Exhibit 99.1
FOR IMMEDIATE RELEASE Contact: William C. McCartney
- --------------------- Chief Financial Officer
Telephone: (978) 688-1811
Fax: (978) 688-2976
WATTS WATER TECHNOLOGIES REPORTS THIRD QUARTER RESULTS
North Andover, MA...November 4, 2003. Watts Water Technologies, Inc. (NYSE
Symbol "WTS") today announced results for the quarter ended September 30, 2003.
For the three-month period ended September 30, 2003, sales were $175,509,000, an
increase of $15,698,000, or 10%, from the three-month period ended September 30,
2002. Net income for the three-month period ended September 30, 2003, was
$8,905,000, or $0.32 per share, which includes a net loss from discontinued
operations of $114,000, compared to net income of $8,773,000, or $0.32 per
share, for the three-month period ended September 30, 2002. Income from
continuing operations for the three-month period ended September 30, 2003, was
$9,019,000, or $0.33 per share, compared to income from continuing operations
for the three-month period ended September 30, 2002 of $8,773,000, or $.32 per
share, which includes $398,000 of after-tax costs, or $0.02 per share, incurred
for our manufacturing restructuring plan.
Sales for the nine-month period ended September 30, 2003, increased 13% to
$514,713,000 from $454,636,000 for the nine-month period ended September 30,
2002. Net income for the nine-month period ended September 30, 2003 was
$23,621,000, or $0.86 per share, which includes a net loss from discontinued
operations of $3,014,000, or $0.11 per share, compared to $25,462,000, or $0.94
per share, for the nine-month period ended September 30, 2002. Income from
continuing operations increased $1,173,000, or 5% to $26,635,000 for the
nine-month period ended September 30, 2003 compared to $25,462,000 for the
nine-month period ended September 30, 2002.
Excluding the costs incurred for our manufacturing restructuring plan from
both periods, income from continuing operations increased $383,000, or 1%, to
$27,275,000, or $0.99 per share, for the nine-month period ended September 30,
2003 compared to $26,892,000, or $0.99 per share, for the nine-month period
ended September 30, 2002. Please refer to the table included at the end of this
press release for a reconciliation of reported net income to adjusted income
from continuing operations.
Patrick S. O'Keefe, Chief Executive Officer, commented, "We are pleased
with our North American and European results for the third quarter of 2003.
These strong results were partially offset by inventory write-downs and other
net adjustments in our Chinese segment. Our overall increase in sales was
achieved by the change in foreign exchange rates, organic growth and
contributions from acquired companies. On a consolidated basis, the change in
foreign
exchange rates for the three-month period ended September 30, 2003 increased our
sales by $7,509,000, over the three-month period ended September 30, 2002, due
primarily to the strengthening of the euro versus the U.S. dollar. On a
consolidated basis we achieved an organic growth rate of 4% for the three-month
period ended September 30, 2003 over three-month period ended September 30,
2002, which represents $6,523,000 of increased sales. Our acquisition program
contributed $1,666,000 of sales for the three-month period ended September 30,
2003, derived from the recent acquisitions of Martin Orgee and Giuliani Anello,
both European based companies."
Mr. O'Keefe continued, "Our North American segment had an increase in
sales for the three-month period ended September 30, 2003 of 6% to $121,001,000
compared to $114,136,000 for the three-month period ended September 30, 2002.
This increase in North American sales over the three-month period ended
September 30, 2002 was achieved through the combination of organic sales growth
of 5%, or $5,825,000, and favorable foreign exchange rates associated with the
strengthening of the Canadian dollar versus the U.S. dollar, which had the
effect of increasing sales by $1,041,000. Sales into the North American home
improvement retail market for the three-month period ended September 30, 2003
increased by 11% with total sales of $33,468,000 compared to $30,055,000 for the
three-month period ended September 30, 2002. Sales into the North American
wholesale market for the three-month period ended September 30, 2003 increased
4% to $87,533,000 compared to $84,081,000 for the three-month period ended
September 30, 2002. This increase was primarily due to improved sales of our
well-known backflow prevention line."
