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 2005 RESULTS
North Andover, MA...February 7, 2006. Watts Water Technologies, Inc.
(NYSE: WTS) today announced results for the fourth quarter ended December 31,
2005. Sales were $244,407,000, an increase of $23,001,000, or 10%, compared to
the fourth quarter of 2004. Net income for the fourth quarter ended December 31,
2005 was $14,960,000, or $0.45 per share, which includes a loss from
discontinued operations of $236,000, or $0.01 per share, versus net income of
$8,161,000, or $0.25 per share, which included a loss from discontinued
operations of $1,688,000, or $0.05 per share, for the fourth quarter of 2004.
Income from continuing operations for the fourth quarter ended December 31, 2005
increased by $5,347,000, or 54%, to $15,196,000, or $0.46 per share, compared to
income from continuing operations for the fourth quarter of 2004 of $9,849,000,
or $0.30 per share. Net income and income from continuing operations in 2004
included a charge of $2,289,000 or $0.07 per share that corrected certain
accrued expenses.
Costs incurred for our manufacturing restructuring plan, net of tax, in
the fourth quarters of 2005 and 2004 were $241,000, or $0.01 per share, and
$408,000, or $0.01 per share, respectively.
Sales for the year ended December 31, 2005 were $924,346,000, an increase
of $99,788,000, or 12%, compared to the year ended December 31, 2004. Net income
for the year ended December 31, 2005, was $54,599,000, or $1.66 per share, which
includes a loss from discontinued operations of $421,000, or $0.01 per share,
versus net income of $46,820,000, or $1.43 per share, which included a loss from
discontinued operations of $1,918,000, or $0.06 per share, for the year ended
December 31, 2004. Income from continuing operations increased $6,282,000, or
13%, to $55,020,000, or $1.67 per share, for the year ended December 31, 2005
compared to income from continuing operations of $48,738,000, or $1.49 per
share, for the previous year.
Costs incurred for our manufacturing restructuring plan, net of tax, for
the years ended 2005 and 2004 were $1,633,000, or $0.05 per share, and
$1,825,000, or $0.06 per share, respectively.
The overall increase in fourth quarter sales was achieved by internal
growth and contributions from acquired companies, offset by an adverse change in
foreign exchange rates. Organic growth was 7% and contributed $14,924,000;
acquisitions contributed 6% or $14,163,000 and a net unfavorable foreign
exchange movement primarily due to the euro devaluation against the dollar,
negatively impacted sales by 3% or $6,086,000. Acquired growth was attributable
to the December 2005 acquisitions of Core Industries Inc. (Febco, Mueller
Specialty Steam and Polyjet Valves product lines) and Dormont Manufacturing
Company, the November 2005 acquisition of Flexflow Tubing LLP, the July 2005
acquisitions of the water connecter business of the Donald E. Savard Company and
Microflex N.V., the June 2005 acquisition of the water softener business of
Alamo Water Refiners, Inc., the May 2005 acquisition of Electro Controls Ltd.,
and the January 2005 acquisitions of HF Scientific, Inc. and Sea Tech, Inc.
North American segment sales increased for the fourth quarter ended
December 31, 2005 by 14% to $165,315,000 compared to $144,972,000 for the prior
year. This increase in North American sales was achieved through internal sales
growth of $9,120,000, the inclusion of sales from the acquisitions of Core
Industries Inc., Dormont Manufacturing Company, Flexflow Tubing LLP, the water
connecter business of the Donald E. Savard Company, the water softener business
of Alamo Water Refiners, Inc., HF Scientific, Inc. and Sea Tech, Inc. totaling
$10,714,000, and $509,000 due to favorable foreign exchange rates associated
with the strengthening of the Canadian dollar versus the U.S. dollar.
Organic sales in the North American wholesale market increased 7% over the
fourth quarter of 2004. This increase was led by increased sales of backflow
prevention units, as well as strength in the plumbing and under-floor radiant
heating product lines. Internal sales growth in the North American home
improvement retail market was 5% for the fourth quarter of 2005 over the fourth
quarter of 2004.
Foreign sales accounted for 38% of total sales for the fourth quarter of
2005, with 29% generated by Europe, 6% from Canada and 3% from China.
European sales increased $888,000, or 1%, to $70,722,000 compared to the
fourth quarter of 2004. Internal growth of 6%, or $4,231,000, and acquired
growth of 5%, or $3,449,000, were almost completely offset by an unfavorable
foreign exchange movement associated with the weakening of the euro versus the
US dollar of $6,792,000. The acquired growth is due to the inclusion of the
acquired sales of Microflex N.V. and Electro Controls Ltd. Europe experienced
increased market share gains in Germany due to increased marketing and sales
efforts and increased sales into the Eastern European wholesale market, offset
by decreased sales in the OEM market primarily due to the weak economic
environments.
