NYSE: WTS 91.13 +4.77 +5.52% Volume: 210,003 June 5, 2020

Watts Water Technologies Reports Second Quarter 2005 Results

August 02, 2005

NORTH ANDOVER, Mass.--(BUSINESS WIRE)--Aug. 2, 2005--Watts Water Technologies, Inc. (NYSE Symbol "WTS") today announced results for the second quarter ended July 3, 2005. Sales for the second quarter ended July 3, 2005 were $228,183,000, an increase of $21,229,000, or 10%, from the second quarter last year. Net income for the second quarter ended July 3, 2005, was $13,913,000, or $0.42 per share, which includes a net loss from discontinued operations of $75,000, versus net income of $13,953,000, or $0.43 per share, which included a net loss from discontinued operations of $106,000 for the second quarter last year. Income from continuing operations for the second quarter ended July 3, 2005 decreased $71,000, or 1%,, to $13,988,000, or $0.42 per share, compared to income from continuing operations for the second quarter last year of $14,059,000, or $0.43 per share.

Costs incurred for our manufacturing restructuring plan, net of tax, in the second quarters of 2005 and 2004 were $241,000, or $0.01 per share, and $344,000, or $0.01 per share, respectively.

Sales for the six months ended July 3, 2005 were $447,210,000, an increase of $54,248,000, or 14%, from the same period last year. Net income for the six months ended July 3, 2005, was $26,271,000, or $0.80 per share, which includes a net loss from discontinued operations of $114,000, versus net income of $24,954,000, or $0.77 per share, which included a net loss of $100,000 from discontinued operations for the same period last year. Income from continuing operations increased $1,331,000, or 5%, for the six months ended July 3, 2005, to $26,385,000, or $0.80 per share, compared to income from continuing operations for the same period last year of $25,054,000, or $0.77 per share.

Costs incurred for our manufacturing restructuring plans, net of tax, in the six months of 2005 and 2004 were $737,000, or $0.02 per share, and $1,068,000, or $0.03 per share, respectively.

Patrick S. O'Keefe, Chief Executive Officer, commented, "Our overall increase in sales for the second quarter as compared to last year was achieved by internal growth, contributions from acquired companies and the change in foreign exchange rates. Our internal growth contributed $11,985,000 of the increase in sales in the second quarter ended July 3, 2005. Acquisitions contributed sales of $6,387,000 for the second quarter. This acquired growth was attributable to the June 2005 acquisition of Alamo Water Refiners, Inc., the May 2005 acquisition of Electro Controls Ltd., the January 2005 acquisitions of HF Scientific, Inc. and Sea Tech, Inc., and the May 2004 acquisition of Orion Enterprises, Inc. The change in foreign exchange rates for the second quarter ended July 3, 2005 increased our sales by $2,857,000, due primarily to the strengthening of the euro versus the U.S. dollar."

"Our North American segment increased sales for the second quarter ended July 3, 2005 by 13% to $157,116,000 compared to $138,782,000 last year. This increase in North American sales was achieved through internal sales growth of $11,674,000, the inclusion of sales from the acquisitions of Alamo Water Refiners, Inc., HF Scientific, Inc., Sea Tech, Inc. and Orion Enterprises, Inc. totaling $5,752,000, and $908,000 due to favorable foreign exchange rates associated with the strengthening of the Canadian dollar versus the U.S. dollar."

"Internal sales growth in the North American wholesale market for the second quarter ended July 3, 2005 increased 8% as compared to the second quarter last year. 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 increased 12% for the second quarter ended July 3, 2005 over last year. This increase was led by new product introductions including flood-safe connectors, pre-soldered copper fittings, hot water heater connector kits and hot water re-circulation pumps."

"We derived 28% of our total sales for the second quarter ended July 3, 2005 from Europe compared to 29% last year. Sales in Europe for the second quarter ended July 3, 2005 increased $2,655,000, or 4% to $63,636,000, compared to last year. 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 $1,949,000, the inclusion of the sales from the Electro Controls Ltd acquisition of $635,000 and internal sales growth of $71,000. The appreciation of the euro had a minimal impact on European income in the second quarter ended July 3, 2005, compared with a $0.01 per share effect for the second quarter last year."

"Sales in China increased 3% to $7,431,000 for the quarter ended July 3, 2005 from $7,191,000 last year. Earnings in China also improved as compared to last year primarily due to the increased production levels."

"Operating income for the quarter ended July 3, 2005 declined 2% to $24,201,000 as compared to $24,707,000 last year. This decrease is primarily attributable to the increased costs of our raw materials. We have experienced significant increases in costs of raw materials since June 2004, and copper and oil prices remain at historic levels. During the quarter ended July 3, 2005, we were not able to completely recover these increased costs through reduced manufacturing costs or increased selling prices in the North American market. We also incurred incremental pre-tax charges in the second quarter of 2005 of $541,000 for an acquisition earn out being treated as compensation expense. These increased costs were partially offset by decreased costs of $697,000 to comply with the requirements of Section 404 under the Sarbanes-Oxley Act of 2002."

