UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999
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: (978) 688-
1811
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at October 29, 1999
Class A Common, $.10 par value 16,988,507
Class B Common, $.10 par value 9,485,247
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Page #
Item 1. Financial Statements
Consolidated Balance Sheets at
September 30, 1999 and June 30, 1999 3
Consolidated Statements of Income for
the Three Months Ended September 30, 1999 and
September 30, 1998 4
Consolidated Statements of Cash Flows
for the Three Months Ended September 30, 1999 and
September 30, 1998 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-15
Part II. Other Information
Item 1. Legal Proceedings 15-18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibit Index 20
Exhibit 10.1 -Amendment No. 3 dated October 18, 1999, to
Letter of Credit, Reimbursement and Guaranty
Agreement dated September 1, 1994.
Exhibit 10.2 - First Amendment dated October 18, 1999 to
Amended and Restated Revolving Credit
Agreement dated March 27, 1998.
Exhibit 27 - Financial Data Schedule - September 30, 1999 42
Exhibit 27.1 - Restated Financial Data Schedule -September 30, 1998 43
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
----------------------
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share information)
(Unaudited)
Sept. 30, June 30,
1999 1999
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,038 $ 12,774
Trade accounts receivable, less allowance for doubtful
accounts of $6,971 at September 30, 1999 and $7,747
at June 30, 1999 95,675 89,315
Inventories, net:
Raw materials 41,456 36,543
Work in process 8,386 7,569
Finished goods 63,608 66,440
--------- ---------
Total Inventories 113,450 110,552
Prepaid expenses and other assets 13,424 10,193
Deferred income taxes 21,909 21,271
Net current assets of discontinued operations 130,045 122,971
--------- ---------
Total Current Assets 379,541 367,076
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost 226,072 218,715
Accumulated depreciation (94,333) (89,552)
--------- ---------
Property, plant and equipment, net 131,739 129,163
--------- ---------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $13,399 at
March 31, 1999 and $11,708 at June 30, 1998 97,032 96,285
Other 8,884 9,027
Net noncurrent assets of discontinued operations 35,162 36,191
--------- ---------
TOTAL ASSETS $ 652,358 $ 637,742
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 39,693 $ 35,579
Accrued expenses and other liabilities 48,335 48,843
Accrued compensation and benefits 11,652 12,692
Income taxes payable 5,076 0
Current portion of long-term debt 1,656 2,050
--------- ---------
Total Current Liabilities 106,412 99,164
--------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION 117,197 118,916
DEFERRED INCOME TAXES 13,238 13,070
OTHER NONCURRENT LIABILITIES 11,387 11,450
MINORITY INTEREST 7,703 7,487
STOCKHOLDERS' EQUITY:
Preferred Stock, $.10 par value; 5,000,000 shares
authorized; no shares issued or outstanding - -
Class A Common Stock, $.10 par value; 80,000,000 shares
authorized; 1 vote per share; issued and outstanding:
16,972,507 shares at Sept.30, 1999 and 16,158,807
shares at June 30, 1999 1,697 1,616
Class B Common Stock, $.10 par value; 25,000,000 shares
authorized; 10 votes per share; issued and outstanding:
9,485,247 at Sept.30, 1999 and 10,285,247
shares at June 30, 1999 949 1,029
Additional paid-in capital 36,438 36,069
Retained earnings 370,050 364,089
Accumulated other comprehensive income (12,713) (15,148)
--------- ---------
Total Stockholders' Equity 396,421 387,655
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 652,358 $ 637,742
========= =========
See accompanying notes to consolidated financial statements.
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share information)
(Unaudited)
Three Months Ended
--------------------
Sept. 30, Sept. 30,
1999 1998
--------- ---------
Net sales $ 130,330 $ 113,269
Cost of goods sold 83,436 72,183
--------- ---------
GROSS PROFIT 46,894 41,086
Selling, general & administrative expenses 31,281 27,763
--------- ---------
OPERATING INCOME 15,613 13,323
--------- ---------
Other (income) expense:
Interest income (139) (186)
Interest expense 2,136 1,558
Other, net 66 231
--------- ---------
2,063 1,603
--------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 13,550 11,720
Provision for income taxes 4,508 3,827
--------- ---------
INCOME FROM CONTINUING OPERATIONS 9,042 7,893
Income from discontinued operations, net of taxes (745) 4,495
--------- ---------
NET INCOME $ 8,297 $ 12,388
========= =========
Basic earnings per share :
Continuing operations $ 0.34 $ 0.29
Discontinued operations (0.03) 0.17
--------- ---------
NET INCOME $ 0.31 $ 0.46
========= =========
Weighted average number of shares (thousands) 26,448 27,018
========= =========
Diluted earnings per share :
Continuing operations $ 0.34 $ 0.29
Discontinued operations (0.03) 0.17
--------- ---------
NET INCOME $ 0.31 $ 0.46
========= =========
Weighted average number of shares (thousands) 26,635 27,177
========= =========
Dividends per common share $ 0.0875 $ 0.0875
========= =========
See accompanying notes to consolidated financial statements.
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Three Months Ended
--------------------
Sept. 30, Sept. 30,
1999 1998
--------- ---------
OPERATING ACTIVITIES
Net income from continuing operations $ 9,042 $ 7,893
Adjustments to reconcile net income from continuing
operations to net cash provided by continuing
operating activities:
Depreciation 4,240 3,432
Amortization 779 893
Deferred income taxes (550) 192
Loss on disposal of assets 9 0
Equity in undistributed earnings of affiliates (61) (86)
Changes in operating assets and liabilities, net of
effects from acquisitions and dispositions:
Accounts receivable (5,257) (6,852)
Inventories (2,038) 5,580
Prepaid expenses and other assets (3,009) 1,085
Accounts payable, accrued expenses and
other liabilities 6,661 12,107
--------- ---------
Net cash provided by continuing operations 9,816 24,244
Net cash used by discontinued operations (7,559) (8,922)
--------- ---------
Net cash provided by operating activities 2,257 15,322
--------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment (5,593) (4,393)
Business acquisitions, net of cash acquired 0 (406)
Increase in other assets (503) (1,661)
Net changes in short-term investments
Discontinued operations:
Additions to property, plant and equipment (3,262) (907)
Proceeds from sale of property, plant and equip 45 1,019
Business acquisitions, net of cash acquired 0 (66,862)
--------- ---------
Net cash used in investing activities (9,313) (73,210)
--------- ---------
FINANCING ACTIVITIES
Proceeds from long-term borrowings 20,089 12,851
Payments of long-term debt (23,070) (4,685)
Proceeds from exercise of stock options 233 20
Dividends (2,319) (2,363)
Purchase of treasury stock 0 0
Discontinued operations:
Proceeds from long-term borrowings 21,958 54,766
Payments of long-term debt (17,421) (2,424)
--------- ---------
Net cash provided by financing activities (530) 58,165
--------- ---------
Effect of exchange rate changes on cash and
cash equivalents (150) 2,249
--------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS (7,736) 2,526
Cash and cash equivalents at beginning of period 12,774 10,767
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,038 $ 13,293
========= =========
See accompanying notes to consolidated financial statements.
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. In the opinion of management, the accompanying unaudited,
consolidated financial statements contain all necessary
adjustments, consisting only of adjustments of a normal recurring
nature, to present fairly Watts Industries, Inc.'s Consolidated
Balance Sheet as of September 30, 1999, its Consolidated Statements
of Income for the three months ended September 30, 1999 and 1998,
and its Consolidated Statements of Cash Flows for the three months
ended September 30, 1999 and 1998.
The balance sheet at June 30, 1999 has been derived from the
audited financial statements at that date. Certain amounts have
been reclassified to conform with the fiscal period ended December
31, 1999 presentation. The accounting policies followed by the
Company are described in the June 30, 1999 financial statements
which are contained in the Company's 1999 Annual Report on Form 10-
K. It is suggested that these financial statements be read in
conjunction with the financial statements and notes included in the
1999 Annual Report on Form 10-K.
2. On December 15, 1998 the Company announced its plans to
separate its industrial, oil and gas businesses from its plumbing
and heating and water quality businesses. To accomplish this
separation, the Company continued its existing plumbing and heating
and water quality business and transferred the industrial, oil and
gas business to a new company, CIRCOR International, Inc. On
October 18, 1999, the Company spun-off CIRCOR to the Watts'
stockholders in the form of a pro-rata stock dividend. The Company
received a Private Letter Ruling ("PLR") from the Internal Revenue
Service confirming the tax-free treatment of the spin-off.
Accordingly, the Company is treating its industrial, oil and
gas business as a discontinued operation.
The following table summarizes the results of operations of the
industrial, oil and gas group:
Three Months Ended September 30
1999 1998
Net Sales $ 76,957 $ 80,656
Costs and Expenses 76,428 72,921
Income Before Income Taxes 529 7,735
Income Taxes 1,274 3,240
Income(Loss) from Discontinued
Operations,
Net of Taxes $ (745) $ 4,495
Net assets of the industrial, oil, and gas group reported in the
accompanying consolidated balance sheets consist of the following:
Balance Sheet September 30 June 30
1999 1999
Total Current Assets $ 190,391 $ 185,028
Total Current Liabilities (60,346) (62,057)
Net Current Assets $ 130,045 $ 122,971
Total Non-Current Assets $ 178,335 $ 178,153
Total Non-Current Liabilities (143,173) (141,962)
Net Non-Current Assets $ 35,162 $ 36,191
The Company presently expects to incur approximately
$8,600,000 of direct costs on an after-tax basis from the spin-off
transaction and has accrued such a liability at September 30, 1999
As required by APB Opinion No. 30, the Company has fully offset
these costs with operating income from its industrial, oil and gas
businesses. Excluding the costs of this transaction, net earnings
from discontinued operations would have been $1,688,000 for the
three months ended September 30, 1999.