China's sales increased $1,770,000, or 27%, to $8,370,000 compared to the
fourth quarter of 2004. Internal growth was $1,573,000, or 24%, and was
augmented by a favorable foreign currency movement of approximately 3% as the
yuan strengthened against the U.S. dollar. Sales increased into the domestic
Chinese marketplace with some softening of third-party export sales.
Operating income in the quarter ended December 31, 2005 increased by
$9,914,000, or 61%, to $26,139,000 as compared to $16,225,000 in 2004. Operating
income in the fourth quarter of 2004 included a pre-tax charge of $4,258,000
that corrected certain accrued expenses. Internal growth provided 50%, or
$5,008,000, of the quarter-on-quarter operating income growth with positive
performances from each region. Acquisitions provided $1,057,000, or 11%, of the
increase with negative foreign exchange movements and reduced quarter-on-quarter
restructuring costs making up the remainder. Operating margin was 10.7% for the
quarter ended December 31, 2005 versus 9.3%, adjusted for the pre-tax charge
above, for the quarter ended December 31, 2004. Sequential operating margin
increased from 9.8% for the third quarter ended October 2, 2005 as the Company
experienced slightly higher margins and also benefited from reduced insurance
and Sarbanes Oxley costs.
In the quarter ended December 31, 2005, the Company recorded in cost of
sales a net pre-tax charge of approximately $111,000 primarily for costs related
to European restructuring efforts. Additionally, approximately $267,000 for
European severance related charges were charged to selling, general and
administrative expenses. Costs related with the Sarbanes-Oxley Act were reduced
approximately $1,400,000 from the fourth quarter of 2004.
The effective tax rate for the fourth quarter of 2005 was 36% compared
with 23% in the fourth quarter of 2004. In the fourth quarter of 2004, the
Company benefited from previously unrecognized deferred tax assets of
approximately $800,000 in China, of which $322,000 related to net operating loss
carry forwards. Further, in the fourth quarter of 2004, the Company recorded a
benefit for certain state tax credits of $164,000 and recorded a credit of
$462,000 as part of accounting corrections made. Earnings mix between periods
also contributed to the increase in the effective tax rate in the fourth quarter
of 2005.
The loss from discontinued operations in the fourth quarter of 2005 is
comprised of an after-tax charge of $236,000, or $0.01 per share, for costs
associated with the James Jones litigation as compared with a loss of
$1,688,000, or $0.05 per share, in 2004 which included an after-tax charge of
$783,000 for the divestiture of Jameco International, LLC and $905,000 in James
Jones-related legal costs.
The Company generated $51,867,000 in net cash provided from continuing
operations for the year ended December 31, 2005 as compared to $40,210,000 for
the year ended December 31, 2004. Free cash flow for the year ended December 31,
2005 was $23,449,000 compared with $12,283,000 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 Company's net debt to capitalization ratio increased to 33% for the year
ended December 31, 2005 from 19% in the prior year as the result of the
Company's acquisition program in 2005 which was funded with approximately
$153,500,000 in debt financing during the year (Please refer to Table 2 at the
end of this press release for a reconciliation of long-term debt (including
current portion) to net debt and net debt to capitalization ratio).
Addressing the results for the fourth quarter, Patrick S. O'Keefe, Chief
Executive Officer, commented, "We are pleased with our overall performance in
the fourth quarter of 2005. Despite near-record high commodity prices,
especially in oil and copper-based raw materials, unfavorable movement in the
euro against the dollar and a tepid economic environment throughout much of
Europe, we achieved record results for the quarter. All regions delivered solid
operational growth in sales and operating income. Our 2005 acquisitions
contributed as expected and helped to boost margins, especially in Europe. We
continued our program to reduce manufacturing costs by sourcing product from,
and consolidating operations into, low-cost areas in an effort to counteract
commodity pressure on margins. We have leveraged our balance sheet in order to
fund acquisitions, but due to our disciplined approach to growth, we have
maintained a conservative capital structure. At December 31, 2005, we maintained
approximately $100,000,000 in unused and available funding from our revolving
credit facility."
To supplement our unaudited consolidated financial statements presented on
a generally accepted accounting principles (GAAP) basis, we sometimes use
non-GAAP measures, such as free cash flow and the net debt to capitalization
ratio, that we believe are appropriate to enhance an overall understanding of
our historical financial performance and future prospects. The non-GAAP items,
which are adjusted to exclude certain cash inflows and outlays, and include only
certain balance sheet accounts from the comparable GAAP measures, are an
indication of our performance in cash flow generation and also provide an
indication of the Company's relative balance sheet leverage to other industrial
manufacturing companies. These non-GAAP measures are among the primary
indicators management uses as a basis for evaluating our cash flow generation
and our capitalization structure. 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 changes in cash and cash equivalents prepared
in accordance with GAAP.
