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 2006 RESULTS
North Andover, MA...February 13, 2007. Watts Water Technologies, Inc.
(NYSE: WTS) today announced results for the fourth quarter ended December 31
2006. Sales were $330,515,000, an increase of $86,108,000, or 35%, compared to
the fourth quarter of 2005. Net income for the fourth quarter of 2006 was
$18,140,000, or $0.51 per share, compared to net income of $14,960,000, or $0.45
per share, which included a loss from discontinued operations of $236,000, or
$0.01 per share, for the fourth quarter of 2005. Income from continuing
operations for the fourth quarter of 2006 increased by $2,943,000, or 19%, to
$18,139,000, or $0.51 per share, compared to income from continuing operations
for the fourth quarter of 2005 of $15,196,000, or $0.46 per share.
Costs incurred related to the Company's manufacturing and restructuring
plan, net of tax, in the fourth quarters of 2006 and 2005 were $1,106,000, or
$0.03 per share, and $241,000, or $0.01 per share, respectively. Costs for
severance programs in both Europe and China and accelerated depreciation on
certain assets in China were partially offset by a gain from a building sale in
Italy in the fourth quarter of 2006. Costs incurred in 2005 primarily relate to
severance costs in Europe.
As a result of the Company's November 2006 stock offering of 5,750,000
shares of Class A common stuck, the impact of the additional shares, which was
partially offset by approximately $1.0 million of additional interest income
from investing the net offering proceeds, was to reduce net income and income
from continuing operations by $0.02 per share in the fourth quarter of 2006.
Sales for the year ended December 31, 2006 were $1,230,777,000, an
increase of $306,431,000, or 33%, compared to the year ended December 31, 2005.
Net income for the year ended December 31, 2006 was $73,736,000, or $2.19 per
share, which includes a loss from discontinued operations of $3,357,000, or
$0.10 per share, versus net income of $54,599,000, or $1.66 per share, which
included a loss from discontinued operations of $421,000, or $0.01 per share,
for the year ended December 31, 2005. Income from continuing operations for the
year ended December 31, 2006 increased by $22,073,000, or 40% to $77,093,000, or
$2.29 per share, compared to income from continuing operations of $55,020,000,
or $1.67 per share, for the previous year.
For the year ended December 31, 2006 the Company recorded income, net of
tax, of $1,465,000, or $0.04 per share, for its manufacturing and restructuring
plan, compared to a charge of $1,633,000, or $0.05 per share, for the previous
year. Gains from the sales of two facilities in Italy were offset by costs
incurred for severance programs in Europe and China and accelerated depreciation
in China in 2006. In 2005, costs related primarily to European severance costs
and accelerated depreciation for the closure of a U.S. manufacturing plant.
Patrick S. O'Keefe, Chief Executive Officer, commented, "All segments
again contributed to record fourth quarter results, which were primarily due to
acquisitions and internal growth. The sales increase was achieved through
contributions from acquired companies of $49,160,000, or 20%, internal growth of
$28,711,000, or 12%, and, to a lesser extent, from favorable changes in foreign
exchange rates of $8,237,000, or 3%. 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 fourth quarter of
2006 by $39,377,000, or 24%, to $204,692,000 compared to $165,315,000 for the
fourth quarter of 2005. This increase was achieved through the inclusion of
acquired company sales of $26,028,000, or 16%, internal sales growth of
$13,037,000, or 8%, and, to a lesser extent, from favorable foreign exchange
rates of $312,000 associated with the strengthening of the Canadian dollar
versus the U.S. dollar."
"Internal sales growth in our North American wholesale market increased 9%
over the fourth quarter of 2005. This increase was primarily due to price
increases implemented to cover increases in the costs of copper and other raw
materials. Internal growth in our North American home improvement retail market
was 6% for the fourth quarter of 2006 over the fourth quarter of 2005. This
increase is primarily due to price increases in certain product lines."