3. The following tables set forth the reconciliation of the
calculation of earnings per share.
For the Three Months Ended September 30, 1999
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Income from Continuing
Operations $ 9,042,000 26,447,936 $ 0.34
Loss from Discontinued
Operations (745,000) (0.03)
Net Income $ 8,297,000 $ 0.31
Effect of Dilutive Securities
Common Stock Equivalents - 186,624
Diluted EPS $ 8,297,000 26,634,560 $ 0.31
Options to purchase 771,600 shares of common stock at prices
ranging from $22.13 to $25.38 were outstanding during the three-
month period ended September 30, 1999. These options were not
included in the related computations of diluted EPS since the
exercise price of the options was greater than the average market
price of the common shares during the period.
For the Three Months Ended September 30, 1998
Income Share Per Share
(Numerator) (Denominator) Amount
Basic EPS
Income from Continuing Operations $ 7,893,000 27,018,108 $ .29
Income from Discontinued Operations 4,495,000 .17
Net Income $12,388,000 $ .46
Effect of Dilutive Securities
Common Stock Equivalents - 159,172
Diluted EPS $12,388,000 27,177,280 $ .46
Options to purchase 838,700 shares of common stock at prices
ranging from $22.13 to $25.38 were outstanding during the three-
month period ended September 30, 1998. These options were not
included in the related computations of diluted EPS since the
exercise price of the options was greater than the average market
price of the common shares during the period.
4. Segment Information - the following table presents certain
operating segment information:
North Corporate
(Thousand of dollars) America Europe Asia Adjustments Consolidated
Three months ended
September 30, 1999:
Net Sales $98,755 $27,812 $3,763 $ - $130,330
Operating income 11,391 3,932 597 (307) 15,613
Three months ended
September 30, 1998:
Net Sales $89,649 $19,506 $4,114 $ - $113,269
Operating income 10,285 2,620 516 (98) 13,323
The above operating segments are presented on a basics consistent
with the presentation included in the Company's June 30, 1999
financial statements. There have been no material changes in the
identifiable assets of the individual segments since June 30,
1999.
5. The Company uses foreign currency forward exchange contracts
to reduce the impact of currency fluctuations on certain
anticipated purchase transactions that are expected to occur within
the fiscal year and other known currency exposures. At September
30, 1999 subsidiaries in the Company's Discontinued Operations had
forward contracts to buy foreign currencies with a face value of $
9 million. These contracts mature on various dates between October
1999 and March 2000 and have a fair market value of $ 8.4 million
at September 30, 1999. The counter parties to these contracts are
major financial institutions. The risk of loss to the Company in
the event of non-performance by a counter party is not significant.
The Company uses commodity futures contracts to fix the price
on a certain portion of certain raw materials used in the
manufacturing process. These contracts highly correlate to the
actual purchases of the commodity and the contract values are
reflected in the cost of the commodity as it is actually purchased.
At September 30, 1999, the Company had outstanding commodity
futures contracts with a notional value of $3.5 million and a fair
value of $4.0 million.
6. Effective July 1, 1998, the Company was required to adopt
Statement of Financial Accounting Standards ("SFAS") No. 130,
Reporting Comprehensive Income. This statement establishes
standards for reporting and presentation of comprehensive income
and its components in financial statements. Accumulated other
comprehensive income in the consolidated balance sheets as of
September 30, 1999 and June 30, 1999 consists of cumulative
translation adjustments. The Company's total comprehensive income
was as follows:
Three Months Ended September 30,
1999 1998
Income from Continuing Operations $9,042 $7,893
Income from Discontinued Operations (745) 4,495
Foreign Currency Translation
Adjustments 2,435 5,062
Total Comprehensive Income $10,732 $17,450
7. Contingencies and Environmental Remediation
Contingencies
In April 1998, the Company became aware of a complaint that
was filed under seal in the State of California alleging violations
of the California False Claims Act. The complaint alleges that a
former subsidiary of the Company sold products utilized in
municipal water systems which failed to meet contractually
specified standards and falsely certified that such standards had
been met. The complaint further alleges that the municipal
entities have suffered tens of millions of dollars in damages as a
result of defective products and seeks treble damages,
reimbursement of legal costs and penalties. The Company intends to
vigorously contest this matter but cannot presently determine
whether any loss will result from it.
Other lawsuits and proceedings or claims, arising from the
ordinary course of operations, are also pending or threatened
against the Company and its subsidiaries. With respect to these
other litigation matters, the Company has established reserves
which it presently believes are adequate in light of probable and
estimable exposure to pending and threatened litigation of which it
has knowledge. However, resolution of any such matters during a
specific period could have a material effect on quarterly or annual
operating results for that period. Also see Part II, Item 1.
Environmental Remediation
The Company has been named a potentially responsible party
with respect to identified contaminated sites. The level of
contamination varies significantly from site to site as do the
related levels of remediation efforts. Environmental liabilities
are recorded based on the most probable cost, if known, or on the
estimated minimum cost of remediation. The Company's accrued
estimated environmental liabilities are based on assumptions which
are subject to a number of factors and uncertainties.
Circumstances which can affect the reliability and precision of
these estimates include identification of additional sites,
environmental regulations, level of cleanup required, technologies
available, number and financial condition of other contributors to
remediation and the time period over which remediation may occur.
The Company recognizes changes in estimates as new remediation
requirements are defined or as new information becomes available.
The Company estimates that its accrued environmental remediation
liabilities will likely be paid over the next five to ten years.
Also see Part II, Item 1.
Item 2. WATTS INDUSTRIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
On December 15, 1998 the Company announced its plan to
spin-off its industrial, oil and gas business as a separately
traded public company, CIRCOR International, Inc. Under the terms
of the spin-off, which was completed on October 18, 1999, the
holders of Watts common stock received one share of CIRCOR common
stock for every two shares of Watts stock held, The Company's
results of operations have been restated to reflect CIRCOR as
discontinued operations for all periods presented.
Results of Operations
Three Months Ended September 30, 1999 Compared to
Three Months Ended September 30, 1998
Net sales for continuing operations increased $17,061,000
(15.1%) to $130,330,000. The increase in net sales is attributable
to the following:
(Revenue $'s 1999-1998)
Internal Growth $9,985,000 8.8%
Acquisitions $8,311,000 7.3%
Foreign Exchange ($1,235,000) (1.0%)
Total Change $17,061,000 15.1%
This increase in net sales from internal growth is primarily
attributable to increased unit shipments of North American plumbing
and heating market. The growth in net sales from acquired
companies is due to the inclusion of Cazzaniga S.p.A. of
Biassono, Italy, which was acquired March 9, 1999. Excluding
Cazzaniga, shipments of European plumbing and heating market were
6.3% higher than last year.
Gross profit increased $5,808,000 (14.1%), but decreased as a
percentage of net sales from 36.3 percent to 36.0 percent. This
percentage reduction is primarily attributable to production
inefficiencies in certain US manufacturing locations and the
inclusion of acquired companies currently operating at lower gross
margins compared to the rest of the Company.
Selling, general and administrative expenses increased
$3,518,000 (12.7%) to $31,281,000. This increase is primarily
attributable to inclusion of the selling, general and
administrative expenses of Cazzaniga, and increased variable
selling expenses primarily commissions and freight costs.
Interest expense increased $578,000 in the quarter ended
September 30, 1999, primarily due to increased acquisition
financing.
The Company's effective tax rate for continuing operations
increased from 32.6% to 33.3%. The increase is primarily
attributable to acquired companies operating in higher tax rate
jurisdictions than the rest of the Company.
Net income from continuing operations increased $1,149,000
(14.6%) to $9,042,000.
Income from discontinued operations, net of taxes, decreased
$5,240,000. The Company has recognized $2,433,000 in the current
quarter of the estimated $8,600,000 net after-tax costs to execute
the spin-off transaction. These costs include taxes, certain
relocation costs, and professional fees. Excluding the cost of
this transaction, net earnings would have declined $2,807,000 and
diluted earnings per share would have decreased from 17 cents to 6
cents. Total sales from discontinued operations decreased
$3,699,000 (4.8%) to $76,957,000. Domestic oil and gas valves
experienced a decline of 12 percent in net sales. Please see Note
2 of the Notes to the Consolidated Financial Statements for a
discussion of the Company's spin-off of its industrial, oil and
gas business.
The changes in foreign exchange rates had an immaterial affect
on net income for the quarter-to-date ended September 30, 1999.
Liquidity and Capital Resources
During the three-month period ended September 30, 1999, the
Company generated $9,816,000 in cash flow, from continuing
operations, which was principally used to fund the purchase of
$5,593,000 in capital equipment , pay cash dividends to common
shareholders and pay down long term debt. Capital expenditures were
primarily for manufacturing machinery and equipment as part of the
Company's commitment to continuously improve its manufacturing
capabilities. The Company's capital expenditure budget for the six
months ended December 31, 1999 is $10,000,000.
