NYSE: WTS 86.38 +2.61 +3.12% Volume: 147,935 June 3, 2020

Watts Water Technologies Reports Second Quarter 2004 Results

August 03, 2004

NORTH ANDOVER, Mass.--(BUSINESS WIRE)--Aug. 3, 2004--Watts Water Technologies, Inc. (NYSE: WTS) today announced results for the second quarter ended June 27, 2004 reflecting a sales and net income increase of 23% and 72%, respectively, over the second quarter ended June 29, 2003. For the second quarter of 2004, sales were $212,694,000, an increase of $39,182,000, or 23%, compared to the second quarter of 2003. For the second quarter of 2004, net income was $13,953,000, an increase of $5,847,000, or 72%, compared to the second quarter of 2003. Net income for the second quarter of 2004 and 2003 includes losses from discontinued operations of $72,000 and $574,000, respectively.

Income from continuing operations for the second quarter of 2004 was $14,025,000, or $0.43 per share, an increase of $5,345,000, or 62%, compared to income from continuing operations for the second quarter of 2003 of $8,680,000, or $0.32 per share. Income from continuing operations for the second quarter of 2004 and 2003 includes costs incurred for our manufacturing restructuring plan of $344,000, or $0.01 per share, and $399,000, or $0.01 per share, respectively.

The six months ended June 27, 2004 reflect a sales and net income increase of 19% and 70%, respectively, over the six months ended June 29, 2003. For the six months ended 2004, sales were $403,340,000, an increase of $64,136,000, or 19%, compared to the six months ended 2003. Net income for the six months ended 2004, was $24,954,000, an increase of $10,238,000, or 70%, compared to the six months ended June 29, 2003. Net income for the six months ended 2004 and 2003 includes losses from discontinued operations of $95,000 and $2,900,000, respectively.

Income from continuing operations for the six months ended 2004 was $25,049,000, or $0.77 per share, an increase of $7,433,000, or 42%, compared to income from continuing operations for the six months ended 2003 of $17,616,000, or $0.65 per share. Income from continuing operations for the six months ended 2004 and 2003 includes costs incurred for our manufacturing restructuring plan of $1,068,000, or $0.03 per share, and $676,000, or $0.03 per share, respectively.

Patrick S. O'Keefe, Chief Executive Officer, commented, "We are pleased with the second quarter results from all three of our geographic segments, North America, Europe and China. Our overall increase in sales was achieved by internal growth, the contribution from acquired companies, and the change in foreign exchange rates. In comparing our sales during the second quarter of 2004 with the second quarter of 2003, our internal growth rate, which was 11%, contributed $19,069,000, the acquisitions of McCoy Enterprises, Inc, TEAM Precision Pipework, Ltd, Flowmatic Systems, Inc., and Giuliani Anello S.r.l. contributed $11,299,000 and the change in foreign exchange rates contributed $3,074,000 due primarily to the strengthening of the euro versus the U.S. dollar. Additionally, due to the adoption of Financial Accounting Standards Board Interpretation No. 46, "Consolidation of Variable Interest Entities-Revised" (FIN 46R) we recorded $5,740,000 of revenue in the second quarter of 2004 as a result of the consolidation of our minority owned subsidiary, Jameco International LLC."

Mr. O'Keefe continued, "Our North American segment sales for the second quarter of 2004 increased 22% to $144,522,000 compared to $118,162,000 for the second quarter of 2003. This increase in North American sales was due to internal sales growth of $14,300,000, the inclusion of $6,116,0000 in sales from the acquisition of McCoy Enterprises, Inc., acquired on May 21, 2004, and Flowmatic Systems, Inc., acquired on January 5, 2004, the inclusion of $5,740,000 in sales resulting from the consolidation of Jameco International LLC, and $204,000 due to favorable foreign exchange rates associated with the strengthening of the Canadian dollar versus the U.S. dollar."

Mr. O'Keefe continued, "Internal sales in the North American wholesale market increased by 13% over the second quarter of 2003. This increase was led by increased sales of backflow prevention units, as well as, strength in our plumbing and under-floor radiant heating product lines. Our internal sales into the North American home improvement retail market increased by 11% for the second quarter of 2004 over the second quarter of 2003.

