September 12, 1996
VIA EDGAR
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Watts Industries, Inc.
Dear Sir/Madam:
Electronically transmitted for filing please find the above named Company's
annual report on Form 10-K for the fiscal year ended June 30, 1996, including
financial statements, financial statement schedules and exhibits. A $250 filing
fee for this report has been deposited in the Securities and Exchange
Commission's lockbox with the Mellon Bank in Pittsburgh, PA. The CIK number for
Watts Industries, Inc. is 0000795403.
The financial statements in the report do not reflect a change from the
preceding year in any accounting principles or practices, or in the method of
applying any such principles or practices.
Sincerely,
/s/ Thomas J. White
Thomas J. White
TJW/s
cc: Suzanne M. Zabitchuck, Esq.
Robert P. Whalen, Jr., Esq.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1996
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, MA 01845
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 688-1811
Securities registered pursuant to Section 12(b) of the Act: Class 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: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X 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'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. [X]
Aggregate market value of the voting stock of the Registrant held by
non-affiliates of the Registrant on August 14, 1996 was $282,779,312.
As of August 14, 1996, 16,859,238 shares of Class A Common Stock, $.10 par
value, and 11,365,627 shares of Class B Common Stock, $.10 par value, of the
Registrant were outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on October 15, 1996, are incorporated by reference into
Part III of this Report.
<PAGE>
PART I
Item 1. BUSINESS.
General
Watts Industries, Inc., (the "Company") designs, manufactures and sells an
extensive line of valves for the plumbing and heating, water quality,
industrial, and oil and gas markets. Watts has focused on the valve industry
since its inception in 1874, when it was founded to design and produce steam
regulators for New England textile mills. The Company is a leading manufacturer
and supplier of water service and water quality valve products, which account
for over one-half 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's product lines include 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, sink strainers, compression and flare fittings, and plastic
tubing and braided metal hose connectors for residential construction and home
repair and remodeling; backflow preventers for preventing contamination of
potable water caused by reverse flow within water supply lines; steam regulators
and control devices for industrial, HVAC and naval/marine applications; ball
valves, pneumatic and electric actuators, relief valves, check valves and
butterfly valves for industrial applications; and valves for the oil and gas
industry. Within a majority of the specific markets in which it participates,
the Company believes 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 is in the process of divesting its Municipal Water
Group in order to concentrate on its core Plumbing and Heating and Water
Quality, Industrial, and Oil and Gas businesses. The information contained in
this Form 10-K excludes information related to the companies being divested.
(See "Divestiture of Municipal Water Group").
The Company operates its own automated foundries for casting bronze and
iron component parts. It has extensive facilities for machining bronze, brass,
iron and steel components and assembling them into finished valves, and it has
warehouses and sales offices for distributing those products. See Item 2.
"Properties". As of June 30, 1996, these domestic and foreign operations
employed approximately 3,840 people, plus 930 employees in the Company's joint
ventures 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.
DIVESTITURE OF MUNICIPAL WATER GROUP. The Company is currently in the
process of divesting itself of its Municipal Water Group, which includes Henry
Pratt Company ("Pratt"), James Jones Company ("Jones"), and Edward Barber & Co.
Ltd. ("Barber"), in order to concentrate on its core Plumbing and Heating and
Water Quality, Industrial, and Oil and Gas businesses. The Company executed a
Stock Purchase Agreement on June 19, 1996 for the sale of the Municipal Water
Group to Tyco International Ltd. See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Item 8.
"Financial Statements and Supplementary Data". Jones manufactures fire hydrants,
underground service valves and fittings used for applications between water
mains and meters. Pratt manufactures AWWA butterfly valves as well as ball, plug
and check valves used in water distribution, water treatment, and waste water
markets. Barber manufactures valves, meter boxes and accessories for the
European municipal water market.
Recent Acquisitions
On August 28, 1995, a wholly owned subsidiary of the Company acquired
Societe des Etablissements Rene TRUBERT ("Trubert") located in Chartres, France.
Trubert manufactures thermostatic mixing valves
<PAGE>
that are sold primarily for commercial and industrial applications in France and
other European markets. The sales of Trubert for the twelve month period ended
June 30, 1995 were approximately $8,000,000 with the majority of its sales
concentrated in France.
On March 19, 1996, a wholly owned subsidiary of the Company acquired Artec
GmbH ("Artec") located in Oberhausen, Germany. Artec assembles and distributes
underfloor heating systems, radiator connection systems, and plumbing pipe
systems for the German plumbing and heating market. Artec had sales of
approximately $4,500,000 for the twelve month period ended December 31, 1995.
During fiscal year 1996, the Company also acquired two product lines which
it incorporated into its existing businesses. The two product lines had combined
sales of approximately $4,300,000 for the twelve month period ended December 31,
1995.
Products
The Company classifies its valve products into two categories: (1) Plumbing
and Heating and Water Quality, and (2) 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 backflow preventers,
safety relief valves, regulators, ball valves, control valves, tubular brass
products, sink strainers, faucets, drains, compression and flare fittings,
plastic tubing and braided metal hose connectors used for water service in
residential, industrial, commercial, and institutional applications. The Company
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." The Company 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 equipment 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
also manufactures automatic control valves used in water systems to control flow
and deliver water at a constant pressure.
The Company manufactures and sells a large number of specialty water
service products including hydronic heating control products, vacuum relief
valves, thermostatic 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. During fiscal
1996, the Company introduced the IntelliFlowTM automatic water supply shutoff
valve for clothes washing machines. The IntelliFlow valve is the first of its
kind because it eliminates the need for a consumer to open and close the water
supply valve to such consumer's washing machine before and after each usage.
The Company also manufactures leak-proof ball, check, packed angle,
diaphragm packless and pressure relief valves to contain chlorofluorocarbon and
hydroclorofluorocarbon refrigerants in applications which include supermarket
refrigeration and food storage, refrigerated transport, chilled water
air-conditioning systems and large scale ice production. This product line
complements the plumbing and heating product lines and allows the Company to
offer a broad, comprehensive flow control package to the heating, ventilation,
air-conditioning and refrigeration industry.
The Company also manufactures steam valves that include pilot operated
steam temperature and pressure regulators and steam condensate traps. These
specialty valves are marketed primarily to institutional and utility customers.
Water quality valves include backflow preventers for preventing
contamination of potable water caused by reverse flow within water supply lines.
Customers include industrial, residential, institutional, irrigation, fire
protection, and other end users having water supply lines.
<PAGE>
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."
INDUSTRIAL, AND OIL AND GAS. The Company manufactures industrial products
that 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, the Company is able to customize ball valves for
particularly demanding service applications. The Company also manufactures
relief, check and regulator valves for aerospace, marine, military, cryogenic,
and other specialized applications. A line of control valves, instrumentation,
regulators, water heaters, solenoid and butterfly valves and whistles for naval,
marine, industrial, utility, steam, and process applications is manufactured by
the Company.
The Company manufactures oil and gas valves that include high pressure
floating and trunnion ball valves having up to 60 inch diameter and Class 2500
pressure ratings, check valves, and needle valves. These specialty valves are
marketed primarily to oil field supply distributors. The Company believes that
its oil and gas business 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
both domestic and foreign companies to penetrate new markets. The Company began
implementing its acquisition strategy in fiscal year 1985 and through August 1,
1996 had completed 33 acquisitions of varying sizes, excluding the companies
included in the Municipal Water Group. Businesses and product lines acquired
from September, 1984 through June 30, 1996 collectively represented more than
66% of the Company's revenues during the fiscal year ended June 30, 1996. 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 intends
to focus its acquisition strategy on companies and product lines which have the
potential to expand and complement its core Plumbing and Heating and Water
Quality, Industrial, and Oil and Gas businesses.
The Company's major acquisitions include (i) Spence Engineering Company,
Inc. of Walden, New York, a manufacturer of steam regulators and control valves
(acquired in September 1984); (ii) Ocean B.V., a Netherlands-based manufacturer
of check valves and related products (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 heaters and
whistles for the naval, marine and industrial steam markets (acquired in July
1989); (v) Nicholson Steam Trap, Inc. of Walden, New York, a manufacturer of
condensate traps (acquired in July 1989); (vi) Eagle Valve Company, Inc. (merged
into KF Industries, Inc.) of Oklahoma City, Oklahoma, a manufacturer of check
valves for the industrial, oil and gas industries (acquired in June 1989); (vii)
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, and cryogenic
applications (acquired in September 1990); (viii) Watts SFR 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); (ix)
Contromatics, Inc. (merged into Watts Regulator Company) of
<PAGE>
Franklin, New Hampshire, a manufacturer of high performance butterfly valves,
ball valves and pneumatic actuators for industrial and commercial applications
(acquired in July 1991); (x) Intermes, S.p.A. of Caldaro, Italy, a manufacturer
of plumbing and heating valves and controls (acquired in November 1992); (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
August 1994); (xiii) Jameco Industries, Inc. of Wyandanch, New York, a
manufacturer of metal and plastic water supply products (acquired in July 1994);
(xiv) Pibiviesse S.p.A. of Nerviano, Italy, a manufacturer of large size and
high pressure ball valves for the oil and gas industry (acquired in November
1994); (xv) Anderson-Barrows Metals Corporation of Palmdale, California, a
manufacturer of compression and flare fittings, plastic tubing and braided metal
hose connectors (acquired in March 1995); and (xvi) SociEtE des Etablissements
Rene TRUBERT of Chartres, France, a manufacturer of thermostatic mixing valves
for commercial and industrial applications (acquired in August 1995).
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. Certain of the Company's products also meet 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 KIWA in the Netherlands, DVGW
in Germany, WRC in the United Kingdom, AFNOR in France, SVGW in Switzerland, UNI
in Italy, and ANSEAU in Belgium.
The Company has consistently advocated the development and enforcement of
performance and safety 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 certification from the International Organization
for Standardization (ISO).
Marketing and Distribution
The Company relies primarily on commissioned representative organizations
to market its product lines. These organizations, which accounted for
approximately 70% of the Company's net sales in the fiscal year ended June 30,
1996, sell primarily to plumbing and heating wholesalers, DIY Market accounts,
and steam, industrial, oil and gas distributors for resale to end 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 markets 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 Company also sells products directly to
certain large original equipment manufacturers (OEM's) and private label
accounts. OEM's and private label accounts represented approximately 10% of the
Company's total net sales in the fiscal year ended June 30, 1996.
The Company also maintains direct 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 industries and utilities.
<PAGE>
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 over 95
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. ("Jameco") acquired by the Company in July 1994,
manufactures metal and plastic water supply products including stop valves, sink
strainers, drains, and tubular brass products and imports for resale, vitreous
china and faucets. Anderson-Barrows Metals Corporation ("Anderson-Barrows"),
acquired by the Company in March 1995, manufactures compression and flare
fittings, plastic tubing and braided metal hose connectors. Both companies
target the residential construction and home repair and remodeling markets. Both
of these companies' products are distributed through the Company's existing
plumbing and heating wholesaler distribution network and through the DIY
Markets. The Company believes that sales of Jameco's and Anderson-Barrows'
products to the residential construction and home repair and remodeling markets
may be subject to cyclical variations in the housing industry to a greater
extent than its other business operations.
The Company distributes water service valves in Canada and Europe through
both direct sales personnel and commissioned representative organizations. The
Company relies predominantly on exclusive distributorship arrangements to
distribute its water products in foreign countries other than Canada and
countries in Europe. During fiscal 1996, the Company expanded its distribution
for all of its product lines by establishing a Representative Office in Beijing,
China. The Representative Office will market the Company's products throughout
China. The Company also markets butterfly valves and other valve products in
China, Southeast Asia, Australia and Europe through its Tanggu Watts joint
venture which is located in China.
STEAM VALVES. The Company markets its plumbing and heating steam valves
under the SpenceR trademark through commissioned representative organizations,
whose personnel are trained in the sale and technical support of sophisticated
steam products.
Industrial, and Oil and Gas
Industrial Valves. The Company's industrial sales organization markets its
products domestically through approximately 40 commissioned representative
organizations who sell to over 300 industrial distributors and markets its
products internationally through commissioned agents. 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 domestically
under the KFR trademark through approximately 30 commissioned representative
organizations and through stocking supply distributors and internationally
through commissioned representative organizations. PBVS located in Italy and
Suzhou Watts located in China market oil and gas valves in Europe, the Middle
East and Asia through direct sales and commissioned sales representatives.
Steam Valves. The Company markets its industrial steam valves, which
include control valves, instrumentation, regulators, waterheaters, solenoid and
butterfly valves, and whistles for naval, marine, industrial, utility, and steam
and process applications, under the LeslieR trademark through commissioned
representative organizations worldwide.
A majority of the Company's agreements with its commissioned representative
organizations provide for non-exclusive territories, the payment of percentage
commissions and termination by either party on 30 days' notice. No customer,
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 1996. The
<PAGE>
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 1996, 1995, and
1994 were 32%, 30%, and 30%, respectively. The Company's foreign sales other
than Canadian sales consist predominantly of sales of plumbing and heating
valves, and water quality valves in Western Europe and sales of butterfly valves
for industrial markets in Europe and China and sales of ball valves for the oil
and gas and industrial markets in Europe, the Middle East, South America and
Asia. See Note 13 of Notes to Consolidated Financial Statements incorporated by
reference herein for certain information regarding the Company's foreign
operations.
Production
The Company has a fully integrated and highly automated manufacturing
capability. The Company's machining operations feature over 350
computer-controlled machine tools, high-speed chucking machines and automatic
screw machines. The Company's foundry operations include metal pouring systems
and automatic core making, mold making and pouring capabilities, and injection
molding equipment. 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 $31,080,000, $27,980,000, and
$18,548,000, for fiscal 1996, 1995, and 1994, respectively. Depreciation and
amortization for such periods were $21,574,000, $20,345,000, and $18,309,000,
respectively.
Five significant raw materials used in the Company's production processes
are bronze ingot, brass rod, cast iron, carbon steel and 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 stainless steel. Any significant
unanticipated increase or decrease in the prices of these commodities could
materially affect the Company's results of operations. As the sales volume and
the diversity of materials used in the Company's production processes have
grown, however, the impact from changes in the cost of these five raw materials
has somewhat diminished. However, in fiscal 1996 the Company's gross profit
margins were adversely affected by increased raw material costs primarily in
bronze ingot, carbon steel and stainless steel. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the impact
of raw material costs on operations. At the end of fiscal 1996, the costs for
these raw materials had declined from the average costs experienced during
fiscal 1996. In an effort to reduce the effects of such fluctuations, the
Company maintains an active materials management program, although no assurances
can be given that this will protect the Company from changes in the prices for
such raw materials.
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 90 engineers and technicians, which does not include engineers working in
the Chinese joint ventures, who engage primarily in these activities.
Competition
The domestic and international markets for valves are intensely competitive
and include companies possessing greater financial, marketing and other
resources than the Company. Management considers
<PAGE>
product reputation, price, effectiveness of distribution and breadth of product
line to be the primary competitive factors.
Backlog
The Company does not believe that its backlog at any point in time is
indicative of future operating results. Backlog was $95,926,000 at June 30, 1996
and $63,081,000 at June 30, 1995.
Patents and Trademarks
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 WATTSR, WATTS
REGULATOR & DesignR, SPENCER, HALER, LESLIER, OCEANTM, KFR, TARASTM,
CONTROMATICSTM, NICHOLSONTM, FLIPPENTM, CIRCLE SEALR and Seal DesignR, JAMECO
and DesignTM, and ANDERSON-BARROWSTM. 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 Company does not believe that its business as a whole is dependent on
any one or more patents or trademarks or on patent or trademark protection
generally.
Employees
At June 30, 1996, excluding 930 employees of the Chinese joint ventures,
the Company had approximately 3,840 employees, of whom nearly 3,200 were engaged
in production and the balance in management, sales, engineering and
administration. There are approximately 269 employees that are covered by
collective bargaining agreements in the United States and approximately 618
employees that belong to unions in Europe. The Company believes that its
employee relations are excellent.
Executive Officers of the Registrant
Information with respect to the executive officers of the Company is set
forth below:
Name Position Age
Timothy P. Horne Chairman of the Board, President 58
and Chief Executive Officer and Director
David A. Bloss, Sr. Executive Vice President and Director 46
Frederic B. Horne Corporate Vice President and Director 46
Kenneth J. McAvoy Chief Financial Officer, Treasurer, 56
Secretary and Director
Robert T. McLaurin Corporate Vice President of Asian Operations 65
Michael O. Fifer Vice President of Corporate Development 39
William C. McCartney Vice President of Finance 42
Suzanne M. Zabitchuck Corporate Counsel and Assistant Secretary 41
<PAGE>
Timothy P. Horne joined the Company in September 1959 and has been a
Director since 1962. Mr. Horne served as the Company's President from 1976 to
1978 and 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 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. Mr. Fifer also
served as President of PYSB, Inc., a manufacturer of resin-composite
transportation products from 1990 to 1991.
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. Prior to 1985 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. 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
<PAGE>
companies contend that they installed in their vessels certain valves
manufactured by Leslie Controls and/or Spence Engineering which contained
asbestos. 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 certain 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. Three of these sites, the Sharkey
and Combe Landfills in New Jersey and the San Gabriel Valley/El Monte,
California water basin site 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 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 or San Gabriel Valley
sites. The EPA has formally notified several entities that they have been
identified as being potentially responsible parties with respect to the San
Gabriel Valley site. As the Company was not included in this group, its
potential involvement in this matter is uncertain at this point given that
either the PRP's named to date or the EPA could seek to expand the list of
potentially responsible parties. 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 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. Certain of the PRP's, including the Company, are currently
negotiating with the state only to assume maintenance of this site in an effort
to reduce future costs. The Company and the remaining PRP's have also received a
formal demand from the U.S. Environmental Protection Agency to recover
approximately $17 million expended to date in the remediation of this site.
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 and in
relation to 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 probable and estimable 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.
<PAGE>
Item 2. PROPERTIES.
The Company's manufacturing operations include four casting foundries, two
of which are located in the United States, one in Europe and one in the Tanggu
Watts 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 24 manufacturing facilities located in the United States, Canada,
Europe and the People's Republic of China. These fully operational and equipped
foundries and machine and assembly shops and warehouses occupy the majority of
space in approximately 2,800,000 square feet of building space. Many of these
facilities contain sales offices or warehouses from which the Company ships
finished goods to customers and commissioned representative organizations. The
Company's corporate and administrative headquarters are located in North
Andover, Massachusetts and occupy approximately 60,000 square feet of building
space. The total number of the Company's facilities by geographic location is as
follows: 18 in the United States, 13 in Europe, 3 in Canada, and 3 in Asia, of
which 2 are through its 60% controlling interest in two Chinese joint ventures.
The vast majority of the Company's operating facilities and the related
real estate are owned by the Company. The notable exceptions are that the
buildings and land located in Tianjin, People's Republic of China, and Nerviano,
Italy are leased by Tanggu Watts and PBVS, respectively, under lease agreements.
The Tanggu Watts property is under a 30-year lease agreement and the PBVS
property is under a six-year lease agreement. Certain of the Company's
facilities are subject to mortgages and collateral assignments under loan
agreements with long-term lenders. In general, the Company believes that its
properties, including machinery, tools and equipment, are in good condition,
well maintained and adequate and suitable for their intended uses. The Company
believes that the manufacturing facilities are currently operating at a level
that management considers normal capacity. This utilization is subject to change
as a result of increases or decreases in sales.
Item 3. LEGAL PROCEEDINGS.
Item 3(a). The Company is from time to time involved in various legal and
administrative procedures. See "Business-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 Report to a vote of security holders through solicitation
of proxies or otherwise.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Market Information
The Company's Class A Common Stock commenced trading on the New York Stock
Exchange on July 5, 1995 under the symbol "WTS". It was previously traded on the
National Market System of the National Association of Securities Dealers
Automated Quotation ("NASDAQ") System. The following tabulation sets forth the
high and low sales prices of the Company's Class A Common Stock on the New York
<PAGE>
Stock Exchange during fiscal 1996 and on the over-the-counter market as reported
by the National Market System of NASDAQ during fiscal 1995 as shown:
High Low High Low
---- --- ---- ---
1996 1995
---- ----
First Quarter $25 5/8 $22 3/8 $26 1/4 $22 1/2
Second Quarter $25 1/8 $20 $26 3/16 $18 1/4
Third Quarter $23 5/8 $16 5/8 $23 3/4 $20
Fourth Quarter $20 5/8 $17 7/8 $25 1/4 $20 5/8
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 of the
Company is convertible into one share of Class A Common Stock.
Holders
The number of record holders of the Company's Class A Common Stock as of
August 14, 1996 was 287. The Company believes that the number of beneficial
shareholders of the Company's Class A Common Stock was in excess of
approximately 4,300 as of August 14, 1996.
The number of record holders of the Company's Class B Common Stock as of
August 14, 1996 was 11.
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
- - ------------- ----- ------ ----- ------ -----
1995 $.055 $.055 $.0625 $.0625 $.235
1996 $.0625 $.0625 $.07 $.07 $.265
Aggregate common stock dividend payments for fiscal 1996, 1995, and 1994,
were $7,793,000. $6,951,000, and $5,884,000, 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.
Item 6. SELECTED FINANCIAL DATA.
The selected financial data set forth below with respect to the Company's
consolidated statements of operations for each of the three years in the period
ended June 30, 1996 and with respect to the Company's balance sheets as of June
30, 1996 and 1995 have been derived from the consolidated financial statements
of the Company and the notes thereto included herein that have been audited by
Ernst & Young LLP and Deloitte & Touche, independent auditors. The consolidated
statements of operations data for the fiscal years 1993 and 1992 and the
consolidated balance sheet data as of June 30, 1994, 1993 and 1992 set forth
below is derived from audited consolidated financial statements that are not
included herein. The selected financial data set forth below should be read in
conjunction with the Company's consolidated financial statements, related Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included herein.
<PAGE>
FIVE YEAR FINANCIAL SUMMARY
(Amounts in thousands; except per share information)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
--------- ---------- --------- --------- ---------
Operating Data From Continuing Operations
Net sales $640,876 $576,851 $444,484 $398,688 $373,785
Gross profit 212,198 210,712 179,180 156,759 146,500
Selling, general and administrative expenses 251,431 133,601 108,381 106,814 87,491
Operating income (loss) (39,233) 77,111 70,799 49,945 59,009
Income (loss) before income taxes (49,410) 68,190 64,772 45,218 55,543
Income tax provision 4,355 25,727 25,372 17,163 21,385
Net income (loss) from continuing operations (1) (53,765) 42,463 39,400 (2) 24,923 34,158
Net income from discontinued operations 3,480 3,275 1,610 2,351 2,467
Net income from continuing operations, before unusual
charges & accounting change 39,221 ----- ----- 32,394 -----
Investment Data from Continuing Operations
Total assets $572,557 $593,007 $465,857 $446,948 $396,797
Cash and short-term investments 0 7,826 63,657 82,664 108,877
Current assets 332,413 314,092 284,859 269,431 273,331
Current ratio 2.5 to 1 3.0 to 1 4.3 to 1 3.9 to 1 6.1 to 1
Working capital 196,468 210,610 218,893 199,766 228,586
Capital expenditures 31,080 27,980 18,548 23,367 13,371
Depreciation and amortization 21,574 20,345 18,309 16,680 14,856
Net property, plant and equipment 147,950 145,774 113,547 110,180 87,727
Capital employed:
Total debt 163,150 144,240 98,244 103,434 96,144
Stockholders' equity 319,583 405,637 361,602 335,582 314,893
Capital employed 482,733 549,877 459,846 439,016 411,037
Debt as a % of capital employed 33.8 26.2 21.4 23.6 23.4
Return on Investment Data - Continuing Operations
Return on average stockholders' investment - % (1)(14.8) 11.1 11.3 (2) 7.7 12.4
Per Share Data
Net income (loss):
Continuing operations $1.33 $1.43 $1.33 $1.08 $1.18
Discontinued operations 0.12 0.11 0.05 0.08 0.09
Restructuring & unusual charges,
and accounting change (3.15) ----- ----- (0.25) -----
Net income (loss) (1.70) 1.54 1.38 0.91 1.27
Dividends paid per common share 0.265 0.235 0.20 0.16 0.13
Ending stockholders' equity 10.83 13.66 12.19 11.15 11.12
Weighted average shares outstanding 29,527 29,755 29,717 30,099 30,080
</TABLE>
(1) Includes $92,986 restructuring charges and impairment of long-lived assets.
