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

Watts Water Technologies Reports Third Quarter 2004 Results

November 02, 2004

NORTH ANDOVER, Mass.--(BUSINESS WIRE)--Nov. 2, 2004--Watts Water Technologies, Inc. (NYSE: WTS) today announced results for the third quarter ended September 26, 2004, reflecting increases in sales and net income of 22% and 54%, respectively, over the third quarter ended September 28, 2003. Sales were $214,843,000, an increase of $39,334,000, or 22%, compared to the third quarter of 2003. Net income was $13,705,000, an increase of $4,800,000, or 54%, compared to the third quarter of 2003. Net income for the third quarters of 2004 and 2003 included losses from discontinued operations of $125,000 and $114,000, respectively.

Income from continuing operations for the third quarter of 2004 was $13,830,000, or $0.42 per share, an increase of $4,811,000, or 53%, compared to income from continuing operations for the third quarter of 2003 of $9,019,000, or $0.33 per share. Income from continuing operations for the third quarter of 2004 includes costs incurred for our manufacturing restructuring plan of $349,000, or $0.01 per share.

The nine months ended September 26, 2004 reflected increases in sales and net income of 20% and 64%, respectively, over the nine months ended September 28, 2003. Sales were $618,183,000, an increase of $103,470,000, or 20%, compared to the nine months ended September 28, 2003. Net income for the nine months ended September 26, 2004, was $38,659,000, an increase of $15,038,000, or 64%, compared to the nine months ended September 28, 2003. Net income for the nine months ended September 26, 2004 and September 28, 2003 included losses from discontinued operations of $220,000 and $3,014,000, respectively.

Income from continuing operations for the nine months ended September 26, 2004 was $38,879,000, or $1.19 per share, an increase of $12,244,000, or 46%, compared to income from continuing operations for the nine months ended September 28, 2003 of $26,635,000, or $0.97 per share. Income from continuing operations for the nine months ended September 26, 2004 and September 28, 2003 included net costs incurred for our manufacturing restructuring plan of $1,417,000, or $0.04 per share, and $640,000, or $0.02 per share, respectively.

Earnings per share for the third quarter and nine months of 2004 includes an increase of 17% in outstanding shares resulting from the Company's Class A Common Stock Offering in December 2003.

Patrick S. O'Keefe, Chief Executive Officer, commented, "We are pleased with the third 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 quarterly year over year sales, our internal growth rate was 10% and contributed $17,987,000, the acquisitions of McCoy Enterprises, Inc, TEAM Precision Pipework, Ltd, and Flowmatic Systems, Inc. contributed $10,756,000, or 6%, and the change in foreign exchange rates contributed $5,938,000, or 3%, 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 $4,653,000 of revenue in the third 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 third quarter of 2004 increased 20% to $145,056,000 compared to $121,001,000 for the third quarter of 2003. This increase in North American sales was due to internal sales growth of $10,462,000, or 9%, the inclusion of $8,358,0000 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 $4,653,000 in sales resulting from the consolidation of Jameco International LLC, and $582,000 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 growth in the North American wholesale market was 9% over the third 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 growth in the North American home improvement retail market was 8% for the third quarter of 2004 over the third quarter of 2003.

Mr. O'Keefe continued, "We derived 29% of our total sales for the third quarter of 2004 from Europe. European sales increased $12,175,000, or 24%, compared to the third quarter of 2003. This increase includes internal sales growth of $4,421,000, or 9%, the inclusion of $2,398,000 in sales from the acquisition of TEAM Precision Pipework, Ltd., acquired on April 16, 2004, and $5,356,000 due to favorable foreign exchange rates associated with the strengthening of the euro versus the U.S. dollar. The internal sales growth is attributable to market share gains in the European wholesale markets."

Mr. O'Keefe continued, "We are pleased with the positive operating trends in our Chinese subsidiaries. The plants continue to increase capacity utilization and gain manufacturing efficiencies. These increased manufacturing efficiencies allowed our Chinese operations to generate a profit for the second consecutive quarter. Year-to-date, the operations are also profitable."

Mr. O'Keefe continued, "In the third quarter of 2004 we recorded a tax benefit of approximately $876,000 for prior years state tax credits. We also recorded in cost of sales a pre-tax charge of approximately $567,000 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. In this quarter we incurred and recorded pre-tax charges of approximately $1,200,000 for costs to comply with the Sarbanes-Oxley Act ("SOX"). In addition, we expect to record approximately $3,000,000 in the fourth quarter of 2004 for additional costs to comply with SOX".

