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 2006 RESULTS
North Andover, MA...October 31, 2006. Watts Water Technologies, Inc.
(NYSE: WTS) today announced results for the third quarter ended October 1, 2006.
Sales were $325,137,000, an increase of $92,408,000, or 40%, compared to the
third quarter of 2005. Net income for the third quarter of 2006 was $18,187,000,
or $0.55 per share, which includes a loss from discontinued operations of
$3,137,000, or ($0.09) per share, compared to net income of $13,368,000, or
$0.40 per share, which included a loss from discontinued operations of $71,000,
for the third quarter of 2005. Income from continuing operations for the third
quarter of 2006 increased by $7,885,000, or 59%, to $21,324,000, or $0.65 per
share, compared to income from continuing operations for the third quarter of
2005 of $13,439,000, or $0.41 per share.
Sales for the first nine months of 2006 were $900,262,000, an increase of
$220,323,000, or 32%, compared to the first nine months of 2005. Net income for
the first nine months of 2006 was $55,596,000, or $1.68 per share, which
includes a loss from discontinued operations of $3,358,000, or ($0.10) per
share, versus net income of $39,639,000, or $1.20 per share, which included a
loss from discontinued operations of $185,000, or ($0.01) per share, for the
first nine months of 2005. Income from continuing operations for the first nine
months of 2006 increased by $19,130,000, or 48%, to $58,954,000, or $1.79 per
share, compared to income from continuing operations for the first nine months
of 2005 of $39,824,000, or $1.21 per share.
Patrick S. O'Keefe, Chief Executive Officer, commented, "The Company
achieved record results in both sales and earnings during the quarter. All
segments contributed to the results, which were primarily due to acquisitions
and internal growth. The sales increase was achieved through contributions from
acquired companies of $55,573,000, or 24%, internal growth of $31,948,000, or
14%, and, to a lesser extent, from favorable changes in foreign exchange rates
of $4,887,000, or 2%. 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 third quarter of
2006 by $51,740,000, or 32%, to $211,769,000 compared to $160,029,000 for the
third quarter of 2005. This increase was achieved through the inclusion of
acquired company sales of $33,348,000, or 21%, internal sales growth of
$17,447,000, or 11%, and, to a lesser extent, from favorable foreign exchange
rates of $945,000 associated with the strengthening of the Canadian dollar
versus the U.S. dollar.
"Internal sales in our North American wholesale market increased 14% over
the third quarter of 2005. This increase was primarily due to price increases
implemented to cover increases in the costs 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 2% for
the third quarter of 2006 over the third quarter of 2005. This increase is
primarily due to price increases in certain product lines.
"We derived 31% of our total sales for the third quarter of 2006 from our
European segment. European sales increased $35,883,000, or 55%, to $101,437,000
compared to $65,554,000 for the third quarter of 2005. This increase was
achieved through the inclusion of acquired company sales totaling $17,848,000,
or 27%, internal growth of $14,239,000, or 22%, and a favorable foreign exchange
movement associated with the strengthening of the euro versus the US dollar of
$3,796,000, or 6%. Our internal growth in Europe was broad-based with most
markets and channels showing improvement. Sales growth in our German OEM and
wholesale markets was particularly strong in the third quarter.
"China's segment sales in the third quarter of 2006 increased $4,785,000,
or 67%, to $11,931,000 compared to the third quarter of 2005. This increase was
achieved through the inclusion of acquired company sales totaling $4,377,000, or
61%, internal growth of $262,000, or 4%, and favorable foreign exchange rates
associated with the yuan strengthening against the U.S. dollar of $146,000, or
2%."
Mr. O'Keefe concluded, "Our operating income for the third quarter of 2006
increased by $13,133,000, or 57%, to $36,038,000 as compared to $22,905,000 in
the third quarter of 2005. Operating margins in the third quarter of 2006
increased by approximately 120 basis points to 11.1% as compared to 9.8% in the
third quarter of 2005. Our quarter-on-quarter internal growth contributed
$7,459,000, or 32%, acquisitions provided $5,132,000, or 22%, and favorable
foreign exchange movements contributed $828,000, or 4%, partially offset by
increased restructuring costs of $286,000, or 1%. Our `overall margins were
positively affected by a favorable mix within the North American wholesale
market, manufacturing efficiencies in China, acquisitions and leveraged selling,
general and administrative expenses in Europe, partially offset by increased
administration costs in Corporate."