Mr. O'Keefe continued, "We derived 29% of our total sales for the second quarter of 2004 from Europe. Sales in Europe for the second quarter of 2004 increased $10,752,000, or 21%, compared to the second quarter of 2003. This increase is due to the inclusion of $5,183,000 in sales from the acquisitions of TEAM Precision Pipe Work, Ltd., acquired on April 16, 2004 and Giuliani Anello S.r.l. acquired on July 30, 2003, $2,870,000 due to favorable foreign exchange rates associated with the strengthening of the euro versus the U.S. dollar and internal sales growth of $2,699,000. The internal sales growth is attributable to market share gains in the European wholesale markets."

Mr. O'Keefe continued, "We are pleased that our China segment was profitable in the second quarter. We are experiencing an improved order entry rate at our TWT joint venture in Tianjin. At our recently established wholly owned facility, also in Tianjin, we were able to absorb all our manufacturing expenses due to improved manufacturing efficiencies and increased production volumes. Also, in the quarter we purchased the 40% equity interest in Shida that had been held by our former joint venture partner, giving us 100% ownership."

Mr. O'Keefe continued, "For the second quarter of 2004 we recorded a pre-tax charge of approximately $560,000 in cost of goods sold for accelerated depreciation for both the expected closure of a U.S. manufacturing plant and a reduction in the estimated useful lives of certain manufacturing equipment, both part of our cost reduction program. This represents a reduction from the amount recorded in the first quarter of 2004 because we have postponed the expected closure date of a manufacturing facility and extended the estimated useful lives of production equipment due to revised production requirements. Also in this quarter we have incurred and recorded pre-tax charges of approximately $1,400,000 for costs to comply with new accounting and financial controls requirements under the Sarbanes-Oxley Act.

On January 5, 2004, the Company acquired substantially all of the assets of Flowmatic Systems, Inc. located in Dunnellon, Florida, for approximately $16,700,000 in cash. Flowmatic designs and distributes high quality reverse osmosis components and filtration equipment. Their product lines include stainless steel and plastic housings, filter cartridges, storage tanks, control valves, as well as complete reverse osmosis systems for residential and commercial applications.

On April 16, 2004, the Company acquired 90% of the stock of TEAM Precision Pipe Work, Ltd., located in Ammanford, West Wales, United Kingdom for approximately $16,500,000 subject to final adjustments, if any, as stipulated in the purchase and sale agreement. TEAM custom designs and manufactures manipulated pipe and hose tubing assemblies, which are utilized in the heating ventilation and air conditioning markets. TEAM is a supplier to major original equipment manufacturers of air conditioning systems and several of the major European automotive air conditioning manufacturers

On May 21, 2004, the Company acquired McCoy Enterprises, Inc., which we subsequently renamed Orion Enterprises, Inc., located in Kansas City, Kansas, for approximately $27,800,000 in cash. Orion distributes its products under the brand names of Orion, Flo Safe and Laboratory Enterprises. Orion's product lines include a complete line of acid resistant waste products, double containment piping systems, as well as, a line of high purity pipes, fittings and faucets.

Watts Water Technologies, Inc. will hold a live web cast of its conference call to discuss second quarter results for 2004 on Wednesday, August 4, 2004, at 3:00 p.m. Eastern Time. This press release and the live webcast 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 August 3, 2005.

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: loss of market share through competition, introduction of competing products by other companies, pressure on prices from competitors, suppliers, and/or customers, 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, reductions in the supply of raw materials, increases in the prices of raw materials, economic factors, such as the levels of housing starts and remodeling, impacting 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, 2003 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. 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.

            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
                            June 27,   June 29,   June 27,   June 29,
                               2004       2003       2004       2003
                            --------   --------   --------   --------
STATEMENTS OF INCOME
--------------------
Net sales                 $ 212,694  $ 173,512  $ 403,340  $ 339,204

Income from continuing
 operations               $  14,025  $   8,680  $  25,049  $  17,616
Loss from discontinued
 operations                     (72)      (574)       (95)    (2,900)
                            --------   --------   --------   --------
Net income                $  13,953  $   8,106  $  24,954  $  14,716
                            ========   ========   ========   ========


DILUTED EARNINGS PER SHARE
--------------------------

Weighted Average Number of
 Common Shares &
 Equivalents                 32,726     27,472     32,639     27,352

Earnings per Share:
  Continuing operations   $    0.43  $    0.32  $    0.77  $    0.65
  Discontinued operations         -      (0.02)         -      (0.11)
                            --------   --------   --------   --------
  Net income              $    0.43  $    0.30  $    0.77  $    0.54
                            ========   ========   ========   ========


Cash dividends per share  $    0.07  $    0.06  $    0.14  $    0.12



            WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEETS
           (Amounts in thousands, except share information)
                              (Unaudited)

