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, 2000
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
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)
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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 31, 2000
----- -------------------------------
Class A Common, $.10 par value 17,225,966
Class B Common, $.10 par value 9,236,324
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WATTS INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information Page #
------
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2000
and December 31, 1999 3
Consolidated Statements of Income for
The Three Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Income for
the Nine Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-18
Part II. Other Information
Item 1. Legal Proceedings 18-20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibit Index 22
Exhibit 10.1 - Amendment to Supplemental Compensation Agreement 23-28
Exhibit 27 - Financial Data Schedule 29
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WATTS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
(Unaudited)
September 30, Dec. 31,
2000 1999
-------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,121 $ 13,016
Trade accounts receivable, less allowance for doubtful accounts of
$6,444 at September 30, 2000 and $6,730 at December 31, 1999 97,576 94,305
Inventories, net:
Raw materials 35,038 36,429
Work in process 16,878 10,355
Finished goods 57,711 66,037
-------------- --------------
Total Inventories 109,627 112,821
Prepaid expenses and other assets 6,790 12,922
Deferred income taxes 18,930 19,774
-------------- --------------
Total Current Assets 244,044 252,838
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost 230,058 226,692
Accumulated depreciation (105,419) (96,461)
-------------- --------------
Property, plant and equipment, net 124,639 130,231
-------------- --------------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $13,989 at
September 30, 2000 and $11,997 at December 31, 1999 96,673 95,311
Other 8,397 8,698
-------------- --------------
TOTAL ASSETS $ 473,753 $ 487,078
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 33,316 $ 46,904
Accrued expenses and other liabilities 55,831 48,629
Accrued compensation and benefits 12,227 9,882
Current portion of long-term debt 4,655 5,683
-------------- --------------
Total Current Liabilities 106,029 111,098
-------------- --------------
LONG-TERM DEBT, NET OF CURRENT PORTION 109,832 123,991
DEFERRED INCOME TAXES 12,269 13,630
OTHER NONCURRENT LIABILITIES 9,381 11,150
MINORITY INTEREST 6,637 7,707
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: 17,191,928 shares
at September 30, 2000 and 16,888,807 shares at December 31, 1999 1,719 1,689
Class B Common Stock, $.10 par value; 25,000,000 shares authorized;
10 votes per share; issued and outstanding: shares 9,235,224
at September 30, 2000 and 9,485,247 shares at December 31, 1999 924 949
Additional paid-in capital 35,684 35,330
Retained earnings 214,853 196,733
Accumulated other comprehensive income (23,575) (15,199)
-------------- --------------
Total Stockholders' Equity 229,605 219,502
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 473,753 $ 487,078
============== ==============
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See accompanying notes to consolidated financial statements.
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands, except per share amounts)
(Unaudited)
Three Months Ended
---------------------------------
September 30, September 30,
2000 1999
-------------- --------------
Net sales $ 124,635 $ 130,330
Cost of goods sold 79,800 83,436
-------------- --------------
GROSS PROFIT 44,835 46,894
Selling, general & administrative expenses 29,738 31,281
-------------- --------------
OPERATING INCOME 15,097 15,613
-------------- --------------
Other (income) expense:
Interest income (164) (139)
Interest expense 2,474 2,136
Other, net 568 (88)
Minority interest 49 154
-------------- --------------
2,927 2,063
-------------- --------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 12,170 13,550
Provision for income taxes 4,500 4,508
-------------- --------------
INCOME FROM CONTINUING OPERATIONS 7,670 9,042
Loss from discontinued operations, net of taxes -- (745)
-------------- --------------
NET INCOME $ 7,670 $ 8,297
============== ==============
BASIC EARNINGS PER SHARE
Continuing Operations $ .29 $ .34
Discontinued Operations -- (.03)
-------------- --------------
NET INCOME $ .29 $ .31
============== ==============
Weighted average number of shares 26,404 26,448
============== ==============
DILUTED EARNINGS PER SHARE
Continuing Operations $ .29 $ .34
Discontinued Operations -- (.03)
-------------- --------------
NET INCOME $ .29 $ .31
============== ==============
Weighted average number of shares 26,513 26,635
============== ==============
Dividends per common share $ .0600 $ .0875
============== ==============
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See accompanying notes to consolidated financial statements.
