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 2004 RESULTS
North Andover, MA...November 2, 2004. Watts Water Technologies, Inc.
(NYSE: WTS) today announced results for the third quarter ended September 26,
2004, reflecting increases in sales and net income of 22% and 54%, respectively,
over the third quarter ended September 28, 2003. Sales were $214,843,000, an
increase of $39,334,000, or 22%, compared to the third quarter of 2003. Net
income was $13,705,000, an increase of $4,800,000, or 54%, compared to the third
quarter of 2003. Net income for the third quarters of 2004 and 2003 included
losses from discontinued operations of $125,000 and $114,000, respectively.
Income from continuing operations for the third quarter of 2004 was
$13,830,000, or $0.42 per share, an increase of $4,811,000, or 53%, compared to
income from continuing operations for the third quarter of 2003 of $9,019,000,
or $0.33 per share. Income from continuing operations for the third quarter of
2004 includes costs incurred for our manufacturing restructuring plan of
$349,000, or $0.01 per share.
The nine months ended September 26, 2004 reflected increases in sales and
net income of 20% and 64%, respectively, over the nine months ended September
28, 2003. Sales were $618,183,000, an increase of $103,470,000, or 20%, compared
to the nine months ended September 28, 2003. Net income for the nine months
ended September 26, 2004, was $38,659,000, an increase of $15,038,000, or 64%,
compared to the nine months ended September 28, 2003. Net income for the nine
months ended September 26, 2004 and September 28, 2003 included losses from
discontinued operations of $220,000 and $3,014,000, respectively.
Income from continuing operations for the nine months ended September 26,
2004 was $38,879,000, or $1.19 per share, an increase of $12,244,000, or 46%,
compared to income from continuing operations for the nine months ended
September 28, 2003 of $26,635,000, or $0.97 per share. Income from continuing
operations for the nine months ended September 26, 2004 and September 28, 2003
included net costs incurred for our manufacturing restructuring plan of
$1,417,000, or $0.04 per share, and $640,000, or $0.02 per share, respectively.
Earnings per share for the third quarter and nine months of 2004 includes
an increase of 17% in outstanding shares resulting from the Company's Class A
Common Stock Offering in December 2003.
Patrick S. O'Keefe, Chief Executive Officer, commented, "We are pleased
with the third quarter results from all three of our geographic segments, North
America, Europe and China. Our overall increase in sales was achieved by
internal growth, the contribution from acquired companies, and the change in
foreign exchange rates. In comparing quarterly year over year sales, our
internal growth rate was 10% and contributed $17,987,000, the acquisitions of
McCoy Enterprises, Inc, TEAM Precision Pipework, Ltd, and Flowmatic Systems,
Inc. contributed $10,756,000, or 6%, and the change in foreign exchange rates
contributed $5,938,000, or 3%, due primarily to the strengthening of the euro
versus the U.S. dollar. Additionally, due to the adoption of Financial
Accounting Standards Board Interpretation No. 46, "Consolidation of Variable
Interest Entities-Revised" (FIN 46R) we recorded $4,653,000 of revenue in the
third quarter of 2004 as a result of the consolidation of our minority owned
subsidiary, Jameco International LLC."
Mr. O'Keefe continued, "Our North American segment sales for the third
quarter of 2004 increased 20% to $145,056,000 compared to $121,001,000 for the
third quarter of 2003. This increase in North American sales was due to internal
sales growth of $10,462,000, or 9%, the inclusion of $8,358,0000 in sales from
the acquisition of McCoy Enterprises, Inc., acquired on May 21, 2004, and
Flowmatic Systems, Inc., acquired on January 5, 2004, the inclusion of
$4,653,000 in sales resulting from the consolidation of Jameco International
LLC, and $582,000 due to favorable foreign exchange rates associated with the
strengthening of the Canadian dollar versus the U.S. dollar."