During the year ended June 30, 1999, the Company entered into
a syndicated credit facility with a group of European banks in the
amount of 40 millions Euros. This credit facility has several
tranches which provide credit to the Company for a period up to
five (5) years. The purpose of this credit facility is to fund
acquisitions in Europe, support the working capital requirements of
acquired companies, and for general corporate purposes. As of
September 30, 1999, 23,500,000 Euro's ($25,011,000) were borrowed
under this line of credit.
As of September 30, 1999 Watts had an unsecured $125 million
line of credit facility to support the Company's acquisition
program, working capital requirements of acquired companies, and
for general corporate purposes. At September 30, 1999 the Company
had $107 million outstanding on the line of credit and was in
compliance with all banking covenants related to this facility. On
the effective date of the spin-off, the Company amended its line of
credit, reducing its available borrowing limit to $100 million.
The borrowing on the amended LOC outstanding after the October 18,
1999 spin-off was $21,000,000.
Working capital from continuing operations at September 30,
1999 was $143,084,000 compared to $144,941,000 at June 30, 1999.
The ratio of current assets to current liabilities was 2.3 to 1 at
September 30, 1999 and 2.5 to 1 at June 30, 1999. Cash and cash
equivalents were $5,038,000 at September 30, 1999 compared to
$12,774,000 at June 30, 1999. Debt as a percentage of total
capital employed was 34.6% at September 30, 1999 compared to 38.9%
at June 30, 1999.
The Company anticipates that available funds and those funds
provided from current operations will be sufficient to meet current
operating requirements and anticipated capital expenditures for at
least the next 24 months.
The Company from time to time is involved with product
liability, environmental proceedings and other litigation
proceedings and incurs costs on an ongoing basis related to these
matters. The Company has not incurred material expenditures in
fiscal 1999 in connection with any of these matters. See Part II,
Item 1, Legal Proceedings.
Year 2000 Compliance
The Company has developed a comprehensive program to address
its potential exposure to the Year 2000 issue. The Company manages
the program by having each subsidiary and operating unit identify
their own Year 2000 issues and develop appropriate corrective
action steps, while instituting a series of management processes
that coordinate and manage the program across the Company. The
Company's Corporate Vice President of Administration has been
assigned responsibility for the overall coordination and monitoring
of the program, including establishment of policies, tracking
progress, and leveraging solutions across Company.
A significant portion of the Company's Year 2000 issues
relative to its information technology systems are being addressed
as part of the Company-wide initiative which began in fiscal 1997
to upgrade and replace its information systems. At September 30,
1999, approximately 95% of the Company's critical information
technology systems and more than 95% of its other information
technology systems have been replaced or upgraded and are Year 2000
compliant. The Company expects to complete the replacement or
upgrade of the remaining systems before the end of 1999.
Inventories, assessments and remediation activities for non-
information technology systems, including manufacturing equipment,
were completed during the Fiscal Year Ended June 30, 1999.
The Company has identified critical vendors, suppliers of
information processing services, customers, financial institutions
and other third parties and surveyed their Year 2000 remediation
efforts. Additionally, the Company has contacted all vendors and
third party suppliers in this regard. A preponderant majority of
vendors responded. Vendors not responding and those determined not
to be Year 2000 compliant have been replaced. This vendor survey
and review process is complete. The cost of the program was
immaterial. The Company did not utilize any independent
verification processes to confirm that these vendor responses were
reliable. However, the Company Purchasing Department personnel
communicate regularly with critical vendors. This communication
includes Year 2000 compliance confirmation.
In addition, the Company's operations depend on infrastructure
in a number of foreign countries in which it operates, and,
therefore, a failure of any of those infrastructures could
adversely affect its operations. The Company's most significant
foreign markets are: Canada, China, Germany, Italy and the United
Kingdom. In these countries, the Company is not aware of any
significant weaknesses in their infrastructure.
The Company has developed contingency plans for those few
vendors it considers critical . These are essentially vendors that
supply base raw materials and certain component parts. The
contingency plans include increasing levels of on-site and
consigned inventory. Additionally, raw materials are readily
available and most can be supplied by a number of alternate
vendors. These contingency plans are complete.
The Company continues to develop detailed contingency plans to
deal with unexpected issues which may occur. These plans include
the identification of appropriate resources and response teams.
Individual business managers at each of the Company's subsidiaries
and operating units are responsible to ensure their business
functions continue to operate normally. While the specifics vary
by operation, the general contingency planning strategies include:
increasing the on-hand supply of raw materials and finished goods;
identifying alternate suppliers of raw materials; ensuring key
personnel (both business and technical) are physically on-site;
backing up critical systems just before year-end; and identifying
alternative methods of doing business with customers as necessary.
Despite the Company's comprehensive program the Company cannot
be completely sure that issues will not develop or events occur
that could have material adverse affects on the Company's results
of operation or financial condition. Nevertheless, Watts does not
expect a material failure. The Company's Year 2000 program is
designed to minimize the likelihood of any failure occurring. The
most reasonably likely worst case scenario is that a short-term
disruption will occur with a small number of customers or suppliers
requiring an appropriate response.
Spending for the program is budgeted, expensed as incurred,
and not expected to be material.
Conversion To The Euro
On January 1, 1999, 11 of the 15 member countries of the
European Union adopted the Euro as their common legal currency and
established fixed conversion rates between their existing sovereign
currencies and the Euro. The Euro trades on currency exchanges and
is available for non-cash transactions. The introduction of the
Euro will affect the Company as the Company has manufacturing and
distribution facilities in several of the member countries and
trades extensively across Europe. The long-term competitive
implications of the conversion are currently being assessed by the
Company, however, the Company will experience an immediate
reduction in the risks associated with foreign exchange. At this
time, the Company is not anticipating that any significant costs
will be incurred due to the introduction and conversion to the
Euro.
The Company uses foreign currency forward exchange contracts
to reduce the impact of currency fluctuations on certain
intercompany purchase transactions that will occur within the
fiscal year and other known foreign currency exposures. The
notional amount of such contracts and the related realized and
unrealized gains and losses as of September 30, 1999 are not
material.
Other
Certain statements contained herein are forward looking. Many
factors could cause actual results to differ from these statements,
including loss of market share through competition; introduction of
competing products by other companies; pressure on prices from
competitors, suppliers, and/or customers; regulatory obstacles;
lack of acceptance of new products; changes in the plumbing and
heating and oil and gas markets; changes in global demand for the
Company's products; changes in distribution of the Company's
products; interest rates; foreign exchange fluctuations; cyclically
of industries in which the Company markets certain of its products
and general economic factors in markets where the Company's
products are sold, manufactured or marketed; and other factors
discussed in the Company's reports filed with the Securities and
Exchange Commission.
In June 1998, the Financial Accounting Standards Board issued SFAS
133, "Accounting for Derivative Instruments and Hedging
Activities." The Company will adopt SFAS 133 no later than January
1, 2001. Its impact on the consolidated financial statements is
still being evaluated, but it is not expected to be material.
Part II. Other Information
Item 1. Legal Proceedings
The Company, like other worldwide manufacturing companies, is
subject to a variety of potential liabilities connected with its
business operations, including potential liabilities and expenses
associated with possible product defects or failures and compliance
with environmental laws. The Company maintains product liability
and other insurance coverage which it believes to be generally in
accordance with industry practices. Nonetheless, such insurance
coverage may not be adequate to protect the Company fully against
substantial damage claims which may arise from product defects and
failures.
James Jones Litigation
On June 25, 1997, Nora Armenta sued James Jones Company and
its present and past owners, Mueller Co., Tyco International (U.S.)
Inc. and Watts Industries, Inc. in the California Superior Court
for Los Angeles County with a complaint that sought tens of
millions of dollars in damages. By this complaint and an amended
complaint filed on November 4, 1998, ("First Amended Complaint")
Armenta, a former employee of James Jones, sued on behalf of 34
municipalities as a qui tam plaintiff under the California False
Claims Act. Late in 1998, the Los Angeles Department of Water and
Power ("DWP") intervened. Of the remaining 33 named
municipalities, four (Burbank, Pomona, Santa Monica and South Gate)
chose to intervene shortly before the Court-imposed deadline of
July 15, 1999. The case will now go forward with the
municipalities that have intervened.
The First Amended Complaint alleges that the Company's former
subsidiary (James Jones Company) sold products which did not meet
contractually specified standards used by the named municipalities
for their water systems and falsely certified such standards had
been met. Armenta claims that these municipalities were damaged by
their purchase of these products, and seeks treble damages, legal
costs, attorneys' fees and civil penalties under the False Claims
Act.
The DWP's intervention filed on December 9, 1998 adopted the
First Amended Complaint and added claims for breach of contract,
fraud and deceit, negligent misrepresentation, and unjust
enrichment. The DWP seeks past and future reimbursement costs,
punitive damages, contract difference in value damages, treble
damages, civil penalties under the False Claims Act and costs of
the suit.
