SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
___
/XX/[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1994
OR
___
/ /1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________________________ to ___________________________
Commission file number 0-14787
_________________
WATTS INDUSTRIES, INC.
----------------------
(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, MassachusettsMA 01845
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508)(978) 688-1811
________________
Securities registered pursuant to Section 12(b) of the Act:
NoneCLASS A COMMON STOCK, PAR VALUE $.10 PER SHARE
Name of exchange on which registered: New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, par value $.10 per share
(Title of class)None
Indicate by check mark whether the registrantRegistrant (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
registrantRegistrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant'sRegistrant'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. [ ]
The aggregateAggregate market value of the voting stock of the registrantRegistrant held by
non-affiliates of the registrantRegistrant on September 2, 1994August 12, 1997 was $431,500,109.
The number$402,994,121.
As of August 12, 1997, 15,836,460 shares of the registrant's Class A Common Stock, $.10 par
value, $.10 per share, outstanding on September 2, 1994 was
18,013,522 and the number of11,199,127 shares of the registrant's Class B Common Stock, $.10 par value, $.10 per share, outstanding on September 2, 1994 was
11,472,470.
Documents Incorporated by Referenceof the
Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
- -----------------------------------
Portions of the following documents are incorporated by reference into
the Parts of this Report on Form 10-K indicated below:
(1) The Annual Report to StockholdersRegistrant's Proxy Statement for fiscal year ended June
30, 1994 (Part II).
(2) The Company's definitive proxy statement dated September 14,
1994 for theits Annual Meeting of
Stockholders to be held on October 18,
1994 (Part III).
21, 1997, are incorporated by reference into
Part III of this Report.
PART I
Item 1. BUSINESS.
General---------
GENERAL
- -------
Watts Industries, Inc., (as further defined below),("the
Company"(the "Company") designs, manufactures and sells an
extensive line of valves for the plumbing and heating, and water quality, municipal water,
steam, and
industrial, and oil and gas markets.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. TheToday, the Company is a leading
manufacturer and supplier of water serviceplumbing and heating and water quality valve
products, which account for over one-halfapproximately two-thirds of its sales. The Company's
growth strategy emphasizes 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. The Company was incorporated in
Delaware in 1985.
The Company's product lines include (1) safety relief valves, regulators,
thermostatic mixing valves, ball valves and flow control valves for water
service primarily in residential and commercial environments, and metal and
plastic water supply/drainage products including valves, tubular brass products,
faucets, drains, and sink strainers, compression and flare fittings, and plastic
tubing and braided metal hose connectors for residential construction and home
repair and remodeling, and specialty bronze valves
and fittings used in underground water service connections; (2)remodeling; backflow preventers for preventing contamination of
potable water caused by reverse flow within water supply lines; (3) American Water
Works Association (AWWA) butterfly valves for use in water
distribution, water treatmentlines and waste water management; (4)fire
protection equipment; steam regulators and control devices for industrial, HVAC
and naval/marine applications; (5) ball valves, cryogenic valves, pneumatic and
electric actuators, relief valves, check valves and butterfly valves for
industrial applications; and (6)floating and trunnion ball valves, oil field check
valves, and large ball valves for the oil and gas industry. Within a majority of
the specific markets in which it participates,product lines the Company manufactures and markets, the Company believes
that it has the broadest product line in terms of the distinct designs, sizes
and configurations of its valves. Products representing a 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.
The Company operates its own automated foundries for casting
bronzecodes,
and iron component parts and has extensive facilities for
machining bronze, brass, iron and steel components and assembling them
into finished valves. The Company has its principal manufacturing
plants, warehouses, product development facilities or sales offices in
20 locations in the United States, 4 locations in Canada, 12 locations
in Europe, and 1 location in Asia through a 60% controlling interest
in a joint venture located in the People's Republic of China. These
domestic and foreign operations employ approximately 4,850 people,
including 864 employees in the Company's joint venture located in the
People's Republic of China.
The Company was incorporated in Delaware in 1985. The Company
maintains its principal executive offices at 815 Chestnut Street,
North Andover, Massachusetts 01845 and its telephone number is (508)
688-1811. Unless the context otherwise requires or indicates,
references to the "Company" and "Watts" include the Company's
predecessors and subsidiaries.
The Company's principal subsidiaries include:
- Watts Regulator Co. of North Andover, Massachusetts, a
manufacturer of pressure regulators, temperature and pressure relief
valves, backflow preventers, flow control valves, pneumatic and
electric actuators, ball valves, and butterfly valves;
- KF Industries, Inc. of Oklahoma City, Oklahoma, a
manufacturer of high pressure floating and trunnion ball valves, check
valves, and needle valves for the oil and gas industry;
- Jameco Industries, Inc. of Wyandanch, New York, a
manufacturer of metal and plastic water supply products, including
valves, tubular products, and sink strainers;
- Henry Pratt Company of Aurora, Illinois, a manufacturer of
AWWA butterfly valves and other valve products for use in water
distribution, water treatment, waste water management, fire protection
and power generation;
- Leslie Controls, Inc. of Tampa, Florida, a manufacturer of
control valves, instrumentation, regulators, water heaters and
whistles for the naval, marine and industrial steam markets;
- Circle Seal Controls, Inc. of Corona, California, a
manufacturer of relief valves, pressure regulators, check valves,
pressure gauges and other valve products for industrial, commercial
aviation and aerospace/military applications;
- Spence Engineering Company, Inc. of Walden, New York, a
manufacturer of steam regulators and control devices;
- James Jones Company of El Monte, California, a manufacturer
of specialty bronze valves and fittings used in underground water
service connections, and bronze fire hydrants;
- Watts Automatic Control Valve, Inc. of Houston, Texas, a
manufacturer of automatic control valves;
- Nicholson Steam Trap, Inc. of Walden, New York, a
manufacturer of low pressure steam condensate traps;
- R.G. Laurence Company, Inc. of Tampa, Florida, a
manufacturer of products for the gas turbine industry;
- Watts Industries (Canada) Inc. of Woodbridge, Ontario,
Canada, a manufacturer of various water service and water quality
valves, traps, drains and other specialty products for the commercial
and industrial construction markets;
- Intermes, S.p.A. of Caldaro and Trento, Italy, a
manufacturer of plumbing and heating valves and controls with
distribution facilities in Italy, Germany, France, Austria,
Switzerland, Belgium, and Spain;
- MTR GmbH of Gemmrigheim, Germany, a distributor of plumbing
and heating valves and controls;
- Edward Barber Ltd. of Tottenham, England, a manufacturer of
valves, meter boxes and accessories for the municipal water market;
- Watts Ocean B.V. of Eerbeek, Holland, which assembles and
distributes water quality valves and manufactures check valves, double
cage pinch valves, automatic control valves and other valve systems;
- Watts SFR S.A. of Fressenneville, France, a manufacturer of
speciality relief valves, water pressure reducing valves and other
speciality valves for the water safety and flow control markets in
France and other European countries; and
- Tianjin Tanggu Watts Valve Company Limited of Tianjin,
People's Republic of China, a manufacturer of butterfly, globe and
check valves for the water distribution and industrial markets in
China and Southeast Asia.
All information appearing in this Item 1 is as of September 2,
1994, except as otherwise specified.
Recent Acquisitions
On June 27, 1994, a wholly owned subsidiary of the Company formed
Tianjin Tanggu Watts Valve Company Limited ("Tanggu Watts"), a
Chinese joint venture located in Tianjin, People's Republic of China,
with Tianjin Tanggu Valve Plant, a manufacturer of butterfly valves
and other valve products that are sold primarily to the water
distribution and industrial markets in China and exported to other
parts of the world. Tanggu Watts commenced business operations in
August 1994. Tianjin Tanggu Valve Plant's 1993 calendar year sales
were approximately $8,000,000. The Company owns a 60% controlling
interest in Tanggu Watts.
On July 28, 1994, a wholly owned subsidiary of the Company
acquired Jameco Industries, Inc. located in Wyandanch, New York.
Jameco manufactures metal and plastic water supply products including
valves, tubular products and sink strainers that are sold primarily to
the residential construction and do-it-yourself, home repair and
remodeling markets in the United States and overseas. The sales of
Jameco for the 12-month period ended June 30, 1994 were approximately
$56,000,000 with the majority of its sales concentrated in the United
States.
Products
The Company classifies its valve products into four categories:
(1) Plumbing and Heating and Water Quality, (2) Municipal Water, (3)
Steam, and (4) Industrial and Oil and Gas. The Company serves a wide
range of end users through the manufacture of valve products of many
designs, sizes and configurations.
Plumbing and Heating and Water Quality. Water plumbing and
heating valves and water supply/drainage products include a broad
line of safety relief valves, regulators, ball valves, control valves,
tubular brass products, sink strainers, faucets and drains used for
water service in residential, industrial, commercial, and
institutional applications. Watts has developed automatic temperature
and pressure relief valves and pressure-only relief valves used for
protection against overtemperature and excessive pressure build-up in
water heaters, boilers and other pressure vessels. These products
must meet stringent requirements under municipal and state regulatory
codes ("code requirements"). See "Code Compliance." Watts has also
developed self-contained water-pressure regulators, which reduce and
control supply pressure in commercial and residential water systems.
These regulators, which conserve water and protect appliances and
other equipmentsimilar approvals from excessive water pressure, are also subject to
stringent code requirements. The Company's plumbing and heating
valves also include bronze ball valves used in a wide range of
applications for controlling the flow of water within pipe lines.
The Company manufactures and sells a large number of specialty
water service products including hydronic heating control products,
vacuum relief valves, hot and cold water mixing valves, strainers,
traps, drains, dielectric unions, water hammer shock arrestors,
washing machine Duo-Cloz shut-off valves, flow switches, pilot
operated regulators, and thermostatic controls.
Jameco Industries, acquired by the Company in July 1994,
manufactures valves, sink strainers, drains, and tubular brass
products and imports for resale, vitreous china and faucets for the
residential construction and do-it-yourself, home repair and
remodeling markets. Many of these products are distributed in the
United States through retail warehouse chain stores that sell to the
do-it-yourself market.
Water quality valves include backflow preventers for preventing
contamination of potable water caused by reverse flow within water
supply lines. Customers include municipal water works and industrial,
residential, institutional, irrigation and other end users having
water supply lines.
The patented Watts No. 909 reduced pressure zone backflow
preventer line has been recognized within the industry and by certain
regulatory bodies as an important technical advance because of its
improved ability to prevent the reverse flow of contaminated water
during severe conditions of backsiphonage or backpressure in potable
water supply systems. The Company's other water quality valves include
atmospheric and continuous pressure anti-siphon vacuum breakers,
double check valves for residential and commercial service, boiler
feed and vending machine backflow preventers and hose connection and
wall and yard hydrant vacuum breakers. Most of the Company's Water
Quality Valve products are subject to code requirements. See "Code
Compliance."
Municipal Water. Municipal water valves include valves used to
manage and control the delivery of water from the source of supply to
its point of use. Watts Automatic Control Valve manufactures valves
used in municipal water systems to control flow and deliver water at a
constant pressure. James Jones Company manufactures fire hydrants,
underground service valves and fittings used for applications between
water mains and meters. Henry Pratt Company manufactures large size
AWWA butterfly valves as well as ball, plug and check valves used in
water distribution, water treatment, and waste water markets. Tanggu
Watts manufactures large butterfly valves used in municipal water
distribution. Edward Barber Ltd. manufactures valves, meter boxes and
accessories for the European municipal water market.
Steam. The Company's steam valves include pilot operated steam
temperature and pressure regulators manufactured and marketed
principally by Spence Engineering Company, Inc. These specialty
valves are marketed primarily to institutional, industrial and utility
customers. The Company's line of control valves, instrumentation,
regulators, water heaters and whistles for the naval, marine and
industrial steam markets is manufactured and sold by Leslie Controls,
Inc. The Company's line of low pressure steam condensate traps is
manufactured and sold by Nicholson Steam Trap, Inc.
Industrial and Oil and Gas. The Company's industrial products
include an extensive line of ball valves and butterfly valves
primarily for industrial process applications, as well as pneumatic
and electric actuators which open, close and modulate valves. By
offering a broad range of ball, seat, seal, stem and handle choices,
Watts is able to customize ball valves for particularly demanding
service applications. Relief, check and regulator valves for
aerospace, marine, military, cryogenic, and other specialized
applications are manufactured by Circle Seal Controls, Inc.
The Company's oil and gas valves include high pressure floating
and trunnion ball valves, check valves, and needle valves manufactured
by KF Industries, Inc. These specialty valves are marketed primarily
to oil field supply distributors. During fiscal 1994, the Company's
oil and gas business increased its international export sales as a
result of a strong international market in gas transmission pipeline
projects. The Company believes that its oil and gas business,
including the fiscal 1994 sales to gas transmission pipeline projects,
is affected by cyclical variations in industry conditions to a greater
extent than its other business operations.
