it was sold to Tyco International Ltd. See Part I, Item 1, "Product Liability,
Environmental and Other Litigation Matters."
Liquidity and Capital Resources
During fiscal 1997,the six month period ended December 31, 1999, the Company generated
$58,870,000$29,009,000 in operating cash flow from continuing operations, which was
principally used to reduce borrowings under its line of
credit and to fund capital expenditures.
In fiscal 1997, the Company received $88,164,000 of proceeds as a result of
its sale of the Municipal Water Group. These proceeds were used to fund the acquisitions that are described below, reducepurchase of $10,293,000 in capital equipment, pay
cash dividends to common shareholders and support the borrowings under its lineworking capital needs of
credit and to fund additional share purchases under its existing stock
repurchase program.discontinued operations. Capital expenditures for fiscal 1997 were $29,742,000, primarily for manufacturing
machinery and equipment as part of itsthe Company's commitment to continuously
improve its manufacturing capabilities. The Company's capital expenditure budget
for the year ending December 31, 2000 is $17,500,000.
During fiscal 1998 is $29,500,000.
The Company purchased 1,321,300 shares of Class A Common Stock for an
aggregate purchase price of $25,564,000.
During the twelve months ended June 30, 1997,1999.5, the Company invested
$37,705,000 in two acquisitions. In September 1996,maintained a wholly-owned subsidiary of
the Company purchased certain assets and assumed certain liabilities of CPC. CPC
is a manufacturer of high quality control valves, manual and actuated shut-off
valves, cryogenic filters, valve manifolds and bayonet fittings for the
cryogenic and ultra-high purity and industrial gas market. CPC had sales of
approximately $2,500,000 for the twelve months ended May 31, 1996. In January
1997, a wholly-owned subsidiary of the Company purchased Ames. Ames designs,
manufactures, and markets UL/FM certified backflow prevention valves for use in
the fire protection market. Ames had sales of approximately $27,000,000 for the
twelve months ended December 31, 1996.
The Company has available an unsecured $125,000,000 line of credit
which expires on August 31, 1999.was amended coincident with the spin-off of CIRCOR. The Company's intentamended
facility in effect as of December 31, 1999 is to utilize thisan unsecured $100,000,000 line of
credit
facility to support the Company's acquisition program, working capital
requirements of acquired companies, and for general corporate purposes. At
December 31, 1999, the Company had $22,000,000 outstanding on the line of credit
and was in compliance with all banking covenants related to this facility.
As of June 30, 1997, there was $29,000,000December 31, 1999, the Company maintained a syndicated credit
facility with a group of European banks in the amount of 40,000,000 Euros. This
credit facility has several tranches which provide credit to the Company for a
period up to five (5) years. The purpose of this credit facility is to fund
acquisitions in Europe, support the working capital requirements of acquired
companies and for general corporate purposes. As of December 31, 1999,
21,980,000 Euros ($22,134,000) were borrowed under this line of credit.
Working capital from continuing operations at December 31, 1999 was
$141,740,000 compared to $144,941,000 at June 30, 1997 was $224,702,000 compared to $286,205,000
at June 30, 1996.1999. The ratio of current
assets to current liabilities was 2.92.3 to 1 at December 31, 1999 and 2.5 to 1 at
June 30, 19971999. Cash and cash equivalents were $13,016,000 at December 31, 1999
compared to 3.2 to 1$12,774,000 at June 30, 1996. This decrease is
principally attributable to repayment of long-term debt and the Company's stock
repurchase program. Cash and short-term investments were $14,422,000 at June 30,
1997 compared to $0 at June 30, 1996.1999. Debt as a percentage of total capital
employed was 27.8%37.4% at December 31, 1999 compared to 38.9% at June 30, 1997 compared to 33.8% at June 30, 1996. At June
30, 1997 the Company was in compliance with all covenants related to its
existing debt.
The Company from time to time is involved with environmental proceedings and
incurs costs on an on-going basis related to environmental matters. The Company
currently anticipates that it will not incur significant expenditures in fiscal
19981999.
12
in connection with any of these environmentally contaminated sites. Please see
Part I, Item 1, "Product Liability and Environmental Matters".
The Company anticipates that available funds and those funds provided from
current operations will be sufficient to meet current operating requirements and
anticipated capital expenditures for at least the next 24 months.
The Company from time to time is involved with product liability,
environmental proceedings and other litigation proceedings and incurs costs on
an ongoing basis related to these matters. The Company has not incurred material
expenditures in fiscal 1999.5 in connection with any of these matters. See Part
I, Item 1, "Product Liability, Environmental and Other Litigation Matters".
Year 2000
The Company's comprehensive program to address potential exposures to the
Year 2000 issues is complete. Since January 1, 2000 the Company has had no
business interruptions due to the Year 2000 issues. The Company is not aware of
any incidents or events caused by the Year 2000 issue that have had or could
have a material adverse effect on the results of operations or financial
condition. Spending for the Year 2000 program, expensed as incurred, was not
material.
Conversion To The Euro
On January 1, 1999, 11 of the 15 member countries of the European Union
adopted the Euro as their common legal currency and established fixed conversion
rates between their existing sovereign currencies and the Euro. The Euro trades
on currency exchanges and is available for non-cash transactions. The
introduction of the Euro will affect the Company as the Company has
manufacturing and distribution facilities in several of the member countries and
trades extensively across Europe. The long-term competitive implications of the
conversion are currently being assessed by the Company, however, the Company
will experience an immediate reduction in the risks associated with foreign
exchange. At this time, the Company is not anticipating that any significant
costs will be incurred due to the introduction and conversion to the Euro. The
Company is in the process of implementing systems to receive and make payments
in Euros. The Company anticipates these systems will be in place by January 1,
2002.
Other
Certain statements contained herein are forward looking. Many factors
could cause actual results to differ from these statements, including loss of
market share through competition; introduction of competing products by other
companies; pressure on prices from competitors, suppliers, and/or customers;
regulatory obstacles; lack of acceptance of new products; changes in the
plumbing and heating markets; changes in global demand for the Company's
products; changes in distribution of the Company's products; interest rates;
foreign exchange fluctuations; cyclicality of industries in which the Company
markets certain of its products and general and economic factors in markets
where the Company's products are sold, manufactured or marketed; and other
factors discussed in the Company's reports filed with the Securities and
Exchange Commission.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." The Company will
adopt SFAS 133 on January 1, 2001. The impact of SFAS 133 on the combined
financial statements is still being evaluated, but is not expected to be
material.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company uses derivative financial instruments primarily to reduce
exposure to adverse fluctuations in foreign exchange rates, interest rates and
prices of certain raw materials used in the manufacturing process. The Company
does not enter into derivative financial instruments for trading purposes. As a
matter of policy, all derivative positions are used to reduce risk by hedging
underlying economic exposure. The derivatives the Company uses are
straightforward instruments with liquid markets.
The Company manages most of its foreign currency exposures on a
consolidated basis. The Company identifies all of its known exposures. As part
of that process, all natural hedges are identified. The Company then nets these
natural hedges from its gross exposures.
13
The Company's consolidated earnings are subject to fluctuations due to
changes in foreign currency exchange rates. However, its overall exposure to
such fluctuations is reduced by the diversity of its foreign operating locations
which encompass a number of different European locations, Canada and China.
The Company's foreign subsidiaries transact most business, including
certain intercompany transactions, in foreign currencies. Such transactions are
principally purchases or sales of materials and are denominated in European
currencies or the U.S. or Canadian dollar. The Company uses foreign currency
forward exchange contracts to manage the risk related to intercompany purchases
that occur during the course of a fiscal year and certain open foreign currency
denominated commitments to sell products to third parties. At December 31, 1999
the Company had no forward contracts to buy foreign currencies and no unrealized
gains or losses. See Note 15 of the Notes to the Consolidated Financial
Statements.
The Company has historically had a very low exposure to changes in
interest rates. Interest rate swaps are used to mitigate the impact of interest
rate fluctuations on certain variable rate debt instruments. Information about
the Company's long-term debt including principal amounts and related interest
rates appears in Note 10 to the Consolidated Financial Statements included
herein.
The Company purchases significant amounts of bronze ingot, brass rod and
cast iron which are utilized in manufacturing its many product lines. The
Company's operating results can be adversely affected by changes in commodity
prices if it is unable to pass on related price increases to its customers. The
Company manages this risk by monitoring related market prices, working with its
suppliers to achieve the maximum level of stability in their costs and related
pricing, seeking alternative supply sources when necessary and passing increases
in commodity costs to its customers, to the maximum extent possible, when they
occur. Additionally, on a limited basis, the Company uses commodity futures
contracts to manage this risk. See Note 15 of the Notes to the Consolidated
Financial Statements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
The index to financial statements is included in page 1216 of this Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
The information called for by this Item 9 was previously reported in a
Current Report on Form 8-K filed with the Securities and Exchange Commission on
April 11, 1997. Also see Item 14(b).None.
14
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
DIRECTORS
- ---------Directors
The information appearing under the caption "Information as to Directors
and Nominees for Director" in the Registrant's Proxy Statement relating to the
Annual Meeting of Stockholders to be held on October 21, 1997April 26, 2000 is incorporated
herein by reference. EXECUTIVE OFFICERS
- ------------------With respect to Directors and Executive Officers, the
information appearing under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Registrant's Proxy Statement relating to the Annual
Meeting of Stockholders to be held on April 26, 2000 is incorporated herein by
reference.
Executive Officers
Information with respect to the executive officers of the Company is set
forth in Item 1 of this Report under the caption "Executive Officers".
Item 11. EXECUTIVE COMPENSATION.
-----------------------
The information appearing under the caption "Compensation Arrangements" in
the Registrant's Proxy Statement relating to the Annual Meeting of Stockholders
to be held on October 21, 1997April 26, 2000 is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------------------------------------
The information appearing under the caption "Principal and Management
Stockholders" in the Registrant's Proxy Statement relating to the Annual Meeting
of Stockholders to be held on October 21, 1997April 26, 2000 is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The information appearing under the caption "Compensation
Arrangements-Certain Relationships and Related Transactions" in the Registrant's
Proxy Statement relating to the Annual Meeting of Stockholders to be held on
October 21, 1997April 26, 2000 is incorporated herein by reference.
15
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a)(1) FINANCIAL STATEMENTS
- ---------------------------Financial Statements
The following financial statements are included in a separate section of
this Report commencing on the page numbers specified below:
Report of Independent Auditors 16Auditors....................................... 20
Consolidated Statements of Operations for each of the Three Years
insix months ended
December 31, 1999, and December 31, 1998 (unaudited)
and the Period Endedtwelve months ended June 30, 1997 171999 and 1998.......... 21
Consolidated Balance Sheets as of December 31, 1999, June 30,
19971999 and 1996 18June 30, 1998...................................... 22
Consolidated Statements of Stockholders' Equity for each of the Three Years
insix months
ended December 31, 1999 and the Period Endedtwelve months ended
June 30, 1997 191999 and 1998...................................... 23
Consolidated Statements of Cash Flows for each of the Three Years
insix months ended
December 31, 1999, and the Period Endedtwelve months ended June 30,
1997 201999 and 1998............................................... 24
Notes to Consolidated Financial Statements 21Statements........................... 25
(a)(2) SCHEDULES
- ----------------Schedules
Schedule II - Valuation and Qualifying Accounts for each of the Three Years
insix
months ended December 31, 1999, and the Period Endedtwelve months
ended June 30, 1997 331999 and 1998. .............................. 40
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
(a)(3) EXHIBITS
- ---------------Exhibits
Exhibits 10.1-10.6, 10.8, 10.22,10.16, and 10.2910.23 constitute all of the
management contracts and compensation plans and arrangements of the Company
required to be filed as exhibits to this Annual Report. Upon written request of
any stockholder to the Chief Financial Officer at the Company's principal
executive office, the Company will provide any of the Exhibits listed below.
16
Exhibit No. Description and Location
- ------------------------------------------
2.1 Distribution Agreement between Watts Industries, Inc. and
CIRCOR International, Inc. (20)
3.1 Restated Certificate of Incorporation, as amended. (12)
3.2 Amended and Restated By-Laws.By-Laws, as amended May 11, 1999. (1)
9.1 Horne Family Voting Trust Agreement-1991 dated as of October
31, 1991 (2), Amendments dated November 19, 1996*1996 (18),
February 24, 1997*1997 (18), June 5, 1997*1997 (18), August 26, 1997
(18), and August 26,October 17, 1997.* (21)
9.2 The Amended and Restated George B. Horne Voting Trust
Agreement-1997 dated as of August
26, 1997. *September 14, 1999. (22)
10.1 Employment Agreement effective as of September 1, 1996
between the Registrant and Timothy P. Horne. (14)
10.2 Supplemental Compensation Agreement effective as of
September 1, 1996 between the Registrant and Timothy P.
Horne. (14)
10.3 Deferred Compensation Agreement between the Registrant and
Timothy P. Horne, as amended. (4)
10.4 1996 Stock Option Plan, dated October 15, 1996. (15)
10.5 1989 Nonqualified Stock Option Plan. (3)
10.6 Watts Industries, Inc. Retirement Plan for Salaried
Employees dated December 30, 1994, as amended and restated
effective as of January 1, 1994, (12), Amendment No. 1 (14),
Amendment No. 2 (14), Amendment No. 3 (14), Amendment No. 4
dated September 4, 1996.* (18), Amendment No. 5 dated January
1, 1998, Amendment No. 6 dated May 3, 1999 (22), and
Amendment No. 7 dated June 7, 1999. (22)
10.7 Registration Rights Agreement dated July 25, 1986. (5)
10.8 Executive Incentive Bonus Plan, as amended. (12)
10.9 Indenture dated as of December 1, 1991 between the
Registrant and The First National Bank of Boston, as
Trustee, including form of 8-3/8% Note Due 2003. (8)
10.10 Loan Agreement and Mortgage among The Industrial Development
Authority of the State of New Hampshire, Watts Regulator Co.
and Arlington Trust Company dated August 1, 1985. (4)
10.11 Amendment Agreement relating to Watts Regulator Co. (Canaan
and Franklin, New Hampshire, facilities) financing dated
December 31, 1985. (4)
10.12 Sale Agreement between Village of Walden Industrial Development
Agency and Spence Engineering Company, Inc. dated June 1, 1994. (11)
10.13 Letter of Credit, Reimbursement and Guaranty Agreement dated June 1,
1994 by and among the Registrant, Spence Engineering Company, Inc.
and First Union National Bank of North Carolina. (11), Amendment No.