One of the lawsuit's allegations is the suggestion that
because some of the purchased James Jones products are out of
specification and contain more lead than the 85 bronze specified, a
risk to public health might exist. This contention is predicated
on the average difference of about 2% lead content in '81 bronze
(6% to 8% lead) and '85 bronze (4% to 6% lead) alloys and the
assumption that this would mean increased consumable lead in public
drinking water. The evidence and discovery available to date
indicate that this is not the case.
In addition, bronze that does not contain more than 8% lead,
like 81 bronze, is approved for home plumbing fixtures by the City
of Los Angeles, and the Federal Environmental Protection Agency
defines metal for pipe fittings with no more than 8% lead as "lead
free" under Section 1417 of the Federal Safe Drinking Water Act.
The Company intends to contest this matter vigorously, and
discovery is currently under way. Presently, the Company cannot
determine whether any loss will result from this litigation. See
Note 7 of the Notes to the Consolidated Financial Statements.
Product Liability
Leslie Controls, Inc. and Spence Engineering Company, both
former subsidiaries of the Company, are involved as third-party
defendants in various civil product liability actions pending in
the U.S. District Court, Northern District of Ohio. The underlying
claims have been filed by present or former employees of various
shipping companies for personal injuries allegedly received as a
result of exposure to asbestos. The shipping companies contend
that they installed in their vessels certain valves manufactured by
Leslie Controls and/or Spence Engineering which contained asbestos.
Leslie Controls is also a defendant in one similar matter pending
in Superior Court of California, San Francisco County. Leslie
Controls and Spence Engineering are subsidiaries of CIRCOR
International, Inc., which was spun-off from the Company on October
18, 1999 (the "Distribution"). The liability associated with these
claims remains with Leslie Controls and Spence Engineering, and the
Company has resort to indemnification from CIRCOR for these
asbestos claims.
Environmental
Certain of the Company's operations generate solid and
hazardous wastes, which are disposed of elsewhere by arrangement
with the owners or operators of disposal sites or with transporters
of such waste. The Company's foundry and other operations are
subject to various federal, state and local laws and regulations
relating to environmental quality. Compliance with these laws and
regulations requires the Company to incur expenses and monitor its
operations on an ongoing basis. The Company cannot predict the
effect of future requirements on its capital expenditures, earnings
or competitive position due to any changes in federal, state or
local environmental laws, regulations or ordinances.
The Company is currently a party to or otherwise involved with
various administrative or legal proceedings under federal, state or
local environmental laws or regulations involving a number of
sites, in some cases as a participant in a group of potentially
responsible parties ("PRPs"). One of these sites, the San Gabriel
Valley/El Monte, California water basin site, is listed on the
National Priorities List. No allocation of remediation costs has
been made with respect to the San Gabriel Valley site. The EPA has
formally notified several entities that they have been identified
as being potentially responsible parties with respect to the San
Gabriel Valley site. As the Company was not included in this
group, its potential involvement in this matter is uncertain at
this point given that either the PRPs named to date or the EPA
could seek to expand the list of potentially responsible parties.
With respect to the Sharkey Landfill, the Company was
allocated .8144% of the remediation costs, an amount which was not
material to the Company. No allocations were made to the date of
the Distribution with respect to the Combe Landfill. 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, there is
resort to indemnification from third parties, and, based on
information available to the Company prior to the Distribution, the
Company believed it would be entitled to participate in a de
minimis capacity.
With respect to the Combe Landfill, the Company paid
approximately $414,000 as its share of a $6.3 million settlement in
a CERCLA cost recovery action filed by the U.S. Environmental
Protection Agency. The New Jersey Department of Environmental
Protection has filed a related claim with respect to the same site
for approximately $5.5 million in the New Jersey Superior Court for
Morris County. The state action has more defendants than the
settled federal action, and part of the state claim is for future
costs which may be subject to negotiation. Any liabilities with
respect to the Sharkey Landfill, the Combe Landfill, the Solvent
Recovery Service of New England site and the Old Southington
Landfill site, remain with certain subsidiaries of CIRCOR, and the
Company has resort to indemnification from CIRCOR for any liability
associated with these sites.
During the quarter ending March 31, 1998, the Company received
an administrative order from the New Hampshire Department of
Environmental Services (the "NH DES") with respect to certain
regulatory issues concerning its Franklin, New Hampshire operation.
The Company has entered into an amended administrative order with
the NH DES and has withdrawn its appeal of this matter. The state
agency has recently proposed monetary sanctions which are subject
to negotiation and to which the Company intends to respond.
Based on facts presently known to it, the Company does not
believe that the outcome of environmental proceedings will have a
material adverse effect on its financial condition or results of
operations. Given the nature and scope of the Company's
manufacturing operations, there can be no assurance that the
Company will not become subject to other environmental proceedings
and liabilities in the future which may be material to the Company.
See Note 7 of the Notes to the Consolidated Financial Statements.
Other Litigation
Other lawsuits and proceedings or claims, arising from the
ordinary course of operations, are also pending or threatened
against the Company and its subsidiaries. Based on the facts
currently known to it, the Company does not believe that the
ultimate outcome of these other litigation matters will have a
material adverse effect on its financial condition or results of
operation. See Note 7 of the Notes to the Consolidated Financial
Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits are furnished elsewhere in this report.
(b) There were no reports filed on Form 8-K during the quarter
ended September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WATTS INDUSTRIES, INC.
Date: November 10, 1999 By:/s/ Timothy P. Horne
Timothy P. Horne
Chairman and Chief
Executive Officer
Date: November 10, 1999 By: /s/ Kenneth J. McAvoy
Kenneth J. McAvoy
Chief Financial Officer
and Treasurer
EXHIBIT INDEX
Listed and indexed below are all Exhibits filed as part of this report.
Exhibit No. Description
2.1 Distribution Agreement between Watts Industries, In. and CIRCOR
International, Inc. (7)
3.1 Restated Certificate of Incorporation, as amended. (1)
3.2 Amended and Restated By-Laws, as amended May 11, 1999 (2).
10.1 Letter of Credit, Reimbursement and Guaranty Agreement dated
September 1, 1994 by and among the Registrant, Watts Regulator
Company and First Union National Bank (1), Amend- ment No. 1
(3), Amendment No. 2 (4), and Amendment No. 3 dated October 18, 1999.*
10.2 Amended and Restated Revolving Credit Agreement dated March 27,
1998 between and among Watts Investment Company, certain
financial institutions, BankBoston N.A., as
Administrative Agent, and the Registrant, as Guarantor (5), and
First Amendment to Amended and Restated Revolving Credit
Agreement dated October 18, 1999.*
11 Computation of Earnings per Share (6)
27 Financial Data Schedule - September 30, 1999*
27.1 Restated Financial Data Schedule - September 30, 1998*
(1) Incorporated by reference to the relevant exhibit to the
Registrant's Form 10-K for the year ended June 30, 1995.
(2) Incorporated by reference to the relevant exhibit to the
Registrant's Form 10-Q for the quarter ended March 31, 1999.
(3) Incorporated by reference to the relevant exhibit to the
Registrant's form 10-K for the year ended June 30, 1996.
(4) Incorporated by reference to the relevant exhibit to the
Registrant's Form 10-K for the year ended June 30, 1997.
(5) Incorporated by reference to the relevant exhibit to the
Registrant's Form 10-Q for the quarter ended March 31,
1998.
(6) Incorporated by reference to the Notes to Consolidated
Financial Statements, Note 3, of this Report.
(7) Exhibit 2.1 to CIRCOR International, Inc. Amendment No. 2 to
its registration statement on Form 10 filed on October 6, 1999.
(File No. 000-26961)
*Filed herewith.
22
AMENDMENT NO. 3 TO THE LETTER OF CREDIT,
REIMBURSEMENT AND GUARANTY AGREEMENT
THIS AMENDMENT NO. 3 TO THE LETTER OF CREDIT, REIMBURSEMENT
AND GUARANTY AGREEMENT, dated as of October 18, 1999, by and
among WATTS REGULATOR CO., a Massachusetts corporation (the
"Borrower"), WATTS INDUSTRIES, INC., a Delaware corporation (the
"Guarantor") and FIRST UNION NATIONAL BANK (successor by merger
to 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 September 1, 1994, as amended by
Amendment No. 1 to the Letter of Credit, Reimbursement and
Guaranty Agreement, dated as of August 1, 1996 and Amendment No.
2 to the Letter of Credit, Reimbursement and Guaranty Agreement,
dated as of October 1, 1996 (collectively, the "Agreement"),
pursuant to which the Bank has issued its irrevocable letter of
credit, dated September 29, 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 as follows:
(a) The definitions of Consolidated Total Liabilities,
Consolidated Tangible Net Worth, Consolidated Net Worth,
Consolidated Net Income, GAAP, Net Worth, Current Assets,
Current Liabilities, Capital Assets, Consolidated Worth,
Indebtedness, and Restructuring Charges are hereby deleted,
and the remaining definitions are hereby renumbered in order
from 1.1 to 1.50.
(b) The following definitions are hereby inserted at the
end of Article I.
1.51 "Balance Sheet Date" means June 30, 1997.
1.52 "Consolidated Net Worth" means Consolidated Total
Assets minus Consolidated Total Liabilities, minus any
adjustments to shareholder equity arising solely as a result
of currency translation adjustments and minus, to the extent
otherwise includable in the computation of Consolidated Net
Worth, any subscriptions receivable for the purchase of
capital stock.