(2) Includes $7,471 cumulative change in accounting method and unusual charges.
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management Initiatives
During the quarter ended March 31, 1996, the Company decided to restructure
its business in an effort to improve the efficiency of the Company's worldwide
operations.
Divestiture
As previously announced, the Company decided to divest itself of the
Municipal Water Group of companies, which consist of Henry Pratt Company, James
Jones Company, and Edward Barber & Co. Ltd. This divestiture will enable the
Company to focus its acquisition and growth strategies on its core markets,
namely Plumbing and Heating, Water Quality, Industrial, and Oil and Gas.
The results of operations of the Municipal Water Group for fiscal 1996 have
been reported as income from discontinued operations, net of income taxes, and
the statements of operations for prior periods have been reclassified to conform
with the fiscal 1996 presentation.
The Company signed a definitive agreement for the sale of the Municipal
Water Group on June 19, 1996 with Tyco International Ltd. The transaction is
expected to be completed during the quarter ended September 30, 1996 subject to
regulatory approvals.
The Company anticipates a small gain upon the divestiture of the Municipal
Water Group.
Restructuring Activities
The Company also decided to undertake restructuring initiatives aimed at
improving the efficiency of certain of its continuing operations. The two most
significant initiatives are the relocation of Jameco Industries, Inc. ("Jameco")
and the downsizing of Pibiviesse S.p.A. ("PBVS").
The Company decided to relocate the manufacturing operations at Jameco from
Wyandanch, New York to a Watts Regulator plant in Spindale, North Carolina. The
Company expects this relocation project will be completed in fiscal 1997. The
Company also decided to implement a plan to streamline and downsize the
operations of its PBVS subsidiary. In addition, the Company has identified
efficiencies that it expects will improve operations at a number of its other
divisions.
In connection with implementing these reorganization plans, the Company has
recorded plant closure costs of $7,700,000, severance costs for 290 employees of
$9,300,000, asset write-downs for assets to be abandoned or sold of $8,400,000,
inventory write-downs of $9,500,000, and accrued other expenses of $13,800,000.
Substantially all the charges for this restructuring have been recorded.
The provisions for severance, plant closure costs and the asset write-downs
are included in the restructuring line in the statement of operations. The
inventory write-down is included in cost of sales and the accrued expenses are
included in operating expenses.
As of June 30, 1996, 97 employees have been released and $1,660,000 has
been paid in severance.
Impairment
The Company has identified impairment events affecting certain long-lived
assets primarily with its Italian subsidiaries, PBVS and Intermes, and has
concluded these assets were impaired. Due to significant losses at PBVS, the
future undiscounted cash flows were insufficient to recover the fair market
value of the long-lived assets, primarily goodwill. Due to a change in
interpretation of the Italian tax law regarding the deductibility of goodwill
amortization coupled with decreasing margins and operating profits has resulted
in the goodwill at Intermes being impaired. Accordingly, management prepared
cash flow estimates indicating an impairment had in fact occurred and wrote down
the goodwill to its fair value, as determined using a
<PAGE>
discounted cash flow approach. The Company has taken a charge of $63,065,000 to
write down the affected assets to fair value in accordance with the
implementation 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". Depreciation and goodwill amortization will decrease
approximately $1,400,000 annually.
Conclusion
The after-tax charge for all these initiatives recorded in fiscal 1996 was
$92,986,000. The after-tax cash impact of the charge is expected to be
approximately $10,000,000.
It is expected that the restructuring plan will require more than two years
to complete with some positive effects being realized during fiscal 1997.
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. This increase was attributable to the inclusion of the net sales
of acquired companies. These acquisitions primarily included Anderson-Barrows,
Trubert, and PBVS. Exclusive of acquisitions, net sales from continuing
operations would have increased $19,601,000 (3.4%). This increase is primarily
attributable to increased unit shipments of plumbing and heating and water
quality valves in the United States and Europe. During the quarter ended June
30, 1996, net sales, exclusive of acquisitions, increased 10.6% over the
comparable quarter last year. This increase is due to increased unit shipments
of plumbing and heating valves and oil and gas valves. 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 $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 $9,500,000
in costs related primarily to inventory write-downs as part of the restructuring
plan discussed above. Gross profit from continuing operations exclusive of these
charges would have been $221,698,000 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 manufacturing 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 $13,800,000 in costs related to the
restructuring plan 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 is 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 charges, 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
restructuring and impairment charge would have decreased $3,242,000 (7.6%) to
$39,221,000.
<PAGE>
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.
Results of Operations
Fiscal Year Ended June 30, 1995 Compared to
Fiscal Year Ended June 30, 1994
Net sales from continuing operations increased $132,367,000 (29.8%) to
$576,851,000. This increase was attributable to the inclusion of the net sales
of acquired companies, the establishment of the Company's Chinese joint venture,
and increased unit shipments of certain product lines. The net sales of Jameco
Industries, Inc. ("Jameco") acquired in July 1994, located in New York,
Pibiviesse S.p.A. ("PBVS") acquired in November 1994, located in Italy,
Anderson-Barrows Metals Corporation ("Anderson-Barrows") acquired in March 1995,
located in California, and the establishment of the Tianjin Tanggu Watts Valve
Co., Ltd. ("TWT") joint venture in August 1994, located in Tianjin, Peoples
Republic of China, represented approximately $98,054,000 of the increase in net
sales. The Company had increased unit shipments of plumbing and heating valves,
industrial valves and steam valves. The Company had increased net sales in
Europe of $10,400,000 of which 77% of the increase was due to the strength of
the foreign currencies versus the U.S. Dollar. International sales were
$175,000,000 and represented 30% of total net sales. 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 $31,532,000 (17.6%) to
$210,712,000 and decreased as a percentage of net sales from 40.3% to 36.5%.
This decreased percentage was primarily attributable to the inclusion of
acquired companies, which currently operate at lower gross margins than the rest
of the Company. The gross profit percentage was also adversely affected by
increased raw materials costs primarily in bronze ingot and brass rod.
Selling, general and administrative expenses from continuing operations
increased $25,220,000 (23.3%) to $133,601,000 and decreased as a percentage of
net sales from 24.4% to 23.2%. This increase in expense was primarily
attributable to the inclusion of the expenses of acquired companies discussed
above, increased international selling expenses, and commissions associated with
the increased sales volumes.
Interest income from continuing operations decreased $1,017,000 (34.5%) to
$1,930,000 due to decreased levels of cash and short-term investments.
Interest expense from continuing operations increased $1,904,000 (25.5%) to
$9,368,000. This increase was attributable to the increased levels of debt
incurred in association with the acquisitions discussed above.
The effective tax rate of the Company from continuing operations was 37.7%
for the year ended June 30, 1995 as compared to 39.2% for the year ended June
30, 1994. This decreased percentage was primarily attributable to lower
effective tax rates experienced in Germany and Holland due to tax planning
strategies executed during the year as a result of prior European acquisitions.
There is no guarantee that this lower effective tax rate will continue in the
future. Also, the Company's earnings in China are currently exempt from taxation
in China for a period of two years.
Net income from continuing operations increased $3,063,000 (7.8%) to
$42,463,000. Net income from discontinued operations increased $1,665,000
(103.4%) to $3,275,000. This increase is primarily attributable to increased
sales volume and improved manufacturing efficiencies.
The change in foreign exchange rates since June 30, 1994 did not have a
material impact on the results of operations or the financial condition of the
Company.
Liquidity and Capital Resources
The recording of the Company's restructuring charge, noted above, had an
adverse impact on the Company's retained earnings and working capital. The
restructuring charge, however, did not impact the
<PAGE>
Company's ability to borrow funds in the future under its existing credit
facilities. The net cash impact to the Company to implement the restructuring
charge is expected to be approximately $10,000,000.
During the year ended June 30, 1996, the Company invested in four
acquisitions and one joint venture. In August of 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 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. In August 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.
In September 1995, a wholly-owned subsidiary of the Company 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. In March 1996, a wholly-owned subsidiary of the
Company purchased Artec, GmbH ("Artec") of Oberhausen, Germany. Artec assembles
and distributes underfloor heating systems, radiator connection systems and
plumbing pipe systems for the German plumbing and heating market. Artec had net
sales of approximately $4,500,000 for the twelve months ended December 31, 1995.
The net purchase price for acquisitions in fiscal 1996 was $13,415,000. 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, People's 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.
During the year ended June 30, 1996, the Company spent $31,080,000 on
capital expenditures for continuing operations, primarily manufacturing
machinery and equipment, as part of its commitment to continuously improve its
manufacturing capabilities.
On April 16, 1996 the Board of Directors authorized the Company to
repurchase up to 2,000,000 shares of its Class A Common Stock through open
market and private purchases. At June 30, 1996 the Company had purchased
1,458,900 shares for an aggregate price of $28,567,000. In July 1996 the
remaining authorized shares were purchased. The total purchase price of the
2,000,000 shares was $38,559,674. The funds to finance these stock repurchases
were generated from operations and borrowings from the unsecured line of credit.
On July 17, 1996 the Board of Directors authorized the repurchase of an
additional 1,000,000 shares over the next twelve months.
In order to support the Company's acquisition program, working capital
requirements, and for general corporate purposes, the Company has a five-year
commitment for an unsecured line of credit for $125,000,000 expiring on August
31, 1999. As of June 30, 1996, there was $61,300,000 outstanding under this
credit facility. Total borrowings under the line of credit on August 13, 1996
were $71,300,000. The increase since June 30, 1996 is primarily attributable to
the completion of the share repurchase program. The Company plans to repay the
outstanding balance after the sale of the Municipal Water Group is completed.
Working capital from continuing operations at June 30, 1996 was
$196,468,000 compared to $210,610,000 at June 30, 1995. Cash and short-term
investments were $0 at June 30, 1996 compared to $7,826,000 at June 30, 1995.
The ratio of current assets to current liabilities from continuing operations
was 2.5 to 1 at June 30, 1996 compared to 3.0 to 1 at June 30, 1995. Debt as a
percentage of total capital employed was 33.8% at June 30, 1996 compared to
26.2% at June 30, 1995. The decrease in working capital and changes in the
current and debt ratios are primarily the result of the recording of the
restructuring charge, the share repurchase program and the increased level of
borrowings under the Company's line of credit.
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 has been or expects to be 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
<PAGE>
available information and has recorded its estimate of its liability for
environmental matters. The Company currently anticipates that it will not incur
significant expenditures in fiscal 1997 in connection with any of these
environmentally contaminated sites.
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 index to financial statements is included in page 19 of this Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors
The information appearing under the caption "Information as to Nominees for
Director" in the Registrant's Proxy Statement relating to the Annual Meeting of
Stockholders to be held on October 15, 1996 is incorporated herein by reference.
Executive Officers
Information with respect to the executive officers of the Company is set
forth in Item 1 of this Report under the caption "Executive Officers of the
Registrant".
Item 11. EXECUTIVE COMPENSATION.
The information appearing under the caption "Compensation Arrangements" in
the Registrant's Proxy Statement relating to the Annual Meeting of Stockholders
to be held on October 15, 1996 is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information appearing under the caption "Principal and Management
Stockholders" in the Registrant's Proxy Statement relating to the Annual Meeting
of Stockholders to be held on October 15, 1996 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 Proxy Statement relating
to the Annual Meeting of Stockholders to be held on October 15, 1996 is
incorporated herein by reference.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The following financial statements are included in a separate section of
this Report commencing on the page numbers specified below:
Report of Independent Auditors.............................. 24
Consolidated Statements of Operations for each
of the Three Years in the Period Ended June 30, 1996........ 25
Consolidated Balance Sheets as of June 30, 1996 and 1995.... 26
Consolidated Statements of Stockholders' Equity for each
of the Three Years in the Period Ended June 30, 1996........ 27
Consolidated Statements of Cash Flows for each of the
Three Years in the Period Ended June 30, 1996............... 28
Notes to Consolidated Financial Statements.................. 29
(a)(2) Schedules
Schedule II - Valuation and Qualifying Accounts for each of the
Three Years in the Period Ended June 30, 1996.......... 42
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
(a)(3) Exhibits
Exhibits 10.1-10.6, 10.6(i), 10.6(ii), 10.6(iii), 10.8, 10.22, 10.22(i) and
10.30 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
3.1 Restated Certificate of Incorporation, as amended. (13)
3.2 Amended and Restated By-Laws. (1)
9.1 Horne Family Voting Trust Agreement-1991 dated as of
October 31, 1991. (2)
9.2 Amendment dated as of December 18, 1995 to the Horne
Family Voting Trust Agreement-1991 dated as of
October 31, 1991. *
10.1 Employment Agreement effective as of September 1, 1996
between the Registrant and Timothy P. Horne. *
10.2 Supplemental Compensation Agreement effective as of
September 1, 1996 between the Registrant and
Timothy P. Horne. *
10.3 Deferred Compensation Agreement between the Registrant
and Timothy P. Horne, as amended. (4)
10.4 1986 Incentive Stock Option Plan, as amended, including
form of Option Agreement. (3)
<PAGE>
10.5 1989 Nonqualified Stock Option Plan, including form of
Option Agreement. (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. (13)
10.6(i) Amendment Number 1 to the Watts Industries, Inc.
Retirement Plan for Salaried Employees dated April 16,
1996, effective as of January 1, 1994. *
10.6(ii) Amendment Number 2 to the Watts Industries, Inc.
Retirement Plan for Salaried Employees dated October 17,
1995, effective as of September 30, 1995. *
10.6(iii) Amendment Number 3 to the Watts Industries, Inc.
Retirement Plan for Salaried Employees dated April 16,
1996, effective as of January 1, 1996. *
10.7 Registration Rights Agreement dated as of July 25, 1986(5)
10.8 Executive Incentive Bonus Plan, as amended. (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. (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 as
of August 1, 1985. (4)
10.11 Amendment Agreement relating to Watts Regulator Co.
(Canaan and Franklin, New Hampshire, facilities)
financing dated as of December 31, 1985. (4)
10.12 Sale Agreement between Village of Walden Industrial
Development Agency and Spence Engineering Company, Inc.
dated as of June 1, 1994. (12)
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. (12)
10.13(i) Amendment Number 1 to the 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. (12)
10.15 Loan Agreement between Hillsborough County Industrial
Development Authority and Leslie Controls, Inc. dated as
of July 1, 1994. (12)
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. (12)
10.16(i) Amendment Number 1 to the 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. (12)
10.18 Loan Agreement between The Rutherford County Industrial
Facilities and Pollution Control Financing Authority and
Watts Regulator Company dated as of September 1, 1994.(13)
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. (13)
10.19(i) Amendment No. 1 to the 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.*
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 as
of September 1, 1994. (13)
10.21 Amended and Restated Stock Restriction Agreement dated as
of October 30, 1991.(2)
10.22 Watts Industries, Inc. 1991 Non-Employee Directors'
Nonqualified Stock Option Plan. (7)
<PAGE>
10.22(i) Amendment No. 1 to the Watts Industries, Inc. 1991
Non-Employee Directors' Nonqualified Stock Option Plan. *
10.23 Letters of Credit relating to retrospective paid loss
insurance programs. (11)
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 and Plan of Merger dated as of August 22, 1991
relating to the acquisition by the Registrant of Henry
Pratt Company. (9)
10.28 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. (10)
10.29 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. (12)
10.29(i) Amendment Number 1 dated June 30, 1995, to the Revolving
Credit Agreement dated August 30, 1994. *
10.29(ii) Amendment Number 2 dated April 15, 1996, to the Revolving
Credit Agreement dated August 30, 1994. *
10.30 Watts Industries, Inc. Management Stock Purchase Plan
dated October 17, 1995.(14)
11 Statement Regarding Computation of Earnings per
Common Share. *
21 Subsidiaries. *
23.1 Consent of Ernst & Young LLP, 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
Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 15, 1992.
(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 November 14, 1991.
(3) 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.
(4) 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.
(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 as part of the Second Amendment to such
Registration Statement on August 21, 1986.
(6) 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.
(7) 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 and
Exchange Commission on March 11, 1993.
(8) 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.
(9) 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.
<PAGE>
(10) 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.
(11) 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.
(12) 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 26, 1994.
(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 28, 1995.
(14) Incorporated by reference to the relevant exhibit to the Registrant's
Registration Statement on Form S-8 (No. 33-64627) filed with the Securities
and Exchange Commission on November 29, 1995.
* Filed as an exhibit to this Report with the Securities and Exchange
Commission
(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.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WATTS INDUSTRIES, INC.
By: /s/ Timothy P. Horne
Timothy P. Horne
Chairman of the Board, President,
and Chief Executive Officer
DATED: September 3, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Timothy P. Horne Chairman of the Board, September 3, 1996
- - ----------------------- President and Chief Executive
Timothy P. Horne Officer (Principal Executive
Officer) and Director
/s/ Kenneth J. McAvoy Chief Financial Officer September 3, 1996
- - ----------------------- and Treasurer (Principal
Kenneth J. McAvoy Financial and Accounting Officer),
Secretary, and Director
/s/ David A. Bloss, Sr. Executive Vice President and September 3, 1996
- - ----------------------- Director
David A. Bloss, Sr.
/s/ Frederic B. Horne Corporate Vice President and September 3, 1996
- - ----------------------- Director
Frederic B. Horne
/s/ Noah T. Herndon Director September 3, 1996
- - -----------------------
Noah T. Herndon
/s/ Wendy E. Lane Director September 3, 1996
- - -----------------------
Wendy E. Lane
/s/ Gordon W. Moran Director September 3, 1996
- - -----------------------
Gordon W. Moran
/s/ Daniel J. Murphy, III Director September 3, 1996
- - -----------------------
Daniel J. Murphy, III
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
Watts Industries, Inc.
We have audited the accompanying consolidated balance sheets of Watts
Industries, Inc. and subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits. We did not audit the financial
statements of Watts Industries Europe B.V., a wholly-owned subsidiary, which
statements reflect total assets of $136,500,000 and $165,700,000 as of June 30,
1996 and 1995, respectively, and net sales of $118,700,000 in fiscal year 1996,
$93,500,000 in fiscal year 1995 and $67,000,000 in fiscal year 1994. Those
statements and schedule were audited by other auditors, Deloitte & Touche, whose
reports have been furnished to us, and our opinion, insofar as it relates to
data included for Watts Industries Europe B.V., is based solely on their
reports.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Watts Industries, Inc.
and subsidiaries at June 30, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, based on our audits and the report of other
auditors, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in fiscal year
1996, the Company adopted Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of ."
/s/ Ernst & Young, LLP
August 6, 1996
Boston, Massachusetts
<PAGE>
Watts Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(Amounts in thousands, except per share information)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30
<S> <C> <C> <C>
1996 1995 1994
Net sales............................................................ $ 640,876 $ 576,851 $444,484
Cost of goods sold................................................... 428,678 366,139 265,304
----------- ----------- ----------
GROSS PROFIT........................................................ 212,198 210,712 179,180
Selling, general and administrative expenses......................... 162,951 133,601 108,381
Impairment of long-lived assets...................................... 63,065 0 0
Restructuring charge................................................. 25,415 0 0
----------- ----------- ----------
OPERATING INCOME (LOSS)............................................. (39,233) 77,111 70,799
Other (income) expense:
Interest income..................................................... (702) (1,930) (2,947)
Interest expense.................................................... 9,960 9,368 7,464
Other............................................................... 919 1,483 1,510
----------- ------------ ---------
10,177 8,921 6,027
----------- ------------ ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES............................................ (49,410) 68,190 64,772
Provision for income taxes........................................... 4,355 25,727 25,372
----------- ------------ ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS............................ (53,765) 42,463 39,400
----------- ------------ ---------
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAXES 3,480 3,275 1,610
NET INCOME (LOSS)................................................... $ (50,285) $ 45,738 $ 41,010
----------- ------------ ---------
Income (loss) per Common Share:
Continuing operations............................................... $ (1.82) $ 1.43 $ 1.33
Discontinued operations............................................. .12 .11 .05
----------- ------------ ---------
NET INCOME (LOSS)................................................... $ (1.70) $ 1.54 $ 1.38
----------- ------------ ---------
Dividends paid per Common Share...................................... $ .265 $ .235 $ .20
----------- ------------ ---------
Weighted average number of Common Shares............................. 29,527 29,755 29,717
----------- ------------ ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Watts Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands, except share information)
<TABLE>
<CAPTION>
<S> <C> <C>
June 30 June 30
ASSETS 1996 1995
------------- -------------
CURRENT ASSETS
Cash and cash equivalents........................................................... $ 0 $3,343
Short-term investments.............................................................. 0 4,483
Trade accounts receivable, less allowance for doubtful
accounts of $8,822 in 1996 and $5,417 in 1995..................................... 116,370 104,014
Inventories:
Finished goods................................................................ 86,922 78,850
Work in process............................................................... 25,548 30,619
Raw materials................................................................. 69,628 67,602
------------- -------------
182,098 177,071
Prepaid expenses and other assets................................................... 9,283 12,545
Deferred income taxes............................................................... 24,662 12,636
Net assets held for sale............................................................ 78,401 83,387
------------- -------------
Total Current Assets.......................................................... 410,814 397,479
OTHER ASSETS
Goodwill, net of accumulated amortization of $10,450 in 1996 and $7,600 in 1995..... 79,489 116,282
Other .............................................................................. 12,705 16,859
PROPERTY, PLANT AND EQUIPMENT
Land .............................................................................. 11,503 11,306
Buildings and improvements.......................................................... 63,821 65,191
Machinery and equipment............................................................. 170,304 160,012
Construction in progress............................................................ 14,700 11,361
------------- -------------
260,328 247,870
Less allowance for depreciation..................................................... (112,378) (102,096)
-------------- --------------
147,950 145,774
-------------- --------------
$ 650,958 $ 676,394
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................................................................... $ 46,022 $ 35,202
Accrued expenses and other liabilities.............................................. 78,573 46,120
Accrued compensation................................................................ 7,756 7,280
Income taxes payable................................................................ 687 3,129
Current portion of long-term debt................................................... 2,907 11,751
------------- -------------
Total Current Liabilities..................................................... 135,945 103,482
LONG-TERM DEBT, NET OF CURRENT PORTION............................................... 160,243 132,489
DEFERRED INCOME TAXES................................................................ 13,842 16,372
OTHER LIABILITIES.................................................................... 10,291 11,992
MINORITY INTEREST.................................................................... 11,054 6,422
STOCKHOLDERS' EQUITY
Preferred Stock, $.10 par value; 5,000,000 shares
authorized; no shares issued or outstanding
Class A Common Stock, $.10 par value; 80,000,000 shares authorized;
16,856,838 shares in 1996 and
18,218,216 shares in 1995 issued and outstanding.............................. 1,686 1,822
Class B Common Stock, $.10 par value; 25,000,000 shares
authorized; 11,365,627 shares in 1996 and
11,404,470 shares in 1995 issued and outstanding.............................. 1,136 1,140
Additional paid-in capital.......................................................... 67,930 95,496
Retained earnings................................................................... 249,415 307,493
Foreign currency translation adjustment............................................. (584) (314)
-------------- --------------
Total Stockholders' Equity.................................................... 319,583 405,637
------------- -------------
$ 650,958 $ 676,394
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Watts Industries, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Amounts in thousands, except share information)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign
Class A Class A Class B Class B Additional Currency Total
Common Stock Common Stock Common Stock Common Stock Paid-In Retained Translation Stockholders'
Shares Amount Shares Amount Capital Earnings Adjustment Equity
Balance at
July 1, 1993 9,226,770 $923 5,744,635 $574 $101,491 $235,052 ($2,458) $335,582
Net income 41,010 41,010
Shares of
Class B Common
Stock converted
to Class A
Common Stock 16,500 1 (16,500) (1)
Shares of Class A
Common Stock
exchanged upon
the exercise of
stock options
and retired (25,498) (3) (1,172) (1,175)
Shares of Class A
Common Stock
issued upon
the exercise of
stock options 154,761 16 4,707 4,723
Purchase and
retirement of
treasury stock (342,700) (34) (12,030) (12,064)
Common Stock
cash dividends (5,884) (5,884)
Effect of
two-for-one
stock split 8,979,989 898 5,744,335 574 (1,472)
Change in foreign
currency translation
adjustment (590) (590)
----------- ----------- ------------ ----------- ---------- --------- ---------- ------------
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 foreign
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 foreign
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
----------- ----------- ------------ ----------- ---------- --------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Watts Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30
<S> <C> <C> <C>
1996 1995 1994
OPERATING ACTIVITIES
Income (loss) from continuing operations........................... ($53,765) $42,463 $39,400
Adjustments to reconcile net income (loss) from continuing operations
to net cash provided by continuing operating activities:
Restructuring charge............................................. 21,635 0 0
Impairment of long-lived assets.................................. 63,065 0 0
Depreciation and amortization.................................... 21,574 20,345 18,309
Deferred income taxes............................................ (14,556) 3,313 595
Loss (gain) on disposal of equipment............................. (1,405) (453) 307
Changes in operating assets and liabilities, net of effects from
business acquisitions:
Accounts receivable............................................ (12,979) (16,353) (8,278)
Inventories.................................................... (17,524) (11,453) (16,685)
Prepaid expenses and other assets.............................. 4,688 (4,696) 383
Accounts payable, accrued expenses and other liabilities....... 35,028 4,161 2,003
-------- ------------- -------------
45,761 37,327 36,034
Net cash provided by (used in) discontinued operations........... 9,638 3,447 (628)
-------- ------------- --------------
Net cash provided by operating activities........................ 55,399 40,774 35,406
INVESTING ACTIVITIES
Additions to property, plant and equipment......................... (31,080) (27,980) (18,548)
Proceeds from sale of equipment.................................... 1,462 1,287 364
Increase in goodwill and other assets.............................. (1,347) (597) (1,196)
Additions to property, plant and equipment by discontinued operations (1,141) (3,013) (1,349)
Business acquisitions, net of cash acquired........................ (13,415) (73,242) (10,783)
Repayment of debt of acquired businesses........................... (680) (18,729) (1,935)
Net changes in short-term investments.............................. 4,483 54,286 7,429
--------- ------------- -------------
Net cash used in investing activities............................ (41,718) (67,988) (26,018)
FINANCING ACTIVITIES
Proceeds from long-term borrowings................................. 91,867 65,430 716
Payments of long-term debt......................................... (73,399) (34,656) (6,008)
Proceeds from exercise of stock options............................ 772 2,059 2,418
Dividends.......................................................... (7,793) (6,951) (5,884)
Purchase and retirement of treasury stock.......................... (28,567) 0 (12,064)
Net cash provided by (used in) financing activities.............. (17,120) 25,882 (20,822)
--------- ------------- --------------
Effect of exchange rate changes on cash and cash equivalents....... 96 (213) (144)
DECREASE IN CASH AND CASH EQUIVALENTS................................ (3,343) (1,545) (11,578)
Cash and cash equivalents at beginning of year..................... 3,343 4,888 16,466
--------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................. $0 $3,343 $4,888
--------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
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
water plumbing and heating, water quality, industrial, and oil and gas markets
located predominately in North America, Europe, and Asia.
