Exhibit 99.1
[WATTS WATER TECHNOLOGIES, INC. LETTERHEAD]
FOR IMMEDIATE RELEASE Contact: William C. McCartney
- --------------------- Chief Financial Officer
Telephone: (978) 688-1811
Fax: (978) 688-2976
WATTS WATER TECHNOLOGIES REPORTS YEAR
AND FOURTH QUARTER 2003 RESULTS
North Andover, MA...February 10, 2004. Watts Water Technologies, Inc.
(NYSE Symbol "WTS") today announced results for the year and three month period
ended December 31, 2003. For the three-month period ended December 31, 2003,
sales were $190,938,000, an increase of $30,048,000, or 19%, from the
three-month period ended December 31, 2002. Net income for the three-month
period ended December 31, 2003, was $9,741,000, or $0.34 per share, which
includes a net loss from discontinued operations of $97,000. Income from
continuing operations increased $2,678,000, or 37%, for the three-month period
ended December 31, 2003, to $9,838,000, or $0.34 per share, compared to income
from continuing operations for the three-month period ended December 31, 2002 of
$7,160,000, or $0.26 per share.
Excluding costs incurred in both periods for our manufacturing
restructuring plan, income from continuing operations increased $2,000,000, or
24%, to $10,282,000, or $0.36 per share, for the three-month period ended
December 31, 2003 compared to $8,282,000, or $0.30 per share, for the
three-month period ended December 31, 2002. Please refer to Table 1 included at
the end of this press release for a reconciliation of reported net income to
adjusted income from continuing operations.
Sales for the twelve-month period ended December 31, 2003, increased 15%
to $705,651,000, from $615,526,000 for the twelve-month period ended December
31, 2002. Net income for the twelve-month period ended December 31, 2003 was
$33,362,000, or $1.21 per share, which includes a net loss from discontinued
operations of $3,111,000, or $0.11 per share. Income from continuing operations
increased $3,851,000 or 12% to $36,473,000 for the twelve-month period ended
December 31, 2003 compared to $32,622,000 for the twelve-month period ended
December 31, 2002.
Excluding costs incurred in both periods for our manufacturing
restructuring plan, income from continuing operations increased $2,383,000, or
7%, to $37,557,000, or $1.36 per share, for the twelve-month period ended
December 31, 2003 compared to $35,174,000, or $1.30 per share, for the
twelve-month period ended December 31, 2002. Please refer to Table 1 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 both our North American and European results for the fourth quarter of
2003. Our overall increase in sales was achieved by an internal growth rate of
7%, the change in foreign exchange rates, and the contribution from acquired
companies. Additionally, in the fourth quarter of fiscal 2003 we adopted the
accounting requirements of Financial Accounting Standards Board Interpretation
No. 46, "Consolidation of Variable Interest Entities" (FIN 46) and recorded
$3,792,000 of revenue based on the consolidation of our minority owned
subsidiary, Jameco International LLC, effective October 1, 2003. On a
consolidated basis, our internal growth rate contributed $11,851,000 of
increased sales in the three-month period ended December 31, 2003, compared to
the three-month period ended December 31, 2002. The change in foreign exchange
rates for the three-month period ended December 31, 2003 increased our sales by
$11,443,000 over the three-month period ended December 31, 2002, due primarily
to the strengthening of the euro versus the U.S. dollar. Our acquisitions
contributed $2,962,000 of sales for the three-month period ended December 31,
2003, compared to the three-month period ended December 31, 2002, attributable
to 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 December 31, 2003 of 10% to $124,192,000
compared to $112,540,000 for the three-month period ended December 31, 2002.
This increase in North American sales was achieved through the combination of
internal sales growth of 6%, or $6,219,000, the sales of $3,792,000 resulting
from the consolidation of Jameco International LLC, and $1,641,000 due to
favorable foreign exchange rates associated with the strengthening of the
Canadian dollar versus the U.S. dollar. Excluding the impact of Jameco
International, LLC, sales into the North American home improvement retail market
for the three-month period ended December 31, 2003 had an internal growth rate
of 9%, which increased sales to $32,229,000 from $29,596,000 for the three-month
period ended December 31, 2002. Sales into the North American wholesale market
for the three-month period ended December 31, 2003 increased 6% to $88,171,000
compared to $82,944,000 for the three-month period ended December 31, 2002. This
increase was primarily due to improved sales of our well-known backflow
prevention line."
