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 SECOND QUARTER 2006 RESULTS
North Andover, MA...August 1, 2006. Watts Water Technologies, Inc. (NYSE:
WTS) today announced results for the second quarter ended July 2, 2006. Sales
were $300,175,000, an increase of $71,992,000, or 32%, compared to the second
quarter of 2005. Net income for the second quarter of 2006 was $22,446,000, or
$0.68 per share, compared to net income of $13,913,000, or $0.42 per share, for
the second quarter of 2005. Income from continuing operations for the second
quarter of 2006 increased by $8,555,000, or 61%, to $22,543,000, or $0.68 per
share, compared to income from continuing operations for the second quarter of
2005 of $13,988,000, or $0.42 per share.
The Company recorded income, net of tax, of $3,554,000, or $0.11 per
share, in the second quarter of 2006 compared to a loss, net of tax, of
$241,000, or $0.01 per share, in the second quarter of 2005 for its
manufacturing restructuring plan. In the second quarter of 2006, the Company
recorded an after tax gain of approximately $4,100,000 related to a building
sale in Italy. This gain was partially offset by after tax costs of
approximately $546,000 primarily for severance costs related to its European and
Chinese restructuring plans. For the second quarter of 2005, the costs were
primarily for accelerated depreciation for both the closure of a U.S.
manufacturing plant and for severance costs related to the Company's European
restructuring plan.
Sales for the first six months of 2006 were $575,125,000, an increase of
$127,915,000, or 29%, compared to the first six months of 2005. Net income for
the first six months of 2006 was $37,409,000, or $1.13 per share, versus net
income of $26,271,000, or $0.80 per share, for the first six months of 2005.
Income from continuing operations for the first six months of 2006 increased by
$11,245,000, or 43%, to $37,630,000, or $1.14 per share, compared to income from
continuing operations for the first six months of 2005 of $26,385,000, or $0.80
per share.
The Company recorded income, net of tax, of $3,405,000, or $0.10 per
share, in the first six months of 2006 compared to a loss, net of tax, of
$737,000, or $0.02 per share, in the first six months of 2005 for its
manufacturing restructuring plan. In the first six months of 2006, the Company
benefited from the previously mentioned building sale in Italy. This benefit was
offset by after tax costs of approximately $695,000, or $0.02 per share,
primarily for severance costs related to the Company's European and Chinese
restructuring plans. For the first six months of 2005, the costs were primarily
for accelerated depreciation for both the closure of a U.S. manufacturing plant
and for severance costs related to the Company's European restructuring plan.
Patrick S. O'Keefe, Chief Executive Officer, commented, "During the second
quarter, the Company was able to maintain the momentum in operating performance
we experienced in the first quarter of this year. Aided by acquisitions and
internal growth, we again achieved record results with all segments contributing
to our growth in sales and earnings. The sales increase was achieved through
contributions from acquired companies of $50,946,000, or 23%, internal growth of
$18,236,000, or 8%, and to a lesser extent from favorable changes in foreign
exchange rates of $2,810,000, or 1%. Acquired growth was primarily attributable
to the December 2005 acquisitions of Core Industries Inc. (which included the
FEBCO, Mueller Steam Specialty and Polyjet Valves product lines) and Dormont
Manufacturing Company and the May 2006 acquisition of ATS Expansion Group.
"Sales in our North American segment increased for the second quarter of
2006 by $51,133,000, or 33%, to $208,249,000 compared to $157,116,000 for second
quarter of 2005. This increase was achieved through the inclusion of acquired
sales totaling $40,167,000, or 26%, internal sales growth of $9,511,000, or 6%,
and favorable foreign exchange rates of $1,455,000, or 1%, associated with the
strengthening of the Canadian dollar versus the U.S. dollar.
"Internal sales in our North American wholesale market increased 7% over
the second quarter of 2005. This increase was primarily due to price increases
implemented to cover recent increases in the prices of copper and other raw
materials and increased unit sales of our plumbing and heating and backflow
products. Internal growth in our North American home improvement retail market
was 5% for the second quarter of 2006 over the second quarter of 2005. This
increase was led by increased sales of under-floor radiant heating product
lines.
"We derived 28% of our total sales for the second quarter of 2006 from our
European segment. European sales increased $20,221,000, or 32%, to $83,857,000
compared to the second quarter of 2005. This increase was achieved through the
inclusion of acquired sales totaling $10,155,000, or 16%, internal growth of
$8,947,000, or 14%, and a favorable foreign exchange movement associated with
the strengthening of the euro versus the US dollar of $1,119,000, or 2%. Our
internal growth in Europe was broad-based with most markets and channels
exhibiting improvement. Sales growth in our OEM market and Italian wholesale
market were particularly strong in the second quarter.
