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 2007 RESULTS
AND ANNOUNCES RESTRUCTURING PROGRAM
North Andover, MA...October 30, 2007. Watts Water Technologies, Inc.
(NYSE: WTS) today announced results for the third quarter ended September 30,
2007 and a global manufacturing restructuring program. Sales for the third
quarter of 2007 were $340.5 million, an increase of $15.4 million, or 5%,
compared to the third quarter of 2006. Net income for the third quarter of 2007
was $18.1 million, or $0.46 per share, compared to net income of $18.2 million,
or $0.55 per share, for the third quarter of 2006, which included a loss from
discontinued operations of $3.1 million, or ($0.09). Income from continuing
operations for the third quarter of 2007 decreased by $3.2 million, or 15%, to
$18.2 million, or $0.47 per share, compared to income from continuing operations
for the third quarter of 2006 of $21.3 million, or $0.65 per share. Results for
the third quarter of 2007 include an after-tax charge of $4.2 million, or
($0.11) per share, as part of the global restructuring program and charges for
discontinued product lines.
Sales for the first nine months of 2007 were $1.04 billion, an increase of
$136.7 million, or 15%, compared to the first nine months of 2006. Net income
for the first nine months of 2007 was $55.9 million, or $1.43 per share,
compared to net income of $55.6 million, or $1.68 per share, for the first nine
months of 2006, which included a loss from discontinued operations of $3.4
million, or ($0.10) per share. Income from continuing operations for the first
nine months of 2007 decreased by $3.0 million, or 5%, to $55.9 million, or $1.43
per share, compared to income from continuing operations for the first nine
months of 2006 of $58.9 million, or $1.79 per share.
In the third quarter, the Company undertook a review of certain product
lines and its overall manufacturing capacity. Based on that review, the Company
is initiating a global restructuring program that was approved by the Board of
Directors today. The Company is also discontinuing certain product lines. This
program is expected to include the shutdown of five manufacturing facilities and
the rightsizing of a sixth facility, including the relocation of the Company's
joint venture facility in China that was previously disclosed. The restructuring
program and charges for product line eliminations will include pre-tax charges
totaling approximately $13.4 million, including charges for severance ($4.3
million), relocation costs ($2.8 million) and other asset write-downs and
expected net losses on asset disposals ($2.0 million) and will result in the
elimination of approximately 330 positions worldwide. The product lines that are
being discontinued resulted in a pre-tax charge of $4.3 million. Total net after
tax charges for this program are expected to be approximately $9.7 million ($4.7
million non-cash), with costs being incurred through early 2010. The Company
expects to spend approximately $13.4 million in capital expenditures to
consolidate operations and will fund approximately $8.0 million of this amount
through proceeds from the sale of buildings and other assets being disposed of
as part of the restructuring program. Annual cash savings, net of tax, are
estimated to be $4.5 million, which we expect to fully realize by the second
half of 2009. The Company recorded non-cash after-tax charges of approximately
$4.2 million, or ($0.11) per share, in the third quarter of 2007 for inventory
product rationalization and other asset write-downs.
In November 2006, the Company completed a public offering of 5.75 million
shares of Class A common stock and received net proceeds of approximately $219.0
million. The net proceeds are currently being invested in short-term securities,
which provided approximately $2.0 million and $5.8 million in after-tax income
in the third quarter and first nine months of 2007, respectively. The issuance
of an additional 5.75 million shares had a dilutive impact on earnings per share
of $0.03 per share and $0.09 per share in the third quarter and first nine
months of 2007, respectively, after considering the interest income from the net
proceeds. The Company had approximately $348.0 million in cash and cash
equivalents and short-term investments at September 30, 2007.
Patrick S. O'Keefe, Chief Executive Officer, commented, "The goals of our
restructuring program are to rationalize our product offerings and to introduce
greater efficiencies and cost reductions into our manufacturing processes. We
plan to continue to review our operational footprint and we may consider further
actions in the future, if necessary."