                                               June 27,  December 31,
ASSETS                                            2004          2003
                                              ---------  ------------
CURRENT ASSETS:
    Cash and cash equivalents                $  76,128  $    149,361
    Trade accounts receivable, less allowance
     for doubtful accounts of $8,681 at
     June 27, 2004 and $7,772 at
     December 31, 2003                         162,681       136,064
    Inventories, net:
       Raw materials                            50,490        41,998
       Work in process                          24,508        24,348
       Finished goods                          119,604        90,253
                                              ---------  ------------
          Total Inventories                    194,602       156,599
    Prepaid expenses and other assets           14,168         8,500
    Deferred income taxes                       23,221        23,552
    Assets held for sale                         1,629         1,938
    Assets of discontinued operations            8,937         4,460
                                              ---------  ------------
       Total Current Assets                    481,366       480,474
                                              ---------  ------------
PROPERTY, PLANT AND EQUIPMENT:
    Property, plant and equipment, at cost     301,343       284,250
    Accumulated depreciation                  (152,051)     (138,539)
                                              ---------  ------------
       Property, plant and equipment, net      149,292       145,711
                                              ---------  ------------
OTHER ASSETS:
    Goodwill                                   209,732       184,901
    Other                                       49,567        27,557
                                              ---------  ------------
TOTAL ASSETS                                 $ 889,957  $    838,643
                                              =========  ============


LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
    Accounts payable                         $  80,325  $     74,068
    Accrued expenses and other liabilities      60,421        55,252
    Accrued compensation and benefits           20,623        18,466
    Current portion of long-term debt           71,648        13,251
    Liabilities of discontinued operations      22,446        11,302
                                              ---------  ------------
       Total Current Liabilities               255,463       172,339
                                              ---------  ------------
LONG-TERM DEBT, NET OF CURRENT PORTION         131,483       179,061
DEFERRED INCOME TAXES                           18,182        15,978
OTHER NONCURRENT LIABILITIES                    24,824        25,588
MINORITY INTEREST                                6,463         9,286
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: 24,828,141 shares at
     June 27, 2004 and 24,459,121 shares at
     December 31, 2003                           2,483         2,446
    Class B Common Stock, $.10 par value;
     25,000,000 shares authorized;
     10 votes per share; issued and
     outstanding: 7,471,700 shares at
     June 27, 2004 and 7,605,224 shares at
     December 31, 2003                             747           761
    Additional paid-in capital                 136,590       132,983
    Deferred compensation                         (783)            -
    Retained earnings                          306,816       286,396
    Accumulated other comprehensive income       7,689        13,805
                                              ---------  ------------
       Total Stockholders' Equity              453,542       436,391
                                              ---------  ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 889,957  $    838,643
                                              =========  ============



            WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF OPERATIONS
         (Amounts in thousands, except per share information)
                              (Unaudited)

                             Second Quarter Ended    Six Months Ended
                             ---------------------  ------------------
                                June 27,  June 29,  June 27,  June 29,
                                   2004      2003      2004      2003
                             -----------  --------  --------  --------
Net sales                   $   212,694  $173,512   403,340  $339,204
Cost of goods sold              136,305   114,947   261,136   224,875
                             -----------  --------  --------  --------
   GROSS PROFIT                  76,389    58,565   142,204   114,329
Selling, general &
 administrative expenses         51,883    42,111    97,864    81,965
Restructuring                         -       114         -       114
                             -----------  --------  --------  --------
   OPERATING INCOME              24,506    16,340    44,340    32,250
                             -----------  --------  --------  --------
Other (income) expense:
   Interest income                 (237)     (267)     (519)     (382)
   Interest expense               2,784     2,820     5,353     4,904
   Minority interest                283       (17)     (479)     (152)
   Other                           (231)      (90)      506       (38)
                             -----------  --------  --------  --------
                                  2,599     2,446     4,861     4,332
                             -----------  --------  --------  --------
    INCOME FROM CONTINUING
     OPERATIONS BEFORE
     INCOME TAXES                21,907    13,894    39,479    27,918
Provision for income taxes        7,882     5,214    14,430    10,302
                             -----------  --------  --------  --------
   INCOME  FROM CONTINUING
    OPERATIONS                   14,025     8,680    25,049    17,616
Loss from discontinued
 operations, net of taxes           (72)     (574)      (95)   (2,900)
                             -----------  --------  --------  --------
   NET INCOME               $    13,953  $  8,106    24,954  $ 14,716
                             ===========  ========  ========  ========
BASIC EPS
Income (loss) per share:
   Continuing operations    $      0.43  $   0.32      0.78  $   0.65
   Discontinued operations            -     (0.02)        -     (0.11)
                             -----------  --------  --------  --------
   NET INCOME               $      0.43  $   0.30      0.78  $   0.54
                             ===========  ========  ========  ========
Weighted average number of
 shares                          32,265    27,210    32,202    27,139
                             ===========  ========  ========  ========
DILUTED EPS
Income (loss) per share:
   Continuing operations    $      0.43  $   0.32      0.77  $   0.65
   Discontinued operations            -     (0.02)        -     (0.11)
                             -----------  --------  --------  --------
   NET INCOME               $      0.43  $   0.30      0.77  $   0.54
                             ===========  ========  ========  ========
Weighted average number of
 shares                          32,726    27,472    32,639    27,352
                             ===========  ========  ========  ========
    Dividends per share     $      0.07  $   0.06      0.14  $   0.12
                             ===========  ========  ========  ========