"China's segment sales in the second quarter of 2006 increased $638,000,
or 9%, to $8,069,000 compared to the second quarter of 2005. This increase was
achieved through the inclusion of acquired sales totaling $624,000, or 8%,
favorable foreign exchange rates associated with the yuan strengthening against
the U.S. dollar of $236,000, partially offset by a decline in internal sales of
$222,000.
Mr. O'Keefe concluded, "Our operating income for the second quarter of
2006 increased by $14,035,000, or 58%, to $38,236,000 as compared to $24,201,000
in 2005. Our quarter-on-quarter restructuring costs contributed $6,067,000, or
25%, acquisitions provided $5,659,000, or 23%, internal growth contributed
$1,736,000, or 7%, and favorable foreign exchange movements contributed
$573,000, or 3%. Our overall margins were impacted by a favorable mix within the
North American wholesale market partially offset by write-downs of our inventory
carrying values of certain product lines."
Watts Water Technologies, Inc. will hold a live web cast of its conference
call to discuss second quarter results for 2006 on Tuesday, August 1, 2006, at
5:00 p.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 August 1, 2007.
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 control 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 "Item 1A. Risk
Factors" in the Watts Water Technologies, Inc. Annual Report on Form 10-K for
the year ended December 31, 2005 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)
Second Quarter Ended Six Months Ended
-------------------------- --------------------------
July 2, July 3, July 2, July 3,
2006 2005 2006 2005
--------- --------- --------- ---------
STATEMENTS OF INCOME
Net sales $ 300,175 $ 228,183 $ 575,125 $ 447,210
Income from continuing operations $ 22,543 $ 13,988 $ 37,630 $ 26,385
Loss from discontinued operations (97) (75) (221) (114)
--------- --------- --------- ---------
Net income $ 22,446 $ 13,913 $ 37,409 $ 26,271
========= ========= ========= =========
DILUTED EARNINGS PER SHARE
Weighted Average Number of Common Shares & Equivalents 33,038 33,077 33,015 33,032
Earnings per Share:
Continuing operations $ 0.68 $ 0.42 $ 1.14 $ 0.80
Discontinued operations -- -- (0.01) --
--------- --------- --------- ---------
Net income $ 0.68 $ 0.42 $ 1.13 $ 0.80
========= ========= ========= =========
Cash dividends per share $ 0.09 $ 0.08 $ 0.18 $ 0.16
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share information)
(Unaudited)
July 2, December 31,
ASSETS 2006 2005
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents ........................................................... $ 109,364 $ 45,758
Trade accounts receivable, less allowance for doubtful accounts of
$9,632 at July 2, 2006 and $9,296 at December 31, 2005 ........................... 218,878 177,364
Inventories, net:
Raw materials .................................................................... 106,148 84,087
Work in process .................................................................. 31,548 23,201
Finished goods ................................................................... 160,137 135,549
----------- -----------
Total Inventories ............................................................. 297,833 242,837
Prepaid expenses and other assets ................................................... 20,952 25,361
Deferred income taxes ............................................................... 33,265 27,540
Assets of discontinued operations ................................................... 8,055 9,555
----------- -----------
Total Current Assets ............................................................. 688,347 528,415
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost .............................................. 395,485 328,812
Accumulated depreciation ............................................................ (179,991) (163,813)
----------- -----------
Property, plant and equipment, net ............................................... 215,494 164,999
----------- -----------
OTHER ASSETS:
Goodwill ............................................................................ 346,815 296,636
Other, net .......................................................................... 124,312 110,920
----------- -----------
TOTAL ASSETS ............................................................................. $ 1,374,968 $ 1,100,970
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .................................................................... $ 110,480 $ 91,053
Accrued expenses and other liabilities .............................................. 83,218 67,071
Accrued compensation and benefits ................................................... 34,406 28,496
Current portion of long-term debt ................................................... 7,789 13,635
Liabilities of discontinued operations .............................................. 23,003 23,068
----------- -----------
Total Current Liabilities ........................................................ 258,896 223,323
----------- -----------
LONG-TERM DEBT, NET OF CURRENT PORTION ................................................... 452,966 293,350
DEFERRED INCOME TAXES .................................................................... 40,280 24,803
