-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AlzMqUbTcihdHmHJN61rmO6KB2TKK4sGnHI+IHTsM49zKAea8+ewzDZD/XFx0kEc tJVUSonC5FpnSabK5njY2Q== 0000795403-96-000003.txt : 19960216 0000795403-96-000003.hdr.sgml : 19960216 ACCESSION NUMBER: 0000795403-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960214 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WATTS INDUSTRIES INC CENTRAL INDEX KEY: 0000795403 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 042916536 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11499 FILM NUMBER: 96518352 BUSINESS ADDRESS: STREET 1: 815 CHESTNUT ST CITY: NORTH ANDOVER STATE: MA ZIP: 01845 BUSINESS PHONE: 5086881811 MAIL ADDRESS: STREET 2: 815 CHESTNUT STREET CITY: NORTH ANDOVER STATE: MA ZIP: 01845 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q ___ / X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 31, 1995 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 or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 815 Chestnut Street, North Andover, MA 01845 - (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (508) 688-1811 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at January 31, 1996 - ------------------------------ ----------------------------- Class A Common, $.10 par value 18,308,138 Class B Common, $.10 par value 11,365,627 WATTS INDUSTRIES, INC. AND SUBSIDIARIES INDEX Part I. Financial Information Page # Item 1. Condensed Consolidated Balance Sheets 3 at December 31, 1995 and June 30, 1995. Condensed Consolidated Statements of 4 Earnings for the Three Months Ended December 31, 1995 and December 31, 1994. Condensed Consolidated Statements of 5 Earnings for the Six Months Ended December 31, 1995 and December 31, 1994. Condensed Consolidated Statements of 6 Cash Flows for the Six Months Ended December 31, 1995 and December 31, 1994. Notes to Condensed Consolidated 7,8,9,10 Financial Statements. Item 2. Management's Discussion and Analysis 11,12,13 of Financial Condition and Results of 14,15 Operations. Part II. Other Information Item 4. Submission of Matters to Vote of Security Holders. 16 Item 6. Exhibits and Reports on Form 8-K. 16 Signatures 17 Exhibit Index 18 Exhibit 11 - Computation of Earnings Per Share 19 Exhibit 27 - Financial Data Schedule 20 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WATTS INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands except share information) (Unaudited) Dec. 31, June 30, 1995 1995 _________ _________ CURRENT ASSETS Cash and cash equivalents.........................$ 1,032 $ 4,257 Short-term investments............................ 4,483 Trade accounts receivable, less allowance for doubtful accounts of $6,615 and $5,828...... 129,613 118,769 Inventories: Finished goods.............................. 78,813 82,638 Work in process............................. 43,653 42,034 Raw materials............................... 88,289 76,155 _________ _________ 210,755 200,827 Prepaid expenses and other current assets......... 18,210 13,588 Deferred tax benefit.............................. 14,400 13,206 _________ _________ Total Current Assets......................... 374,010 355,130 OTHER ASSETS Intangible assets, net............................ 8,332 8,210 Goodwill.......................................... 162,346 149,078 Other............................................. 9,249 9,141 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at cost............. 294,814 279,970 Less allowance for depreciation.................. (121,786) (111,558) _________ _________ Property, plant and equipment, net................ 173,028 168,412 _________ _________ TOTAL ASSETS $ 726,965 $ 689,971 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable..................................$ 49,079 $ 40,726 Accrued expenses.................................. 53,474 46,193 Accrued compensation and related items............ 8,729 10,796 Income taxes...................................... 6,461 3,625 Current portion of long-term debt................. 10,628 11,767 _________ _________ Total Current Liabilities.................... 128,371 113,107 LONG-TERM DEBT, less current portion................. 136,103 132,821 DEFERRED INCOME TAXES................................ 17,104 17,569 OTHER LIABILITIES.................................... 12,491 14,098 MINORITY INTEREST.................................... 6,864 6,422 Class A Common Stock, $.10 par value; 80,000,000 shares authorized, 18,271,538 shares issued and outstanding at December 31...... 1,827 1,822 Class B Common Stock, $.10 par value; 25,000,000 shares authorized, 11,365,627 shares issued and outstanding at December 31...... 1,137 1,140 Additional paid-in capital........................ 