Acquisitions
An important element of the Company's growth strategy is to make
strategic acquisitions of companies and product lines in related
business areas. The Company's acquisition strategy has been focused
in the valve industry and has involved (i) acquiring additional valve
products which can be sold through the Company's own distribution
network and which can benefit from the Company's manufacturing
expertise and financial support; (ii) entering new markets or
extending existing markets for specialized valves; and (iii) seeking
to acquire foreign companies to penetrate new markets. The Company
began implementing its acquisition strategy in 1984 and through
September 2, 1994 had completed 28 acquisitions of varying sizes.
After it makes an acquisition, the Company participates actively with
the management of the acquired business in implementing operating
strategies with the objective of enhancing the sales, productivity and
operating results.
The Company's present acquisition activities began in September
1984 with the purchase of Spence Engineering Company, Inc. of Walden,
New York, a manufacturer of steam regulators and control valves.
Since then, the Company has also acquired (i) James Jones Company of
El Monte, California, a manufacturer of specialty bronze valves and
fittings used in underground water service connections (acquired in
December 1986); (ii) Ocean B.V., a Netherlands-based producer of check
valves and related products for the European market (acquired in
December 1987); (iii) KF Industries, Inc. of Oklahoma City, Oklahoma,
a manufacturer of high pressure floating and trunnion ball valves and
needle valves for the oil and gas industry (acquired in July 1988);
(iv) Leslie Controls, Inc. of Tampa, Florida, a manufacturer of
control valves, instrumentation, regulators, water heatersstandards agencies and whistles for the naval, marine and industrial steam markets (acquired
in July 1989); (v) Nicholson Steam Trap, Inc. of Wilkes-Barre,
Pennsylvania, a manufacturer of low pressure condensate traps
(acquired in July 1989); (vi) Circle Seal Controls, Inc. of Corona,
California, a manufacturer of relief valves, pressure regulators,
check valves and other valve products for industrial, commercial
aviation and aerospace/military applications (acquired in September
1990); (vii) Watts SFR S.A. of Fressenneville, France, a manufacturer
of specialty relief valves, water pressure reducing valves and other
specialty valves for the water safety and flow control markets in
France and other European countries (acquired in January 1991); (viii)
Henry Pratt Company of Aurora, Illinois, a manufacturer of AWWA
butterfly valves and other valve products (acquired in September
1991); (ix) Intermes, S.p.A. of Caldaro, Italy, a manufacturer of
plumbing and heating valves and controls (acquired in November 1992);
(x) Edward Barber Ltd. of Tottenham, England, a manufacturer of
valves, meter boxes and accessories for the municipal water market
(acquired in May 1993); (xi) Ancon Products, Inc. of Scarborough,
Ontario, Canada, a manufacturer of drains and other specialty products
(acquired in July 1993); (xii) Tianjin Tanggu Watts Valve Company
Limited, a joint venture company formed with Tianjin Tanggu Valve
Plant in Tianjin, People's Republic of China, a manufacturer of
butterfly, globe and check valves for the water distribution and
industrial markets (formed in June 1994); (xiii) Jameco Industries,
Inc. of Wyandanch, New York, a manufacturer of metal and plastic water
supply products (acquired in July 1994); and (xiv) other smaller
companies and product lines. Businesses and product lines acquired
from
September 1984 through June 30, 1994 collectively, excluding
revenues from Jameco Industries, Inc. and Tianjin Tanggu Watts Valve
Company Limited, represented more than 60% of the Company's revenues
during the fiscal year ended June 30, 1994.
Code Compliance
Products representing a majority of the Company's sales are
subject to regulatory standards and code enforcement which typically
require that these products meet stringent performance criteria.
Standards are established by such industry test and certification
organizations as the American Society of Mechanical Engineers
(A.S.M.E.), the American Gas Association (A.G.A.), the American
Society of Sanitary Engineers (A.S.S.E.), the University of Southern
California (U.S.C.) Foundation for Cross-Connection Control, the
International Association of Plumbing and Mechanical Officials
(I.A.P.M.O.), Underwriters Laboratories (UL), Factory Mutual (F.M.),
American Water Works Association (A.W.W.A.), and the American
Petroleum Institute (A.P.I.). These standards are incorporated into
state and municipal plumbing and heating, building and fire protection
codes. The Company also meets the criteria of the Canadian Standards
Association (C.S.A.).
The Company also has agency approvals in each of the major
European markets in which it participates. These approvals include
KIWAvarious agencies in the Netherlands, DVGW in Germany, WRC in the United Kingdom,
AFNOR in France, SVGW in Switzerland, UNI in Italy, and ANSEAU in
Belgium.European market have been obtained. 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 commitment to meet these standards. 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 approval.
Marketingcertification 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 DistributionEdward Barber & Co. Ltd. ("Barber"), pursuant to a Stock Purchase
Agreement dated June 19, 1996. On September 5, 1996, a wholly owned subsidiary
of the Company acquired Consolidated Precision Corporation ("CPC") located in
Riviera Beach, Florida. CPC manufactures control valves, manual and actuated
shutoff valves, cryogenic filters, valve manifolds, and bayonet fittings for the
cryogenic, ultra high purity, 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 subsidiary of the Company acquired Ames Company,
Inc. ("Ames") located in Woodland, California. Ames manufactures UL/FM backflow
prevention valves for use in fire protection equipment 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 its consolidated net sales in the
future.
The Company relies primarily on commissioned representative organizations,
most of whom maintain a consigned inventory of the Company's products, to market
its product lines. These organizations, which accounted for approximately 63%70% of
the Company's net sales in the fiscal year ended June 30, 1994,1997, sell primarily
to plumbing and heating wholesalers, DIY Market accounts, and industrial, steam, andindustrial,
oil and gas distributors for resale to end users.users in the United States and
abroad. The Company 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, and 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. OEM'sThe Company also
maintains direct and private label accounts represented
approximately 11%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, ventilation and
air-conditioning, irrigation, fire protection, and refrigeration industries and
utilities. The Company believes that sales to the residential construction and
to the oil and gas markets 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, any 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 total sales
in the fiscal year ended June 30, 1994.
The Company maintains distinct channels of distribution for
marketing water service valves, underground service valves, AWWA
valves, steam valves, industrial valves, and oil and gas valves in the
United States and abroad.
Plumbing and Heating and Water Quality
Water Service Valves and Products. The Company's water service
distribution network for the United States, which distributes water
plumbing and heating, water safety and flow control and water quality
valves, consists of 84 commissioned representative organizations which
sell to over 6,000 plumbing and heating wholesalers. The Company
maintains consigned inventories of water service products at many
representatives' locations, and each representative carries the entire
line of the Company's water service products. Sales of the Company's
products generally account for more than one-half of its commissioned
representative organizations' total commission income.
Jameco Industries, Inc., acquired in July 1994, distributes its
products in the United States through retail warehouse chain stores
that sell to the do-it-yourself, home repair and remodeling markets.
The Company intends to introduce some of its other product lines to
this distribution channel.
The Company distributes water service valves in Canada through
both direct sales personnel and commissioned representative
organizations.
Municipal
Underground Service Valves. The Company markets its underground
service valves under the James JonesTM trademark through three direct
salesmen, 35 commissioned representatives and 500 water works
distributors.
AWWA Valves. The Company markets its AWWA butterfly valves as
well as ball plug and check valves through the Henry Pratt Company.
Henry Pratt has 31 commissioned representatives which sell to
distributors as well as a field sales force with 7 offices in the U.S.
Additionally, on large construction projects the Company sells
directly to end users.
Steam
Steam Valves. The Company markets its steam valves under the
SpenceR trademark through 45 commissioned representative
organizations, whose personnel are trained in the sale and technical
support of sophisticated steam products. Leslie Controls, Inc.
markets its control valves and instrumentation, regulators and
waterheaters for the naval, marine and industrial steam markets
through 68 commissioned representative organizations.
Industrial and Oil and Gas
Industrial Valves. The Company's industrial sales organization
markets its products through 60 commissioned representative
organizations who sell to over 300 industrial distributors.
Industrial distributors carry their own inventories and provide local
sales and inventory support services to their customers.
Oil and Gas Valves. The Company markets its oil and gas valves
under the KFTM trademark through 57 commissioned representative
organizations and through direct sales personnel. The Company has
sales offices in Singapore and Southampton, England for sales to the
oil and gas markets in Asia and Europe/Middle East, respectively.
The Company's agreements with its commissioned representative
organizations typically provide for territorial exclusivity, the
payment of percentage commissions and termination by either party on
30 days' notice. No commissioned representative organization,
wholesaler or distributor in any of the Company's market areas
accounted for as much as 10% of the Company's total net sales in
fiscal 1994. The Company maintains an internal staff of sales
personnel organized by product line to support the efforts of its
commissioned representative organizations. The Company also conducts
technical and product application seminars for its customers directly
and in cooperation with its commissioned representative organizations.
The Company estimates that a substantial portion of its sales are
attributable to the normal replacement and repair of valves and
systems employing valves.
The Company's foreign sales, including exports, in fiscal 1994,
1993, and 1992 were 29%, 23%, and 18%, respectively. The Company's
foreign sales other than Canadian sales consist predominantly of sales
of plumbing and heating valves, water quality, and municipal water
valves in Western Europe. Such sales increased in 1994 as compared to
1993 principally as a result of the inclusion of net sales of
Intermes, S.p.A., acquired in November 1992, Edward Barber Company,
acquired in May 1993, Ancon Products, Inc., acquired in July 1993, and
Enpoco Canada, Ltd., acquired in November 1993. Increased unit
shipments of certain product lines also contributed to the Company's
increase in foreign sales. Export sales from the United States in the
oil and gas market increased because of a strong international market
in gas transmission pipeline projects. The increase in export sales in
the oil and gas market for fiscal 1994 may not be reflective of future
export sales in the oil and gas market because of the cyclical nature
of capital intensive projects such as gas transmission pipeline
projects. The Company believes that its acquisitions of Intermes,
Edward Barber Company, Ocean B.V. in 1987, and the operating
subsidiaries of Watts Industries France S.A. in 1991 have strengthened
its manufacturing capability and broadened its distribution network in
Western Europe. See Note 12 of Notes to Consolidated Financial
Statements incorporated by reference in Item 8 for certain information
regarding the Company's foreign operations.
Tanggu Watts, the Company's joint venture which commenced
operations in August 1994, manufactures butterfly, globe and check
valves for the water distribution and industrial markets in the
People's Republic of China and for export sales to those markets in
the United States, Europe, Australia and Southeast Asia.
The Company relies predominantly on exclusive distributorship
arrangements to distribute its water segment products in foreign
countries other than Canada and Europe. The Company established a
Singapore sales office in fiscal 1993 and a Southampton, England sales
office in fiscal 1994 to service the oil and gas markets in Southeast
Asia and Europe/Middle East, respectively.
Production1997.
The Company has a fully integrated and highly automated manufacturing
capability. The Company'scapability including foundry operations, machining operations, feature
over 300 computer-controlled machine tools, high-speed chucking
machinesinjection molding
and automatic screw machines.assembly. The Company's foundry equipment includesoperations include metal pouring systems and
automatic core making, mold making and pouring capabilities. The Company's
machining operations feature computer-controlled machine tools, high-speed
chucking machines 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. Capital expenditures were
$19,928,000, $25,798,000,$29,742,000, $31,080,000, and $18,054,000$27,980,000 for fiscal 1994, 1993,1997, 1996, and 1992,1995,
respectively. Depreciation and amortization for such periods were $22,393,000, $20,560,000,$20,828,000,
$21,574,000, and $17,630,000,$20,345,000, respectively.
TwoFive significant raw materials used in the Company's production processes
are bronze ingot, brass rod, cast iron, carbon steel and brass rod.stainless steel. While
the Company historically has not experienced significant difficulties in
obtaining these commodities in quantities 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, cast iron, carbon steel and brass rod.stainless steel. Any significant
unanticipated increase or decrease in the prices of these commodities could
materially affect the Company's results of operations. As theHowever, increased sales
volume, an active materials management program, and the diversity of materials
used in the Company's production processes have grown,somewhat diminished the impact
from changes in the cost of these twofive raw materials has somewhat diminished. In an effort to
reduce the effects of such fluctuations, the Company maintains an
active materials management program, although nomaterials. No assurances can be given
that this will protect the Company from future changes in the prices for bronze ingot and brass rod.
Product Engineering
The Company believes that new product development and product
engineering are 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 products and to adapt and enhance
existing products. The Company employs over 275 engineers and
technicians who engage primarily in these activities.
Competitionsuch
raw materials.
The domestic and international markets for valves are intensely competitive
and include companies possessing substantially 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. Backlog
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, the Company began development of
several new and innovative products to enhance market position and is currently
implementing newly identified manufacturing and design programs to reduce costs.
The Company employs over 100 engineers and technicians, which does not believe that its backlog at any pointinclude
engineers working in time is indicative of future operating results. Backlog was
$87,938,000 at June 30, 1994 and $77,275,000 at June 30, 1993.
Patents and Trademarks
Thethe Chinese joint ventures, who engage primarily in these
activities. Although the Company owns certain patents and trademarks that it
considers to be of importance, including the U.S. patent for its No. 909
backflow preventer, which expires on December 30, 1997. The Company
has also secured patents for a backflow prevention device in several
foreign countries, including Canada, Germany, France, Italy and Japan.