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands, except per share information)
(Unaudited)
Nine Months Ended
--------------------------------
September 30, September 30,
2000 1999
-------------- --------------
Net sales $ 385,689 $ 377,209
Cost of goods sold 248,032 240,521
-------------- --------------
GROSS PROFIT 137,657 136,688
Selling, general & administrative expenses 91,715 94,358
-------------- --------------
OPERATING INCOME 45,942 42,330
-------------- --------------
Other (income) expense:
Interest income (557) (649)
Interest expense 7,581 5,613
Other, net 1,593 352
Minority interest (4) 968
-------------- --------------
8,613 6,284
-------------- --------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 37,329 36,046
Provision for income taxes 13,692 12,775
-------------- --------------
INCOME FROM CONTINUING OPERATIONS 23,637 23,271
Loss from discontinued operations, net of taxes -- (2,662)
-------------- --------------
NET INCOME $ 23,637 $ 20,609
============== ==============
BASIC EARNINGS PER SHARE
Continuing Operations $ .90 $ .88
Discontinued Operations -- (.10)
-------------- --------------
NET INCOME $ .90 $ .78
============== ==============
Weighted average number of shares (thousands) 26,395 26,511
============== ==============
DILUTED EARNINGS PER SHARE
Continuing Operations $ .89 $ .88
Discontinued Operations -- (.10)
-------------- --------------
NET INCOME $ .89 $ .78
============== ==============
Weighted average number of shares 26,585 26,582
============== ==============
Dividends per common share $ .2075 $ .2625
============== ==============
|
See accompanying notes to consolidated financial statements
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
Nine Months Ended
--------------------------------
September 30, September 30,
2000 1999
-------------- --------------
OPERATING ACTIVITIES
Income from continuing operations $ 23,637 $ 23,271
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operating activities:
Depreciation 12,769 11,866
Amortization 2,381 2,124
Deferred income taxes (160) (3,687)
Gain on disposal of assets (276) 3
Equity in undistributed earnings (loss) of affiliates (102) 764
Changes in operating assets and liabilities, net of effects
from acquisitions and dispositions:
Accounts receivable (7,460) (1,717)
Inventories 1,377 (12,797)
Prepaid expenses and other assets 5,945 (5,030)
Accounts payable, accrued expenses and other liabilities 558 8,210
Accrued restructuring charge (716) --
-------------- --------------
Net cash provided by continuing operations 37,953 23,007
Net cash provided by (used in) discontinued operations (2,237) 13,676
-------------- --------------
Net cash provided by operating activities 35,716 36,683
-------------- --------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (11,390) (19,583)
Proceeds from sale of property, plant and equipment 1,722 2,291
Business acquisitions, net of cash acquired (9,387) (27,935)
Increase in other assets (558) (258)
Discontinued operations:
Business acquisitions, net of cash acquired -- (10,256)
Additions to property, plant and equipment -- (12,761)
-------------- --------------
Net cash used in investing activities (19,613) (68,502)
-------------- --------------
FINANCING ACTIVITIES
Proceeds from long-term borrowings 51,755 73,453
Payments of long-term debt (63,946) (50,936)
Proceeds from exercise of stock options 359 233
Dividends (5,517) (6,964)
Purchase of treasury stock -- (5,544)
Discontinued operations:
Proceeds from long-term borrowings -- 34,497
Payments of long-term debt -- (23,480)
-------------- --------------
Net cash provided by (used in) financing activities (17,349) 21,259
-------------- --------------
Effect of exchange rate changes on cash and cash equivalents (649) 985
-------------- --------------
CHANGE IN CASH AND CASH EQUIVALENTS (1,895) (9,575)
Cash and cash equivalents at beginning of period 13,016 14,613
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,121 $ 5,038
============== ==============
|
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, 2000, its Consolidated Statements of Income for the three and nine months ended September 30, 2000 and 1999, and its Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999.
The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date. The accounting policies followed by the Company are described in the December 31, 1999 financial statements which are contained in the Company's December 31, 1999 Annual Report on Form 10-K. It is suggested that the financial statements included in this report be read in conjunction with the financial statements and notes included in the December 31, 1999 Annual Report on Form 10-K.
2. On December 15, 1998, the Company announced that it planned to separate its industrial, oil and gas business from its plumbing and heating and water quality business. To accomplish this separation, the Company has continued its existing plumbing and heating and water quality business and has transferred the industrial, oil and gas business to a new subsidiary, CIRCOR International, Inc. The spin-off was effected as a tax free distribution on October 18, 1999. Owners of Watts common stock received one share of CIRCOR for every two shares of Watts common stock held. Accordingly, the Company is treating historical operating results of CIRCOR as a discontinued operation.
The following table summarizes the operating results of the discontinued operations:
Three Months Ended September 30
--------------------------------
2000 1999
---- ----
Sales, Net $ -- $ 76,957
Costs and Expenses -- 76,428
------ ---------
Income Before Income Taxes -- 529
Income Taxes -- 1,274
------ ---------
Loss from Discontinued Operations $ -- $ (745)
====== =========
Nine Months Ended September 30
-------------------------------
2000 1999
---- ----
Sales, Net $ -- $ 233,265
Costs and Expenses -- 229,705
------ ---------
Income Before Income Taxes -- 3,560
Income Taxes -- 6,222
------ ---------
Loss from Discontinued Operations $ -- $ (2,662)
====== =========
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3. On December 2, 1999, the Company announced a restructuring of its operations in Italy to consolidate the warehousing and manufacturing operations of its existing Italian operation into the facilities of its newly acquired Italian subsidiary, Cazzaniga S.p.A. In connection with this restructuring, and in accordance with EITF 94-3, the Company recorded a charge to operating expenses of $1,460,000 in December 1999. The program, which included the termination of 29 employees (primarily manufacturing), began in December of 1999 and was substantially completed during the quarter ended September 30, 2000. Severance benefits and lease termination costs will continue for several quarters.