95,646 95,496 Retained earnings................................. 326,700 307,493 Equity adjustment from translation................ 722 3 _________ _________ Total Stockholders' Equity................... 426,032 405,954 _________ _________ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $ 726,965 $ 689,971 ========= ========= WATTS INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Amounts in thousands except share information) (Unaudited) Three Months Ended ________ _____________ Dec.31, Dec.31, 1995 1994 _________ _________ Net sales ........................................$ 176,951 $ 159,024 Cost of goods sold ............................... 115,814 101,495 _________ _________ GROSS PROFIT ................................ 61,137 57,529 Selling, general & administrative expenses ....... 40,213 36,219 _________ _________ OPERATING INCOME ............................ 20,924 21,310 Other (income) expense: Interest income ............................. (94) (380) Interest expense ............................ 3,027 2,489 Other - net ................................. 283 729 _________ _________ 3,216 2,838 _________ _________ EARNINGS BEFORE INCOME TAXES ................ 17,708 18,472 Provision for income taxes ....................... 6,931 7,307 _________ _________ NET EARNINGS ................................$ 10,777 $ 11,165 ========= ========= Primary and fully-diluted earnings per share : $ .36 $ .38 ========= ========= Cash dividends per share.......................... $ .0625 $ .0550 ========= ========= See accompanying notes to condensed consolidated financial statements. WATTS INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Amounts in thousands except share information) (Unaudited) Six Months Ended ________ _____________ Dec.31, Dec.31, 1995 1994 _________ _________ Net sales ........................................$ 352,255 $ 311,701 Cost of goods sold ............................... 229,262 198,489 _________ _________ GROSS PROFIT ................................ 122,993 113,212 Selling, general & administrative expenses ....... 79,255 71,068 _________ _________ OPERATING INCOME ............................ 43,738 42,144 Other (income) expense: Interest income ............................. (415) (1,130) Interest expense ............................ 5,873 4,899 Other - net ................................. 900 993 _________ _________ 6,358 4,762 _________ _________ EARNINGS BEFORE INCOME TAXES ................ 37,380 37,382 Provision for income taxes ....................... 14,469 14,827 _________ _________ NET EARNINGS ................................$ 22,911 $ 22,555 ========= ========= Primary and fully-diluted earnings per share : $ .77 $ .76 ========= ========= Cash dividends per share.......................... $ .1250 $ .1100 ========= ========= See accompanying notes to condensed consolidated financial statements. WATTS INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands except share information) (Unaudited) Six Months Ended ________ _____________ Dec. 31, Dec. 31, 1995 1994 _________ _________ OPERATING ACTIVITIES Net earnings $ 22,911 $ 22,555 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amoritzation 14,020 12,028 Provision for deferred income taxes (1,189) 534 (Gain)loss on disposal of fixed assets 32 (67) Changes in operating assets and liabilities, net of effects from business acquisitions: Accounts receivable (8,500) (14,182) Inventories (5,880) (1,975) Prepaid expenses and other assets (4,571) (5,017) Accounts payable and accrued expenses 6,710 2,203 _________ _________ NET CASH PROVIDED BY OPERATING ACTIVITIES 23,533 16,079 INVESTING ACTIVITIES Additions to property, plant and equipment (15,869) (11,944) Proceeds from disposal of equipment 657 206 Increase in intangible assets (853) (482) Business acquisitions, net of cash acquired (13,110) (56,241) Repayment of debt of acquired businesses (3,277) Net changes in short-term investments 4,483 48,088 _________ _________ NET CASH USED IN INVESTING ACTIVITIES (24,692) (23,650) Proceeds from exercise of stock options 62 1,663 Proceeds of long-term borrowings 33,386 13,114 Payments of long-term debt (31,526) (2,361) Cash dividends (3,704) (3,251) _________ _________ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,782) 9,165 Effect of exchange rates on cash and cash equivalents (284) (128) _________ _________ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,225) 1,466 Cash and cash equivalents at beginning of period 4,257 6,231 _________ _________ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,032 $ 7,697 ========= ========= See accompanying notes to condensed consolidated financial statements. WATTS INDUSTRIES, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 1. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all necessary adjustments, consisting only of adjustments of a normal recurring nature, to present fairly Watts Industries, Inc.'s Condensed Consolidated Balance Sheet as of December 31, 1995, the Condensed Consolidated Statements of Earnings for the three and six months ended December 31, 1995 and December 31, 1994, and the Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 1995 and December 31, 1994. The balance sheet at June 30, 1995 has been derived from the audited financial statements at that date. The accounting policies followed by the Company are described in the June 30, 1995 financial statements which are contained in the Company's 1995 Annual Report. It is suggested that these financial statements be read in conjunction with the financial statements and notes included in the 1995 Annual Report to stockholders. 2. On July 28, 1994, a wholly owned subsidiary of the Company purchased Jameco Industries, Inc. ("Jameco") of Wyandanch, New York. Jameco is a manufacturer of metal and plastic water supply products, including valves, tubular products and sink strainers that are sold primarily to residential construction and home repair and remodeling markets in the United States and overseas. Jameco had net sales of approximately $65,000,000 for the twelve months ended June 30, 1995. In August of 1994, a wholly owned subsidiary of the Company entered into a joint venture with Tanggu Valve Company in Tianjin, Peoples Republic of China. The Company's investment represents a 60% interest in the joint venture. On November 18, 1994, a wholly owned subsidiary of the Company purchased Pibiviesse S.p.A. ("PBVS") located in Nerviano, Italy. PBVS manufactures a complete range of trunnion mounted ball valves with manufacturing capabilities up through 60 inch diameter and inclusive of Class 2500 pressure ratings to meet the demanding requirements of international pipeline projects. PBVS has annual net sales of approximately $25,000,000. In August and December of 1994, a wholly owned subsidiary of the Company acquired two product lines. One product line is a line of cryogenic valves used in industrial applications. The other product line is check and relief valves used in aerospace and military applications. On March 1, 1995, a wholly owned subsidiary of the Company purchased Anderson-Barrows Metals Corporation ("Anderson-Barrows") of Palmdale, California. Anderson- Barrows is a manufacturer of compression and flare fittings, plastic tubing and braided metal hose connectors which are sold primarily to the domestic residential construction and home repair and remodeling markets. Anderson-Barrows has annual net sales of approximately $31,000,000. In July of 1995, a wholly owned subsidiary of the Company entered into a joint venture with Suzhou Valve Factory (SUFA) in Souzhou, Peoples Republic of China, to manufacture ball valves for the industrial and oil and gas markets. The Company has invested $6,000,000 which represents a 60% interest in the joint venture. On August 28, 1995, a wholly owned subsidiary of the Company purchased Societe des Etablissements Rene Trubert S.A.("Trubert") of Chartres, France. Trubert is a manufacturer of thermostatic mixing valves sold primarily to commercial and industrial applications to accurately control the temperature of water for human safety and process control. Trubert had net sales of approximately $8,000,000 for the twelve months ended June 30, 1995. On August 31, 1995, a wholly owned subsidiary of the Company acquired the Keane product line from Keane Controls Corporation. This product line consists of solenoid valves and regulators used in high pressure applications. The annual sales of these products are approximately $1,500,000. On September 29, 1995, a wholly owned subsidiary acquired the Kieley Mueller Control Valve product line from International Valve Corporation. This product line consists of linear and rotary control valves sold primarily for industrial process applications to accurately control the pressure, flow, and temperature of steam and process fluids. The annual sales of these products are approximately $2,800,000. The aggregate purchase price for these investments was $98,500,000 after certain adjustments, plus acquired debt of $33,701,000. The Company has repaid $21,469,000 of debt acquired with three of the companies. 3. 