Included in the above results, as part of its manufacturing restructuring
plan, the Company recorded a charge, net of tax, of $834,000, or $0.02 per
share, in the third quarter of 2006 compared to a charge, net of tax, of
$655,000, or $0.02 per share, in the third quarter of 2005. For the third
quarter of 2006, these costs were primarily for severance costs related to its
European and Chinese restructuring plans. For the third 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.
As part of its manufacturing restructuring plan for the first nine months
of 2006, the Company recorded a gain, net of tax, of $2,571,000, or $0.08 per
share, compared to a charge, net of tax, of $1,392,000, or $0.04 per share, in
the first nine months of 2005. In the first nine months of 2006, the Company
benefited from an after-tax gain of approximately $4,100,000, or $0.12 per
share, related to the sale of a building in Italy, which was recorded in the
second quarter of 2006. This benefit was offset by after-tax costs of
approximately $1,529,000, or $0.04 per share, primarily for severance costs
related to the Company's European and Chinese restructuring plans. For the first
nine 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.
The Company recorded a charge, net of tax, to discontinued operations in
the third quarter of 2006 of $3,137,000, or ($0.09) per share on a diluted
basis. This charge was primarily due to a recent federal appellate court
decision which affirmed that an arbitration panel could decide which deductible
agreements between Watts and Zurich American Insurance Company (Zurich) would
control Zurich's reimbursement claim for defense costs paid in the James Jones
case. As a result of this development, the Company recorded a pre-tax charge of
$5,000,000 in the third quarter of 2006 to provide for a contingency for this
reimbursement claim.
Watts Water Technologies, Inc. will hold a live web cast of its conference
call to discuss third quarter results for 2006 on Wednesday, November 1, 2006,
at 9:00 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 November 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)
Third Quarter Ended Nine Months Ended
-------------------------- --------------------------
October 1, October 2, October 1, October 2,
2006 2005 2006 2005
--------- --------- --------- ---------
STATEMENTS OF INCOME
Net sales $ 325,137 $ 232,729 $ 900,262 $ 679,939
Income from continuing operations $ 21,324 $ 13,439 $ 58,954 $ 39,824
Loss from discontinued operations (3,137) (71) (3,358) (185)
--------- --------- --------- ---------
Net income $ 18,187 $ 13,368 $ 55,596 $ 39,639
========= ========= ========= =========
DILUTED EARNINGS PER SHARE
Weighted Average Number of
Common Shares & Equivalents 33,051 33,062 33,027 33,006
Earnings per Share:
Continuing operations $ 0.65 $ 0.41 $ 1.79 $ 1.21
Discontinued operations (0.09) -- (0.10) (0.01)
--------- --------- --------- ---------
Net income $ 0.55 $ 0.40 $ 1.68 $ 1.20
========= ========= ========= =========
Cash dividends per share $ 0.09 $ 0.08 $ 0.27 $ 0.24
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share information)
(Unaudited)
October 1, December 31,
2006 2005
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 116,621 $ 45,758
Trade accounts receivable, less allowance for doubtful accounts of
$10,733 at October 1, 2006 and $9,296 at December 31, 2005 ............. 237,707 177,364
Inventories, net:
Raw materials .......................................................... 102,152 84,087
Work in process ........................................................ 44,860 23,201
Finished goods ......................................................... 166,258 135,549
----------- -----------
Total Inventories ................................................... 313,270 242,837
Prepaid expenses and other assets ......................................... 20,610 25,361
Deferred income taxes ..................................................... 37,303 27,540
Assets of discontinued operations ......................................... 10,072 9,555
----------- -----------
Total Current Assets ................................................... 735,583 528,415
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost .................................... 383,992 328,812
Accumulated depreciation .................................................. (179,960) (163,813)
----------- -----------
Property, plant and equipment, net ..................................... 204,032 164,999
----------- -----------
OTHER ASSETS:
Goodwill .................................................................. 349,595 296,636
Other, net ................................................................ 145,824 110,920
----------- -----------
TOTAL ASSETS ................................................................... $ 1,435,034 $ 1,100,970
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................................... $ 110,619 $ 91,053
Accrued expenses and other liabilities .................................... 105,151 67,071
Accrued compensation and benefits ......................................... 38,391 28,496
Current portion of long-term debt ......................................... 7,616 13,635
Liabilities of discontinued operations .................................... 27,940 23,068
----------- -----------
Total Current Liabilities .............................................. 289,717 223,323