Details of the restructuring charge are as follows:
Initial Utilized Utilized Balance
Provision during 1999 during 2000 -------
--------- ----------- -----------
Severance and related benefits $1,299,000 $192,000 $678,000 $429,000
Lease Termination Costs 134,000 -- 52,000 82,000
Other exit costs 27,000 -- 27,000 --
---------------------------------------------------------
Total $1,460,000 $192,000 $757,000 $511,000
=========================================================
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4. The following tables set forth the reconciliation of the calculation of earnings per share:
For the Three Months Ended September 30, 2000
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
Income from Continuing Operations $7,670,000 26,404,463 $ 0.29
Income from Discontinued Operations -- --
---------- ----------
Net Income 7,670,000 0.29
Effect of Dilutive Securities
Common Stock Equivalents -- 108,567 --
---------- ---------- ----------
Diluted EPS $7,670,000 26,513,030 $ 0.29
========== ========== ==========
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 -- 186,622 --
----------- ----------- -----------
Diluted EPS $ 8,297,000 26,634,558 $ 0.31
=========== =========== ===========
|
For the Nine Months Ended September 30, 2000
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
Income from Continuing Operations $ 23,637,000 26,395,133 $ 0.90
Income from Discontinued Operations -- --
------------ ------------
Net Income 23,637,000 0.90
Effect of Dilutive Securities
Common Stock Equivalents -- 189,763 (0.01)
------------ ------------ ------------
Diluted EPS $ 23,637,000 26,584,896 $ 0.89
============ ============ ============
For the Nine Months Ended September 30, 1999
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
Income from Continuing Operations $ 23,271,000 26,511,143 $ 0.88
Loss from Discontinued Operations (2,662,000) (0.10)
------------ ------------
Net Income 20,609,000 0.78
Effect of Dilutive Securities
Common Stock Equivalents -- 70,805 --
------------ ------------ ------------
Diluted EPS $ 20,609,000 26,581,948 $ 0.78
============ ============ ============
|
Stock options to purchase 771,600 shares and 887,938 shares of common stock were outstanding at September 30, 2000 and 1999, respectively, but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares and, therefore, the effect would have been antidilutive.
5. Segment Information - the following table presents certain operating segment information:
(Thousand of dollars) North Corporate
America Europe Asia & Other Consolidated
------- ------ ---- ------- ------------
Three months ended
September 30, 2000:
Net Sales $ 97,392 $ 23,369 $ 3,874 $ -- $124,635
Operating income 12,168 3,150 182 (403) 15,097
Three months ended
September 30, 1999:
Net Sales $ 97,069 $ 27,992 $ 5,269 $ -- $130,330
Operating income 11,391 3,932 597 (307) 15,613
Nine months ended
September 30, 2000:
Net Sales $296,431 $ 78,048 $ 11,210 $ -- $385,689
Operating income 36,094 10,798 383 (1,333) 45,942
Nine months ended
September 30, 1999:
Net Sales $285,047 $ 78,527 $ 13,635 $ -- $377,209
Operating income 32,203 9,238 1,383 (494) 42,330
|
The above operating segments are presented on a basis consistent with the presentation included in the Company's December 31, 1999 financial statements. There have been no material changes in the identifiable assets of the individual segments since December 31, 1999.
6. Accumulated other comprehensive income in the consolidated balance sheets as of September 30, 2000 and December 31, 1999 consists of cumulative translation adjustments. The Company's total comprehensive income was as follows:
Three Months Ended September 30,
--------------------------------
2000 1999
---- ----
Net Income $ 7,670 $ 8,297
Foreign Currency Translation Adjustments (4,619) 2,435
------- -------
Total Comprehensive Income $ 3,051 $10,732
======= =======
Nine Months Ended September 30,
-------------------------------
2000 1999
---- ----
Net Income $ 23,637 $ 20,609
Foreign Currency Translation Adjustments (8,376) (4,897)
-------- --------
Total Comprehensive Income $ 15,261 $ 15,712
======== ========
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7. Acquisitions
On August 30, 2000 a wholly owned subsidiary of the Company acquired certain assets of Chiles Power Supply and Bask LLC, located in Springfield, Missouri for approximately $3 million. The acquired business, now operating under the name Watts Heatway, manufactures and distributes a complete line of hydronic and electric radiant heating and snow melting systems. Current annualized sales are approximately $11 million.
On May 12, 2000, a wholly owned subsidiary of the Company acquired McCraney, Inc., located in Santa Ana, California for approximately $7 million. McCraney, doing business as Spacemaker, manufactures a complete line of seismic restraint straps for water heaters as well as water heater stands and enclosures. Spacemaker's last twelve months sales were approximately $5 million.
8. 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 is vigorously contesting 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.
The Company has established reserves for those cases that are probable and estimable 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 reporting period could have a material effect on the Quarterly or Annual operating results for that period. Also see Part II, Item 1.