On January 5, 2004, the Company acquired substantially all of the assets of Flowmatic Systems, Inc. located in Dunnellon, Florida, for approximately $16,800,000 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 Pipework, Ltd., located in Ammanford, West Wales, United Kingdom for approximately $17,200,000 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 100% of the stock of McCoy Enterprises, Inc., which we subsequently renamed Orion Enterprises, Inc. (Orion), located in Kansas City, Kansas, for approximately $27,800,000 in cash. Orion distributes its products under the brand names of Orion, FloSafe 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 third quarter results for 2004 on Wednesday, November 3, 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 November 3, 2005.

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, diversion of management's attention and costs associated with efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002, failure to meet the new requirements under Section 404 of the Sarbanes-Oxley Act of 2002 in a timely manner, identification and disclosure of material weaknesses in our internal controls 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, 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. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
         (Amounts in thousands, except per share information)
                              (Unaudited)

                              Third Quarter Ended   Nine Months Ended
                               September September September September
                                  26,        28,      26,       28,
                                  2004      2003      2004       2003
                               --------  --------  --------  ---------
 STATEMENTS OF INCOME
 -----------------------------

 Net sales                    $214,843  $175,509  $618,183  $ 514,713

 Income from continuing
  operations                  $ 13,830  $  9,019  $ 38,879  $  26,635
 Loss from discontinued
  operations                      (125)     (114)     (220)    (3,014)
                               --------  --------  --------  ---------
 Net income                   $ 13,705  $  8,905  $ 38,659  $  23,621
                               ========  ========  ========  =========


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

 Weighted Average Number of
  Common Shares & Equivalents   32,792    27,632    32,673     27,428

 Earnings per Share:
      Continuing operations   $   0.42  $   0.33  $   1.19  $    0.97
      Discontinued operations        -     (0.01)    (0.01)     (0.11)
                               --------  --------  --------  ---------
      Net income              $   0.42  $   0.32  $   1.18  $    0.86
                               ========  ========  ========  =========


 Cash dividends per share     $   0.07  $   0.06  $   0.21  $    0.18



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

                                                   September December
                                                        26,       31,
ASSETS                                                 2004      2003
                                                   --------- ---------
CURRENT ASSETS:
 Cash and cash equivalents                        $  69,751 $ 149,361
 Trade accounts receivable, less allowance for
  doubtful accounts of $9,132 at September
  26, 2004 and $7,772 at December 31, 2003          161,920   136,064
 Inventories, net:
    Raw materials                                    53,915    41,998
    Work in process                                  26,569    24,348
    Finished goods                                  127,747    90,253
                                                   --------- ---------
       Total Inventories                            208,231   156,599
 Prepaid expenses and other assets                   15,856    10,438
 Deferred income taxes                               23,032    23,552
 Assets of discontinued operations                    9,394     4,460
                                                   --------- ---------
    Total Current Assets                            488,184   480,474
                                                   --------- ---------
PROPERTY, PLANT AND EQUIPMENT:
 Property, plant and equipment, at cost             306,589   284,250
 Accumulated depreciation                          (158,713) (138,539)
                                                   --------- ---------
    Property, plant and equipment, net              147,876   145,711
                                                   --------- ---------
OTHER ASSETS:
 Goodwill                                           216,531   184,901
 Other                                               49,344    27,557
                                                   --------- ---------
TOTAL ASSETS                                      $ 901,935 $ 838,643
                                                   ========= =========


LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable                                 $  77,551 $  74,068
 Accrued expenses and other liabilities              60,504    55,252
 Accrued compensation and benefits                   22,516    18,466
 Current portion of long-term debt                    9,433    13,251
 Liabilities of discontinued operations              22,159    11,302
                                                   --------- ---------
    Total Current Liabilities                       192,163   172,339
                                                   --------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION              187,781   179,061
DEFERRED INCOME TAXES                                20,786    15,978
OTHER NONCURRENT LIABILITIES                         24,572    25,588
MINORITY INTEREST                                     7,457     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: 25,009,049 shares at
  September 26, 2004 and 24,459,121 shares at
  December 31, 2003                                   2,501     2,446
 Class B Common Stock, $.10 par value; 25,000,000
  shares authorized; 10 votes per share; issued
  and outstanding: 7,343,880 shares at
  September 26, 2004 and 7,605,224 shares at
  December 31, 2003                                     734       761
 Additional paid-in capital                         138,380   132,983
 Deferred compensation                                 (716)        -
 Retained earnings                                  318,254   286,396
 Accumulated other comprehensive income              10,023    13,805
                                                   --------- ---------
    Total Stockholders' Equity                      469,176   436,391
                                                   --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......' $ 901,935 $ 838,643
                                                   ========= =========