Mr. O'Keefe continued, "Internal sales growth in the North American
wholesale market was 9% over the third quarter of 2003. This increase was led by
increased sales of backflow prevention units, as well as, strength in our
plumbing and under-floor radiant heating product lines. Our internal sales
growth in the North American home improvement retail market was 8% for the third
quarter of 2004 over the third quarter of 2003.
Mr. O'Keefe continued, "We derived 29% of our total sales for the third
quarter of 2004 from Europe. European sales increased $12,175,000, or 24%,
compared to the third quarter of 2003. This increase includes internal sales
growth of $4,421,000, or 9%, the inclusion of $2,398,000 in sales from the
acquisition of TEAM Precision Pipework, Ltd., acquired on April 16, 2004, and
$5,356,000 due to favorable foreign exchange rates associated with the
strengthening of the euro versus the U.S. dollar. The internal sales growth is
attributable to market share gains in the European wholesale markets."
Mr. O'Keefe continued, "We are pleased with the positive operating trends
in our Chinese subsidiaries. The plants continue to increase capacity
utilization and gain manufacturing efficiencies. These increased manufacturing
efficiencies allowed our Chinese operations to generate a profit for the second
consecutive quarter. Year-to-date, the operations are also profitable."
Mr. O'Keefe continued, "In the third quarter of 2004 we recorded a tax
benefit of approximately $876,000 for prior years state tax credits. We also
recorded in cost of sales a pre-tax charge of approximately $567,000 for
accelerated depreciation for both the expected closure of a U.S. manufacturing
plant and a reduction in the estimated useful lives of certain manufacturing
equipment, both part of our cost reduction program. In this quarter we incurred
and recorded pre-tax charges of approximately $1,200,000 for costs to comply
with the Sarbanes-Oxley Act ("SOX"). In addition, we expect to record
approximately $3,000,000 in the fourth quarter of 2004 for additional costs to
comply with SOX".
On January 5, 2004, the Company acquired substantially all of the assets
of Flowmatic Systems, Inc. located in Dunnellon, Florida, for approximately
$16,800,000 in cash. Flowmatic designs and distributes high quality reverse
osmosis components and filtration equipment. Their product lines include
stainless steel and plastic housings, filter cartridges, storage tanks, control
valves, as well as complete reverse osmosis systems for residential and
commercial applications.
On April 16, 2004, the Company acquired 90% of the stock of TEAM Precision
Pipework, Ltd., located in Ammanford, West Wales, United Kingdom for
approximately $17,200,000 subject to final adjustments, if any, as stipulated in
the purchase and sale agreement. TEAM custom designs and manufactures
manipulated pipe and hose tubing assemblies, which are utilized in the heating
ventilation and air conditioning markets. TEAM is a supplier to major original
equipment manufacturers of air conditioning systems and several of the major
European automotive air conditioning manufacturers.
On May 21, 2004, the Company acquired 100% of the stock of McCoy
Enterprises, Inc., which we subsequently renamed Orion Enterprises, Inc.
(Orion), located in Kansas City, Kansas, for approximately $27,800,000 in cash.
Orion distributes its products under the brand names of Orion, FloSafe and
Laboratory Enterprises. Orion's product lines include a complete line of acid
resistant waste products, double containment piping systems, as well as, a line
of high purity pipes, fittings and faucets.
Watts Water Technologies, Inc. will hold a live web cast of its conference
call to discuss third quarter results for 2004 on Wednesday, November 3, 2004,
at 3:00 p.m. Eastern Time. This press release and the live webcast can be
accessed by visiting the Investor Relations section of the Company's website at
www.wattswater.com. Following the web cast, an archived version of the call will
be available at the same address until November 3, 2005.
Watts Water Technologies, Inc. is a world leader in the manufacture of
innovative products to control the efficiency, safety, and quality of water
within residential, commercial, and institutional applications. Its expertise in
a wide variety of water technologies enables it to be a comprehensive supplier
to the water industry.