CONTACT: Watts Water Technologies, Inc.
William C. McCartney, 978-688-1811

SOURCE: Watts Water Technologies, Inc.

IR Contact

Tim MacPhee, Treasurer,

Vice President Investor Relations

978-689-6201

investorrelations@wattswater.com

Company Information

Company Information

Bar

Bar has over 30 years of global experience with pneumatic and electric actuators as well as automatic valves, position indicators, and positioners.

Company Information

Year Founded: 2001

Black Teknigas

A leading manufacturer of combustion, industrial, medical, and laboratory gas control equipment.

Company Information

Year Founded: 1965

BLÜCHER

A leading provider of quality stainless steel drainage products and systems including floor drains, shower drains, pipe, channels, and accessories.

Company Information

Year Founded: 1982

Electro Controls

Electro Controls, Inc., specializes in the sales, installation, service, and support of commercial HVAC control and building management systems.

Company Information

Year Founded: 1987

Microflex

A worldwide provider of energy efficient specialized piping.

Company Information

Year Founded: 1956

Socla

A leading provider of butterfly valves, protection regulation, shut off valves, and check & foot valves.

Company Information

Year Founded: 1987

Valpes

A leading provider of high-quality, quarter-turn valve electric actuators.

Company Information

Year Founded: 1949

AERCO

AERCO offers commercial boilers and water heaters that simplify infrastructure, reduce project costs and minimize lifecycle expenses for value-driven schools, hospitals and others seeking long-lasting, reliable, high-efficiency equipment.

Company Information

Year Founded: 1910

Ames Fire & Waterworks

A leading provider of backflow prevention assemblies, control valves, in-building risers, and strainers for the commercial fire protection market.

Company Information

Year Founded: 2003

BRAE

Offers integrated rainwater harvesting systems for businesses, institutions, industrial facilities, and agricultural applications.

Company Information

Year Founded: 1946

Dormont Manufacturing Company

A leading manufacturer of safe, high-quality gas connectors and appliance safety products.

Company Information

Year Founded: 1924

FEBCO

An innovative leader and manufacturer of backflow prevention assemblies.

Company Information

Year Founded: 1980

HF scientific, inc.

A leader in instrumentation and measurement devices for compliance, process control, wastewater, ballast water, and water quality.

Company Information

Year Founded: 1956

Mueller Steam Specialty

A leading manufacturer of pipeline strainers, check valves, butterfly valves, suction diffusers, line blinds, and other specialty products for industrial applications.

Company Information

Year Founded: 1974

Orion Fittings

A leading manufacturer of acid waste, high purity, double containment, and polypropylene piping systems as well as neutralization tanks & monitoring equipment, floor drains, and sinks.

Company Information

Year Founded: 1891

Powers

Offers water tempering and temperature control solutions for the commercial and industrial temperature control markets.

Company Information

Year Founded: 1989

Premier

A leading provider of water purification systems for residential, light commercial, and food service applications.

Company Information

Year Founded: 1995

Sea Tech, Inc.

A leading provider of quick-connect fittings, manifolds, and valves made from engineered polymers for fluidic connections.

Company Information

SunTouch

SunTouch® is the premier radiant floor heating technology brand in North America.

Company Information

Year Founded: 1984

tekmar Control Systems Ltd.

Offers complete control solutions for radiant floor and baseboard heating systems, multi-stage boiler plants, and automatic snow melting systems.

Company Information

Year Founded: 2000

Watts Radiant

A leading provider of hydronic heating, floor warming, and snow melting systems & solutions.