1.53 "Consolidated Total Assets" means all assets of
the Guarantor, the Borrower and their Subsidiaries
determined on a consolidated basis in accordance with
generally accepted accounting principles.
1.54 "Consolidated Total Liabilities" means all
liabilities of the Guarantor, the Borrower and their
subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles.
1.55 "generally accepted accounting principles" means
(i) when used is 7.5 and 7.6, whether directly or
indirectly through reference to a capitalized term used
therein, means (A) principles that are consistent with the
principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, in effect
for the fiscal year ended on the Balance Sheet Date, and (B)
to the extent consistent with such principles, the
accounting practice of the Guarantor reflected in its
financial statements for the year ended on the Balance Sheet
Date, and (ii) when used in general, other than as provided
above, means principles that are (A) consistent with the
principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in
effect from time to time and (B) consistently applied with
past financial statements of the Parent adopting the same
principles, provided that in each case referred to in this
definition of "generally accepted accounting principles" a
certified public accountant would, insofar as the use of
such accounting principles is pertinent, be in a position to
deliver an unqualified opinion (other than a qualification
regarding changes in generally accepted accounting
principles) as to financial statements in which such
principles have been properly applied.
1.56 "Indebtedness" means with respect to the Borrower,
the Guarantor or any of their Subsidiaries and whether
recourse is secured by or is otherwise available against all
or only a portion of the assets of the Borrower, the
Guarantor or any of their Subsidiaries and whether or not
contingent, but without duplication:
(i) every obligation of the Borrower, the
Guarantor or any of their Subsidiaries for money
borrowed,
(ii) every obligation of the Borrower, the
Guarantor or any of their Subsidiaries evidenced by
bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the
acquisition of property, assets or businesses,
(iii) every reimbursement obligation of the
Borrower, the Guarantor or any of their Subsidiaries
with respect to letters of credit, bankers' acceptances
or similar facilities issued for the account of the
Borrower, the Parent or any of their Subsidiaries,
(iv) every obligation of the Borrower, the
Guarantor or any of their Subsidiaries issued or
assumed as the deferred purchase price of property or
services (including securities repurchase agreements
but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business
which are not overdue or which are being contested in
good faith),
(v) every obligation of the Borrower, the
Guarantor or any of their Subsidiaries under any
Capitalized Lease,
(vi) every obligation of the Borrower, the
Guarantor or any of their Subsidiaries under any
Synthetic Lease,
(vii) all sales by the Borrower, the Guarantor or
any of their Subsidiaries of (A) accounts or general
intangibles for money due or to become due, (B) chattel
paper, instruments or documents creating or evidencing
a right to payment of money or (C) other receivables
(collectively "receivables"), whether pursuant to a
purchase facility or otherwise, other than in
connection with the disposition of the business
operations of the Borrower, the Guarantor or any of
their Subsidiaries relating thereto or a disposition of
defaulted receivables for collection and not as a
financing arrangement, and together with any obligation
of the Borrower, the Guarantor or any of their
Subsidiaries to pay any discount, interest, fees,
indemnities, penalties, recourse, expenses or other
amounts in connection therewith,
(viii) every obligation of the Borrower, the
Guarantor or any of their Subsidiaries (an "equity
related purchase obligation") to purchase, redeem,
retire or otherwise acquire for value any shares of
capital stock of any class issued by the Borrower, the
Guarantor or any of their Subsidiaries, any warrants,
options or other rights to acquire any such shares, or
any rights measured by the value of such shares,
warrants, options or other rights,
(ix) every obligation of the Borrower, the
Guarantor or any of their Subsidiaries under any
forward contract, futures contract, swap, option or
other financing agreement or arrangement (including,
without limitation, caps, floors, collars and similar
agreements), the value of which is dependent upon
interest rates, currency exchange rates, commodities or
other indices,
(x) every obligation in respect of Indebtedness
of any other entity (including any partnership in which
the Borrower, the Guarantor or any of their
Subsidiaries is a general partner) to the extent that
the Borrower, the Guarantor or any of their
Subsidiaries is liable therefor as a result of the
ownership interest of Borrower, the Guarantor or any of
their Subsidiaries in or other relationship with such
entity, except to the extent that the terms of such
Indebtedness provide that the Borrower, the Guarantor
or any of their Subsidiaries is not liable therefor and
such terms are enforceable under applicable law,
(xi) every obligation, contingent or otherwise, of
the Borrower, the Guarantor or any of their
Subsidiaries guaranteeing, or having the economic
effect of guarantying or otherwise acting as surety
for, any obligation of a type described in any of
clauses (i) through (x) (the "primary obligation") of
the Borrower, the Guarantor or any of their
Subsidiaries (the "primary obligor"), in any manner,
whether directly or indirectly, and including, without
limitation, any obligation of the Borrower, the
Guarantor or any of their Subsidiaries (A) to purchase
or pay (or advance or supply funds for the purchase of)
any security for the payment of such primary
obligation, (B) to purchase property, securities or
services for the purpose of assuring the payment of
such primary obligation, or (C) to maintain working
capital, equity capital or other financial statement
condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such primary
obligation.
The "amount" or "principal amount" of any Indebtedness at
any time of determination represented by (a) any
Indebtedness, issued at a price that is less than the
principal amount at maturity thereof, shall be the amount of
the liability in respect thereof determined in accordance
with generally accepted accounting principles, (b) any
Capitalized Lease shall be the principal component of the
aggregate of the rentals obligation under such Capitalized
Lease payable over the term thereof that is not subject to
termination by the lessee, (c) any sale of receivables shall
be the amount of unrecovered capital or principal investment
of the purchaser (other than the Borrower or any of its
wholly-owned Subsidiaries) thereof, excluding amounts
representative of yield or interest earned on such
investment, (d) any Synthetic Lease shall be the stipulated
loss value, termination value or other equivalent amount and
(e) any equity related purchase obligation shall be the
maximum fixed redemption or purchase price thereof inclusive
of any accrued and unpaid dividends to be comprised in such
redemption or purchase price.
1.57 "Synthetic Lease" means any lease treated as an
operating lease under generally accepted accounting
principles and as a loan or financing for U.S. income tax
purposes.
Section 2.. Article VII of the Agreement Amended.
Article VII of the Agreement is hereby amended by deleting
Sections 7.5 through 7.8 in their entirety and inserting in lieu
thereof, the following:
7.5. Fixed Charge Coverage Ratio. Neither the Guarantor nor
the Borrower 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,
until four (4) full fiscal quarters of the Guarantor and the
Borrower have elapsed after September 30, 1999, the
applicable calculations for determination of the Fixed
Charge Coverage Ratio for the shorter periods of one, two
and three full fiscal quarters following September 30, 1999,
shall be annualized by multiplying the relevant amounts by:
(i) for the period of one full fiscal quarter following
September 30, 1999, the number 4, (ii) for the period of tow
full fiscal quarters following September 30, 1999, the
number 2, and (iii) for the period of three full fiscal
quarters following September 30, 1999, the number 1.33.
7.6. Leverage Ratio. Neither the Guarantor nor the Borrower
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 - June 30, 1998
0.42:1.00
July 1, 1998 - September 30, 1999
0.40:1.00
October 1, 1999 - March 30, 2001
0.46:1.00
March 31, 2001 - June 29, 2001
0.45:1.00
June 30, 2001 - September 29, 2001
0.44:1.00
September 30, 2001 and thereafter
0.43:1.00
Section 3. Article IX of the Agreement Amended.
Article IX of the Agreement is hereby amended by
deleting Subsection 9.1(b) and substituting the following in
lieu thereof:
(b) The occurrence of an "Event of Default" under any
of the Security Instruments or any of the Bond
Documents or the Amended and Restated Revolving Credit
Agreement dated as of March 27, 1998, among Watts
Investment Company, the Guarantor and the Financial
Institutions named therein as amended by the First
Amendment to Amended and Restated Revolving Credit
Agreement dated as of October 18, 1999.
Section 4. 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. 3, 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) except as set forth in Schedule 1 attached
hereto.
(b) Authority. The execution and delivery by each Borrower
and the Guarantor of this Amendment No. 3 and the
performance by each of the Borrower and the Guarantor of all
of its respective agreements and obligations under this
Amendment No. 3 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 of 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. 3 and (B) filings with the Securities and Exchange
Commission to be made on or prior to September 30, 1999.
(c) Enforceability of Obligations. This Amendment No. 3
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 5. Counterparts. This Amendment No. 3 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.
[The remainder of this page was intentionally left blank]
IN WITNESS WHEREOF, the Borrower, the Guarantor and the Bank
have caused this Amendment No. 3 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:
WATTS REGULATOR CO.
By:_____________________________________
_______
Title:
THE GUARANTOR:
WATTS INDUSTRIES, INC.
By:_____________________________________
_______
Title:
THE BANK:
FIRST UNION NATIONAL BANK
ATTEST:
By:____________________________________________
Title:
__________________________
Title:
(Corporate Seal)
8
CLTLIB01 553691.2
EXECUTION
CLTLIB01 553691.2
FIRST AMENDMENT TO
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
(this "Amendment"), dated as of October 18, 1999, is among WATTS INVESTMENT
COMPANY (the "Borrower"), WATTS INDUSTRIES, INC. (the "Parent"), BANKBOSTON,
N.A., as the administrative agent (the "Administrative Agent") and competitive
bid agent (and together with the Administrative Agent, the "Agents") for the
lending institutions listed on Schedule 1 to the Credit Agreement (the
"Banks"), and the Banks.
