SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
February 12, 2003
Watts Industries, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 1-11499 04-2916536
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
815 Chestnut Street
North Andover, MA 01845
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(978) 688-1811
ITEM 5. Other Events and Required FD Disclosure
On February 12, 2003 Watts Industries, Inc. ("Watts") issued a press
release announcing its earnings for the three months and year ended December 31,
2002. A copy of the press release is attached hereto as Exhibit 99.1 and is
hereby incorporated by reference.
ITEM 7 - FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
Exhibit 99.1 - Press release of Watts Industries, Inc. dated
February 12, 2003.
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 hereunto duly authorized.
WATTS INDUSTRIES, INC.
Date: February 14, 2003 By:
---------------------------------
/s/ William C. McCartney
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
--------------
99.1 Press release dated February 12, 2003, issued by Watts
Industries, Inc.
EXHIBIT 99.1
FOR IMMEDIATE RELEASE Contact: William C. McCartney
--------------------- Chief Financial Officer
Telephone: (978) 688-1811
Fax: (978) 688-2976
WATTS INDUSTRIES REPORTS FOURTH QUARTER FINANCIAL RESULTS
North Andover, MA...February 12, 2003. Watts Industries, Inc. (NYSE Symbol
"WTS") today announced fourth quarter earnings, which include costs for its
previously announced manufacturing restructuring plan. For the three months
ended December 31, 2002, sales were $161,507,000, an increase of 16% from the
comparable period last year. Net income for the quarter was $7,576,000 or $.28
per share, including $1,122,000 of after-tax costs, or $.04 per share, incurred
for the manufacturing restructuring plan. Excluding the cost of the
manufacturing restructuring plan, the net income for the fourth quarter on a pro
forma basis would have been $8,698,000 or $.32 per share, which met consensus
estimates. The Company has adopted FAS 142 "Goodwill and Other Intangible
Assets" and accordingly did not record goodwill amortization in the quarter
ended December 31, 2002. Diluted earnings per share for the fourth quarter ended
December 31, 2001, which includes goodwill amortization and manufacturing
restructuring plan costs, were $.17 per share. Excluding goodwill amortization
and manufacturing restructuring plan costs, diluted earnings per share for the
quarter ended December 31, 2001, were $.33 per share on a pro forma basis.
Sales for the quarter ended December 31, 2002, increased 16% to
$161,507,000 compared to $139,444,000 for the comparable period last year,
primarily due to the inclusion of the sales of acquired companies and increased
sales into both the North American wholesale and home improvement retail
markets.
Sales for the twelve-month period ended December 31, 2002, increased 12%
to $616,143,000 from $548,940,000 for the twelve-month period ended December 31,
2001. Net income for the twelve-month period ended December 31, 2002, was
$33,038,000 compared to $26,556,000 for the twelve-month period ended December
31, 2001. Excluding the costs of the manufacturing restructuring plan for 2001
and 2002, and excluding goodwill amortization for 2001, net income for the
twelve-month period ended December 31, 2002, increased 7% to $35,590,000 from
$33,369,000 for the twelve-month period ended December 31, 2001.
The following chart compares the fourth quarter and fiscal year diluted
earnings per share as reported under Generally Accepted Accounting Principles
(GAAP) to such earnings per share on a pro forma basis excluding goodwill
amortization and restructuring costs.
Twelve Months
Three Months Ended Ended
12/31/01 12/31/02 12/31/01 12/31/02
-------- -------- -------- --------
As Reported GAAP $.17 $.28 $0.99 $1.22
Excluding Goodwill Amortization $.20 $.28 $1.11 $1.22
Excluding Goodwill Amortization and
Restructuring Cost $.33 $.32 $1.25 $1.32
Patrick S. O'Keefe, Chief Executive Officer, commented, "We are pleased
with our strong showing for our quarterly and year end results, despite the
weakness we experienced in our core markets in both North America and Europe for
most of the year. Our internal growth rate for North American sales was 7% for
the quarter over the fourth quarter of 2001 compared to 3% year over year. Our
sales to North American wholesalers had an internal growth rate of 6% for the
quarter over the fourth quarter of 2001. We continue to show gains in our sales
into the North American retail market with an internal growth rate of 10% for
the quarter over the fourth quarter of 2001. Our total sales into the North
American retail market in the quarter were $30,803,000.
Our overall sales in Europe for the quarter increased 37% from the
comparable quarter last year. This increase is primarily due to the inclusion of
the sales of three acquisitions consummated during 2002. On July 15, 2002, we
acquired ADEV Electronic S.A. located in Rosieres, France, and its closely
affiliated distributor, E.K. Eminent located in Gothenburg, Sweden; on July 29,
2002, we acquired F&R Foerster Rothmann Gmbh located in Neuenburg am Rhein,
Germany. These European acquisitions contributed approximately $7,943,000 of
revenue during the quarter. Sales appreciated in the quarter due to the stronger
euro by approximately $4,339,000 as compared to the comparable quarter last
fiscal year. Excluding acquisitions, sales into our European wholesale and OEM
markets, without the effect of foreign exchange, decreased by 1% as compared to
the fourth quarter last year.