Commenting on third quarter sales, Mr. O'Keefe noted, "The sales increase
was achieved through favorable changes in foreign exchange rates of $9.7
million, or 3%, internal growth of $4.2 million, or 1%, and, to a lesser extent,
contributions from acquired companies.
"Sales in our North American segment increased for the third quarter of
2007 by $4.0 million, or 2%, to $215.8 million compared to $211.8 million for
third quarter of 2006. This increase was achieved through internal sales growth
of $3.0 million, or 1%, and, to a lesser extent, from favorable foreign exchange
rates of $1.0 million associated with the strengthening of the Canadian dollar
versus the U.S. dollar.
"Internal sales in our North American wholesale market for the third
quarter of 2007 increased 4% over the third quarter of 2006. This increase was
primarily due to price increases implemented to cover increases in the costs of
copper and other raw materials. Our North American home improvement retail
market sales declined 8% for the third quarter of 2007 compared to the third
quarter of 2006. This decrease was primarily due to our exiting markets in
certain lower margin product lines, partially offset by new product rollouts and
price increases.
"We derived 32% of our total sales for the third quarter of 2007 from our
European segment. European sales increased $9.1 million, or 9%, to $110.5
million compared to $101.4 million for the third quarter of 2006. This increase
was achieved through favorable foreign exchange movement associated with the
strengthening of the euro versus the US dollar of $7.9 million, or 8%, and the
inclusion of an acquired company. Our internal growth in Europe was flat for the
third quarter as minor increases in wholesale sales were offset by reduced sales
into the OEM market.
"China's segment sales in the third quarter of 2007 increased $2.2
million, or 19%, to $14.2 million compared to the third quarter of 2006. This
increase was achieved through internal growth of $1.5 million, or 13%, and
favorable foreign exchange rates associated with the yuan strengthening against
the U.S. dollar of $0.7 million, or 6%."
Mr. O'Keefe concluded, "Our operating income for the third quarter of 2007
decreased by $6.3 million, or 17%, to $30.1 million as compared to $36.4 million
in the third quarter of 2006. Restructuring costs increased by $4.7 million, or
13%, and internal operating earnings decreased $3.2 million, or 8%, partially
offset by favorable foreign exchange movements, which contributed $1.4 million,
or 4%. Operating margins in the third quarter of 2007 decreased by approximately
240 basis points to 8.8% as compared to 11.2% in the third quarter of 2006.
Restructuring costs decreased operating margins in the third quarter of 2007 and
the third quarter of 2006 by 180 basis points and 40 basis points, respectively.
Compared to last year, our operating margins were impacted by increased
commodity costs, which were only partially offset by price increases."
As previously discussed, the Company recorded a $4.2 million loss, net of
tax, or $0.11 per share, for restructuring and other costs in the third quarter
of 2007. The Company recorded a loss, net of tax, of $0.8 million, or $0.02 per
share, in the third quarter of 2006 for its manufacturing restructuring plan.
For the third quarter of 2006, these costs were primarily for severance costs
related to its European and Chinese restructuring plans.
The Company recorded a loss, net of tax, of $4.5 million, or $0.12 per
share, in the first nine months of 2007 compared to income, net of tax, of $2.6
million, or $0.08 per share, in the first nine months of 2006 for its
manufacturing restructuring plan and product line eliminations. In the first
nine months of 2006, the Company benefited from an after-tax gain of
approximately $4.1 million, or $0.12 per share, related to the sale of a
building in Italy, which was recorded in the third quarter of 2006. This benefit
was offset by after-tax costs of approximately $1.5 million, or $0.04 per share,
primarily for severance costs related to the Company's European and Chinese
restructuring plans.
Watts Water Technologies, Inc. will hold a live web cast of its conference
call to discuss third quarter results for 2007 on Tuesday, October 30, 2007, at
5:00 p.m. Eastern Time. This press release and the live web cast can be accessed
by visiting the Investor Relations 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 October 30, 2008.