Mr. O'Keefe continued, "We derived 29% of our total sales for the
three-month period ended September 30, 2003 from Europe compared to 24% in the
three-month period ended September 30, 2002. Sales in Europe for the three-month
period ended September 30, 2003 increased 29% compared to the three-month period
ended September 30, 2002, due to the favorable change in foreign exchange rates,
an internal growth rate of 9%, and the inclusion of acquisitions consummated
during 2003. On April 18, 2003 we acquired Martin Orgee U.K. Ltd. located in
Kidderminster, West Midlands, United Kingdom, and on July 30, 2003, we acquired
Giuliani Anello S.r.l. located in Bologna, Italy. These European acquisitions
contributed $1,666,000 of sales during the three-month period ended September
30, 2003. The euro has appreciated approximately 15% versus the three-month
period ended September 30, 2002 resulting in a positive impact on European sales
of $6,468,000 and on income of $0.02 per share in the three-month period ended
September 30, 2003.
Mr. O'Keefe also commented, "As we discussed at the end of our second
quarter of 2003, we had experienced a delay in production at our new
wholly-owned manufacturing plant in Tianjin, China. We have experienced some
increase in the production levels from this factory during the third quarter of
2003, however the under-absorption of manufacturing costs caused by this delay
had an adverse impact of $.02 per share in the three-month period ended
September 30, 2003. The results of the three-month period ended September 30,
2003 also include the
impact of inventory write-downs and other net adjustments at our TWT joint
venture in Tianjin which reduced income by $0.03 per share."
During the three-month period ended September 30, 2003, the Company
recorded an after-tax charge of $114,000, or $0.01 per share, to discontinued
operations. This charge is primarily attributable to legal fees associated with
the James Jones litigation that is now treated as a discontinued operation.
On July 30, 2003 a wholly-owned subsidiary of the Company acquired
Giuliani Anello located in Bologna, Italy for approximately $12 million in cash.
Giuliani Anello manufactures and distributes valves and filters utilized in
heating applications including strainer filters, solenoid valves, flow stop
valves, stainless steel water filter elements and steam cleaning filters.
Giuliani Anello's annual sales, prior to the acquisition, were $7 million at the
exchange rate in effect as of the closing date.
To supplement our unaudited consolidated financial statements presented on
a generally accepted accounting principles (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
Water Technologies' 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 Water Technologies, Inc. designs, manufactures and sells an
extensive line of valves and other products to the water quality and water
regulation and control markets.
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENT
(Thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
--------- --------- --------- ---------
STATEMENTS OF INCOME
Net sales .......................... $ 175,509 $ 159,811 $ 514,713 $ 454,636
Income from continuing operations .. $ 9,019 $ 8,773 $ 26,635 $ 25,462
Loss from discontinued operations .. (114) -- (3,014) --
--------- --------- --------- ---------
Net income ......................... $ 8,905 $ 8,773 $ 23,621 $ 25,462
========= ========= ========= =========
DILUTED EARNINGS PER SHARE
Weighted Average Number of
Common Shares & Equivalents ........ 27,632 27,249 27,428 27,112
Earnings per Share:
Continuing operations ......... $ 0.33 $ 0.32 $ 0.97 $ 0.94
Discontinued operations ....... (0.01) -- (0.11) --
--------- --------- --------- ---------
Net income .................... $ 0.32 $ 0.32 $ 0.86 $ 0.94
========= ========= ========= =========
Cash dividends per share ........... $ 0.06 $ 0.06 $ 0.18 $ 0.18
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
(Unaudited)
September 30, December 31,
2003 2002
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 39,618 $ 10,973
Restricted treasuries ................................................ 78,016 --
Trade accounts receivable, less allowance for doubtful accounts of
$7,721 at September 30, 2003 and $7,322 at December 31, 2002 ...... 147,712 123,504
Inventories:
Raw materials ..................................................... 44,808 40,591
Work in process ................................................... 22,303 17,289
Finished goods .................................................... 83,939 75,535
--------- ---------
Total Inventories .............................................. 151,050 133,415
Prepaid expenses and other assets .................................... 13,401 10,732
Deferred income taxes ................................................ 24,369 21,927
Net assets held for sale ............................................. 1,940 2,464
--------- ---------
Total Current Assets .............................................. 456,106 303,015
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost ............................... 271,846 248,933
Accumulated depreciation ............................................. (132,563) (114,557)
--------- ---------
Property, plant and equipment, net ................................ 139,283 134,376
--------- ---------
OTHER ASSETS:
Goodwill ............................................................. 177,916 163,226
Other ................................................................ 30,979 28,114
--------- ---------
