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 FOURTH QUARTER 2004 RESULTS
North Andover, MA...February 23, 2005. Watts Water Technologies, Inc.
(NYSE: WTS) today announced results for the fourth quarter ended December 31,
2004, reflecting an increase in sales of 18% over the fourth quarter ended
December 31, 2003. Sales were $221,406,000, an increase of $34,260,000, or 18%,
compared to the fourth quarter of 2003. Net income was $8,161,000, a decrease of
$1,580,000, or 16%, compared to the fourth quarter of 2003. Net income for the
fourth quarters of 2004 and 2003 included losses from discontinued operations of
$1,688,000 and $43,000, respectively.
Income from continuing operations for the fourth quarter of 2004 was
$9,849,000, or $0.30 per share, an increase of $65,000, or 1%, compared to
income from continuing operations for the fourth quarter of 2003 of $9,784,000,
or $0.34 per share. Income from continuing operations for the fourth quarter of
2004 and 2003 includes costs incurred for our manufacturing restructuring plan
of $408,000, or $0.01 per share, and $444,000, or $0.02 per share, respectively.
The year ended December 31, 2004 reflected increases in sales and net
income of 17% and 40%, respectively, over the year ended December 31, 2003.
Sales were $824,558,000, an increase of $122,699,000, or 17%, compared to the
year ended December 31, 2003. Net income for the year ended December 31, 2004,
was $46,820,000, an increase of $13,458,000, or 40%, compared to the year ended
December 31, 2003. Net income for the years ended December 31, 2004 and December
31, 2003 included losses from discontinued operations of $1,918,000 and
$3,057,000, respectively.
Income from continuing operations for the year ended December 31, 2004
was $48,738,000, or $1.49 per share, an increase of $12,319,000, or 34%,
compared to income from continuing operations for the year ended December 31,
2003 of $36,419,000, or $1.32 per share. Income from continuing operations for
the years ended December 31, 2004 and 2003 included net costs incurred for our
manufacturing restructuring plan of $1,825,000, or $0.06 per share, and
$1,084,000, or $0.04 per share, respectively.
Earnings per share for the fourth quarter and the full year of 2004
reflect an increase of 15% and 18%, respectively, in outstanding shares
resulting from the Company's public offering of Class A Common Stock in December
2003.
During the fourth quarter of 2004, the Company identified and corrected
errors related to certain accrued expenses. The after tax adjustments necessary
to correct these errors amounted to $2,289,000, or $0.07 per share. The portions
of these adjustments that related to the year ended December 31, 2004 and the
fourth quarter of 2004 were $1,520,000, or $0.05 per share and $411,000, or
$0.01 per share, respectively. The impact of the amount that related to prior
periods was not material to any of the financial statements of prior periods,
thus the amount related to prior periods was also recorded in the fourth
quarter of 2004. The Company estimates that it will record an additional
after-tax charge of approximately $900,000, or $0.03 per share, for the nine
months ended October 2, 2005.
The following table illustrates the effects of the adjustments on earnings
per share from continuing operations and reconciles the unadjusted earnings per
share to earnings per share under generally accepted accounting principles:
Fourth Quarter Ended Year Ended
December 31, 2004 December 31, 2004
----------------- -----------------
As Reported $0.30 $1.49
Adjustments
Relating to 2004 $0.01 $0.05
Relating to earlier periods $0.06 $0.02
Unadjusted $0.37 $1.56
In accordance with Section 404 of the Sarbanes-Oxley Act of 2002,
management is in the process of performing its annual assessment of the
effectiveness of the Company's internal control over financial reporting. In the
course of performing its assessment, management has identified certain
significant deficiencies, including a significant deficiency that led to the
above described accounting error. Management has not yet completed its
assessment and has not yet determined whether these deficiencies, individually
or in the aggregate, constitute a material weakness.
Patrick S. O'Keefe, Chief Executive Officer, commented, "Excluding the
impact of the accrual adjustments, we are pleased with the 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 sales
from the fourth quarter of 2003 to the fourth quarter of 2004, our internal
growth rate was 10% and contributed $18,791,000, the acquisitions of Orion
Enterprises, Inc, TEAM Precision Pipework, Ltd, and Flowmatic Systems, Inc.
contributed $9,903,000, or 5%, and the change in foreign exchange rates
contributed $5,566,000, or 3%, due primarily to the strengthening of the euro
versus the U.S. dollar."