WHEREAS, the Borrower, the Parent, the Agents and the Banks are parties
to that certain Amended and Restated Revolving Credit Agreement, dated as of
March 27, 1998 (the "Credit Agreement"), pursuant to which the Banks, upon
certain terms and conditions, have made loans to the Borrower; and
WHEREAS, the Borrower has requested that the Banks agree, and the Banks
have agreed, on the terms and subject to the conditions set forth herein, to
make certain changes to, and to waive certain provisions of, the Credit
Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms which are used herein without
definition and which are defined in the Credit Agreement shall have the same
meanings herein as in the Credit Agreement.
2. Amendment of Credit Agreement. The Credit Agreement is hereby
amended as follows:
(a) The first paragraph of the preamble to the Credit Agreement is
amended by deleting clause (b) of such paragraph in its entirety and restating
it as follows:
(b) WATTS INDUSTRIES, INC. (the "Parent"), a Delaware
corporation having its principal place of business at 815 Chestnut
Street, North Andover, Massachusetts 01845 and WATTS REGULATOR
COMPANY ("WRC"), a Massachusetts corporation having its principal
place of business at 815 Chestnut Street, North Andover,
Massachusetts 01845, as guarantors hereunder (each a "Guarantor"
and together the "Guarantors"),
(b) Section 1.1 of the Credit Agreement is amended as follows:
(i) the definition of Applicable Margin contained in such
1.1 is amended by deleting the table set forth in such
definition and replacing it in its entirety with the
following table:
Rating
S&P/Moody's
Applicable
Margin
A-/A-1 - A-3 or Higher
0.40%
BBB+/Baa1
0.55%
BBB/Baa2
0.65%
BBB-/Baa3
0.75%
BB+/Ba1
1.00%
Less than BB+/Ba1
1.25%
(ii) the definition of Consolidated Net Worth contained in
such 1.1 is amended by inserting immediately after the
words "Consolidated Total Liabilities" the words ", minus
any adjustments to shareholder equity arising solely as a
result of currency translation adjustments,".
(iii) the definition of Facility Fee Rate contained in such
1.1 is amended by deleting the table set forth in such
definition and replacing it in its entirety with the
following table:
Rating
S&P/Moody's
Facility Fee
Rate
A-/A-1 - A-3 or
Higher
.100%
BBB+/Baa1
.150%
BBB/Baa2
.175%
BBB-/Baa3
.200%
BB+/Ba1
.225%
Less than BB+/Ba1
.275%
(iv) the definition of Loan Documents contained in such 1.1
is amended by inserting immediately after the words
"Credit Agreement" the words ",the Joinder Agreements,
the Assumption Agreement,".
(c) Section 1.1 of the Credit Agreement is further amended by adding
the following new definitions to such 1.1 in the appropriate alphabetical
order:
Assumption Agreement. The Assumption Agreement, dated as of
October 18, 1999, among the Borrower, the Parent, WRC, Webster
Valve, Inc. and CIRCOR International, Inc.
Guarantor(s). As defined in the preamble hereto.
IDB Obligations. The obligations of (i) WRC under the
Irrevocable Letter of Credit No. SO45494, dated September 29,
1994 and expiring no later than September 1, 2002, in the
initial stated amount of $5,250,000 issued by First Union
National Bank to State Street Bank and Trust Company, successor
in interest to BankBoston, N.A. (f/k/a The First National Bank
of Boston) as Trustee and (ii) WRC and the Parent under the
Letter of Credit, Reimbursement and Guaranty Agreement (as
amended and in effect), dated as of September 1, 1994, among
WRC, the Parent and First Union National Bank (formerly known
as First Union National Bank of North Carolina).
Joinder Agreements. The Joinder Agreement, dated as of October
18, 1999, executed by WRC and agreed to by the Administrative
Agent and such other joinder agreements entered into from time
to time by Subsidiaries or Affiliates of the Borrower or the
Parent and in form and substance satisfactory to the
Administrative Agent.
WRC. As defined in the preamble hereto.
(d) Section 2.2 of the Credit Agreement is amended by (i) deleting the
heading "Facility Fee" and substituting "Facility Fee; Utilization Fee"
therefor, (ii) inserting a new subsection heading "2.2.1. Facility Fee"
immediately before the first sentence of 2.2 and (iii) adding the following
new subsection immediately after subsection 2.2.1:
2.2.2 Utilization Fee. The Borrower agrees to pay to the
Administrative Agent for the accounts of the Banks in
accordance with their respective Commitment Percentages a
utilization fee equal to 0.10% per annum of the sum of the
outstanding Revolving Credit Loans plus the outstanding
Competitive Bid Loans for each day during each calendar quarter
that the aggregate outstanding amount of the Loans exceeds
fifty percent (50%) of the Total Commitment. The utilization
fee shall be payable quarterly in arrears on the first day of
each calendar quarter for the immediately preceding calendar
quarter. The first payment of the utilization fee, if any,
shall be due and payable on January 1, 2000 and shall apply to
the period commencing on the effective date of this Amendment
and ending on December 31, 1999, and the final payment of the
utilization fee, if any, shall be due and payable on the
Maturity Date or any earlier date on which the Commitments
shall terminate and shall apply to the calendar quarter or, as
the case may be, portion thereof immediately preceding such
date.
(e) Section 5 of the Credit Agreement is amended as follows:
(i) the first sentence of 5.1 is amended by deleting the text
"the Parent hereby unconditionally and irrevocably
guarantees" and substituting the following therefor:
each of the Guarantors hereby jointly and severally, and
unconditionally and irrevocably guarantees
(ii) Section 5.2 of the Credit Agreement is amended by deleting
such 5.2 in its entirety and restating it as follows:
5.2. Guaranty Absolute. Each of the Guarantors
guarantees that the Guaranteed Obligations will be paid
strictly in accordance with the terms hereof and of the
Notes, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of
such terms or the rights of the Banks with respect
thereto. The liability of each of the Guarantors under
this 5 with regard to the Guaranteed Obligations shall
be joint and several, and absolute and unconditional
irrespective of:
(i) any lack of validity or enforceability of this
Credit Agreement with respect to the Borrower
(with regard to such Guaranteed Obligations), the
Notes of the Borrower, the Loan Documents, or any
other agreement or instrument relating thereto;
(ii) any change in the time of, manner or place of
payment of, or in any other term of, all or any of
the Guaranteed Obligations or any other amendment
or waiver of or any consent to departure from this
Credit Agreement (with regard to such Guaranteed
Obligations) or the Notes of the Borrower;
(iii) any exchange, release or nonperfection of any
collateral, or any release or amendment or waiver
of or consent to departure from any other guaranty,
for all or any of the Guaranteed Obligations;
(iv) any change in ownership of the Borrower or any
Guarantor;
(v) any acceptance of any partial
payment(s) from the Borrower or any Guarantor;
(vi) any modification, release,
limitation on collection or conversion to equity of
the Borrower's obligation to pay as a result of the
bankruptcy or insolvency of the Borrower; or
(vii) any other circumstance which might otherwise
constitute a defense available to, or a discharge
of, the Borrower in respect of its Guaranteed
Obligations.
The obligations of each of the Guarantors contained in
this 5 shall continue to be effective or be reinstated,
as the case may be, if at any time any payment of any of
the Guaranteed Obligations is rescinded or must otherwise
be returned by the Banks or which is repaid by the Banks
in good faith settlement of a pending or a threatened
avoidance claim upon the insolvency, bankruptcy or
reorganization of the Borrower, any Guarantor or
otherwise, all as though such payment had not been made.
(iii) Section 5.3 is amended by deleting each reference to "of
the Parent" contained in such 5.3 and substituting the
following therefor: "each of the Guarantors".
(iv) Sections 5.4 and 5.5 are amended by deleting each
reference to "the Parent" or "The Parent" contained in
such 5.4 and 5.5 and substituting the following
therefor: "each of the Guarantors" or, as the case may
be, "Each of the Guarantors".
(f) Section 6.4.1 of the Credit Agreement is amended by deleting (i)
the words "The Borrower and each of its Subsidiaries" and substituting "The
Parent, the Borrower and each of their Subsidiaries" therefor and (ii) the
date "June 30" and substituting "December 31" therefor.
(g) Section 8 of the Credit Agreement is amended by adding the
following new 8.10 at the end of such 8:
8.10. Pro Rata Sharing of Collateral. Neither the Borrower
nor the Parent will, nor will they permit any of their
subsidiaries to, grant a security interest in, or pledge any
of, their property or assets to the Administrative Agent on
behalf of the Banks and the Agents to secure the Obligations
unless appropriate arrangements are made to secure the
Obligations and the IDB Obligations on a pro rata basis.
(h) Section 9.1 of the Credit Agreement is amended by adding the
following text immediately after the ratio "3.00:1.00":
;provided, however, until four (4) full fiscal quarters of the
Parent and the Borrower have elapsed after September 30, 1999,
the applicable calculations for determination of the Fixed
Charge Ratio for the shorter periods of one, two and three full
fiscal quarters following September 30, 1999 shall be
annualized by multiplying the relevant amounts by: (i) for the
period of one full fiscal quarter following September 30, 1999,
the number 4, (ii) for the period of two full fiscal quarters
following September 30, 1999, the number 2, and (iii) for the
period of three full fiscal quarters following September 30,
1999, the number 1.33.