Our joint venture with Cheng Guan Metal Hose Factory, established in March
2002 and located in Taizhou, Zheijiang Province of the Peoples Republic of
China, also contributed to our increased revenue in the quarter."
O'Keefe continued, "As previously announced, we are implementing a plan to
consolidate several of our manufacturing plants in North America and Europe. At
the same time, we are expanding our manufacturing capacity in China and other
areas of the world, such as Tunisia and Bulgaria, that have lower-cost
manufacturing. The implementation of the manufacturing restructuring plan began
in the fourth quarter of fiscal 2001. We expect that the Company's new factory
in Tianjin, China will be operational during fiscal 2003, where we will
manufacture some of our more traditional bronze plumbing products. We also
acquired in 2002, with our acquisition of ADEV Electronic, a low cost
manufacturing plant in Tunisia. Additionally, we are well underway consolidating
the manufacturing of our temperature and pressure gauge line at our recently
opened plant in Plovdiv, Bulgaria.
We anticipate that the pre-tax cost of our restructuring plan and other
costs will be $12,788,000. The Company recorded pre-tax manufacturing
restructuring plan costs of $5,831,000 in the fourth quarter of 2001, and
$4,089,000 for the twelve months ended December 31, 2002. The Company decided to
expand the scope of our manufacturing restructuring plan, and we anticipate
recording additional pre-tax costs of approximately $2,868,000 in 2003. The
manufacturing restructuring plan is expected to be completed in fiscal 2003. We
estimate an annual pre-tax savings of approximately $5,000,000 following the
completion of the plan. The manufacturing restructuring plan costs, recorded in
2001 and 2002, consist primarily of severance costs, asset write-downs and
accelerated depreciation. Tax benefits of costs incurred and asset write-downs
will approximate cash outlays to implement this plan, which will allow us to
complete the restructuring plan with minimal consumption of cash."
A reconciliation of the pro forma earnings, which exclude restructuring,
impairment and related cost to earnings as reported in the three and twelve
months ended December 31, 2002, and the three and twelve months ended December
31, 2001, which also exclude goodwill amortization, is as follows:
Three Twelve Three Twelve
Months Months Months Months
Ended Ended Ended Ended
12/31/02 12/31/02 12/31/01 12/31/01
---------- ----------- ---------- -----------
Restructuring $ 420,000 $ 638,000 $1,454,000 $ 1,454,000
Other Costs 1,338,000 3,451,000 4,377,000 4,377,000
---------- ----------- ---------- -----------
Total Costs 1,758,000 4,089,000 5,831,000 5,831,000
Tax Benefit 636,000 1,537,000 2,238,000 2,238,000
---------- ----------- ---------- -----------
After Tax Cost $1,122,000 $ 2,552,000 $3,593,000 $ 3,593,000
========== =========== ========== ===========
Earnings as Reported $7,576,000 $33,038,000 $4,439,000 $26,556,000
Cost of Restructuring 1,122,000 2,552,000 3,593,000 3,593,000
Goodwill Amortization -- -- 844,000 3,220,000
---------- ----------- ---------- -----------
Pro-Forma Earnings $8,698,000 $35,590,000 $8,876,000 $33,369,000
========== =========== ========== ===========
The restructuring costs are severance costs. Other costs relate to
increased depreciation expenses due to shorter estimated useful life on certain
manufacturing equipment and include inventory write-offs for products that were
discontinued.
O'Keefe also commented, "We are particularly pleased with the Company's
continued strong results as it relates to the generation of cash. Since the
spin-off of our industrial and oil and gas businesses in October of 1999, the
Company has continually generated a strong level of cash from operations. In
this regard, the Company generated $51,769,000 of cash from continuing
operations for the twelve-month period ended December 31, 2002. This cash from
operations produced $28,656,000 of free cash flow for the twelve months ended
December 31, 2002, which represents approximately 87% of our net earnings. The
Company invested $41,137,000 in four acquisitions and one joint venture during
the fiscal year. The Company's free cash flow has enabled it to repay
approximately 70% of the debt incurred to finance these investments. The
Company's net debt to capital employed ratio was 29.3% at December 31, 2002. We
are pleased we have been able to maintain a conservative capitalization while
maintaining the growth rates we have achieved this year. The Company maintains a
$150,000,000 revolving line of credit of which $108,351,000 was unused and
available at December 31, 2002."