2. ACCOUNTING POLICIES
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.
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.
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.
Cash Equivalents and Short-Term Investments
Cash equivalents consist of investments having maturities of three months or
less at the date of purchase. Short-term investments consist of corporate and
municipal bonds and participation in mutual funds whose portfolios consist
principally of United States Government securities. Short-term investments are
valued at market, which approximates cost.
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, 1996, the Company
had no significant concentrations of credit risk.
<PAGE>
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
Inventories
Inventories are stated principally at the lower of cost (first-in, first-out
method) or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided on
the straight-line basis over the estimated useful lives of the assets.
Income Taxes
Deferred income taxes are recognized for temporary differences between financial
statement and income tax bases of assets and liabilities.
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 the facts
and circumstances suggest that 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 Company's carrying value of the goodwill would be reduced to its
fair value.
Impact of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be 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. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement No. 121 in the third quarter of fiscal year 1996 and
has recorded a $63,065,000 charge to income.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to key employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, (and intends to
continue to do so) and, accordingly, recognizes no compensation expense for the
stock option grants.
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 attributable to the dilutive effect of Class A Common Stock options.
<PAGE>
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICES (CONTINUED)
Basis of Presentation
Certain amounts in fiscal years 1995 and 1994 have been reclassified to permit
comparison with the 1996 presentation.
3. MANAGEMENT INITIATIVES
During the quarter ended March 31, 1996, the Company decided to restructure its
business to improve the efficiency of the Company's worldwide operations. The
nature of these changes and related effects are summarized below:
Discontinued Operations
The Company announced its intention to divest of the stock of its Municipal
Water Group of businesses, which includes Henry Pratt Company, James Jones
Company and Edward Barber & Co. In the fourth quarter, the Company executed a
definitive purchase and sale agreement covering this divestiture and the sale is
expected to occur in the first quarter of fiscal year 1997.
The results of operations of these companies have been reported as income from
discontinued operations, net of income taxes, and the income statements for the
fiscal years ended June 30, 1995 and 1994 have been reclassified to conform with
the 1996 presentation. Unassigned corporate interest expense has been allocated
based upon the ratio of the net assets of the discontinued operations to the
consolidated net assets and unassigned debt of the Company.
The following table summarizes the results of operations of the Municipal Water
Group:
Fiscal Year Ended June 30
1996 1995 1994
(in thousands)
Revenues $86,179 $80,815 $74,057
Costs and expenses 80,278 75,358 71,494
------------- ------------- -------------
Income before income taxes 5,901 5,457 2,563
Income taxes 2,421 2,182 953
------------- ------------- -------------
Income from discontinued operations $3,480 $3,275 $1,610
------------- ------------- -------------
Net assets held for sale reported in the accompanying consolidated balance
sheets consists of the following:
June 30
1996 1995
------------- -----------
(in thousands)
Accounts receivable $15,843 $14,756
Inventories 19,301 23,756
Goodwill 31,835 32,796
Property, plant and equipment 20,409 22,639
Other assets 5,415 3,017
Current liabilities (10,900) (9,625)
Other liabilities (3,502) (3,952)
------------- ------------
Net assets $78,401 $83,387
------------- ------------
<PAGE>
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. MANAGEMENT INITIATIVES (CONTINUED)
Impairment of Long-Lived Assets
The impairment of long-lived assets charge mainly pertains to the Company's
Italian subsidiaries. Due to a change in interpretation of the Italian tax law
regarding the deductibility of goodwill amortization coupled with decreasing
margins and operating profits has resulted in the goodwill at Intermes being
impaired. In addition, PBVS has experienced significant losses since
acquisition. In response to these circumstances, management has implemented
various restructuring initiatives, consisting mainly of downsizing, relocating
and consolidating its Italian operations. In connection with the reevaluation of
its business strategy in Italy, management has concluded an impairment event has
occurred and has recorded a loss by adjusting the value of the affected
long-lived assets, primarily goodwill.
Restructuring
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 relocation of Jameco Industries, Inc. ("Jameco")
and the downsizing of Pibiviesse S.p.A. ("PBVS").
The Company decided to relocate the manufacturing operations at Jameco from
Wyandanch, New York to a Watts Regulator plant in Spindale, North Carolina. The
Company expects this relocation project will be completed in fiscal 1997. The
Company also decided to implement a plan to streamline and downsize the
operations of its PBVS subsidiary. In addition, the Company has identified
efficiencies that it expects will improve operations at a number of its other
divisions.
In connection with implementing these reorganization plans, the Company has
recorded exit costs of $7,700,000, severance costs for 290 employees of
$9,300,000, asset write-downs for assets to be abandoned or sold of $8,400,000,
inventory write-downs of $9,500,000, and accrued other expenses of $13,800,000.
Substantially all the charges for this restructuring have been recorded.
The provision for severance, plant closure costs, and the asset write-downs are
included in the restructuring line in the statement of operations. The inventory
write-down is included in cost of sales and the accrued expenses are included in
operating expenses.
The severance paid as of June 30, 1996 was $1,660,000, representing a reduction
of 97 personnel.
4. BUSINESS ACQUISITIONS
During fiscal year 1996, the Company completed the acquisition of four
businesses, all of which are valve manufacturers, for an aggregate purchase
price of $13,415,000, and invested $6,000,000 in the Suzhou Watts Valve Company,
Ltd. joint venture. The most significant of these acquisitions was the purchase
of Societe des Etablissements Rene Trubert S.A. located in Chartres, France.
These acquisitions were accounted for under the purchase method. The results of
operations of the acquired businesses were included in the consolidated
financial statements from the date of acquisition. Had these acquisitions
occurred at the beginning of fiscal year 1996 or 1995, the effect on operating
results would not have been material.
<PAGE>
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES
The significant components of the Company's deferred tax liabilities and assets
are as follows:
Fiscal Year Ended June 30
1996 1995
(In thousands)
Deferred tax liabilities:
Excess tax over book depreciation $10,959 $11,598
Other 2,883 4,774
------------- -------------
Total deferred tax liabilities 13,842 16,372
Deferred tax assets:
Accrued expenses 20,345 8,712
Other 5,656 4,569
------------- -------------
Total deferred tax assets 26,001 13,281
Valuation allowance for deferred tax assets (1,339) (645)
------------- -------------
Net deferred tax assets 24,662 12,636
------------- -------------
Net deferred tax assets (liabilities) $10,820 ($3,736)
------------- -------------
The provision for income taxes is based on the following pre-tax income (loss)
arising from continuing operations:
Fiscal Year Ended June 30
1996 1995 1994
(In thousands)
Domestic $19,816 $59,760 $55,954
Foreign (69,226) 8,430 8,818
-------------- ------------- -------------
($ 49,410) $68,190 $64,772
-------------- ------------- -------------
<PAGE>
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes consists of the following:
Fiscal Year Ended June 30
1996 1995 1994
(In thousands)
Current tax expense:
Federal $15,739 $18,299 $18,809
Foreign 1,176 685 2,382
State 1,996 3,430 3,586
------------- ------------- -------------
18,911 22,414 24,777
Deferred tax expense (benefit):
Federal (8,458) 764 604
Foreign (3,964) 2,411 (120)
State (2,134) 138 111
-------------- ------------- -------------
(14,556) 3,313 595
-------------- ------------- -------------
Tax provision from
continuing operations $4,355 $25,727 $25,372
-------------- ------------- -------------
Total 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
1996 1995 1994
(In thousands)
Computed expected Federal
income tax expense (benefit) ($17,294) $23,867 $22,670
State income taxes,
net of Federal tax benefit (90) 2,319 2,403
Goodwill writedown and amortization 17,443 807 570
Foreign tax rate and
regulation differential 3,830 (791) 190
Other, net 466 (475) (461)
------------- -------------- -------------
$4,355 $25,727 $25,372
------------- ------------- -------------
<PAGE>
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
At June 30, 1996, the Company has foreign net operating loss carryforwards of
$10.7 million for income tax purposes that expire in fiscal years 1997 through
2004. In addition, foreign net operating losses of $4.5 million can be carried
forward indefinitely. Undistributed earnings of the Company's foreign
subsidiaries amounted to approximately $37 million, $43 million and $36 million
at June 30, 1996, 1995 and 1994, respectively. Those earnings are considered to
be indefinitely reinvested and, accordingly, no provision for U.S. federal and
state income taxes has been provided 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. 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 $2.6 million would be payable upon remittance of all previously
unremitted earnings at June 30, 1996.
The Company made income tax payments of $27.8 million, $25.2 million and $31.4
million in 1996, 1995 and 1994, respectively.
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
June 30
1996 1995
------------- ------------
(In thousands)
Restructuring costs $21,342
Commissions and sales incentives payable 10,276 $8,714
Accrued insurance costs 10,652 9,040
Other 36,303 28,366
------------- -------------
$78,573 $46,120
<PAGE>
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. FINANCING ARRANGEMENTS
Long-term debt consists of the following:
June 30
1996 1995
------------- ------------
(In thousands)
8 3/8% Notes, Due 2003 $75,000 $75,000
$125 million revolving line of credit,
accruing interest at LIBOR plus 25
basis points (5.625% at June 30, 1996)
and expiring in August 1999 61,300 31,000
Industrial Revenue Bonds,
maturing periodically from
2006 through 2019, accruing interest
at a variable rate based on weekly
tax-exempt interest rates
(3.6% at June 30, 1996) 17,265 17,265
Other 9,585 20,975
------------- -------------
163,150 144,240
Less current portion 2,907 11,751
------------- -------------
$160,243 $132,489
Principal payments during each of the next five fiscal years are due as follows:
1997-$2,907,000; 1998-$1,620,000; 1999-$1,525,000; 2000-$62,433,000; and
2001-$414,000. Interest paid for all periods presented in the accompanying
financial statements approximates interest expense.
Certain of the Company's loan agreements contain covenants that require, among
other items, the maintenance of certain minimum financial ratios and limit the
Company's ability to enter into secured borrowing arrangements for amounts
exceeding 10% of the Company's consolidated stockholders' equity, unless the 8
3/8% Notes are secured ratably with such borrowings. Under its most restrictive
loan covenant, the Company had $24.6 million available at June 30, 1996, for the
payment of dividends.
8. COMMON STOCK
During fiscal year 1996, the Company's Board of Directors authorized the
purchase of up to 2,000,000 shares of the Company's Class A Common Stock in the
open market which was completed on July 17, 1996. The Company utilized its line
of credit in making these purchases. On July 17, 1996, the Company's Board of
Directors authorized the purchase of an additional 1,000,000 shares of the
Company's Class A Common Stock in the open market.
<PAGE>
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. COMMON STOCK (CONTINUED)
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 3,391,630 shares of Class A Common Stock for issuance under its option plans
and 11,365,627 shares for conversion of Class B Common Stock to Class A Common
Stock.
9. STOCK OPTION AND PURCHASE PLANS
On August 6, 1996, the Board of Directors adopted, subject to shareholder
approval, the 1996 Stock Option Plan ("1996 Plan") to replace the 1986 Incentive
Stock Option Plan, which expired during 1996, and the 1989 Nonqualified Stock
Option Plan ("1989 Plan") upon the earlier of its expiration, in 1999, or when
the shares reserved for issuance under such Plan are exhausted. The terms and
conditions of the 1996 Plan are substantially consistent with those of the 1986
and 1989 Plans and allow for the granting of options to purchase up to 3,000,000
share of the Company's Class A Common Stock.
The Company's 1986 Plan allowed for the granting of options to purchase
1,980,000 shares of Class A Common Stock to key employees at an exercise price
equal to 100% of the fair market value per share on the date of grant. In
addition, the Company's 1989 Stock Option Plan allowed for the granting of
options to purchase 2,000,000 shares of Class A Common Stock to key employees.
Options are granted at an exercise price determined by the Board of Directors,
but not less than 50% of the fair market value per share on the date of grant.
Outstanding options generally vest at the rate of 20% per year.
A summary of activity in the plans is as follows:
<TABLE>
<CAPTION>
Number of Shares
<S> <C> <C> <C>
Qualified Nonqualified Exercise Price
Outstanding options at July 1, 1993 677,246 482,864 $ 8.75 to $24.75
Granted 237,500 146,000 15.73 to 22.50
Exercised (108,446) (167,432) 8.75 to 22.50
Canceled (54,000) (158,000) 8.75 to 22.50
------------ -------------
Outstanding options at June 30, 1994 752,300 303,432 8.75 to 24.75
Granted 176,500 113,000 22.50 to 26.13
Exercised (63,500) (76,894) 8.75 to 22.13
Canceled (186,000) 14.25 to 22.50
------------ -------------
Outstanding options at June 30, 1995 679,300 339,538 8.75 to 26.13
Granted 190,500 123,500 22.75 to 23.38
Exercised (65,700) (8,822) 8.75 to 19.80
Canceled (121,600) 18.00 to 23.75
------------ -------------
Outstanding options at June 30, 1996 682,500 454,216 $8.75 to $26.13
------------ -------------
</TABLE>
<PAGE>
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
At June 30, 1996 and 1995, options to purchase 423,596 and 348,190 shares,
respectively, were exercisable and 1,254,914 and 2,131,414 options,
respectively, were available for future grants under the Company's stock option
plans.
In October 1995, the Company adopted the Watts Industries Inc. Management Stock
Purchase Plan which allows for the granting of restricted stock units 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. Restricted stock units generally
vest annually over a three year period from the date of grant. There were no
restricted stock units outstanding at June 30, 1996.
10. EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(K) Savings Plan for substantially all domestic
non-union employees. Under the plan, the Company matches a specified percentage
of employee contributions, subject to certain limitations. In addition, the
Company sponsors defined benefit plans covering substantially all of its
domestic non-union employees. The Company's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes. At June 30, 1996 and 1995, the fair value of assets held in trust for
the Company's defined benefit plans approximated the related projected benefit
obligation.
11. COMMITMENTS AND CONTINGENCIES
The Company is engaged in various claims and litigation arising from its
operations. In the opinion of management, uninsured losses, if any, resulting
from these matters will not have a material adverse impact on the consolidated
financial position or future results of operations of the Company.
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 and remediation efforts that are underway are in various
stages. In certain cases, remediation has not begun. The Company has evaluated
its potential exposure based on all currently available information and has
recorded an estimate of its liability for environmental matters.
<PAGE>
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. FINANCIAL INSTRUMENTS
Fair Value of Long-Term Debt
The fair value of the Company's 8 3/8% Notes, Due 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
1996 1995
------------ ------------
(In thousands)
Carrying amount $163,150 $144,240
Estimated fair value 166,994 150,709
<PAGE>
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. 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:
<TABLE>
<CAPTION>
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
DOMESTIC CANADA EUROPE ASIA ELIMINATIONS CONSOLIDATED
FISCAL YEAR ENDED JUNE 30, 1996
NET SALES $476,279 $28,086 $118,673 $17,838 $640,876
TRANSFER BETWEEN AREAS 10,220 5,180 3,549 $18,949
-------- ------- -------- ------- ------------ ------------
$486,499 $33,266 $122,222 $17,838 $18,949 $640,876
-------- ------- -------- ------- ------------ ------------
OPERATING INCOME (LOSS) OF
GEOGRAPHIC AREAS $67,245 ($7,709) ($59,242) $1,907 $2,558 ($357)
-------- ------- -------- ------- ------------ ------------
GENERAL CORPORATE EXPENSES 38,876
------------
OPERATING LOSS ($39,233)
============
ASSETS OF CONTINUING OPERATIONS $394,133 $25,357 $123,270 $31,118 $1,321 $572,557
NET ASSETS OF DISCONTINUED OPERATIONS 65,202 13,199 78,401
-------- ------- -------- ------- ------------ ------------
$459,335 $25,357 $136,469 $31,118 $1,321 $650,958
-------- ------- -------- ------- ------------ ------------
FISCAL YEAR ENDED JUNE 30, 1995
NET SALES $441,808 $30,016 $93,518 $11,509 $576,851
TRANSFER BETWEEN AREAS 12,592 5,231 $17,823
-------- ------- -------- ------- ------------ ------------
$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 11,644 83,387
-------- ------- -------- ------- ------------ ------------
$464,755 $29,567 $165,713 $17,550 $1,191 $676,394
======== ======= ======== ======= ============ ============
</TABLE>
<PAGE>
Watts Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. FINANCIAL INFORMATION BY GEOGRAPHIC AREA (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
DOMESTIC CANADA EUROPE ASIA ELIMINATIONS CONSOLIDATED
FISCAL YEAR ENDED JUNE 30, 1994
NET SALES $348,698 $28,732 $67,054 $444,484
TRANSFER BETWEEN AREAS 13,723 2,820 $16,543
-------- ------- -------- ------- ------------ ------------
$362,421 $31,552 $67,054 $16,543 $444,484
======== ======= ======== ======= ============ ============
OPERATING INCOME OF
GEOGRAPHIC AREAS $69,629 $2,304 $9,031 $94 $80,870
======== ======= ======== ======= ============
GENERAL CORPORATE EXPENSES 10,071
------------
OPERATING INCOME $70,799
============
ASSETS OF CONTINUING OPERATIONS $351,104 $23,469 $92,268 $984 $465,857
NET ASSETS OF DISCONTINUED OPERATIONS 69,101 11,764 80,865
-------- ------- -------- ------- ------------ ------------
$420,205 $23,469 $104,032 $984 $546,722
======== ======= ======== ======= ============ ============
</TABLE>
Included in domestic sales are export sales of $43.5 million in fiscal year
1996, $39.7 million in fiscal year 1995 and $38.7 million in fiscal year 1994.
14. QUARTERLY UNAUDITED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(In thousands, except per share information)
<S> <C> <C> <C> <C>
First Second Third Fourth
Quarter Quarter Quarter Quarter
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
Net 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 0.39 0.33 (2.70) 0.17
Discontinued operations 0.02 0.03 0.03 0.04
Net income (loss) 0.41 0.36 (2.67) 0.21
Dividends paid per common share 0.0625 0.0625 0.07 0.07
FISCAL YEAR ENDED JUNE 30, 1995
Net sales $133,399 $140,605 $152,973 $149,874
Gross profit 50,373 52,374 55,872 52,093
Net income from continuing operations 10,656 10,492 11,751 9,564
Net income 11,390 11,165 12,731 10,452
Income per common share - Continuing operations 0.36 0.35 0.40 0.32
Discontinued operations 0.02 0.03 0.03 0.03
Net income 0.38 0.38 0.43 0.35
Dividends paid per common share 0.055 0.055 0.0625 0.0625
</TABLE>
<PAGE>
Schedule II-Valuation and Qualifying Accounts
Watts Industries, Inc. and Subsidiaries
(Amounts in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
<S> <C> <C> <C> <C> <C>
Balance at Charged to Costs Charged to Other Deductions Balance at End
Description Beginning of Period and Expenses Accounts - Describe Describe (1) of Period
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
Year ended June 30, 1994
Deducted from asset account:
Allowance for
doubtful accounts $3,233 $1,615 $137 (2) $880 $4,105
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Balance acquired in connection with acquisition of Trubert and Artec in
fiscal 1996, Jameco and Anderson-Barrows in fiscal 1995 and Ancon, Inc. in
fiscal 1994.