With respect to its trademarks, the Company has adopted and in
some cases registered various trademarks, in the United States and
certain foreign countries. The principal trademarks of the Company
include WATTS(R), WATTS REGULATOR & Design(R), SPENCE(R), HALE(R), LESLIE(R),
PRATT(R), OCEAN(TM), JAMES JONES(TM), KF(TM), TARAS(TM), CONTROMATICS(TM),
NICHOLSON(TM), FLIPPEN(TM), CIRCLE SEAL(R) and Seal Design(R), and JAMECO and
Design(TM). The U.S. registrations of these trademarks have either a
ten or twenty year term, depending upon whether or not the
registration was issued prior to the effective date of the 1988
amendments to the Trademark Act of 1946, and are renewable if still
used in commerce for additional ten year terms.
The Companyit 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.
Employees
At September 2, 1994, the Company had approximately 4,850
employees,The Company's financial information by geographic area is contained in Note
14 of whom nearly 3,200 were engaged in production and the
balance in management, sales, engineering and administration. The
majority ofNotes 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 at August 15, 1997 and $97,917,000 at August 16, 1996. 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, the Company's domestic and foreign operations employed
approximately 3,900 people, plus 750 employees in the Company's joint ventures
located in the People's Republic of China. There are not covered by a collective
bargaining agreement. Employeesapproximately 139 employees
that are covered by collective bargaining agreements include 60 employees of Spence Engineering Company, Inc.,
103 employees of James Jones Company, 133 employees of Henry Pratt
Company,in the United States and
290 employees of Jameco Industries, Inc.Canada. The Company believes that its employee relations are excellent.
Product Liability
EXECUTIVE OFFICERS
- ------------------
Information with respect to the executive officers of the Company is set
forth below:
Name Position Age
---- -------- ---
TIMOTHY P. HORNE Chairman of the Board, Chief Executive Officer 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. MCAVOY Chief Financial Officer, Treasurer, Secretary and Director 57
ROBERT T. MCLAURIN Corporate Vice President of Asian Operations 66
MICHAEL O. FIFER Vice President of Corporate Development 40
WILLIAM C. MCCARTNEY Vice President of Finance 43
SUZANNE M. ZABITCHUCK Corporate Counsel and Assistant Secretary 42
Timothy P. Horne joined the Company in September 1959 and Environmental Mattershas 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. He joined the Company as Executive Vice President in July 1993 and
has been a Director since January 1994. Prior to joining the Company, Mr. Bloss
was for five years associated with the Norton Company, a 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 1978 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 to 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. Fifer joined the Company in May 1994 and was appointed the
Company's Vice President of Corporate Development. Prior to joining the Company,
Mr. Fifer 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, serving as its Associate General Counsel and Clerk
immediately prior to joining the Company.
PRODUCT LIABILITY AND ENVIRONMENTAL 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.
Leslie Controls, Inc. and Spence Engineering Company, both subsidiaries of
the Company, are 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 installed 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 in the Superior Court of California, San Francisco
County. The Company has resort to certain insurance coverage with respect to
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.
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-going 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 with various
administrative or legal proceedings under federal, state or local environmental
laws or regulations involving a number of sites, in some cases as a participant
in a group of potentially responsible parties. Four of these sites, the Sharkey
and Combe Landfills in New Jersey, the San Gabriel Valley/El Monte, California
water basin site, and the Jack's Creek/Sitkin Smelting SuperfundCherokee Oil Resources Site in PennsylvaniaCharlotte, 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. Based on recent developments, the Company elected not to enter into
the de minimis settlement proposal and has instead decided to
participate in the remediation as a participating party. No allocations have been made to
date with respect to the Combe Landfill andor 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 Jack's CreekCherokee Oil Resources Site, the final volumetric ranking allocated a .30446% share of the total
weight to the Company which the Company believes should entitle ithas elected to
participate asin a de minimis party.settlement. In addition to the foregoing, the
Solvent Recovery Service of New England site and the Old Southington landfill
site, both in Connecticut, are on the National Priorities List but, with respect
thereto, 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 recently received a
Supplemental Directive from the New Jersey Department of Environmental
Protection & Energy in 1994 seeking to recover approximately $9 million in the
aggregate for the operation, maintenance, and monitoring of the implemented
remedial action taken up to datethat time in connection with the Combe Landfill
North site.
GivenCertain of the numberPRP's, including the Company, are currently
negotiating with the state only to assume maintenance of parties involvedthis site in most environmental sites,
the multiplicity of possible solutions, the evolving technologyan effort
to reduce future costs. The Company and the yearsremaining 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 remedial activity required, it is difficult to estimate
with certaintythis site. The
EPA has filed suit against certain of the total cost of remediation, the timing and extent of
remedial actions which may be required,PRP's, and the amount of liability,
if any, of the Company alone andhas recently
been named a third-party defendant in relation to other responsible
parties.this litigation.
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, however, with respect to
the San Gabriel Valley/El Monte, California, site, the Company is
currently unable to estimate the potential exposure because the
processresults of determining the causes and extent of contamination, the
cost of remediation and the method to allocate the cost among those
ultimately determined to be responsible is in a very early stage.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. With respect to certain of
these matters, the Company has resort either to some degree of
insurance coverage or indemnifications from third parties which are
expected to defray to some extent the effect thereof. With respect to
insurance, coverage of some of these claims has been disputed by the
carriers based on standard reservations and, therefore, recovery is
questionable, a factor which has been considered in the Company's
evaluation of these matters. Although difficult to quantify based on
the complexity of the issues and the limitation on available
information, the Company believes that its accruals for the estimated
costs associated with such matters adequately provide for the
Company's estimated foreseeable liability for these sites, however,
givenGiven 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.
Item 2. PROPERTIES.
-----------
The Company's manufacturing operations include sixfour casting foundries.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. Castings from these foundries and other
components are machined and assembled into finished valves at 2422 manufacturing
facilities. Thefacilities 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 maintainsships finished goods inventory at 29
facilitiesto customers and ships customers' and commissionedcom-
missioned representative organizations' orders from these locations.organizations. The Company's properties at September 2, 1994 were as follows:
Approximate
Location Square Feet Use
- - ---------------------------------------------------------------------
Domestic:
Franklin, NH 300,000 Machine shop, assembly,
testing, warehousing and
administration
Approximate
Location Square Feet Use
- - ---------------------------------------------------------------------
Franklin, NH 45,000 Bronze sand casting foundry
Wyandanch, NY 196,000 Machine shop, assembly,
testing, warehousing, and
administration
Dixon, IL 167,000 Machine shop, assembly,
testing and warehousing
Tampa, FL 150,000 Machine shop, assembly,
testing, warehousing and
administration
Oklahoma City, OK 150,000 Machine shop, assembly,
testing, warehousing and
administration
Aurora, IL 134,000 Machine shop, assembly,
testing, warehousing and
administration
Spindale, NC 124,000 Machine shop, assembly,
testing and warehousing
Spindale, NC 36,000 Bronze sand casting foundry
Houston, TX 122,000 Machine shop, assembly,
testing, warehousing and
administration
Corona, CA 95,000 Machine shop, assembly,
testing, warehousing, repair
and administration
Walden, NY 78,000 Machine shop, assembly,
testing, warehousing and
administration
Chesnee, SC 70,000 Machine shop, assembly and
testing
El Monte, CA 57,000 Bronze sand casting foundry,
machine shop, assembly,
testing, warehousing and
administration
North Andover, MA 45,000 Corporate headquarters,
administration and
engineering
Approximate
Location Square Feet Use
- - ---------------------------------------------------------------------
Canaan, NH 32,000 Machine shop, assembly and
testing
Milford, NH 30,000 Machine shop, assembly and
testing
Fairfield, NJ 16,000 Service and repair
Cerritos, CA 13,000 Service, repair and
warehousing
West Babylon, NY 8,000 Warehousing
Canada:
Scarborough, Ontario, 56,000 Assembly, warehousing and
administration
Woodbridge, Ontario, 55,000 Machine shop, assembly,
testing, warehousing and
administration
Burlington, Ontario, 30,000 Machine shop, assembly,
testing, warehousing and
administration
Montreal, Quebec 28,000 Machine shop, assembly,
testing, warehousing and
administration
Europe:
Trento, Italy 182,000 Machine shop, assembly,
testing, warehousing and
administration
Caldaro, Italy 106,000 Machine shop, assembly,
testing, warehousing and
administration
Fressenneville, France 93,000 Machine shop, assembly,
testing, warehousing, bronze
foundry and administration
Eerbeek, The 55,000 Machine shop, assembly,
Netherlands testing, warehousing and
administration
Tottenham, England 40,000 Machine shop, assembly,
testing, warehousing and
administration
Approximate
Location Square Feet Use
- - ---------------------------------------------------------------------
Gemmrigheim, Germany 21,000 Warehousing, administration
Willesden, England 20,000 Bronze sand casting foundry
Barcelona, Spain 16,000 Machine shop, assembly,
testing, warehousing and
administration
Milan, Italy 16,000 Warehousing, administration
Lustenau, Austria 12,000 Warehousing, administration
Aartrijke, Belgium 5,000 Warehousing, administration
Paris, France 2,000 Warehousing, administration
Asia:
Tianjin, People's 246,000 Machine shop, assembly,
Republic of China testing, warehousing, iron
foundry and administration
Allcorporate headquarters are
located in North Andover, Massachusetts. The vast majority of thesethe Company's
operating facilities and the related real estate are owned by the Company, except the service centers in Fairfield, New Jersey and
Cerritos, California, and the properties in West Babylon, New York;
Paris, France; Barcelona, Spain; Aartrijke, Belgium; and Scarborough
and Montreal, Canada.Company. The
buildings and facilitiesland 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
TianjinPibiviesse S.p.A. ("PBVS"), Tanggu Watts and Suzhou Watts Valve Co., Ltd.
("Suzhou Watts") respectively, under lease agreements, the terms of which are 6
years, 30 years, and 30 years, respectively. Additionally, during fiscal 1997
the Company Limited under a 30-year lease agreement. All other lease
terms expire before 1997.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. Certain
of thesethe Company's facilities are subject to mortgages and collateral assignments
under loan agreements with long-
termlong-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.
All information appearing in this Item 2 is as of September 2,
1994, except as otherwise specified.
Item 3. LEGAL PROCEEDINGS.
------------------
Item 3(a). The Company is from time to time involved in various legal and
administrative procedures. See "Business-ProductPart I, Item 1, "Product Liability and
Environmental Matters".
Item 3(b). None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
There were no matters submitted during the fourth quarter of the fiscal year
covered by this reportReport 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
The Class A Common Stock of the Company has been traded in the
over-the-counter market and reported on the National Market System of
the National Association of Securities Dealers Automated Quotation
("NASDAQ") System since its initial public offering in August 1986.--------
MARKET INFORMATION
- ------------------
The following tabulation sets forth the high and low sales prices of the
Company's Class A Common Stock on the over-the-counter market as
reported by the National Market System of NASDAQ for the periods
indicated:
Market Prices
________________________________________
Fiscal Year Ended Fiscal Year Ended
June 30, 1994 June 30, 1993
Fiscal Quarters High Low High Low
First $22 1/16 $17 1/8 $24 1/2 $22
Second 25 1/4 21 1/4 25 1/8 22
Third 28New York Stock Exchange during fiscal 1997
and fiscal 1996 and cash dividends 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 23 1/2 24 1/4 19 1/2
Fourth 27 22 1/4 20 5/8 17 11/16
5/8 .07
Fourth Quarter 26 1/2 21 1/4 .0775 20 5/8 17 7/8 .07
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. All share prices shown reflect a
two-for-one stock split of the Company's Common Stock effected by
means of a stock dividend payable on March 15, 1994 (the "Stock
Split").
Holders
The number of record holders of the Company's Class A Common Stock
as of September 2, 1994 was 295. The Company believes that the number
of beneficial shareholders of the Company's Class A Common Stock was
in excess of 4,500 as of September 2, 1994.
The number of record holders of the Company's Class B Common Stock
as of September 2, 1994 was 11.
Each share of Class B Common Stock is entitled to ten votes per
share and each share of Class A Common Stock is entitled to one(1 vote per share. As of September 2, 1994, shares of Class B Common Stock
representing approximately 77.0% of the Company's outstanding voting
power were held under a voting trust for which Timothy P. Horne,
Chairman of the Board, President and Chief Executive Officer of the
Company, and Frederic B. Horne, Corporate Vice President of the
Company, serve as trustees. The voting trust requires concurrence of
the two trustees with respect to votes involving the election of
Directors of the Company and gives Timothy P. Horne the ultimate
ability to vote shares held in the voting trust in connection with
other matters submitted to shareholders. See Item 12.
Dividends
The following tabulation sets forth the cash dividends paid by the
Company for the periods indicated:
Fiscal Quarter
Fiscal Year _______________________________________
Ended June 30 First Second Third Fourth Total
1993 .035 .035 .045 .045 .16
1994 .045 .045 .055 .055 .20
share). Aggregate common stock dividend payments for fiscal
1994, 1993,1997, 1996, and 19921995, were $5,884,000, $4,785,000,$7,992,000, $7,793,000 and $3,637,000,$6,951,000, respectively.