A reconciliation of net cash provided by continuing operations to free cash flow
is provided below:
Twelve Months
Ended
12/31/02
-------------
Net cash provided by continuing operations $ 51,769,000
Less: additions to property, plant, and equipment (19,817,000)
Plus: proceeds from sale of property, plant, and equipment 3,194,000
Less: dividends (6,490,000)
------------
Free cash flow $ 28,656,000
============
This Press Release may include statements which are not historical facts
and are considered forward-looking within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements reflect Watts
Industries' current views about future results of operations and other
forward-looking information. You should not rely on forward-looking statements
because Watts' actual results may differ materially from those indicated by
these forward-looking statements as a result of a number of important factors.
These factors include, but are not limited to, the following: loss of market
share through competition, introduction of competing products by other
companies, pressure on prices from competitors, suppliers, and/or customers,
failure or delay in developing new products, lack of acceptance of new products,
failure to manufacture products that meet required performance and safety
standards, foreign exchange fluctuations, cyclicality of industries, such as
plumbing and heating wholesalers and home improvement retailers, in which the
Company markets certain of its products, reductions in the supply of raw
materials, increases in the prices of raw materials, economic factors, such as
the levels of housing starts and remodeling, impacting the markets where the
Company's products are sold, manufactured, or marketed, environmental compliance
costs, product liability risks, the results and timing of the Company's
manufacturing restructuring plan, changes in the status of current litigation,
including the James Jones case, and other risks and uncertainties discussed
under the heading "Certain Factors Affecting Future Results" in Watts' Annual
Report on Form 10-K for the year ended December 31, 2001 filed with the
Securities and Exchange Commission and other reports Watts files from time to
time with the Securities and Exchange Commission. Watts does not intend to and
undertakes no duty to update the information contained in this Press Release.
Watts Industries, Inc. designs, manufactures and sells an extensive line
of valves and other products to the water quality and water regulation and
control markets.
CONDENSED CONSOLIDATED FINANCIAL STATEMENT
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
(UNAUDITED)
Fourth Quarter Ended Twelve Months Ended
December 31, December 31,
2002 2001 2002 2001
-------------------------------------------------------------
STATEMENTS OF INCOME
--------------------
Net sales $161,507,000 $139,444,000 $616,143,000 $548,940,000
Cost of sales 106,775,000 95,868,000 406,193,000 365,408,000
Selling, general and administrative 40,486,000 33,162,000 150,383,000 131,795,000
Restructuring charges 420,000 1,454,000 638,000 1,454,000
Other (income) expense, net 2,041,000 2,637,000 8,137,000 10,115,000
------------ ------------ ------------ ------------
Income before income taxes 11,785,000 6,323,000 50,792,000 40,168,000
Provision for income taxes 4,209,000 1,884,000 17,754,000 13,612,000
------------ ------------ ------------ ------------
Net income $ 7,576,000 $ 4,439,000 $ 33,038,000 $ 26,556,000
============ ============ ============ ============
DILUTED EARNINGS PER SHARE
--------------------------
Weighted Average Number of Common Shares
& Equivalents 27,235,226 26,735,543 27,055,789 26,801,557
Earnings per Share:
Net income $ 0.28 $ 0.17 $ 1.22 $ 0.99
============ ============ ============ ============
Cash dividends per share $ 0.06 $ 0.06 $ 0.24 $ 0.24
CONDENSED CONSOLIDATED FINANCIAL STATEMENT
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
(UNAUDITED)
Fourth Quarter Ended Twelve Months Ended
December 31, December 31,
2002 2001 2002 2001
-------------------------------------------------------------
STATEMENTS OF INCOME
--------------------
Net Sales $161,507,000 $139,444,000 $616,143,000 $548,940,000
Net Income $ 7,576,000 $ 4,439,000 $ 33,038,000 $ 26,556,000
DILUTED EARNINGS PER SHARE
--------------------------
Weighted Average Number of Common Shares
& Equivalents 27,235,226 26,735,543 27,055,789 26,801,557
Earnings per Share:
Net income $ 0.28 $ 0.17 $ 1.22 $ 0.99
Cash dividends per share $ 0.06 $ 0.06 $ 0.24 $ 0.24
COMPARATIVE CONDENSED BALANCE SHEET
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
December 31, 2002 December 31, 2001
--------------------------------------
(UNAUDITED)
Cash and short-term investments $ 11,094,000 $ 11,997,000
Other current assets 298,373,000 244,127,000
Property, plant and equipment, at cost 249,157,000 218,235,000
Less: accumulated depreciation (114,635,000) (89,629,000)
------------- -------------
Net property, plant and equipment 134,522,000 128,606,000
Other assets 191,050,000 135,740,000
------------- -------------
$ 635,039,000 $ 520,470,000
============= =============
Current liabilities $ 231,073,000 $ 113,529,000
Long-term debt 56,276,000 123,212,000
Deferred income taxes 20,792,000 15,692,000
Other liabilities 30,545,000 18,723,000
Stockholders' equity 296,353,000 249,314,000
------------- -------------
$ 635,039,000 $ 520,470,000
============= =============