Mr. O'Keefe continued, "We derived 32% of our total sales for the
three-month period ended December 31, 2003 from Europe compared to 27% in the
three-month period ended December 31, 2002. Sales in Europe for the three-month
period ended December 31, 2003 increased $17,881,000, or 41%, compared to the
three-month period ended December 31, 2002. This increase is due to the
favorable foreign exchange rates associated with the strengthening of the euro
versus the U.S. dollar, which accounted for $9,802,000, an internal sales growth
rate of 12%, or $5,117,000, and $2,962,000 from 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. Our overall internal growth
rate in Europe of 12% was achieved largely through increased sales into the
European O.E.M. market, which grew internally at 16% for the three months ended
December 31, 2003, over the comparable period last year. The appreciation of the
euro also had a positive impact on European income of $0.02 per share in the
three-month period ended December 31, 2003."
Mr. O'Keefe continued, "As previously announced, we have consolidated
several of our manufacturing plants in North American and Europe. At the same
time, we have expanded our manufacturing capacity in China and other areas of
the world, such as Tunisia and Bulgaria, that have lower cost manufacturing.
These manufacturing plant relocations and consolidations are an important part
of our ongoing commitment to reduce production costs. Furthermore, we anticipate
recording a pre-tax charge of approximately $6,000,000 for additional
manufacturing restructuring costs during 2004 as a result of our expansion of
the restructuring plan. These expected charges are primarily attributable to
accelerated depreciation associated with the anticipated closure of one of our
U.S. manufacturing plants. Tax benefits of costs incurred and asset write-downs
are expected to exceed the amount of cash outlays to implement our expansion of
this manufacturing restructuring plan.
The total pre-tax cost of our previously announced restructuring plans and
other costs was $11,575,000. The Company recorded pre-tax manufacturing
restructuring plan costs of $5,831,000 in 2001, $4,089,000 in fiscal 2002, and
$1,655,000 in fiscal 2003. The manufacturing restructuring plan costs recorded
in 2001, 2002 and 2003 consist primarily of severance cost, asset write-downs
and accelerated depreciation. Tax benefits of cost incurred and asset
write-downs were approximate to the cash outlays to implement this plan, which
has allowed us to complete these restructuring plans with minimal consumption of
cash."
Mr. 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 1999,
the Company has continually generated strong levels of cash from operations. In
this regard, the Company generated $49,990,000 of net cash provided by
continuing operations for the twelve months ended December 31, 2003. This, in
turn, produced $24,861,000 of free cash flow for the twelve months ended
December 31, 2003, which represents approximately 68% of our net earnings from
continuing operations. (Please refer to Table 2 at the end of this press release
for a reconciliation of free cash flow to net cash provided by continuing
operations.) This was achieved despite funding $6,800,000 into our pension plan
during the fiscal year ended December 31, 2003.
At December 31, 2003 the Company had cash and cash equivalents of
$149,361,000. We accumulated cash primarily through refinancing our $75,000,000
8 3/8% notes with $50,000,000 4.87% notes and $75,000,000 5.47% notes, through a
successful stock offering during the three months ended December 31, 2003, which
raised net proceeds of approximately $82,100,000 of cash, and through the free
cash flow discussed above. The effect of the free cash flow and the stock
offering has reduced our net debt to capitalization ratio to 9% at December 31,
2003. (Please refer to Table 3 included at the end of this press release for a
reconciliation of net debt to capitalization.) We are pleased that we have
maintained a conservative capital structure while achieving the growth rates
which we have realized over the past several years. The Company maintains a
$150,000,000 Revolving Line of Credit of which $105,911,000 was unused and
available at December 31, 2003."
On January 5, 2004, the Company acquired Flowmatic Systems, Inc. located
in Dunnellon, Florida, for approximately $16,500,000 in cash. Flowmatic designs
and distributes high quality
reverse osmosis components and filtration equipment. Their product line includes
stainless steel and plastic housings, filter cartridges, storage tanks, control
valves, as well as complete reverse osmosis systems for residential and
commercial applications.