9. Other
In September 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." The Company will adopt SFAS 133, as amended by SFAS 137 and SFAS 138, on January 1, 2001. The impact of SFAS 133 on the consolidated financial statements is still being evaluated, but is not expected to be material.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition". An amendment in March 2000 delayed the effective date until the fourth quarter of 2000. The Company is reviewing the requirements of this standard, but does not expect it will have material impact on the consolidated financial statements.
In July and September 2000, the EITF reached consensuses on Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs." This Issue addresses the income statement classification for shipping and handling fees and costs. The Company will adopt the consensuses in the fourth quarter of 2000. The adoption of EITF Issue No. 00-10 will not have a material impact on the consolidated financial statements. The Company is still evaluating if additional disclosures necessitated by the consensuses may be required.
Item 2. 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 for all periods presented reflect CIRCOR as discontinued operations.
Results of Operations
Three Months Ended September 30, 2000 Compared to
Three Months Ended September 30, 1999
Net sales from continuing operations for the three months ended September 30, 2000 decreased $5,695,000 (4.4%) to $124,635,000 compared to the same period in 1999. The decrease in net sales is attributable to the following:
Internal Growth $(4,255) (3.3%) Acquisitions 2,814 2.2% Foreign Exchange (4,254) (3.3%) ---------------- ------- ----- Total Change $(5,695) (4.4%) ============ ======== ====== |
The decrease in net sales from internal growth is attributable to the soft North American housing market resulting from an increase in interest rates. The growth in net sales from acquired businesses is due to the inclusion of net sales of the business acquired from Chiles Power Supply and Bask LLC of Springfield, Missouri, now doing business as Watts Heatway, which was acquired on August 30, 2000 and McCraney, Inc. of Santa Ana, California, doing business as Spacemaker, which was acquired May 12, 2000. The decrease in foreign exchange is due primarily to the Euro's devaluation compared to the same period in 1999.
Watts monitors its net sales in three geographical segments: North America, Europe and Asia. As outlined below, North America, Europe and Asia accounted for 78.1%, 18.8%, and 3.1% of net sales, respectively, in the three months ended September 30, 2000 compared to 74.5%, 21.5%, and 4.0% respectively in the three months ended September 30, 1999. The Company's net sales in these groups for the three months ended September 30, 2000 and 1999 were as follows:
9/30/00 9/30/99 Change
-------- -------- --------
North America $ 97,392 $ 97,069 $ 323
Europe 23,369 27,992 (4,623)
Asia 3,874 5,269 (1,395)
-------- -------- --------
Total $124,635 $130,330 ($ 5,695)
======== ======== ========
|
The increase in North America is due to the Watts Heatway and Spacemaker acquisitions, partially offset by decreased unit sales. The decrease in Europe is primarily due to the Euro's devaluation. Sales in the European market on a local currency basis were similar to the comparable prior year period. The decrease in Asia is due to decreased unit sales in the domestic Chinese market resulting from adverse credit conditions as well as reduced demand in the North American export market.
Gross profit for the three months decreased $2,059,000 (4.4%), remaining constant as a percentage of net sales at 36.0 percent. The decrease in gross profit is primarily attributable to decreased net sales. Gross profit percentage reductions attributable to price competition in certain markets were offset by higher gross margins of Watts Heatway and Spacemaker.
Selling, general and administrative expenses decreased $1,543,000 (4.9%) to $29,738,000. This decrease is attributable to decreased corporate headquarters expenses resulting from the CIRCOR spin-off, the Euro's devaluation and reduced variable selling expenses. This was partially offset by selling, general and administrative expenses of Watts Heatway and Spacemaker.
Other income and expense for the three months ended September 30, 2000 increased $656,000 to $568,000. This increase is attributable to reduced cash discounts resulting from Company's inventory reduction program and a one time adjustment to the allowance for doubtful accounts in the Quarter ended September 30, 1999.
Operating income for the three months ended September 30, 2000 decreased $516,000 (3.3%) to $15,097,000 compared to the same period in 1999 due to decreased net sales, offset in part by decreased selling, general and administrative expenses.
The Company's operating income by segment for the three months ended September 30, 2000 and 1999 were as follows:
9/30/00 9/30/99 Change
-------- -------- --------
North America $ 12,168 $ 11,391 $ 777
Europe 3,150 3,932 (782)
Asia 182 597 (415)
Corporate & Other (403) (307) (96)
-------- -------- --------
Total $ 15,097 $ 15,613 $ (516)
======== ======== ========
|
The increase in North America is due to reduced corporate headquarters expenses and acquired companies operating at higher operating margins than other reporting units. The decrease in Europe is primarily due to the Euro's devaluation compared to the prior year, partially offset by reduced costs resulting from the consolidation of manufacturing and warehouse operations in Italy. The decrease in Asia is due to the decreased net sales.
Interest expense increased $338,000 in the quarter ended September 30, 2000, compared to the same period in 1999, primarily due to increased interest rates on variable rate indebtedness.