Watts Water Technologies, Inc. will hold a live web cast of its conference
call to discuss fourth quarter results for 2005 on Wednesday, February 8, 2006,
at 11:00 a.m. Eastern Time. This press release and the live web cast can be
accessed by visiting the Investors 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 February 8, 2007.
The Company's 2006 Annual Meeting of Stockholders will be held at 10:00
a.m. on Thursday, May 4, 2006 at The Andover Inn at Phillips Academy, Chapel
Avenue, Andover, Massachusetts.
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, changes in
variable interest rates on Company borrowings, 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, affecting 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, 2004 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 Year Ended
----------------------------- -----------------------------
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
------------ ------------ ------------ ------------
STATEMENTS OF INCOME
Net sales ................................. $ 244,407 $ 221,406 $ 924,346 $ 824,558
Income from continuing operations ......... $ 15,196 $ 9,849 $ 55,020 $ 48,738
Loss from discontinued operations ......... (236) (1,688) (421) (1,918)
------------ ------------ ------------ ------------
Net income ................................ $ 14,960 $ 8,161 $ 54,599 $ 46,820
============ ============ ============ ============
DILUTED EARNINGS PER SHARE
Weighted Average Number of Common Shares
& Equivalents ............................. 32,990 32,901 33,002 32,719
Income (loss) per Share:
Continuing operations ................ $ 0.46 $ 0.30 $ 1.67 $ 1.49
Discontinued operations .............. (0.01) (0.05) (0.01) (0.06)
------------ ------------ ------------ ------------
Net income ........................... $ 0.45 $ 0.25 $ 1.66 $ 1.43
============ ============ ============ ============
Cash dividends per share .................. $ 0.08 $ 0.07 $ 0.32 $ 0.28
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share information)
(Unaudited)
December 31, December 31,
2005 2004
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................................................... $ 45,758 $ 65,913
Investment securities ............................................................. -- 26,600
Trade accounts receivable, less allowance for doubtful accounts of
$9,296 in 2005 and $7,551 in 2004 .............................................. 177,364 150,073
Inventories, net:
Raw materials .................................................................. 84,087 61,250
Work in process ................................................................ 23,126 28,020
Finished goods ................................................................. 135,624 115,779
------------ ------------
Total Inventories ........................................................... 242,837 205,049
Prepaid expenses and other assets ................................................. 25,361 10,786
Deferred income taxes ............................................................. 27,540 27,463
Assets of discontinued operations ................................................. 9,555 10,227
------------ ------------
Total Current Assets ........................................................... 528,415 496,111
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost ............................................ 328,812 321,655
Accumulated depreciation .......................................................... (163,813) (170,966)
------------ ------------
Property, plant and equipment, net ............................................. 164,999 150,689
------------ ------------
OTHER ASSETS:
Goodwill .......................................................................... 296,636 226,178
Other ............................................................................. 110,920 49,702
------------ ------------
TOTAL ASSETS .......................................................................... $ 1,100,970 $ 922,680
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .................................................................. $ 91,053 $ 72,038
Accrued expenses and other liabilities ............................................ 67,071 61,736
Accrued compensation and benefits ................................................. 28,496 29,679
Current portion of long-term debt ................................................. 13,635 4,981
Liabilities of discontinued operations ............................................ 23,068 24,303
------------ ------------
Total Current Liabilities ...................................................... 223,323 192,737
------------ ------------
LONG-TERM DEBT, NET OF CURRENT PORTION ................................................ 293,350 180,562
DEFERRED INCOME TAXES ................................................................. 24,803 19,578
OTHER NONCURRENT LIABILITIES .......................................................... 32,187 29,500
MINORITY INTEREST ..................................................................... 7,831 7,515
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: 25,205,210 shares in 2005
and 25,049,338 shares in 2004 .................................................. 2,521 2,505
Class B Common Stock, $.10 par value; 25,000,000 shares authorized;
10 votes per share; issued and outstanding: 7,343,880 shares in 2005 and 2004 .. 734 734
Additional paid-in capital ........................................................ 144,284 140,172
Retained earnings ................................................................. 368,264 324,145
Deferred compensation ............................................................. (1,590) (1,386)
Accumulated other comprehensive income ............................................ 5,263 26,618
------------ ------------
Total Stockholders' Equity ..................................................... 519,476 492,788
