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
<TABLE>
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
<CAPTION> _______________ _______________ _______________ _______________
<S> <C> <C> <C> <C>
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
=============== =============== =============== ===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM DECEMBER 31, 1995 FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 1,032
<SECURITIES> 0
<RECEIVABLES> 129,613
<ALLOWANCES> 6,615
<INVENTORY> 210,755
<CURRENT-ASSETS> 374,010
<PP&E> 294,814
<DEPRECIATION> 121,786
<TOTAL-ASSETS> 726,965
<CURRENT-LIABILITIES> 128,371
<BONDS> 146,731
<COMMON> 2,964
0
0
<OTHER-SE> 423,068
<TOTAL-LIABILITY-AND-EQUITY> 726,965
<SALES> 352,255
<TOTAL-REVENUES> 352,255
<CGS> 229,262
<TOTAL-COSTS> 308,517<F1>
<OTHER-EXPENSES> 6,358<F2>
<LOSS-PROVISION> 278
<INTEREST-EXPENSE> 5,873
<INCOME-PRETAX> 37,380
<INCOME-TAX> 14,469
<INCOME-CONTINUING> 22,911
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,911
<EPS-PRIMARY> $.77
<EPS-DILUTED> $.77
<FN>
<F1> INCLUDES ONLY COST OF GOODS SOLD AND OPERATING EXPENSES.
<F2> INCLUDES INTEREST EXPENSE AND LOSS PROVISION SHOWN BELOW.
</FN>
</TABLE>