The Company's effective tax rate for continuing operations increased from 33.3 percent to 37.0 percent. The increase is attributable to savings from a one-time tax reduction opportunity in Europe during 1999 and income taxed at higher rates as a result of the Company's legal structure following the spin-off of CIRCOR International. Inc.
Income from continuing operations for the three months ended September 30, 2000 decreased $1,372,000 (15.2%) to $7,670,000 or $ .29 per common share compared to $.34 per common share for the three months ended September 30, 1999 on a diluted basis. The impact of foreign exchange, primarily due to the devaluation of the Euro, decreased income from continuing operations $.02 per common share on a diluted basis for the period ended September 30, 2000.
Results of Operations
Nine Months Ended September 30, 2000 Compared to
Nine Months Ended September 30, 1999
Net sales from continuing operations for the nine months ended September 30, 2000 increased $8,480,000 (2.2%) to $385,689,000 compared to the same period in 1999. The increase in net sales is attributable to the following:
Internal Growth $ 9,849 2.6% Acquisitions 10,204 2.7% Foreign Exchange (11,573) (3.1%) ------------------------------------------------- Total Change $ 8,480 2.2% ================================================= |
The increase in net sales from internal growth is attributable to increased unit shipments of North American and European plumbing and heating valves. North American increases were offset by recent softness in the housing market resulting from increased interest rates. The growth in net sales from acquired businesses is due to the inclusion of Watts Heatway, Spacemaker and Cazzaniga S.p.A of Biassono, Italy which was acquired March 9, 1999. Excluding the acquired revenue of Cazzaniga and the impact of foreign exchange, shipments of European plumbing and heating valves were 5.8% higher than last year. The decrease in sales due to foreign exchange is principally due to the devaluation of the Euro during the nine-month period ended September 30, 2000 compared to the comparable prior year period.
Watts monitors its net sales in three geographical segments: North America, Europe and Asia. As outlined below, North America, Europe and Asia accounted for 76.9%, 20.2%, and 2.9% of net sales, respectively, in the nine months ended September 30, 2000 compared to 75.6%, 20.8%, and 3.6% respectively in the nine months ended September 30, 1999. The Company's net sales in these groups for the nine months ended September 30, 2000 and 1999 were as follows:
9/30/00 9/30/99 Change
-------- -------- --------
North America $296,431 $285,047 $ 11,384
Europe 78,048 78,527 (479)
Asia 11,210 13,635 (2,425)
-------- -------- --------
Total $385,689 $377,209 $ 8,480
======== ======== ========
|
The increase in North America is primarily due to increased unit sales and to a lesser extent from the Watts Heatway and Spacemaker acquisitions. The decrease in Europe is due to the impact of the Euro's devaluation. This was substantially offset by increased unit sales and the inclusion of net sales of Cazzaniga. The decrease in Asia is due to decreased unit sales in the domestic Chinese market due to adverse credit conditions as well as reduced demand in the North American export market.
Gross profit for the nine months ended September 30, 2000 increased $969,000 (0.7%), to $137,657,000 compared to the same period in 1999 and decreased as a percentage of net sales from 36.2 percent to 35.7 percent. This percentage reduction is primarily attributable to an unfavorable product mix and price competition in certain markets which was partially offset by improved gross margins in Europe resulting from the consolidation of manufacturing and warehousing operations in Italy.
Selling, general and administrative expenses for the nine months decreased $2,643,000 (2.8%) to $91,715,000 compared to the same period in 1999. This decrease is attributable to decreased corporate headquarters expenses resulting from the CIRCOR spin-off, the Euro's devaluation and reduced variable selling expenses. This decrease was partially offset by the addition of selling, general and administrative expenses of Cazzaniga, Watts Heatway and Spacemaker.
Other income and expense increased $1,241,000 to $1,593,000 in the nine months ended September 30, 2000. This increase is attributable to reduced cash discounts resulting from Company's inventory reduction program and a one time adjustment to the allowance for doubtful accounts in the period ended September 30, 1999.
Operating income in the nine months ended September 30, 2000 increased $3,612,000 (8.5%) to $45,942,000 compared to the same period in 1999 due to increased net sales and decreased selling, general and administrative expenses.
The Company's operating income by segment for the nine months ended September 30, 2000 and 1999 were as follows:
9/30/00 9/30/99 Change
-------- -------- --------
North America $ 36,094 $ 32,203 $ 3,891
Europe 10,798 9,238 1,560
Asia 383 1,383 (1,000)
Corporate & Other (1,333) (494) (839)
-------- -------- --------
Total $ 45,942 $ 42,330 $ 3,612
======== ======== ========
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The increase in North America is due to the increased net sales and reduced corporate headquarters expenses. The increase in Europe is primarily due to increased net sales and the Cazzaniga acquisition substantially offset by the Euro's devaluation. The decrease in Asia is due to decreased net sales. The change in corporate and other is due primarily to the increase in inter company activity.
Interest expense increased $1,968,000 in the nine months ended September 30, 2000 compared to the same period in 1999, due to increased interest rates on variable rate indebtedness.