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................................ $ 1,100,970 $ 922,680
============ ============
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share information)
(Unaudited)
Fourth Quarter Ended Year Ended
----------------------------- -----------------------------
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net sales ................................................... $ 244,407 $ 221,406 $ 924,346 $ 824,558
Cost of goods sold .......................................... 158,079 145,752 599,644 533,997
------------ ------------ ------------ ------------
GROSS PROFIT ............................................ 86,328 75,654 324,702 290,561
Selling, general & administrative expenses .................. 60,189 59,429 230,147 206,961
------------ ------------ ------------ ------------
OPERATING INCOME ........................................ 26,139 16,225 94,555 83,600
------------ ------------ ------------ ------------
Other (income) expense:
Interest income ......................................... (351) (343) (1,232) (1,135)
Interest expense ........................................ 2,686 2,634 10,353 10,564
Minority interest ....................................... 107 308 350 1,203
Other ................................................... (181) 791 (727) 296
------------ ------------ ------------ ------------
2,261 3,390 8,744 10,928
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES .. 23,878 12,835 85,811 72,672
Provision for income taxes .................................. 8,682 2,986 30,791 23,934
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS ...................... 15,196 9,849 55,020 48,738
Loss from discontinued operations, net of taxes ............. (236) (1,688) (421) (1,918)
------------ ------------ ------------ ------------
NET INCOME .............................................. $ 14,960 $ 8,161 $ 54,599 $ 46,820
============ ============ ============ ============
BASIC EPS Income (loss) per share:
Continuing operations ................................... $ 0.47 $ 0.30 $ 1.69 $ 1.51
Discontinued operations ................................. (0.01) (0.05) (0.01) (0.06)
------------ ------------ ------------ ------------
NET INCOME .............................................. $ 0.46 $ 0.25 $ 1.68 $ 1.45
============ ============ ============ ============
Weighted average number of shares ........................... 32,547 32,369 32,489 32,276
============ ============ ============ ============
DILUTED EPS Income (loss) per share:
Continuing operations ................................... $ 0.46 $ 0.30 $ 1.67 $ 1.49
Discontinued operations ................................. (0.01) (0.05) (0.01) (0.06)
------------ ------------ ------------ ------------
NET INCOME .............................................. $ 0.45 $ 0.25 $ 1.66 $ 1.43
============ ============ ============ ============
Weighted average number of shares ........................... 32,990 32,901 33,002 32,719
============ ============ ============ ============
Dividends per share .................................... $ 0.08 $ 0.07 $ 0.32 $ 0.28
============ ============ ============ ============
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Amounts in thousands)
(Unaudited)
Net Sales
Fourth Quarter Ended Year Ended
--------------------------- ---------------------------
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
------------ ------------ ------------ ------------
North America ...... $ 165,315 $ 144,972 629,937 545,139
Europe ............. 70,722 69,834 266,346 253,234
China .............. 8,370 6,600 28,063 26,185
------------ ------------ ------------ ------------
Total .............. $ 244,407 $ 221,406 924,346 824,558
============ ============ ============ ============
Operating Income
Fourth Quarter Ended Year Ended
--------------------------- ---------------------------
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
------------ ------------ ------------ ------------
North America ...... $ 21,405 $ 13,758 76,757 68,558
Europe ............. 8,229 8,137 31,528 31,597
China .............. 983 581 3,533 1,857
Corporate .......... (4,478) (6,251) (17,263) (18,412)
------------ ------------ ------------ ------------
Total .............. $ 26,139 $ 16,225 94,555 83,600
============ ============ ============ ============
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
TABLE 1
RECONCILIATION OF NET CASH PROVIDED BY CONTINUING OPERATIONS TO FREE CASH FLOW
(Amounts In Thousands)
(Unaudited)
Years Ended
----------------------------
December 31, December 31,
2005 2004
------------ ------------
Net cash provided by continuing operations ...................... $ 51,867 $ 40,210
Less: additions to property, plant, and equipment ............... (18,590) (20,999)
Plus: proceeds from the sale of property, plant, and equipment .. 652 2,143
Less: dividends ................................................. (10,480) (9,071)
------------ ------------
Free cash flow .................................................. $ 23,449 $ 12,283
============ ============
TABLE 2
RECONCILIATION OF LONG-TERM DEBT (INCLUDING CURRENT PORTION) TO NET DEBT
AND NET DEBT TO CAPITALIZATION RATIO
(Amounts In Thousands)
(Unaudited)
Years Ended
-----------------------------
December 31, December 31,
2005 2004
------------ ------------
Current portion of long-term debt ............. $ 13,635 $ 4,981
Plus: Long-term debt, net of current portion .. 293,350 180,562
Less: Cash and cash equivalents ............... (45,758) (65,913)
------------ ------------
Net debt ...................................... $ 261,227 $ 119,630
============ ============
Net debt ...................................... $ 261,227 $ 119,630
Plus: Total stockholders' equity .............. 519,476 492,788
Plus: Minority interest ....................... 7,831 7,515
------------ ------------
Capitalization ................................ $ 788,534 $ 619,933
============ ============
Net Debt to Capitalization Ratio .............. 33% 19%
============ ============