1 (14), Amendment No. 2 dated October 1, 1996.*
10.14 Trust Indenture from Village of Walden Industrial Development Agency
to The First National Bank of Boston, as Trustee, dated June 1,
1994. (11)
10.15 Loan Agreement between Hillsborough County Industrial Development
Authority and Leslie Controls, Inc. dated July 1, 1994. (11)
10.16 Letter of Credit, Reimbursement and Guaranty Agreement dated July 1,
1994 by and among the Registrant, Leslie Controls, Inc. and First
Union National Bank of North Carolina (11), Amendment No. 1 (14),
Amendment No. 2 dated October 1, 1996.*
10.17 Trust Indenture from Hillsborough County Industrial Development
Authority to The First National Bank of Boston, as Trustee, dated
July 1, 1994. (11)
10.18 Loan Agreement between The Rutherford County Industrial
Facilities and Pollution Control Financing Authority and
Watts Regulator Company dated September 1, 1994. (12)
10.1910.13 Letter of Credit, Reimbursement and Guaranty Agreement dated
September 1, 1994 by and among the Registrant, Watts
Regulator Company and The First Union National Bank of North
Carolina (12), Amendment No. 1 (14), Amendment No. 2 dated
October 1, 1996.*
10.201996 (18), and Amendment No. 3 dated October 18,
1999 (11).
10.14 Trust Indenture from The Rutherford County Industrial
Facilities and Pollution Control Financing Authority to The
First National Bank of Boston,as Trustee, dated September 1,
1994. (12)
10.2110.15 Amended and Restated Stock Restriction Agreement dated
October 30, 1991 (2), Amendment dated August 26, 1997.*
10.22 (18)
10.16 Watts Industries, Inc. 1991 Non-Employee Directors'
Nonqualified Stock Option Plan (7), Amendment No. 1. (14)
10.2310.17 Letters of Credit relating to retrospective paid loss
insurance programs. (10)
10.2410.18 Form of Stock Restriction Agreement for management
stockholders. (5)
10.2510.19 Revolving Credit Agreement dated December 23, 1987 between
Nederlandse Creditbank NV and Watts Regulator (Nederland)
B.V. and related Guaranty of Watts Industries, Inc. and
Watts Regulator Co. dated December 14, 1987. (6)
10.2610.20 Loan Agreement dated September 1987 with, and related
Mortgage to, N.V. Sallandsche Bank. (6)
10.2710.21 Agreement of the sale of shares of Intermes, S.p.A., RIAF
Holding A.G. and the participations in Multiscope Due S.R.L.
dated November 6, 1992. (9)
10.2810.22 Amended and Restated Revolving Credit Agreement dated August 30, 1994March
27, 1998 between and among Watts Investment Company, certain
financial institutions, the First
National Bank of Boston,BankBoston N.A., as Administrative
Agent, and the Registrant, as Guarantor (11)(17), and First
Amendment No. 1 (14), Amendment No. 2. (14)
10.29to Amended and Restated Revolving Credit Agreement
dated October 18, 1999 (11).
17
10.23 Watts Industries, Inc. Management Stock Purchase Plan dated
October 17, 1995 (13), Amendment No. 1 dated August 5, 1997.*
10.30
(18)
10.24 Stock Purchase Agreement dated as of June 19, 1996 by and
among Mueller Co., Tyco Valves Limited, Watts Investment
Company, Tyco International Ltd. and Watts Industries, Inc.
(16)
11.11 Statement Regarding Computation of Earnings per Common
Share. *
21.(19)
21 Subsidiaries. *
23.123 Consent of KPMG Peat Marwick LLP. *
23.2 Consent of Ernst & Young LLP, Independent Auditors, predecessor
auditors.*
23.3 Consent of Deloitte & Touche, Independent Auditors, predecessor
auditors.*
27.27 Financial Data Schedule.Schedule-Fiscal 1999.5. *
INCORPORATED BY REFERENCE TO:
- -----------------------------Incorporated By Reference To:
(1) Relevant exhibit to Registrant's Form 8-K dated May 15, 1992.10-Q for quarter ended March 31,
1999.
(2) Relevant exhibit to Registrant's Form 8-K dated November 14, 1991.
(3) Relevant exhibit to Registrant's Form 10-K for the year ended June 30,
1989.
(4) Relevant exhibit to Registrant's Form S-1 (No.33-6515)(No. 33-6515) dated June 17,
1986.
(5) Relevant exhibit to Registrant's Form S-1 (No. 33-6515) as part of the
Second Amendment to such Form S-1 dated August 21, 1986.
(6) Relevant exhibit to Registrant's Form S-1 (No. 33-27101) dated February
16, 1989.
(7) Relevant exhibit to Registrant's Amendment No. 1 to Form 10-K for year
ended June 30, 1992.
(8) Relevant exhibit to Registrant's Form 10-K for year ended June 30, 1992.
(9) Relevant exhibit to Registrant's Amendment No. 2 dated February 22,
1993 to Form 8-K dated November 6, 1992.
(10) Relevant exhibit to Registrant's Form 10-K for year ended June 30, 1993.
(11) Relevant exhibit to Registrant's Form 10-K10-Q for yearquarter ended JuneSeptember
30, 1994.1999.
(12) Relevant exhibit to Registrant's Form 10-K for year ended June 30, 1995.
(13) Relevant exhibit to Registrant's Form S-8 (No. 33-64627) dated November
29, 1995.
(14) Relevant exhibit to Registrant's Form 10-K for year ended June 30, 1996.
(15) Relevant exhibit to Registrant's Form S-8 (No. 333-32685) dated August
1, 1997.
(16) Relevant exhibit to Registrant's Form 8-K dated September 4, 1996.
(17) Relevant exhibit to Registrant's Form 10-Q for quarter ended March 31,
1998.
(18) Relevant exhibit to Registrant's Form 10-K for year ended June 30, 1997.
(19) Notes to Consolidated Financial Statements, Note 2 of this Report.
(20) Exhibit 2.1 to CIRCOR International, Inc. Amendment No. 1 to its
registration statement on Form 10 filed on September 22, 1999. (File
No. 000-26961).
(21) Relevant exhibit to Registrant's Form 10-K for year ended June 30, 1998.
(22) Relevant exhibit to Registrant's Form 10-K for year ended June 30, 1999.
* Filed as an exhibit to this Report with the Securities and Exchange
Commission
(b) REPORTS ON FORM 8-K.
- ------------------------Reports on Form 8-K
A report on Form 8-K was filed with the Securities and Exchange Commissioncommission
on April 11, 1997.October 22, 1999. The following items wereitem was reported in the Form 8-K:on:
(1) Item 4. Changes in Registrant's Certifying Accountant.
(2) Item 7 (c). Financial Statements, Pro Forma Financial Information and
Exhibits. Letters from Ernst & Young LLP and Deloitte & Touche5. Other Events. There were filed as
Exhibits (letter re change in certifying accountant).no financial statements filed.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
WATTS INDUSTRIES, INC.
By: /s/ TIMOTHYTimothy P. HORNE
---------------------
TIMOTHYHorne
--------------------
Timothy P. HORNE
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICERHorne
Chairman of the Board and
Chief Executive Officer
DATED: SEPTEMBER 8, 1997March 14, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ TIMOTHY P. HORNE Chairman of the Board and Chief Executive Officer September 8, 1997
- --------------------------
Timothy P. Horne (Principal Executive Officer) and Director
/S/ KENNETH J. MCAVOY Chief Financial Officer and Treasurer (Principal Financial September 8, 1997
- --------------------------
Kenneth J. McAvoy and Accounting Officer), Secretary, and Director
/S/ DAVID A. BLOSS, SR. President and Chief Operating Officer, and Director September 8, 1997
- --------------------------
David A. Bloss, Sr.
/S/ FREDERIC B. HORNE Corporate Vice President and Director September 8, 1997
- --------------------------
Frederic B. Horne
/S/ NOAH T. HERNDON Director September 8, 1997
- --------------------------
Noah T. Herndon
/S/ WENDY E. LANE Director September 8, 1997
- --------------------------
Wendy E. Lane
/S/ GORDON W. MORAN Director September 8, 1997
- --------------------------
Gordon W. Moran
/S/ DANIEL J. MURPHY, III Director September 8, 1997
- --------------------------Signature Title Date
--------- ----- ----
/s/ Timothy P. Horne Chairman of the Board and March 14, 2000
- -------------------- Chief Executive Officer
Timothy P. Horne (Principal Executive
Officer) and Director
/s/ William C. McCartney Chief Financial Officer March 14, 2000
- ------------------------ and Treasurer (Principal
William C. McCartney Financial and Accounting Officer),
Secretary
/s/ Kenneth J. McAvoy Director March 14, 2000
- ---------------------
Kenneth J. McAvoy
/s/ Gordon W. Moran Director March 14, 2000
- -------------------
Gordon W. Moran
/s/ Daniel J. Murphy, III
Director March 14, 2000
- -------------------------
Daniel J. Murphy, III
/s/ Roger A. Young Director March 14, 2000
- ------------------
Roger A. Young
19
Independent Auditors' Report
The Board of Directors and Stockholders
Watts Industries, Inc.:
We have audited the accompanying consolidated balance sheetsheets of Watts
Industries, Inc. and subsidiaries as of December 31, 1999, and June 30, 1997,1999 and
1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for the year then
ended.six month period ended December 31, 1999, and the
fiscal years ended June 30, 1999 and 1998. In connection with our auditaudits of the
consolidated financial statements, we also have audited the accompanying financial
statement schedule of valuation and qualifying accounts as of and for the year ended June 30, 1997.accounts. These consolidated
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audit. The
accompanying consolidated financial statements and schedule of valuation and
qualifying accounts of Watts Industries, Inc. and subsidiaries as of June 30,
1996 and for each of the years in the two year period then ended were audited by
other auditors whose report thereon dated August 6, 1996 included an explanatory
paragraph as discussed in note 4 to the consolidated financial statements that
described the Company's adoption of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of."audits.
We conducted our auditaudits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit providesaudits provide a reasonable basis for our opinion.
In our opinion, the 1997 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Watts Industries,
Inc. and subsidiaries as of December 31, 1999, and June 30, 1997,1999 and 1998, and
the results of their operations and their cash flows for the year thensix month period
ended December 31, 1999, and the fiscal years ended June 30, 1999 and 1998, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/ KPMG Peat Marwick L.L.P.