"Our North American segment sales for the fourth quarter of 2004 increased
20% to $144,972,000 compared to $120,400,000 for the fourth quarter of 2003.
This increase in North American sales was due to internal sales growth of
$16,623,000, or 14%, the inclusion of $7,221,0000 in sales from Orion
Enterprises, Inc., acquired on May 21, 2004, and Flowmatic Systems, Inc.,
acquired on January 5, 2004 and $728,000 due to favorable foreign exchange rates
associated with the strengthening of the Canadian dollar versus the U.S.
dollar."
"Internal sales growth in the North American wholesale market increased
11% over the fourth 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 increased 21% for the fourth quarter of 2004 over
the fourth quarter of 2003."
"We derived 32% of our total sales for the fourth quarter of 2004 from
Europe. European sales increased $8,329,000, or 14%, compared to the fourth
quarter of 2003. This increase is comprised of $4,838,000 due to favorable
foreign exchange rates associated with the strengthening of the euro versus the
U.S. dollar, the inclusion of $2,682,000 in sales from TEAM Precision Pipework,
Ltd., acquired on April 16, 2004 and internal sales growth of $809,000. This
organic growth is predominately due to market share gains in the wholesale
market partially offset by a soft quarter in the O.E.M. markets."
"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 third consecutive quarter.
The full year operations of China were also profitable. In addition, we believe
we will be able to sustain the profitability of our Chinese operations and, as a
result, in the fourth quarter of 2004 we valued a net operating loss carry
forward which provided a tax benefit of approximately $322,000, or $0.01 per
share."
"In the fourth quarter of 2004 we recorded pre-tax charges of
approximately $569,000 in cost of sales and $95,000 in restructuring for costs
associated with our manufacturing restructuring program. Additionally, in this
quarter we incurred and recorded pre-tax charges of approximately $2,973,000 for
costs to comply with the requirements of Section 404 of the Sarbanes-Oxley Act."
"We are particularly pleased with the Company's continued strong cash
generation. Since the spin off of our industrial and oil and gas businesses in
October 1999, we have continually generated strong levels of cash from
operations. We generated $40,210,000 of net cash provided by continuing
operations for the year ended December 31, 2004. We had a particularly strong
fourth quarter of 2004 generating $42,139,0000 of cash from continuing
operations due to improved management of working capital. This strong
performance in the fourth quarter resulted in $12,283,000 of free cash flow for
the year ended December 31, 2004. (Please refer to Table 1 at the end of this
press release for a reconciliation of free cash flow to net cash provided by
continuing operations.) The impact of this free cash flow and our financing
activities in 2003, net of investments in acquired companies, results in a net
debt to capitalization ratio of 16% at December 31, 2004. (Please refer to Table
2 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. We maintain a $300,000,000 Revolving Line of Credit of which
$218,445,000 was unused and available at December 31, 2004."
Loss from discontinued operations for the fourth quarter of 2004 was
$1,688,000, or $0.05 per share, compared to loss from discontinued operations
for the fourth quarter of 2003 of $43,000, or $0.00 per share. Loss from
discontinued operations for the fourth quarter of 2004 includes an after tax
charge of $783,000 or $0.02 per share, for the planned divesture of Jameco
International, LLC and after tax charges of $905,000 attributable to legal fees
associated with the James Jones litigation. In the fourth quarter of 2004, the
Company recorded an impairment charge to write down the investment in its
minority owned subsidiary, Jameco International, LLC., to an estimated fair
value. Prior periods reflect Jameco International, LLC as discontinued
operations.
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. Flowmatics 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 outstanding 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. located
in Kansas City, Kansas, for approximately $27,900,000 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 disposal
products, double containment piping systems, as well as, a line of high purity
pipes, fittings and faucets.
On January 4, 2005, the Company acquired Sea Tech, Inc. located in
Wilmington, North Carolina in an asset purchase transaction for approximately
$10,000,000 in cash. Sea Tech, which was established in 1995, provides cost
effective solutions for fluidic connection needs. Sea Tech offers a wide range
of standard and custom quick connect fittings, valves and manifolds and pex
tubing designed to address specific customer requirements.
On January 5, 2005, the Company acquired HF Scientific, Inc. located in
Fort Myers, Florida, in a stock purchase transaction for approximately
$7,800,000 in cash. HF Scientific manufactures and distributes a line of
instrumentation equipment, test kits and chemical reagents used for monitoring
water quality in a variety of applications.