This Press Release includes statements that 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. In some cases you can identify these statements by
forward-looking words such as "anticipate," "believe," "could," "estimate,"
"expect," "intend," "may," "should," "will" and "would" or similar words. 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: shortages in and pricing of raw materials and
supplies including recent price increases by suppliers of raw materials and the
Company's ability to pass these costs on to customers, loss of market share
through competition, introduction of competing products by other companies,
pressure on prices from competitors, suppliers, and/or customers, diversion of
management's attention and costs associated with efforts to comply with Section
404 of the Sarbanes-Oxley Act of 2002, failure to meet the new requirements
under Section 404 of the Sarbanes-Oxley Act of 2002 in a timely manner,
identification and disclosure of material weaknesses in our internal controls
over financial reporting, 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, 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 the Watts Water Technologies, Inc.
Annual Report on Form 10-K for the year ended December 31, 2003 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. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share information)
(Unaudited)
Third Quarter Ended Nine Months Ended
September 26, September 28, September 26, September 28,
2004 2003 2004 2003
------------- ------------- ------------ ------------
STATEMENTS OF INCOME
Net sales $ 214,843 $ 175,509 $ 618,183 $ 514,713
Income from continuing operations $ 13,830 $ 9,019 $ 38,879 $ 26,635
Loss from discontinued operations (125) (114) (220) (3,014)
---------- ---------- ---------- ----------
Net income $ 13,705 $ 8,905 $ 38,659 $ 23,621
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE
Weighted Average Number of
Common Shares & Equivalents 32,792 27,632 32,673 27,428
Earnings per Share:
Continuing operations $ 0.42 $ 0.33 $ 1.19 $ 0.97
Discontinued operations -- (0.01) (0.01) (0.11)
---------- ---------- ---------- ----------
Net income $ 0.42 $ 0.32 $ 1.18 $ 0.86
========== ========== ========== ==========
Cash dividends per share $ 0.07 $ 0.06 $ 0.21 $ 0.18
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share information)
(Unaudited)
September 26, December 31,
ASSETS 2004 2003
------------ -----------
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 69,751 $ 149,361
Trade accounts receivable, less allowance for doubtful accounts of
$9,132 at September 26, 2004 and $7,772 at December 31, 2003 ...... 161,920 136,064
Inventories, net:
Raw materials ..................................................... 53,915 41,998
Work in process ................................................... 26,569 24,348
Finished goods .................................................... 127,747 90,253
--------- ---------
Total Inventories .............................................. 208,231 156,599
Prepaid expenses and other assets .................................... 15,856 10,438
Deferred income taxes ................................................ 23,032 23,552
Assets of discontinued operations .................................... 9,394 4,460
--------- ---------
Total Current Assets .............................................. 488,184 480,474
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost ............................... 306,589 284,250
Accumulated depreciation ............................................. (158,713) (138,539)
--------- ---------
Property, plant and equipment, net ................................ 147,876 145,711
--------- ---------
OTHER ASSETS:
Goodwill ............................................................. 216,531 184,901
Other ................................................................ 49,344 27,557
--------- ---------
TOTAL ASSETS ............................................................. $ 901,935 $ 838,643
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................................... $ 77,551 $ 74,068
Accrued expenses and other liabilities ............................... 60,504 55,252
Accrued compensation and benefits .................................... 22,516 18,466
Current portion of long-term debt .................................... 9,433 13,251
Liabilities of discontinued operations ............................... 22,159 11,302
--------- ---------
Total Current Liabilities ......................................... 192,163 172,339
--------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION ................................... 187,781 179,061
DEFERRED INCOME TAXES .................................................... 20,786 15,978
OTHER NONCURRENT LIABILITIES ............................................. 24,572 25,588
MINORITY INTEREST ........................................................ 7,457 9,286
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: 25,009,049 shares at
September 26, 2004 and 24,459,121 shares at December 31, 2003 ..... 2,501 2,446