While the Company presently intends to continue to pay cash dividends, payment
of future dividends necessarily depends upon the Board of Directors' assessment
of the Company's earnings, financial condition, capital requirements and other
factors. All cash dividends shown
reflectSee 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 Split.as of
August 12, 1997 was 232. The Company believes that the number of beneficial
shareholders of the Company's Class A Common Stock was in excess of
approximately 4,500 as of August 12, 1997. The number of record holders of the
Company's Class B Common Stock as of August 12, 1997 was 11.
Item 6. SELECTED FINANCIAL DATA.
------------------------
The following items included in the Fifteen Year Financial Summary
on pages 26 and 27 of the Annual Report to Stockholders for the fiscal
year ended June 30, 1994 are incorporated herein by reference:
Operating Data - Net sales
- Net earnings
Investment Data - Total assets
- Capital employed: Total debt
Per Share Data - Net earnings - Fully diluted
- Common cash dividends
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The informationselected 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" on pages 22 through
25included herein.
FIVE YEAR FINANCIAL SUMMARY
(Amounts in thousands, except per share information)
1997 1996(1) 1995 1994 1993(2)
---- ------- ---- ---- -------
Selected Data
Net sales from continuing operations $ 720,340 $ 640,876 $ 576,851 $ 444,484 $ 398,688
Income (loss) from continuing operations 48,460 (53,765) 42,463 39,400 24,923
Net income (loss) 51,747 (50,285) 45,738 41,010 27,274
Total assets 622,083 656,294 676,394 546,722 526,119
Total debt 128,359 163,150 144,240 98,244 103,434
Income (loss) per share from continuing operations 1.77 (1.82) 1.43 1.33 0.83
Net income (loss) per share 1.89 (1.70) 1.54 1.38 0.91
Dividends per common share 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.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS.
--------------------------
MANAGEMENT INITIATIVES
- ----------------------
In fiscal 1996, the Company re-evaluated its strategy and decided to
restructure its business in an effort to improve the efficiency of the Annual ReportCompany's
worldwide operations as described below:
DIVESTITURE
- -----------
As part of this strategy, the Company decided to Stockholdersdivest itself of the
Municipal Water Group of Companies, 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 gain of $3,208,000. 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 reported as
income from discontinued operations.
IMPAIRMENT OF LONG-LIVED ASSETS
- -------------------------------
During fiscal 1996 the Company recorded a $63,065,000 impairment of
long-lived asset loss. The impairment charge mainly pertains 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 year 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 from continuing operations increased $79,464,000 (12.4%) to
$720,340,000. An analysis of this increase in net sales is as follows:
1997 - 1996
(In thousands)
Domestic
-Internal Growth $43,256 6.8%
International
-Internal Growth $25,297 3.9%
-Exchange Rate Effect $(8,037) (1.3%)
-------- ------
Total International $17,260 2.6%
Acquisitions $18,948 3.0%
-------- ------
Total Increase $79,464 12.4%
======== ======
The increase in net sales from internal growth is primarily attributable to
increased unit shipments of oil and gas valves and plumbing and heating valves.
The increased unit shipments of oil and gas valves is supported by a strong
worldwide oil and gas market. The increased unit shipments 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.
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%) to
$245,392,000 and decreased as a percentage of net sales from 34.6% to 34.1%. The
gross profit percentage was primarily, among other things, adversely affected by
decreased absorption of fixed expenses that occurred because the Company reduced
production levels to achieve inventory reductions. The decreased absorption was
partially offset by improved gross margins for oil and gas valves due to
increased sales volumes and factory efficiencies.
Selling, general and administrative expenses in the year ended June 30, 19941996
include a $13,753,000 charge for product liability costs, environmental
remediation and additional bad debt reserves. Selling, general and
administrative expenses excluding this charge 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 incorporated hereinprimarily attributable to increased commissions and
variable selling expenses associated with the increased sales and the inclusion
of the expenses of acquired companies.
The Company's effective tax rate was favorably effected in fiscal 1997 by
reference.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
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 due to the change in foreign
exchange rates since June 30, 1996. This change did not 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 to 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% to 33.1%. This
decreased percentage was primarily 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 margin than the rest
of the Company also adversely impacted 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.
Interest income from continuing operations decreased $1,228,000 (63.6%) to
$702,000 due 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 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). Net income from continuing operations exclusive of the
impairment loss, restructuring charge and other matters referred to under
"Management Initiatives" above, would have decreased $3,242,000 (7.6%) to
$39,221,000.
The change in foreign exchange rates did not have a material impact on the
net results of operations or the financial condition of the Company.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During fiscal 1997, the Company generated $58,870,000 in cash flow from
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, reduce the borrowings under its line of
credit and to fund additional share purchases under its existing stock
repurchase program.
Capital expenditures for fiscal 1997 were $29,742,000, primarily for
manufacturing machinery and equipment, as part of its commitment to continuously
improve its manufacturing capabilities. The Company's capital expenditure budget
for 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, the Company invested
$37,705,000 in two acquisitions. In September 1996, 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. The Company's intent is to utilize this credit
facility to support the Company's acquisition program, working capital
requirements of acquired companies, and for general corporate purposes. As of
June 30, 1997, there was $29,000,000 borrowed under this line of credit.
Working capital at June 30, 1997 was $224,702,000 compared to $286,205,000
at June 30, 1996. The ratio of current assets to current liabilities was 2.9 to
1 at June 30, 1997 compared to 3.2 to 1 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. Debt as a percentage of total capital
employed was 27.8% 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
1998
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 funds provided from current
operations will be sufficient to meet current operating requirements and
anticipated capital expenditures for at least the next 24 months.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
The consolidatedindex to financial statements is included in page 12 of the Company set forth on
pages 10 through 21 of the Annual Report to Stockholders for the
fiscal year ended June 30, 1994 are incorporated herein by reference.this Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
None.---------------------
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).
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
DIRECTORS
- ---------
The information appearing under the caption "Information as to Directors and
Nominees for Director" in the registrant's definitive proxy statement
dated September 14, 1994Registrant's Proxy Statement relating to the
Annual Meeting of Stockholders to be held on October 18, 199421, 1997 is incorporated
herein by reference.
TheEXECUTIVE OFFICERS
- ------------------
Information with respect to the executive officers of the Company are as follows:
Name Position Age
Timothy P. Horne Chairman of the Board, President 56
and Chief Executive Officer
and Director
David A. Bloss, Sr. Executive Vice President and 44
Director
Frederic B. Horne Corporate Vice President and 44
Director
Kenneth J. McAvoy Vice President of Finance, Chief 54
Financial Officer, Treasurer,
Executive Vice President of European
Operations, Secretary and Director
Robert T. McLaurin Corporate Vice President of 63
Asian Operations
Michael O. Fifer Vice President of Corporate 37
Development
William C. McCartney Corporate Controller 40
Suzanne M. Zabitchuck Corporate Counsel and 39
Assistant Secretary
Timothy P. Horne joinedis set
forth in Item 1 of this Report under 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 as President and Chief Executive Officer from
1978 to April 1986. In April 1986, Mr. Horne became the Company's
Chairman of the Board and Chief Executive Officer. Mr. Horne became
the Company's President in January 1994.
David A. Bloss, Sr., joined the Company as Executive Vice
President in July 1993 and has been a Director since January 1994.
Prior to joining the Company, Mr. Bloss was for five years associated
with the Norton Company, a manufacturer of abrasives and cutting
tools, serving most recently as President of the Superabrasives
Division. He also spent seven years with Cooper Industries.
Frederic B. Horne, brother of Timothy P. Horne, 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 1978 to August 1987. He joined the Company in 1973.
Kenneth J. McAvoy has been Vice President of Finance since 1984
and Chief Financial Officer and Treasurer since June 1986, and has
been been a Director since January 1994. Mr. McAvoy was also appointed
Executive Vice President of European Operations in January 1994. Mr.
McAvoy has also served as Secretary or Clerk since January 1985. He
joined the Company in 1981 as Corporate Controller.
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. Fifer joined the Company in May 1994 and was appointed
the Company's Vice President, Corporate Development. Prior to joining
the Company, Mr. Fifer was Associate Director of Corporate Development
with Dynatech Corp., a diversified high-tech manufacturer, from 1991
to April 1994. Mr. Fifer also served as President of PYSB, Inc., a
manufacturer of resin-composite transportation products from 1990 to
1991.
William C. McCartney has been Corporate Controller of the Company
since April 1988. He joined the Company in 1985 as Controller. Prior
to that time he was for four years subsidiary Controller for Gould
Electronics, Inc., a manufacturer of factory automation equipment.
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. Prior to joining the
Company, she was associated with The Stride Rite Corporation, a shoe
manufacturer, serving most recently as Associate General Counsel and
Clerk.caption "Executive Officers".
Item 11. EXECUTIVE COMPENSATION.
-----------------------
The information appearing under the caption "Compensation Arrangements" in
the registrant's definitive proxy statement dated
September 14, 1994Registrant's Proxy Statement relating to the Annual Meeting of Stockholders
to be held on October 18, 199421, 1997 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 definitive proxy
statement dated September 14, 1994Registrant's Proxy Statement relating to the Annual Meeting
of Stockholders to be held on October 18, 199421, 1997 is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The information appearing under the caption "Compensation
Arrangements-Certain Transactions" in the registrant's definitive
proxy statement dated September 14, 1994Registrant's Proxy Statement relating
to the Annual Meeting of Stockholders to be held on October 18, 199421, 1997 is
incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a)(1) Financial StatementsFINANCIAL STATEMENTS
- ---------------------------
The response to this portion of Item 14 is submitted asfollowing financial statements are included in a separate section of
this Annual Report.Report commencing on the page numbers specified below:
Report of Independent Auditors 16
Consolidated Statements of Operations for each of the Three Years
in the Period Ended June 30, 1997 17
Consolidated Balance Sheets as of June 30, 1997 and 1996 18
Consolidated Statements of Stockholders' Equity for each of the Three Years
in the Period Ended June 30, 1997 19
Consolidated Statements of Cash Flows for each of the Three Years
in the Period Ended June 30, 1997 20
Notes to Consolidated Financial Statements 21
(a)(2) Schedules
The response to this portionSCHEDULES
- ----------------
Schedule II - Valuation and Qualifying Accounts for each of Item 14the Three Years
in the Period Ended June 30, 1997 33
All other schedules for which provision is submitted as a
separate sectionmade in the applicable accounting
regulations of this Annual Report.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 - 10.6,10.1-10.6, 10.8, 10.22, and 10.2410.29 constitute all of the management
contracts and compensation plans and arrangements of the Company required to be
filed as exhibits to this Annual Report.
Exhibit No. Description
3.1 Restated Certificate of Incorporation, as amended.(1)
3.2 Amended and Restated By-Laws. (2)
9.1 Horne Family Voting Trust Agreement-1991 dated as of
October 31, 1991. (3)
10.1 Employment Agreement dated as of May 1, 1993 between
the Registrant and Timothy P. Horne. (13)
10.2 Supplemental Compensation Agreement dated as of
May 1, 1993 between the Registrant and Timothy P.
Horne. (13)
10.3 Deferred Compensation Agreement between the
Registrant and Timothy P. Horne, as amended. (5)
10.4 1986 Incentive Stock Option Plan, as amended,
including form of Option Agreement. (4)
10.5 1989 Nonqualified Stock Option Plan, including form
of Option Agreement. (4)
10.6 Retirement Plan for Salaried Employees, as amended.
(6)
10.7 Registration Rights Agreement dated as of July 25,
1986. (7)
10.8 Executive Incentive Bonus Plan. (13)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.
Exhibit No. Description and Location
3.1 Restated Certificate of Incorporation, as amended. (12)
3.2 Amended and Restated By-Laws. (1)
9.1 Horne Family Voting Trust Agreement-1991 dated as of October 31,
1991 (2), Amendments dated November 19, 1996*, February 24, 1997*,
June 5, 1997*, and August 26, 1997.*
9.2 The George B. Horne Voting Trust Agreement-1997 dated as of August
26, 1997. *
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.*
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. (10)
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 as of August 1, 1985. (5)
10.11 Amendment Agreement relating to Watts Regulator Co.
(Canaan and Franklin, New Hampshire, facilities)
financing dated as of December 31, 1985. (5)
10.12 Sale Agreement between Village of Walden Industrial
Development Agency and Spence Engineering
Company, Inc. dated as of June 1, 1994. *
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. *
10.14 Trust Indenture from Village of Walden Industrial
Development Agency to the First National Bank of
Boston, as Trustee, dated as of June 1, 1994. *
10.15 Loan Agreement between Hillsborough County
Industrial Development Authority and Leslie
Controls, Inc. dated as of July 1, 1994. *
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. *
10.17 Trust Indenture from Hillsborough County Industrial
Development Authority to the First National Bank
of Boston, as Trustee, dated as of July 1, 1994.*
10.18 Bond Purchase Agreement among The Rutherford County
Industrial Facilities and Pollution Control
Financing Authority, Northwestern Bank and
Regtrol, Inc. dated as of October 1, 1984. (5)
10.19 Loan Agreement between The Rutherford County
Industrial Facilities and Pollution Control
Financing Authority and Regtrol, Inc. dated as of
October 1, 1984. (5)
10.20 Agreement as to Financial Covenants between
Northwestern Bank and Watts Regulator Co. dated
as of October 1, 1984. (5)
10.21 Guaranty Agreement from Watts Regulator Co. to
Northwestern Bank dated as of October 1, 1984.
