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

Watts Water Technologies Reports Year and Fourth Quarter 2003 Results

February 10, 2004

NORTH ANDOVER, Mass.--(BUSINESS WIRE)--Feb. 10, 2004--Watts Water Technologies, Inc. (NYSE Symbol "WTS") today announced results for the year and three month period ended December 31, 2003. For the three-month period ended December 31, 2003, sales were $190,938,000, an increase of $30,048,000, or 19%, from the three-month period ended December 31, 2002. Net income for the three-month period ended December 31, 2003, was $9,741,000, or $0.34 per share, which includes a net loss from discontinued operations of $97,000. Income from continuing operations increased $2,678,000, or 37%, for the three-month period ended December 31, 2003, to $9,838,000, or $0.34 per share, compared to income from continuing operations for the three-month period ended December 31, 2002 of $7,160,000, or $0.26 per share.

Excluding costs incurred in both periods for our manufacturing restructuring plan, income from continuing operations increased $2,000,000, or 24%, to $10,282,000, or $0.36 per share, for the three-month period ended December 31, 2003 compared to $8,282,000, or $0.30 per share, for the three-month period ended December 31, 2002. Please refer to Table 1 included at the end of this press release for a reconciliation of reported net income to adjusted income from continuing operations.

Sales for the twelve-month period ended December 31, 2003, increased 15% to $705,651,000, from $615,526,000 for the twelve-month period ended December 31, 2002. Net income for the twelve-month period ended December 31, 2003 was $33,362,000, or $1.21 per share, which includes a net loss from discontinued operations of $3,111,000, or $0.11 per share. Income from continuing operations increased $3,851,000 or 12% to $36,473,000 for the twelve-month period ended December 31, 2003 compared to $32,622,000 for the twelve-month period ended December 31, 2002.

Excluding costs incurred in both periods for our manufacturing restructuring plan, income from continuing operations increased $2,383,000, or 7%, to $37,557,000, or $1.36 per share, for the twelve-month period ended December 31, 2003 compared to $35,174,000, or $1.30 per share, for the twelve-month period ended December 31, 2002. Please refer to Table 1 included at the end of this press release for a reconciliation of reported net income to adjusted income from continuing operations.

Patrick S. O'Keefe, Chief Executive Officer, commented, "We are pleased with both our North American and European results for the fourth quarter of 2003. Our overall increase in sales was achieved by an internal growth rate of 7%, the change in foreign exchange rates, and the contribution from acquired companies. Additionally, in the fourth quarter of fiscal 2003 we adopted the accounting requirements of Financial Accounting Standards Board Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46) and recorded $3,792,000 of revenue based on the consolidation of our minority owned subsidiary, Jameco International LLC, effective October 1, 2003. On a consolidated basis, our internal growth rate contributed $11,851,000 of increased sales in the three-month period ended December 31, 2003, compared to the three-month period ended December 31, 2002. The change in foreign exchange rates for the three-month period ended December 31, 2003 increased our sales by $11,443,000 over the three-month period ended December 31, 2002, due primarily to the strengthening of the euro versus the U.S. dollar. Our acquisitions contributed $2,962,000 of sales for the three-month period ended December 31, 2003, compared to the three-month period ended December 31, 2002, attributable to the recent acquisitions of Martin Orgee and Giuliani Anello, both European based companies."

Mr. O'Keefe continued, "Our North American segment had an increase in sales for the three-month period ended December 31, 2003 of 10% to $124,192,000 compared to $112,540,000 for the three-month period ended December 31, 2002. This increase in North American sales was achieved through the combination of internal sales growth of 6%, or $6,219,000, the sales of $3,792,000 resulting from the consolidation of Jameco International LLC, and $1,641,000 due to favorable foreign exchange rates associated with the strengthening of the Canadian dollar versus the U.S. dollar. Excluding the impact of Jameco International, LLC, sales into the North American home improvement retail market for the three-month period ended December 31, 2003 had an internal growth rate of 9%, which increased sales to $32,229,000 from $29,596,000 for the three-month period ended December 31, 2002. Sales into the North American wholesale market for the three-month period ended December 31, 2003 increased 6% to $88,171,000 compared to $82,944,000 for the three-month period ended December 31, 2002. This increase was primarily due to improved sales of our well-known backflow prevention line."

