EXHIBIT 99.1
FOR IMMEDIATE RELEASE Contact: William C. McCartney
- --------------------- Chief Financial Officer
Telephone: (978) 688-1811
Fax: (978) 688-2976
WATTS INDUSTRIES REPORTS FIRST QUARTER RESULTS
North Andover, MA...May 6, 2003. Watts Industries, Inc. (NYSE Symbol
"WTS") today announced earnings for the quarter ended March 31, 2003. For the
three months ended March 31, 2003, sales were $165,692,000, an increase of
$22,372,000, or 16% from the comparable period last year. Net income for the
three months ended March 31, 2003, was $6,610,000 or $0.24 per share, which
includes a net loss from discontinued operations of $2,326,000, or $0.09 per
share, compared to net income of $8,056,000, or $0.30 per share, for the quarter
ended March 31, 2002. Income from continuing operations for the quarter ended
March 31, 2003, was $8,936,000 or $.33 per share, which includes $277,000 of
after-tax costs, or $.01 per share, incurred for the previously announced
manufacturing restructuring plan. Income from continuing operations for the
three months ended March 31, 2002, was $8,056,000, or $.30 per share, which
includes $555,000 of after-tax costs, or $.02 per share, incurred for the
manufacturing restructuring plan. Excluding the manufacturing restructuring
costs in both periods, income from continuing operations increased 7% to
$9,213,000 for the three months ended March 31, 2003, compared to $8,611,000 for
the three months ended March 31, 2002. Excluding the manufacturing restructuring
plan expenses, earnings per share from continuing operations for the quarter
ended March 31, 2003, exceeded consensus earnings estimates by $.01 per share.
Please refer to the financial information included at the end of this press
release for a reconciliation of adjusted income from continuing operations to
net income.
Patrick S. O'Keefe, Chief Executive Officer, commented, "We are pleased
with a strong showing for the quarterly results, despite some weakness
experienced in our core North American wholesale market. We continue to show
gains in our sales into the North American home improvement retail market with
an internal growth rate of 18% for the quarter over the first quarter of 2002.
Sales into the North American retail market were $33,892,000 for the quarter
ended March 31, 2003. We are pleased that we achieved sales growth in all of our
brands into the North American retail markets during our first quarter. Our
sales into the North American wholesale market declined 3% compared to the
quarter ended March 31, 2002, primarily due to the weak commercial construction
market. However due to our strong showing on the retail
side, our overall sales in the North American market had an internal growth rate
of 3% for the quarter over the comparable period in 2002."
Mr. O'Keefe continued, "We derived 29% of our total revenue for the
quarter ended March 31, 2003, from Europe compared to 22% in the quarter ended
March 31, 2002. Sales in Europe, in local currency, for the three months ended
March 31, 2003, increased 25% compared to the comparable period last year due to
the inclusion of the acquisitions consummated during 2002. On July 15, 2002, we
acquired ADEV Electronic SA located in Rosieres, France, and its closely
affiliated distributor, E.K. Eminent in Gothenburg, Sweden, and on July 29,
2002, we acquired F&R Foerster Rothmann GmbH located in Neuenburg am Rhein,
Germany. These European acquisitions contributed $8,728,000 of revenue during
the quarter. The euro has appreciated approximately 24% versus the quarter ended
March 31, 2002, and had a positive impact on sales of $7,655,000, and on
earnings of $.02 per share in the quarter ended March 31, 2003. Excluding the
effect of acquisitions and the appreciation of the euro, sales into our European
market increased 3% in the quarter, as compared to the first quarter of last
year, primarily attributable to increased sales to our OEM customers. Sales into
the Chinese market increased $2,000,000 for the quarter ended March 31, 2003,
compared to the comparable period last year, due to the establishment of our
joint venture in March 2002 with the Cheng Guan Metal Hose Factory."
During the quarter ended March 31, 2003, an offer was made for $13 million
($11 million from us and $2 million from Tyco), plus payment of Relator's
attorney's fees, to settle the claims of the three cities (Santa Monica, San
Francisco and East Bay Municipal Water District) in the James Jones litigation
chosen by the Relator as having the strongest claims. This offer included the
Relator's statutory share. The three cities have indicated through their
attorney that the $13 million is acceptable to them, but the Relator's
attorney's fee issue has not been resolved. The offer is subject to a written
Memorandum of Understanding between the Relator and the defendants, a written
Sharing Agreement for the defendants and an approval by the California Superior
Court. It is possible that the written settlement agreements or the court
approval may not be obtained. As a result of this offer, the Company recorded an
after tax charge of $2,326,000, or ($0.09) per common share on a diluted basis,
in the quarter ended March 31, 2003. This charge is reported as a loss from
discontinued operations.
To supplement our unaudited consolidated financial statements presented on
a GAAP basis, we sometimes use non-GAAP measures of net income, net income per
share, income from continuing operations or income from continuing operations
per share that we believe are appropriate to enhance an overall understanding of
our historical financial performance and future prospects. The non-GAAP results,
which are adjusted to exclude certain costs, expenses, gains and losses from the
comparable GAAP measures, are an indication of our baseline performance before
gains, losses or other charges that are considered by management to be outside
of our core operating results. These non-GAAP results are among the primary
indicators management uses as a basis for evaluating our financial performance
as well as for forecasting of future periods. For these reasons, management
believes these non-GAAP measures can be useful to investors, potential investors
and others. The presentation of this additional information is not
meant to be considered in isolation or as a substitute for net income or income
per share prepared in accordance with GAAP.