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, 2006 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
---------------------------- ----------------------------
September 30, October 1, September 30, October 1,
2007 2006 2007 2006
------------ ------------ ------------ ------------
STATEMENTS OF INCOME
- --------------------
Net sales .............................. $ 340,487 $ 325,137 $ 1,037,001 $ 900,262
Income from continuing operations ...... $ 18,174 $ 21,324 $ 55,914 $ 58,954
Loss from discontinued operations ...... (80) (3,137) (54) $ (3,358)
------------ ------------ ------------ ------------
Net income ............................. $ 18,094 $ 18,187 $ 55,860 55,596
============ ============ ============ ============
DILUTED EARNINGS PER SHARE
- --------------------------
Weighted Average Number of Common
Shares & Equivalents ................... 39,070 33,051 39,027 33,027
Income (loss) per Share:
Continuing operations ............. $ 0.47 $ 0.65 $ 1.43 $ 1.79
Discontinued operations ........... -- (0.09) -- (0.10)
------------ ------------ ------------ ------------
Net income ........................ $ 0.46 $ 0.55 $ 1.43 $ 1.68
============ ============ ============ ============
Cash dividends per share ............... $ 0.10 $ 0.09 $ 0.30 $ 0.27
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share information)
(Unaudited)
September 30, December 31,
2007 2006
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 308,670 $ 342,979
Investment securities ................................................ 38,975 11,825
Trade accounts receivable, less allowance for doubtful accounts of
$14,886 at September 30, 2007 and $10,543 at December 31, 2006 .... 253,622 228,502
Inventories, net:
Raw materials ..................................................... 110,776 103,587
Work in process ................................................... 51,541 39,593
Finished goods .................................................... 191,713 173,236
------------ ------------
Total Inventories .................................................... 354,030 316,416
Prepaid expenses and other assets .................................... 20,591 15,842
Deferred income taxes ................................................ 36,356 26,739
Assets of discontinued operations .................................... 10,434 10,079
------------ ------------
Total Current Assets .............................................. 1,022,678 952,382
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost ............................... 427,634 391,923
Accumulated depreciation ............................................. (212,007) (185,763)
------------ ------------
Property, plant and equipment, net ................................ 215,627 206,160
------------ ------------
OTHER ASSETS:
Goodwill ............................................................. 369,193 356,090
Other, net ........................................................... 140,027 146,218
------------ ------------
TOTAL ASSETS .................................................................. $ 1,747,525 $ 1,660,850
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................................... $ 106,464 $ 120,954
Accrued expenses and other liabilities ............................... 107,961 100,437
Accrued compensation and benefits .................................... 39,386 42,593
Current portion of long-term debt .................................... 5,153 7,522
Liabilities of discontinued operations ............................... 28,507 27,852
------------ ------------
Total Current Liabilities ........................................... 287,471 299,358
------------ ------------
LONG-TERM DEBT, NET OF CURRENT PORTION ........................................ 458,563 441,697
DEFERRED INCOME TAXES ......................................................... 39,798 34,585
OTHER NONCURRENT LIABILITIES .................................................. 48,949 52,686
MINORITY INTEREST ............................................................. 4,278 5,971
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: 31,480,417 shares at
September 30, 2007 and 31,239,111 shares at December 31, 2006 ..... 3,148 3,124
Class B Common Stock, $.10 par value; 25,000,000 shares authorized;
10 votes per share; issued and outstanding: 7,293,880 shares at
September 30, 2007 and at December 31, 2006 ....................... 729 729
Additional paid-in capital ........................................... 376,262 367,795