Watts Water Technologies, Inc. will hold a live webcast of its conference
call to discuss fourth quarter results for 2004 on February 24, 2005, at 10:00
a.m. Eastern Time. This press release and the live webcast can be accessed by
visiting the Investors section of the Company's website at www.wattswater.com.
Following the webcast, an archived version of the call will be available at the
same address until 2006.
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.
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, net cash provided by
continuing operations and, with respect to the effect of the adjustments made to
correct the above described errors, earnings per share from 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 pre-tax charges, 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, income per share or other measures prepared in accordance with GAAP.
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 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, 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)
Fourth Quarter Ended Years Ended
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
------------ ------------ ------------ ------------
STATEMENTS OF INCOME
Net sales $ 221,406 $ 187,146 $ 824,558 $ 701,859
Income from continuing operations $ 9,849 $ 9,784 $ 48,738 $ 36,419
Loss from discontinued operations (1,688) (43) (1,918) (3,057)
------------ ------------ ------------ ------------
Net income $ 8,161 $ 9,741 $ 46,820 $ 33,362
============ ============ ============ ============
DILUTED EARNINGS PER SHARE
Weighted Average Number of
Common Shares & Equivalents 32,901 28,524 32,719 27,692
Earnings per Share:
Continuing operations $ 0.30 $ 0.34 $ 1.49 $ 1.32
Discontinued operations (0.05) (0.00) (0.06) (0.11)
------------ ------------ ------------ ------------
Net income $ 0.25 $ 0.34 $ 1.43 $ 1.21
============ ============ ============ ============
Cash dividends per share $ 0.07 $ 0.07 $ 0.28 $ 0.25
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share information)
(Unaudited)
December 31, December 31,
ASSETS 2004 2003
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 92,513 $ 149,001
Trade accounts receivable, less allowance for doubtful accounts of
$7,551 at Decmber 31, 2004 and $7,772 at December 31, 2003 ........ 150,073 135,170
Inventories, net:
Raw materials ..................................................... 53,942 41,998
Work in process ................................................... 28,020 21,870
Finished goods .................................................... 121,082 90,253
------------ ------------
Total Inventories .............................................. 203,044 154,121
Prepaid expenses and other assets .................................... 14,359 10,355
Deferred income taxes ................................................ 27,463 23,889
Assets of discontinued operations .................................... 10,227 10,358
------------ ------------
Total Current Assets .............................................. 497,679 482,894
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost ............................... 321,655 284,087
Accumulated depreciation ............................................. (170,966) (138,521)
------------ ------------
Property, plant and equipment, net ................................ 150,689 145,566
------------ ------------
OTHER ASSETS:
Goodwill ............................................................. 226,178 184,901
Other ................................................................ 49,702 27,557
------------ ------------
TOTAL ASSETS .............................................................. $ 924,248 $ 840,918
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................................... $ 73,606 $ 73,607
Accrued expenses and other liabilities ............................... 64,604 54,843
Accrued compensation and benefits .................................... 29,679 18,466
Current portion of long-term debt .................................... 4,981 11,689
Liabilities of discontinued operations ............................... 24,303 16,031
------------ ------------
Total Current Liabilities ......................................... 197,173 174,636
------------ ------------
LONG-TERM DEBT, NET OF CURRENT PORTION .................................... 180,562 179,061
DEFERRED INCOME TAXES ..................................................... 19,578 15,978
OTHER NONCURRENT LIABILITIES .............................................. 26,632 25,085
MINORITY INTEREST ......................................................... 7,515 9,767
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: 25,049,338 shares at
December 31, 2004 and 24,459,121 shares at December 31, 2003 ...... 2,505 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
December 31, 2004 and 7,605,224 shares at December 31, 2003 ....... 734 761
Additional paid-in capital ........................................... 139,434 132,983
Deferred compensation ................................................ (648) --
Retained earnings .................................................... 324,145 286,396
Accumulated other comprehensive income ............................... 26,618 13,805
------------ ------------
Total Stockholders' Equity ........................................ 492,788 436,391