(5)
10.22 Amendment Agreement relating to Regtrol, Inc.
financing dated as of January 1, 1986. (5)
10.23 Amended and Restated Stock Restriction Agreement
dated as of October 30, 1991. (3)
10.24 Watts Industries, Inc. 1991 Non-Employee Directors'
Nonqualified Stock Option Plan. (9)
10.25 Letters of Credit relating to retrospective paid
loss insurance programs. (13)
10.26 Form of Master Agreement, dated as of April 15,
1986, relating to interest rate swap transaction
and forms of related Rate Swap Agreements. (7)
10.27 Form of Stock Restriction Agreement for management
stockholders. (7)
10.28 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. (8)
10.29 Loan Agreement dated September 1987 with, and
related Mortgage to, N.V. Sallandsche Bank. (8)
10.30 Agreement and Plan of Merger dated as of August 22,
1991 relating to the acquisition by the Registrant
of Henry Pratt Company. (11)
10.31 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 as of November 6,
1992. (12)
10.32 Revolving Credit Agreement dated August 30, 1994
between and among Watts Investment Company,
certain financial institutions, the First National
Bank of Boston, as Agent, and the Registrant, as
Guarantor. *
11 Statement Regarding Computation of Earnings per
Common Share. +
13 1994 Annual Report to Stockholders. * (This Report,
except for those portions thereof which are
expressly incorporated by reference into this
Report on Form 10-K, is not to be deemed "filed"
with the Securities and Exchange Commission.)
21 Subsidiaries. *
23.1 Consent of Ernst & Young, Independent Auditors. +
23.2 Consent of Deloitte & Touche, Independent Auditors. +
27 Financial Data Schedule. *
(1) Incorporated by reference to the relevant exhibit to the
Registrant's Registration Statement on Form S-3 (No. 33-43983)
filed with the Securities and Exchange Commission on November 15,
1991.
(2) Incorporated by reference to the relevant exhibit to the
Registrant's Current Report on Form 8-K filed with the Securities
and Exchange Commission on May 15, 1992.
(3) Incorporated by reference to the relevant exhibit to the
Registrant's Current Report on Form 8-K filed with the Securities
and Exchange Commission on November 14, 1991.
(4) Incorporated by reference to the relevant exhibit to the
Registrant's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on September 28, 1989.
(5) Incorporated by reference to the relevant exhibit to the
Registrant's Registration Statement on Form S-1 (No. 33-6515)
filed with the Securities and Exchange Commission on June 17,
1986.
(6) Incorporated by reference to the relevant exhibit to the
Registrant's Registration Statement on Form S-1 (No. 33-6515)
filed with the Securities and Exchange Commission as part of the
First Amendment to such Registration Statement on July 30, 1986.
(7) Incorporated by reference to the relevant exhibit to the
Registrant's Registration Statement on Form S-1 (No. 33-6515)
filed with the Securities and Exchange Commission as part of the
Second Amendment to such Registration Statement on August 21,
1986.
(8) Incorporated by reference to the relevant exhibit to the
Registrant's Registration Statement on Form S-1 (No. 33-27101)
filed with the Securities and Exchange Commission on February 16,
1989.
(9) Incorporated by reference to the relevant exhibit to the
Registrant's Amendment No. 1 to Form 10-K for fiscal 1992 filed
with the Securities nd Exchange Commission on March 11, 1993.
(10) Incorporated by reference to the relevant exhibit to the
Registrant's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on September 16, 1992.
(11) Incorporated by reference to Exhibit 10.33 to the Registrant's
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on September 24, 1991.
(12) Incorporated by reference to the relevant exhibit to the
Registrant's Amendment No. 2 to Form 8-K dated November 6, 1992
filed with the Securities and Exchange Commission on February 22,
1993.
(13) Incorporated by reference to the relevant exhibit to the
Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on September 24, 1993.
* Filed herewith.
+ Filed herewith as a separate section of this report.
(b) Reports on Form 8-K.
The Registrant did not file any reports on Form 8-K during the
last quarter of the period covered by this Annual Report.
(c) Exhibits.
The response to this portion of Item 14 is submitted as a
separate section of this Annual Report.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a
separate section of this Annual Report.
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)
10.19 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.*
10.20 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)
10.21 Amended and Restated Stock Restriction Agreement dated October 30,
1991 (2), Amendment dated August 26, 1997.*
10.22 Watts Industries, Inc. 1991 Non-Employee Directors' Nonqualified
Stock Option Plan (7), Amendment No. 1. (14)
10.23 Letters of Credit relating to retrospective paid loss insurance
programs. (10)
10.24 Form of Stock Restriction Agreement for management stockholders. (5)
10.25 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)
10.26 Loan Agreement dated September 1987 with, and related Mortgage to,
N.V. Sallandsche Bank. (6)
10.27 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)
10.28 Revolving Credit Agreement dated August 30, 1994 between and among
Watts Investment Company, certain financial institutions, the First
National Bank of Boston, as Agent, and the Registrant, as Guarantor
(11), Amendment No. 1 (14), Amendment No. 2. (14)
10.29 Watts Industries, Inc. Management Stock Purchase Plan dated October
17, 1995 (13), Amendment No. 1 dated August 5, 1997.*
10.30 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. *
21. Subsidiaries. *
23.1 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. *
INCORPORATED BY REFERENCE TO:
- -----------------------------
(1) Relevant exhibit to Registrant's Form 8-K dated May 15, 1992.
(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-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-K for year ended June 30, 1994.
(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.
* Filed as an exhibit to this Report with the Securities and Exchange
Commission
(b) REPORTS ON FORM 8-K.
- ------------------------
A report on Form 8-K was filed with the Securities and Exchange Commission
on April 11, 1997. The following items were reported in the Form 8-K:
(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 & Touche were filed as
Exhibits (letter re change in certifying accountant).
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.
/S/ TimothyBy: /s/ TIMOTHY P. Horne
By: ---------------------------
TimothyHORNE
---------------------
TIMOTHY P. Horne
Chairman of the Board, President,
and Chief Executive OfficerHORNE
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
DATED: September 23, 1994SEPTEMBER 8, 1997
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 DateSIGNATURE TITLE DATE
--------- ----- ----
/S/ TimothyTIMOTHY P. Horne
- - --------------------HORNE Chairman of the Board September 23, 1994
Timothy P. Horne President and Chief Executive Officer September 8, 1997
- --------------------------
Timothy P. Horne (Principal Executive Officer) and Director
/S/ KennethKENNETH J. McAvoy
- - -------------------- Vice President of Finance September 23, 1994
Kenneth J. McAvoyMCAVOY 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.
- - --------------------- Executive Vice President and September 23, 1994
David A. Bloss, Sr. Director
/S/ FredericFREDERIC B. Horne
- - ---------------------HORNE Corporate Vice President and Director September 23, 19948, 1997
- --------------------------
Frederic B. Horne
Director
/S/ NoahNOAH T. Herndon
- - ---------------------HERNDON Director September 23, 19948, 1997
- --------------------------
Noah T. Herndon
/S/ WendyWENDY E. Lane
- - ---------------------LANE Director September 23, 19948, 1997
- --------------------------
Wendy E. Lane
/S/ GordonGORDON W. Moran
- - ---------------------MORAN Director September 23, 19948, 1997
- --------------------------
Gordon W. Moran
/S/ DanielDANIEL J. Murphy,MURPHY, III
- - --------------------- Director September 23, 19948, 1997
- --------------------------
Daniel J. Murphy, III
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED JUNE 30, 1994
WATTS INDUSTRIES, INC.
NORTH ANDOVER, MASSACHUSETTS
FORM 10-K--ITEM 14(a)(1) AND (2)
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULESIndependent Auditors' Report
The followingBoard of Directors
Watts Industries, Inc.:
We have audited the accompanying consolidated financial statementsbalance sheet of Watts Industries,
Inc. and subsidiaries included inas of June 30, 1997, and the annual reportrelated consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. In connection with our audit of the registrant to its
shareholdersconsolidated 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, 1994, are incorporated by reference in
Item 8:
Consolidated balance sheets--June 30, 1994 and 1993
Statements of consolidated earnings--Years ended June 30, 1994, 1993
and 1992
Statements of consolidated stockholders' equity--Years ended June 30,
1994, 1993 and 1992
Statements of consolidated cash flows--Years ended June 30, 1994,
1993 and 1992
Notes to consolidated financial statements--June 30, 1994
The following consolidated financial statement schedules of Watts Industries,
Inc. and subsidiaries are included in
Item 14(d):
Schedule I--Marketable Securities--Other Investments
Schedule II--Amounts Receivable from Related Parties and Underwriters,
Promoters and Employees Other than Related Parties
Schedule V--Property, Plant and Equipment
Schedule VI--Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment
Schedule VIII--Valuation and Qualifying Accounts
Schedule X--Supplementary Income Statement Information
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and,
therefore, have been omitted.
Supplemental Reports of Independent Auditors
Schedule I-Marketable Securities--Other Investments
Watts Industries, Inc. and Subsidiaries
June 30, 1994
(Dollar amounts in thousands)
Column A Column B Column C Column D Column E
Amount at Which
Number of Each Portfolio of
Shares or Units- Equity Security
Principal Market Value Issues and Each
Amounts of of Each Issue at Other Security
Bonds and Cost of Each Balance Sheet Issue Carried in
Name of Issuer and Title of Each Issue Notes Issue Date the Balance Sheet
Maturity Date/
Municipal Bonds Rate Putable Date
Atlantic Highlands NJ 7.20% 1/01/06 $ 55 $ 58 $ 57 $ 57
Colorado Hsg Fin Put 4.00 8/01/94 565 573 566 566
Duplin Cnty Ctf Partn 2.75 8/01/94 250 250 250 250
Hillsborough Cnty Fl Util 4.70 8/01/94 875 892 877 877
Indiana St Toll 9.40 7/01/05 1,000 1,083 1,076 1,076
Maricopa County Ariz Sch Dist 3.38 7/29/17 1,500 1,511 1,501 1,501
Massachusetts Whsl 13.00 7/01/18 300 335 322 322
Metropolitan Trans Auth 9.88 7/01/15 125 129 128 128
Michigan St Bldg Auth Rev 3.00 4/01/99 1,865 1,874 1,872 1,872
New York City Mun Water Fin A 9.25 6/15/15 500 543 540 540
New York City Ut Series B 10.88 11/15/14 125 138 143 143
New York St Energy Resh 3.00 12/01/14 500 501 501 501
New York St Med Care Facs 9.75 1/15/25 340 372 359 359
New York St Power Auth Rev 10.38 1/01/16 355 392 369 369
Phoenix Ariz Civic Put 7.00 7/01/27 100 104 100 100
Pueblo County Colo 5.00 12/01/94 100 101 101 101
Puerto Rico Hsg Bk & Fin AG 7.13 12/01/04 100 107 105 105
Santa Ana Calif Cnty Redev 2.75 9/01/94 520 520 520 520
Student Loan Funding Put 3.70 12/01/01 1,500 1,505 1,500 1,500
Triborough Bridge & Tunnel NY 6.45 1/01/95 200 208 204 204
Triborough Bridge & Tunnel NY 9.00 1/01/11 200 216 215 215
Total Municipal Bonds 11,412 11,306 11,306
Schedule I-Marketable Securities--Other Investments (continued)
Watts Industries, Inc. and Subsidiaries
June 30, 1994
(Dollar amounts in thousands)
Column A Column B Column C Column D Column E
Amount at Which
Number of Each Portfolio of
Shares or Units- Equity Security
Principal Market Value Issues and Each
Amounts of of Each Issue at Other Security
Bonds and Cost of Each Balance Sheet Issue Carried in
Name of Issuer and Title of Each Issue Notes Issue Date the Balance Sheet
Maturity Date/
U.S. Government Obligations Rate Putable Date
U.S. Treasury Note 3.88% 2/28/95 $ 2,000 $ 2,006 $ 2,006 $ 2,006
U.S. Treasury Note 3.88 3/31/95 1,000 1,004 1,004 1,004
Total U.S. Government Obligations 3,010 3,010 3,010
Corporate Obligations
AMEX Credit Corp 5.95% 1/27/95 1,000 1,027 1,010 1,010
American General Corp 9.50 12/15/94 1,000 1,076 1,017 1,017
Atlantic Richfield Co 8.65 3/31/95 1,000 1,068 1,034 1,034
Beneficial Corp 9.55 5/26/95 1,000 1,076 1,047 1,047
Commercial Credit Group 6.95 10/01/94 1,000 1,040 1,007 1,007
Dillard Dept Stores 9.63 5/15/95 1,000 1,083 1,047 1,047
First Chicago Corp 8.88 9/15/94 1,000 1,065 1,010 1,010
Ford Motor Credit Co 9.75 11/04/94 1,000 1,081 1,019 1,019
General Electric Co 5.88 12/01/94 1,000 1,024 1,007 1,007
JP Morgan and Co Inc 8.88 8/01/94 1,000 533 502 502
Pactel Capital 8.95 6/20/95 1,000 1,068 1,044 1,044
Pennsylvania Electric Co Resources GTD 8.50 11/01/94 1,000 1,064 1,015 1,015
Philip Morris Cos Inc 9.10 11/14/95 1,000 1,039 1,036 1,036
Total Corporate Obligations 13,244 12,795 12,795
Schedule I-Marketable Securities--Other Investments (continued)
Watts Industries, Inc. and Subsidiaries
June 30, 1994
(Dollar amounts in thousands)
Column A Column B Column C Column D Column E
Amount at Which
Number of Each Portfolio of
Shares or Units- Equity Security
Principal Market Value Issues and Each
Amounts of of Each Issue Other Security
Bonds and Cost of Each at Balance Issue Carried in
Name of Issuer and Title of Each Issue Notes Issue Sheet Date the Balance Sheet
Maturity Date/
Commercial Paper Rate Putable Date
Associates Corp of NA 4.30% 7/06/94 $ 255 $ 254 $ 254 $ 254
Florida Power and Light 4.24 7/15/94 4,991 4,991 4,991 4,991
Household Fin Corp 4.20 7/06/94 100 100 100 100
Pennsylvania Power and Light 4.24 7/15/94 1,497 1,497 1,497 1,497
Total Commercial Paper 6,842 6,842 6,842
Money Market and Mutual Funds (In thousands)
Units
Alliance Capital Reserves 30 30 30 30
Laurel Funds Inc Govt MMII 12,860 12,860 12,860 12,860
Laurel Funds Inc Prime II 76 76 76 76
First Union Treasury MMF 341 341 341 341
Lehman Prime MMF 7,058 7,058 7,058 7,058
Lehman Govt Obligations MMF 4,348 4,348 4,348 4,348
Merrill Lynch Institutional MMF 103 103 103 103
Total Money Market and Mutual Funds 24,816 24,816 24,816
Total short-term investments $59,324 $58,769 $58,769
Schedule II-Amounts Receivable from Related Parties and Underwriters,
Promoters and Employees Other than Related Parties
Watts Industries, Inc. and Subsidiaries
(Dollar amounts in thousands)
Column A Column B Column C Column D Column E
Deductions Balance at End of Period
Balance at Beginning of
Name of Debtor Period Additions Amounts Collected Amounts Written Off Current Not Current
Year ended June 30, 1994:
Charles W. Grigg,
Noninterest-bearing note
receivable due upon sale of
certain common stock of
Company $222 $185 $407 (1)
Year ended June 30, 1993:
Charles W. Grigg,
Noninterest-bearing note
receivable, due upon sale of
certain common stock of
Company 120 102 $222
Year ended June 30, 1992:
Charles W. Grigg,
Noninterest-bearing note
receivable, due upon sale of
certain common stock of
Company 120 $120
(1) Amount collected represents the sale of 7,200 shares of Class A Common
Stock to the Company at $48.50 per share and a cash remittance of $57,800.