<PAGE>
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
Company 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. (13)
3.2 Amended and Restated By-Laws. (1)
9.1 Horne Family Voting Trust Agreement-1991 dated as of
October 31, 1991. (2)
9.2 Amendment dated as of December 18, 1995 to the Horne Family
Voting Trust Agreement-1991 dated as of October 31, 1991.*
10.1 Employment Agreement effective as of September 1, 1996
between the Registrant and Timothy P. Horne. *
10.2 Supplemental Compensation Agreement effective as of
September 1, 1996 between the Registrant and Timothy P. Horne. *
10.3 Deferred Compensation Agreement between the Registrant and
Timothy P. Horne, as amended. (4)
10.4 1986 Incentive Stock Option Plan, as amended, including form of
Option Agreement. (3)
10.5 1989 Nonqualified Stock Option Plan, including form of Option
Agreement.(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. (13)
10.6(i) Amendment Number 1 to the Watts Industries, Inc. Retirement Plan
for Salaried Employees dated April 16, 1996, effective as of
January 1, 1994.*
10.6(ii) Amendment Number 2 to the Watts Industries, Inc. Retirement Plan
for Salaried Employees dated October 17, 1995, effective as of
September 30, 1995. *
10.6(iii) Amendment Number 3 to the Watts Industries, Inc. Retirement Plan
for Salaried Employees dated April 16, 1996, effective as of
January 1, 1996. *
10.7 Registration Rights Agreement dated as of July 25, 1986. (5)
10.8 Executive Incentive Bonus Plan, as amended. (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. (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 as of August 1, 1985. (4)
10.11 Amendment Agreement relating to Watts Regulator Co. (Canaan and
Franklin, New Hampshire, facilities) financing dated as of
December 31, 1985. (4)
10.12 Sale Agreement between Village of Walden Industrial Development
Agency and Spence Engineering Company, Inc. dated as of June 1,
1994. (12)
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.(12)
10.13(i) Amendment Number 1 to the 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. (12)
10.15 Loan Agreement between Hillsborough County Industrial Development
Authority and Leslie Controls, Inc. dated as of July 1, 1994.(12)
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. (12)
10.16(i) Amendment Number 1 to the 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.(12)
10.18 Loan Agreement between The Rutherford County Industrial
Facilities and Pollution Control Financing Authority and Watts
Regulator Company dated as of September 1, 1994. (13)
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. (13)
10.19(i) Amendment No. 1 to the 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.*
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 as of September 1, 1994. (13)
10.21 Amended and Restated Stock Restriction Agreement dated as of
October 30, 1991. (2)
10.22 Watts Industries, Inc. 1991 Non-Employee Directors' Nonqualified
Stock OptionPlan. (7)
10.22(i) Amendment No. 1 to the Watts Industries, Inc. 1991 Non-Employee
Directors' Nonqualified Stock Option Plan. *
10.23 Letters of Credit relating to retrospective paid loss insurance
programs. (11)
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 and Plan of Merger dated as of August 22, 1991 relating
to the acquisition by the Registrant of Henry Pratt Company. (9)
10.28 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. (10)
10.29 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. (12)
10.29(i) Amendment Number 1 dated June 30, 1995, to the Revolving Credit
Agreement dated August 30, 1994. *
10.29(ii) Amendment Number 2 dated April 15, 1996, to the Revolving Credit
Agreement dated August 30, 1994. *
10.30 Watts Industries, Inc. Management Stock Purchase Plan dated
October 17, 1995. (14)
11 Statement Regarding Computation of Earnings per Common Share. *
21 Subsidiaries. *
23.1 Consent of Ernst & Young LLP, 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
Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 15, 1992.
(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 November 14, 1991.
(3) 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.
(4) 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.
(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 as part of the Second Amendment to such
Registration Statement on August 21, 1986.
(6) 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.
(7) 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 and
Exchange Commission on March 11, 1993.
(8) 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.
(9) 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.
(10) 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.
(11) 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.
(12) 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 26, 1994.
(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 28, 1995.
(14) Incorporated by reference to the relevant exhibit to the Registrant's
Registration Statement on Form S-8 (No. 33-64627) filed with the Securities
and Exchange Commission on November 29, 1995.
* Filed as an exhibit to this Report with the Securities and Exchange Commission
<PAGE>
EXHIBIT 9.2
<PAGE>
AMENDMENT TO VOTING TRUST AGREEMENT
WHEREAS, Timothy P. Horne and Frederic B. Horne are trustees (the
"Trustees") under the Horne Family Voting Trust Agreement - 1991 dated as of
October 31, 1991 (the "Agreement"); and
WHEREAS, Timothy P. Horne and George B. Horne as Trustees of The George B.
Horne Trust - 1982 have, effective as of the date hereof, deposited with the
Trustees a stock certificate representing 80,000 shares of the Class B Common
Stock of Watts Industries, Inc. and pursuant to the Agreement such Trustees have
issued and delivered to Timothy P. Horne and George B. Horne as Trustees of The
George B. Horne Trust - 1982 a Voting Trust Certificate representing their
interests in such deposited stock.
WHEREAS, Timothy P. Horne and George B. Horne as Trustees of The George B.
Horne Trust - 1982 have, effective as of the date hereof, gifted to each of (i)
Timothy P. Horne and George B. Horne, trustees of The George B. Horne
Grandchildren's 1995 Irrevocable Trust f/b/o Tara V. Horne, (ii) Timothy P.
Horne and George B. Horne, trustees of The George B. Horne Grandchildren's 1995
Irrevocable Trust f/b/o Tiffany R. Horne, and (iii) Frederic B. Horne and George
B. Horne, trustees of The George B. Horne Grandchildren's 1995 Irrevocable Trust
f/b/o Kristina M. Horne, a portion of their Voting Trust Certificates issued
under the Agreement; and
WHEREAS, the Trustees desire to amend Schedule A to the Agreement to
reflect such gifts.
NOW, THEREFORE, the parties do hereby agree as follows:
1. Schedule A to the Agreement is hereby amended and restated in its
entirety to read as follows:
SCHEDULE A
Stockholder No. of Shares* Class B Cert. No.
- - ----------- -------------- -----------------
Timothy P. Horne ("TPH") 2,751,220 126,161
Frederic B. Horne ("FBH") 1,355,166 129,159
Timothy P. Horne
and George B. Horne ("GBH")
as trustees of The
George B. Horne Trust - 1982 2,004,600 132,158,184
Frederic B. Horne,
as Trustee of The
Peter W. Horne Trust - 1976 1,285,840 156, 175
<PAGE>
Stockholder No. of Shares* Class B Cert. No.
- - ----------- -------------- -----------------
FBH and GBH, trustees of
The GBH Grandchildren's 1995
Irrevocable Trust f/b/o
Kristina M. Horne 22,600 184
TPH and GBH, trustees of
The GBH Grandchildren's 1995
Irrevocable Trust f/b/o
Tara V. Horne 30,200 184
TPH and GBH, trustees of
The GBH Grandchildren's 1995
Irrevocable Trust f/b/o
Tiffany R. Horne 22,600 184
Timothy P. Horne,
as Trustee of The Deborah
Horne Trust - 1976 1,335,840 138,157
Timothy P. Horne,
as Trustee of The Daniel
W. Horne Trust - 1980 1,335,840 134,155
Tara V. Horne 50,000 126
Judith Rae Horne,
as Trustee of The Tiffany
Rae Horne Trust - 1984 50,000 126
* As adjusted to reflect the two-for-one stock split effected by means of a
stock dividend payable on March 15, 1994.
2. Except as hereinabove provided, the parties ratify and confirm the
Agreement in all respects.
The parties hereto have executed this Amendment to the Agreement in one or
more counterparts under seal as of December 18, 1995.
-------------------------
Timothy P. Horne, as Trustee of the
Horne Family Voting Trust - 1991
-------------------------
Frederic B. Horne, as Trustee of the
Horne Family Voting Trust - 1991
<PAGE>
EXHIBIT 10.1
<PAGE>
EMPLOYMENT AGREEMENT
Employment Agreement entered into as of the 1st day of "September 1996, by
and between WATTS INDUSTRIES, INC., a Delaware corporation with its principal
place of business in North Andover, Massachusetts (the "Company"), and TIMOTHY
P. HORNE, an individual residing in Andover, Massachusetts ("Mr. Horne").
WITNESSETH:
WHEREAS, the Company and Mr. Horne are parties to an existing Employment
Agreement, dated as of May 1, 1993 (hereinafter referred to as the "Existing
Employment Agreement");
WHEREAS, the Company and Mr. Horne mutually desire to enter into a new
Employment Agreement which will set forth the terms and conditions of the
Company's subsequent employment of Mr. Horne; and
WHEREAS, the Company desires to arrange for the employment of Mr. Horne on
the terms and conditions set forth below and Mr. Horne desires such employment.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth above, and other good and valuable consideration the receipt of which
is hereby acknowledged by each party to the other, the parties hereto agree as
follows:
1. Employment and Term of Employment.
1.1 Revocation of Existing Employment Agreement. The Company and Mr.
Horne hereby agree that effective as of September 1, 1996, the
Existing Employment Agreement between the parties shall terminate
and be of no further force and effect and that the terms and
conditions of this Agreement set forth below shall control the
employment of Mr. Horne by the Company during the term of this
Agreement.
1.2 Position. Commencing with September 1, 1996 (hereinafter referred
to as the "Effective Date" of this Agreement), the Company will
employ Mr. Horne as its Chairman of the Board of Directors and
Chief Executive Officer (and/or in such other capacity or
capacities as may be mutually agreed upon in writing by the
Company and Mr. Horne) and Mr. Horne will accept such employment.
1.3 Duties. As Chairman of the Board of Directors and Chief Executive
Officer of the Company, Mr. Horne will have general charge and
supervisory control over the Company's business and financial
affairs, subject to the authority of the Board of Directors of
the Company. During the term of his employment pursuant to this
Agreement, Mr. Horne shall perform such additional or other
duties as shall be assigned to him by or under the authority of
the Board of Directors of the Company, consistent with his
position and title.
<PAGE>
1.4 Vacation. During the term of his employment pursuant to this
Agreement, Mr. Horne shall be entitled to not less than three (3)
months vacation each year.
1.5 Indemnification. In the absence of proof of bad faith, it is
expressly agreed that Mr. Horne shall not be liable for any of
his actions, or omissions to act, as an officer, employee or
director of the Company or any of its affiliated business
organizations, and the Company shall indemnify and hold him
harmless against any and all claims of whatever kind by any
person arising out of or in any way related to his activities on
behalf of, or his position or positions with, the Company or any
of its affiliated business organizations. The Company shall also
promptly reimburse Mr. Horne for any and all reasonable business
expenses incurred by him in connection with any such claim or
proceeding (including without limitation reasonable fees and
expenses of counsel) provided that Mr. Horne hereby undertakes to
repay any such advance made with respect to any claim upon final
determination by a court of competent jurisdiction that no
indemnification may be paid with respect to such claim under the
terms of this Agreement. The foregoing shall be in addition to
and not in lieu of any other indemnification or expense
reimbursement to which Mr. Horne is entitled.
1.6 Location. Notwithstanding anything contained in this Agreement to
the contrary, Mr. Horne shall not be required, in connection with
the performance of his obligations under this Agreement, to
relocate permanently from or to any area of the world other than
the greater Boston area, provided, however, at Mr. Horne's sole
discretion, Mr. Horne shall be entitled to perform his
obligations under this Agreement from any geographical location
which is in proximity to a major facility of the Company.
1.7 Term of Employment. The term of Mr. Horne's employment under this
Agreement shall be for a period of three (3) years from September
1, 1996 (which is the Effective Date of this Agreement), to and
including August 31, 1999, and thereafter shall be automatically
renewed for consecutive one-year periods (such three-year period
and any subsequent one-year periods or portions thereof during
which this Agreement is in effect being referred to hereinafter
as the "Term"); provided, however, that if the employment of Mr.
Horne is earlier terminated pursuant to the provisions hereof, by
Mr. Horne or by the Board of Directors of the Company, the term
of his employment under this Agreement shall end with such
termination of employment.
2. Compensation and Benefits.
2.1 Compensation. The Company shall pay to Mr. Horne, as compensation
for services rendered to the Company, a base salary of Six
Hundred Sixty Thousand Dollars ($660,000) (U.S.) per year (such
salary, as from time to time increased as hereinafter provided,
being referred to hereinafter as the "Base Salary") so long as he
is employed by the Company; provided, however, that such Base
Salary shall be automatically subject to a percentage increase on
each anniversary date of the Effective Date of this Agreement,
based on the amount applicable with respect to the year then
ended, with such percentage increase determined with reference to
the aggregate percentage increase for the preceding twelve months
of the Consumer Price Index For All Urban Consumers as published
by the United States Department of Labor; and provided further,
however, that the Board of Directors may from time to time
increase such Base Salary or pay such additional bonuses or other
compensation to Mr. Horne as it may in its sole discretion deem
appropriate. The Base Salary shall be payable in equal
installments at such periodic intervals, not less than monthly,
as from time to time are applicable with respect to salaried
executive personnel of the Company, and such Base Salary shall be
inclusive of all applicable income, social security and other
taxes and charges required by law to be withheld by the Company
or requested to be withheld by Mr. Horne.
<PAGE>
2.2 Travel and Business Expenses. In addition to the compensation
described in Section 2.1, Mr. Horne shall be reimbursed by the
Company for all reasonable and necessary travel and other
business expenses incurred by him in connection with the
performance of his duties hereunder.
2.3 Additional Benefits. Mr. Horne shall also be entitled to receive
all other benefits, for which he is otherwise eligible and
qualified, made available from time to time by the Company to its
employees having responsibilities similar to those assigned to
Mr. Horne and shall be entitled to those additional benefits as
are customarily provided to a senior executive employee holding
the position or positions held by Mr. Horne (all costs and
expenses of which shall be paid by the Company). In addition, the
Company hereby acknowledges its obligation to pay to Mr. Horne
upon his retirement from the Company an amount equal to Two
Hundred Thirty Three Thousand Dollars ($233,000.00), which
represents compensation which Mr. Horne deferred prior to the
registration of the Company's common stock with the Securities
and Exchange Commission.
3. Termination of Employment.
3.1 Termination by the Company. The Board of Directors, acting on
behalf of the Company, shall have the right to terminate Mr.
Horne's employment with the Company at any time during the Term
of this Agreement only upon the occurrence of his willful illegal
acts directly relating to the performance of his duties on behalf
of the Company hereunder.
3.2 Termination by Mr. Horne.
3.2.1 If, as a result of any action by the Board of Directors,
acting on behalf of the Company and without the consent of
Mr. Horne, Mr. Horne shall cease to be, or cease to have the
responsibilities and duties of, Chairman of the Board of
Directors and Chief Executive Officer of the Company without
his employment having been terminated pursuant to Section
3.1 above, or if Mr. Horne shall be assigned duties which
are inconsistent with those previously performed by him
hereunder, Mr. Horne shall have the right to terminate his
employment with the Company at any time during the Term of
this Agreement (including any renewal year as contemplated
by Section 1.7) upon thirty (30) days' written notice to the
Board of Directors. If and when Mr. Horne terminates his
employment pursuant to this Section 3.2.1, the Company shall
pay to Mr. Horne a lump sum payment in an amount equal to
the greater of (i) the compensation which would have been
payable hereunder from the date of termination through the
third anniversary hereof had this Agreement been in effect
though such date at the rate in effect as of the date of
termination or (ii) two years' compensation hereunder at
such rate.
<PAGE>
3.2.2 Mr. Horne shall also have the right to terminate his
employment with the Company at any time during the Term of
this Agreement upon thirty (30) days' written notice to the
Company.
4. Rights on Termination.
In addition to the Company's other obligations to Mr. Horne hereunder, at
the termination of Mr. Horne's employment pursuant to this Agreement, whether by
Mr. Horne or by the Board of Directors acting on behalf of the Company, the
Company shall pay to Mr. Horne or, if he is not then living, to his beneficiary
(i) any salary accrued to the date of termination and (ii) any additional
compensation or benefits to which Mr. Horne or his beneficiary may be entitled.
For purposes of this Section 4, the term "beneficiary" shall mean such person or
persons as Mr. Horne may from time to time designate in writing to the Company
or, in the absence of any such effective designation, the executor or
administrator of his estate.
5. Miscellaneous Provisions.
5.1 Entire Agreement. This Agreement constitutes the entire
understanding of Mr. Horne and the Company with respect to its
subject matter and supersedes any prior agreement or arrangement
relative to the terms of Mr. Horne's employment by the Company,
including, without limitation, the Existing Employment Agreement
dated as of May 1, 1993. No modification or waiver of any
provision hereof shall be valid unless made in a writing signed
by Mr. Horne and the Company.
5.2 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Massachusetts
and shall be deemed to have been made in Massachusetts.
5.3 Notices All notices and other communications relative to this
Agreement shall be deemed to have been duly given if delivered or
mailed by U.S. certified mail, postage prepaid, return receipt
requested, to the address of the applicable party set forth at
the foot of this Agreement or to such other address of which
either party may, by U.S. certified mail, postage prepaid, return
receipt requested, notify the other party hereto.
5.4 Assignment; Binding Effect. Neither the Company nor Mr. Horne may
make any assignment of this Agreement or any interest therein, by
operation of law or otherwise, without the prior written consent
of the other party. This Agreement shall inure to the benefit of
and be binding upon the Company and Mr. Horne and their
respective successors, executors, administrators, heirs and/or
permitted assigns.
5.5 Headings. The headings set forth in this Agreement are for
convenience only and shall not be considered part of this
Agreement or in any way to limit or amplify the terms and
provisions hereof.
<PAGE>
5.6 Payment of Salary. It is expressly agreed by the parties hereto
that Mr. Horne's compensation hereunder may be paid by the
Company and/or any affiliated business organization of the
Company.
5.7 Waiver. The failure of either party to require the performance of
any term or obligation of this Agreement, or the waiver by either
party of any breach of this Agreement, shall not prevent
subsequent enforcement of such term or obligation or be deemed a
waiver of any subsequent breach.
5.8 Counterparts. More than one counterpart of this Agreement may be
executed by the parties hereto, but all of such counterparts
taken together shall be deemed to constitute one and the same
Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and delivered and Mr. Horne has duly executed and delivered this Agreement as a
sealed instrument as of the date first written above.
ATTEST: WATTS INDUSTRIES, INC.
By:
Secretary Title: Compensation Committee Chairman
[Corporate Seal] Address: 815 Chestnut Street
North Andover, Mass. 01845
TIMOTHY P. HORNE
Address: 94 Porter Road
Andover, Mass. 01810
<PAGE>
EXHIBIT 10.2
<PAGE>
SUPPLEMENTAL COMPENSATION AGREEMENT
Supplemental Compensation Agreement made as of the 1st day of September
1996, by and between WATTS INDUSTRIES, INC., a Delaware corporation with its
principal place of business in North Andover, Massachusetts (the "Company"), and
Timothy P. Horne, an individual residing in Andover, Massachusetts ("Mr.
Horne").
WITNESSETH:
WHEREAS, Mr. Horne has been in the employ of the Company and is now serving
the Company as its Chairman of the Board of Directors and Chief Executive
Officer;
WHEREAS, because of Mr. Horne's experience, knowledge of the affairs of the
Company, and reputation and contacts in the industry, the Company deems Mr.
Horne's continued employment with the Company important for its future growth;
and
WHEREAS, in order to induce Mr. Horne to continue in the employ of the
Company pursuant to the terms of an Employment Agreement of even date (the
"Employment Agreement"), the Company desires to provide Mr. Horne certain
compensation rights to commence following termination of his status as a full
time employee of the Company and its subsidiaries.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Supplemental Compensation. Commencing on the date on which Mr. Horne
shall have ceased to be a full time employee of the Company or any
subsidiary thereof (the "Termination Date"), regardless of the reason
of such termination (other than a termination of Mr. Horne's
employment by reason of death), and continuing until the date of Mr.
Horne's death, Mr. Horne shall receive Supplemental Compensation equal
on an annual basis to the greater of (a) one-half of the average of
Mr. Horne's annual base salary as an employee of the Company during
the three years immediately prior to the Termination Date or (b)
$400,000; provided, however, that the amount applicable under this
clause (b) shall be automatically subject to a percentage increase as
of each anniversary of the date hereof, based on the amount applicable
under this clause (b) with respect to the year then ended, with such
percentage increase determined with reference to the aggregate
percentage increase for the preceding twelve months of the Consumer
Price Index For All Urban Consumers as published by the United States
Department of Labor. Such Supplemental Compensation shall be paid in
equal monthly installments payable on the first day of each month,
with the first such payment due on the first day of the month
following the Termination Date. In the event of Mr. Horne's death, the
Company shall make a Supplemental Compensation payment as provided
above to Mr. Horne's estate on the first day of the month following
the date of Mr. Horne's death, thereby terminating this Agreement and
its obligation to make further payments hereunder.
<PAGE>
2. Services of Mr. Horne. Following termination of Mr. Horne's status as
an employee of the Company and its subsidiaries (whether full or part
time), Mr. Horne hereby agrees to make himself available to serve the
Company and its subsidiaries so long as he is physically able to do
so, upon request of the Board of Directors, as a consultant and as
Chairman of the Board of Directors for a minimum of 300 hours per year
commencing on the Termination Date; provided, however, that in no
event shall Mr. Horne be required to devote more than 500 hours per
year to the performance of services hereunder; and provided further,
however, that Mr. Horne's physical inability to perform services
hereunder shall not affect or limit the Company's obligation under
Section 1.
3. Funding. Nothing contained herein and no action taken pursuant to the
provisions hereof shall create or be construed to create a trust of
any kind, a fiduciary relationship between the Company and Mr. Horne
or any other person, or a security interest of any kind in any
property of the Company in favor of Mr. Horne or any other person. The
Company shall not be required to purchase, hold or dispose of any
investments in order to provide for its obligations hereunder.
However, if the Company elects to purchase any such investments, the
same shall continue for all purposes to be a part of the general
assets of the Company, subject to the claims of its creditors, and no
person other than the Company shall by virtue of the provisions of
this Agreement or otherwise have any interest in such assets other
than an interest as a general creditor. Title to and beneficial
ownership of any assets which the Company may acquire to provide for
its obligations hereunder shall at all times remain in the Company,
and the terms of this Agreement shall not provide Mr. Horne, his
estate or any other person any direct proprietary interest therein.
Neither Mr. Horne nor any other person shall have the right, by action
for specific performance or otherwise, to compel the Company to set
aside or actually invest any funds in satisfaction of its obligations
hereunder. The sole right of Mr. Horne shall be to receive payments at
the times and in the amounts set forth herein.
4. Alienability. Mr. Horne shall not have any power or right to transfer,
assign, anticipate, hypothecate, mortgage, commute, modify or
otherwise encumber in advance any rights to payment hereunder, nor
shall any of said rights be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by Mr. Horne or
any beneficiary, or be transferable by operation of law in the event
of bankruptcy or insolvency or for any other reason.
5. Participation in Other Plans; Prior Agreement. Nothing contained in
this Agreement shall be construed to alter, abridge or in any manner
affect the rights and privileges of Mr. Horne to participate in and be
covered by any pension, profit-sharing, group insurance, bonus or
other employee benefit plan which the Company may now or hereafter
maintain. The Company hereby agrees that Mr. Horne shall also be
entitled to receive all other benefits, for which he is otherwise
eligible and qualified, made available from time to time by the
Company to its employees, including by way of illustration and not by
way of limitation, health, dental, life and disability insurance
benefits, so long as he serves as an employee of the Company or any of
its subsidiaries.
<PAGE>
6. Miscellaneous.
(a) Nothing herein shall affect the rights Mr. Horne has under the
Employment Agreement nor restrict the right of Mr. Horne to enter
into an agreement or agreements with the Company concerning other
terms and conditions of his employment.