Retained earnings .................................................... 472,630 429,555
Accumulated other comprehensive income ............................... 55,697 25,350
------------ ------------
Total Stockholders' Equity ........................................ 908,466 826,553
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................... $ 1,747,525 $ 1,660,850
============ ============
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share information)
(Unaudited)
Third Quarter Ended Nine Months Ended
---------------------------- ----------------------------
September 30, October 1, September 30, October 1,
2007 2006 2007 2006
------------ ------------ ------------ ------------
Net sales ........................................ $ 340,487 $ 325,137 1,037,001 900,262
Cost of goods sold ............................... 230,031 212,809 697,238 585,267
------------ ------------ ------------ ------------
GROSS PROFIT ............................... 110,456 112,328 339,763 314,995
Selling, general & administrative expenses ....... 78,742 75,549 246,896 218,399
Restructuring and other charges .................. 1,596 332 2,066 (5,109)
------------ ------------ ------------ ------------
OPERATING INCOME ........................... 30,118 36,447 90,801 101,705
------------ ------------ ------------ ------------
Other (income) expense:
Interest income ............................ (3,698) (1,150) (10,947) (2,459)
Interest expense ........................... 6,820 6,520 19,871 15,664
Minority interest .......................... (775) (273) (1,885) (131)
Other ...................................... 606 (151) 1,683 (1,047)
------------ ------------ ------------ ------------
2,953 4,946 8,722 12,027
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES ..................... 27,165 31,501 82,079 89,678
Provision for income taxes ....................... 8,991 10,177 26,165 30,724
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS .......... 18,174 21,324 55,914 58,954
Loss from discontinued operations, net of taxes .. (80) (3,137) (54) (3,358)
------------ ------------ ------------ ------------
NET INCOME ................................. $ 18,094 $ 18,187 55,860 55,596
============ ============ ============ ============
BASIC EPS
Income (loss) per share:
Continuing operations ...................... $ 0.47 $ 0.65 $ 1.45 $ 1.81
Discontinued operations .................... -- $ (0.10) -- (0.10)
------------ ------------ ------------ ------------
NET INCOME ................................. $ 0.47 $ 0.56 $ 1.45 $ 1.70
============ ============ ============ ============
Weighted average number of shares ................ 38,728 32,707 38,653 32,651
============ ============ ============ ============
DILUTED EPS
Income (loss) per share:
Continuing operations ...................... $ 0.47 $ 0.65 $ 1.43 $ 1.79
Discontinued operations .................... -- $ (0.09) -- (0.10)
------------ ------------ ------------ ------------
NET INCOME ................................. $ 0.46 $ 0.55 $ 1.43 $ 1.68
============ ============ ============ ============
Weighted average number of shares ................ 39,070 33,051 39,027 33,027
============ ============ ============ ============
Dividends per share ........................ $ 0.10 $ 0.09 $ 0.30 $ 0.27
============ ============ ============ ============
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Amounts in thousands)
(Unaudited)
Net Sales
Third Quarter Ended Nine Months Ended
--------------------------- ---------------------------
September 30, October 1, September 30, October 1,
2007 2006 2007 2006
------------ ------------ ------------ ------------
North America ..... $ 215,809 $ 211,769 $ 658,586 $ 616,584
Europe ............ 110,518 101,437 334,285 257,553
China ............. 14,160 11,931 44,130 26,125
------------ ------------ ------------ ------------
Total ............. $ 340,487 $ 325,137 $ 1,037,001 $ 900,262
============ ============ ============ ============
Operating Income
Third Quarter Ended Nine Months Ended
--------------------------- ---------------------------
September 30, October 1, September 30, October 1,
2007 2006 2007 2006
------------ ------------ ------------ ------------
North America ..... $ 22,629 $ 26,626 $ 64,044 $ 75,153
Europe ............ 13,861 12,889 41,104 38,067
China ............. 716 3,556 6,780 6,968
Corporate ......... (7,088) (6,624) (21,127) (18,483)
------------ ------------ ------------ ------------
Total ............. $ 30,118 $ 36,447 $ 90,801 $ 101,705
============ ============ ============ ============