Mr. O'Keefe continued, "We derived 32% of our total sales for the three-month period ended December 31, 2003 from Europe compared to 27% in the three-month period ended December 31, 2002. Sales in Europe for the three-month period ended December 31, 2003 increased $17,881,000, or 41%, compared to the three-month period ended December 31, 2002. This increase is due to the favorable foreign exchange rates associated with the strengthening of the euro versus the U.S. dollar, which accounted for $9,802,000, an internal sales growth rate of 12%, or $5,117,000, and $2,962,000 from acquisitions consummated during 2003. On April 18, 2003 we acquired Martin Orgee U.K. Ltd. located in Kidderminster, West Midlands, United Kingdom, and on July 30, 2003, we acquired Giuliani Anello S.r.l. located in Bologna, Italy. Our overall internal growth rate in Europe of 12% was achieved largely through increased sales into the European O.E.M. market, which grew internally at 16% for the three months ended December 31, 2003, over the comparable period last year. The appreciation of the euro also had a positive impact on European income of $0.02 per share in the three-month period ended December 31, 2003."

Mr. O'Keefe continued, "As previously announced, we have consolidated several of our manufacturing plants in North American and Europe. At the same time, we have expanded our manufacturing capacity in China and other areas of the world, such as Tunisia and Bulgaria, that have lower cost manufacturing. These manufacturing plant relocations and consolidations are an important part of our ongoing commitment to reduce production costs. Furthermore, we anticipate recording a pre-tax charge of approximately $6,000,000 for additional manufacturing restructuring costs during 2004 as a result of our expansion of the restructuring plan. These expected charges are primarily attributable to accelerated depreciation associated with the anticipated closure of one of our U.S. manufacturing plants. Tax benefits of costs incurred and asset write-downs are expected to exceed the amount of cash outlays to implement our expansion of this manufacturing restructuring plan.

The total pre-tax cost of our previously announced restructuring plans and other costs was $11,575,000. The Company recorded pre-tax manufacturing restructuring plan costs of $5,831,000 in 2001, $4,089,000 in fiscal 2002, and $1,655,000 in fiscal 2003. The manufacturing restructuring plan costs recorded in 2001, 2002 and 2003 consist primarily of severance cost, asset write-downs and accelerated depreciation. Tax benefits of cost incurred and asset write-downs were approximate to the cash outlays to implement this plan, which has allowed us to complete these restructuring plans with minimal consumption of cash."

Mr. O'Keefe also commented, "We are particularly pleased with the Company's continued strong results as it relates to the generation of cash. Since the spin off of our industrial and oil and gas businesses in October 1999, the Company has continually generated strong levels of cash from operations. In this regard, the Company generated $49,990,000 of net cash provided by continuing operations for the twelve months ended December 31, 2003. This, in turn, produced $24,861,000 of free cash flow for the twelve months ended December 31, 2003, which represents approximately 68% of our net earnings from continuing operations. (Please refer to Table 2 at the end of this press release for a reconciliation of free cash flow to net cash provided by continuing operations.) This was achieved despite funding $6,800,000 into our pension plan during the fiscal year ended December 31, 2003.

At December 31, 2003 the Company had cash and cash equivalents of $149,361,000. We accumulated cash primarily through refinancing our $75,000,000 8 3/8% notes with $50,000,000 4.87% notes and $75,000,000 5.47% notes, through a successful stock offering during the three months ended December 31, 2003, which raised net proceeds of approximately $82,100,000 of cash, and through the free cash flow discussed above. The effect of the free cash flow and the stock offering has reduced our net debt to capitalization ratio to 9% at December 31, 2003. (Please refer to Table 3 included at the end of this press release for a reconciliation of net debt to capitalization.) We are pleased that we have maintained a conservative capital structure while achieving the growth rates which we have realized over the past several years. The Company maintains a $150,000,000 Revolving Line of Credit of which $105,911,000 was unused and available at December 31, 2003."

On January 5, 2004, the Company acquired Flowmatic Systems, Inc. located in Dunnellon, Florida, for approximately $16,500,000 in cash. Flowmatic designs and distributes high quality reverse osmosis components and filtration equipment. Their product line includes stainless steel and plastic housings, filter cartridges, storage tanks, control valves, as well as complete reverse osmosis systems for residential and commercial applications.

To supplement our unaudited consolidated financial statements presented on a generally accepted accounting principles (GAAP) basis, we sometimes use non-GAAP measures of net income, net income per share, income from continuing operations or income from continuing operations per share, and net cash provided by continuing operations that we believe are appropriate to enhance an overall understanding of our historical financial performance and future prospects. The non-GAAP results, which are adjusted to exclude certain costs, expenses, gains and losses from the comparable GAAP measures, are an indication of our baseline performance before gains, losses or other charges that are considered by management to be outside of our core operating results. These non-GAAP results are among the primary indicators management uses as a basis for evaluating our financial performance as well as for forecasting future periods. For these reasons, management believes these non-GAAP 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 net income or income per share prepared in accordance with GAAP.

This Press Release may include statements which 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. 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 Watts' Annual Report on Form 10-K for the year ended December 31, 2002 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. designs, manufactures and sells an extensive line of valves and other products to the water quality and water regulation and control markets.

           WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                  (Thousands, except share amounts)
                             (Unaudited)

                               Three Months Ended Twelve Months Ended
                                  December 31,        December 31,
                                2003      2002      2003      2002
                              ----------------------------------------
STATEMENTS OF INCOME
------------------------------

Net sales                     $ 190,938 $ 160,890 $ 705,651 $ 615,526

Income from continuing
 operations                   $   9,838 $   7,160 $  36,473 $  32,622
Loss from discontinued
 operations                         (97)        -    (3,111)        -
                               --------- --------- --------- ---------
Net income                    $   9,741 $   7,160 $  33,362 $  32,622
                               ========= ========= ========= =========


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

Weighted Average Number of
 Common Shares & Equivalents     28,524    27,235    27,692    27,056

Earnings per Share:
     Continuing operations    $    0.34 $    0.26 $    1.32 $    1.21
     Discontinued operations          -         -     (0.11)        -
                               --------- --------- --------- ---------
     Net income               $    0.34 $    0.26 $    1.21 $    1.21
                               ========= ========= ========= =========


Cash dividends per share      $    0.07 $    0.06 $    0.25 $    0.24



            WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEETS
                   (Thousands, except share amounts)
                              (Unaudited)

                                                 Dec. 31,   Dec. 31,
ASSETS                                             2003       2002
                                               -----------  ---------
CURRENT ASSETS:
   Cash and cash equivalents                  $   149,361  $  10,973
   Trade accounts receivable, less allowance
    for doubtful accounts of $7,772 at
    December 31, 2003 and $7,322 at
    December 31, 2002                             136,064    123,504
   Inventories:
      Raw materials                                41,998     40,591
      Work in process                              24,348     17,289
      Finished goods                               90,253     75,535
                                               -----------  ---------
         Total Inventories                        156,599    133,415
   Prepaid expenses and other assets                8,500     10,732
   Deferred income taxes                           23,552     21,927
   Net assets held for sale                         1,938      2,464
   Assets of discontinued operations                4,460      6,741
                                               -----------  ---------
      Total Current Assets                        480,474    309,756
                                               -----------  ---------
PROPERTY, PLANT AND EQUIPMENT:
   Property, plant and equipment, at cost         284,250    248,933
   Accumulated depreciation                      (138,539)  (114,557)
                                               -----------  ---------
      Property, plant and equipment, net          145,711    134,376
                                               -----------  ---------
OTHER ASSETS:
   Goodwill                                       184,901    163,226
   Other                                           27,557     28,114
                                               -----------  ---------
TOTAL ASSETS                                  $   838,643  $ 635,472
                                               ===========  =========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable                           $    74,068  $  64,704
   Accrued expenses and other liabilities          55,252     57,037
   Accrued compensation and benefits               18,466     15,514
   Current portion of long-term debt               13,251     82,211
   Liabilities of discontinued operations          11,302     18,906
                                               -----------  ---------
      Total Current Liabilities                   172,339    238,372
                                               -----------  ---------
LONG-TERM DEBT, NET OF CURRENT PORTION            179,061     56,276
DEFERRED INCOME TAXES                              15,978     15,011
OTHER NONCURRENT LIABILITIES                       25,588     19,743
MINORITY INTEREST                                   9,286     10,134
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: 24,459,121 shares at
    December 31, 2003 and 18,863,482 shares
    at December 31, 2002                            2,446      1,886
   Class B Common Stock, $.10 par value;
    25,000,000 shares authorized;
    10 votes per share; issued and
    outstanding: 7,605,224 shares at
    December 31, 2003 and 8,185,224 shares
    at December 31, 2002                              761        819
   Additional paid-in capital                     132,983     45,132
   Retained earnings                              286,396    259,893
   Accumulated other comprehensive
    income/(loss)                                  13,805    (11,794)
                                               -----------  ---------
      Total Stockholders' Equity                  436,391    295,936
                                               -----------  ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY    $   838,643  $ 635,472
                                               ===========  =========



           WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF INCOME
                (Thousands, except per share amounts)
                             (Unaudited)