(b) The payments contemplated by this Agreement are not part of any
salary reduction plan or any arrangement deferring a lot bonus or
salary increase and are being provided in addition to any salary,
bonus, or other remuneration provided to Mr. Horne from time to
time by the Company. Mr. Horne has no option to take any current
payment or bonus in lieu of such payments.
(c) All notices and other communications relative to this Agreement
shall be deemed to have been duly given if delivered or mailed by
U.S. certified mail, postage prepaid, return receipt requested,
to the address of the applicable party as set forth below or to
such other address of which either party may, by U.S. certified
mail, postage prepaid, return receipt requested, notify the other
party hereto.
(d) This Agreement shall inure to the benefit of and be binding upon
the Company and Mr. Horne and their respective successors,
executors, administrators, heirs and/or permitted assigns. This
Agreement supersedes and replaces the Supplemental Compensation
Agreements between the Company and Mr. Horne dated as of May 1,
1993.
(e) The headings set forth in this Agreement are for convenience only
and shall not be considered part of this Agreement or in any way
limit or amplify the terms and provisions hereof.
(f) Neither this Agreement nor any term hereof may be changed,
waived, discharged or terminated other than by an instrument in
writing signed by the party against whom enforcement of such
change, waiver, discharge or termination is sought.
(g) More than one counterpart of this Agreement may be executed by
the parties hereto, but all of such counterparts taken together
shall be deemed to constitute one and the same Agreement.
(h) This Agreement shall be construed in accordance with and governed
by the laws of the Commonwealth of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and its corporate seal affixed, duly attested by its Secretary, and Mr.
Horne has hereunto set his hand and seal, as of the date and year first above
written.
ATTEST: WATTS INDUSTRIES, INC.
By:
Secretary Title: Compensation Committee Chairman
[Corporate Seal] Address: 815 Chestnut Street
North Andover, Mass. 01845
TIMOTHY P. HORNE
Address: 94 Porter Road
Andover, Mass. 01810
<PAGE>
EXHIBIT10.6 (i)
<PAGE>
AMENDMENT NUMBER ONE
WATTS INDUSTRIES, INC.
RETIREMENT PLAN FOR SALARIED EMPLOYEES
WHEREAS, Watts Industries, Inc. (the "Sponsoring Employer") established the
Watts Industries, Inc. Retirement Plan for Salaried Employees (the "Plan") for
the benefit of its employees which was most recently amended and restated
effective as of January 1, 1994;
WHEREAS, pursuant to Section 13.01 of the Plan, the Sponsoring Employer reserved
the right to amend the Plan; and
WHEREAS, the Sponsoring Employer desires to amend the Plan at the request of the
Internal Revenue Service in order to receive a determination letter.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 1.09 is deleted in its entirety and the following inserted in its
place:
1.09 "Compensation" shall mean the total compensation payable to an
Employee by the Employer and reportable to the Federal Government for
income tax purposes on Form W-2, or any form prescribed by the
Internal Revenue Service to take its place, excluding stock option
rights.
Compensation also includes contributions made on behalf of an Employee
by the Employer pursuant to a salary deferral agreement under Section
401(k) of the Code and/or a salary reduction agreement pursuant to a
cafeteria plan established under Section 125 of the Code.
Effective January 1, 1989, in no event shall a Participant's
Compensation taken into account under the Plan for any Plan Year
exceed $200,000 ($150,000 for Plan Years commencing on or after
January 1, 1994) or such other amount as the Secretary of the Treasury
may determine for such Plan Year in accordance with Section 401(a)(17)
of the Code. Any change in the dollar amount set forth above as
adjusted by the Secretary of the Treasury in accordance with Section
401(a)(17) of the Code shall apply only to Compensation taken into
account for Plan Years beginning with the Plan Year in which such
change is effective (with the first such adjustment being effective
January 1, 1990).
In determining the Compensation of a Participant for purposes of this
dollar limitation, the rules of Section 414(q)(6) of the Code shall
apply, except that in applying such rules, the term "family" shall
include only the Spouse of the Participant and any lineal descendants
of the Participant who have not attained age 19 before the close of
such year. If, as a result of applying such rules, the dollar
limitation is exceeded, the limitation shall be prorated among the
affected family members in proportion to each such individual's
Compensation as determined under this Section before application of
the dollar limitation.
<PAGE>
Effective January 1, 1989, if Compensation for any Plan Year prior to
January 1, 1989 is taken into account in determining an employee's
benefit accruing in a Plan Year beginning on or after January 1, 1989,
the Compensation for such prior Plan Year is subject to an annual
compensation limit of $200,000.
Effective January 1, 1994, if Compensation for any Plan Year prior to
January 1, 1994 is taken into account in determining an employee's
benefits accruing in a Plan Year beginning on or after January 1,
1994, the Compensation for such prior Plan Year is subject to an
annual compensation limit of $150,000.
2. Section 2.03 is amended by adding the following subparagraph to the
end thereof:
(f) Solely for purposes of determining whether a Break-in-Service has
occurred with respect to Section 2.021, each non-compensated hour
during a period of absence from the Employer (i) by reason of the
Employee's pregnancy, (ii) by reason of the birth of the
Employee's child, (iii) by reason of the placement of a child
with the Employee in connection with the adoption of such child
by the Employee, or (iv) for purposes of caring for such child
for a period beginning immediately following such birth or
placement shall be credited to the Employee. For purposes of this
subsection (f) the following special rules will apply:
(i) any Hour of Service credited hereunder with respect to an
absence shall be credited (A) only in the Plan Year in which
the absence begins, if the Employee would be prevented from
incurring a Break-in-Service in such year solely because of
Hours of Service credited hereunder for such absence, or (B)
in any other case in the immediately following Plan Year;
(ii) no Hours of Service shall be credited hereunder unless the
Employee furnishes the Committee with such information as
the Committee may reasonably require (in such form and at
such time as the Committee may reasonably require)
establishing (A) that the absence from work is an absence
described hereunder, and (B) the number of days for which
the absence lasted;
(iii)in no event shall more than 501 Hours of Service be
credited to an Employee hereunder for any absence by reason
of any one pregnancy or the placement of any one child.
Hours of Service to be credited to an individual during an
absence described in this Section 2.03(f) above will be
determined by the Committee with reference to the individual's
most recent normal work schedule; provided that if the Committee
cannot so determine the number of Hours to be credited, there
shall instead be credited eight (8) Hours of Service for each day
of absence.
<PAGE>
3. The last sentence of Section 3.03(b)(ii)(b)(2) is deleted and the
following is inserted in its place:
If such Terminated Participant does not repay such amount, upon
his subsequent retirement or other termination of employment his
benefit shall be calculated using Benefit Service as defined in
Section 2.05 provided, however, that Benefit Service prior to
January 1, 1987 shall not be included.
4. Section 4.02 is deleted in its entirety and the following inserted in
its place:
Except as provided below, a Participant who has reached his
fifth-fifth birthday and who has completed at least ten years of
Service may elect upon written notice to the Committee on an
Early Retirement Date which may be the first day of any month
subsequent to the date of such election and prior to his Normal
Retirement Date.
Notwithstanding the foregoing, in the case of a Participant who
was hired prior to January 1, 1992 (excluding a former
participant of the Spence Plan or the Henry Pratt Plan) who has
reached his fifty-fifth birthday and who has completed at least
five years of Service may elect upon written notice to the
Committee an Early Retirement Date which may be the first day of
any month subsequent to the date of such election and prior to
his Normal Retirement Date.
5. Section 5.03(c) is deleted in its entirety and the following inserted
in its place:
(c) Subject to the provisions of paragraphs (d) and (e) and Sections
5.031 and 5.04, the annual Normal Retirement Benefit payable to a
Participant who retires under the Plan on or after January 1,
1989 and on or after his Normal Retirement Date shall be an
amount equal to the greater of (i), (ii), (iii) or (iv) below:
(i) 1.67% times the Participant's Final Average Compensation
less the Maximum Offset Allowance, the result of which is
multiplied by his years of Benefit Service (maximum of 25
years);
(ii) 1.00% times the Participant's Final Average Compensation
multiplied by his years of Benefit Service (maximum of 25
years);
(iii)the Participant's accrued benefit as of March 15, 1990 (or
December 31, 1988 if the Participant is a highly compensated
employee as defined in Section 414(q)(1)(A) or (B) of the
Code);
(iv) the Participant's accrued benefit under the Plan determined
as of the December 31 preceding the date of determination.
<PAGE>
6. Section 5.03(d) is deleted in its entirety and the following inserted
in its place:
(d) For Participants Who Participated in the Spence Plan on December
31, 1991
(i) Notwithstanding the foregoing provisions of this Section,
with respect to a Participant who participated in the Spence
Plan on December 31, 1991 and who retires under this Plan on
or after January 1, 1994 and on or after his annual Normal
Retirement Date, his annual Normal Retirement Benefit shall
equal the sum of (A) and (B) but in no event less than (C)
where:
(A) is equal to the sum of (1), (2), (3), and (4) below:
(1) 5/8 of 1% of the Participant's Final Average
Compensation multiplied by his years of benefit service
earned prior to June 1, 1975 under the Spence Plan.
(2) 3/4 of 1% of the Participant's Final Average
Compensation multiplied by his years of benefit service
earned on and after June 1, 1975 through May 31, 1980
under the Spence Plan.
(3) 7/8 of 1% of the Participant's Final Average
Compensation multiplied by his years of benefit service
earned on and after June 1, 1980 through May 31, 1985
under the Spence Plan.
(4) 1% of the Participant's Final Average Compensation
multiplied by his years of benefit service earned on
and after June 1, 1985 through December 31, 1986 under
the Spence Plan.
The amount of the benefit calculated in accordance with
this paragraph (d) (i) (A) shall be actuarially
increased to reflect the change in the normal form
of benefit payment from a 5 year certain and
continuous annuity to a single life annuity.
(B) is equal to the greater of (1) or (2) below:
(1) 1.67% times the Participant's Final Average
Compensation less the Maximum Offset Allowance, the
result of which is multiplied by his years of Benefit
Service earned under the Spence Plan on or after
January 1, 1987 but prior to January 1, 1992, and
Benefit Service earned under the Plan on or after
January 1, 1992 (maximum of 25 years).
<PAGE>
(2) 1.00% of the Participant's Final Average Compensation
multiplied by his years of benefit service earned under
the Spence Plan on and after January 1, 1987 but prior
to January 1, 1992 and his years of Benefit Service
earned on and after January 1, 1992 under the Plan (up
to a maximum of 25 years).
Notwithstanding the foregoing, a Participant who is credited with
a 1,000 Hours of Service under the Spence Plan during the
twelve-month period beginning on June 1, 1985 and ending on May
31, 1986 and during the twelve-month period beginning on January
1, 1986 and ending on December 31, 1986 shall be credited with 2
years of Benefit Service for purposes of Section 5.03(d)(i)(A)(4)
to reflect the change in the Spence Plan's plan year to a
calendar year.
(C) is equal to the greater of (1) or (2) below:
(1) the Actuarial Equivalent of the Participant's
Accumulated Contributions Account.
(2) the Participant's accrued benefit determined under the
Spence Plan as of December 31, 1991.
7. Section 5.032 is deleted in its entirety and the following inserted in its
place:
5.032 ACCRUED BENEFIT
To determine a Participant's accrued benefit under Section 5.03(a) and (b)
at any time prior to his Normal Retirement Date, there shall first be
determined the amount of Normal Retirement Benefit that the Participant
would have received if he had remained in the employ of the Employer to his
Normal Retirement Date but based on his Final Average Compensation and
Social Security Benefit as of the date such benefit is being determined.
Such amount shall be multiplied by a fraction in which the numerator is the
number of years of Benefit Service (including fractions thereof) that the
Participant has completed and the denominator is the number of years of
Benefit Service (including fractions thereof) that the Participant would
have completed if he had remained in the employ of the Employer to his
Normal Retirement Date.
A Participant's accrued benefit under Section 5.03(c), (d) and (e) is the
benefit as defined under Section 5.03(c), (d) or (e) based on Final Average
Compensation and Benefit Service as of the date the accrued benefit is
being determined.
Notwithstanding the above, in the case of a Participant whose Compensation
for a Plan Year beginning prior to January 1, 1994 exceeded $150,000, such
Participant's accrued benefit shall not be less than his accrued benefit
determined as of December 31, 1993.
8. Section 5.08 is deleted in its entirety and is reserved for future use.
<PAGE>
9. Sections 6.021(a) and (b) are deleted in their entirety and the following
inserted in their place:
(a) The amount of a deferred vested benefit payable to a Terminated
Participant under Section 6.02(a) shall be equal to his accrued
benefit as determined under Section 5.032. Notwithstanding the
foregoing, the amount of deferred vested benefit payable to a
Terminated Participant who was an Employee on January 1, 1979 shall in
no event be less than his accrued benefit determined in accordance
with the provisions of Section 5.031.
(b) The amount of a deferred vested benefit payable to a Terminated
Participant under Section 6.02(b) shall not be less than the Actuarial
Equivalent of the balance in his Accumulated Contribution Account, if
any.
10. Section 6.022(a) is deleted in its entirety and the following is inserted
in its place:
(a) A Terminated Participant entitled to a Vested Benefit under Section
6.02 may elect to have such benefit commence at any time after he is
eligible to elect an Early Retirement Date pursuant to Section 4.02.
In such case and subject to the provisions of paragraph (b) below, his
benefit shall be computed as in Section 6.021, but shall be reduced by
5/9 of 1% for each of the first sixty (60) months by which his Benefit
Commencement Date precedes his Normal Retirement Date, and by 5/18 of
1% for each month thereafter, if any, by which his Benefit
Commencement Date precedes his Normal Retirement Date.
11. Section 9.021 is deleted in its entirety and the following is inserted in
its place:
"If benefits are payable on account of the same period of employment with
the Employer or an Affiliated Employer, under this Plan and another
qualified defined benefit plan toward which the Employer contributes (or
has contributed), the benefits payable under this Plan on account of such
period shall be reduced by the Actuarial Equivalent of any benefit payable
to him under such other plan calculated in the same form and manner as is
the benefit payable under this Plan on account of the same period of
Service. However, if such other Plan provides for a similar reduction of
benefits, then this Section shall be disregarded with respect to an
Eligible Employee whose most recent period of participation in this Plan is
earlier than his most recent period of participation in such other plan."
12. The last sentence of Section 9.04 is deleted and the following inserted in
its place: "His accrued benefit as determined under Section 5.032 shall be
reduced by the Actuarial Equivalent of the benefit payable to him under any
Watts Fluidair Co. plan calculated in the same form and manner as the
benefit payable under this Plan.
13. Section 15.03 is amended by adding the following subparagraphs to the end
thereof:
<PAGE>
(d) In any Plan Year in which the Plan is top heavy but not super top
heavy (substituting 90% for 60% in subparagraph(a) above), Section
5.041(d)(ii) shall be applied by substituting "100%" for "125%" unless
the Sponsoring Employer amends subparagraph (b)(i) above by
substituting "3%" for "2%" therein.
(e) In any Plan Year in which the Plan is super top heavy, the factor of
"125%" shall be changed to "100%" in Section 5.041(d)(ii).
14. Section 16.02(a) is deleted in its entirety and the following inserted in
its place:
(a) In the event that the Commissioner of Internal Revenue(or his or her
delegate) determines that the Plan is not initially qualified under
the Code, any Employer contributions made to the Plan shall be
returned to the Employer within one year after the date the initial
qualification is denied, provided application for qualification is
made by the time prescribed by law for filing the Employer's return
for the fiscal year in which the Plan is adopted, or such later date
as the Secretary of the Treasury may prescribe.
IN WITNESS WHEREOF, Watts Industries, Inc. has caused this Amendment to be
executed by its authorized officer this day of , 1996.
WATTS INDUSTRIES, INC.
By:
<PAGE>
EXHIBIT 10.6 (ii)
<PAGE>
AMENDMENT NUMBER TWO
WATTS INDUSTRIES, INC.
RETIREMENT PLAN FOR SALARIED EMPLOYEES
WHEREAS, Watts Industries, Inc. (the "Sponsoring Employer") established the
Watts Industries, Inc. Retirement Plan for Salaried Employees (the "Plan") which
was amended and restated effective as of January 1, 1994;
WHEREAS, pursuant to Section 13.01 of the Plan, the Sponsoring Employer reserved
the right to amend the Plan;
WHEREAS, the Sponsoring Employer desires to amend the Plan effective October 1,
1995 to reflect the merger of the Jameco Industries, Inc. Pension Plan; and
WHEREAS, the Sponsoring Employer desires to amend Section 5.04 and the
definition of the term "Actuarial Equivalent" of the Plan effective October 1,
1995 as permitted by the Retirement Protection Act of 1994.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 1.02 is deleted in its entirety and the following is inserted in
its place:
"1.02"Actuarial Equivalent" or any term of similar import, wherever used in
the Plan, means a benefit of equivalent value determined as follows:
(a) For purposes of Section 15.02(e) and 5.04(e), the Actuarial
Equivalent will be determined using a 5% interest rate and the
UP-1984 Mortality Table for employees and the UP-1984 Mortality
Table set back three years for beneficiaries;
(b) For purposes of Section 5.04, the Actuarial Equivalent will be
determined using the interest rate on 30-year Treasury Constant
Maturities for November of the Plan Year prior to the Plan Year
of distribution and using mortality based on a fixed blend of 50
percent of the male mortality rates and 50 percent of the female
mortality rates from the 1983 Group Annuity Mortality Table.
(c) For purposes of Section 5.021, 5.051, 8.02, 8.03, 8.04, and
15.03(b), the Actuarial Equivalent will be determined using a 7%
interest rate and the UP-1984 Mortality Table for employees and
the UP-1984 Mortality Table set back three years for
beneficiaries;
<PAGE>
(d) For purposes of Section 8.05, the Actuarial Equivalent will be
determined as follows:
(i) prior to October 1, 1995, by using the rates and mortality
table described in (c) above, except that the interest rate
for immediate annuities set by the Pension Benefit Guaranty
Corporation for the month of payment will be used; and
(ii) for distributions made during the period commencing October
1, 1995 and ending December 31, 1995 by using mortality
rates based on a fixed blend of 50% of the male mortality
rates and 50% of the female mortality rates from the 1983
Group Annuity Mortality Table and by using an interest rate
specified in (A) or (B), whichever results in a greater
benefit:
(A) the interest rate on 30-year Treasury Constant
Maturities for the month of November, 1994 or
(B) the interest rate on 30-year Treasury Constant
Maturities for the month which is two months prior to
the month in which the Participant's date of
termination occurs;
(iii)for distributions made during the period commencing January
1, 1996 and ending September 30, 1996, by using mortality
rates based on a fixed blend of 50% of the male mortality
rates and 50% of the female mortality rates from the 1983
Group Annuity Mortality Table and by using an interest rate
specified in (C) or (D) whichever results in a greater
benefit:
(C) the interest rate on 30-year Treasury Constant
Maturities for the month of November, 1995 or
(D) the interest rate on 30-year Treasury Constant
Maturities for the month in which the Participant's
date of termination occurs;
(iv) for distributions made on or after October 1, 1996 by using
mortality rates based on a fixed blend of 50% of the male
mortality rates and 50% of the female mortality rates from
the 1983 Group Annuity Mortality Table and by using the
interest rate on 30-year Treasury Constant Maturities for
the month of November prior to the Plan Year of
distribution.
(e) For purposes of Section 12.01 (except as provided in (g) below),
the Actuarial Equivalent will be determined as follows:
<PAGE>
(i) for distributions made prior to October 1, 1995, by using
the interest rate and mortality table described in (c)
above, except for lump sum payments the interest rate for
immediate annuities set by the Pension Benefit Guaranty
Corporation for the month of payment will be used;
(ii) for distributions made during the period commencing October
1, 1995 and ending December 31, 1995 by using mortality
rates based on a fixed blend of 50% of the male mortality
rates and 50% of the female mortality rates from the 1983
Group Annuity Mortality Table and by using an interest rate
specified in (A) or (B), whichever results in a greater
benefit:
(A) the interest rate on 30-year Treasury Constant
Maturities for the month of November, 1994 or
(B) the interest rate on 30-year Treasury Constant
Maturities for the month which is two months prior to
the month in which the Participant's date of
termination occurs;
(iii)for distributions made during the period commencing January
1, 1996 and ending September 30, 1996, by using mortality
rates based on a fixed blend of 50% of the male mortality
rates and 50% of the female mortality rates from the 1983
Group Annuity Mortality Table and by using an interest rate
specified in (C) or (D) whichever results in a greater
benefit:
(C) the interest rate on 30-year Treasury Constant
Maturities for the month of November, 1995 or
(D) the interest rate on 30-year Treasury Constant
Maturities for the month in which the Participant's
date of termination occurs;
(iv) for distributions made on or after October 1, 1996 by using
mortality rates based on a fixed blend of 50% of the male
mortality rates and 50% of the female mortality rates from
the 1983 Group Annuity Mortality Table and by using the
interest rate on 30-year Treasury Constant Maturities for
the month of November prior to the Plan Year of
distribution.
(f) For purposes of Article 13 and Section 14.02(b), the Actuarial
Equivalent will be determined as specified in regulations
promulgated by the Pension Benefit Guaranty Corporation."
<PAGE>
2. Sections 5.04(e), (f) and (g) are hereby deleted and the following inserted
in their place:
"(e) If the benefit payable to a Participant commences prior to the
Participant's Social Security Retirement Age, but on or after the
date he attains age 62, the maximum annual amount determined
under paragraph (a)(i) above shall be reduced as follows:
(i) if the Participant's Social Security Retirement age is 65,
by 5/9ths of 1% for each month by which the commencement of
payment of his benefits precedes the month in which he
attains age 65; or
(ii) if the Participant's Social Security Retirement age is 66 or
67, by 5/9ths of 1% for each of the first 36 months and
5/12ths of 1% for each additional month by which the
commencement of payment of his benefits precedes the month
in which he attains his Social Security Retirement Age.
If the benefit payable to a Participant commences before age 62,
the maximum annual amount determined under paragraph (a)(i) above
shall be reduced in accordance with applicable regulations, so
that it is the Actuarial Equivalent of such amount as applied to
a benefit beginning at age 62. For purposes of this paragraph,
the Actuarial Equivalent shall be determined as follows:
(iii)if the benefit payable to a Participant is not in the form
of a single life annuity or a Spouse Joint and Survivor
Annuity then the Actuarial Equivalent shall be determined
using the rates in (A) or (B), whichever results in the
lesser benefit:
(A) the interest rate specified in Section 1.02(b) and the
mortality rate specified in Section 1.02(b); or
(B) the interest rate specified in Section 1.02(a) and the
mortality rate specified in Section 1.02(a).
(iv) if the benefit payable to the Participant is in the form of
a single life annuity or a Spouse Joint and Survivor
Annuity, then the Actuarial Equivalent shall be determined
using the rates in (C) or (D), whichever results in the
lesser benefit:
(C) a 5% interest rate and the mortality rate specified in
Section 1.02(b); or
<PAGE>
(D) the interest rate and mortality rate specified in
Section 1.02(a).
(f) If the payment of benefits to a Participant commences after his
Social Security Retirement Age, the maximum annual amount
determined under paragraph (a)(i) above shall be increased so
that it is the Actuarial Equivalent of a $90,000 benefit
multiplied by the adjustment factor specified in paragraph (e)
above, and payable in the normal form at the Participant's Social
Security Retirement Age. For purposes of this paragraph, the
Actuarial Equivalent shall be determined using an interest rate
equal to 5% and the mortality rate specified in Section 1.02(b).