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, 2002 filed with the
Securities 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)
First Quarter Ended
March 31,
2003 2002
------------ ------------
STATEMENTS OF INCOME
- --------------------
Net Sales ................................... $165,692,000 $143,320,000
Income from continuing operations ........... $ 8,936,000 $ 8,056,000
Loss from discontinued operations ........... (2,326,000) --
------------ ------------
Net income .................................. $ 6,610,000 $ 8,056,000
============ ============
DILUTED EARNINGS PER SHARE
- --------------------------
Weighted Average Number of
Common Shares & Equivalents ................. 27,264,259 26,943,029
Earnings per Share:
Continuing operations ..................... $ 0.33 $ 0.30
Discontinued operations ................... (0.09) --
------------ ------------
Net income ................................ $ 0.24 $ 0.30
============ ============
Cash dividends per share .................... $ 0.06 $ 0.06
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
(Unaudited)
March 31, December 31,
2003 2002
----------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................................... $ 15,675 $ 10,973
Trade accounts receivable, less allowance for doubtful accounts of
$7,359 at March 31, 2003 and $7,322 at December 31, 2002 .................. 135,426 123,504
Inventories:
Raw materials ............................................................. 43,513 40,591
Work in process ........................................................... 19,244 17,289
Finished goods ............................................................ 80,415 75,535
--------- ---------
Total Inventories ...................................................... 143,172 133,415
Prepaid expenses and other assets ............................................ 13,573 10,732
Deferred income taxes ........................................................ 22,686 21,927
Net assets held for sale ..................................................... 2,517 2,464
--------- ---------
Total Current Assets ...................................................... 333,049 303,015
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost ....................................... 256,295 248,933
Accumulated depreciation ..................................................... (121,009) (114,557)
--------- ---------
Property, plant and equipment, net ........................................ 135,286 134,376
--------- ---------
OTHER ASSETS:
Goodwill ..................................................................... 164,303 163,226
Other ........................................................................ 34,336 33,895
--------- ---------
TOTAL ASSETS ................................................................... $ 666,974 $ 634,512
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................. $ 63,507 $ 64,704
Accrued expenses and other liabilities ....................................... 72,750 69,202
Accrued compensation and benefits ............................................ 12,659 15,514
Current portion of long-term debt ............................................ 87,086 82,211
--------- ---------
Total Current Liabilities ................................................. 236,002 231,631
--------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION ......................................... 73,934 56,276
DEFERRED INCOME TAXES .......................................................... 21,288 20,792
OTHER NONCURRENT LIABILITIES ................................................... 20,181 19,743
MINORITY INTEREST .............................................................. 10,149 10,134
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: 18,960,804 shares at
March 31, 2003 and 18,863,482 shares at December 31, 2002 ................. 1,896 1,886
Class B Common Stock, $.10 par value; 25,000,000 shares authorized;
10 votes per share; issued and outstanding: 8,185,224 shares at
March 31, 2003 and 8,185,224 shares at December 31, 2002 .................. 819 819
Additional paid-in capital ................................................... 46,332 45,132
Retained earnings ............................................................ 264,855 259,893
Accumulated other comprehensive income/(loss) ................................ (8,482) (11,794)
--------- ---------
Total Stockholders' Equity ................................................ 305,420 295,936
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................................... $ 666,974 $ 634,512
========= =========
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands, except per share amounts)
(Unaudited)
Three Months Ended
-----------------------
March 31, March 31,
2003 2002
--------- ---------
Net sales .......................................... $ 165,692 $ 143,320
Cost of goods sold ................................. 109,928 93,841
--------- ---------
GROSS PROFIT .................................. 55,764 49,479
Selling, general & administrative expenses ......... 39,854 35,227
Restructuring ...................................... -- 10
--------- ---------
OPERATING INCOME .............................. 15,910 14,242
--------- ---------
Other (income) expense:
Interest income ............................... (115) (86)
Interest expense .............................. 2,084 1,830
Other, net .................................... (62) 75
Minority interest ............................. (21) 35
--------- ---------
1,886 1,854
--------- ---------
INCOME BEFORE INCOME TAXES ................... 14,024 12,388
Provision for income taxes ......................... 5,088 4,332
--------- ---------
INCOME FROM CONTINUING OPERATIONS ............ 8,936 8,056
Loss from discontinued operations, net of taxes .... (2,326) --
--------- ---------
NET INCOME .................................... $ 6,610 $ 8,056
========= =========
BASIC EARNINGS PER SHARE
Continuing Operations ......................... $ .33 $ .30
Discontinued Operations ....................... (.09) --
--------- ---------
NET INCOME .................................... $ .24 $ .30
========= =========
Weighted average number of shares .................. 27,065 26,532
========= =========
DILUTED EARNINGS PER SHARE
Continuing Operations ......................... $ .33 $ .30
Discontinued Operations ....................... (.09) --
--------- ---------
NET INCOME .................................... $ .24 $ .30
========= =========
Weighted average number of shares .................. 27,264 26,943
========= =========
Dividends per common share ................... $ .06 $ .06
========= =========
RECONCILIATION OF ADJUSTED EARNINGS TO REPORTED EARNINGS
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
(UNAUDITED)
First Quarter Ended
March 31,
2003 2002
---------- ----------
Net income ....................................... $6,610,000 $8,056,000
Add back: loss from discontinued operations ... 2,326,000 --
---------- ----------
Income from continuing operations ................ 8,936,000 8,056,000
---------- ----------
Add back: cost of restructuring ............... 277,000 555,000
---------- ----------
Adjusted income from continuing operations ....... $9,213,000 $8,611,000
========== ==========
Diluted earnings per share:
Net income ....................................... $ 0.24 $ 0.30
Add back: discontinued operations ........... 0.09 --
---------- ----------
Continuing operations ............................ 0.33 0.30
---------- ----------
Add back: cost of restructuring ............. 0.01 0.02
---------- ----------
Adjusted income from continuing operations ....... $ 0.34 $ 0.32
========== ==========