Schedule V-Property, Plant and Equipment
Watts Industries, Inc. and Subsidiaries
(Dollar amounts in thousands)
Column A Column B Column C Column D Column E Column F
Balance at Beginning Other Changes--Add Balance at End of
Classification of Period Additions at Cost(2) Retirements (Deduct)--Describe(1) Period
Year ended June 30, 1994:
Land $ 11,247 $ 34 $ (18) $ 11,263
Buildings and improvements 59,951 2,250 78 62,279
Machinery and equipment 142,384 10,050(4) $9,070 6,288 149,652
Construction in progress (5) 4,665 8,657 (6,141) 7,181
Totals $218,247 $20,991 $9,070 $ 207 $230,375
Year ended June 30, 1993:
Land $ 8,114 $ 1,842 $ 1,291 $ 11,247
Buildings and improvements 38,494 17,342(4) 4,115 59,951
Machinery and equipment 121,258 13,727(4) $2,374 9,773 142,384
Construction in progress (5) 6,674 14,319(4) (16,328) 4,665
Totals $174,540 $47,230 $2,374 $ (1,149) $218,247
Year ended June 30, 1992:
Land $ 7,899 $ 256 $ 25 $ (16) $ 8,114
Buildings and improvements 34,556 3,676 358 620 38,494
Machinery and equipment 100,969 18,244(4) 656 2,701 121,258
Construction in progress (5) 1,625 7,205(4) (2,156) 6,674
Totals $145,049 $29,381 $1,039 $ 1,149 $174,540
(1) Adjustment due to the effect of exchange ate changes on translating
property, plant and equipment of foreign subsidiaries in accordance with FASB
Statement No. 52, "Foreign Currency Translation."
(2) Includes $1,063,000 in 1994, $21,432,000 in 1993 and $11,327,000
in 1992 of assets of acquired businesses.
(3) The annual provisions for depreciation have been computed using the
straight-line method in accordance with the following range of percentages:
Buildings and improvements 2.5% to 10%
Machinery and equipment 6.7% to 33.3%
(4) Includes acquisition cost of machinery and assembly centers in:
Year Location
1994 Ontario, Canada
1993 Caldero and Trento, Italy and Tottonham, England
1992 Dixon and Aurora, Illinois
(5) Certain capital projects are recorded in construction in progress and
allocated to machinery and equipment and buildings and improvements when
placed into service.
Schedule VI-Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment
Watts Industries, Inc. and Subsidiaries
(Dollar amounts in thousands)
Column A Column B Column C Column D Column E Column F
Additions Charged
Balance at Beginning to Cost and Other Changes--Add Balance at End of
Description of Period Expenses Retirements (Deduct)--Describe(1) Period
Year ended June 30, 1994:
Buildings and improvements $ 7,555 $ 914 $ 9 $ 8,478
Machinery and equipment 76,431 17,789 $8,660 88 85,648
Totals $83,986 $18,703 $8,660 $ 97 $ 94,126
Year ended June 30, 1993:
Buildings and improvements $ 6,406 $ 1,192 $ (43) $ 7,555
Machinery and equipment 62,761 15,679 $1,571 (438) 76,431
Totals $69,167 $16,871 $1,571 $(481) $83,986
Year ended June 30, 1992:
Buildings and improvements $ 5,689 $ 723 $ 25 $ 19 $ 6,406
Machinery and equipment 49,051 13,977 442 175 62,761
Totals $54,740 $14,700 $ 467 $ 194 $69,167
(1) Adjustment due to the effect of exchange rate changes on translating
property, plant and equipment of foreign subsidiaries in accordance with
FASB Statement No. 52, "Foreign Currency Translation."
Schedule VIII-Valuation and Qualifying Accounts
Watts Industries, Inc. and Subsidiaries
(Dollar amounts in thousands)
Column A Column B Column C Column D Column E
Deductions
Balance at Beginning of Charged to Costs Charged to Other Deductions-- Balance at End of
Description Period and Expenses Accounts--Describe Describe(1) Period
Year ended June 30, 1994:
Deducted from asset account:
Allowance for doubtful
accounts $3,565 $1,726 $137 (2) $ 940 $4,488
Year ended June 30, 1993:
Deducted from asset account:
Allowance for doubtful
accounts $2,586 $1,460 $808 (2) $1,289 $3,565
Year ended June 30, 1992:
Deducted from asset account:
Allowance for doubtful
accounts $1,642 $1,393 $264 (2) $ 713 $2,586
(1) Uncollectible accounts written off, net of recoveries.
(2) Balance acquired in connection with acquisition of Ancon, Inc. in 1994,
Intermes in 1993 and Henry Pratt Company and Contromatics, Inc. in 1992.
Schedule X-Supplementary Income Statement Information
Watts Industries, Inc. and Subsidiaries
(Amounts in thousands)
Column A Column B
Item Charged to Costs and Expenses
Fiscal year ended June 30
1994 1993 1992
---- ---- ----
Maintenance and repairs $5,400 $5,265 $5,541
Depreciation and amortization of intangible
assets (1)
Taxes, other than payroll and income taxes (1)
Royalties (1)
Advertising costs (1)
(1) Amounts for these expenses are not presented as such amounts are less
than 1% of total sales and revenues.
Exhibit 11
Computation of Net Earnings Per Common Share
Watts Industries, Inc.
(Amounts in thousands, except per share information)
Fiscal year ended June 30
1994 1993 1992
Primary
Average shares outstanding:
Class A Common Stock, par value $.10 17,969 18,404 16,516
Class B Common Stock, par value $.10 11,488 11,490 11,512
Net effect of dilutive stock options--based
upon treasury stock method using
average market price
217 196 298
Total 29,674 30,090 28,326
Earnings before cumulative effect of change
in accounting $41,010 $30,406 $36,625
Cumulative effect of change in accounting (3,132)
Net earnings $41,010 $27,274 $36,625
Earnings per Common Share:
Earnings before cumulative effect of change
in accounting $ 1.38 $ 1.01 $ 1.29
Cumulative effect of change in accounting (.10)
Net earnings $ 1.38 $ .91 $ 1.29
Exhibit 11
Computation of Net Earnings Per Common Share (continued)
Watts Industries, Inc.
(Amounts in thousands, except per share information)
Fiscal year ended June 30
1994 1993 1992
Fully Diluted
Average shares outstanding:
Class A Common Stock, par value $.10 17,969 18,404 16,516
Class B Common Stock, par value $.10 11,488 11,490 11,512
Net effect of dilutive stock options--based
upon treasury stock method using ending
market price, if higher than average
market price 260 204 298
Assumed conversion of 7 3/4% convertible
subordinated debentures 1,754
Total 29,717 30,098 30,080
Earnings before cumulative effect of change
in accounting $41,010 $30,406 $36,625
Cumulative effect of change in accounting (3,132)
Add 7 3/4% convertible subordinated debentures
interest, net of income tax effect 1,459
$41,010 $27,274 $38,084
Earnings per Common Share:
Earnings before cumulative effect of change
in accounting $ 1.38 $ 1.01 $ 1.27
Cumulative effect of change in accounting (.10)
Net earnings $ 1.38 $ .91 $ 1.27
All share and per share information have been restated for all periods presented
above to reflect the stock split effected in March 1994 as discussed in Note 7
to the Consolidated Financial Statements.
Exhibit 23.1--Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Watts Industries, Inc. of our report dated August 5, 1994, included in the
1994 Annual Report to Shareholders of Watts Industries, Inc.
Our audits also included the financial statements schedules of Watts Industries,
Inc. listed in Item 14(a).1997. These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. We did not audit the financial statements of Watts Industries Europe
B.V., a consolidated subsidiary, which statements reflect total assets of
$107,729,000 and $100,219,000 at June 30, 1994 and 1993 and total revenues of
$79,709,000 and $57,645,000 for the years then ended. We have been furnished
with the report of Deloitte & Touche with respect to Schedules V, VI, VIII and X
of Watts Industries Europe B.V. In our opinion, based on our audits and the
report of other auditors, the financial statement schedules referred to above,
when considered in relation to the basic
consolidated financial statements taken
as a whole, present fairly in all material respects the information set therein.
We also consent to the incorporation by reference in the Registration Statements
(Post-Effective Amendment No. 1 to Form S-8 No. 33-30377) pertaining to the 1986
Incentive Stock Option Plan and (Form S-8 No. 33-37926) pertaining to the
Nonqualified Stock Option Plan of Watts Industries, Inc. and in the related
Prospectuses of our report dated August 5, 1994, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedules included in this Annual Report (Form 10-K) of Watts
Industries, Inc.
ERNST & YOUNG
Boston, Massachusetts
September 19, 1994
Independent Auditor's Report
Board of Directors
Watts Industries Europe B.V.
We have audited the accompanying financial statements including the
consolidated/combined financial statements of Watts Industries Europe B.V.
at Eerbeek for the fiscal years ended June 30, 1994 and 1993 (not separately
presented herein) expressed in Dutch Guilders. These financial statementsschedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on thethese
consolidated financial statements and schedule based on our audits.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."
We conducted our auditsaudit in accordance with auditing standards generally accepted in the Netherlands and the United States of America.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
misstatements.misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provideaudit provides a reasonable basis for our opinion.
In our opinion, the consolidated/combined1997 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated/combined
financial position of Watts
Industries, Europe B.V. atInc. and subsidiaries as of June 30, 1994 and
19931997, and the results of their
operations inand their cash flows for the fiscal yearsyear then ended in conformity with
generally accepted accounting principlesprinciples. Also, in The Netherlands.
Generally accepted accounting principles in The Netherlands vary in certain
significant respects from generally accepted accounting principles in the
United States. The application of the latter would have affected the
determination of consolidated/combined net earnings in the years ended
June 30, 1994 and 1993 and the determination of stockholders' equity at
June 30, 1994 and 1993 to the extent summarized in Note G.