"We derived 33% of our total sales for the fourth quarter of 2006 from our
European segment. European sales increased $39,247,000, or 55%, to $109,969,000
compared to $70,722,000 for the fourth quarter of 2005. This increase was
achieved through the inclusion of acquired company sales totaling $18,049,000,
or 26%, internal growth of $13,571,000, or 19%, and a favorable foreign exchange
movement associated with the strengthening of the euro versus the US dollar of
$7,627,000, or 10%. Our internal growth in Europe was fairly broad-based with
most markets and channels showing improvement. Sales growth in our German OEM
and wholesale markets was particularly strong in the fourth quarter, as were
Italian OEM sales."
"China's segment sales in the fourth quarter of 2006 increased $7,484,000
or 89%, to $15,854,000 compared to the fourth quarter of 2005. This increase was
achieved through the inclusion of acquired company sales totaling $5,083,000, or
61%, internal growth of $2,103,000, or 25%, and favorable foreign exchange rates
associated with the Chinese yuan strengthening against the U.S. dollar of
$298,000, or 3%. Acquired growth was attributable primarily to the April 2006
acquisition of Changsha Valves Works."
Mr. O'Keefe commented, "Our operating income for the fourth quarter of
2006 increased by $3,542,000, or 14%, to $29,681,000 as compared to $26,139,000
for the fourth quarter of 2005. Quarter-on-quarter internal growth contributed
$3,210,000, or 12%, acquisitions provided $2,033,000, or 8%, and favorable
foreign exchange movements contributed $1,093,000, or 4%, partially offset by
increased restructuring costs of $2,794,000, or 10%. Operating margins in the
fourth quarter of 2006 decreased by approximately 170 basis points to 9.0% as
compared to 10.7% in the fourth quarter of 2005. Operating margins were affected
by increased copper costs, increased acquisition related charges, increased
manufacturing restructuring costs and increased administrative costs."
The effective tax rate for the fourth quarter of 2006 was 31% compared
with 36% in the fourth quarter of 2005. Earnings mix between segments
contributed to the decrease and is being driven by higher profits in China being
taxed at lower effective rates.
The loss from discontinued operations in the fourth quarter of 2005
includes an after-tax charge of $236,000, or $0.01 per share, for costs
associated with the James Jones litigation.
The Company generated $82,231,000 in net cash provided from continuing
operations for the year ended December 31, 2006 as compared to $51,867,000 for
the year ended December 31, 2005. Free cash flow (a non-GAAP financial measure)
for the year ended December 31, 2006 was $57,005,000 compared with $23,449,000
for the year ended December 31, 2005 (Please refer to Table 1 at the end of this
press release for a reconciliation of net cash provided by continuing operations
to free cash flow). The Company's net debt to capitalization ratio (a non-GAAP
financial measure) decreased to 11% for the year ended December 31, 2006 from
33% in the prior year as the result of the Company's 2006 equity offering and
private placement offering (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).
Concerning the Company's financial position, Mr. O' Keefe commented, "With
the completion of the April 2006 private placement bond offering and line of
credit refinancing and the November 2006 stock offering, we have successfully
strengthened our capital structure in order to fund near- and medium-term
acquisitions. We also doubled free cash flow from the previous year. In addition
to cash on hand of $342,979,000 at December 31, 2006, we maintained
approximately $226,000,000 in unused and potentially available funding from our
revolving line of credit."
To supplement our consolidated financial statements presented on generally
accepted accounting principles (GAAP), we sometimes use non-GAAP financial
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 financial 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
financial 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 2006 on Tuesday, February 13, 2007,
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 February 13, 2008.