August 1, 1997LLP
Boston, Massachusetts
February 8, 2000
20
Watts Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(Amounts in thousands, except per share information)
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)For the Six Months Ended For the Fiscal Year Ended
December 31 June 30
1997 1996 1995
------------------------------------1999 1998 1999 1998
--------- --------- --------- ---------
(unaudited)
Net sales .......................................................... $ 720,340259,110 $ 640,876227,579 $ 576,851474,458 $ 442,077
Cost of goods sold 474,948 428,678 366,139................................................. 165,853 145,660 302,745 282,152
--------- --------- --------- ---------
GROSS PROFIT 245,392 212,198 210,712.................................................. 93,257 81,919 171,713 159,925
Selling, general and administrative expenses 158,984 162,951 133,601
Impairment of long-lived assets 0 63,065 0....................... 62,239 56,798 119,875 112,854
Restructuring charge 0 25,415 0Charge ............................................... 1,460 -- -- --
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 86,408 (39,233) 77,111.............................................. 29,558 25,121 51,838 47,071
--------- --------- --------- ---------
Other (income) expense:
Interest income (763) (702) (1,930)............................................... (331) (413) (923) (1,228)
Interest expense 10,493 9,960 9,368.............................................. 4,456 2,673 6,150 6,514
Other 1,091 919 1,483......................................................... 22 434 1,688 432
--------- --------- --------- 10,821 10,177 8,921---------
4,147 2,694 6,915 5,718
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 75,587 (49,410) 68,190........................................... 25,411 22,427 44,923 41,353
Provision for income taxes 27,127 4,355 25,727......................................... 8,943 7,202 15,469 13,230
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS 48,460 (53,765) 42,463............................. 16,468 15,225 29,454 28,123
Income (loss) from discontinued operations, net of taxes 79 3,480 3,275
Gain on disposal of discontinued operations, net of taxes 3,208 0 0........... (1,226) 8,419 6,502 25,246
--------- --------- --------- ---------
NET INCOME (LOSS).................................................... $ 51,74715,242 $ (50,285)23,644 $ 45,73835,956 $ 53,369
========= ========= ========= =========
Basic EPS
Income (loss) per common share:
Continuing operations ......................................... $ 1.770.62 $ (1.82)0.57 $ 1.431.10 $ 1.04
Discontinued operations .00 .12 .11
Gain on disposal of discontinued operations .12 .00 .00....................................... (0.05) 0.31 0.24 0.93
--------- --------- --------- ---------
NET INCOME (LOSS).................................................... $ 1.890.57 $ (1.70)0.88 $ 1.541.34 $ 1.97
========= ========= =========
Dividends per common share $ .295 $ .265 $ .235 ========= ========= =========
Weighted average number of common shares 27,433 29,527 29,755.................................. 26,453 26,935 26,736 27,109
========= ========= ========= =========
Diluted EPS
Income (loss) per share:
Continuing operations ......................................... $ 0.61 $ 0.56 $ 1.10 $ 1.03
Discontinued operations ....................................... (0.05) 0.31 0.24 0.92
--------- --------- --------- ---------
NET INCOME .................................................... $ 0.56 $ 0.87 $ 1.34 $ 1.95
========= ========= ========= =========
Weighted average number of shares .................................. 27,081 27,062 26,799 27,423
========= ========= ========= =========
Dividends per share ............................................ $ 0.175 $ 0.175 $ 0.350 $ 0.330
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
21
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
June 30
1997 1996
----------------
ASSETS
CURRENTASSETS:
CashWatts Industries, Inc. and cash equivalents $ 13,904 $ 0
Short-term investments 518 0
Trade accounts receivable, less allowance for
doubtful accounts of $7,945Subsidiaries
Consolidated Balance Sheets
(Amounts in 1997 and $8,822 in 1996 121,349 116,370
Inventories:
Raw materials 64,261 64,182
Work in process 26,030 30,994
Finished goods 80,926 86,922
--------- --------
171,217 182,098
Prepaid expenses and other assets 13,087 9,283
Deferred income taxes 22,480 29,998
Net assets held for sale 3,037 78,401
--------- --------
Total Current Assets 345,592 416,150
OTHER ASSETS:
Goodwill, net of accumulated amortization of $13,484
in 1997 and $10,450 in 1996 110,928 79,489
Other 12,869 12,705
PROPERTY, PLANT AND EQUIPMENT
Land 10,147 11,503
Buildings and improvements 66,191 63,821
Machinery and equipment 192,581 170,304
Construction in progress 12,312 14,700
--------- --------
281,231 260,328
Accumulated depreciation (128,537) (112,378)
--------- --------
152,694 147,950
--------- --------
TOTAL ASSETS $622,083 $656,294thousands, except share information)
December 31 June 30 June 30
ASSETS 1999 1999 1998
--------- --------- ---------
CURRENT ASSETS:
Cash and cash equivalents ................................................. $ 13,016 $ 12,774 $ 10,767
Trade accounts receivable, less allowance for doubtful accounts
of $6,730, $7,747 and $6,821, respectively ........................... 94,305 89,315 77,325
Inventories ............................................................... 112,821 110,552 104,198
Prepaid expenses and other assets ......................................... 12,922 10,193 9,857
Deferred income taxes ..................................................... 19,774 21,271 17,963
Net current assets of discontinued operations ............................. -- 122,971 100,844
--------- --------- ---------
Total Current Assets ................................................. 252,838 367,076 320,954
PROPERTY, PLANT AND EQUIPMENT, NET .............................................. 130,231 129,163 105,487
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $11,997, $10,921 and $8,389, respectively ......................... 95,311 96,285 79,837
Other ..................................................................... 8,698 9,027 9,765
Net noncurrent assets of discontinued operations .......................... -- 36,191 36,853
--------- --------- ---------
TOTAL ASSETS .................................................................... $ 487,078 $ 637,742 $ 552,896
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................................... $ 46,904 $ 35,579 $ 28,327
Accrued expenses and other liabilities .................................... 48,629 48,843 37,100
Accrued compensation and benefits ......................................... 9,882 12,692 11,150
Income taxes payable ...................................................... -- -- 1,993
Current portion of long-term debt ......................................... 5,683 2,050 5,011
--------- --------- ---------
Total Current Liabilities ............................................ 111,098 99,164 83,581
LONG-TERM DEBT, NET OF CURRENT PORTION .......................................... 123,991 118,916 71,647
DEFERRED INCOME TAXES ........................................................... 13,630 13,070 9,209
OTHER NONCURRENT LIABILITIES .................................................... 11,150 11,450 6,798
MINORITY INTEREST ............................................................... 7,707 7,487 7,646
STOCKHOLDERS' EQUITY:
Preferred Stock, $.10 par value; 5,000,000 shares
authorized; no shares issued or outstanding .......................... -- -- --
Class A Common Stock, $.10 par value; 80,000,000 shares
authorized; 1 vote per share; 16,888,507, 16,158,807, and
16,859,027 shares, respectively, issued and outstanding .............. 1,689 1,616 1,686
Class B Common Stock, $.10 par value; 25,000,000 shares
authorized; 10 votes per share; 9,485,247, 10,285,247 and
10,296,827 shares, respectively, issued and outstanding ............. 949 1,029 1,030
Additional paid-in capital ................................................ 35,330 36,069 47,647
Retained earnings ......................................................... 196,733 364,089 337,565
Treasury stock ............................................................ -- -- (2,583)
Accumulated Other Comprehensive Income .................................... (15,199) (15,148) (11,330)
--------- --------- ---------
Total Stockholders' Equity ........................................... 219,502 387,655 374,015
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................................... $ 487,078 $ 637,742 $ 552,896
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 48,896 $ 46,022
Accrued expenses and other liabilities 53,738 73,260
Accrued compensation and benefits 15,834 7,756
Current portion of long-term debt 2,422 2,907
--------- --------
Total Current Liabilities 120,890 129,945
LONG-TERM DEBT, NET OF CURRENT PORTION 125,937 160,243
DEFERRED INCOME TAXES 16,675 19,178
OTHER NONCURRENT LIABILITIES 13,796 16,291
MINORITY INTEREST 11,146 11,054
STOCKHOLDERS' EQUITY:
Preferred Stock, $.10 par value; 5,000,000 shares
authorized; no shares issued or outstanding 0 0
Class A Common Stock, $.10 par value; 80,000,000 shares
authorized; 1 vote per share; 15,797,460 shares in 1997
and 16,856,838 shares in 1996 issued and outstanding 1,580 1,686
Class B Common Stock, $.10 par value; 25,000,000 shares
authorized; 10 votes per share; 11,215,627 shares in
1997 and 11,365,627 shares in 1996 issued
and outstanding 1,121 1,136
Additional paid-in capital 44,643 67,930
Retained earnings 293,170 249,415
Currency translation adjustment (6,875) (584)
--------- --------
Total Stockholders' Equity 333,639 319,583
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $622,083 $656,294
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
22
Watts Industries, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Amounts in thousands, except share information)
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
Class A Class B
Additional Currency Total
Common Stock Common Stock Additional
---------------------- ---------------------- Paid-In Retained Translation Stock-
------------------------------------------- holders*
Shares Amount Shares Amount Capital Earnings
Adjustment Equity
------------------------------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 18,009,822 $ 1,801 11,472,470 $1,147 $92,996 $268,706 $(3,048) $361,6021997 ............................ 15,797,460 1,580 11,215,627 1,121 44,643 293,170
Comprehensive income:
Net income 45,738 45,738.................................. 53,369
Cumulative translation adjustment ...........
Comprehensive income .....................
Shares of Class B Common Stock
converted to Class A Common Stock 68,000 7 (68,000) (7)........... 918,800 91 (918,800) (91)
Shares of Class A Common Stock
issued upon the exercise of
stock options 140,394 14 2,500 2,514
Common Stock cash dividends (6,951) (6,951)
Change in currency translation adjustment 2,734 2,734
-----------------------------------------------------------------------------------
Balance at June 30, 1995 18,218,216 1,822 11,404,470 1,140 95,496 307,493 (314) 405,637
Net loss (50,285) (50,285)
Shares of Class B Common Stock converted to
Class A Common Stock 38,843 4 (38,843) (4)
Shares of Class A Common Stock issued upon
the exercise of stock options 74,522 7 1,245 1,252............................... 153,400 16 2,998
Shares of Class A Common Stock
exchanged upon the exercise of
stock options and retired (15,843)................... (10,633) (1) (390) (391)(265)
Purchase and retirement of treasury stock, (1,458,900) (146) (28,421) (28,567)100,000 shares
@ cost ........................................
Net change in restricted stock units .......... 271
Common Stock cash dividends (7,793) (7,793)
Change in currency translation adjustment (270) (270)
-----------------------------------------------------------------------------------......................... (8,974)
-------------------------------------------------------------------------
Balance at June 30, 1996 16,856,8381998 16,859,027 1,686 11,365,627 1,136 67,930 249,415 (584) 319,583
NET INCOME 51,747 51,747
SHARES OF CLASS10,296,827 1,030 47,647 337,565
Comprehensive income:
Net income .................................. 35,956
Cumulative translation adjustment ...........
Comprehensive income .....................
Shares of Class B COMMON STOCK CONVERTED
TO CLASSCommon Stock
converted to Class A COMMON STOCK 150,000 15 (150,000) (15)
SHARES OF CLASSCommon Stock ........... 11,580 1 (11,580) (1)
Shares of Class A COMMON STOCK ISSUED
UPON THE EXERCISE OF STOCK OPTIONS 111,922 11 2,145 2,156
PURCHASE AND RETIREMENT OF TREASURY STOCK (1,321,300) (132) (25,432) (25,564)
COMMON STOCK CASH DIVIDENDS (7,992) (7,992)
CHANGE IN CURRENCY TRANSLATION ADJUSTMENT (6,291) (6,291)
-----------------------------------------------------------------------------------
BALANCE AT JUNECommon Stock
issued upon the exercise of
stock options. .............................. 3,700 1 60
Purchase of treasury stock, 615,000 shares
@ cost .......................................
Retirement of treasury stock ................... (715,500) (72) (11,926)
Net change in restricted stock units ........... 288
Common Stock dividends ......................... (9,432)
-------------------------------------------------------------------------
Balance at June 30, 1999 ............................ 16,158,807 $1,616 10,285,247 $1,029 $36,069 $364,089
Comprehensive income:
Net income .................................. 15,242
Cumulative translation adjustment ...........
Comprehensive income .....................
Shares of Class B Common Stock
converted to Class A Common Stock ........... 800,000 80 (800,000) (80)
Shares of Class A Common Stock
issued upon the exercise of
stock options ............................... 29,700 3 511
Purchase of treasury stock, 100,000 shares
@ cost .......................................
Retirement of treasury stock ................... (100,000) (10) (1,295)
Net change in restricted stock units ........... 45
Spin off of Industrial, Oil and Gas Group ...... (177,942)
Common Stock dividends ......................... (4,656)
-------------------------------------------------------------------------
Balance at December 31, 1999 ........................ 16,888,507 $1,689 9,485,247 $949 $35,330 $196,733
=========================================================================
Accumulated
Other Total
Comprehensive Treasury Stockholders'
Income Stock Equity
--------------------------------------------
Balance at June 30, 1997 15,797,460............................ (6,875) -- 333,639
Comprehensive income:
Net income .................................. 53,369
Cumulative translation adjustment ........... (4,455) (4,455)
---------
Comprehensive income ..................... 48,914
---------
Shares of Class B Common Stock
converted to Class A Common Stock ...........
Shares of Class A Common Stock
issued upon the exercise of
stock options ............................... 3,014
Shares of Class A Common Stock
exchanged upon the exercise of
stock options and retired ................... (266)
Purchase of treasury stock, 100,000 shares
@ cost ........................................ (2,583) (2,583)
Net change in restricted stock units .......... 271
Common Stock dividends ......................... (8,974)
--------------------------------------------
Balance at June 30, 1998 ............................ (11,330) (2,583) 374,015
Comprehensive income:
Net income .................................. 35,956
Cumulative translation adjustment ........... (3,818) (3,818)
---------
Comprehensive income ..................... 32,138
---------
Shares of Class B Common Stock
converted to Class A Common Stock ...........
Shares of Class A Common Stock
issued upon the exercise of
stock options ............................... 61
Purchase of treasury stock, 615,000 shares
@ cost ....................................... (9,415) (9,415)
Retirement of treasury stock ................... 11,998
Net change in restricted stock units ........... 288
Common Stock dividends ......................... (9,432)
--------------------------------------------
Balance at June 30, 1999 ............................ ($15,148) $ 1,580 11,215,627 $1,121 $44,643 $293,170 $(6,875) $333,639
===================================================================================-- $387,655
Comprehensive income:
Net income .................................. 15,242
Cumulative translation adjustment ........... (51) (51)
---------
Comprehensive income ..................... 15,191
---------
Shares of Class B Common Stock
converted to Class A Common Stock ...........
Shares of Class A Common Stock
issued upon the exercise of
stock options ............................... 514
Purchase of treasury stock, 100,000 shares
@ cost ....................................... (1,305) (1,305)
Retirement of treasury stock ................... 1,305
Net change in restricted stock units ........... 45
Spin off of Industrial, Oil and Gas Group ...... (177,942)
Common Stock dividends ......................... (4,656)
--------------------------------------------
Balance at December 31, 1999 ........................ ($15,199) $ -- $219,502
============================================
The accompanying notes are an integral part23
Watts Industries, Inc. and Subsidiaries
Consolidated Statements of these consolidated financial
statements.