TOTAL ASSETS ............................................................. $ 804,284 $ 628,731
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................................... $ 60,125 $ 64,704
Accrued expenses and other liabilities ............................... 70,628 69,202
Accrued compensation and benefits .................................... 16,175 15,514
Current portion of long-term debt .................................... 88,338 82,211
--------- ---------
Total Current Liabilities ......................................... 235,266 231,631
--------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION ................................... 189,203 56,276
DEFERRED INCOME TAXES .................................................... 17,162 15,011
OTHER NONCURRENT LIABILITIES ............................................. 20,987 19,743
MINORITY INTEREST ........................................................ 9,784 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: 19,563,281 shares at
September 30, 2003 and 18,863,482 shares at December 31, 2002 ..... 1,956 1,886
Class B Common Stock, $.10 par value; 25,000,000 shares authorized;
10 votes per share; issued and outstanding: 7,805,224 shares at
September 30, 2003 and 8,185,224 shares at December 31, 2002 ...... 781 819
Additional paid-in capital ........................................... 49,256 45,132
Retained earnings .................................................... 278,583 259,893
Accumulated other comprehensive income/(loss) ........................ 1,305 (11,794)
--------- ---------
Total Stockholders' Equity ........................................ 331,881 295,936
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................... $ 804,283 $ 628,731
========= =========
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
--------- --------- --------- ---------
Net sales ........................................ $ 175,509 $ 159,811 $ 514,713 $ 454,636
Cost of goods sold ............................... 116,136 106,304 341,011 299,418
--------- --------- --------- ---------
GROSS PROFIT ................................. 59,373 53,507 173,702 155,218
Selling, general & administrative expenses ....... 41,396 37,532 123,361 109,897
Restructuring .................................... -- 208 114 218
--------- --------- --------- ---------
OPERATING INCOME ............................. 17,977 15,767 50,227 45,103
--------- --------- --------- ---------
Other (income) expense:
Interest income .............................. (362) (122) (744) (578)
Interest expense ............................. 3,659 2,447 8,563 6,576
Other, net ................................... 23 (39) (129) (164)
Minority interest ............................ (410) 156 (448) 262
--------- --------- --------- ---------
2,910 2,442 7,242 6,096
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES .................. 15,067 13,325 42,985 39,007
Provision for income taxes ....................... 6,048 4,552 16,350 13,545
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS ........... 9,019 8,773 26,635 25,462
Loss from discontinued operations, net of taxes .. (114) -- (3,014) --
--------- --------- --------- ---------
NET INCOME ................................... $ 8,905 $ 8,773 $ 23,621 $ 25,462
========= ========= ========= =========
BASIC EARNINGS PER SHARE
Continuing Operations ........................ $ 0.33 $ 0.33 $ 0.98 $ 0.96
Discontinued Operations ...................... (0.00) -- (0.11) --
--------- --------- --------- ---------
NET INCOME ................................... $ 0.33 $ 0.33 $ 0.87 $ 0.96
========= ========= ========= =========
Weighted average number of shares ................ 27,306 26,717 27,196 26,630
========= ========= ========= =========
DILUTED EARNINGS PER SHARE
Continuing Operations ........................ $ 0.33 $ 0.32 $ 0.97 $ 0.94
Discontinued Operations ...................... (0.01) -- (0.11) --
--------- --------- --------- ---------
NET INCOME ................................... $ 0.32 $ 0.32 $ 0.86 $ 0.94
========= ========= ========= =========
Weighted average number of shares ................ 27,632 27,249 27,428 27,112
========= ========= ========= =========
Dividends per common share .................. $ 0.06 $ 0.06 $ 0.18 $ 0.18
========= ========= ========= =========
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED INCOME
FROM CONTINUING OPERATIONS
(Thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
-------- -------- -------- --------
Net income .......................................... $ 8,905 $ 8,773 $ 23,621 $ 25,462
Add back: loss from discontinued operations ...... 114 -- 3,014 --
-------- -------- -------- --------
Income from continuing operations ................... 9,019 8,773 26,635 25,462
-------- -------- -------- --------
Add back/ (Subtract out): cost of restructuring .. (36) 398 640 1,430
-------- -------- -------- --------
Adjusted income from continuing operations .......... $ 8,983 $ 9,171 $ 27,275 $ 26,892
======== ======== ======== ========
Diluted earnings per share:
Net income .......................................... $ 0.32 $ 0.32 $ 0.86 $ 0.94
Add back: discontinued operations .............. 0.01 -- 0.11 --
-------- -------- -------- --------
Continuing operations ............................... 0.33 0.32 0.97 0.94
-------- -------- -------- --------
Add back: cost of restructuring ................ 0.00 0.02 0.02 0.05
-------- -------- -------- --------
Adjusted income from continuing operations .......... $ 0.33 $ 0.34 $ 0.99 $ 0.99
======== ======== ======== ========