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, and net cash provided
by continuing operations 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 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 to expand our markets through acquisitions, 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 rate 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 STATEMENTS OF INCOME
(Thousands, except share amounts)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
------------ ------------ ------------ ------------
STATEMENTS OF INCOME
Net sales $ 190,938 $ 160,890 $ 705,651 $ 615,526
Income from continuing operations $ 9,838 $ 7,160 $ 36,473 $ 32,622
Loss from discontinued operations (97) -- (3,111) --
------------ ------------ ------------ ------------
Net income $ 9,741 $ 7,160 $ 33,362 $ 32,622
============ ============ ============ ============
DILUTED EARNINGS PER SHARE
Weighted Average Number of
Common Shares & Equivalents 28,524 27,235 27,692 27,056
Earnings per Share:
Continuing operations $ 0.34 $ 0.26 $ 1.32 $ 1.21
Discontinued operations -- -- (0.11) --
------------ ------------ ------------ ------------
Net income $ 0.34 $ 0.26 $ 1.21 $ 1.21
============ ============ ============ ============
Cash dividends per share $ 0.07 $ 0.06 $ 0.25 $ 0.24
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
(Unaudited)
December 31, December 31,
2003 2002
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 149,361 $ 10,973
Trade accounts receivable, less allowance for doubtful accounts of
$7,772 at December 31, 2003 and $7,322 at December 31, 2002 ....... 136,064 123,504
Inventories:
Raw materials ..................................................... 41,998 40,591
Work in process ................................................... 24,348 17,289
Finished goods .................................................... 90,253 75,535
------------ ------------
Total Inventories .............................................. 156,599 133,415
Prepaid expenses and other assets .................................... 8,500 10,732
Deferred income taxes ................................................ 23,552 21,927
Net assets held for sale ............................................. 1,938 2,464
Assets of discontinued operations .................................... 4,460 6,741
------------ ------------
Total Current Assets .............................................. 480,474 309,756
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost ............................... 284,250 248,933
Accumulated depreciation ............................................. (138,539) (114,557)
------------ ------------
Property, plant and equipment, net ................................ 145,711 134,376
------------ ------------
OTHER ASSETS:
Goodwill ............................................................. 184,901 163,226
Other ................................................................ 27,557 28,114
------------ ------------
TOTAL ASSETS ............................................................. $ 838,643 $ 635,472
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................................... $ 74,068 $ 64,704
Accrued expenses and other liabilities ............................... 55,252 57,037
Accrued compensation and benefits .................................... 18,466 15,514
Current portion of long-term debt .................................... 13,251 82,211
Liabilities of discontinued operations ............................... 11,302 18,906
------------ ------------
Total Current Liabilities ......................................... 172,339 238,372
------------ ------------
LONG-TERM DEBT, NET OF CURRENT PORTION ................................... 179,061 56,276
DEFERRED INCOME TAXES .................................................... 15,978 15,011
OTHER NONCURRENT LIABILITIES ............................................. 25,588 19,743
MINORITY INTEREST ........................................................ 9,286 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: 24,459,121 shares at
December 31, 2003 and 18,863,482 shares at December 31, 2002 ...... 2,446 1,886
Class B Common Stock, $.10 par value; 25,000,000 shares authorized;
10 votes per share; issued and outstanding: 7,605,224 shares at
December 31, 2003 and 8,185,224 shares at December 31, 2002 ....... 761 819
Additional paid-in capital ........................................... 132,983 45,132
Retained earnings .................................................... 286,396 259,893
Accumulated other comprehensive income/(loss) ........................ 13,805 (11,794)
------------ ------------
Total Stockholders' Equity ........................................ 436,391 295,936
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................... $ 838,643 $ 635,472
============ ============