Cash Flows
(Amounts in thousands)
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)For the Six Months Ended For the Fiscal Year Ended
December 31 June 30
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------1999 1999 1998
--------- --------- ---------
OPERATING ACTIVITIES
Income (loss) from continuing operations ........................................ $ 48,46016,468 $ (53,765)29,454 $ 42,46328,123
Adjustments to reconcile net income (loss) from continuing operations
to net cash provided by continuing operating activities:
Restructuring charge, net of payments (8,918) 21,635 0
Impairment of long-lived assets 0 63,065 0
Depreciation and amortization 20,828 21,574 20,345........................................................... 7,869 14,745 12,908
Amortization ........................................................... 1,356 2,711 2,433
Deferred income taxes 3,725 (14,556) 3,313
Loss (gain)(benefit) ........................................ 154 (2,823) 884
Gain (Loss) on disposal of property, plant and equipment 241 (1,405) (453)............... 23 (19) (1,152)
Equity in undistributed earnings (loss) of affiliates .................. (78) 712 (192)
Changes in operating assets and liabilities, net of effects
from business acquisitions:
Accounts receivable (5,773) (12,979) (16,353)............................................... (5,883) (876) (2,493)
Inventories 7,734 (17,524) (11,453)....................................................... (2,830) (532) (8,959)
Prepaid expenses and other assets (2,049) 4,688 (4,696)................................. (2,456) (1,050) 408
Accounts payable, accrued expenses and other liabilities (6,031) 35,028 4,161
----------- ----------- -----------
58,217 45,761 37,327.......... 14,578 5,964 6,275
Accrued restructuring charge ...................................... (192) -- --
--------- --------- ---------
29,009 48,286 38,235
Net cash provided by (used in) discontinued operations 653 9,638 3,447
----------- ----------- -----------................ (18,163) 16,794 19,660
--------- --------- ---------
Net cash provided by operating activities 58,870 55,399 40,774
----------- ----------- -----------............................. 10,846 65,080 57,895
--------- --------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment (29,742) (31,080) (27,980)............................... (10,293) (21,532) (23,056)
Proceeds from sale of property, plant and equipment 1,715 1,462 1,287...................... -- 2,337 7,253
Increase in other assets ................................................. (862) (415) (578)
Business acquisitions, net of cash acquired .............................. -- (28,422) (1,129)
Discontinued operations:
Business acquisitions, net of cash acquired ......................... -- (74,176) (22,503)
Proceeds from disposalsale of discontinued operations 88,164 0 0property, plant and equipment ................. 49 -- 146
Additions to property, plant and equipment (142) (1,141) (3,013)
Increase in other assets (1,494) (1,347) (597)
Business acquisitions, net of cash acquired (37,705) (13,415) (73,242)
Repayment of debt of acquired businesses 0 (680) (18,729)
Net changes in short-term investments (652) 4,483 54,286
----------- ----------- -----------.......................... (2,983) (9,499) (6,115)
--------- --------- ---------
Net cash provided by (used in) investing activities 20,144 (41,718) (67,988)
----------- ----------- -----------................. (14,089) (131,707) (45,982)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from long-term borrowings 106,346 91,867 65,430....................................... 59,089 81,121 68,779
Payments of long-term debt (140,662) (73,399) (34,656)............................................... (49,831) (47,138) (85,971)
Proceeds from exercise of stock options 1,935 772 2,059.................................. 556 61 2,715
Dividends (7,992) (7,793) (6,951)................................................................ (4,656) (9,358) (8,936)
Purchase and retirement of commonTreasury stock (25,564) (28,567) 0
----------- ----------- -----------............................................... (1,305) (9,415) (2,583)
Discontinued operations:
Proceeds from long-term borrowings ................................... 21,958 79,289 25,484
Payments of long-term debt ........................................... (22,628) (28,546) (19,084)
--------- --------- ---------
Net cash provided by (used in) financing activities (65,937) (17,120) 25,882
----------- ----------- -----------.................. 3,183 66,014 (19,596)
--------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents 827 96 (213)
----------- ----------- -----------............. 302 2,620 (207)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,904 (3,343) (1,545)............................. 242 2,007 (7,890)
Cash and cash equivalents at beginning of year 0 3,343 4,888
----------- ----------- -----------........................... 12,774 10,767 18,657
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ..................................... $ 13,90413,016 $ 012,774 $ 3,343
=========== =========== ===========10,767
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
24
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSWatts Industries, Inc. and Subsidiaries
Notes to Consolidated Statements
(1) DESCRIPTION OF BUSINESS
The CompanyDescription of Business
Watts Industries, Inc. ("the Company") designs, manufactures and sells an
extensive line of valves for the plumbing and heating and water quality industrial, and oil and gas
markets located predominately in North America, Europe, and Asia.
(2) ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATIONAccounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Watts Industries,
Inc.the Company
and its majority and wholly-owned subsidiaries (the Company).subsidiaries. Upon consolidation, all
significant intercompany accounts and transactions are eliminated. REVENUE RECOGNITION
Revenue is recognized, netThe
financial statements of the Company reflect the industrial oil and gas
businesses as discontinued operations for periods prior to a provisionspin-off
transaction that was completed on October 18, 1999 (see Note 3).
Change in Fiscal Year
Effective July 1, 1999, the Company changed its fiscal year end from June
30 to December 31. Accordingly, the audited financial statements include
the results for estimated returnsthe six-month period ended December 31, 1999 ("transition
period"), and allowances,
upon shipment.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTSthe prior two fiscal years ended June 30, 1999 ("fiscal
1999"), and June 30, 1998 ("fiscal 1998"). In addition to the basic
audited financial statements and related notes, unaudited financial
information for the six month period ended December 31, 1998 has been
presented to enhance comparability.
Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of
three months or less at the date of purchase. Short-term investments consist of participation in
mutual funds whose portfolios consist principally of United States Government
securities. Short-term investments are valued at cost, which approximates
market.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of trade receivables. Concentrations of credit
risk with respect to trade receivables are limited due to the large number of
customers included in the Company's customer base and their dispersion across
many different industries and geographic areas. At June 30, 1997, the Company
had no significant concentrations of credit risk.
INVENTORIESoriginal issuance.
Inventories
Inventories are stated principally at the lower of cost (first-in, first-out method)
or market.
GOODWILLGoodwill
Goodwill represents the excess of cost over the fair value of net assets
of businesses acquired. This balance is amortized over 40 years using the
straight-line method. The carrying valueCompany assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill
is reviewed if facts and
circumstances suggest it maybalance over its remaining life can be impaired. If this review indicates that goodwill
will not be recoverable, as determined based on therecovered through undiscounted
future operating cash flows of the entity acquired over the remaining amortization period, the
carrying valuebusinesses. The amount of
the goodwill impairment, if any, is reduced to its fair value, as determinedmeasured based on projected discounted
future operating cash flows using a discounted cash flow approach.
PROPERTY, PLANT AND EQUIPMENTdiscount rate reflecting the Company's
average cost of funds.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is
provided on a straight-line basis over the estimated useful lives of the
assets, which range from 10 to 40 years for buildings and improvements and
3 to 15 years for machinery and equipment.
LONG-LIVED ASSETS
Impairment lossesIncome Taxes
Income taxes are recorded on long-livedaccounted for under the asset and liability method.
Deferred tax assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. In
such instances, the carrying value of long-lived assets is reduced to their
estimated fair value, as determined using a discounted cash flow approach.
INCOME TAXES
Deferred income taxesliabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
between financial
statement and incomeare expected to be recovered or settled. The effect on deferred tax bases of assets
and liabilities.liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
25
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOREIGN CURRENCY TRANSLATIONWatts Industries, Inc. and Subsidiaries
Notes to Consolidated Statements (continued)
Foreign Currency Translation
Balance sheet accounts of foreign subsidiaries are translated into United
States dollars at fiscal year-end exchange rates. Operating accounts are
translated at weighted average exchange rates for each year.period. Net
translation gains or losses are adjusted directly to a separate component
of stockholders' equity. STOCK BASED COMPENSATIONThe Company does not provide for U.S. income
taxes on foreign currency translation adjustments since it does not
provide for such taxes on undistributed earnings of foreign subsidiaries.
Stock Based Compensation
As allowed under Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation, the Company accounts for its
stock-based employee compensation plans in accordance with the provisions
of APB Opinion No. 25, Accounting for Stock Issued to Employees.
EARNINGS PER COMMON SHARE
EarningsNet Income Per Common Share
Basic net income per common share is calculated usingby dividing net income by
the weighted average number of Class Acommon shares outstanding. The calculation
of diluted earnings per share assumes the conversion of all dilutive
securities (see Note 12).
Net income and B Common Shares outstanding during each periodnumber of shares used to compute net income per share from
continuing operations, basic and common stock
equivalents, when dilutive.
DERIVATIVE FINANCIAL INSTRUMENTSassuming full dilution, are reconciled
below:
Six Months Ended Fiscal Year Ended June 30,
December 31, 1999 1999 1998
------------------ ---- ----
Income from Income from Income from
Continuing Per Share Continuing Per Share Continuing Per Share
Operations Shares Amount Operations Shares Amount Operations Shares Amount
---------- ------- ------- ---------- ------ ------ ---------- ------ ------
Basic EPS $ 16,468 26,453 $ 0.62 $ 29,454 26,736 $ 1.10 $ 28,123 27,109 $ 1.04
Dilutive
securities
principally
common stock
options -- 628 -- -- 63 -- -- 314 --
-------- ------ ------ -------- ------ ------ -------- ------ ------
Diluted EPS $ 16,468 27,081 $ 0.61 $ 29,454 26,799 $ 1.10 $ 28,123 27,423 $ 1.03
======== ====== ====== ======== ====== ====== ======== ====== ======
Derivative Financial Instruments
The Company uses derivative instruments, principally swaps, forward
contracts and options to achieve its financing strategy and to hedge
foreign currency and commodity exposures. These contracts hedge
transactions and balances for periods consistent with their committed
exposures, and do not constitute investments independent of these
exposures. The Company does not hold or issue financial instruments for
trading purposes, nor is it a party to any leveraged contracts.
Realized and unrealized foreign exchange gains and losses on financial
instruments are used by the Company principally in the
management ofrecognized and offset foreign currency exposures on certain anticipated intercompany
transactions. Gainsexchange gains and losses on
contracts designated as hedges of existing
assets and liabilities arethe underlying exposures. Any gain or loss from a financial instrument
that ceases to be an effective hedge is recognized in incomethe statement of
operations. The interest rate differential paid or received on swap
agreements is recognized as foreign currency gains
(losses) as exchange rates change. Gains and losses on contracts designated as
hedges of identifiable foreign currency firm commitments are deferred and
included in the related foreign currency transaction.
ESTIMATESan adjustment to interest expense.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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.
BASIS OF PRESENTATION
Certain amounts in fiscal years 199626
Watts Industries, Inc. and 1995 have been reclassifiedSubsidiaries
Notes to permit
comparison with the 1997 presentation.
NEW ACCOUNTING STANDARDS
SFAS No. 128, Earnings Per Share, will become effective during fiscal year 1998.
At that time, the Company will be required to exclude the effect of dilutive
common stock equivalents from its primary earnings per share calculation and
restate all prior periods on that basis. The effect of implementation of this
new standard is not expected to be material.Consolidated Statements (continued)
New Accounting Standards
In June 1997,1998, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income133,
"Accounting for Derivative Instruments and SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information.Hedging Activities." The
Company will adopt SFAS 133 on January 1, 2001. The impact of SFAS 133 on
the consolidated financial statements is currently evaluatingstill being evaluated, but is not
expected to be material.
Also in 1998, the effectsAmerican Institute of Certified Public Accountants
issued SOP 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use," and SOP 98-5, "Reporting on the Costs of
Start-Up Activities." The Company adopted SOP 98-1 and SOP 98-5 on July 1,
1999. The adoption of these new standards.pronouncements did not have a material effect
on the consolidated financial statements.
(3) DISCONTINUED OPERATIONS, RESTRUCTURING AND OTHER MATTERS
DISCONTINUED OPERATIONSDiscontinued Operations
On September 4, 1996,December 18, 1998, the Company divested itselfannounced its intention to spin-off its
industrial, oil and gas businesses to its shareholders as an independent
publicly traded company. The spin-off was effected as a tax-free
distribution on October 18, 1999 ("Distribution Date"). Owners of its Municipal Water GroupWatts
common stock as of businesses, which included Henry Pratt Company, James Jones Company and
Edward Barber & Company Ltd. by selling theOctober 6, 1999 received one share of common stock of
each entityCIRCOR International, Inc. ("CIRCOR"), the new company, for every two
shares of Watts Class A or Class B common stock held. Coincident with the
Distribution Date, the Company received $96.0 million in cash from CIRCOR
as repayment of inter-company loans and realizing a
$3.2 million after-tax gain.advances.
The historical operating results of operationsCIRCOR are shown, net of these companies have
been reportedtax, as
discontinued operations net of income taxes, in the consolidated statements of operations. Unassigned corporate interest expense has
been allocated based onNet
assets of discontinued operations in the ratio ofconsolidated balance sheet
include those assets and liabilities attributable to the net assetsCIRCOR businesses
at June 30, 1999 and 1998. Included in the historical operating results of
the discontinued operations is an allocation of the Company's interest
expense based on an allocation of the Company's debt to discontinued
operations. Income taxes have been allocated to discontinued operations
based on their pretax income and calculated on a separate company basis
pursuant to the consolidated net assets and unassigned debtrequirements of the Company.
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the results of operations of the Municipal Water
Group:
Fiscal Year Ended June 30,
------------------------------
1997 1996 1995
------------------------------
(in thousands)
Revenues $14,027 $86,179 $80,815
Costs and expenses 13,900 80,278 75,358
------- ------- -------
Income before income taxes 127 5,901 5,457
Income taxes 48 2,421 2,182
------- ------- -------
Income from discontinued operations $ 79 $ 3,480 $ 3,275
======= ======= =======
The net assets of the Municipal Water Group are classified as net assets held
for sale in the accompanying consolidated balance sheet at June 30, 1996 and
consisted of accounts receivable, $15,843,000; inventories, $19,301,000;
goodwill, $31,835,000; property, plant and equipment, $20,409,000; other assets,
$5,415,000; current liabilities, $10,900,000; and other liabilities, $3,502,000.