----------- -----------
LONG-TERM DEBT, NET OF CURRENT PORTION ......................................... 457,981 293,350
DEFERRED INCOME TAXES .......................................................... 42,611 24,803
OTHER NONCURRENT LIABILITIES ................................................... 50,585 32,187
MINORITY INTEREST .............................................................. 7,559 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: 25,440,882 shares at
October 1, 2006 and 25,205,210 shares at December 31, 2005 ............. 2,544 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
October 1, 2006 and 7,343,880 at December 31, 2005 ..................... 729 734
Additional paid-in capital ................................................ 146,829 142,694
Retained earnings ......................................................... 414,882 368,264
Accumulated other comprehensive income .................................... 21,597 5,263
----------- -----------
Total Stockholders' Equity ............................................. 586,581 519,476
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................................... $ 1,435,034 $ 1,100,970
=========== ===========
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share information)
(Unaudited)
Third Quarter Ended Nine Months Ended
-------------------------- --------------------------
October 1, October 2, October 1, October 2,
2006 2005 2006 2005
---------- ---------- ---------- ----------
Net sales ...................................................... $ 325,137 $ 232,729 $ 900,262 $ 679,939
Cost of goods sold ............................................. 213,218 152,916 586,166 441,565
---------- ---------- ---------- ----------
GROSS PROFIT .............................................. 111,919 79,813 314,096 238,374
Selling, general & administrative expenses ..................... 75,549 56,904 218,399 169,496
Restructuring and other charges ................................ 332 4 (5,109) 462
---------- ---------- ---------- ----------
OPERATING INCOME .......................................... 36,038 22,905 100,806 68,416
---------- ---------- ---------- ----------
Other (income) expense:
Interest income ........................................... (1,150) (243) (2,459) (881)
Interest expense .......................................... 6,520 2,579 15,664 7,667
Minority interest ......................................... (273) 106 (131) 243
Other ..................................................... (560) (369) (1,946) (546)
---------- ---------- ---------- ----------
4,537 2,073 11,128 6,483
---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES .... 31,501 20,832 89,678 61,933
Provision for income taxes ..................................... 10,177 7,393 30,724 22,109
---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS ........................ 21,324 13,439 58,954 39,824
Loss from discontinued operations, net of taxes ................ (3,137) (71) (3,358) (185)
---------- ---------- ---------- ----------
NET INCOME ................................................ $ 18,187 $ 13,368 $ 55,596 $ 39,639
========== ========== ========== ==========
BASIC EPS
Income per share:
Continuing operations ..................................... $ 0.65 $ 0.41 $ 1.81 $ 1.23
Discontinued operations ................................... $ (0.10) -- (0.10) (0.01)
---------- ---------- ---------- ----------
NET INCOME ................................................ $ 0.56 $ 0.41 $ 1.70 $ 1.22
========== ========== ========== ==========
Weighted average number of shares .............................. 32,707 32,525 32,651 32,470
========== ========== ========== ==========
DILUTED EPS
Income per share:
Continuing operations ..................................... $ 0.65 $ 0.41 $ 1.79 $ 1.21
Discontinued operations ................................... (0.09) -- (0.10) (0.01)
---------- ---------- ---------- ----------
NET INCOME ................................................ $ 0.55 $ 0.40 $ 1.68 $ 1.20
========== ========== ========== ==========
Weighted average number of shares .............................. 33,051 33,062 33,027 33,006
========== ========== ========== ==========
Dividends per share ...................................... $ 0.09 $ 0.08 $ 0.27 $ 0.24
========== ========== ========== ==========
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Amounts in thousands)
(Unaudited)
Net Sales
Third Quarter Ended Nine Months Ended
----------------------- -----------------------
October 1, October 2, October 1, October 2,
2006 2005 2006 2005
---------- ---------- ---------- ----------
North America $ 211,769 $ 160,029 $ 616,584 $ 464,622
Europe 101,437 65,554 257,553 195,624
China 11,931 7,146 26,125 19,693
---------- ---------- ---------- ----------
Total $ 325,137 $ 232,729 $ 900,262 $ 679,939
========== ========== ========== ==========
Operating Income
Third Quarter Ended Nine Months Ended
------------------------ ------------------------
October 1, October 2, October 1, October 2,
2006 2005 2006 2005
---------- ---------- ---------- ----------
North America $ 26,217 $ 18,388 $ 74,254 $ 57,088
Europe 12,889 7,854 38,067 23,299
China 3,556 1,433 6,968 2,550
Corporate (6,624) (4,770) (18,483) (14,521)
---------- ---------- ---------- ----------
Total $ 36,038 $ 22,905 $ 100,806 $ 68,416
========== ========== ========== ==========