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 ongoing basis. The Company cannot predict the effect of future requirements on its capital expenditures, earnings or competitive position due to any changes in 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. Three of these sites, the Sharkey and Combe Landfills in New Jersey, and the San Gabriel Valley/El Monte, California water basin matter, 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 certain developments, the Company elected not to enter into the de minimis settlement proposal with respect to the Sharkey Landfill site and instead decided to participate in the remediation as a participating party. No allocations have been made to date with respect to the Combe Landfill or San Gabriel Valley sites. The EPA has formally notified several entities that they have been identified as being potentially responsible parties with respect to the San Gabriel Valley site. As the Company was not included in this group, its potential involvement in this matter is uncertain at this point given that either the PRPs named to date or the EPA could seek to expand the list of potentially responsible parties. 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 have 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 that time in connection with the Combe Landfill North site. The Company and the remaining PRPs have also received a formal demand from the U.S. Environmental Protection Agency to recover approximately $17 million expended to date in the remediation of this site. Given the number of parties involved in most environmental sites, the multiplicity of possible solutions, the evolving technology and the years of remedial activity required, it is difficult to estimate with certainty the total cost of remediation, the timing and extent of remedial actions which may be required, and the amount of liability, if any, of the Company alone or in relation to that of other responsible parties. 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. The Company has established balance sheet accruals which it currently believes are adequate in light of the potential exposure of pending and threatened environmental litigation and proceedings of which it has knowledge. In this regard, 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, given the nature and scope of the Company's manufacturing operations, there can be no assurance that the Company will not become subject to other environmental proceedings and liabilities in the future which may be material to the Company. Item 2. WATTS INDUSTRIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Quarter Ended December 31, 1995 Compared to Quarter Ended December 31, 1994 Net sales increased $17,927,000 (11.3%) to $176,951,000. This increase was attributable to the inclusion of the net sales of acquired companies and the Company's Chinese joint venture located in Tianjin, Peoples Republic of China. These acquisitions principally included Anderson-Barrows Metals Corporation ("Anderson-Barrows") acquired in March 1995, located in California, Pibiviesse S.p.A. ("PBVS") acquired in November 1994, located in Italy and Societe des Etablissements Rene Trubert S.A. ("Trubert") acquired in August of 1995, located in Chartres, France. The Company had increased unit shipments of European plumbing and heating valves and North American municipal water and industrial valves. These increased unit shipments were partially offset by decreased unit shipments of North American steam valves. The Company had increased net sales in Europe of $2,400,000, net of sales from acquired companies, of which approximately fifty seven percent was due to the strength of certain foreign currencies relative to the U.S. dollar. 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 increased $3,608,000 (6.3%) to $61,137,000 and decreased as a percentage of net sales from 36.2% to 34.6%. This decreased percentage was primarily attributable to lower gross margins experienced within the Oil and Gas group as a result of competitive pricing pressures and the inclusion of certain acquired companies which operate at a lower gross margin than the rest of the Company. Gross profit was also adversely affected by increased raw material costs of bronze ingot, brass rod, and carbon and stainless steel which, due to competitive pricing pressures, could not be completely recovered through price increases. Selling, general and administrative expenses increased $3,994,000 (11%) to $40,213,000. This increase in spending was primarily attributable to the inclusion of the expenses of acquired companies, increased selling expenses associated with international sales and increased commissions associated with higher sales volumes. In the Company's press release dated January 23, 1996, the Company stated " With the general softening of the major markets we serve, our focus will be directed towards cost reduction and efficiency improvements throughout the