The Company's 2007 Annual Meeting of Stockholders will be held at 10:00
a.m. on Wednesday, May 2, 2007 at The Andover Country Club, 60 Canterbury
Street, 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 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)
Fourth Quarter Ended Year Ended
--------------------------- ----------------------------
December 31, December 31, December 31, December 31,
2006 2005 2006 2005
------------ ------------ ------------ ------------
STATEMENTS OF INCOME
Net sales $ 330,515 $ 244,407 $ 1,230,777 $ 924,346
Income from continuing operations $ 18,139 $ 15,196 $ 77,093 $ 55,020
Income (loss) from discontinued operations 1 (236) (3,357) (421)
------------ ------------ ------------ ------------
Net income $ 18,140 $ 14,960 $ 73,736 $ 54,599
============ ============ ============ ============
DILUTED EARNINGS PER SHARE
Weighted Average Number of
Common Shares & Equivalents 35,592 32,990 33,671 33,002
Income (loss) per Share:
Continuing operations $ 0.51 $ 0.46 $ 2.29 $ 1.67
Discontinued operations -- (0.01) (0.10) (0.01)
------------ ------------ ------------ ------------
Net income $ 0.51 $ 0.45 $ 2.19 $ 1.66
============ ============ ============ ============
Cash dividends per share $ 0.09 $ 0.08 $ 0.36 $ 0.32
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share information)
(Unaudited)
December 31, December 31,
ASSETS 2006 2005
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents ........................................................ $ 342,979 $ 45,758
Investment securities ............................................................ 11,825 --
Trade accounts receivable, less allowance for doubtful accounts of
$10,543 in 2006 and $9,296 in 2005 ............................................ 228,502 177,364
Inventories, net:
Raw materials ................................................................. 103,587 84,087
Work in process ............................................................... 39,593 23,201
Finished goods ................................................................ 173,236 135,549
------------ ------------
Total Inventories .......................................................... 316,416 242,837
Prepaid expenses and other assets ................................................ 15,842 25,361
Deferred income taxes ............................................................ 26,739 27,540
Assets of discontinued operations ................................................ 10,079 9,555
------------ ------------
Total Current Assets .......................................................... 952,382 528,415
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost ........................................... 391,923 328,812
Accumulated depreciation ......................................................... (185,763) (163,813)
------------ ------------
Property, plant and equipment, net ............................................ 206,160 164,999
------------ ------------
OTHER ASSETS:
Goodwill ......................................................................... 356,090 296,636
Other, net ....................................................................... 146,218 110,920
------------ ------------
TOTAL ASSETS ......................................................................... $ 1,660,850 $ 1,100,970
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................................. $ 120,954 $ 91,053
Accrued expenses and other liabilities ........................................... 100,437 67,071
Accrued compensation and benefits ................................................ 42,593 28,496
Current portion of long-term debt ................................................ 7,522 13,635
Liabilities of discontinued operations ........................................... 27,852 23,068
------------ ------------
Total Current Liabilities ..................................................... 299,358 223,323
------------ ------------
LONG-TERM DEBT, NET OF CURRENT PORTION ............................................... 441,697 293,350
DEFERRED INCOME TAXES ................................................................ 34,585 24,803
OTHER NONCURRENT LIABILITIES ......................................................... 52,686 32,187
MINORITY INTEREST .................................................................... 5,971 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: 31,239,111 shares in 2006
and 25,205,210 shares in 2005 ................................................. 3,124 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 in 2006
and 7,343,880 shares in 2005 .................................................. 729 734
Additional paid-in capital ....................................................... 367,795 142,694
Retained earnings ................................................................ 429,555 368,264
Accumulated other comprehensive income ........................................... 25,350 5,263
------------ ------------
Total Stockholders' Equity .................................................... 826,553 519,476
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................................... $ 1,660,850 $ 1,100,970
============ ============
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,
2006 2005 2006 2005
------------ ------------ ------------ ------------