(i) Section 9.2 of the Credit Agreement is amended by deleting the
table set forth in such 9.2 and restating it in its entirety as follows :
Period
Ratio
Closing Date- June 30, 1998
0.42:1.00
July 1, 1998-September 30, 1999
0.40:1.00
October 1, 1999-March 30, 2001
0.46:1.00
March 31, 2001-June 29, 2001
0.45:1.00
June 30, 2001- September 29, 2001
0.44:1.00
September 30, 2001 and thereafter
0.43:1.00
(j) Sections 6, 6.1-6.3, 6.6-6.14, 6.16, 6.18-6.21, 7, 7.1-7.3, 7.5-
7.13, 8, 8.1-8.3, 8.5-8.7, 8.9, 11.1, 12.1(c)-(j) and (l), 12.2, 13-19, 21, 25
and 26 of the Credit Agreement are amended as follows:
(i) each reference to "the Borrower and the Parent" contained in
such Sections shall be deleted and "the Borrower, WRC and the Parent"
substituted therefor;
(ii) each reference to "the Borrower or the Parent" contained in
such Sections shall be deleted and "the Borrower, WRC or the Parent"
substituted therefor;
(iii) each reference to "the Borrower, the Parent" contained in
such Sections shall be deleted and "the Borrower, WRC, the Parent"
substituted therefor;
(iv) each reference to "neither the Borrower or the Parent"
contained in such Sections shall be deleted and "none of the Borrower,
WRC or the Parent" substituted therefor;
(v) each reference to "the Borrower's, the Parent's" contained
in such Sections shall be deleted and "the Borrower's, WRC's, the
Parent's" substituted therefor; and
(vi) each reference to "the Borrower's and the Parent's"
contained in such Sections shall be deleted and "the Borrower's, WRC's
and the Parent's" substituted therefor.
(k) Section 12.1(m) of the Credit Agreement is amended by adding at
the beginning of such 12.1(m) the text "the Borrower shall cease to own,
directly or indirectly 100% of the capital stock of WRC;";
(l) Section 20(b) of the Credit Agreement is amended by adding after
each reference to "the Parent" contained in such 20(b) the words "or WRC";
and
(m) Schedules 1, 6.3, 6.18, 6.19, 8.1, 8.2, and 8.3 to the Credit
Agreement are amended by deleting such Schedules and substituting the attached
Schedule 1, 6.3, 6.19, 8.1, 8.2, and 8.3 therefor.
3. Limited Waivers.
(a) The Parent and Borrower have informed the Agents and the Banks
that (i) the Parent and its Subsidiaries intend to transfer all of the assets
and liabilities associated with the Parent's Instrumentation and Fluid
Regulation Products Group (including, but not limited to, Aerodyne Controls,
Atkomatic Valve, Circle Seal Controls, Inc., Go Regulator, Inc., Hoke, Inc.,
Leslie Controls, Inc., Nicholson Steam Trap and Spence Engineering Company,
Inc.,) and Petrochemical Products Group (including, but not limited to,
Contromatics Industrial Products, Eagle Check Valve, KF Industries, Inc.,
Pibiviesse SpA, Suzhou Watts Valve Co., Ltd., SSI Equipment Inc. and Telford
Valve and Specialties, Inc.) to CIRCOR International, Inc., a newly formed
affiliate of the Parent ("CIRCOR") and its Subsidiaries which transfer shall
in no event include the direct and indirect Subsidiaries of the Parent set
forth on Schedule 6.19 attached hereto, (ii) the Parent and the Borrower and
their respective Subsidiaries intend to effect a settlement of intercompany
accounts, indemnification obligations and certain other arrangements among the
Parent, CIRCOR and their respective Subsidiaries, including without
limitation, certain supply arrangements, certain licensing arrangements, and
the assumption and transfer of all of the outstanding Indebtedness of the
Borrower under the Credit Agreement as of the effective date of this Amendment
to certain Subsidiaries of the Parent and CIRCOR pursuant to an Assumption
Agreement, dated as of October18, 1999, among the Borrower, WRC, Webster
Valve, Inc., CIRCOR (WRC, Webster Valve, Inc. and CIRCOR referred to herein
collectively as the "Assuming Parties") and the Administrative Agent (the
"Assumption Agreement") which, upon giving effect thereto, would, inter alia,
result in each Assuming Party becoming a "Borrower" under the Credit Agreement
with respect to the assumed Indebtedness described therein, (iii) the Borrower
intends to transfer all of its assets other than the stock of WRC to WRC and
(iv) the Parent and its Subsidiaries intend to effect a series of internal
contributions and spin-offs ultimately resulting in the spin-off of CIRCOR to
the stockholders of the Parent pursuant to a stock dividend, in the case of
each of clauses (i) - (iv) as more fully described in the Distribution
Agreement (the "Distribution Agreement"), dated as of October 1, 1999, between
the Parent and CIRCOR, the Form 10 Information Statement of CIRCOR dated
October 6, 1999, the Reorganization Agreement (the "Reorganization
Agreement"), dated as of October 4, 1999, among the Parent, the Borrower,
Webster valve, Inc., CIRCOR, Circle Seal Controls, Inc., WRC, Webster
Investment Company and CIRCOR IP Holding Co., and the private letter ruling
issued by the Internal Revenue Service on September 13, 1999 (the "PLR"),
copies of each of which are attached hereto (all of such transactions referred
to herein collectively as the "Spin-Off"). Pursuant to (i) 8.5.2 of the
Credit Agreement, none of the Parent or any of its Subsidiaries is permitted
to dispose of its assets (including capital stock) other than the sale of
inventory and obsolete equipment in the ordinary course of business or by the
sale in one or more arms-length transactions having a cumulative aggregate
sales price not in excess of $100,000,000 in any fiscal year or $150,000,000
during the term of the Credit Agreement and (ii) 19.9 of the Credit
Agreement, the Borrower is not permitted to assign or transfer any of its
rights or obligations under any of the Loan Documents without the prior
written consent of each of the Banks. Accordingly, the Spin-Off would result
in the breach of certain representations, warranties and covenants set forth
in the Credit Agreement, including without limitations, 8.5.2 and 19.9.
(b) The Parent and the Borrower have also informed the Agents and the
Banks that the Parent, the Borrower and their Subsidiaries have changed the
date of their respective fiscal year ends from June 30 to December 31.
Pursuant to 7.5.4 of the Credit Agreement such change may not be made unless
the Parent, the Borrower and their Subsidiaries have given the Administrative
Agent not less than sixty (60) days prior written notice of such proposed
change.
(c) The Parent and the Borrower have requested that the Banks (i)
waive all terms and conditions of the Credit Agreement required solely to
effect the Spin-Off and consent to the assumption of Indebtedness arrangements
contemplated by the Assumption Agreement and (ii) waive the sixty (60) day
notice period required pursuant to 7.5.4 of the Credit Agreement prior to the
Parent, the Borrower and their Subsidiaries changing the date of their
respective fiscal year ends from June 30 to December 31. Upon the
effectiveness of this Amendment, the Banks hereby waive all terms and
conditions of the Credit Agreement required solely to effect the Spin-Off and
consent to the assumption and transfer of Indebtedness arrangements
contemplated by the Assumption Agreement, and waive such sixty (60) day notice
period; provided, however, the transfer of Indebtedness contemplated by the
Assumption Agreement shall not release, diminish or modify in any respect the
repayment obligations of the Borrower or the guaranty obligations of the
Guarantors set forth in the Credit Agreement with respect to such
Indebtedness;
4. Affirmation and Acknowledgment of the Borrower and the Parent. Each of
the Borrower and the Parent hereby ratifies and confirms all of its
Obligations to the Banks and the Agents, including, without limitation, the
Loans, and the Borrower hereby affirms its absolute and unconditional promise
to pay to the Banks and the Agents the Loans and all other amounts due under
the Credit Agreement as amended hereby.
5. Representations and Warranties. Each of the Borrower and the Parent
hereby represents and warrants to the Agents and the Banks as follows:
(a) The execution and delivery by the Borrower and the Parent of this
Amendment, and the performance by the Borrower and the Parent of its
obligations and agreements under this Amendment and the Credit Agreement as
amended hereby, are within the corporate authority of the Borrower and the
Parent, have been authorized by all necessary corporate proceedings on behalf
of the Borrower and the Parent, and do not and will not contravene any
provision of law, statute, rule or regulation to which the Borrower, the
Parent or any of their Subsidiaries is subject or any of the Borrower's or the
Parent's charter, other incorporation papers, by-laws or any stock provision
or any amendment thereof or of any indenture, agreement, instrument or
undertaking binding upon the Borrower or the Parent.
(b) This Amendment and the Credit Agreement as amended hereby
constitute legal, valid and binding obligations of the Borrower and the
Parent, enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting generally the enforcement of creditors' rights.
(c) No approval or consent of, or filing with, any governmental agency
or authority is required to make valid and legally binding the execution,
delivery or performance by the Borrower or the Parent of this Amendment or the
Credit Agreement as amended hereby, or the consummation by the Borrower or the
Parent of the transactions among the parties contemplated hereby and thereby
or referred to herein.