The Company's effective tax rate for continuing operations increased from 35.4 percent to 36.7 percent in the nine months ended September 30, 2000 compared to the same period in 1999. The increase is primarily attributable to savings from a one-time tax reduction opportunity in Europe during 1999 and income taxed at higher rates as a result of the company's legal structure following the spin-off of CIRCOR International, Inc.
Income from continuing operations for the nine months ended September 30, 2000 increased $366,000 (1.6%) to $23,637,000 or $ .89 per common share compared to $.88 per common share for the nine months ended September 30, 1999 on a diluted basis. The impact of foreign exchange, primarily due to the devaluation of the Euro, decreased income from continuing operations $.04 per common share on a diluted basis in the period ended September 30, 2000.
Liquidity and Capital Resources
During the nine-month period ended September 30, 2000, the Company generated $37,953,000 in cash flow, from continuing operations, which was principally used to purchase Heatway and Spacemaker, fund the purchase of $11,390,000 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 twelve months ended December 31, 2000 is $17,500,000.
The Company generated $21,046,000 in free cash flow (cash provided by continuing operations less dividends and capital expenditures) during the nine months ended September 30, 2000 versus negative free cash of $3,540,000 in the comparable prior year period. The increase is attributable to an increase in cash from operations over 1999, reduced inventories, lower capital expenditures and a reduction in the post spin-off dividend rate to reflect the Company's current size.
During the year ended December 31, 1999, the Company maintained a $125,000,000 line of credit, which was amended, coincident with the spin off of CIRCOR. The Company's amended facility in effect as of October 18, 1999 is an unsecured $100,000,000 line of credit to support the Company's acquisition program, working capital requirements of acquired companies, and for general corporate purposes. At September 30, 2000, the Company had $9,000,000 outstanding on the line of credit and was in compliance with all banking covenants related to this facility.
As of September 30, 2000, the Company maintained a syndicated credit facility with a group of European banks in the amount of 23,600,000 Euros. This credit facility has several tranches which provide credit to the Company through September 2004. 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, 2000, 21,000,000 Euros ($18,535,000) were borrowed under this line of credit.
Working capital at September 30, 2000 was $138,015,000 compared to $141,740,000 at December 31, 1999. The ratio of current assets to current liabilities was 2.3 to 1 at September 30, 2000 and at December 31, 1999. Cash and cash equivalents were $11,121,000 at September 30, 2000, compared to $13,016,000 at December 31, 1999. Debt as a percentage of total capital employed was 33.3% at September 30, 2000 compared to 37.1% at December 31, 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 environmental proceedings and other legal proceedings and incurs costs on an ongoing basis related to these matters. The Company has not incurred material expenditures in fiscal 2000 in connection with any of these matters. See Part II, Item 1, Legal Proceedings.
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 is currently able to make and receive payments in Euros and will convert financial and information technology systems to be able to use the Euro as its base currency in relevant markets prior to January 1, 2002.
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 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 and 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.
The Company has a significant presence in many distinct geographical markets and is subject to risks in the translation of results from local currencies to the United States dollar. Exchange rates between the United States dollar, in which the Company's results are reported, and the local currency in the countries in which the Company has sales, may fluctuate from quarter to quarter. Since the Company reports its interim and annual results in United States dollars, it is subject to the risk of currency fluctuations effecting quarter-to-quarter comparative results
PART II
Item 1. Legal Proceedings
Environmental and Other Litigation 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.
James Jones Litigation
On September 25, 1997, Nora Armenta sued James Jones Company, Mueller Co., and Tyco International (U.S.) Inc., the parent companies of James Jones and Watts Industries, Inc. which formerly owned James Jones, 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 municipality of South Gate withdrew its intervention and will participate as a non-intervening city. 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 that did not meet contractually specified standards used by the named municipalities for their water systems and falsely certified that 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 California 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 First Amended Complaint'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.
On October 3, 2000, the Court granted the Company's request to dismiss the City of Pomona's complaint for failure to state a claim under the California False Claims Act, and granted Pomona permission to resubmit a complaint that does state such a claim. Oakland (East Bay M.U.D.) and the City of San Francisco have sought to intervene in this case after having declined to intervene some time ago. The Relator has filed a motion to add additional cities, which would bring the total to 161. A stipulation was filed by the DWP and signed by the Court, which stayed this case only for the DWP until December 1, 2000 while approval is sought for a settlement between the DWP and all the defendants.
The Company is contesting this matter vigorously, and discovery is currently under way. Presently, the Company cannot determine whether any loss will result from this litigation. See Note 8 of the Notes to the Consolidated Financial Statements.
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 in various administrative or legal proceedings under federal, state or local environmental laws or regulations involving a number of sites. During the quarter ending March 31, 1998, the Company received an administrative order from the New Hampshire Department of Environmental Services (the "NHDES") with respect to management and storage of process wastes and various record keeping and permit renewal rules at its Franklin, New Hampshire operation. The NHDES has acknowledged compliance with its administrative order and has proposed in a consent order filed on May 1, 2000 a monetary assessment of $215,126 and a supplemental environmental project of at least $350,000. On June 19, 2000, this consent order was signed and on July 14, 2000, the assessment of $215,126 was paid.