Company. Plans are being established to accelerate the consolidation of our manufacturing plants, reduce personnel, and also to address under-performing assets and product lines, including the realignment of businesses. Once quantified, we expect to record a restructuring charge to cover the costs of these reorganization efforts. We anticipate that the amount of this charge will be announced along with our regular third quarter sales and earnings report. We feel confident that the steps to be taken will enhance shareholder value for the longer term." As part of its study, the Company is specifically focusing on the various alternatives that exist for its PBVS subsidiary located in Italy. This subsidiary has experienced, during the fiscal year, low pricing, an extreme rise in the cost of raw materials, and poor management. The Company is also considering discontinuing certain manufacturing locations in North America and Europe and amalgamating the production of these products into other existing plants due to redundancy of personnel and overhead. The Company is also considering the potential divestiture of one or more acquired companies which are neither synergistic or sufficiently profitable to remain with the Company. Though the Company is currently in the process of quantifying the components of the restructuring charge, it is anticipated that the restructuring charge is likely to have a material adverse effect on the net earnings which could result in a net loss for the third quarter. This restructuring charge is a one time charge which will impact the third quarter earnings; exclusive of the anticipated restructuring charge, the Company anticipates positive operating earnings in the third quarter. Interest income decreased $286,000 (75.3%) to $94,000. This decrease was attributable to lower levels of cash and short-term investments. Interest expense increased $538,000 (21.6%) to $3,027,000. This increase was attributable to increased borrowings associated with certain acquisitions and to the inclusion of the debt of certain acquired companies in the consolidated balance sheet of the Company. Net earnings decreased $388,000 (3.5%) to $10,777,000. The Company's return on investment for the period ended December 31, 1995 was 10.8%. The change in foreign exchange rates had an immaterial impact on the net results of operations. The weighted average number of common shares outstanding on December 31, 1995, increased to 29,746,910 from 29,695,522 at December 31, 1994, for primary earnings per share. Primary and fully diluted earnings per share were $ .36 for the quarter ended December 31, 1995 compared to $ .38 for the quarter ended December 31, 1994. Results of Operations Six months Ended December 31, 1995 Compared to Six months Ended December 31, 1994 Net sales increased $40,554,000 (13.0%) to $352,255,000. This increase was attributable to the inclusion of the net sales of acquired companies and the Company's Chinese joint venture located in Tianjin, Peoples Republic of China. These acquisitions principally included Anderson-Barrows acquired in March 1995, located in California, PBVS acquired in November 1994, located in Italy and Trubert acquired in August of 1995, located in Chartres, France. The Company had increased unit shipments of plumbing and heating products in Italy and municipal water and industrial valves in North American. These increased unit shipments were partially offset by decreased unit shipments of German plumbing and heating and North American steam valves. The Company had increased sales in Europe of $5,557,000, net of acquired companies, of which forty nine percent was due to the strength of certain foreign currencies relative to the U.S. dollar. 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 increased $9,781,000 (8.6%) to $122,993,000 and decreased as a percentage of net sales from 36.3% to 34.9%. This decreased percentage was primarily attributable to lower gross margins experienced within the Oil and Gas group as a result of competitive pricing and lower sales volumes, unfavorable manufacturing variances associated with reduced production levels caused by lower sales volume experienced within the Steam group and the inclusion of certain acquired companies which operate at a lower gross margin than the rest of the Company. Gross profit was also adversely affected by increased raw material costs of bronze ingot, brass rod, and carbon and stainless steel which, due to competitive pricing pressures, could not be completely recovered through price increases. Selling, general and administrative expenses increased $8,187,000 (11.5%) to $79,255,000. This increase in spending was primarily attributable to