(g) The annual benefit is a retirement benefit under the Plan which
is payable annually in the form of a single life annuity. If the
benefit payable to a Participant is not in the form of a single
life annuity nor in the form of a Spouse Joint and Survivor
Annuity, then the maximum annual amount determined under
paragraph (a) above shall be reduced in accordance with the
applicable regulations so that it is the Actuarial Equivalent of
such amount as payable in the normal form. The interest rate and
mortality assumptions used to determine the Actuarial Equivalent
will be the rates specified in Section 1.02(b)."
3. The Plan is hereby amended by adding the provisions contained in Part B
attached hereto.
IN WITNESS WHEREOF, Watts Industries, Inc. has caused this instrument to be
executed by its authorized officer and its seal affixed this __________ day of
__________, 1996.
WATTS INDUSTRIES, INC.
By:
<PAGE>
EXHIBIT 10.6 (iii)
<PAGE>
AMENDMENT NUMBER THREE
WATTS INDUSTRIES, INC.
RETIREMENT PLAN FOR SALARIED EMPLOYEES
WHEREAS, Watts Industries, Inc. (the "Sponsoring Employer") established the
Watts Industries, Inc. Retirement Plan for Salaried Employees (the "Plan") which
was amended and restated effective as of January 1, 1994;
WHEREAS, pursuant to Section 13.01 of the Plan effective January 1, 1996, the
Sponsoring Employer reserved the right to amend the Plan; and
WHEREAS, the Sponsoring Employer desires to amend the Plan effective January 1,
1996 to include employees of Anderson-Barrows Metal Corporation and to amend the
definition of "Compensation" to include amounts deferred under the Management
Stock Purchase Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 1.16 is amended by adding the following sentence to the end
thereof:
"As of January 1, 1996, "Employer" includes Anderson-Barrows Metal
Corporation and as of __________, 1996, "Employer" includes Webster Valve,
Inc."
2. Section 3.01 is amended by adding the following subparagraph (ix) to
subsection (b) thereof:
"(ix)Effective January 1, 1996 an Eligible Employee of
Anderson-Barrows Metal Corporation shall be eligible to join the
Plan on the first day of the month coinciding with or next
following the date on which he attains age 21 and completes one
year of Service. Subject to the rules of the Plan, service with
Anderson-Barrows Metal Corporation prior to January 1, 1996 shall
be recognized for vesting and eligibility purposes. Service for
benefit accrual purposes shall begin on or after January 1,
1996."
3. Section 1.19 is amended by adding the following sentence to the end
thereof:
"With respect to Employees of Anderson-Barrows Metal Corporation, "Service"
for purposes of calculating Final Average Earnings shall include service
with Anderson-Barrows Metal Corporation prior to January 1, 1996."
4. Section 1.09 is deleted in its entirety and the following inserted in its
place:
1.09 "Compensation" shall mean the total compensation payable to an
Employee by the Employer and reportable to the Federal Government for
income tax purposes on Form W-2, or any form prescribed by the
Internal Revenue Service to take its place, excluding stock option
rights.
Compensation also includes (1) amounts deferred under the Management
Stock Purchase Plan and (2) contributions made on behalf of an
Employee by the Employer pursuant to a salary deferral agreement under
Section 401(k) of the Code and/or a salary reduction agreement
pursuant to a cafeteria plan established under Section 125 of the
Code.
<PAGE>
In no event shall a Participant's Compensation taken into account
under the Plan for any Plan Year exceed $200,000 ($150,000 for Plan
Years commencing on or after January 1, 1994) or such other amount as
the Secretary of the Treasury may determine for such Plan Year in
accordance with Section 401(a)(17) of the Code. Any change in the
dollar amount set forth above as adjusted by the Secretary of the
Treasury in accordance with Section 401(a)(17) of the Code shall apply
only to Compensation taken into account for Plan Years beginning with
the Plan Year in which such change is effective (with the first such
adjustment being effective January 1, 1990).
In determining the Compensation of a Participant for purposes of this
dollar limitation, the rules of Section 414(q)(6) of the Code shall
apply, except that in applying such rules, the term "family" shall
include only the Spouse of the Participant and any lineal descendants
of the Participant who have not attained age 19 before the close of
such year. If, as a result of applying such rules, the dollar
limitation is exceeded, the limitation shall be prorated among the
affected family members in proportion to each such individual's
Compensation as determined under this Section before application of
the dollar limitation."
For purposes of Section 1.19, Compensation shall also mean
compensation paid by Anderson-Barrows, Inc. prior to January 1, 1996.
IN WITNESS WHEREOF, Watts Industries, Inc. has caused this instrument to be
executed by its authorized officer and its seal affixed this __________ day of
__________, 1996.
WATTS INDUSTRIES, INC.
By:
<PAGE>
EXHIBIT 10.13 (I)
<PAGE>
AMENDMENT NO. 1 TO THE LETTER OF CREDIT,
REIMBURSEMENT AND GUARANTY AGREEMENT
THIS AMENDMENT NO. 1 TO THE LETTER OF CREDIT, REIMBURSEMENT AND GUARANTY
AGREEMENT, dated as of August 1, 1996, by and among SPENCE ENGINEERING COMPANY,
INC., a Delaware corporation (the "Borrower"), WATTS INDUSTRIES, INC., a
Delaware corporation (the "Guarantor") and FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, a national banking association organized and existing under the laws
of the United States with its principal offices located in Charlotte, North
Carolina (the "Bank");
W I T N E S S E T H:
WHEREAS, the Borrower, the Guarantor and the Bank have previously entered
into the Letter of Credit, Reimbursement and Guaranty Agreement, dated as of
June 1, 1994 (the "Agreement"), pursuant to which the Bank has issued its
irrevocable letter of credit, dated June 17, 1994; and
WHEREAS, the Borrower, the Guarantor and the Bank now desire to amend
certain provisions of the Agreement;
NOW, THEREFORE, in consideration of the premises, mutual covenants
hereinafter contained and other good and valuable consideration, the Borrower,
the Guarantor and the Bank do hereby amend the Agreement as follows:
Section 1. Article I of the Agreement Amended. Article I of the Agreement
is hereby amended by inserting the following at the end of said Article I:
1.54. "Capital Assets" means fixed assets, both tangible (such as land,
buildings, fixtures, machinery and equipment) and intangible (such as
patents, copyrights, trademarks, franchises and good will); provided that
Capital Assets shall not include any item customarily charged directly or
indirectly to expense or depreciated over a useful life of twelve (12)
months or less in accordance with generally accepted accounting
principles.
1.55. "Capital Expenditures" means amounts paid or indebtedness incurred by
the Guarantor, the Borrower or any of their Subsidiaries in connection with
the purchase or lease by the Guarantor, the Borrower or any of their
Subsidiaries of Capital Assets that would be required to be capitalized and
show on the balance sheet of such Person in accordance with generally
accepted accounting principles.
<PAGE>
1.56. "Capitalized Leases" means leases under which the Guarantor or the
Borrower or the Subsidiaries is the lessee or obligor, the discounted
future rental payment obligations under which are required to be
capitalized on the balance sheet of the lessee or obligor in accordance
with generally accepted accounting principles.
1.57. "Consolidated Total Interest Expense" means for any period, the
aggregate amount of interest required to be paid or accrued by the
Guarantor and the Borrower and the Subsidiaries during such period on all
Indebtedness of the Guarantor and the Borrower and the Subsidiaries
outstanding during all or any part of such period, whether such interest
was or is required to be reflected as an item of expense or capitalized,
including payments consisting of interest in respect of Capitalized Leases
and plus, without duplication, commitment fees, agency fees, facility fees,
balance deficiency fees and similar fees or expenses in connection with the
borrowing of money.
1.58. "Consolidated Worth" means all assets of the Guarantor and the
Borrower and the Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles minus Consolidated
Total Liabilities and minus in the extent otherwise includable to the
computation of Consolidated Worth, any subscriptions receivable for the
purchase of capital stock.
1.59. "Earnings Before Interest, Taxes, Depreciation and Amortization"
means the Consolidated Net Income (deficit) of the Guarantor and the
Borrower and the Subsidiaries for any period, after all expenses and other
proper charges but before payment or provision for any income taxes or
interest expense for such period, plus depreciation and amortization for
such period, determined in accordance with generally accepted accounting
principles.
1.60. "Fixed Charge Coverage Ratio" means for any period, the ratio of (i)
the result of (A) Earnings Before Interest, Taxes, Depreciation and
Amortization minus (B) Capital Expenditures, to (ii) the sum of (A)
Consolidated Total Interest Expense (without duplication of any interest
taken into account in the computation of the Fixed Charge Coverage Ratio in
any prior period) plus (B) current maturities of long term Indebtedness due
and payable during such period in accordance with generally accepted
accounting principles, in each case for the Guarantor and the Borrower and
the Subsidiaries on a consolidated basis for such period.
1.61. "Restructuring Charges" means any restructuring charge taken by the
Borrower, the Guarantor or other Subsidiaries of the Guarantor in the
Guarantor's fiscal year ending June 30, 1996 in connection with (i)
Financial Accounting Standards Board Statement No. 121 or (ii) the
restructuring, downsizing, and consolidation of the operations of the
Borrower, the Guarantor or other Subsidiaries of the Guarantor, including
but not limited to, the consolidation of the selling, general and
administrative functions and the closure of certain manufacturing
facilities of the Borrower, the Guarantor or other Subsidiaries of the
Guarantor, provided, however, that the amount of the Restructuring Charges
shall not exceed $95,000,000 after giving effect to any tax benefits. All
Restructuring Charges will be incurred and/or paid according to generally
accepted accounting principles.
<PAGE>
1.62. "Total Funded Debt" means the principal amount of Indebtedness for
borrowed money (including obligations under Capitalized Leases allocable to
principal) of the Guarantor and its Subsidiaries on a consolidated basis."
Section 2. Article I of the Agreement Further Amended. Article I of the
Agreement is further amended by deleting the terms "Consolidated Net Income" and
"Indebtedness" in their entirety and by inserting in lieu thereof the following:
1.10. "Consolidated Net Income" means the consolidated net income (or
deficit) of the Guarantor, the Borrower and their Subsidiaries, after
deduction of all expenses, taxes and other proper charges, determined in
accordance with generally accepted accounting principles, after eliminating
therefrom all extraordinary nonrecurring items of income or loss.
1.27. "Indebtedness" means all obligations, contingent and otherwise, that
in accordance with generally accepted accounting principles should be
classified upon the obligors balance sheet as liabilities, or to which
reference should be made by footnotes thereto, including in any event and
whether or not so classified: (i) all debt and similar monetary obligation,
whether direct or indirect, including, without limitation, Capitalized
Lease obligations; (ii) all liabilities secured by any mortgage, pledge,
security interest, lien, charge or other encumbrance existing on property
owned or acquired subject thereto, whether or not the liability secured
thereby shall have been assumed; and (iii) all guarantees, endorsements and
other contingent obligations whether direct or indirect in respect of
indebtedness of others, including any obligation to supply funds to or in
any manner to invest in, directly or indirectly, the debtor, to purchase
indebtedness, or to assure the owner of indebtedness against loss, through
an agreement to purchase goods, supplies, or services for the purpose of
enabling the debtor to make payment of the indebtedness held by such owner
or otherwise, and the obligations to reimburse the issuer in respect of any
letters or credit, whether drawn or undrawn, to the extent not duplicative
of the Indebtedness secured by such letters of credit.
Section 3. Section 7.3 of the Agreement Amended. Section 7.3 of the
Agreement is hereby amended by deleting in its entirety said Section 7.3 of the
Agreement and inserting in lieu of the following:
"7.3. Sale of Assets, Dissolution, Etc. Neither the Guarantor nor the
Borrower nor the Subsidiaries will become a party to or agree to or effect
any dispositions of assets (including capital stock), other than (i) the
sale of inventory and obsolete equipment in the ordinary course of
business, consistent with past practices, or (ii) prior to the occurrence
of a Default or Event of Default, the disposition or sale of assets, in one
or more arms-length transactions, having a cumulative aggregate sales price
not to exceed (A) in any fiscal year of the Guarantor, $100,000,000, and
(B) in the aggregate from August 30, 1994, $150,000,000; provided that, the
value as of the date of disposition of any non-cash assets received by the
Guarantor, the Borrower and the Subsidiaries in payment of any portion of
the purchase price shall be equal to the fair market value of such assets."
<PAGE>
Section 4. Section 7.5 of the Agreement Amended. Section 7.5 of the
Agreement is hereby amended by deleting in its entirety said Section 7.5 of the
Agreement and inserting in lieu of the following:
"7.5. Leverage Ratio. Neither the Borrower nor the Guarantor will permit
the ratio of (i) Total Funded Debt to (ii) the sum of (A) Total Funded Debt
plus (B) Consolidated Worth on any date (a "Test Date") occurring during
any period described in the table set forth below to exceed the ratio set
forth opposite the period in the table below in which such Test Date
occurs:
Period Ratio
------ -----
August 1, 1994 - December 31, 1995 0.40:1.00
January 1, 1996 - June 30, 1997 0.45:1.00
July 1, 1997 - June 30, 1998 0.42:1.00
July 1, 1998 and thereafter 0.40:1.00"
Section 5. Section 7.6 of the Agreement Amended. Section 7.6 of the
Agreement is hereby amended by deleting in its entirety said Section 7.6 of the
Agreement and inserting in lieu of the following:
"7.6. Fixed-Charge Coverage Ratio. Neither the Borrower nor the Guarantor
will permit the Fixed Charge Coverage Ratio for any period of four
consecutive fiscal quarters of the Guarantor to be less than 3.00:1.00;
provided, however, that all Restructuring Charges shall be excluded from
the calculation of Earnings Before Interest, Taxes, Depreciation and
Amortization for purposes of determining the Fixed Charge Coverage Ratio
only."
Section 6. Section 7.8 of the Agreement Amended. Section 7.8 of the
Agreement is hereby amended by deleting in its entirety said Section 7.8 of the
Agreement and inserting in lieu of the following:
"7.8. Consolidated Worth. The Guarantor will not permit at any time
Consolidated Worth to be less than the sum of (a) $295,000,000 plus (b) on
a cumulative basis, 50% of positive Consolidated Net Income for each full
fiscal year of the Guarantor subsequent to June 30, 1996. Increases
pursuant to clause (b), if any, shall be effective on the first day after
the end of each such fiscal year."
<PAGE>
Section 7. Effect of Modification and Amendment of Agreement. The Agreement
shall be deemed to be modified and amended in accordance with the provisions of
this Amendment No. 1 to the Agreement and the respective rights, duties and
obligations of the Borrower, the Guarantor and the Bank under the Agreement
shall remain to be determined, exercised and enforced under the Agreement
subject in all respects to such modifications and amendments in writing, and all
the terms and conditions of this Amendment No. 1 to the Agreement shall be part
of the terms and conditions of the Agreement for any and all purposes. All the
other terms of the Agreement shall continue in full force and effect subject to
the amendments set forth herein.
Section 8. Representations and Warranties. The Borrower and the Guarantor
each represent and warrant to the Bank as follows:
(a) Representations and Warranties in Agreement. The representations and
warranties of the Borrower and the Guarantor contained in the Agreement (i)
were true and correct when made, and (ii) after giving effect to this
Amendment No. 1, continue to be true and correct on the date hereof (except
to the extent of changes resulting from transactions contemplated or
permitted by the Agreement, as amended hereby, and changes occurring in the
ordinary course of business that singly or in the aggregate are not
materially adverse, and to the extent that such representations and
warranties relate expressly to an earlier date).
(b) Authority. The execution and delivery by each of the Borrower and the
Guarantor of this Amendment No. 1 and the performance by each of the
Borrower and the Guarantor of all of its respective agreements and
obligations under this Amendment No. 1 are within its corporate authority,
have been duly authorized by all necessary corporate action and do not and
will not: (i) contravene any provision of its charter documents or any
amendment thereof; (ii) conflict with, or result in a breach of any
material term, condition or provision of, or constitute a default under or
result in the creation of any mortgage, lien, pledge, charge, security
interest or other encumbrance upon any of its property under any agreement,
deed of trust, indenture, mortgage or other instruments to which it is a
party or by which any of its properties are bound including, without
limitation, any of the Other Agreements; (iii) violate or contravene any
provision of any law, statute, rule or regulation to which the Borrower or
the Guarantor is subject or any decree, order or judgment of any court or
governmental or regulatory authority, bureau, agency or official applicable
to the Borrower or the Guarantor; (iv) require any waivers, consents or
approvals by any of its creditors which have not been obtained; or (v)
require any approval, consent, order, authorization or license by, or
giving notice to, or taking any other action with respect to, any
governmental or regulatory authority or agency under any provision of any
law, except (A) those actions which have been taken or will be taken prior
to the date of execution of this Amendment No. 1 and (B) filings with the
Securities and Exchange Commission to be made on or prior to May 15, 1996.
<PAGE>
(c) Enforceability of Obligations. This Amendment No. 1 and the Agreement,
as amended hereby, constitute the legal, valid and binding obligations of
the Borrower and the Guarantor enforceable against the Borrower and the
Guarantor in accordance with their respective terms, provided that: (i)
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application affecting
the rights and remedies of creditors; and (ii) the availability of the
remedies of specific performance and injunctive relief may be subject to
the discretion of the court before which any proceedings for such remedies
may be brought.
Section 9. Counterparts. This Amendment No. 1 to the Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Guarantor and the Bank have caused
this Amendment No. 1 to the Agreement to be executed in their respective names
and their respective seals to be hereunto affixed and attested by their duly
authorized representatives, all as of the date first above written.
THE BORROWER:
SPENCE ENGINEERING COMPANY, INC.
By:__________________________________
Title:
THE GUARANTOR:
WATTS INDUSTRIES, INC.
By:__________________________________
Title:
<PAGE>
THE BANK:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By:_______________________________
Title:
ATTEST:
______________________________
Title:
(Corporate Seal)
<PAGE>
EXHIBIT 10.16 (I)
<PAGE>
AMENDMENT NO. 1 TO THE LETTER OF CREDIT,
REIMBURSEMENT AND GUARANTY AGREEMENT
THIS AMENDMENT NO. 1 TO THE LETTER OF CREDIT, REIMBURSEMENT AND GUARANTY
AGREEMENT, dated as of August 1, 1996, by and among LESLIE CONTROLS, INC., a New
Jersey corporation (the "Borrower"), WATTS INDUSTRIES, INC., a Delaware
corporation (the "Guarantor") and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a
national banking association organized and existing under the laws of the United
States with its principal offices located in Charlotte, North Carolina (the
"Bank");
W I T N E S S E T H:
WHEREAS, the Borrower, the Guarantor and the Bank have previously entered
into the Letter of Credit, Reimbursement and Guaranty Agreement, dated as of
July 1, 1994 (the "Agreement"), pursuant to which the Bank has issued its
irrevocable letter of credit, dated August 4, 1994; and
WHEREAS, the Borrower, the Guarantor and the Bank now desire to amend
certain provisions of the Agreement;
NOW, THEREFORE, in consideration of the premises, mutual covenants
hereinafter contained and other good and valuable consideration, the Borrower,
the Guarantor and the Bank do hereby amend the Agreement as follows:
Section 1. Article I of the Agreement Amended. Article I of the Agreement
is hereby amended by inserting the following at the end of said Article I:
1.54. "Capital Assets" means fixed assets, both tangible (such as land,
buildings, fixtures, machinery and equipment) and intangible (such as
patents, copyrights, trademarks, franchises and good will); provided that
Capital Assets shall not include any item customarily charged directly or
indirectly to expense or depreciated over a useful life of twelve (12)
months or less in accordance with generally accepted accounting
principles.
1.55. "Capital Expenditures" means amounts paid or indebtedness incurred by
the Guarantor, the Borrower or any of their Subsidiaries in connection with
the purchase or lease by the Guarantor, the Borrower or any of their
Subsidiaries of Capital Assets that would be required to be capitalized and
show on the balance sheet of such Person in accordance with generally
accepted accounting principles.
<PAGE>
1.56. "Capitalized Leases" means leases under which the Guarantor or the
Borrower or the Subsidiaries is the lessee or obligor, the discounted
future rental payment obligations under which are required to be
capitalized on the balance sheet of the lessee or obligor in accordance
with generally accepted accounting principles.
1.57. "Consolidated Total Interest Expense" means for any period, the
aggregate amount of interest required to be paid or accrued by the
Guarantor and the Borrower and the Subsidiaries during such period on all
Indebtedness of the Guarantor and the Borrower and the Subsidiaries
outstanding during all or any part of such period, whether such interest
was or is required to be reflected as an item of expense or capitalized,
including payments consisting of interest in respect of Capitalized Leases
and plus, without duplication, commitment fees, agency fees, facility fees,
balance deficiency fees and similar fees or expenses in connection with the
borrowing of money.
1.58. "Consolidated Worth" means all assets of the Guarantor and the
Borrower and the Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles minus Consolidated
Total Liabilities and minus in extent otherwise includable to the
computation of Consolidated Worth, any subscriptions receivable for the
purchase of capital stock.
1.59. "Earnings Before Interest, Taxes, Depreciation and Amortization"
means the Consolidated Net Income (or deficit) of the Guarantor and the
Borrower and the Subsidiaries for any period, after all expenses and other
proper charges but before payment or provision for any income taxes or
interest expense for such period, plus depreciation and amortization for
such period, determined in accordance with generally accepted accounting
principles.
1.60. "Fixed Charge Coverage Ratio" means for any period, the ratio of (i)
the result of (A) Earnings Before Interest, Taxes, Depreciation and
Amortization minus (B) Capital Expenditures, to (ii) the sum of (A)
Consolidated Total Interest Expense (without duplication of any interest
taken into account in the computation of the Fixed Charge Coverage Ratio in
any prior period) plus (B) current maturities of long term Indebtedness due
and payable during such period in accordance with generally accepted
accounting principles, in each case for the Guarantor and the Borrower and
the Subsidiaries on a consolidated basis for such period.
1.61. "Restructuring Charges" means any restructuring charge taken by the
Borrower, the Guarantor or other Subsidiaries of the Guarantor in the
Guarantor's fiscal year ending June 30, 1996 in connection with (i)
Financial Accounting Standards Board Statement No. 121 or (ii) the
restructuring, downsizing, and consolidation of the operations of the
Borrower, the Guarantor or other Subsidiaries of the Guarantor, including
but not limited to, the consolidation of the selling, general and
administrative functions and the closure of certain manufacturing
facilities of the Borrower, the Guarantor or other Subsidiaries of the
Guarantor, provided, however, that the amount of the Restructuring Charges
shall not exceed $95,000,000 after giving effect to any tax benefits. All
Restructuring Charges will be incurred and/or paid according to generally
accepted accounting principles.
<PAGE>
1.62. "Total Funded Debt" means the principal amount of Indebtedness for
borrowed money (including obligations under Capitalized Leases allocable to
principal) of the Guarantor and its Subsidiaries on a consolidated basis."
Section 2. Article I of the Agreement Further Amended. Article I of the
Agreement is further amended by deleting the terms "Consolidated Net Income" and
"Indebtedness" in their entirety and by inserting in lieu thereof the following:
1.10. "Consolidated Net Income" means the consolidated net income (or
deficit) of the Guarantor, the Borrower and their Subsidiaries, after
deduction of all expenses, taxes and other proper charges, determined in
accordance with generally accepted accounting principles, after eliminating
therefrom all extraordinary nonrecurring items of income or loss.