                               Three Months Ended  Twelve Months Ended
                                   December 31,        December 31,
                                 2003      2002      2003      2002
                              ----------------------------------------
Net sales                     $ 190,938 $ 160,890 $ 705,651 $ 615,526
Cost of goods sold              123,979   107,388   464,990   406,806
                               --------- --------- --------- ---------
   GROSS PROFIT                  66,959    53,502   240,661   208,720
Selling, general &
 administrative expenses         46,834    40,656   170,195   150,553
Restructuring                       312       420       426       638
                               --------- --------- --------- ---------
   OPERATING INCOME              19,813    12,426    70,040    57,529
                               --------- --------- --------- ---------
Other (income) expense:
   Interest income                 (277)     (414)   (1,021)     (992)
   Interest expense               3,551     2,116    12,114     8,692
   Other, net                       710      (108)      581      (272)
   Minority interest                (15)     (379)     (463)     (117)
                               --------- --------- --------- ---------
                                  3,969     1,215    11,211     7,311
                               --------- --------- --------- ---------
   INCOME BEFORE INCOME TAXES    15,844    11,211    58,829    50,218
Provision for income taxes        6,006     4,051    22,356    17,596
                               --------- --------- --------- ---------
   INCOME  FROM CONTINUING
    OPERATIONS                    9,838     7,160    36,473    32,622
Loss from discontinued
 operations, net of taxes           (97)        -    (3,111)        -
                               --------- --------- --------- ---------
   NET INCOME                 $   9,741 $   7,160 $  33,362 $  32,622
                               ========= ========= ========= =========
BASIC EARNINGS PER SHARE
   Continuing Operations      $    0.35 $    0.27 $    1.33 $    1.22
   Discontinued Operations            -         -     (0.11)        -
                               --------- --------- --------- ---------
   NET INCOME                 $    0.35 $    0.27 $    1.22 $    1.22
                               ========= ========= ========= =========
Weighted average number of
 shares                          28,184    26,970    27,455    26,718
                               ========= ========= ========= =========
DILUTED EARNINGS PER SHARE
   Continuing Operations      $    0.34 $    0.26 $    1.32 $    1.21
   Discontinued Operations            -         -     (0.11)        -
                               --------- --------- --------- ---------
   NET INCOME                 $    0.34 $    0.26 $    1.21 $    1.21
                               ========= ========= ========= =========
Weighted average number of
 shares                          28,524    27,235    27,692    27,056
                               ========= ========= ========= =========
   Dividends per common share $    0.07 $    0.06 $    0.25 $    0.24
                               ========= ========= ========= =========



           WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
                               TABLE 1
    RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED INCOME FROM
                         CONTINUING OPERATIONS
                (Thousands, except per share amounts)
                             (Unaudited)

                               Three Months Ended Twelve Months Ended
                                  December 31,        December 31,
                                2003      2002       2003      2002
                              ----------------------------------------

Net income                    $  9,741 $    7,160 $    33,362 $32,622
   Add back: loss from
    discontinued operations         97          -       3,111       -
                               -------- ---------- ----------- -------
Income from continuing
 operations                      9,838      7,160      36,473  32,622
                               -------- ---------- ----------- -------
   Add back: cost of
    restructuring and related
    charges                        444      1,122       1,084   2,552
                               -------- ---------- ----------- -------
Adjusted income from
 continuing operations        $ 10,282 $    8,282 $    37,557 $35,174
                               ======== ========== =========== =======

Diluted earnings per share:
Net income                    $   0.34 $     0.26 $      1.21 $  1.21
     Add back: discontinued
      operations                     -          -        0.11       -
                               -------- ---------- ----------- -------
Continuing operations             0.34       0.26        1.32    1.21
                               -------- ---------- ----------- -------
     Add back: cost of
      restructuring and related
      charges                     0.02       0.04        0.04    0.09
                               -------- ---------- ----------- -------
Adjusted income from
 continuing operations        $   0.36 $     0.30 $      1.36 $  1.30
                               ======== ========== =========== =======



                               TABLE 2
 RECONCILIATION OF NET CASH PROVIDED BY CONTINUING OPERATIONS TO FREE
                               CASH FLOW
                              (Thousands)
                              (Unaudited)

                                          Twelve Months Ended
                                        December 31,  December 31,
                                           2003          2002
                                        ----------    -----------

Net cash provided by continuing
 operations                            $   49,990    $    51,425
Less: additions to property, plant,
 and equipment                            (20,035)       (19,593)
Plus: proceeds from the sale of
 property, plant, and equipment             1,765          3,194
Less: dividends                            (6,859)        (6,490)
                                        ----------    -----------
Free cash flow                         $   24,861    $    28,536
                                        ==========    ===========



                               TABLE 3
             RECONCILIATION OF NET DEBT TO CAPITALIZATION
                             (Thousands)
                             (Unaudited)

                                        December 31,  December 31,
                                           2003          2002
                                        ----------    -----------

Current portion of long-term debt      $   13,251    $    82,211
Plus: Long-term debt, net of current
 portion                                  179,061         56,276
Less: Cash and cash equivalents          (149,361)       (10,973)
                                        ----------    -----------
Net debt                               $   42,951    $   127,514
                                        ==========    ===========

Net debt                               $   42,951    $   127,514
Plus: Total stockholders' equity          436,391        295,936
Plus: Minority interest                     9,286         10,134
                                        ----------    -----------
Capitalization                         $  488,628    $   433,584
                                        ==========    ===========
    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.