RESTRUCTURING
During fiscal year 1996, the Company decided to undertake certain restructuring
initiatives aimed at improving the efficiency of certain of its continuing
operations. The two most significant of those initiatives are the consolidation
and downsizing of Pibiviesse S.p.A. ("Pibiviesse") and the relocation of Jameco
Industries, Inc. ("Jameco"). In connection with this restructuring plan, the
Company recorded a $25,415,000 restructuring charge during fiscal year 1996. The
restructuring charge consisted of $9,300,000 for severance costs, $7,715,000 for
plant closure costs and $8,400,000 for asset write-downs.
Cash payments for accrued employee severance and other plant closure costs were
$3,780,000 during fiscal year 1996 and the Company's remaining accrued
restructuring liability was $12,819,000 at June 30, 1996. During fiscal year
1997, such cash payments amounted to $8,918,000 and the Company's remaining
accrued restructuring liability was $3,874,000 at June 30, 1997.
It is expected that the consolidation and downsizing of Pibiviesse will be
completed during fiscal year 1998. The Jameco relocation was substantially
complete at June 30, 1997 and its operations have been integrated into a Company
plant in Spindale, North Carolina.
Since commencement of the restructuring plan, there has been a related net
reduction of 205 employees. At June 30, 1997, it is expected that approximately
119 additional restructuring related employee terminations will occur.
OTHER MATTERS
During fiscal year 1996, the Company recorded a $13.8 million selling, general
and administrative expense charge, principally for product liability costs,
environmental remediation reserves and bad debt reserves. The Company also
recorded a $9.5 million cost of goods sold charge during fiscal year 1996 to
write down inventories to their estimated market value.
(4) LONG-LIVED ASSET IMPAIRMENT
During fiscal year 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, Accounting109.
Condensed operating statement data of the discontinued operations is
summarized below:
For the Six For the Year For the Year
Months Ended Ended Ended
December 31, June 30, June 30,
1999 1999 1998
---- ---- ----
(in thousands)
Net sales $85,473 $321,711 $287,889
Costs and expenses:
Municipal Water Group (a) - 5,000 -
CIRCOR 85,604 299,385 248,161
------- ------- -------
Total costs and expenses 85,604 304,385 248,161
------- ------- -------
Income (loss) before income taxes (131) 17,326 39,728
Provision for income taxes 1,095 10,824 14,482
------- ------- -------
Income (loss) from discontinued
operations, net of taxes $(1,226) $6,502 $25,246
======= ======= =======
(a) Costs and expenses related to the Municipal Water Group, which was
divested in 1996, for fiscal 1999 relate to legal costs associated
with the ImpairmentState of Long-Lived AssetsCalifornia litigation (see Note 14).
27
Watts Industries, Inc. and for
Long-Lived AssetsSubsidiaries
Notes to Be Disposed Of,Consolidated Statements (continued)
(4) Restructuring Activities
On December 2, 1999, the Company announced a restructuring of its
operations in Italy to consolidate the warehousing and recorded a $63,065,000 charge for
long-lived asset impairment losses. Such losses occurred principally atmanufacturing
operations of its existing Italian subsidiariesoperation into the facilities of its
newly acquired Italian subsidiary, Cazzaniga S.p.A. The program, which
will include the termination of 29 employees (primarily manufacturing),
began in December of 1999 and were the resultis expected to be fully completed by June of
declining margins and operating
profits at the subsidiaries, and the potential non-deductibility2000. As of goodwill for
income tax purposes.December 31, 1999, 10 employees have been terminated.
In connection with a re-evaluation of its business strategythis restructuring, and in Italy, management concluded an impairment had occurred andaccordance with EITF 94-3,
the Company recorded a loss by
reducingcharge to operating expenses of $1,460,000
($861,000 after taxes or $0.03 in net income per common share, fully
diluted) during the carrying valuesix-month period ended December 31, 1999. Details of
affected long-lived assets, primarily goodwill,
to fair value,the restructuring charge are as determined using a discounted cash flow approach.
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)follows:
Initial Utilized
Provision during 1999 Balance
--------- ----------- -------
(in thousands)
Severance and related benefits $1,299,000 $192,000 $1,107,000
Lease termination costs 134,000 - 134,000
Other exit costs 27,000 - 27,000
---------- -------- ----------
Total $1,460,000 $192,000 $1,268,000
========== ======== ==========
(5) BUSINESS ACQUISITIONSBusiness Acquisitions
During fiscal year 1997,1999, the Company acquired Ames Company, Inc. of Woodland,
California and Consolidated Precision Corporation of Riviera Beach, Florida. In
fiscal year 1996, the Company acquired four businesses, the most significant
being the purchase of Etablissements Trubert S.A.Cazzaniga S.p.A. located in Chartres, France.
Five businesses were acquired by the Company during fiscal year 1995, the most
significant being the purchasesBiassono,
Italy for approximately $28.0 million. Cazzaniga is an integrated
manufacturer of Jameco Industries, Inc., Anderson-Barrows
Metals Corporation,plumbing and Pibiviesse S.p.A.heating products with annual sales of
Italy. All of these acquired
companies are valve manufacturers and the aggregate purchase price of the
acquisitions was approximately $124.4$35.0 million. The goodwill which resultedresulting from these acquisitionsthis acquisition
of approximately $19.0 million is being amortized on a straight-line basis
over a 40 year
period unless circumstances indicate an impairment loss has occurred (see note
4).
These40-year period.
During fiscal 1999 and 1998, the Company also acquired several valve
companies which were included as part of the industrial, oil and gas
businesses that were spun-off into a separate publicly traded company,
CIRCOR. The aggregate purchase price of these acquisitions was
approximately $118.0 million.
All acquisitions have all been accounted for under the purchase method and theof
accounting. Their results of operations of the acquired businessessince acquisition, which have been
included in the Company's consolidated financial statements, fromhave not
materially affected the dateconsolidated financial position, results of
acquisition. Had these
acquisitions occurred atoperations or liquidity of the beginningCompany.
(6) Inventories
Inventories consist of fiscal year 1997 or 1996, the effect
on operating results would not have been material.
(6) INCOME TAXESfollowing:
December 31, June 30, June 30,
1999 1999 1998
---- ---- ----
(in thousands)
Raw materials $ 36,429 $ 36,901 $ 34,057
Work in process 10,355 7,493 6,128
Finished goods 66,037 66,158 64,013
-------- -------- --------
$112,821 $110,552 $104,198
======== ======== ========
28
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Statements (continued)
(7) Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31, June 30, June 30,
1999 1999 1998
---- ---- ----
(in thousands)
Land $ 7,937 $ 7,964 $ 5,582
Buildings and improvements 56,478 53,867 48,676
Machinery and equipment 154,490 148,952 128,339
Construction in progress 7,787 7,932 10,861
-------- -------- --------
226,692 218,715 193,458
Accumulated Depreciation (96,461) (89,552) (87,971)
-------- -------- --------
$130,231 $129,163 $105,487
======== ======== ========
(8) Income Taxes
The significant components of the Company's deferred income tax
liabilities and assets are as follows:
June 30,
-------------------
1997 1996
-------------------
(in thousands)
Deferred income tax liabilities:
Excess tax over book depreciation $ 8,855 $10,959
Inventory 5,962 5,336
Other 1,858 2,883
------- --------
Total deferred income tax liabilities 16,675 19,178
------- --------
Deferred income tax assets:
Accrued expenses 18,727 20,345
Net operating loss carryforward 6,054 4,449
Other 1,906 6,543
------- --------
Total deferred income tax assets 26,687 31,337
Valuation allowance for deferred income tax assets (4,207) (1,339)
------- --------
Net deferred income tax assets 22,480 29,998
------- --------
Net deferred income tax asset $ 5,805 $10,820
======= =======
The components of the provision for income taxes were as follows:
Fiscal Year Ended June 30,
------------------------------
1997 1996 1995
------------------------------
(in thousands)
Continuing operations $27,127 $4,355 $25,727
Discontinued operations 3,412 2,421 2,182
------- ------ -------
$30,539 $6,776 $27,909
======= ====== =======
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, June 30, June 30,
1999 1999 1998
---- ---- ----
(in thousands)
Deferred income tax liabilities:
Excess tax over book depreciation $ 12,516 $ 11,386 $ 5,809
Inventory 772 1,027 1,991
Other 342 657 1,409
-------- -------- --------
Total deferred income tax liabilities 13,630 13,070 9,209
-------- -------- --------
Deferred income tax assets:
Accrued expenses 11,868 13,037 9,120
Net operating loss carryforward 9,262 10,918 12,625
Other 4,064 3,441 3,979
-------- -------- --------
Total deferred income tax assets 25,194 27,396 25,724
Valuation allowance (5,420) (6,125) (7,761)
-------- -------- --------
Net deferred income tax assets 19,774 21,271 17,963
-------- -------- --------
Net deferred income tax asset $ 6,144 $ 8,201 $ 8,754
======== ======== ========
The provision for income taxes from continuing operations is based on the
following pre-tax income (loss):
Fiscal Year Endedincome:
December 31, June 30, ------------------------------
1997 1996 1995
------------------------------June 30,
1999 1999 1998
---- ---- ----
(in thousands)
Domestic $60,530 $19,816 $59,760$18,424 $33,787 $34,609
Foreign 15,057 (69,226) 8,430
-------- -------- --------
$75,587 $(49,410) $68,1906,987 11,136 6,744
------- ------- -------
$25,411 $44,923 $41,353
======= ========= =============== =======
29
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Statements (continued)
The provision for income taxes from continuing operations consists of the
following:
Fiscal Year Ended June 30,
------------------------------
1997 1996 1995
------------------------------
(in thousands)
Current tax expense (benefit):
Federal $20,417 $15,739 $18,299
Foreign (369) 1,176 685
State 1,714 1,996 3,430
-------- ------- --------
21,762 18,911 22,414
-------- ------- --------
Deferred tax expense (benefit):
Federal 1,377 (8,458) 764
Foreign 3,747 (3,964) 2,411
State 241 (2,134) 138
-------- ------- --------
5,365 (14,556) 3,313
-------- ------- --------
$27,127 $4,355 $25,727
======= =========
December 31, June 30, June 30,
1999 1999 1998
---- ---- ----
(in thousands)
Current tax expense:
Federal $ 7,177 $ 12,698 $ 10,551
Foreign 1,721 2,820 2,164
State 214 385 1,416
-------- -------- --------
9,112 15,903 14,131
-------- -------- --------
Deferred tax expense (benefit):
Federal (553) (577) (129)
Foreign 450 212 (750)
State (66) (69) (22)
-------- -------- --------
(169) (434) (901)
-------- -------- --------
$ 8,943 $ 15,469 $ 13,230
======== ======== ========
Actual income taxes reported from continuing operations are different than
would have been computed by applying the federal statutory tax rate to
income (loss)
from continuing operations before income taxes. The reasons for
this difference are as follows:
Fiscal Year Ended June 30,
------------------------------
1997 1996 1995
------------------------------
(in thousands)
Computed expected federal income tax expense
(benefit) $26,455 $(17,294) $23,867
State income taxes, net of federal tax benefit 1,271 (90) 2,319
Goodwill writedown and amortization 898 17,443 807
Foreign tax rate and regulation differential (1,893) 3,830 (791)
Other, net 396 466 (475)
-------- ------- --------
$27,127 $4,355 $25,727
======= =========
December 31, June 30, June 30,
1999 1999 1998
---- ---- ----
(in thousands)
Computed expected federal income tax
expense (benefit) $ 8,894 $ 15,723 $ 14,474
State income taxes, net of federal tax benefit 96 366 1,614
Goodwill amortization 342 1,058 714
Foreign tax rate and regulation differential (205) (664) (1,830)
Other, net (184) (1,014) (1,742)
-------- -------- --------
$ 8,943 $ 15,469 $ 13,230
======== ======== ========
At June 30, 1997,December 31, 1999, the Company has foreign net operating loss
carryforwards of $11.5$15.4 million for income tax purposes that expire in fiscal years 19982000
through 2005.2003. In addition, foreign net operating losses of $4.6$9.4 million
can be carried forward indefinitely. Undistributed earnings of the
Company's foreign subsidiaries amounted to approximately $28$43.0 million $37at
December 31, 1999, and $45.0 million and $43$33.0 million at June 30, 1997, 19961999
and 1995,1998, respectively. Those earnings are considered to be indefinitely
reinvested and, accordingly, no provision for U.S. federal and state
income taxes has been recorded thereon. Upon distribution of those
earnings, in the form of dividends or otherwise, the Company will be
subject to both U.S. income taxes (subject to an adjustment for foreign
tax credits) and withholding taxes payable to the various foreign
countries. Determination of the amount of U.S.
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
income tax liability that
would be incurred is not practicable because of the complexities
associated with its hypothetical calculation; however, unrecognized
foreign tax credits would be available to reduce some portion of any U.S.
income tax liability. Withholding taxes of approximately $2.1$2.3 million
would be payable upon remittance of all previously unremitted earnings at
June 30, 1997.December 31, 1999. The Company made income tax payments of $30.2$11.2 million
$27.8for the six months ended December 31, 1999, and $24.8 million and $25.2$17.2
million in fiscal years 1997, 1996ended June 30, 1999 and 1995,1998, respectively.