Class B Common Stock, $.10 par value; 25,000,000 shares authorized;
10 votes per share; issued and outstanding: 7,343,880 shares at
September 26, 2004 and 7,605,224 shares at December 31, 2003 ...... 734 761
Additional paid-in capital ........................................... 138,380 132,983
Deferred compensation ................................................ (716) --
Retained earnings .................................................... 318,254 286,396
Accumulated other comprehensive income ............................... 10,023 13,805
--------- ---------
Total Stockholders' Equity ........................................ 469,176 436,391
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................... $ 901,935 $ 838,643
========= =========
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share information)
(Unaudited)
Third Quarter Ended Nine Months Ended
----------------------------- -----------------------------
September 26, September 28, September 26, September 28,
2004 2003 2004 2003
-------------- ------------- ------------- -------------
Net sales ................................................... $ 214,843 $ 175,509 618,183 $ 514,713
Cost of goods sold .......................................... 139,828 116,136 400,964 341,011
------------ ------------ ------------ ------------
GROSS PROFIT ............................................ 75,015 59,373 217,219 173,702
Selling, general & administrative expenses .................. 52,235 41,396 150,099 123,361
Restructuring ............................................... -- -- -- 114
------------ ------------ ------------ ------------
OPERATING INCOME ........................................ 22,780 17,977 67,120 50,227
------------ ------------ ------------ ------------
Other (income) expense:
Interest income ......................................... (202) (362) (721) (744)
Interest expense ........................................ 2,641 3,659 7,994 8,563
Minority interest ....................................... 371 (410) 877 (448)
Other ................................................... (371) 23 (850) (129)
------------ ------------ ------------ ------------
2,439 2,910 7,300 7,242
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES .. 20,341 15,067 59,820 42,985
Provision for income taxes .................................. 6,511 6,048 20,941 16,350
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS ...................... 13,830 9,019 38,879 26,635
Loss from discontinued operations, net of taxes ............. (125) (114) (220) (3,014)
------------ ------------ ------------ ------------
NET INCOME .............................................. $ 13,705 $ 8,905 38,659 $ 23,621
============ ============ ============ ============
BASIC EPS Income (loss) per share:
Continuing operations ................................... $ 0.43 $ 0.33 1.21 $ 0.98
Discontinued operations ................................. (0.01) -- (0.01) (0.11)
------------ ------------ ------------ ------------
NET INCOME .............................................. $ 0.42 $ 0.33 1.20 $ 0.87
============ ============ ============ ============
Weighted average number of shares ........................... 32,320 27,306 32,242 27,196
============ ============ ============ ============
DILUTED EPS Income (loss) per share:
Continuing operations ................................... $ 0.42 $ 0.33 1.19 $ 0.97
Discontinued operations ................................. -- (0.01) (0.01) (0.11)
------------ ------------ ------------ ------------
NET INCOME .............................................. $ 0.42 $ 0.32 1.18 $ 0.86
============ ============ ============ ============
Weighted average number of shares ........................... 32,792 27,632 32,673 27,428
============ ============ ============ ============
Dividends per share .................................... $ 0.07 $ 0.06 0.21 $ 0.18
============ ============ ============ ============
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Amounts in thousands)
(Unaudited)
Net Sales
Third Quarter Ended Nine Months Ended
----------------------------- -----------------------------
September 26, September 28, September 26, September 28,
2004 2003 2004 2003
------------- ------------- ------------- -------------
North America 145,056 121,001 415,198 352,118
Europe 62,386 50,211 183,400 149,109
China 7,401 4,297 19,585 13,486
------------- ------------- ------------- -------------
Total 214,843 175,509 618,183 514,713
============= ============= ============= =============
Operating Income
Third Quarter Ended Nine Months Ended
----------------------------- -----------------------------
September 26, September 28, September 26, September 28,
2004 2003 2004 2003
------------- ------------- ------------- -------------
North America 19,775 18,735 58,451 50,704
Europe 8,023 6,453 23,460 15,623
China 1,277 (1,730) 1,276 (2,854)
Corporate (6,295) (5,481) (16,067) (13,246)
------------- ------------- ------------- -------------
Total 22,780 17,977 67,120 50,227
============= ============= ============= =============