            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  September  September  September
                               26,        28,        26,        28,
                                2004       2003       2004       2003
                            ---------  ---------  ---------  ---------
Net sales                  $ 214,843  $ 175,509    618,183  $ 514,713
Cost of goods sold           139,828    116,136    400,964    341,011
                            ---------  ---------  ---------  ---------
  GROSS PROFIT                75,015     59,373    217,219    173,702
Selling, general &
 administrative expenses      52,235     41,396    150,099    123,361
Restructuring                      -          -          -        114
                            ---------  ---------  ---------  ---------
  OPERATING INCOME            22,780     17,977     67,120     50,227
                            ---------  ---------  ---------  ---------
Other (income) expense:
  Interest income               (202)      (362)      (721)      (744)
  Interest expense             2,641      3,659      7,994      8,563
  Minority interest              371       (410)       877       (448)
  Other                         (371)        23       (850)      (129)
                            ---------  ---------  ---------  ---------
                               2,439      2,910      7,300      7,242
                            ---------  ---------  ---------  ---------
   INCOME FROM CONTINUING
    OPERATIONS BEFORE
    INCOME TAXES              20,341     15,067     59,820     42,985
Provision for income taxes     6,511      6,048     20,941     16,350
                            ---------  ---------  ---------  ---------
  INCOME  FROM CONTINUING
   OPERATIONS                 13,830      9,019     38,879     26,635
Loss from discontinued
 operations, net of taxes       (125)      (114)      (220)    (3,014)
                            ---------  ---------  ---------  ---------
  NET INCOME               $  13,705  $   8,905     38,659  $  23,621
                            =========  =========  =========  =========
BASIC EPS
Income (loss) per share:
  Continuing operations    $    0.43  $    0.33       1.21  $    0.98
  Discontinued operations      (0.01)         -      (0.01)     (0.11)
                            ---------  ---------  ---------  ---------
  NET INCOME               $    0.42  $    0.33       1.20  $    0.87
                            =========  =========  =========  =========
Weighted average number of
 shares                       32,320     27,306     32,242     27,196
                            =========  =========  =========  =========
DILUTED EPS
Income (loss) per share:
  Continuing operations    $    0.42  $    0.33       1.19  $    0.97
  Discontinued operations          -      (0.01)     (0.01)     (0.11)
                            ---------  ---------  ---------  ---------
  NET INCOME               $    0.42  $    0.32       1.18  $    0.86
                            =========  =========  =========  =========
Weighted average number of
 shares                       32,792     27,632     32,673     27,428
                            =========  =========  =========  =========
   Dividends per share     $    0.07  $    0.06       0.21  $    0.18
                            =========  =========  =========  =========



            WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
                          SEGMENT INFORMATION
                        (Amounts in thousands)
                              (Unaudited)

                               Net Sales

                                Third Quarter Ended Nine Months Ended
                                ------------------- ------------------
                               September September September September
                                   26,       28,       26,      28,
                                    2004      2003     2004      2003
                                --------- --------- -------- ---------

North America                    145,056   121,001  415,198   352,118
Europe                            62,386    50,211  183,400   149,109
China                              7,401     4,297   19,585    13,486
                                --------- --------- -------- ---------
Total                            214,843   175,509  618,183   514,713
                                ========= ========= ======== =========


            Operating Income

                                Third Quarter Ended Nine Months Ended
                                ------------------- ------------------
                               September September September September
                                   26,       28,       26,      28,
                                    2004      2003     2004      2003
                                --------- --------- -------- ---------

North America                     19,775    18,735   58,451    50,704
Europe                             8,023     6,453   23,460    15,623
China                              1,277    (1,730)   1,276    (2,854)
Corporate                         (6,295)   (5,481) (16,067)  (13,246)
                                --------- --------- -------- ---------
Total                             22,780    17,977   67,120    50,227
                                ========= ========= ======== =========

CONTACT: Watts Water Technologies, Inc.
William C. McCartney, 978-688-1811
Fax: 978-688-2976

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.