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands, except per share amounts)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net sales ........................................ $ 190,938 $ 160,890 $ 705,651 $ 615,526
Cost of goods sold ............................... 123,979 107,388 464,990 406,806
------------ ------------ ------------ ------------
GROSS PROFIT ................................ 66,959 53,502 240,661 208,720
Selling, general & administrative expenses ....... 46,834 40,656 170,195 150,553
Restructuring .................................... 312 420 426 638
------------ ------------ ------------ ------------
OPERATING INCOME ............................ 19,813 12,426 70,040 57,529
------------ ------------ ------------ ------------
Other (income) expense:
Interest income ............................. (277) (414) (1,021) (992)
Interest expense ............................ 3,551 2,116 12,114 8,692
Other, net .................................. 710 (108) 581 (272)
Minority interest ........................... (15) (379) (463) (117)
------------ ------------ ------------ ------------
3,969 1,215 11,211 7,311
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ................. 15,844 11,211 58,829 50,218
Provision for income taxes ....................... 6,006 4,051 22,356 17,596
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS .......... 9,838 7,160 36,473 32,622
Loss from discontinued operations, net of taxes .. (97) -- (3,111) --
------------ ------------ ------------ ------------
NET INCOME .................................. $ 9,741 $ 7,160 $ 33,362 $ 32,622
============ ============ ============ ============
BASIC EARNINGS PER SHARE
Continuing Operations ....................... $ 0.35 $ 0.27 $ 1.33 $ 1.22
Discontinued Operations ..................... -- -- (0.11) --
NET INCOME .................................. $ 0.35 $ 0.27 $ 1.22 $ 1.22
============ ============ ============ ============
Weighted average number of shares ................ 28,184 26,970 27,455 26,718
============ ============ ============ ============
DILUTED EARNINGS PER SHARE
Continuing Operations ....................... $ 0.34 $ 0.26 $ 1.32 $ 1.21
Discontinued Operations ..................... -- -- (0.11) --
------------ ------------ ------------ ------------
NET INCOME .................................. $ 0.34 $ 0.26 $ 1.21 $ 1.21
============ ============ ============ ============
Weighted average number of shares ................ 28,524 27,235 27,692 27,056
============ ============ ============ ============
Dividends per common share ................. $ 0.07 $ 0.06 $ 0.25 $ 0.24
============ ============ ============ ============
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
TABLE 1
RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED INCOME
FROM CONTINUING OPERATIONS
(Thousands, except per share amounts)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income $ 9,741 $ 7,160 $ 33,362 $ 32,622
Add back: loss from discontinued operations 97 -- 3,111 --
---------- ---------- ---------- ----------
Income from continuing operations 9,838 7,160 36,473 32,622
---------- ---------- ---------- ----------
Add back: cost of restructuring and related charges 444 1,122 1,084 2,552
---------- ---------- ---------- ----------
Adjusted income from continuing operations $ 10,282 $ 8,282 $ 37,557 $ 35,174
========== ========== ========== ==========
Diluted earnings per share:
Net income $ 0.34 $ 0.26 $ 1.21 $ 1.21
Add back: discontinued operations -- -- 0.11 --
---------- ---------- ---------- ----------
Continuing operations 0.34 0.26 1.32 1.21
---------- ---------- ---------- ----------
Add back: cost of restructuring and related charges 0.02 0.04 0.04 0.09
---------- ---------- ---------- ----------
Adjusted income from continuing operations $ 0.36 $ 0.30 $ 1.36 $ 1.30
========== ========== ========== ==========
TABLE 2
RECONCILIATION OF NET CASH PROVIDED BY CONTINUING OPERATIONS TO FREE CASH FLOW
(Thousands)
(Unaudited)
Twelve Months Ended
December 31, December 31,
2003 2002
----------- -----------
Net cash provided by continuing operations $ 49,990 $ 51,425
Less: additions to property, plant, and equipment (20,035) (19,593)
Plus: proceeds from the sale of property, plant, and equipment 1,765 3,194
Less: dividends (6,859) (6,490)
----------- -----------
Free cash flow $ 24,861 $ 28,536
=========== ===========
TABLE 3
RECONCILIATION OF NET DEBT TO CAPITALIZATION
(Thousands)
(Unaudited)
December 31, December 31,
2003 2002
------------ ------------
Current portion of long-term debt $ 13,251 $ 82,211
Plus: Long-term debt, net of current portion 179,061 56,276
Less: Cash and cash equivalents (149,361) (10,973)
------------ ------------
Net debt $ 42,951 $ 127,514
============ ============
Net debt $ 42,951 $ 127,514
Plus: Total stockholders' equity 436,391 295,936
Plus: Minority interest 9,286 10,134
------------ ------------
Capitalization $ 488,628 $ 433,584
============ ============