(7) ACCRUED EXPENSES AND OTHER LIABILITIES30
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Statements (continued)
(9) Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
June 30,
---------------------
1997 1996
---------------------
(in thousands)
Restructuring costs $ 3,874 $12,819
December 31, June 30, June 30,
1999 1999 1998
---- ---- ----
(in thousands)
Commissions and sales incentives payable $ 9,734 $11,401 $ 8,990
Accrued insurance costs 11,217 10,801 9,394
Professional fees 4,689 6,154 908
Other 22,989 20,487 17,808
------- ------- -------
$48,629 $48,843 $37,100
======= ======= =======
31
Watts Industries, Inc. and sales incentives payable 8,606 10,276
Accrued insurance costs 10,626 10,652
Other 30,632 39,513
-------- --------
$53,738 $73,260
======== ========
(8) FINANCING ARRANGEMENTSSubsidiaries
Notes to Consolidated Statements (continued)
(10) Financing Arrangements
Long-term debt consists of the following:
December 31, June 30, June 30,
1999 1999 1998
------------ -------- --------
(in thousands)
8-3/8%, debentures due December 2003 $75,000 $75,000 $75,000
Revolving line of credit facility, accruing
interest at a variable rate (7.05%, 5.37%
and 6.79% at December 31, 1999, June 30,
1999 and 1998, respectively) of either
Eurodollar rate plus .185%, Prime Rate or
a competitive money market rate to be
specified by the Lender, and expiring
March 2003 22,000 104,000 19,000
40 million Euro line of Credit, accruing
interest at a variable rate of EURIBOR
plus .75% (4.3% at December 31, 1999),
and expiring September 2004 22,134 20,223 --
Industrial Revenue Bonds, maturing September
2002 accruing interest at a variable rate
based on weekly tax-exempt interest rates
(4.07%, 3.96% and 3.60% at December 31,
1999, June 30, 1999 and 1998,
respectively) 5,000 5,000 5,400
Other (at interest rates ranging from 4.4% to 11.3%) 5,540 13,740 8,217
Allocation to discontinued operations -- (96,997) (30,959)
---------- ---------- --------
129,674 120,966 76,658
Less: current portion 5,683 2,050 5,011
---------- ---------- --------
$123,991 $118,916 $71,647
========== ========== ========
Coincident to the Distribution Date for the spin-off transaction, the
Company received $96.0 million in cash from CIRCOR as repayment of
inter-company loans and advances from the Company. This amount was based
on a formula that allocated borrowings between the Company and CIRCOR
based on their relative levels of business acquisition activity. Based on
this methodology, borrowings amounting to approximately $97.0 million and
$31.0 million were allocated to discontinued operations at June 30, ---------------------
1997 1996
---------------------
(in thousands)
8-3/8% Notes, due December, 2003 $ 75,000 $ 75,000
$125 million1999
and 1998, respectively. Additionally, coincident to the spin-off
transaction, the Company's revolving line of credit accruing
interest at a variable rate of LIBOR plus 25 basis
points orfacility was amended
thereby reducing the bank's prime rate (6.55% at June 30, 1997)
and expiring in August, 1999 29,000 61,300
Industrial Revenue Bonds, maturing periodicallymaximum available borrowing amount from
2003 through 2020, accruing interest at a variable rate
based on weekly tax-exempt interest rates (4.25%
at June 30, 1997) 17,265 17,265
Other 7,094 9,585
-------- --------
128,359 163,150
Less current portion 2,422 2,907
--------- ---------
$125,937 $160,243
========= =========
At June 30, 1997, $96,000,000 was available for borrowing under the Company's $125 million
revolving line of credit.to $100 million.
Principal payments during each of the next five fiscal years are due as
follows:
1998-$2,422,000; 1999-$2,067,000; 2000-$30,132,000; 2001-$438,000;follows (in thousands): 2000 - $5,683; 2001 - $1,274; 2002 - $6,057; 2003
- $97,020; and 2002-$358,000.2004 - $18,320. Interest paid for all periods presented in
the accompanying consolidated financial statements approximates interest
expense.
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Certain of the Company's loan agreements contain covenants that require,
among other items, the maintenance of certain financial ratios, and net worth, and
limit
the Company's ability to enter into secured borrowing arrangements.
Under
its most restrictive loan covenant, which requires32
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Statements (continued)
(11) Common Stock
Since fiscal 1997, the Company to maintain a net
worth of not less than the sum of $295 million and 50% of cumulative
consolidated net income for periods subsequent to June 30, 1996, the Company had
$12.8 million available at June 30, 1997 for the payment of dividends.
(9) COMMON STOCK
The Company's Board of Directors has authorized the
purchaserepurchase of up to 1,500,000 and
2,000,0003,880,200 shares of the Company's common stock in the open
market and through private purchases during fiscal years 1997 and 1996, respectively. At June 30, 1997,
2,780,200purchases. Since the inception of this
repurchase program, 3,595,700 shares of the Company's common stock hadhave
been purchasedrepurchased and retired
since commencement of this purchase plan.retired.
The Class A Common Stock and Class B Common Stock have equal dividend and
liquidation rights. Each share of the Company's Class A Common Stock is
entitled to one vote on all matters submitted to stockholders and each
share of Class B Common Stock is entitled to ten votes on all such
matters. Shares of Class B Common Stock are convertible into shares of
Class A Common Stock, on a one-to-one basis, at the option of the holder.
The Company has reserved a total of 6,231,1086,110,871 shares of Class A Common
Stock for issuance under its stock-based compensation plans and 11,215,6279,485,247
shares for conversion of Class B Common Stock to Class A Common Stock.
(10) STOCK-BASED COMPENSATION(12) Stock-Based Compensation
The Company has several stock option plans under which key employees and
outside directors have been granted incentive (ISOs) and nonqualified
(NSOs) options to purchase the Company's Class A Common Stock.common stock. Generally,
options become exercisable over a five-year period at the rate of 20% per
year and expire ten years after the date of grant. ISOs and NSOs granted
under the plans have exercise prices of not less than 100% and 50% of the
fair market value of the common stock on the date of grant, respectively.
At June 30, 1997, 4,882,914December 31, 1999, 3,150,710 shares of Class A Common Stockcommon stock were
authorized for future grants of options under the Company's stock option
plans.
The following is a summary of stock option activity and related
information:
FiscalFor the Six
Months Ended For the Year Ended For the Year Ended
December 31, 1999 June 30, ---------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------
WEIGHTED1999 June 30, 1998
----------------- ------------- -------------
Weighted Weighted AVERAGEWeighted
average average average
(Options in thousands) EXERCISE exercise exercise OPTIONS PRICEexercise
Options priceprice(b) Options price
---------------------------------------------------------------------------------price(b) Options price(b)
------- ------- ------- -------- ------- ---------
Outstanding at beginning of year 1,137 $ 21.04 1,019 $ 20.06 1,056 $ 18.321,481 $13.38 1,362 $12.93 1,348 $13.58
Granted 378 16.38 314 23.36 289 23.81178 12.34 201 11.87 284 16.24
Canceled (55) 21.79 (121) 22.16 (186) 20.09(9) 11.17 (78) 13.82 (117) 13.39
Exercised (112) 17.28 (75) 15.61 (140) 14.66
------- ----------- -------- ----------- ------- -----------(30) 13.50 (4) 10.59 (153)(c) 12.56
Spin-off related conversion
to CIRCOR options (a) (358) 11.17 -- -- -- --
Spin-off related modification
of Watts options (b) 698 -- -- -- -- --
------ ------ ------ ------ ------ ------
Outstanding at end of year 1,348 $ 20.01 1,137 $ 21.04 1,019 $ 20.06
======= =========== ======== =========== ======= ===========1,960 $13.25 1,481 $13.38 1,362 $12.93
====== ====== ====== ====== ====== ======
Exercisable at end of year 552 $ 20.39 460 $ 19.34 371 $ 18.37
======= =========== ======== =========== ======= ===========1,244 $13.36 808 $13.26 619 $13.18
====== ====== ====== ====== ====== ======
(a) Effective on the date of the CIRCOR spin-off, Watts stock options held by
CIRCOR employees were terminated and replaced by new CIRCOR stock options.
(b) Immediately following the spin-off, the number of options were increased
and exercise prices were decreased (the "modification") to preserve the
economic value of those options that existed just prior to the spin-off
transaction for holders of Watts stock options.
(c) Includes 13,100 options in 1998 exercised in exchange for 10,633 shares of
outstanding Class A common shares which were contributed to Treasury and
subsequently retired.
33
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Statements (continued)
The following table summarizes information about options outstanding at
June 30,
1997:December 31, 1999:
Options Outstanding Options Exercisable
----------------------------------- ------------------------------------------------------------------------ --------------------------
Weighted
average Weighted Weighted
(Options in thousands) remaining average average
Number contractual exercise Number exercise
Range of Exercise Prices outstanding life (years) price exercisable price
------------------------------------------------------------------------------------------- ----------- ------------ ----- ----------- -----
$10.69$ 6.90 - $11.38 13 3.4 $10.84 13 $10.84
$14.25$ 7.36 20 0.9 $ 7.01 20 $ 7.01
$ 9.20 - $16.38 420 8.5 16.20 52 15.02
$16.60$10.59 342 6.3 10.48 231 10.43
$10.72 - $19.80 228 5.3 17.44 165 17.36
$22.13$12.44 670 7.1 11.84 263 11.20
$14.29 - $26.13 687 6.9 23.37 322 23.20
------ -----$16.40 928 5.2 15.42 730 15.24
-------- -------
----- -------
$10.69$ 6.90 - $26.13 1,348 5.6 20.01 552 20.39
====== ===== ======= =====$16.40 1,960 4.9 13.25 1,244 13.36
======== =======
The Company has a Management Stock Purchase Plan whichthat allows for the
granting of Restricted Stock Units (RSUs) to key employees to purchase up
to 1,000,000 shares of Class A Common Stockcommon stock at 75%67% of the fair market
value on the date of grant. RSUs generally vest annually over a three-year period
from the date of grant. The difference between the RSU price and fair
market value at the date of award is amortized to compensation expense
ratably over the vesting period. At June 30, 1997, 46,419December 31, 1999, 265,000 RSUs were
outstanding. Dividends declared for RSUs that remain unpaid at December
31, 1999 total $70,000.
Pro forma information regarding net income (loss) and net income (loss) per share is
required by SFAS No. 123 for awards granted after June 30, 1995 as if the
Company had accounted for its stock-based awards to employees under the
fair value method of SFAS 123. The weighted average grant date fair value
of options granted during fiscal years 1997, 1996are $3.04 at December 31, 1999 and 1995 was $3.72, $5.69$2.47, $3.50 at June
30, 1999 and $6.03,1998, respectively. The fair value of the Company's
stock-based awards to employees was estimated using a Black-Scholes option
pricing model and the following assumptions:
Options
--------------------
1997 1996
--------------------
Expected life (years) 5.0 5.0
Expected stock price volatility 15.0% 15.0%
Expected dividend yield 1.8% 1.1%
Risk-free interest rate 6.56% 6.17%
December 31, June 30, June 30,
1999 1999 1998
---- ---- ----
Expected life (years) 5.0 5.0 5.0
Expected stock price volatility 15.0% 15.0% 15.0%
Expected dividend yield 1.4% 1.9% 1.3%
Risk-free interest rate 6.77% 5.92% 5.54%
The Company's pro forma information follows:
Fiscal Year
Ended June 30,
--------------------
1997 1996
--------------------
(in thousands, except
per share information)
Net income (loss) - as reported $51,747 $(50,285)
Net income (loss) - pro forma 51,132 (50,613)
Primary net income (loss) per share - as reported 1.89 (1.70)
Primary net income (loss) per share - pro forma 1.86 (1.71)
December 31, June 30, June, 30
1999 1999 1998
---- ---- ----
(in thousands, except
per share information)
Net income - as reported $15,242 $35,956 $53,369
Net income - pro forma 14,835 34,863 52,443
Basic EPS - as reported .57 1.34 1.97
Basic EPS - pro forma .56 1.30 1.93
Diluted EPS - as reported .56 1.34 1.95
Diluted EPS - pro forma .55 1.30 1.91
Because SFAS 123 is applicable only to awards granted subsequent to June
30, 1995, its pro forma effect will not be fully reflected until fiscal year 2000.
(11) EMPLOYEE BENEFIT PLANS34
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Statements (continued)
(13) Employee Benefit Plans
The Company sponsors defined benefit pension plans covering substantially
all of its domestic nonunionnon-union employees. Benefits are based primarily on
years of service and employees' compensation. The funding policy of the
Company for these plans is to contribute annually the maximum amount that
can be deducted for federal income tax purposes.
At June 30, 1997, the fair value of assets held in
trust for the Company's defined benefit plans approximated the related projected
benefit obligation.
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of net pension expense follow:
Fiscal Year Ended June 30,
-------------------------------
1997 1996 1995
-------------------------------
(in thousands)
Defined benefit plans:
Service cost - benefits earned $1,516 $1,620 $1,736
Interest cost on projected benefit obligation 2,189 2,200 1,915
Actual return on plan assets (1,976) (3,689) (802)
Net amortization and deferral (346) 1,447 (1,369)
--------- --------- ---------
Total pension expense $1,383 $1,578 $1,480
========= ========= =========
The funded statusAdditionally, substantially all of the Company's principal defined benefit plans and the
amounts recognizeddomestic non-union
employees are eligible to participate in the consolidated balance sheets at June 30, follows:
1997 1996 1995
-------------------------------
(in thousands)
Vested benefit $(22,804) $(22,429) $(20,013)
Nonvested benefit (1,299) (1,774) (1,307)
--------- --------- ---------
Accumulated benefit obligation (24,103) (24,203) (21,320)
Benefit obligation related to future
compensation levels (5,002) (5,699) (3,245)
--------- --------- ---------
Projected benefit obligation (29,105) (29,902) (24,565)
Fair value of plan assets, invested primarily
in equities and debt securities 28,014 29,348 24,635
--------- --------- ---------
Plan assets greater (less) than projected
benefit obligation (1,091) (554) 70
Unrecognized transition (asset) obligation (2,225) (2,543) (2,862)
Unrecognized prior service cost 1,055 546 602
Unrecognized net (gain) loss (676) 9 430
Minimum liability adjustment (217) (420) (469)
--------- --------- ---------
Net accrued pension cost included in
consolidated balance sheets $(3,154) $(2,962) $(2,229)
========= ========= =========
The primary assumptions used in determining related obligations of the plans
were: discount rate 8%; increases in compensation levels 5%; and long-term rates
of return on assets 8%; in fiscal years 1997, 1996 and 1995.