1.27. "Indebtedness" means all obligations, contingent and otherwise, that
in accordance with generally accepted accounting principles should be
classified upon the obligors balance sheet as liabilities, or to which
reference should be made by footnotes thereto, including in any event and
whether or not so classified: (i) all debt and similar monetary obligation,
whether direct or indirect, including, without limitation, Capitalized
Lease obligations; (ii) all liabilities secured by any mortgage, pledge,
security interest, lien, charge or other encumbrance existing on property
owned or acquired subject thereto, whether or not the liability secured
thereby shall have been assumed; and (iii) all guarantees, endorsements and
other contingent obligations whether direct or indirect in respect of
indebtedness of others, including any obligation to supply funds to or in
any manner to invest in, directly or indirectly, the debtor, to purchase
indebtedness, or to assure the owner of indebtedness against loss, through
an agreement to purchase goods, supplies, or services for the purpose of
enabling the debtor to make payment of the indebtedness held by such owner
or otherwise, and the obligations to reimburse the issuer in respect of any
letters or credit, whether drawn or undrawn, to the extent not duplicative
of the Indebtedness secured by such letters of credit.
Section 3. Section 7.3 of the Agreement Amended. Section 7.3 of the
Agreement is hereby amended by deleting in its entirety said Section 7.3 of the
Agreement and inserting in lieu of the following:
"7.3. Sale of Assets, Dissolution, Etc. Neither the Guarantor nor the
Borrower nor the Subsidiaries will become a party to or agree to or effect
any dispositions of assets (including capital stock), other than (i) the
sale of inventory and obsolete equipment in the ordinary course of
business, consistent with past practices, or (ii) prior to the occurrence
of a Default or Event of Default, the disposition or sale of assets, in one
or more arms-length transactions, having a cumulative aggregate sales price
not to exceed (A) in any fiscal year of the Guarantor, $100,000,000, and
(B) in the aggregate from August 30, 1994, $150,000,000; provided that, the
value as of the date of disposition of any non-cash assets received by the
Guarantor, the Borrower and the Subsidiaries in payment of any portion of
the purchase price shall be equal to the fair market value of such assets."
<PAGE>
Section 4. Section 7.5 of the Agreement Amended. Section 7.5 of the
Agreement is hereby amended by deleting in its entirety said Section 7.5 of the
Agreement and inserting in lieu of the following:
"7.5. Leverage Ratio. Neither the Borrower nor the Guarantor will permit
the ratio of (i) Total Funded Debt to (ii) the sum of (A) Total Funded Debt
plus (B) Consolidated Worth on any date (a "Test Date") occurring during
any period described in the table set forth below to exceed the ratio set
forth opposite the period in the table below in which such Test Date
occurs:
Period Ratio
------ -----
August 1, 1994 - December 31, 1995 0.40:1.00
January 1, 1996 - June 30, 1997 0.45:1.00
July 1, 1997 - June 30, 1998 0.42:1.00
July 1, 1998 and thereafter 0.40:1.00"
Section 5. Section 7.6 of the Agreement Amended. Section 7.6 of the
Agreement is hereby amended by deleting in its entirety said Section 7.6 of the
Agreement and inserting in lieu of the following:
"7.6. Fixed-Charge Coverage Ratio. Neither the Borrower nor the Guarantor
will permit the Fixed Charge Coverage Ratio for any period of four
consecutive fiscal quarters of the Guarantor to be less than 3.00:1.00;
provided, however, that all Restructuring Charges shall be excluded from
the calculation of Earnings Before Interest, Taxes, Depreciation and
Amortization for purposes of determining the Fixed Charge Coverage Ratio
only."
Section 6. Section 7.8 of the Agreement Amended. Section 7.8 of the
Agreement is hereby amended by deleting in its entirety said Section 7.8 of the
Agreement and inserting in lieu of the following:
"7.8. Consolidated Worth. The Guarantor will not permit at any time
Consolidated Worth to be less than the sum of (a) $295,000,000 plus (b) on
a cumulative basis, 50% of positive Consolidated Net Income for each full
fiscal year of the Guarantor subsequent to June 30, 1996. Increases
pursuant to clause (b), if any, shall be effective on the first day after
the end of each such fiscal year."
<PAGE>
Section 7. Effect of Modification and Amendment of Agreement. The Agreement
shall be deemed to be modified and amended in accordance with the provisions of
this Amendment No. 1 to the Agreement and the respective rights, duties and
obligations of the Borrower, the Guarantor and the Bank under the Agreement
shall remain to be determined, exercised and enforced under the Agreement
subject in all respects to such modifications and amendments in writing, and all
the terms and conditions of this Amendment No. 1 to the Agreement shall be part
of the terms and conditions of the Agreement for any and all purposes. All the
other terms of the Agreement shall continue in full force and effect subject to
the amendments set forth herein.
Section 8. Representations and Warranties. The Borrower and the Guarantor
each represent and warrant to the Bank as follows:
(a) Representations and Warranties in Agreement. The representations and
warranties of the Borrower and the Guarantor contained in the Agreement (i)
were true and correct when made, and (ii) after giving effect to this
Amendment No. 1, continue to be true and correct on the date hereof (except
to the extent of changes resulting from transactions contemplated or
permitted by the Agreement, as amended hereby, and changes occurring in the
ordinary course of business that singly or in the aggregate are not
materially adverse, and to the extent that such representations and
warranties relate expressly to an earlier date).
(b) Authority. The execution and delivery by each of the Borrower and the
Guarantor of this Amendment No. 1 and the performance by each of the
Borrower and the Guarantor of all of its respective agreements and
obligations under this Amendment No. 1 are within its corporate authority,
have been duly authorized by all necessary corporate action and do not and
will not: (i) contravene any provision of its charter documents or any
amendment thereof; (ii) conflict with, or result in a breach of any
material term, condition or provision of, or constitute a default under or
result in the creation of any mortgage, lien, pledge, charge, security
interest or other encumbrance upon any of its property under any agreement,
deed of trust, indenture, mortgage or other instruments to which it is a
party or by which any of its properties are bound including, without
limitation, any of the Other Agreements; (iii) violate or contravene any
provision of any law, statute, rule or regulation to which the Borrower or
the Guarantor is subject or any decree, order or judgment of any court or
governmental or regulatory authority, bureau, agency or official applicable
to the Borrower or the Guarantor; (iv) require any waivers, consents or
approvals by any of its creditors which have not been obtained; or (v)
require any approval, consent, order, authorization or license by, or
giving notice to, or taking any other action with respect to, any
governmental or regulatory authority or agency under any provision of any
law, except (A) those actions which have been taken or will be taken prior
to the date of execution of this Amendment No. 1 and (B) filings with the
Securities and Exchange Commission to be made on or prior to May 15, 1996.
<PAGE>
(c) Enforceability of Obligations. This Amendment No. 1 and the Agreement,
as amended hereby, constitute the legal, valid and binding obligations of
the Borrower and the Guarantor enforceable against the Borrower and the
Guarantor in accordance with their respective terms, provided that: (i)
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application affecting
the rights and remedies of creditors; and (ii) the availability of the
remedies of specific performance and injunctive relief may be subject to
the discretion of the court before which any proceedings for such remedies
may be brought.
Section 9. Counterparts. This Amendment No. 1 to the Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Guarantor and the Bank have caused
this Amendment No. 1 to the Agreement to be executed in their respective names
and their respective seals to be hereunto affixed and attested by their duly
authorized representatives, all as of the date first above written.
THE BORROWER:
LESLIE CONTROLS, INC.
By:__________________________________
Title:
THE GUARANTOR:
WATTS INDUSTRIES, INC.
By:__________________________________
Title:
<PAGE>
THE BANK:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By:_______________________________
Title:
ATTEST:
_________________________________
Title:
(Corporate Seal)
<PAGE>
EXHIBIT 10.19 (I)
<PAGE>
AMENDMENT NO. 1 TO THE LETTER OF CREDIT,
REIMBURSEMENT AND GUARANTY AGREEMENT
THIS AMENDMENT NO. 1 TO THE LETTER OF CREDIT, REIMBURSEMENT AND GUARANTY
AGREEMENT, dated as of August 1, 1996, by and among LESLIE CONTROLS, INC., a New
Jersey corporation (the "Borrower"), WATTS INDUSTRIES, INC., a Delaware
corporation (the "Guarantor") and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a
national banking association organized and existing under the laws of the United
States with its principal offices located in Charlotte, North Carolina (the
"Bank");
W I T N E S S E T H:
WHEREAS, the Borrower, the Guarantor and the Bank have previously entered
into the Letter of Credit, Reimbursement and Guaranty Agreement, dated as of
July 1, 1994 (the "Agreement"), pursuant to which the Bank has issued its
irrevocable letter of credit, dated August 4, 1994; and
WHEREAS, the Borrower, the Guarantor and the Bank now desire to amend
certain provisions of the Agreement;
NOW, THEREFORE, in consideration of the premises, mutual covenants
hereinafter contained and other good and valuable consideration, the Borrower,
the Guarantor and the Bank do hereby amend the Agreement as follows:
Section 1. Article I of the Agreement Amended. Article I of the Agreement
is hereby amended by inserting the following at the end of said Article I:
1.54. "Capital Assets" means fixed assets, both tangible (such as land,
buildings, fixtures, machinery and equipment) and intangible (such as
patents, copyrights, trademarks, franchises and good will); provided that
Capital Assets shall not include any item customarily charged directly or
indirectly to expense or depreciated over a useful life of twelve (12)
months or less in accordance with generally accepted accounting
principles.
1.55. "Capital Expenditures" means amounts paid or indebtedness incurred by
the Guarantor, the Borrower or any of their Subsidiaries in connection with
the purchase or lease by the Guarantor, the Borrower or any of their
Subsidiaries of Capital Assets that would be required to be capitalized and
show on the balance sheet of such Person in accordance with generally
accepted accounting principles.
<PAGE>
1.56. "Capitalized Leases" means leases under which the Guarantor or the
Borrower or the Subsidiaries is the lessee or obligor, the discounted
future rental payment obligations under which are required to be
capitalized on the balance sheet of the lessee or obligor in ..accordance
with generally accepted accounting principles.
1.57. "Consolidated Total Interest Expense" means for any period, the
aggregate amount of interest required to be paid or accrued by the
Guarantor and the Borrower and the Subsidiaries during such period on all
Indebtedness of the Guarantor and the Borrower and the Subsidiaries
outstanding during all or any part of such period, whether such interest
was or is required to be reflected as an item of expense or capitalized,
including payments consisting of interest in respect of Capitalized Leases
and plus, without duplication, commitment fees, agency fees, facility fees,
balance deficiency fees and similar fees or expenses in connection with the
borrowing of money.
1.58. "Consolidated Worth" means all assets of the Guarantor and the
Borrower and the Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles minus Consolidated
Total Liabilities and minus in extent otherwise includable to the
computation of Consolidated Worth, any subscriptions receivable for the
purchase of capital stock.
1.59. "Earnings Before Interest, Taxes, Depreciation and Amortization"
means the Consolidated Net Income (or deficit) of the Guarantor and the
Borrower and the Subsidiaries for any period, after all expenses and other
proper charges but before payment or provision for any income taxes or
interest expense for such period, plus depreciation and amortization for
such period, determined in accordance with generally accepted accounting
principles.
1.60. "Fixed Charge Coverage Ratio" means for any period, the ratio of (i)
the result of (A) Earnings Before Interest, Taxes, Depreciation and
Amortization minus (B) Capital Expenditures, to (ii) the sum of (A)
Consolidated Total Interest Expense (without duplication of any interest
taken into account in the computation of the Fixed Charge Coverage Ratio in
any prior period) plus (B) current maturities of long term Indebtedness due
and payable during such period in accordance with generally accepted
accounting principles, in each case for the Guarantor and the Borrower and
the Subsidiaries on a consolidated basis for such period.
1.61. "Restructuring Charges" means any restructuring charge taken by the
Borrower, the Guarantor or other Subsidiaries of the Guarantor in the
Guarantor's fiscal year ending June 30, 1996 in connection with (i)
Financial Accounting Standards Board Statement No. 121 or (ii) the
restructuring, downsizing, and consolidation of the operations of the
Borrower, the Guarantor or other Subsidiaries of the Guarantor, including
but not limited to, the consolidation of the selling, general and
administrative functions and the closure of certain manufacturing
facilities of the Borrower, the Guarantor or other Subsidiaries of the
Guarantor, provided, however, that the amount of the Restructuring Charges
shall not exceed $95,000,000 after giving effect to any tax benefits. All
Restructuring Charges will be incurred and/or paid according to generally
accepted accounting principles.
<PAGE>
1.62. "Total Funded Debt" means the principal amount of Indebtedness for
borrowed money (including obligations under Capitalized Leases allocable to
principal) of the Guarantor and its Subsidiaries on a consolidated basis."
Section 2. Article I of the Agreement Further Amended. Article I of the
Agreement is further amended by deleting the terms "Consolidated Net Income" and
"Indebtedness" in their entirety and by inserting in lieu thereof the following:
1.10. "Consolidated Net Income" means the consolidated net income (or
deficit) of the Guarantor, the Borrower and their Subsidiaries, after
deduction of all expenses, taxes and other proper charges, determined in
accordance with generally accepted accounting principles, after eliminating
therefrom all extraordinary nonrecurring items of income or loss.
1.27. "Indebtedness" means all obligations, contingent and otherwise, that
in accordance with generally accepted accounting principles should be
classified upon the obligors balance sheet as liabilities, or to which
reference should be made by footnotes ......thereto, including in any event
and whether or not so classified: (i) all debt and similar monetary
obligation, whether direct or indirect, including, without limitation,
Capitalized Lease obligations; (ii) all liabilities secured by any
mortgage, pledge, security interest, lien, charge or other encumbrance
existing on property owned or acquired subject thereto, whether or not the
liability secured thereby shall have been assumed; and (iii) all
guarantees, endorsements and other contingent obligations whether direct or
indirect in respect of indebtedness of others, including any obligation to
supply funds to or in any manner to invest in, directly or indirectly, the
debtor, to purchase indebtedness, or to .......assure the owner of
indebtedness against loss, through an agreement to purchase goods,
supplies, or services for the purpose of enabling the debtor to make
payment of the indebtedness held by such owner or otherwise, and the
obligations to reimburse the issuer in respect of any letters or credit,
whether drawn or undrawn, to the extent not duplicative of the Indebtedness
secured by such letters of credit.
Section 3. Section 7.3 of the Agreement Amended. Section 7.3 of the
Agreement is hereby amended by deleting in its entirety said Section 7.3 of the
Agreement and inserting in lieu of the following:
<PAGE>
"7.3. Sale of Assets, Dissolution, Etc. Neither the Guarantor nor the
Borrower nor the Subsidiaries will become a party to or agree to or effect
any dispositions of assets (including capital stock), other than (i) the
sale of inventory and obsolete equipment in the ordinary course of
business, consistent with past practices, or (ii) prior to the occurrence
of a Default or Event of Default, the disposition or sale of assets, in one
or more arms-length transactions, having a cumulative aggregate sales price
not to exceed (A) in any fiscal year of the Guarantor, $100,000,000, and
(B) in the aggregate from August 30, 1994, $150,000,000; provided that, the
value as of the date of disposition of any non-cash assets received by the
Guarantor, the Borrower and the Subsidiaries in payment of any portion of
the purchase price shall be equal to the fair market value of such assets."
Section 4. Section 7.5 of the Agreement Amended. Section 7.5 of the
Agreement is hereby amended by deleting in its entirety said Section 7.5 of the
Agreement and inserting in lieu of the following:
"7.5. Leverage Ratio. Neither the Borrower nor the Guarantor will permit
the ratio of (i) Total Funded Debt to (ii) the sum of (A) Total Funded Debt
plus (B) Consolidated Worth on any date (a "Test Date") occurring during
any period described in the table set forth below to exceed the ratio set
forth opposite the period in the table below in which such Test Date
occurs:
Period Ratio
------ -----
August 1, 1994 - December 31, 1995 0.40:1.00
January 1, 1996 - June 30, 1997 0.45:1.00
July 1, 1997 - June 30, 1998 0.42:1.00
July 1, 1998 and thereafter 0.40:1.00"
Section 5. Section 7.6 of the Agreement Amended. Section 7.6 of the
Agreement is hereby amended by deleting in its entirety said Section 7.6 of the
Agreement and inserting in lieu of the following:
"7.6. Fixed-Charge Coverage Ratio. Neither the Borrower nor the Guarantor
will permit the Fixed Charge Coverage Ratio for any period of four
consecutive fiscal quarters of the Guarantor to be less than 3.00:1.00;
provided, however, that all Restructuring Charges shall be excluded from
the calculation of Earnings Before Interest, Taxes, Depreciation and
Amortization for purposes of determining the Fixed Charge Coverage Ratio
only."
Section 6. Section 7.8 of the Agreement Amended. Section 7.8 of the
Agreement is hereby amended by deleting in its entirety said Section 7.8 of the
Agreement and inserting in lieu of the following:
"7.8. Consolidated Worth. The Guarantor will not permit at any time
Consolidated Worth to be less than the sum of (a) $295,000,000 plus (b) on
a cumulative basis, 50% of positive Consolidated Net Income for each full
fiscal year of the Guarantor subsequent to June 30, 1996. Increases
pursuant to clause (b), if any, shall be effective on the first day after
the end of each such fiscal year."
<PAGE>
Section 7. Effect of Modification and Amendment of Agreement. The Agreement
shall be deemed to be modified and amended in accordance with the provisions of
this Amendment No. 1 to the Agreement and the respective rights, duties and
obligations of the Borrower, the Guarantor and the Bank under the Agreement
shall remain to be determined, exercised and enforced under the Agreement
subject in all respects to such modifications and amendments in writing, and all
the terms and conditions of this Amendment No. 1 to the Agreement shall be part
of the terms and conditions of the Agreement for any and all purposes. All the
other terms of the Agreement shall continue in full force and effect subject to
the amendments set forth herein.
Section 8. Representations and Warranties. The Borrower and the Guarantor
each represent and warrant to the Bank as follows:
(a) Representations and Warranties in Agreement. The representations and
warranties of the Borrower and the Guarantor contained in the Agreement (i)
were true and correct when made, and (ii) after giving effect to this
Amendment No. 1, continue to be true and correct on the date hereof (except
to the extent of changes resulting from transactions contemplated or
permitted by the Agreement, as amended hereby, and changes occurring in the
ordinary course of business that singly or in the aggregate are not
materially adverse, and to the extent that such representations and
warranties relate expressly to an earlier date).
(b) Authority. The execution and delivery by each of the Borrower and the
Guarantor of this Amendment No. 1 and the performance by each of the
Borrower and the Guarantor of all of its respective agreements and
obligations under this Amendment No. 1 are within its corporate authority,
have been duly authorized by all necessary corporate action and do not and
will not: (i) contravene any provision of its charter documents or any
amendment thereof; (ii) conflict with, or result in a breach of any
material term, condition or provision of, or constitute a default under or
result in the creation of any mortgage, lien, pledge, charge, security
interest or other encumbrance upon any of its property under any agreement,
deed of trust, indenture, mortgage or other instruments to which it is a
party or by which any of its properties are bound including, without
limitation, any of the Other Agreements; (iii) violate or contravene any
provision of any law, statute, rule or regulation to which the Borrower or
the Guarantor is subject or any decree, order or judgment of any court or
governmental or regulatory authority, bureau, agency or official applicable
to the Borrower or the Guarantor; (iv) require any waivers, consents or
approvals by any of its creditors which have not been obtained; or (v)
require any approval, consent, order, authorization or license by, or
giving notice to, or taking any other action with respect to, any
governmental or regulatory authority or agency under any provision of any
law, except (A) those actions which have been taken or will be taken prior
to the date of execution of this Amendment No. 1 and (B) filings with the
Securities and Exchange Commission to be made on or prior to May 15, 1996.
<PAGE>
(c) Enforceability of Obligations. This Amendment No. 1 and the Agreement,
as amended hereby, constitute the legal, valid and binding obligations of
the Borrower and the Guarantor enforceable against the Borrower and the
Guarantor in accordance with their respective terms, provided that: (i)
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application affecting
the rights and remedies of creditors; and (ii) the availability of the
remedies of specific performance and injunctive relief may be subject to
the discretion of the court before which any proceedings for such remedies
may be brought.
Section 9. Counterparts. This Amendment No. 1 to the Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Guarantor and the Bank have caused
this Amendment No. 1 to the Agreement to be executed in their respective names
and their respective seals to be hereunto affixed and attested by their duly
authorized representatives, all as of the date first above written.
THE BORROWER:
LESLIE CONTROLS, INC.
By:__________________________________
Title:
THE GUARANTOR:
WATTS INDUSTRIES, INC.
By:__________________________________
Title:
<PAGE>
THE BANK:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By:_______________________________
Title:
ATTEST:
________________________________
Title:
(Corporate Seal)
<PAGE>
EXHIBIT 10.22 (:)
<PAGE>
AMENDMENT NO. 1
WATTS INDUSTRIES, INC.
1991 NON-EMPLOYEE DIRECTORS' NONQUALIFIED STOCK OPTION PLAN
August 6, 1996
The 1991 Non-Employee Directors' Nonqualified Stock Option Plan ("1991
Plan") is hereby amended as follows:
1. Section 3(b) Purchase Price is deleted in its entirety and replaced with
the following:
"Effective with option grants to be made on or after November 1, 1996, the
purchase price of such options shall be adjusted from the current price of
$22.75, which was the closing price of the Company's Class A Common Stock on
October 18, 1991 (adjusted for the March 1994 stock split), to $16.375, the
closing price of such stock on the New York Stock Exchange on August 5, 1996."
2. Except as provided for in this Amendment No. 1, all of the terms and
conditions of the 1991 Plan shall remain in full force and effect.
EXECUTED as of the date first set forth above.
Watts Industries, Inc.
By:/s/ Kenneth J. McAvoy
<PAGE>
EXHIBIT 10.29 (i)
<PAGE>
AMENDMENT NO. 1
DATED AS OF JUNE 30, 1995
Amendment No. 1 (this "Amendment") dated as of June 30, 1995 to the
Revolving Credit Agreement, dated as of August 30, 1994 (as amended and in
effect from time to time, the "Credit Agreement"), by and among Watts Investment
Company (the "Borrower"), Watts Industries, Inc. (the "Parent"), as Guarantor,
The First National Bank of Boston and the other lenders that are or may become
parties thereto from time to time (collectively, the "Banks") and The First
National Bank of Boston as agent for the Banks (the "Agent"). Capitalized terms
which are used herein without definition and which are defined in the Credit
Agreement shall have the same meaning herein as in the Credit Agreement.
WHEREAS, the Borrower and the Parent have requested that the Banks amend
certain terms and conditions of the Credit Agreement and the Banks, subject to
the terms and conditions set forth below, have agreed to amend the Credit
Agreement;
NOW, THEREFORE, in consideration of the foregoing premises, on the terms
and subject to the conditions set forth herein, the parties hereto hereby agree
as follows:
1. Amendment to the Credit Agreement. The Credit Agreement is hereby
amended by deleting section 9.3 in its entirety and inserting in lieu
thereof the following text:
9.3 Consolidated Net Worth. Neither the Borrower nor the Parent
will permit at any time Consolidated Net Worth to be less than the sum
of (a) $350,000,000 plus (b) on a cumulative basis, 50% of positive
Consolidated Net Income for each full fiscal year subsequent to the
Balance Sheet Date. Increases pursuant to clause (b), if any, shall be
effective on the first day after the end of each such fiscal year.
2. Affirmation and Acknowledgment of the Borrower and the Parent.
2.01 The Borrower hereby ratifies and confirms all of its
Obligations to the Banks and the Borrower hereby affirms its absolute
and unconditional promise to pay to the Banks the Loans and all other
amounts due under the Credit Agreement, as amended hereby.