Based on facts presently known to it, the Company does not believe that the outcome of these 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.
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.
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, 2000.
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, 2000 By: /s/ Timothy P. Horne
----------------- --------------------
Timothy P. Horne
Chairman and Chief Executive Officer
Date: November 10, 2000 By: /s/ William C. McCartney
----------------- ------------------------
William C. McCartney
Chief Financial Officer and Treasure
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EXHIBIT INDEX
Listed and indexed below are all Exhibits filed as part of this report.
Exhibit No. Description
----------- -----------
3.1 Restated Certificate of Incorporation, as amended. (1)
3.2 Amended and Restated By-Laws, as amended May 11, 1999 (2)
10.1 Amendment No.1 to Supplemental Compensation Agreement between
Timothy P. Horne and registrant dated July 25, 2000*
11 Computation of Earnings per Share (3)
27 Financial Data Schedule September 30, 2000*
(1) 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.
(2) Incorporated by reference to the relevant exhibit to the Registrant's
Current Report on Form 10-Q for the Quarter ended March 31, 1999.
(3) Incorporated by reference to the Notes to Consolidated Financial
Statements, Note 4, of this Report.
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*Filed herewith.
AMENDMENT NO. 1 TO
SUPPLEMENTAL COMPENSATION AGREEMENT
Amendment No. 1 to Supplemental Compensation Agreement ("Amendment") made as of the 25th day of July 2000, 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"). Capitalized terms used herein and not otherwise defined will have the meanings ascribed thereto in the Original Agreement (as defined below).
WITNESSETH:
WHEREAS, the Company and Mr. Horne are parties to a Supplemental Compensation Agreement dated September 1, 1996 (the "Original Agreement"); and
WHEREAS, the Company and Mr. Horne desire to amend the Original Agreement as provided in this Amendment.
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. Amendment to Section 1. Section 1 of the Original Agreement is hereby amended and restated in its entirety to read as follows:
"1. Supplemental Compensation.
(a) Monthly Payments. 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, subject to Section 1(b) below, continuing until the date of Mr. Horne's death, Mr. Horne shall receive Supplemental Compensation equal on an annual basis to the greater of (i) 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 (ii) $400,000; provided, however, that the amount applicable under this clause (ii) shall be automatically subject to a percentage increase as of each anniversary of the date hereof, based on the amount applicable under this clause (ii) 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.
(b) Lump Sum Payment. If a Change of Control (as defined below) occurs on or after the Termination Date, Mr. Horne shall have the right, in his sole discretion, to elect to receive a lump sum cash payment (the "Lump Sum Payment") equal to the present value (using the discount rate and mortality table then applicable under the Watts Industries, Inc. Retirement Plan for Salaried Employees) of a stream of equal monthly payments of $23,650 each continuing until Mr. Horne's death, with the last payment being made on the first day of the month following the date of Mr. Horne's death. Any such election shall be made by written notice to the Company on or before, or within thirty (30) days after, the date of such Change of Control, and the Company shall pay the Lump Sum Payment to Mr. Horne on the date of such Change of Control, unless such notice is given after the Change of Control in which case payment shall be made within fifteen (15) days following receipt of such notice. Upon payment by the Company to Mr. Horne of the Lump Sum Payment, this Agreement and the obligations of the Company (including the obligation to make payments under Section 1(a) hereof) and Mr. Horne (including his obligations under Section 2 hereof) hereunder will terminate, provided that the obligations of the Company and Mr. Horne under Section 1(c) hereof shall continue.
(c) Tax Gross-up.
(i) Notwithstanding anything to the contrary in this Agreement, in the event of any transaction (including a Change of Control) that would be deemed a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the Company's assets, in each case as those terms are used under Section 280G(b)(2)(A)(i) of the Internal Revenue Code of 1986, as amended (the "Code"), payments in the nature of compensation to Mr. Horne by the Company shall be increased by an amount equal to the sum of the following amounts (x) the amount of any excise tax payable by Mr. Horne pursuant to Section 4999 of the Code by reason of payments made by the Company to Mr. Horne pursuant to this Agreement (other than pursuant to this subsection 1(c)) or any other arrangement or agreement between the Company and Mr. Horne, and (y) an amount equal to all Federal, state and local taxes, including excise taxes payable pursuant to Section 4999 of the Code, payable by Mr. Horne with respect to payments made to Mr. Horne pursuant to this subsection 1(c). For
purposes of this subsection 1(c), Mr. Horne shall be deemed to be subject to tax at the highest marginal rate of Federal, state and local taxes. Payments pursuant to this subsection shall be made at the same time as the payments giving rise to the excise tax. The determination of the amount of the payment to be made to Mr. Horne pursuant to this subsection 1(c) shall be made by such tax professional as may be selected by Mr. Horne, subject to the consent of the Company, which consent shall not be unreasonably withheld.