Net sales .......................................................... $ 330,515 $ 244,407 $ 1,230,777 $ 924,346
Cost of goods sold ................................................. 219,593 158,079 805,759 599,644
------------ ------------ ------------ ------------
GROSS PROFIT ..................................................... 110,922 86,328 425,018 324,702
Selling, general & administrative expenses ......................... 81,780 59,922 300,179 229,418
Restructuring and other charges (income) ........................... (539) 267 (5,648) 729
------------ ------------ ------------ ------------
OPERATING INCOME ................................................... 29,681 26,139 130,487 94,555
------------ ------------ ------------ ------------
Other (income) expense:
Interest income .................................................. (2,555) (351) (5,014) (1,232)
Interest expense ................................................. 6,484 2,686 22,148 10,353
Minority interest ................................................ (1,697) 107 (1,828) 350
Other ............................................................ 1,018 (181) (928) (727)
------------ ------------ ------------ ------------
3,250 2,261 14,378 8,744
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ............ 26,431 23,878 116,109 85,811
Provision for income taxes ......................................... 8,292 8,682 39,016 30,791
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS ................................ 18,139 15,196 77,093 55,020
Income (loss) from discontinued operations, net of taxes ........... 1 (236) (3,357) (421)
------------ ------------ ------------ ------------
NET INCOME ....................................................... $ 18,140 $ 14,960 $ 73,736 $ 54,599
============ ============ ============ ============
BASIC EPS
Income (loss) per share:
Continuing operations ............................................ $ 0.52 $ 0.47 $ 2.32 $ 1.69
Discontinued operations .......................................... $ -- (0.01) (0.10) (0.01)
------------ ------------ ------------ ------------
NET INCOME ....................................................... $ 0.52 $ 0.46 $ 2.21 $ 1.68
============ ============ ============ ============
Weighted average number of shares .................................. 35,215 32,547 33,295 32,489
============ ============ ============ ============
DILUTED EPS
Income (loss) per share:
Continuing operations ............................................ $ 0.51 $ 0.46 $ 2.29 $ 1.67
Discontinued operations .......................................... -- (0.01) (0.10) (0.01)
------------ ------------ ------------ ------------
NET INCOME ....................................................... $ 0.51 $ 0.45 $ 2.19 $ 1.66
============ ============ ============ ============
Weighted average number of shares .................................. 35,592 32,990 33,671 33,002
============ ============ ============ ============
Dividends per share .............................................. $ 0.09 $ 0.08 $ 0.36 $ 0.32
============ ============ ============ ============
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,
2006 2005 2006 2005
------------ ------------ ------------ ------------
North America $ 204,692 $ 165,315 $ 821,276 $ 629,937
Europe 109,969 70,722 367,522 266,346
China 15,854 8,370 41,979 28,063
------------ ------------ ------------ ------------
Total $ 330,515 $ 244,407 $ 1,230,777 $ 924,346
============ ============ ============ ============
Operating Income
Fourth Quarter Ended Year Ended
-------------------------------- --------------------------------
December 31, December 31, December 31, December 31,
2006 2005 2006 2005
------------ ------------ ------------ ------------
North America $ 24,253 $ 21,979 $ 98,507 $ 79,067
Europe 11,909 8,229 49,976 31,528
China 187 983 7,155 3,533
Corporate (6,668) (5,052) (25,151) (19,573)
------------ ------------ ------------ ------------
Total $ 29,681 $ 26,139 $ 130,487 $ 94,555
============ ============ ============ ============
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
TABLE 1
RECONCILIATION OF NET CASH PROVIDED BY CONTINUING OPERATIONS TO FREE CASH FLOW
(Amounts In Thousands)
(Unaudited)
Year Ended
--------------------------------
December 31, December 31,
2006 2005
------------- -------------
Net cash provided by continuing operations $ 82,231 $ 51,867
Less: additions to property, plant, and equipment (44,648) (18,590)
Plus: proceeds from the sale of property, plant, and equipment 31,867 652
Less: dividends (12,445) (10,480)
------------- -------------
Free cash flow $ 57,005 $ 23,449
============= =============
TABLE 2
RECONCILIATION OF LONG-TERM DEBT (INCLUDING CURRENT PORTION)
TO NET DEBT AND NET DEBT TO CAPITALIZATION RATIO
(Amounts In Thousands)
(Unaudited)
December 31, December 31,
2006 2005
------------- -------------
Current portion of long-term debt $ 7,522 $ 13,635
Plus: Long-term debt, net of current portion 441,697 293,350
Less: Cash and cash equivalents (342,979) (45,758)
------------- -------------
Net debt $ 106,240 $ 261,227
============= =============
Net debt $ 106,240 $ 261,227
Plus: Total stockholders' equity 826,553 519,476
Plus: Minority interest 5,971 7,831
------------- -------------
Capitalization $ 938,764 $ 788,534
============= =============
Net Debt to Capitalization Ratio 11% 33%
============= =============