2.02 The Parent hereby ratifies and confirms all of its
Guaranteed Obligations to the Banks and the Parent hereby affirms its
unconditional and irrevocable guaranty of the Guaranteed Obligations
under the Credit Agreement, as amended hereby.
<PAGE>
3. Representation and Warranties. The Borrower and the Parent each
represent and warrant to the Banks and the Agent as follows:
3.01 Representations and Warranties in Credit Agreement. The
representations and warranties of the Borrower and the Parent
contained in the Credit Agreement (i) were true and correct when made,
and (ii) after giving effect to this Amendment, continue to be true
and correct on the date hereof (except to the extent of changes
resulting from transactions contemplated or permitted by the Credit
Agreement, as amended hereby, and changes occurring in the ordinary
course of business that singly or in the aggregate are not materially
adverse, and to the extent that such representations and warranties
relate expressly to an earlier date).
3.02 Authority. The execution and delivery by the each of
Borrower and the Parent of this Amendment and the performance by each
of the Borrower and the Parent of all its respective agreements and
obligations under this Amendment are within its corporate authority,
have been duly authorized by all necessary corporate action and do not
and will not (i) contravene any provision of its charter documents or
any amendment thereof, (ii) conflict with, or result in a breach of
any material term, condition or provision of, or constitute a default
under or result in the creation of any mortgage, lien, pledge, charge,
security interest or other encumbrance upon any of its property under
any agreement, deed of trust, indenture, mortgage or other instruments
to which it is a party or by which any of its properties are bound
including, without limitation, any of the Loan Documents (iii) violate
or contravene any provision of any law, statute, rule or regulation to
which the Borrower or the Parent is subject or any decree, order or
judgment of any court or governmental or regulatory authority, bureau,
agency or official applicable to the Borrower or the Parent, (iv)
require any waivers, consents or approvals by any of its creditors
which have not been obtained, or (v) require any approval, consent,
order, authorization or license by, or giving notice to, or taking any
other action with respect to, any governmental or regulatory authority
or agency under any provision of any law, except (A) those actions
which have been taken or will be taken prior to the date of execution
of this Amendment and (B) filings with the Securities and Exchange
Commission to be made on or prior to October 1, 1995.
3.03 Enforceability of Obligations. This Amendment and the Credit
Agreement, as amended hereby, constitute the legal, valid and binding
obligations of the Borrower and the Parent enforceable against the
Borrower and the Parent in accordance with their respective terms,
provided that (i) enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws of general
application affecting the rights and remedies of creditors, and (ii)
the availability of the remedies of specific performance and
injunctive relief may be subject to the discretion of the court before
which any proceedings for such remedies may be brought.
<PAGE>
4. Conditions to Effectiveness. This Amendment shall become effective as
of the date hereof subject to the satisfaction of the following
conditions precedent: (i) the execution and delivery of this Amendment
by each of the Borrower, the Parent; the Majority Banks and the Agent,
in form and substance satisfactory to the Majority Banks (ii) no
Defaults or Events of Default shall have occurred and be continuing;
(iii) no material adverse change in the financial condition or
business of the Borrower or the Parent shall have occurred and (iv)
proceedings in connection with the execution of this Amendment and all
other documents incident thereto shall be satisfactory in substance
and in form to the Majority Banks and to the Agent and the Agent's
Special Counsel, and the Banks, the Agent and such counsel shall have
received all information and such counterpart originals or certified
or other copies of such documents as the Agent may reasonably request.
5. Miscellaneous Provisions.
5.01 Except as otherwise expressly provided by this Amendment,
all of the terms, conditions and provisions of the Credit Agreement
shall remain the same. It is declared and agreed by each of the
parties hereto that the Credit Agreement, as amended hereby shall
continue in full force and effect.
5.02 THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT
UNDER SEAL AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
5.03 This Amendment may be executed in any number of
counterparts, but all such counterparts shall together constitute but
one instrument. In making proof of this Amendment it shall not be
necessary to produce or account for more than one counterpart signed
by each party hereto by and against which enforcement hereof is
sought.
5.04 The Borrower agrees to pay to the Agent, on demand by the
Agent, all reasonable out-of-pocket costs and expenses incurred or
sustained by the Agent in connection with this Amendment (including
reasonable legal fees).
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment under
seal as of the date first written above.
WATTS INVESTMENT COMPANY
By: ______________________________
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON,
individually and as Agent
By: ______________________________
Name:
Title:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By: ______________________________
Name:
Title:
MELLON BANK, N.A.
By: ______________________________
Name:
Title:
<PAGE>
THE NORTHERN TRUST COMPANY
By: ______________________________
Name:
Title:
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By: ______________________________
Name:
Title:
BROWN BROTHERS HARRIMAN & CO.
By: _____________________________
Name:
Title:
WATTS INDUSTRIES, INC., as Guarantor
By: _____________________________
Name:
Title:
<PAGE>
EXHIBIT 10.29 (ii)
<PAGE>
AMENDMENT NO. 2
Dated as of April 15, 1996
This AMENDMENT NO. 2 (this "Amendment") dated as of April 15, 1996 to the
Revolving Credit Agreement, dated as of August 30, 1994 (as amended and in
effect from time to time, the "Credit Agreement"), is by and among WATTS
INVESTMENT COMPANY (the "Borrower"), WATTS INDUSTRIES, INC. (the "Parent"), as
Guarantor, THE FIRST NATIONAL BANK OF BOSTON and the other lenders that are or
may become parties thereto from time to time (collectively, the "Banks") and THE
FIRST NATIONAL BANK OF BOSTON AS AGENT for the Banks (the "Agent"). Capitalized
terms which are used herein without definition and which are defined in the
Credit Agreement shall have the same meaning herein as in the Credit Agreement.
WHEREAS, the Borrower and the Parent have requested that the Banks amend
certain terms and conditions of the Credit Agreement, and the Banks, subject to
the terms and conditions set forth below, have agreed to amend the Credit
Agreement as follows;
NOW, THEREFORE, in consideration of the foregoing premises, on the terms
and subject to the conditions set forth herein, the parties hereto hereby agree
as follows:
1. Amendments to the Credit Agreement. The Credit Agreement is hereby
amended as follows:
(a) Section 1.1 is hereby amended by inserting the following
definition in the appropriate place designated by alphabetical
order:
"Restructuring Charges. Any restructuring charge taken by the
Borrower, the Parent or other Subsidiaries of the Parent in the
Parent's fiscal year ending June 30, 1996 in connection with (i)
Financial Accounting Standards Board Statement No. 121 or (ii) the
restructuring, downsizing, and consolidation of the operations of the
Borrower, the Parent or other Subsidiaries of the Parent, including
but not limited to, the consolidation of the selling, general and
administrative functions and the closure of certain manufacturing
facilities of the Borrower, the Parent or other Subsidiaries of the
Parent, provided, however, that the amount of the Restructuring
Charges shall not exceed $95,000,000 after giving effect to any tax
benefits. All Restructuring Charges will be incurred and/or paid
according to generally accepted accounting principles."
<PAGE>
(b) Section 8.5.2 of the Credit Agreement is hereby amended by
deleting the amount "$70,000,000" set forth in the ninth line
thereof and by replacing it with the amount "$100,000,000".
Section 8.5.2 of the Credit Agreement is further amended by
deleting the amount "$100,000,000" set forth in the tenth line
thereof and by replacing it with the amount "$150,000,000".
(c) Section 9.1 of the Credit Agreement is hereby amended by
inserting immediately before the period at the end thereof, the
following new phrase:
"; provided, however, that all Restructuring Charges shall be
excluded from the calculation of Earnings Before Interest, Taxes,
Depreciation and Amortization for purposes of determining the
Fixed Charge Coverage Ratio only."
(d) Section 9.2 of the Credit Agreement is hereby amended by deleting
(beta)9.2 in its entirety and inserting the following new
(beta)9.2 in place thereof:
"9.2 Leverage Ratio. Neither the Borrower nor the Parent
will permit the ratio of (i) Total Funded Debt to (ii) the sum of
(A) Total Funded Debt plus (B) Consolidated Net Worth on any date
(a "Test Date") occurring during any period described in the
table set forth below to exceed the ratio set forth opposite the
period in the table below in which such Test Date occurs:
Period Ratio
------ -----
Closing Date - December 31, 1995 0.40:1.00
January 1, 1996 - June 30, 1997 0.45:1.00
July 1, 1997 - June 30, 1998 0.42:1.00
July 1, 1998 and thereafter 0.40:1.00"
(e) Section 9.3 of the Credit Agreement is hereby amended by deleting
(beta)9.3 in its entirety and inserting the following new
(beta)9.3 in place thereof:
"9.3 Consolidated Net Worth. Neither the Borrower nor the
Parent will permit at any time Consolidated Net Worth to be less
than the sum of (a) $295,000,000 plus (b) on a cumulative basis,
50% of positive Consolidated Net Income for each full fiscal year
of the Parent subsequent to June 30, 1996. Increases pursuant to
clause (b), if any, shall be effective on the first day after the
end of each such fiscal year."
<PAGE>
(f) The Credit Agreement is hereby amended by inserting the following
new (beta)9.4 immediately following (beta)9.3 and immediately
preceding (beta)10 thereof:
"9.4. Profitable Operations. Neither the Borrower nor the
Parent will permit Consolidated Net Income (or Deficit) to be
less than (a) a loss of $10,000,000 for any fiscal quarter of the
Parent and (b) a loss of $20,000,000 for any complete fiscal year
of the Parent, in each case other than a loss resulting from
Restructuring Charges."
2. Affirmation and Acknowledgment of the Borrower and the Parent.
2.01 The Borrower hereby ratifies and confirms all of its
Obligations to the Banks, and the Borrower hereby affirms its absolute
and unconditional promise to pay to the Banks, the Loans and all other
amounts due under the Credit Agreement, as amended hereby.
2.02 The Parent hereby ratifies and confirms all of its
Guaranteed Obligations to the Banks, and the Parent hereby affirms its
unconditional and irrevocable guaranty of the Guaranteed Obligations
under the Credit Agreement, as amended hereby.
3. Representations and Warranties. The Borrower and the Parent each
represent and warrant to the Banks and the Agent as follows:
3.01 Representations and Warranties in Credit Agreement. The
representations and warranties of the Borrower and the Parent
contained in the Credit Agreement (i) were true and correct when made,
and (ii) after giving effect to this Amendment, continue to be true
and correct on the date hereof (except to the extent of changes
resulting from transactions contemplated or permitted by the Credit
Agreement, as amended hereby, and changes occurring in the ordinary
course of business that singly or in the aggregate are not materially
adverse, and to the extent that such representations and warranties
relate expressly to an earlier date).
3.02 Authority. The execution and delivery by each of the
Borrower and the Parent of this Amendment and the performance by each
of the Borrower and the Parent of all its respective agreements and
obligations under this Amendment are within its corporate authority,
have been duly authorized by all necessary corporate action and do not
and will not: (i) contravene any provision of its charter documents or
any amendment thereof; (ii) conflict with, or result in a breach of
any material term, condition or provision of, or constitute a default
under or result in the creation of any mortgage, lien, pledge, charge,
security interest or other encumbrance upon any of its property under
any agreement, deed of trust, indenture, mortgage or other instruments
to which it is a party or by which any of its properties are bound
including, without limitation, any of the Loan Documents; (iii)
violate or contravene any provision of any law, statute, rule or
regulation to which the Borrower or the Parent is subject or any
decree, order or judgment of any court or governmental or regulatory
authority, bureau, agency or official applicable to the Borrower or
the Parent; (iv) require any waivers, consents or approvals by any of
its creditors which have not been obtained; or (v) require any
approval, consent, order, authorization or license by, or giving
notice to, or taking any other action with respect to, any
governmental or regulatory authority or agency under any provision of
any law, except (A) those actions which have been taken or will be
taken prior to the date of execution of this Amendment and (B) filings
with the Securities and Exchange Commission to be made on or prior to
May 15, 1996.
<PAGE>
3.03 Enforceability of Obligations. This Amendment and the Credit
Agreement, as amended hereby, constitute the legal, valid and binding
obligations of the Borrower and the Parent enforceable against the
Borrower and the Parent in accordance with their respective terms,
provided that: (i) enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws of
general application affecting the rights and remedies of creditors;
and (ii) the availability of the remedies of specific performance and
injunctive relief may be subject to the discretion of the court before
which any proceedings for such remedies may be brought.
4. Conditions to Effectiveness. This Amendment shall become effective as
of the date hereof subject to the satisfaction of the following
conditions precedent: (i) the execution and delivery of this Amendment
by each of the Borrower, the Parent, the Majority Banks and the Agent,
in form and substance satisfactory to the Majority Banks; (ii) payment
of an amendment fee in the amount of $37,500 to the Agent for the pro
rata accounts of the Banks in accordance with their respective
Commitment Percentages; (iii) after giving effect to the provisions of
this Amendment, no Default or Events of Default shall have occurred
and be continuing; (iv) except as contemplated by the provisions of
this Amendment no material adverse change in the financial condition
or business of the Borrower or the Parent shall have occurred and (v)
proceedings in connection with the execution of this Amendment and all
other documents incident thereto shall be satisfactory in substance
and in form to the Majority Banks and to the Agent and the Agent's
Special Counsel, and the Banks, the Agent and such counsel shall have
received all information and such counterpart originals or certified
or other copies of such documents as the Agent may reasonably request.
5. Miscellaneous Provisions.
5.01 Except as otherwise expressly provided by this Amendment,
all of the terms, conditions and provisions of the Credit Agreement
shall remain the same. It is declared and agreed by each of the
parties hereto that the Credit Agreement, as amended hereby shall
continue in full force and effect.
<PAGE>
5.02 THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT
UNDER SEAL AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
5.03 This Amendment may be executed in any number of
counterparts, but all such counterparts shall together constitute but
one instrument. In making proof of this Amendment it shall not be
necessary to produce or account for more than one counterpart signed
by each party hereto by and against which enforcement hereof is
sought.
5.04 The Borrower agrees to pay to the Agent, on demand by the
Agent, all reasonable out-of-pocket costs and expenses incurred or
sustained by the Agent in connection with this Amendment (including
reasonable legal fees).
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment under
seal as of the date first written above.
WATTS INVESTMENT COMPANY
By: ____________________________
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON,
individually and as Agent
By: ____________________________
Name:
Title:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By: ____________________________
Name:
Title:
MELLON BANK, N.A.
By: ____________________________
Name:
Title:
THE NORTHERN TRUST COMPANY
By: ____________________________
Name:
Title:
<PAGE>
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By: _____________________________
Name:
Title:
BROWN BROTHERS HARRIMAN & CO.
By: _____________________________
Name:
Title:
WATTS INDUSTRIES, INC., as Guarantor
By:______________________________
Name:
Title:
<PAGE>
EXHIBIT 11
<PAGE>
Exhibit 11
Computation of Net Income per Common Share
Watts Industries, Inc.
(Amounts in thousands, except per share information)
<TABLE>
<CAPTION>
Fiscal year ended June 30
<S> <C> <C> <C>
1996 1995 1994
--------------- --------------- ---------------
Average shares outstanding:
Class A Common Stock, par value $.10 18,161 18,118 17,969
Class B Common Stock, par value $.10 11,366 11,448 11,488
Net effect of dilutive stock options--based
upon treasury stock method using ending
market price, if higher than average price 0 189 260
--------------- --------------- ---------------
Total 29,527 29,755 29,717
=============== =============== ===============
Income (loss) from continuing operations ($53,765) $42,463 $39,400
Income from discontinued operations 3,480 3,275 1,610
=============== =============== ===============
Net income (loss) ($50,285) $45,738 $41,010
=============== =============== ===============
Income (loss) per Common Share:
Income (loss) from continuing operations ($1.82) $1.43 $1.33
Income from discontinued operations 0.12 0.11 0.05
=============== =============== ===============
Net income (loss) ($1.70) $1.54 $1.38
=============== =============== ===============
</TABLE>
<PAGE>
EXHIBIT 21
<PAGE>
Exhibit 21
DIRECT AND INDIRECT SUBSIDIARIES OF WATTS INDUSTRIES, INC.
AS OF 8/15/96
DOMESTIC:
Watts International Sales Corp. [Massachusetts]
Watts Investment Company [Delaware]
Watts Regulator Company [Massachusetts]
Watts Securities Corp. [Massachusetts]
Circle Seal Controls, Inc. [Delaware]
Green Country Castings, Inc. [Oklahoma]
Henry Pratt Company [Delaware]
James Jones Company [California]
KF Industries, Inc. [Oklahoma]
KF Sales Corp. [Delaware]
Rudolph Labranche, Inc. [New Hampshire]
Leslie Controls, Inc. [New Jersey]
Nicholson Steam Trap, Inc. [Delaware]
Spence Engineering Company, Inc. [Delaware]
Ancon U.S.A., Inc. [Delaware]
Anderson-Barrows Metals Corp. [California]
Jameco Acquisition Corp. [Delaware]
Jameco Industries, Inc. [New York]
R.G. Laurence Company, Inc. [New Jersey]
Webster Valve, Inc. [New Hampshire]
INTERNATIONAL:
Watts Industries (Canada) Inc. [Canada]
Watts Investment Company Canada Ltd. [Canada]
Watts Industries Europe B.V. [The Netherlands]
Watts Industries France S.A. [France]
Watts Industries Germany GmbH [Germany]
Wattsco International [U.S. Virgin Islands]
Watts Ocean BV [The Netherlands]
Societe des Etablissements Rene TRUBERT SA [France]
Watts SFR SA [France]
Watts UK Ltd. [United Kingdom]
Edward Barber & Co. Ltd. [United Kingdom]
Edward Barber (UK) Ltd. [United Kingdom]
G.R.C. Controls SA [Spain]
HST AG [Switzerland]
HST GmbH [Austria]
Intermes SpA [Italy]
Intermes UK Ltd [United Kingdom]
<PAGE>
KF Industries Europe BV [The Netherlands]
Kingsworth Products Ltd. [United Kingdom]
Leslie International V.I. [Virgin Islands]
M.T.R GmbH [Germany]
Artec GmbH [Germany]
Ocean B.V. [The Netherlands]
Pibiviesse SpA [Italy]
Philabel BV [The Netherlands]
Watts AG [Switzerland]
Watts Ocean NV [Belgian]
Jameco Export Sales Corporation [U.S. Virgin Islands]
WIG Armaturen Vertriebs, GmbH [Germany]
WSA Heizungs und Sanitartechnik GmbH [Germnay]
WIC Verwaltungs und Beteiligungs GmbH [Germany]
Londa SpA [Italy]
ISI SpA [Italy]
In addition to the foregoing, the Company holds an 80% interest in De Martin Srl
[Italy], a 60% interest in Tianjin Tanggu Watts Valve Company Limited, a Chinese
joint venture, and a 60% interest in Suzhou Watts Valve Co., Ltd., a Chinese
joint venture.
<PAGE>
EXHIBIT 23.1
<PAGE>
Exhibit 23.1--Consent of Ernst & Young, LLP Independent Auditors
We 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, (Form S-8 No. 33-37926) pertaining to the
Nonqualified Stock Option Plan, (Form S-8 No. 33-69422) pertaining to the 1991
Non-Employee Directors' Nonqualified Stock Option Plan of Watts Industries, Inc.
and (Form S-8 No. 33-64627) pertaining to the Watts Industries, Inc. Management
Stock Purchase Plan, and in the related Prospectuses of our report dated August
6, 1996, with respect to the consolidated financial statements included in this
Annual Report (Form 10-K) of Watts Industries, Inc.
ERNST & YOUNG LLP
Boston, Massachusetts
September 9, 1996
<PAGE>
EXHIBIT 23.2
<PAGE>
Exhibit 23.2 - Consent of Deloitte & Touche, Independent Auditors
DELOITTE & TOUCHE
Kanaalpark 143 Telephone: +31 71 5352352
2321 JV Leiden Telefax: +31 71 5352360
P.O. Box 402
2300 AK Leiden
The Netherlands
Date Reference
September 6, 1996 P.C. Spaargaren RA
CONSENT OF DELOITTE & TOUCHE, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Post-Effective Amendment No. 1 to Form S-8 No. 33-30377, No. 33-37926, No.
33-69422 and No. 33-64627) and in the related Prospectuses of our report dated
August 6, 1996, with respect to the consolidated/combined financial statements
of Watts Industries Europe B.V. (not included herein) and our report dated
August 6, 1996, with respect to the financial statement schedule of Watts
Industries Europe B.V. (not included herein)
/s/ Deloitte & Touche
<PAGE>
DELOITTE & TOUCHE August 6, 1996
Kanaalpark 143 Telephone: +31 71 5352352
2321 JV Leiden Telefax: +31 71 5352360
P.O. Box 402
2300 AK Leiden
The Netherlands
REPORT OF INDEPENDENT AUDITORS
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, 1996 and 1995, and for each of the
three years in the period ended June 30, 1996, and have issued our report
thereon dated August 6, 1996. Our audits also included financial statement
schedule II of Watts Industries Europe B.V. (not presented separately herein)
which is included in the related schedule of Watts Industries, Inc., in Form
10-K. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule of Watts Industries Europe B.V.
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
/s/ Deloitte & Touche
<PAGE>
DELOITTE & TOUCHE August 6, 1996
Kanaalpark 143 Telephone: +31 71 5352352
2321 JV Leiden Telefax: +31 71 5352360
P.O. Box 402
2300 AK Leiden
The Netherlands
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Watts Industries Europe B.V.
We have audited the accompanying financial statements including the
consolidated/combined balance sheets of Watts Industries Europe B.V. at Eerbeek
as of June 30, 1996 and 1995 and the statements of operations for each of the
three years in the period ended June 30, 1996 (not separately presented herein)
expressed in Dutch Guilders. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the Netherlands and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statements presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated/combined financial statements of Watts
Industries Europe B.V. at Eerbeek present fairly the consolidated/combined
financial position of Watts Industries Europe B.V. as of June 30, 1996 and 1995
and the results for each of the three years in the period ended June 30, 1996 in
accordance with accounting principles generally accepted in the Netherlands and
comply with the legal requirements for financial statements as included in Part
9, Book 2 of the Netherlands Civil Code.
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, 1996, 1995 and
1994 and the determination of stockholders' equity at June 30, 1996 and 1995 to
the extent summarized in Note G.
/s/ Deloitte & Touche
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 116,370
<ALLOWANCES> 8,822
<INVENTORY> 182,098
<CURRENT-ASSETS> 410,814
<PP&E> 147,950
<DEPRECIATION> 112,378
<TOTAL-ASSETS> 650,958
<CURRENT-LIABILITIES> 135,945
<BONDS> 163,150
0
0
<COMMON> 2,822
<OTHER-SE> 316,761
<TOTAL-LIABILITY-AND-EQUITY> 650,958
<SALES> 640,876
<TOTAL-REVENUES> 640,876
<CGS> 428,678
<TOTAL-COSTS> 680,109 <F1>
<OTHER-EXPENSES> 10,177 <F2>
<LOSS-PROVISION> 759
<INTEREST-EXPENSE> 9,960
<INCOME-PRETAX> (49,410)
<INCOME-TAX> 4,355
<INCOME-CONTINUING> (53,765)
<DISCONTINUED> 3,480
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50,285)
<EPS-PRIMARY> ($1.70)
<EPS-DILUTED> ($1.70)
<FN>
<F1> INCLUDES ONLY COST OF GOODS SOLD, OPERATING EXPENSES AND RESTRUCTURING CHARGES.
<F2> INCLUDES INTEREST EXPENSE AND LOSS PROVISION SHOWN BELOW.
</FN>
</TABLE>