the inclusion of the expenses of acquired companies, increased selling expenses associated with international sales, and increased commissions associated with higher sales volumes. Please refer to page 12 for the discussion of the Company's press release regarding the anticipated restructuring charge. Interest income decreased $715,000 (63.3%) to $415,000. This decrease was attributable to lower levels of cash and short-term investments. Interest expense increased $974,000 (19.9%) to $5,873,000. This increase was attributable to increased borrowings associated with certain acquisitions and to the inclusion of the debt of certain acquired companies in the consolidated balance sheet of the Company. Net earnings increased $356,000 (1.6%) to $22,911,000. The Company's return on investment for the period ended December 31, 1995 was 10.8%. The change in foreign exchange rates had an immaterial impact on the net results of operations. The weighted average number of common shares outstanding on December 31, 1995, increased to 29,769,648 from 29,696,957 at December 31, 1994, for primary earnings per share. Primary and fully diluted earnings per share were $ .77 for the six months ended December 31, 1995 compared to $ .76 for the six months ended December 31, 1994. Liquidity and Capital Resources During the six months ended December 31, 1995, the Company invested in three acquisitions and one joint venture. In August of 1995, a wholly owned subsidiary of the Company purchased Societe des Etablissements Rene Trubert S.A. of Chartres, France. Trubert is a manufacturer of thermostatic mixing valves sold primarily for commercial and industrial applications to accurately control the temperature of water for human safety and process control. Trubert had net sales of approximately $8,000,000 for the twelve months ended June 30, 1995. Also, in August and November of 1995, a wholly owned subsidiary of the Company invested a total of $6,000,000 in the Suzhou Watts Valve Co., Ltd. joint venture located in Suzhou, Peoples Republic of China. This joint venture was established to manufacture ball valves for the industrial and oil and gas markets. The Company's investment represents a 60% interest in the joint venture. In August 1995, a wholly owned subsidiary acquired the Keane product line from Keane Controls Corporation. This product line consists of solenoid valves and regulators used in high pressure applications. The annual sales of these products are approximately $1,500,000. Also, in September 1995, a wholly owned subsidiary acquired the Kieley Mueller Control Valve product line from International Valve Corporation. This product line consists of linear and rotary control valves sold primarily for industrial process applications to accurately control the pressure, flow, and temperature of steam and process fluids. The annual sales of these products are approximately $2,800,000. The aggregate purchase price for these investments was $21,500,000. During the six months ended December 31, 1995, the Company spent $15,869,000 on capital expenditures, primarily manufacturing machinery and equipment, as part of its commitment to continuously improve its manufacturing capabilities. Working capital at December 31, 1995 was $245,639,000 compared to $242,023,000 at June 30, 1995. Cash and short-term investments were $1,032,000 at December 31, 1995 compared to $8,740,000 at June 30, 1995. The ratio of current assets to current liabilities was 2.9 to 1 at December 31, 1995 compared to 3.1 to 1 at June 30, 1995. Debt as a percentage of total capital employed was 25.6% at December 31, 1995 compared to 26.3% at June 30, 1995. In order to support the Company's acquisition program, working capital requirements from acquisitions, and for general corporate purposes, the Company entered into a five-year commitment for an unsecured line of credit for $125,000,000 expiring on August 31, 1999. As of December 31, 1995, there was $36,000,000 outstanding under this credit facility. The Company from time to time is involved with environmental proceedings and incurs costs on an ongoing basis related to environmental matters. The Company has been named a potentially responsible party with respect to currently identified contaminated sites, which are in various stages of the remediation process. The Company has evaluated its potential exposure based on all currently available information and has recorded its estimate of its liability for environmental matters. The ultimate outcome of these environmental matters cannot be determined. The Company currently anticipates that it will not incur significant expenditures in fiscal 1996 in connection with any of these environmentally