The Company sponsors a 401(k) Savings Plan for substantially all domestic
nonunion employees.savings plan. Under the Plan,this
plan, the Company matches a specified percentage of employee
contributions, subject to certain limitations.
The components of benefit expense are as follows:
Six Months Ended Fiscal Year Ended June 30
December 31, -------------------------
1999 1999 1998
---- ---- ----
Components of net benefit expense (in thousands)
Service cost - benefits earned $ 631 $ 1,485 $ 953
Interest costs on benefits obligation 1,131 2,220 2,081
Estimated return on assets (1,358) (2,686) (1,970)
------- ------- -------
404 1,019 1,064
Defined contribution plans 78 215 222
------- ------- -------
Total benefit expense $ 482 $ 1,234 $ 1,286
======= ======= =======
The funded status of the defined benefit plan and amounts recognized in
the balance sheet follow:
June 30
December 31, -------
1999 1999 1998
---- ---- ----
Change in projected benefit obligation (in thousands)
Balance at beginning of period $ 33,520 $ 31,786 $ 24,026
Service cost 631 1,485 953
Interest cost 1,131 2,220 2,081
Actuarial (gain) / loss (4,288) (903) 5,244
Amendments / curtailments -- -- 763
Benefits paid (906) (1,068) (1,281)
-------- -------- --------
Balance at end of period 30,088 33,520 31,786
======== ======== ========
Change in fair value of plan assets
Balance at beginning of period 29,787 29,446 23,230
Actual return on assets 4,343 933 5,703
Employer contributions 4 476 1,794
Benefits paid (906) (1,068) (1,281)
-------- -------- --------
Fair value of plan assets at end of period 33,228 29,787 29,446
======== ======== ========
Plan assets in excess of (less than) benefit
obligation 3,140 (3,733) (2,340)
Unrecognized transition obligation (2,384) (1,322) (1,594)
Unrecognized prior service costs 2,340 1,388 1,535
Unrecognized net actuarial gain / (loss) (9,429) 1,604 870
-------- -------- --------
Net accrued benefit costs $ (6,333) $ (2,063) $ (1,529)
======== ======== ========
35
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Statements (continued)
The weighted average assumptions used in determining the obligations of
pension benefit plans are shown below:
June 30
December 31, -------
1999 1999 1998
---- ---- ----
Discount rate 7.75% 7.00% 7.00%
Expected return on plan assets 9.00% 9.00% 9.00%
Rate of compensation increase 5.00% 5.00% 5.00%
Subsequent to the spin-off of CIRCOR which took place on October 18, 1999,
CIRCOR became liable for the payment of all pension plan benefits earned
by CIRCOR employees prior to and following the spin-off who retire after
the spin-off. The Company's pension plan transferred assets to the CIRCOR
pension plan and the amount of the assets was calculated based on the
relative percentage of the Projected Benefit Obligation. Such amount was
adjusted to comply with the asset allocation methodology set forth in
Section 4044 of the Employee Retirement Income Security Act of 1974, as
amended.
(14) Contingencies and Environmental Remediation
Contingencies
In April 1998, the Company expense
incurredbecame aware of a complaint that was filed
under seal in connection withthe State of California alleging violations of the
California False Claims Act. The complaint alleges that a former
subsidiary of the Company sold products utilized in municipal water
systems that failed to meet contractually specified standards and falsely
certified that such standards had been met. The complaint further alleges
that the municipal entities have suffered tens of millions of dollars in
damages as a result of defective products and seeks treble damages,
reimbursement of legal costs and penalties. The Company intends to
vigorously contest this plan was $330,000, $350,000matter but cannot presently determine whether any
loss will result from it. Other lawsuits and $260,000 in
fiscal years 1997, 1996 and 1995, respectively.
(12) CONTINGENCIES AND ENVIRONMENTAL REMEDIATION
CONTINGENCIES
Lawsuits and other proceedings or claims,
arising from the ordinary course of operations, are also pending or
threatened against the Company and its subsidiaries.
The Company has established reserves which it presently believes are
adequate in light of probable and estimable exposure to pending and
threatened litigation of which it has knowledge. On the basisHowever, resolution of
information presently available,
management is of the opinion that any additional liability resulting from thesesuch matters will notduring a specific period could have a material adverse effect on
the consolidated financial
position,quarterly or annual operating results of operationsfor that period.
Environmental Remediation
The company is currently a party to or liquidityotherwise involved in various
administrative or legal proceedings under federal, state or local
environmental laws or regulations involving a number of the Company.
ENVIRONMENTAL REMEDIATION
The Company has been named a potentially responsible party with respect to
identified contaminated sites. The level
of contamination varies significantly from site to site as do the related
levels of remediation efforts. Environmental liabilities are
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) recorded
based on the most probable cost, if known, or on the estimated minimum
cost of remediation. The Company's accrued estimated environmental
liabilities are based on assumptions, which are subject to a number of
factors and uncertainties. Circumstances which can affect the reliability
and precision of these estimates include identification of additional
sites, environmental regulations, level of cleanup required, technologies
available, number and financial condition of other contributors to
remediation and the time period over which remediation may occur. The
Company recognizes changes in estimates as new remediation requirements
are defined or as new information becomes available. The Company estimates
that its accrued environmental remediation liabilities will likely be paid
over the next five to ten years.
(13) FINANCIAL INSTRUMENTS36
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Statements (continued)
(15) Financial Instruments
Fair Value
The carrying amounts of Long-Term Debtcash and cash equivalents, trade receivables and
trade payables approximate fair value because of the short maturity of
these financial instruments.
The fair value of the Company's 8-3/8% notes, due December 2003, is based
on quoted market prices. The fair value of the Company's variable rate
debt approximates its carrying value. The carrying amount and the
estimated fair market value of the Company's long-term debt, including the
current portion, are as follows:
December 31, June 30, ---------------------
1997 1996
---------------------June 30,
1999 1999 1998
------------ -------- --------
(in thousands)
Carrying amount $128,359 $163,150$129,674 $217,963 $107,617
Estimated fair value 133,774 166,994
USE OF DERIVATIVES131,452 222,441 114,907
Derivative Instruments
The Company uses foreign currency forward exchange contracts to reduce the
impact of currency fluctuations on certain anticipated intercompany
purchase transactions that are expected to occur within the fiscal year.year
and certain other foreign currency transactions. Related gains and losses
are recognized when the contracts expire, which is generally in the same
period as the underlying foreign currency denominated transaction. These
contracts do not subject the Company to significant market risk from
exchange movement because they offset gains and losses on the balances and transactions
being hedged.related
foreign currency denominated transactions. At June 30, 19971999, the Company
had forward contracts to buy foreign currencies with a notional value $9.0
million and 1996, therea fair market value of ($0.6) million. These contracts were
transferred to CIRCOR as part of the spin-off transaction. At December 31,
1999, the Company had no outstanding forward contracts to buy foreign
currencies.
The Company uses commodity futures contracts to fix the price on a certain
portion of certain raw materials used in the manufacturing process. These
contracts highly correlate to the actual purchases of the commodity and
the contract values are reflected in the cost of the commodity as it is
actually purchased. At June 30, 1999, the Company had outstanding
contracts with a notional value of $3.5 million and a fair value of $0.2
million. In December 1999, these contacts were sold and the Company
realized a gain of approximately $0.5 million. This gain has been deferred
at December 31, 1999 and will be off-set against the costs of January and
February 2000 raw material purchases, hedged in the original transaction.
There were no open foreign currency
forward exchange contracts.
(14) FINANCIAL INFORMATION BY GEOGRAPHIC AREA
Financial information by geographic area is summarized as follows. Transfer
pricescommodity contracts outstanding at December 31, 1999.
The Company also enters into derivative contracts that convert specific
variable rate borrowings into fixed rate debt instruments. At December 31,
1999, the Company had an outstanding interest rate swap that converted 20
million Euro of the borrowings under variable rate EURO Line of Credit to
foreign subsidiaries are intendeda fixed rate borrowings at 4.3%. This swap agreement expires in September
2002 and has a fair value of $0.5 million at December 31, 1999.
37
Watts Industries, Inc. and Subsidiaries
Notes to produce profit margins
commensurate with sales and marketing efforts:Consolidated Statements (continued)
(16) Segment Information
The following table presents certain operating segment information:
FISCAL YEAR ENDED JUNE 30, 1997
--------------------------------------------------------------------------
DOMESTIC CANADA EUROPE ASIA ELIMINATIONS CONSOLIDATED
--------------------------------------------------------------------------
(IN THOUSANDS)
NET SALES $ 535,954 $ 27,681 $ 139,636 $ 17,069 $ 0 $ 720,340
TRANSFER BETWEEN AREAS 12,209 5,549 421 4,004 (22,183) 0
---------- ---------- ---------- ---------- ---------- ----------
$ 548,163 $ 33,230 $ 140,057 $ 21,073 $ (22,183) $ 720,340
========== ========== ========== ========== ========== ==========
OPERATING INCOME OF GEOGRAPHIC AREAS $ 81,283 $ 1,401 $ 16,074 $ 653 $ (574) $ 98,837
========== ========== ========== ========== ========== ==========
GENERAL CORPORATE EXPENSES 12,429
----------
OPERATING INCOME $ 86,408
==========
ASSETS $ 450,302 $ 23,742 $ 118,171 $ 31,499 $ (1,631) $ 622,083
========== ========== ========== ========== ========== ==========
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fiscal Year Ended June 30, 1996
--------------------------------------------------------------------------------
Domestic CanadaNorth Corporate
America Europe Asia EliminationsAdjustments Consolidated
--------------------------------------------------------------------------------------- ------ ---- ----------- ------------
(in thousands)
Six Months Ended December 31, 1999
Net salesSales $ 476,279191,349 $58,651 $9,110 - $ 28,086 $ 118,673 $ 17,838 $ 0 $ 640,876
Transfer between areas 10,220 5,180 3,549 0 (18,949) 0
--------- --------- --------- --------- --------- ---------
$ 486,499 $ 33,266 $ 122,222 $ 17,838 $ (18,949) $ 640,876
========= ========= ========= ========= ========= =========259,110
Operating income (loss) of
geographic areas $ 43,576 $ (7,709) $ (59,242) $ 907 $ (2,558) $ (25,026)
========= ========= ========= ========= =========
General corporate expenses 14,207
---------
Operating loss $ (39,233)
=========
Assets of continuing operations $ 400,469 $ 25,357 $ 123,270 $ 30,118 $ (1,321) $ 577,893
Net21,645 7,252 731 (70) 29,558
Identifiable assets of discontinued operations 65,202 0 13,199 0 0 78,401
--------- --------- --------- --------- --------- ---------
$ 465,671 $ 25,357 $ 136,469 $ 30,118 $ (1,321) $ 656,294
========= ========= ========= ========= ========= =========
Fiscal328,249 136,246 23,401 (818) 487,078
Capital expenditures 8,764 1,396 133 - 10,293
Depreciation and amortization 6,373 2,537 315 - 9,225
Year Ended June 30, 1995
--------------------------------------------------------------------------------
Domestic Canada Europe Asia Eliminations Consolidated
--------------------------------------------------------------------------------1999
Net Sales $ 369,193 $92,247 $13,018 - $474,458
Operating income 38,536 11,228 1,608 466 51,838
Identifiable assets 484,784 133,720 22,374 (3,136) 637,742
Capital expenditures 17,987 3,471 74 - 21,532
Depreciation and amortization 12,851 3,921 684 - 17,456
Year Ended June 30, 1998
Net Sales $ 345,346 $82,837 $13,894 - $442,077
Operating income 36,754 8,258 1,984 75 47,071
Identifiable assets 443,224 87,463 23,719 (1,510) 552,896
Capital expenditures 19,839 2,621 596 - 23,056
Depreciation and amortization 11,491 3,182 668 - 15,341
Each operating segment is individually managed and has separate financial
results that are reviewed by the Company's chief operating decision-maker.
All intercompany transactions have been eliminated, and intersegment
revenues are not significant.
38
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Statements (continued)
(17) Quarterly Financial Information (Unaudited)
First Second
Quarter Quarter
------- -------
(in thousands)thousands, except per share information)
Six months ended December 31, 1999:
Net sales $ 441,808 $ 30,016 $ 93,518 $ 11,509 $ 0 $ 576,851
Transfer between areas 12,592 5,231 0 0 (17,823) 0
--------- --------- --------- --------- ---------- ---------
$ 454,400 $ 35,247 $ 93,518 $ 11,509 $ (17,823) $ 576,851
========= ========= ========= ========= ========== =========
Operating$130,330 $128,780
Gross profit 46,894 46,363
Net income of geographic areas $ 75,415 $ 1,913 $ 8,978 $ 1,429 $ (65) $ 87,670
========= ========= ========= ========= ==========
General corporate expenses 10,559
---------
Operating income $ 77,111
=========
Assets offrom continuing operations $ 393,012 $ 29,567 $ 154,069 $ 17,550 $ (1,191) $ 593,0079,042 7,426
Net assets of discontinuedincome 8,297 6,945
Per common share:
Basic
Income from continuing operations 71,743 0 11,644 0 0 83,387
--------- --------- --------- --------- ---------- ---------
$ 464,755 $ 29,567 $ 165,713 $ 17,550 $ (1,191) $ 676,394
========= ========= ========= ========= ========== =========.34 .28
Net income .31 .26
Diluted
Income from continuing operations .34 .28
Net income .31 .26
Dividends per common share .0875 .0875
Included in domestic sales are export sales of $54.1 million in fiscal year
1997, $43.5 million in fiscal year 1996 and $39.7 million in fiscal year 1995.