(d) The representations and warranties contained in 6 of the Credit
Agreement were true and correct in all material respects at and as of the date
made or claimed to have been made. After giving effect to this Amendment and
except to the extent of changes resulting from transactions contemplated or
permitted by the Credit Agreement (including the Spin-Off) and changes
occurring in the ordinary course of business that singly or in the aggregate
are not materially adverse and to the extent such representations and
warranties relate expressly to an earlier date, such representations and
warranties also are true and correct in all material respects at and as of the
date hereof.
(e) Each of the Borrower and the Parent has performed and complied in
all material respects with all terms and conditions herein and in the Credit
Agreement required to be performed or complied with by it prior to or at the
time hereof, and as of the date hereof, after giving effect to the provisions
hereof, there exists no Default or Event of Default.
6. Amendment Fee. The Borrower shall pay to the Administrative Agent for
the account of the Banks in accordance with their respective Commitment
Percentages an amendment fee of $200,000 (the "Amendment Fee") on or prior to
the effective date of this Amendment.
7. Effectiveness. This Amendment shall be deemed to be effective as of
October 18, 1999 upon receipt by the Administrative Agent on or before October
18, 1999 of each of the following:
(a) facsimile copies of original counterparts (to be followed promptly
by original counterparts) or original counterparts of this Amendment, duly
authorized, executed and delivered by each of the Borrower, the Parent, the
Agents and the Banks;
(b) an original Joinder Agreement, duly authorized, executed and
delivered by WRC and the documents specified therein;
(c) an original Assumption Agreement, duly authorized, executed and
delivered by the Borrower, the Parent, WRC, Webster Valve, Inc., CIRCOR and
the Administrative Agent;
(d) a copy of the fully executed Distribution Agreement, the
Reorganization Agreement, each in form and substance satisfactory to the
Banks, the Form 10 Information Statement of CIRCOR dated October 6, 1999 and a
copy of the PLR;
(e) on the effective date of the Spin-Off, after giving effect
thereto, the aggregate outstanding amount of the Loans shall not exceed
$25,000,000;
(f) copies of the Parent's, the Borrower's, WRC's, Webster Valve,
Inc.'s, and CIRCOR's charter documents certified by the Secretary of State of
their respective State(s) of incorporation and their respective By-Laws, in
each case accompanied by a certificate of a duly authorized officer of each of
the Parent, the Borrower, WRC, Webster Valve, Inc. and CIRCOR, as the case may
be, certifying that their respective charter documents and By-Laws are in full
force and in effect as of the effective date of this Amendment and as to the
incumbency and genuineness of the signature of each officer thereof authorized
to sign this Amendment, the Assumption Agreement and/or the Joinder Agreement;
(g) a certificate of a duly authorized officer of each of the Parent,
the Borrower, WRC, Webster Valve, Inc. and CIRCOR certifying that the
resolutions attached thereto are the true, correct and complete set of
resolutions adopted by the Board of Directors of the Parent, the Borrower,
WRC, Webster Valve, Inc. and CIRCOR approving and authorizing, to the extent
applicable, the execution of this Amendment, the Spin-Off, the transfer of
assets from the Borrower to WRC, the assumption of Indebtedness contemplated
by the Assumption Agreement, the change in the date of the fiscal year end of
each of the Parent and the Borrower, and all the terms and conditions
contained herein;
(h) updated Schedules 6.3, 6.18, 6.19, 8.1, 8.2, and 8.3 to the Credit
Agreement; and
(i) the Amendment Fee.
8. No Other Amendment or Waiver. Nothing contained in the Amendment shall
be construed to imply a willingness on the part of the Banks to grant any
similar or future amendments or waivers to any of the terms and conditions of
(i) the Credit Agreement, (ii) the other Loan Documents and (iii) any other
document or agreement between any Bank and the Borrower, the Parent , or any
Subsidiary or affiliate thereof.
9. Miscellaneous Provisions.
(a) 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, and
that this Amendment and the Credit Agreement shall be read and construed as
one instrument.
(b) 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.
(c) 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.
(d) Pursuant to 15 of the Credit Agreement, the Borrower hereby
agrees to pay to the Administrative Agent, on demand by the Administrative
Agent, all reasonable out-of-pocket costs and expenses incurred or sustained
by the Administrative Agent in connection with the preparation of this
Amendment (including reasonable legal fees and disbursements).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
WATTS INVESTMENT COMPANY
By:_____________________________________
Name:
Title:
WATTS INDUSTRIES, INC.
By:_____________________________________
Name:
Title:
BANKBOSTON, N.A., individually and as
Administrative Agent and Competitive
Bid Agent
By:_____________________________________
Name:
Title:
FIRST UNION NATIONAL BANK
By:_____________________________________
Name:
Title:
MELLON BANK, N.A.
By:_____________________________________
Name:
Title:
BROWN BROTHERS HARRIMAN & CO.
By:_____________________________________
Name:
Title:
THE CHASE MANHATTAN BANK
By:_____________________________________
Name:
Title:
SCHEDULE 1
Banks, Commitments, Commitment Percentages,
Domestic Lending Offices, Eurodollar Lending Offices
Bank
Bank
Amount
Commitment
Percentage
Domestic Lending Office:
Eurodollar
Lending Office:
BankBoston, N.A.
Same
$28,000,000
28%
100 Federal Street, 01-09-04
Boston, MA 02110
Attn: Fred D Myers
The Chase Manhattan Bank
Same
$22,000,000
22%
999 Broad Street
Bridgeport, CT 06604
Attn: A. Neil Sweeny
Mellon Bank, N.A.
Same
$22,000,000
22%
One Boston Place
Boston, MA 02108
Attn: Jane Westrich
First Union National Bank
Same
$22,000,000
22%
One First Union Center
301 South College Street
Charlotte, NC 28288
Attn: Ted Noneman
Brown Brothers Harriman & Co.
Same
$6,000,000
6%
40 Water Street
Boston, MA 02109
Attn: John C. Walsh
TOTAL
$100,000,000
100.0%
- -13-
BUSDOCS:771311.13
BUSDOCS:771311.13
BUSDOCS 771311
BUSDOCS:771311.13
BUSDOCS 771311
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM SEPT 30, 1999 FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 03-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEPT-30-1999
<CASH> 3,840
<SECURITIES> 1,198
<RECEIVABLES> 102,646
<ALLOWANCES> 6,971
<INVENTORY> 113,450
<CURRENT-ASSETS> 379,541
<PP&E> 226,072
<DEPRECIATION> 94,333
<TOTAL-ASSETS> 652,358
<CURRENT-LIABILITIES> 106,412
<BONDS> 118,853<F1>
<COMMON> 2,646
0
0
<OTHER-SE> 393,775
<TOTAL-LIABILITY-AND-EQUITY> 652,358
<SALES> 130,330
<TOTAL-REVENUES> 130,330
<CGS> 83,436
<TOTAL-COSTS> 114,717<F2>
<OTHER-EXPENSES> 2,063<F3>
<LOSS-PROVISION> 278
<INTEREST-EXPENSE> 2,136
<INCOME-PRETAX> 13,550
<INCOME-TAX> 4,508
<INCOME-CONTINUING> 9,042
<DISCONTINUED> 745
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,297
<EPS-BASIC> $.31
<EPS-DILUTED> $.31
<FN>
<F1> INCLUDES LONG-TERM DEBT AND CURRENT PORTION
<F2> INCLUDES ONLY COST OF GOODS SOLD AND OPERATING EXPENSES.
<F3> INCLUDES INTEREST EXPENSE AND LOSS PROVISION SHOWN BELOW.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM SEPT 30, 1998 FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY SUCH FINANCIAL
STATEMENTS.
THIS SCHEDULE HAS BEEN RESTATED TO REFLECT THE
ACCOUNTING CHANGES RELATED TO DISCONTINUED OPERATIONS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 03-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEPT-30-1998
<CASH> 12,682
<SECURITIES> 611
<RECEIVABLES> 92,659
<ALLOWANCES> 6,949
<INVENTORY> 99,747
<CURRENT-ASSETS> 351,732
<PP&E> 200,373
<DEPRECIATION> 92,442
<TOTAL-ASSETS> 598,101
<CURRENT-LIABILITIES> 98,596
<BONDS> 88,805<F1>
<COMMON> 2,716
0
0
<OTHER-SE> 382,820
<TOTAL-LIABILITY-AND-EQUITY> 598,101
<SALES> 113,269
<TOTAL-REVENUES> 113,269
<CGS> 72,183
<TOTAL-COSTS> 99,946<F2>
<OTHER-EXPENSES> 1,603<F3>
<LOSS-PROVISION> 335
<INTEREST-EXPENSE> 1,558
<INCOME-PRETAX> 11,720
<INCOME-TAX> 3,827
<INCOME-CONTINUING> 7,893
<DISCONTINUED> 4,495
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,388
<EPS-BASIC> $.46
<EPS-DILUTED> $.46
<FN>
<F1> INCLUDES LONG-TERM DEBT AND CURRENT PORTION
<F2> INCLUDES ONLY COST OF GOODS SOLD AND OPERATING EXPENSES.
<F3> INCLUDES INTEREST EXPENSE AND LOSS PROVISION SHOWN BELOW.
</FN>
</TABLE>