(ii) In the event that the Internal Revenue Service subsequently adjusts the excise tax payable by Mr. Horne, the Company shall pay to Mr. Horne, or Mr. Horne shall pay to the Company, as the case may be, within sixty (60) days of the final determination of such adjustment, an amount calculated as follows:
(x) if the amount of the excise tax is reduced, Mr. Horne shall pay to the Company the amount of such reduction (including the amount of any related interest due from the Internal Revenue Service) plus the amount of any payment that Mr. Horne received pursuant to subsection 1(c)(i)(y) hereof that he would not have received had the excise tax originally payable by Mr. Horne been reduced by the aggregate amount refunded to him by the Internal Revenue Service; and
(y) if the amount of the excise tax is increased, the Company shall pay to Mr. Horne the amount of such increase (including the amount of any related interest and penalties) plus the amount payable pursuant to subsection 1(c)(i)(y) hereof with respect to such increase.
(d) Change of Control. For purposes of this Agreement, the term "Change of Control" means any of the following events:
(i) a merger or consolidation of the Company with or into another corporation, limited liability company or other entity, or the merger or consolidation of another corporation, limited liability company or other entity with or into the Company, with the effect that, immediately after such transaction, the stockholders of the Company immediately prior to such transaction have beneficial ownership (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") of less than fifty percent (50%) of the total voting power of the outstanding securities of the entity surviving such merger or consolidation;
(ii) the acquisition by any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Horne Family Holders, of beneficial ownership (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this subsection 1(d)(ii) such person or group shall be deemed to have beneficial ownership of all shares that any said person or group has the right to acquire whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of securities representing more than fifty percent (50%) of the total voting power of the Company's then outstanding securities; or
(iii) the sale, lease or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company and its subsidiaries to any person, excluding any sale, lease or other transfer to or among the subsidiaries of the Company.
For purposes of this definition, (x) the term "person" includes a person within the meaning of Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder and (y) the term "Horne Family Holder" means any descendant of George B. Horne, any spouse of any descendant of George B. Horne, and any limited partnership, trust (including any voting trust) or other entity in which all of the beneficial interests are held, directly or indirectly, by one or more of such descendants or spouses."
2. Amendment to Section 2. Section 2 of the Original Agreement is hereby amended and restated in its entirety to read as follows:
"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. The obligations of Mr. Horne under this Section 2 will terminate upon payment by the Company of the Lump Sum Payment."
3. Miscellaneous.
(a) Except as expressly amended by this Amendment, the Original Agreement shall remain in full force and effect in accordance with its terms.
(b) More than one counterpart of this Amendment may be executed by the parties hereto, but all of such counterparts taken together shall be deemed to constitute one and the same Amendment.
(c) This Amendment shall be construed in accordance with and governed by the laws of the Commonwealth of Massachusetts.
[END OF TEXT]
IN WITNESS WHEREOF, this Amendment has been executed as a sealed instrument by the Company, by its duly authorized representative, and by Mr. Horne, as of the date and year first above written.
WATTS INDUSTRIES, INC.
By: /s/ Daniel J. Murphy III
-------------------------------------
Name:
Title: Compensation Committee
Chairman
/s/ Timothy P. Horne
---------------------------------------
TIMOTHY P. HORNE
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| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER 30, 2000 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 9 MOS | |
| FISCAL YEAR END | DEC 31 2000 | |
| PERIOD END | SEP 30 2000 | |
| CASH | 9,785 | |
| SECURITIES | 1,336 | |
| RECEIVABLES | 104,020 | |
| ALLOWANCES | 6,444 | |
| INVENTORY | 109,627 | |
| CURRENT ASSETS | 244,044 | |
| PP&E | 230,058 | |
| DEPRECIATION | 105,419 | |
| TOTAL ASSETS | 473,753 | |
| CURRENT LIABILITIES | 106,029 | |
| BONDS | 114,487 | 1 |
| PREFERRED MANDATORY | 2,643 | |
| PREFERRED | 0 | |
| COMMON | 0 | |
| OTHER SE | 226,962 | |
| TOTAL LIABILITY AND EQUITY | 473,753 | |
| SALES | 385,689 | |
| TOTAL REVENUES | 385,689 | |
| CGS | 248,032 | |
| TOTAL COSTS | 339,747 | 2 |
| OTHER EXPENSES | 8,613 | 3 |
| LOSS PROVISION | 985 | |
| INTEREST EXPENSE | 7,581 | |
| INCOME PRETAX | 37,329 | |
| INCOME TAX | 13,692 | |
| INCOME CONTINUING | 23,637 | |
| DISCONTINUED | 0 | |
| EXTRAORDINARY | 0 | |
| CHANGES | 0 | |
| NET INCOME | 23,637 | |
| EPS BASIC | .90 | |
| EPS DILUTED | .89 |
| 1 | INCLUDES LONG TERM DEBT AND CURRENT PORTION |
| 2 | INCLUDES ONLY COST OF GOODS SOLD AND OPERATING EXPENSES. |
| 3 | INCLUDES INTEREST EXPENSE AND LOSS PROVISION SHOWN BELOW. |