contaminated sites. Please see Note 3 to the accompanying condensed consolidated financial statements. Please refer to page 12 for the discussion of the Company's press release regarding the anticipated restructuring charge. The Company anticipates that available funds and those funds provided from current operations will be sufficient to meet current operating requirements and anticipated capital expenditures for at least the next 24 months. PART II- OTHER INFORMATION Item 4. Submission of Matters to Vote of Security Holders (a) The annual meeting of stockholders of the Company was held on October 17, 1995. (c) The result of the voting on the proposals considered at the annual meeting of stockholders are as follows: 1. Election of Directors Timothy P. Horne, David A. Bloss, Sr., Frederic B. Horne, Kenneth J. McAvoy, Noah T. Herndon, Wendy E. Lane, Gordon W. Moran, and Daniel J. Murphy III were each elected as a Director of the Company for a term expiring at the next annual meeting of stockholders. The voting results were as follows: Mr. T. Horne: 129,495,393 votes FOR; 105,923 votes WITHHELD Mr. Bloss: 129,494,871 votes FOR; 106,445 votes WITHHELD Mr. F. Horne: 129,501,031 votes FOR; 100,285 votes WITHHELD Mr. McAvoy: 129,499,171 votes FOR; 102,145 votes WITHHELD Mr. Herndon: 129,531,153 votes FOR; 70,163 votes WITHHELD Ms. Lane: 129,528,153 votes FOR; 73,163 votes WITHHELD Mr. Moran: 128,210,983 votes FOR; 1,390,333 votes WITHHELD Mr. Murphy: 129,533,093 votes FOR; 68,223 votes WITHHELD 2. Ratification of Independent Auditors The selection of Ernst & Young as the independent auditors of the Company for the current fiscal year was ratified and voting results were as follows: 129,506,329 FOR; 81,497 AGAINST; 13,490 ABSTAINED; and 0 Broker Non-Votes. 3. To approve the Watts Industries, Inc. Management Stock Purchase Plan. The stockholders approved the adoption of the Watts Industries, Inc. Management Stock Purchase Plan and voting results were as follows: 126,649,760 FOR; 1,898,262 AGAINST; 24,724 ABSTAIN; 1,028,570 Broker Non-Votes. Item 6. Exhibits and Reports on Form 8-K There were no reports filed on Form 8-K during the quarter ended December 31, 1995. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WATTS INDUSTRIES, INC. Date: February 14, 1996 By: ________________ Timothy P. Horne President Date: February 14, 1996 By: ____________________ Kenneth J. McAvoy Chief Financial Officer and Treasurer EXHIBIT INDEX Listed and indexed below are all Exhibits filed as part of this report. Exhibit No. Description 11 Computation of earnings per share 27 Financial Data Schedule EXHIBIT 11 WATTS INDUSTRIES , INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Unaudited) Three Months Ended Six Months Ended December 31 December 31 _________________________________ _________________________________ 1995 1994 1995 1994
_______________ _______________ _______________ _______________ PRIMARY Average shares outstanding 29,636,765 29,560,288 29,631,939 29,523,224 Net effect of dilutive stock options - based on the treasury stock method using average market price 110,145 135,234 137,709 173,733 _______________ _______________ _______________ _______________ Total 29,746,910 29,695,522 29,769,648 29,696,957 =============== =============== =============== =============== Net earnings $10,777,718 $11,164,652 $22,911,306 $22,554,652 =============== =============== =============== =============== Earnings per share $ .36 $ .38 $ .77 $ .76 =============== =============== =============== =============== FULLY-DILUTED Average shares outstanding 29,636,765 29,560,288 29,631,939 29,523,224 Net effect of dilutive stock options - based on the treasury stock method using the quarter-end market price, if higher than average market price 124,779 135,511 154,664 181,451 _______________ _______________ _______________ _______________ Total 29,761,544 29,695,799 29,786,603 29,704,675 =============== =============== =============== =============== Net earnings $10,777,718 $11,164,652 $22,911,306 $22,554,652 =============== =============== =============== =============== Earnings per share $ .36 $ .38 $ .77 $ .76 =============== =============== =============== ===============
EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31, 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JUN-30-1996 DEC-31-1995 1,032 0 129,613 6,615 210,755 374,010 294,814 121,786 726,965 128,371 146,731 2,964 0 0 423,068 726,965 352,255 352,255 229,262 308,517 6,358 278 5,873 37,380 14,469 22,911 0 0 0 22,911 $.77 $.77 INCLUDES ONLY COST OF GOODS SOLD AND OPERATING EXPENSES. INCLUDES INTEREST EXPENSE AND LOSS PROVISION SHOWN BELOW.
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