Leiden, The Netherlands, August 5, 1994
Deloitte & Touche
Registeraccountants
(signature)
P.C. Spaargaren RA
Report of Independent Auditors
Board of Directors
Watts Industries, Inc.
We have audited the financial statements including the consolidated/combined
financial statements of Watts Industries Europe B.V., a wholly owned
subsidiary of Watts Industries, Inc., as of June 30, 1994 and 1993 and for
the years then ended and have issued our report thereon dated August 5, 1994.
Our audits also included financial statement schedules V, VI, VIII and X of
Watts Industries Europe B.V. (not presented separately herein) which
are included in the related schedules of Watts Industries, Inc. in Form 10-K.
These financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the related
financial statement schedules of Watts Industries Europe
B.V. referred to above,schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presentpresents fairly, in all
material respects, the information set forth therein.
Leiden,/s/ KPMG Peat Marwick L.L.P.
August 1, 1997
Boston, Massachusetts
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
Fiscal Year Ended June 30
1997 1996 1995
------------------------------------
Net sales $ 720,340 $ 640,876 $ 576,851
Cost of goods sold 474,948 428,678 366,139
--------- --------- ---------
GROSS PROFIT 245,392 212,198 210,712
Selling, general and administrative expenses 158,984 162,951 133,601
Impairment of long-lived assets 0 63,065 0
Restructuring charge 0 25,415 0
--------- --------- ---------
OPERATING INCOME (LOSS) 86,408 (39,233) 77,111
--------- --------- ---------
Other (income) expense:
Interest income (763) (702) (1,930)
Interest expense 10,493 9,960 9,368
Other 1,091 919 1,483
--------- --------- ---------
10,821 10,177 8,921
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 75,587 (49,410) 68,190
Provision for income taxes 27,127 4,355 25,727
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS 48,460 (53,765) 42,463
Income from discontinued operations, net of taxes 79 3,480 3,275
Gain on disposal of discontinued operations, net of taxes 3,208 0 0
--------- --------- ---------
NET INCOME (LOSS) $ 51,747 $ (50,285) $ 45,738
========= ========= =========
Income (loss) per common share:
Continuing operations $ 1.77 $ (1.82) $ 1.43
Discontinued operations .00 .12 .11
Gain on disposal of discontinued operations .12 .00 .00
--------- --------- ---------
NET INCOME (LOSS) $ 1.89 $ (1.70) $ 1.54
========= ========= =========
Dividends per common share $ .295 $ .265 $ .235
========= ========= =========
Weighted average number of common shares 27,433 29,527 29,755
========= ========= =========
The Netherlands,accompanying notes are an integral part of these consolidated financial
statements.
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
June 30
1997 1996
----------------
ASSETS
CURRENTASSETS:
Cash and cash equivalents $ 13,904 $ 0
Short-term investments 518 0
Trade accounts receivable, less allowance for
doubtful accounts of $7,945 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 $656,294
========= =========
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.
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 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) $361,602
Net income 45,738 45,738
Shares of Class B Common Stock converted to
Class A Common Stock 68,000 7 (68,000) (7)
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
Shares of Class A Common Stock exchanged upon
the exercise of stock options and retired (15,843) (1) (390) (391)
Purchase and retirement of treasury stock (1,458,900) (146) (28,421) (28,567)
Common Stock cash dividends (7,793) (7,793)
Change in currency translation adjustment (270) (270)
-----------------------------------------------------------------------------------
Balance at June 30, 1996 16,856,838 1,686 11,365,627 1,136 67,930 249,415 (584) 319,583
NET INCOME 51,747 51,747
SHARES OF CLASS B COMMON STOCK CONVERTED
TO CLASS A COMMON STOCK 150,000 15 (150,000) (15)
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 JUNE 30, 1997 15,797,460 $ 1,580 11,215,627 $1,121 $44,643 $293,170 $(6,875) $333,639
===================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
Fiscal Year Ended June 30
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Income (loss) from continuing operations $ 48,460 $ (53,765) $ 42,463
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
Deferred income taxes 3,725 (14,556) 3,313
Loss (gain) on disposal of equipment 241 (1,405) (453)
Changes in operating assets and liabilities, net of effects from
business acquisitions:
Accounts receivable (5,773) (12,979) (16,353)
Inventories 7,734 (17,524) (11,453)
Prepaid expenses and other assets (2,049) 4,688 (4,696)
Accounts payable, accrued expenses and other liabilities (6,031) 35,028 4,161
----------- ----------- -----------
58,217 45,761 37,327
Net cash provided by discontinued operations 653 9,638 3,447
----------- ----------- -----------
Net cash provided by operating activities 58,870 55,399 40,774
----------- ----------- -----------
INVESTING ACTIVITIES
Additions to property, plant and equipment (29,742) (31,080) (27,980)
Proceeds from sale of property, plant and equipment 1,715 1,462 1,287
Discontinued operations:
Proceeds from disposal of discontinued operations 88,164 0 0
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
----------- ----------- -----------
Net cash provided by (used in) investing activities 20,144 (41,718) (67,988)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from long-term borrowings 106,346 91,867 65,430
Payments of long-term debt (140,662) (73,399) (34,656)
Proceeds from exercise of stock options 1,935 772 2,059
Dividends (7,992) (7,793) (6,951)
Purchase and retirement of common stock (25,564) (28,567) 0
----------- ----------- -----------
Net cash provided by (used in) financing activities (65,937) (17,120) 25,882
----------- ----------- -----------
Effect of exchange rate changes on cash and cash equivalents 827 96 (213)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,904 (3,343) (1,545)
Cash and cash equivalents at beginning of year 0 3,343 4,888
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 13,904 $ 0 $ 3,343
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS
The Company designs, manufactures and sells an extensive line of valves for the
plumbing and heating, water quality, industrial, and oil and gas markets located
predominately in North America, Europe, and Asia.
(2) ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Watts Industries,
Inc. and its majority and wholly-owned subsidiaries (the Company). Upon
consolidation, all significant intercompany accounts and transactions are
eliminated.
REVENUE RECOGNITION
Revenue is recognized, net of a provision for estimated returns and allowances,
upon shipment.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents consist of 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.
INVENTORIES
Inventories are stated principally at the lower of cost (first-in, first-out
method) or market.
GOODWILL
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 value of goodwill is reviewed if facts and
circumstances suggest it may be impaired. If this review indicates that goodwill
will not be recoverable, as determined based on the undiscounted operating cash
flows of the entity acquired over the remaining amortization period, the
carrying value of the goodwill is reduced to its fair value, as determined using
a discounted cash flow approach.
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 losses are recorded on long-lived 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 taxes are recognized for temporary differences between financial
statement and income tax bases of assets and liabilities.
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL 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. Net translation gains or losses
are adjusted directly to a separate component of stockholders' equity.
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
Earnings per common share is calculated using the weighted average number of
Class A and B Common Shares outstanding during each period and common stock
equivalents, when dilutive.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are used by the Company principally in the
management of foreign currency exposures on certain anticipated intercompany
transactions. Gains and losses on contracts designated as hedges of existing
assets and liabilities are recognized in income 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.
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 1996 and 1995 have been reclassified 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.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income and SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information. The Company is currently evaluating the
effects of these new standards.
(3) DISCONTINUED OPERATIONS, RESTRUCTURING AND OTHER MATTERS
DISCONTINUED OPERATIONS
On September 4, 1996, the Company divested itself of its Municipal Water Group
of businesses, which included Henry Pratt Company, James Jones Company and
Edward Barber & Company Ltd. by selling the stock of each entity and realizing a
$3.2 million after-tax gain. The results of operations of these companies have
been reported as discontinued operations, net of income taxes, in the
consolidated statements of operations. Unassigned corporate interest expense has
been allocated based on the ratio of the net assets of the discontinued
operations to the consolidated net assets and unassigned debt 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, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and recorded a $63,065,000 charge for
long-lived asset impairment losses. Such losses occurred principally at its
Italian subsidiaries and were the result of declining margins and operating
profits at the subsidiaries, and the potential non-deductibility of goodwill for
income tax purposes. In connection with a re-evaluation of its business strategy
in Italy, management concluded an impairment had occurred and recorded a loss by
reducing the carrying value of affected long-lived assets, primarily goodwill,
to fair value, as determined using a discounted cash flow approach.
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) BUSINESS ACQUISITIONS
During fiscal year 1997, 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. located in Chartres, France.
Five businesses were acquired by the Company during fiscal year 1995, the most
significant being the purchases of Jameco Industries, Inc., Anderson-Barrows
Metals Corporation, and Pibiviesse S.p.A. of Italy. All of these acquired
companies are valve manufacturers and the aggregate purchase price of the
acquisitions was approximately $124.4 million. The goodwill which resulted from
these acquisitions is being amortized on a straight-line basis over a 40 year
period unless circumstances indicate an impairment loss has occurred (see note
4).
These acquisitions have all been accounted for under the purchase method and the
results of operations of the acquired businesses have been included in the
consolidated financial statements from the date of acquisition. Had these
acquisitions occurred at the beginning of fiscal year 1997 or 1996, the effect
on operating results would not have been material.
(6) 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)
The provision for income taxes from continuing operations is based on the
following pre-tax income (loss):
Fiscal Year Ended June 30,
------------------------------
1997 1996 1995
------------------------------
(in thousands)
Domestic $60,530 $19,816 $59,760
Foreign 15,057 (69,226) 8,430
-------- -------- --------
$75,587 $(49,410) $68,190
======= ========= ========
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
======= ========= ========
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
======= ========= ========
At June 30, 1997, the Company has foreign net operating loss carryforwards of
$11.5 million for income tax purposes that expire in fiscal years 1998 through
2005. In addition, foreign net operating losses of $4.6 million can be carried
forward indefinitely. Undistributed earnings of the Company's foreign
subsidiaries amounted to approximately $28 million, $37 million and $43 million
at June 30, 1997, 1996 and 1995, 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 million would be payable
upon remittance of all previously unremitted earnings at June 30, 1997.
The Company made income tax payments of $30.2 million, $27.8 million and $25.2
million in fiscal years 1997, 1996 and 1995, respectively.
(7) 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
Commissions 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 ARRANGEMENTS
Long-term debt consists of the following:
June 30,
---------------------
1997 1996
---------------------
(in thousands)
8-3/8% Notes, due December, 2003 $ 75,000 $ 75,000
$125 million revolving line of credit, accruing
interest at a variable rate of LIBOR plus 25 basis
points or the bank's prime rate (6.55% at June 30, 1997)
and expiring in August, 1999 29,000 61,300
Industrial Revenue Bonds, maturing periodically 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.
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; and
2002-$358,000. 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 requires 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 authorized the purchase of up to 1,500,000 and
2,000,000 shares of the Company's common stock in open market and private
purchases during fiscal years 1997 and 1996, respectively. At June 30, 1997,
2,780,200 shares of the Company's common stock had been purchased and retired
since commencement of this purchase plan.
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 6,231,108 shares of Class A Common Stock for issuance under its stock-based
compensation plans and 11,215,627 shares for conversion of Class B Common Stock
to Class A Common Stock.
(10) 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. 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, 4,882,914
shares of Class A Common 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:
Fiscal Year Ended June 30,
---------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------
WEIGHTED Weighted Weighted
AVERAGE average average
(Options in thousands) EXERCISE exercise exercise
OPTIONS PRICE Options price Options price
---------------------------------------------------------------------------------
Outstanding at beginning of year 1,137 $ 21.04 1,019 $ 20.06 1,056 $ 18.32
Granted 378 16.38 314 23.36 289 23.81
Canceled (55) 21.79 (121) 22.16 (186) 20.09
Exercised (112) 17.28 (75) 15.61 (140) 14.66
------- ----------- -------- ----------- ------- -----------
Outstanding at end of year 1,348 $ 20.01 1,137 $ 21.04 1,019 $ 20.06
======= =========== ======== =========== ======= ===========
Exercisable at end of year 552 $ 20.39 460 $ 19.34 371 $ 18.37
======= =========== ======== =========== ======= ===========
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes information about options outstanding at June 30,
1997:
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 - $11.38 13 3.4 $10.84 13 $10.84
$14.25 - $16.38 420 8.5 16.20 52 15.02
$16.60 - $19.80 228 5.3 17.44 165 17.36
$22.13 - $26.13 687 6.9 23.37 322 23.20
------ ----- ------- ----- -------
$10.69 - $26.13 1,348 5.6 20.01 552 20.39
====== ===== ======= ===== =======
The Company has a Management Stock Purchase Plan which allows for the granting
of Restricted Stock Units (RSUs) to key employees to purchase up to 1,000,000
shares of Class A Common Stock at 75% of the fair market value on the date of
grant. RSUs generally vest annually over a three-year period from the date of
grant. At June 30, 1997, 46,419 RSUs were outstanding.