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................ $ 924,248 $ 840,918
============ ============
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share information)
(Unaudited)
Fourth Quarter Ended Years Ended
---------------------------- ----------------------------
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net sales .................................................... $ 221,406 $ 187,146 $ 824,558 $ 701,859
Cost of goods sold ........................................... 145,752 120,983 533,997 461,994
------------ ------------ ------------ ------------
GROSS PROFIT ............................................ 75,654 66,163 290,561 239,865
Selling, general & administrative expenses ................... 60,058 46,077 207,590 169,438
Restructuring ................................................ 95 312 95 426
------------ ------------ ------------ ------------
OPERATING INCOME ........................................ 15,501 19,774 82,876 70,001
------------ ------------ ------------ ------------
Other (income) expense:
Interest income ......................................... (343) (299) (1,135) (1,043)
Interest expense ........................................ 2,634 3,545 10,564 12,108
Minority interest ....................................... 308 (106) 1,203 (554)
Other ................................................... 67 877 (428) 748
------------ ------------ ------------ ------------
2,666 4,017 10,204 11,259
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES .. 12,835 15,757 72,672 58,742
Provision for income taxes ................................... 2,986 5,973 23,934 22,323
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS ...................... 9,849 9,784 48,738 36,419
Loss from discontinued operations, net of taxes .............. (1,688) (43) (1,918) (3,057)
------------ ------------ ------------ ------------
NET INCOME .............................................. $ 8,161 $ 9,741 $ 46,820 $ 33,362
============ ============ ============ ============
BASIC EPS
Income (loss) per share:
Continuing operations ................................... $ 0.30 $ 0.35 $ 1.51 $ 1.33
Discontinued operations ................................. (0.05) (0.00) (0.06) (0.11)
------------ ------------ ------------ ------------
NET INCOME .............................................. $ 0.25 $ 0.35 $ 1.45 $ 1.22
============ ============ ============ ============
Weighted average number of shares ............................ 32,369 28,184 32,276 27,455
============ ============ ============ ============
DILUTED EPS
Income (loss) per share:
Continuing operations ................................... $ 0.30 $ 0.34 $ 1.49 $ 1.32
Discontinued operations ................................. (0.05) (0.00) (0.06) (0.11)
------------ ------------ ------------ ------------
NET INCOME .............................................. $ 0.25 $ 0.34 $ 1.43 $ 1.21
============ ============ ============ ============
Weighted average number of shares ............................ 32,901 28,524 32,719 27,692
============ ============ ============ ============
Dividends per share .................................... $ 0.07 $ 0.07 $ 0.28 $ 0.25
============ ============ ============ ============
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Amounts in thousands)
(Unaudited)
Net Sales
Fourth Quarter Ended Years Ended
---------------------------- ----------------------------
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
------------ ------------ ------------ ------------
North America 144,972 120,400 545,139 472,518
Europe 69,834 61,505 253,234 210,614
China 6,600 5,241 26,185 18,727
------------ ------------ ------------ ------------
Total 221,406 187,146 824,558 701,859
============ ============ ============ ============
Operating Income
Fourth Quarter Ended Years Ended
---------------------------- ----------------------------
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
------------ ------------ ------------ ------------
North America 13,755 17,391 68,558 64,375
Europe 8,137 6,969 31,597 22,592
China 581 (980) 1,857 (3,834)
Corporate (6,972) (3,606) (19,136) (13,132)
------------ ------------ ------------ ------------
Total 15,501 19,774 82,876 70,001
============ ============ ============ ============
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
TABLE 1
RECONCILIATION OF NET CASH PROVIDED BY CONTINUING OPERATIONS TO FREE CASH FLOW
(Thousands)
(Unaudited)
Years Ended
December 31, December 31,
2004 2003
------------ ------------
Net cash provided by continuing operations $ 40,210 $ 51,068
Less: additions to property, plant, and equipment (20,999) (20,030)
Plus: proceeds from the sale of property, plant, and equipment 2,143 1,765
Less: dividends (9,071) (6,859)
------------ ------------
Free cash flow $ 12,283 $ 25,944
============ ============
TABLE 2
RECONCILIATION OF NET DEBT TO CAPITALIZATION
(Thousands)
(Unaudited)
December 31, December 31,
2004 2003
------------ ------------
Current portion of long-term debt $ 4,981 $ 11,689
Plus: Long-term debt, net of current portion 180,562 179,061
Less: Cash and cash equivalents (92,513) (149,001)
------------ ------------
Net debt $ 93,030 $ 41,749
============ ============
Net debt $ 93,030 $ 41,749
Plus: Total stockholders' equity 492,788 436,391
Plus: Minority interest 7,515 9,767
------------ ------------
Capitalization $ 593,333 $ 487,907
============ ============