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(15) QUARTERLY FINANCIAL INFORMATION (Unaudited)
First Second Third Fourth
Quarter(a) Quarter Quarter Quarter ----------------------------------------------------Quarter
------- ------- ------- -------
(in thousands, except per share information)
Fiscal year ended June 30, 1997:1999:
Net sales $176,008 $174,220 $184,191 $185,921$113,269 $114,310 $116,972 $129,907
Gross profit 60,356 60,152 63,730 61,15441,086 40,833 41,888 47,906
Net income from continuing operations 7,893 7,332 6,905 7,324
Net income 12,388 11,256 6,905 5,407
Per common share:
Basic
Income from continuing operations 12,346 11,750 12,889 11,475.29 .27 .26 .27
Net income 15,633 11,750 12,889 11,475.46 .42 .26 .20
Diluted
Income per common share:
Continuingfrom continuing operations .45 .43 .47 .42
Discontinued operations .12 .00 .00 .00.29 .27 .26 .27
Net income .57 .43 .47.46 .42 .26 .20
Dividends per common share .07 .07 .0775 .0775
(a) Includes $3.2 million after-tax gain from sale of discontinued operations.
First Second Third Fourth
Quarter Quarter Quarter(a) Quarter(b)
------------------------------------------------------
(in thousands, except per share information)
.0875 .0875 .0875 .0875
Fiscal year ended June 30, 1996:1998:
Net sales $154,129 $156,593 $159,823 $170,331$111,839 $111,844 $108,166 $110,228
Gross profit 56,921 55,913 44,941 54,423
Income (loss)41,163 40,496 39,028 39,238
Net income from continuing operations 11,664 10,051 (80,303) 4,8237,326 7,613 7,259 5,925
Net income (loss) 12,134 10,777 (79,273) 6,077
Income (loss) per13,620 13,609 14,041 12,099
Per common share:
ContinuingBasic
Income from continuing operations .39 .33 (2.70) .17
Discontinued operations .02 .03 .03 .04.27 .28 .27 .22
Net income (loss) .41 .36 (2.67) .21.50 .50 .52 .45
Diluted
Income from continuing operations .27 .28 .26 .22
Net income .50 .50 .51 .44
Dividends per common share .0625 .0625 .07 .07
(a) Includes $63.1 long-lived asset impairment loss; $19.9 million restructuring
charge; $13.8 million charge, principally for product liability costs,
additional bad debt reserves and environmental remediation costs; and $9.5
million charge for additional inventory valuation reserves. The aggregate
after-tax effect of these charges on net income was $89.6 million.
(b) Includes $5.5 million restructuring charge ($3.4 million after-tax).
.0775 .0775 .0875 .0875
39
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Statements (continued)
Schedule II-Valuation and Qualifying Accounts
Watts Industries, Inc. Continuing Operations
(Dollar amounts in thousands)
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------
COLUMN----------------------------------------------------------------------------------------------------------------------------
Column A COLUMNColumn B COLUMNColumn C COLUMNColumn D COLUMNColumn E
- ------------------------------------------------------------------------------------------------------------------
ADDITIONS
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Additions
--------------------------------------------------------------------------------------------------
Charged to Other Deductions-- Balance
Balance at Charged to Costs Charged to Other Deductions BalanceAccounts-- Describe at End of
Description Beginning of Period and Expenses Accounts - Describe Describe (1) End of Period
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
YearSix months ended
June 30, 1997December 31, 1999
Deducted from asset
account:
Allowance for doubtful
accounts $8,822 $2,489 $30$7,747 $87 $98 (2) $3,396 $7,945$1,202 $6,730
Year ended June 30, 19961999
Deducted from asset
account:
Allowance for doubtful
accounts $5,417 $4,408 $320 (2) $1,323 $8,822$6,821 $1,728 $747 (3) $1,549 $7,747
Year ended June 30, 19951998
Deducted from asset
account:
Allowance for doubtful
accounts $4,105 $1,351 $1,173 (2) $1,212 $5,417
(1) Uncollectible accounts written off, net of recoveries.
(2) Balance acquired in connection with acquisition of Ames in 1997, Trubert
and Artec in 1996, Jameco and Anderson-Barrows in 1995.
$6,236 $2,201 $1,616 $6,821
EXHIBIT INDEX
Exhibits 10.1-10.6, 10.8, 10.22, and 10.29 constitute all(1) Uncollectible accounts written off, net of the
management contracts and compensation plans and arrangementsrecoveries.
(2) Reclassification of the Company
requiredbalance from discontinued operations to be filed as exhibits to this Annual Report. Upon written requestcontinuing
operations.
(3) Balance acquired through acquisition of any stockholder to the Chief Financial Officer at the Company's principal
executive office, the Company will provide any of the Exhibits listed below.Cazzaniga S.p.A during fiscal
1999.
40
Exhibit Index
Exhibit No. Description and Location
- --------------------------------------
2.1 Distribution Agreement between Watts Industries, Inc. and CIRCOR
International, Inc. (20)
3.1 Restated Certificate of Incorporation, as amended. (12)
3.2 Amended and Restated By-Laws.By-Laws, as amended May 11, 1999. (1)
9.1 Horne Family Voting Trust Agreement-1991 dated as of October 31,
1991 (2), Amendments dated November 19, 1996*1996 (18), February 24,
1997*1997 (18), June 5, 1997*1997 (18), August 26, 1997 (18), and August 26,October
17, 1997.* (21)
9.2 The Amended and Restated George B. Horne Voting Trust
Agreement-1997 dated as of August
26, 1997. *September 14, 1999. (22)
10.1 Employment Agreement effective as of September 1, 1996 between the
Registrant and Timothy P. Horne. (14)
10.2 Supplemental Compensation Agreement effective as of September 1,
1996 between the Registrant and Timothy P. Horne. (14)
10.3 Deferred Compensation Agreement between the Registrant and Timothy
P. Horne, as amended. (4)
10.4 1996 Stock Option Plan, dated October 15, 1996. (15)
10.5 1989 Nonqualified Stock Option Plan. (3)
10.6 Watts Industries, Inc. Retirement Plan for Salaried Employees
dated December 30, 1994, as amended and restated effective as of
January 1, 1994, (12), Amendment No. 1 (14), Amendment No. 2 (14),
Amendment No. 3 (14), Amendment No. 4 dated September 4, 1996.*
(18), Amendment No. 5 dated January 1, 1998, Amendment No. 6 dated
May 3, 1999 (22), and Amendment No. 7 dated June 7, 1999. (22)
10.7 Registration Rights Agreement dated July 25, 1986. (5)
10.8 Executive Incentive Bonus Plan, as amended. (12)
10.9 Indenture dated as of December 1, 1991 between the Registrant and
The First National Bank of Boston, as Trustee, including form of
8-3/8% Note Due 2003. (8)
10.10 Loan Agreement and Mortgage among The Industrial Development
Authority of the State of New Hampshire, Watts Regulator Co. and
Arlington Trust Company dated August 1, 1985. (4)
10.11 Amendment Agreement relating to Watts Regulator Co. (Canaan and
Franklin, New Hampshire, facilities) financing dated December 31,
1985. (4)
10.12 Sale Agreement between Village of Walden Industrial Development
Agency and Spence Engineering Company, Inc. dated June 1, 1994. (11)
10.13 Letter of Credit, Reimbursement and Guaranty Agreement dated June 1,
1994 by and among the Registrant, Spence Engineering Company, Inc.
and First Union National Bank of North Carolina. (11), Amendment No.
1 (14), Amendment No. 2 dated October 1, 1996.*
10.14 Trust Indenture from Village of Walden Industrial Development Agency
to The First National Bank of Boston, as Trustee, dated June 1,
1994. (11)
10.15 Loan Agreement between Hillsborough County Industrial Development
Authority and Leslie Controls, Inc. dated July 1, 1994. (11)
10.16 Letter of Credit, Reimbursement and Guaranty Agreement dated July 1,
1994 by and among the Registrant, Leslie Controls, Inc. and First
Union National Bank of North Carolina (11), Amendment No. 1 (14),
Amendment No. 2 dated October 1, 1996.*
10.17 Trust Indenture from Hillsborough County Industrial Development
Authority to The First National Bank of Boston, as Trustee, dated
July 1, 1994. (11)
10.18 Loan Agreement between The Rutherford County Industrial Facilities
and Pollution Control Financing Authority and Watts Regulator
Company dated September 1, 1994.(12)
10.1910.13 Letter of Credit, Reimbursement and Guaranty Agreement dated
September 1, 1994 by and among the Registrant, Watts Regulator
Company and The First Union National Bank of North Carolina (12),
Amendment No. 1 (14), Amendment No. 2 dated October 1, 1996.*
10.201996 (18),
and Amendment No. 3 dated October 18, 1999 (11).
10.14 Trust Indenture from The Rutherford County Industrial Facilities
and Pollution Control Financing Authority to The First National
Bank of Boston,as Trustee, dated September 1, 1994. (12)
10.2110.15 Amended and Restated Stock Restriction Agreement dated October 30,
1991 (2), Amendment dated August 26, 1997.*
10.22 (18)
10.16 Watts Industries, Inc. 1991 Non-Employee Directors' Nonqualified
Stock Option Plan (7), Amendment No. 1. (14)
10.2310.17 Letters of Credit relating to retrospective paid loss insurance
programs. (10)
10.2410.18 Form of Stock Restriction Agreement for management stockholders.
(5)
10.2510.19 Revolving Credit Agreement dated December 23, 1987 between
Nederlandse Creditbank NV and Watts Regulator (Nederland) B.V. and
related Guaranty of Watts Industries, Inc. and Watts Regulator Co.
dated December 14, 1987. (6)
10.2610.20 Loan Agreement dated September 1987 with, and related Mortgage to,
N.V. Sallandsche Bank. (6)
10.2710.21 Agreement of the sale of shares of Intermes, S.p.A., RIAF Holding
A.G. and the participations in Multiscope Due S.R.L. dated
November 6, 1992. (9)
10.2810.22 Amended and Restated Revolving Credit Agreement dated August 30, 1994March 27,
1998 between and among Watts Investment Company, certain financial
institutions, the First
National Bank of Boston,BankBoston N.A., as Administrative Agent, and the
1
Registrant, as Guarantor (11)(17), and First Amendment No. 1 (14), Amendment No. 2. (14)
10.29to Amended and
Restated Revolving Credit Agreement dated October 18, 1999 (11).
10.23 Watts Industries, Inc. Management Stock Purchase Plan dated
October 17, 1995 (13), Amendment No. 1 dated August 5, 1997.*
10.30 (18)
10.24 Stock Purchase Agreement dated as of June 19, 1996 by and among
Mueller Co., Tyco Valves Limited, Watts Investment Company, Tyco
International Ltd. and Watts Industries, Inc. (16)
11 Statement Regarding Computation of Earnings per Common Share. *(19)
21 Subsidiaries. *
23.123 Consent of KPMG Peat Marwick LLP. *
23.2 Consent of Ernst & Young LLP, Independent Auditors, predecessor
auditors.*
23.3 Consent of Deloitte & Touche, Independent Auditors, predecessor
auditors.*
27 Financial Data Schedule.Schedule-Fiscal 1999.5. *
Incorporated By Reference To:
- -----------------------------
(1) Relevant exhibit to Registrant's Form 8-K dated May 15, 1992.10-Q for quarter ended March 31,
1999.
(2) Relevant exhibit to Registrant's Form 8-K dated November 14, 1991.
(3) Relevant exhibit to Registrant's Form 10-K for the year ended June 30,
1989.
(4) Relevant exhibit to Registrant's Form S-1 (No. 33-6515) dated June 17,
1986.
(5) Relevant exhibit to Registrant's Form S-1 (No. 33-6515) as part of the
Second Amendment to such Form S-1FormS-1 dated August 21, 1986.
(6) Relevant exhibit to Registrant's Form S-1 (No. 33-27101) dated February
16, 1989.
(7) Relevant exhibit to Registrant's Amendment No. 1 to Form 10-K for year
ended June 30, 1992.
(8) Relevant exhibit to Registrant's Form 10-K for year ended June 30, 1992.
(9) Relevant exhibit to Registrant's Amendment No. 2 dated February 22,
1993 to Form 8-K dated November 6, 1992.
(10) Relevant exhibit to Registrant's Form 10-K for year ended June 30, 1993.
(11) Relevant exhibit to Registrant's Form 10-K10-Q for yearquarter ended JuneSeptember
30, 1994.1999.
(12) Relevant exhibit to Registrant's Form 10-K for year ended June 30, 1995.
(13) Relevant exhibit to Registrant's Form S-8 (No.33-64627)(No. 33-64627) dated November
29, 1995.
(14) Relevant exhibit to Registrant's Form 10-K for year ended June 30, 1996.
(15) Relevant exhibit to Registrant's Form S-8 (No.333-32685)(No. 333-32685) dated August
1, 1997.
(16) Relevant exhibit to Registrant's Form 8-K dated September 4, 1996.
(17) Relevant exhibit to Registrant's Form 10-Q for quarter ended March 31,
1998.
(18) Relevant exhibit to Registrant's Form 10-K for year ended June 30, 1997.
(19) Notes to Consolidated Financial Statements, Note 2 of this Report.
(20) Exhibit 2.1 to CIRCOR International, Inc. Amendment No. 1 to its
registration statement on Form 10 filed on September 22, 1999. (File
No. 000-26961).
(21) Relevant exhibit to Registrant's Form 10-K for year ended June 30, 1998.
(22) Relevant exhibit to Registrant's Form 10-K for year ended June 30, 1999.
* Filed as an exhibit to this Report with the Securities and Exchange
Commission
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