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, 1996 and 1995 was $3.72, $5.69 and $6.03,
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%
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)
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 PLANS
The Company sponsors defined benefit pension plans covering substantially all of
its domestic nonunion 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 status of the Company's principal defined benefit plans and the
amounts recognized 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. Under the Plan, the Company matches a specified percentage
of employee contributions, subject to certain limitations. Company expense
incurred in connection with this plan was $330,000, $350,000 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 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 basis of information presently available,
management is of the opinion that any additional liability resulting from these
matters will not have a material adverse effect on the consolidated financial
position, results of operations or liquidity 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 INSTRUMENTS
Fair Value of Long-Term Debt
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:
June 30,
---------------------
1997 1996
---------------------
(in thousands)
Carrying amount $128,359 $163,150
Estimated fair value 133,774 166,994
USE OF DERIVATIVES
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. 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. At June 30, 1997 and 1996, 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
prices to foreign subsidiaries are intended to produce profit margins
commensurate with sales and marketing efforts:
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 Canada Europe Asia Eliminations Consolidated
--------------------------------------------------------------------------------
(in thousands)
Net sales $ 476,279 $ 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
========= ========= ========= ========= ========= =========
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
Net 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
========= ========= ========= ========= ========= =========
Fiscal Year Ended June 30, 1995
--------------------------------------------------------------------------------
Domestic Canada Europe Asia Eliminations Consolidated
--------------------------------------------------------------------------------
(in thousands)
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 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 of continuing operations $ 393,012 $ 29,567 $ 154,069 $ 17,550 $ (1,191) $ 593,007
Net assets of discontinued operations 71,743 0 11,644 0 0 83,387
--------- --------- --------- --------- ---------- ---------
$ 464,755 $ 29,567 $ 165,713 $ 17,550 $ (1,191) $ 676,394
========= ========= ========= ========= ========== =========
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
----------------------------------------------------
(in thousands, except per share information)
Fiscal year ended June 30, 1997:
Net sales $176,008 $174,220 $184,191 $185,921
Gross profit 60,356 60,152 63,730 61,154
Income from continuing operations 12,346 11,750 12,889 11,475
Net income 15,633 11,750 12,889 11,475
Income per common share:
Continuing operations .45 .43 .47 .42
Discontinued operations .12 .00 .00 .00
Net income .57 .43 .47 .42
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)
Fiscal year ended June 30, 1996:
Net sales $154,129 $156,593 $159,823 $170,331
Gross profit 56,921 55,913 44,941 54,423
Income (loss) from continuing operations 11,664 10,051 (80,303) 4,823
Net income (loss) 12,134 10,777 (79,273) 6,077
Income (loss) per common share:
Continuing operations .39 .33 (2.70) .17
Discontinued operations .02 .03 .03 .04
Net income (loss) .41 .36 (2.67) .21
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).
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------------------------------------------
ADDITIONS
- ------------------------------------------------------------------------------------------------------------------
Balance at Charged to Costs Charged to Other Deductions Balance at
Description Beginning of Period and Expenses Accounts - Describe Describe (1) End of Period
- ------------------------------------------------------------------------------------------------------------------
Year ended June 30, 1997
Deducted from asset account:
Allowance for doubtful
accounts $8,822 $2,489 $30 (2) $3,396 $7,945
Year ended June 30, 1996
Deducted from asset account:
Allowance for doubtful
accounts $5,417 $4,408 $320 (2) $1,323 $8,822
Year ended June 30, 1995
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.
EXHIBIT INDEX
Exhibits 10.1-10.6, 10.8, 10.22, and 10.29 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.
Exhibit No. Description and Location
3.1 Restated Certificate of Incorporation, as amended. (12)
3.2 Amended and Restated By-Laws. (1)
9.1 Horne Family Voting Trust Agreement-1991 dated as of October 31,
1991 (2), Amendments dated November 19, 1996*, February 24, 1997*,
June 5, 1997*, and August 26, 1997.*
9.2 The George B. Horne Voting Trust Agreement-1997 dated as of August
26, 1997. *
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.*
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)
10.19 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.*
10.20 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)
10.21 Amended and Restated Stock Restriction Agreement dated October 30,
1991 (2), Amendment dated August 26, 1997.*
10.22 Watts Industries, Inc. 1991 Non-Employee Directors' Nonqualified
Stock Option Plan (7), Amendment No. 1. (14)
10.23 Letters of Credit relating to retrospective paid loss insurance
programs. (10)
10.24 Form of Stock Restriction Agreement for management stockholders. (5)
10.25 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)
10.26 Loan Agreement dated September 1987 with, and related Mortgage to,
N.V. Sallandsche Bank. (6)
10.27 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)
10.28 Revolving Credit Agreement dated August 30, 1994 between and among
Watts Investment Company, certain financial institutions, the First
National Bank of Boston, as Agent, and the Registrant, as Guarantor
(11), Amendment No. 1 (14), Amendment No. 2. (14)
10.29 Watts Industries, Inc. Management Stock Purchase Plan dated October
17, 1995 (13), Amendment No. 1 dated August 5, 19941997.*
10.30 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. *
21 Subsidiaries. *
23.1 Consent of KPMG Peat Marwick LLP. *
23.2 Consent of Ernst & Young LLP, Independent Auditors, predecessor
auditors.*
23.3 Consent of Deloitte & Touche, Registeraccountants
(signature)
P.C. Spaargaren RA
Exhibit 23.2--
Consent of Independent Auditors, We consentpredecessor
auditors.*
27 Financial Data Schedule. *
Incorporated By Reference To:
- -----------------------------
(1) Relevant exhibit to Registrant's Form 8-K dated May 15, 1992.
(2) Relevant exhibit to Registrant's Form 8-K dated November 14, 1991.
(3) Relevant exhibit to Registrant's Form 10-K for the incorporation by reference inyear 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
Registration Statements
(Post-EffectiveSecond 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 S-810-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. 33-30377) pertaining2 dated February 22, 1993
to the
1986 Incentive Stock Option Plan andForm 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-K for year ended June 30, 1994.
(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. 33-37926) pertaining(No.33-64627) dated November 29,
1995.
(14) Relevant exhibit to the Nonqualified Stock Option Plan of Watts Industries Inc. and in the
related Prospectuses of our reportRegistrant's Form 10-K for year ended June 30, 1996.
(15) Relevant exhibit to Registrant's Form S-8 (No.333-32685) dated August 5, 1994, with respect1,
1997.
(16) Relevant exhibit to the
consolidated combined financial statements of Watts Industries Europe B.V. (not
included herein) and our reportRegistrant's Form 8-K dated August 5, 1994, with repectSeptember 4, 1996.
* Filed as an exhibit to the
financial statement schedules of Watts Industries Europe B.V. (not included
herein).
Leiden, The Netherlands, September 19, 1994
Deloitte & Touche
Registeraccountants
(signature)
P.C. Spaargaren RA
EXHIBIT INDEX
Listed and indexed below are all Exhibits filed as part of this Report. Certain Exhibits are incorporated by reference to documents
previously filed by the CompanyReport with the Securities and Exchange Commission
pursuant to Rule 12b-32 under the Securities Exchange Act of
1934, as amended.
Exhibit No. Description
3.1 Restated Certificate of Incorporation, as amended.(1)
3.2 Amended and Restated By-Laws. (2)
9.1 Horne Family Voting Trust Agreement-1991 dated as of
October 31, 1991. (3)
10.1 Employment Agreement dated as of May 1, 1993 between
the Registrant and Timothy P. Horne. (13)
10.2 Supplemental Compensation Agreement dated as of
May 1, 1993 between the Registrant and Timothy P.
Horne. (13)
10.3 Deferred Compensation Agreement between the
Registrant and Timothy P. Horne, as amended. (5)
10.4 1986 Incentive Stock Option Plan, as amended,
including form of Option Agreement. (4)
10.5 1989 Nonqualified Stock Option Plan, including form
of Option Agreement. (4)
10.6 Retirement Plan for Salaried Employees, as amended.
(6)
10.7 Registration Rights Agreement dated as of July 25,
1986. (7)
10.8 Executive Incentive Bonus Plan. (13)
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. (10)
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 as of August 1, 1985. (5)
10.11 Amendment Agreement relating to Watts Regulator Co.
(Canaan and Franklin, New Hampshire, facilities)
financing dated as of December 31, 1985. (5)
10.12 Sale Agreement between Village of Walden Industrial
Development Agency and Spence Engineering
Company, Inc. dated as of June 1, 1994. *
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. *
10.14 Trust Indenture from Village of Walden Industrial
Development Agency to the First National Bank of
Boston, as Trustee, dated as of June 1, 1994. *
10.15 Loan Agreement between Hillsborough County
Industrial Development Authority and Leslie
Controls, Inc. dated as of July 1, 1994. *
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. *
10.17 Trust Indenture from Hillsborough County Industrial
Development Authority to the First National Bank
of Boston, as Trustee, dated as of July 1, 1994.*
10.18 Bond Purchase Agreement among The Rutherford County
Industrial Facilities and Pollution Control
Financing Authority, Northwestern Bank and
Regtrol, Inc. dated as of October 1, 1984. (5)
10.19 Loan Agreement between The Rutherford County
Industrial Facilities and Pollution Control
Financing Authority and Regtrol, Inc. dated as of
October 1, 1984. (5)
10.20 Agreement as to Financial Covenants between
Northwestern Bank and Watts Regulator Co. dated
as of October 1, 1984. (5)
10.21 Guaranty Agreement from Watts Regulator Co. to
Northwestern Bank dated as of October 1, 1984.
(5)
10.22 Amendment Agreement relating to Regtrol, Inc.
financing dated as of January 1, 1986. (5)
10.23 Amended and Restated Stock Restriction Agreement
dated as of October 30, 1991. (3)
10.24 Watts Industries, Inc. 1991 Non-Employee Directors'
Nonqualified Stock Option Plan. (9)
10.25 Letters of Credit relating to retrospective paid
loss insurance programs. (13)
10.26 Form of Master Agreement, dated as of April 15,
1986, relating to interest rate swap transaction
and forms of related Rate Swap Agreements. (7)
10.27 Form of Stock Restriction Agreement for management
stockholders. (7)
10.28 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. (8)
10.29 Loan Agreement dated September 1987 with, and
related Mortgage to, N.V. Sallandsche Bank. (8)
10.30 Agreement and Plan of Merger dated as of August 22,
1991 relating to the acquisition by the Registrant
of Henry Pratt Company. (11)
10.31 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 as of November 6,
1992. (12)
10.32 Revolving Credit Agreement dated August 30, 1994
between and among Watts Investment Company,
certain financial institutions, The First National
Bank of Boston, as Agent, and the Registrant, as
Guarantor. *
11 Statement Regarding Computation of Earnings per
Common Share. +
13 1994 Annual Report to Stockholders. * (This Report,
except for those portions thereof which are
expressly incorporated by reference into this
Report on Form 10-K, is not to be deemed "filed"
with the Securities and Exchange Commission.)
21 Subsidiaries. *
23.1 Consent of Ernst & Young, Independent Auditors. +
23.2 Consent of Deloitte & Touche, Independent Auditors. +
27 Financial Data Schedule. *
(1) Incorporated by reference to the relevant exhibit to the
Registrant's Registration Statement on Form S-3 (No. 33-43983)
filed with the Securities and Exchange Commission on November 15,
1991.
(2) Incorporated by reference to the relevant exhibit to the
Registrant's Current Report on Form 8-K filed with the Securities
and Exchange Commission on May 15, 1992.
(3) Incorporated by reference to the relevant exhibit to the
Registrant's Current Report on Form 8-K filed with the Securities
and Exchange Commission on November 14, 1991.
(4) Incorporated by reference to the relevant exhibit to the
Registrant's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on September 28, 1989.
(5) Incorporated by reference to the relevant exhibit to the
Registrant's Registration Statement on Form S-1 (No. 33-6515)
filed with the Securities and Exchange Commission on June 17,
1986.
(6) Incorporated by reference to the relevant exhibit to the
Registrant's Registration Statement on Form S-1 (No. 33-6515)
filed with the Securities and Exchange Commission as part of the
First Amendment to such Registration Statement on July 30, 1986.
(7) Incorporated by reference to the relevant exhibit to the
Registrant's Registration Statement on Form S-1 (No. 33-6515)
filed with the Securities and Exchange Commission as part of the
Second Amendment to such Registration Statement on August 21,
1986.
(8) Incorporated by reference to the relevant exhibit to the
Registrant's Registration Statement on Form S-1 (No. 33-27101)
filed with the Securities and Exchange Commission on February 16,
1989.
(9) Incorporated by reference to the relevant exhibit to the
Registrant's Amendment No. 1 to Form 10-K for fiscal 1992 filed
with the Securities nd Exchange Commission on March 11, 1993.
(10) Incorporated by reference to the relevant exhibit to the
Registrant's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on September 16, 1992.
(11) Incorporated by reference to Exhibit 10.33 to the Registrant's
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on September 24, 1991.
(12) Incorporated by reference to the relevant exhibit to the
Registrant's Amendment No. 2 to Form 8-K dated November 6, 1992
filed with the Securities and Exchange Commission on February 22,
1993.
(13) Incorporated by reference to the relevant exhibit to the
Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on September 24, 1993.
* Filed herewith.
+ Filed herewith as a separate section of this report.