OTHER NONCURRENT LIABILITIES ............................................................. 49,825 32,187
MINORITY INTEREST ........................................................................ 7,698 7,831
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: 25,366,795 shares at
July 2, 2006 and 25,205,210 shares at December 31, 2005 .......................... 2,537 2,521
Class B Common Stock, $.10 par value; 25,000,000 shares authorized;
10 votes per share; issued and outstanding: 7,293,880 shares at
July 2, 2006 and 7,343,880 at December 31, 2005 .................................. 729 734
Additional paid-in capital .......................................................... 145,677 142,694
Retained earnings ................................................................... 399,645 368,264
Accumulated other comprehensive income .............................................. 16,715 5,263
----------- -----------
Total Stockholders' Equity ....................................................... 565,303 519,476
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................................... $ 1,374,968 $ 1,100,970
=========== ===========
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share information)
(Unaudited)
Second Quarter Ended Six Months Ended
------------------------- -------------------------
July 2, July 3, July 2, July 3,
2006 2005 2006 2005
--------- --------- --------- ---------
Net sales .......................................................... $ 300,175 $ 228,183 $ 575,125 $ 447,210
Cost of goods sold ................................................. 193,816 147,000 372,948 288,649
--------- --------- --------- ---------
GROSS PROFIT .................................................. 106,359 81,183 202,177 158,561
Selling, general & administrative expenses ......................... 73,799 56,886 142,850 112,592
Restructuring and other charges .................................... (5,676) 96 (5,441) 458
--------- --------- --------- ---------
OPERATING INCOME .............................................. 38,236 24,201 64,768 45,511
--------- --------- --------- ---------
Other (income) expense:
Interest income ............................................... (891) (329) (1,309) (638)
Interest expense .............................................. 4,952 2,567 9,144 5,088
Minority interest ............................................. 58 72 142 137
Other ......................................................... (986) (90) (1,386) (177)
--------- --------- --------- ---------
3,133 2,220 6,591 4,410
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ......... 35,103 21,981 58,177 41,101
Provision for income taxes ......................................... 12,560 7,993 20,547 14,716
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS ............................ 22,543 13,988 37,630 26,385
Loss from discontinued operations, net of taxes .................... (97) (75) (221) (114)
--------- --------- --------- ---------
NET INCOME .................................................... $ 22,446 $ 13,913 $ 37,409 $ 26,271
========= ========= ========= =========
BASIC EPS
Income per share:
Continuing operations ......................................... $ 0.69 $ 0.43 $ 1.15 $ 0.81
Discontinued operations ....................................... -- -- -- --
--------- --------- --------- ---------
NET INCOME .................................................... $ 0.69 $ 0.43 $ 1.15 $ 0.81
========= ========= ========= =========
Weighted average number of shares .................................. 32,654 32,475 32,623 32,442
========= ========= ========= =========
DILUTED EPS
Income per share:
Continuing operations ......................................... $ 0.68 $ 0.42 $ 1.14 $ 0.80
Discontinued operations ....................................... -- -- (0.01) --
--------- --------- --------- ---------
NET INCOME .................................................... $ 0.68 $ 0.42 $ 1.13 $ 0.80
========= ========= ========= =========
Weighted average number of shares .................................. 33,038 33,077 33,015 33,032
========= ========= ========= =========
Dividends per share ........................................... $ 0.09 $ 0.08 $ 0.18 $ 0.16
========= ========= ========= =========
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Amounts in thousands)
(Unaudited)
Net Sales
Second Quarter Ended Six Months Ended
-------------------------------- -------------------------------
July 2, July 3, July 2, July 3,
2006 2005 2006 2005
--------- --------- -------- ---------
North America $ 208,249 $ 157,116 404,815 $ 304,593
Europe 83,857 63,636 156,116 130,070
China 8,069 7,431 14,194 12,547
--------- --------- -------- ---------
Total $ 300,175 $ 228,183 575,125 $ 447,210
========= ========= ======== =========
Operating Income
Second Quarter Ended Six Months Ended
-------------------------------- -------------------------------
July 2, July 3, July 2, July 3,
2006 2005 2006 2005
--------- --------- -------- ---------
North America $ 25,635 $ 20,254 48,037 $ 38,700
Europe 15,608 7,952 25,178 15,445
China 2,397 572 3,412 1,117
Corporate (5,404) (4,577) (11,859) (9,751)
--------- --------- -------- ---------
Total $ 38,236 $ 24,201 64,768 $ 45,511
========= ========= ======== =========