"We continue with the consolidation of our manufacturing plants in North America and Europe while continuing to expand our manufacturing capacity in China and other areas of the world in an effort to lower our cost of manufacturing. For the second quarter ended July 3, 2005 we recorded a pre-tax charge of approximately $398,000, which was comprised of $302,000 recorded in cost of sales primarily 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 and $96,000 recorded in selling, general and administrative expenses for severance costs related to European restructuring. This compares to $560,000 recorded in cost of goods sold last year 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."

On July 8, 2005, the Company acquired the water connector business of the Donald E. Savard Company located in San Gabriel, California. The acquisition of the water connector business of Savard is consistent with the Company's theme of water conservation, safety and control. This acquisition allows the Company to expand its presence in one of its leading product lines with a brand name that is well known to the plumbing wholesale market. Savard has annual revenues of approximately $6 million.

On July 5, 2005, the Company acquired 100% of the outstanding stock of Microflex N.V., located in Rotselaar, Belgium. Microflex produces and distributes flexible, pre-insulated, waterproof PEX pipes for hot and cold water transport, as well as a range of accessory products including couplings, caps, and insulation kits in the HVAC and water protection markets. Microflex has annual revenues of $8.5 million.

On June 20, 2005, the Company acquired the water softener business of Alamo Water Refiners, Inc. located in San Antonio, Texas. The products of Alamo are consistent with the Company's theme of water quality and provide many synergistic opportunities when utilized in conjunction with its existing water filtration and water quality businesses. The acquisition of Alamo also expands its distribution presence into the southwestern U.S. markets. Alamo has annual revenue of approximately $13 million.

On May 11, 2005, the Company acquired 100% of the outstanding stock of Electro Controls Ltd. located in Hounslow, United Kingdom. Electro Controls designs and assembles a range of electrical controls for the HVAC market, with sales primarily in the United Kingdom with some export sales to the Middle East. Electro Controls has annual revenue of approximate $4 million.

Watts Water Technologies, Inc. will hold a live web cast of its conference call to discuss second quarter results for 2005 on Wednesday, August 3, 2005, at 2:00 p.m. Eastern Time. The press release and the live web cast can be accessed by visiting the Investors section of the Company's website at www.wattswater.com. Following the web cast, an archived version of the call will be available at the same address until August 3, 2006.

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 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, costs associated with efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002, 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, 2004 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)

                                 Second Quarter         Six Months
                                      Ended               Ended
                               -------------------  ------------------
                                July 3,  June 27,   July 3,   June 27,
                                 2005      2004      2005      2004
                               --------- ---------  --------  --------
STATEMENTS OF INCOME
-------------------------------

Net sales                      $228,183  $206,954  $447,210  $392,962

Income from continuing
 operations                     $13,988   $14,059  $ 26,385  $ 25,054
Loss from discontinued
 operations                         (75)     (106)     (114)     (100)
                               --------- ---------  --------  --------
Net income                      $13,913   $13,953  $ 26,271  $ 24,954
                               ========= =========  ========  ========


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

Weighted Average Number of
 Common Shares & Equivalents     33,077    32,726    33,032    32,639

Earnings per Share:
     Continuing operations        $0.42     $0.43  $  $0.80  $  $0.77
     Discontinued operations          -         -         -         -
                               --------- ---------  --------  --------
     Net income                   $0.42     $0.43  $  $0.80  $  $0.77
                               ========= =========  ========  ========


Cash dividends per share          $0.08     $0.07  $   0.16  $   0.14


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


                                               July 3,   December 31,
ASSETS                                          2005        2004
                                             ----------- ------------
CURRENT ASSETS:
 Cash and cash equivalents                      $66,236      $65,913
 Investment securities                                -       26,600
 Trade accounts receivable, less allowance
  for doubtful accounts of $7,913 at July 3,
  2005 and $7,551 at December 31, 2004          171,726      150,073
 Inventories, net:
    Raw materials                                65,306       61,250
    Work in process                              27,540       28,020
    Finished goods                              123,272      113,774
                                             ----------- ------------
       Total Inventories                        216,118      203,044
 Prepaid expenses and other assets               16,755       14,359
 Deferred income taxes                           28,297       27,463
 Assets of discontinued operations                9,372       10,227
                                             ----------- ------------
    Total Current Assets                        508,504      497,679
                                             ----------- ------------
PROPERTY, PLANT AND EQUIPMENT:
 Property, plant and equipment, at cost         321,413      321,655
 Accumulated depreciation                      (175,512)    (170,966)
                                             ----------- ------------
    Property, plant and equipment, net          145,901      150,689
                                             ----------- ------------
OTHER ASSETS:
 Goodwill                                       232,327      226,178
 Other                                           54,103       49,702
                                             ----------- ------------
TOTAL ASSETS                                   $940,835     $924,248
                                             =========== ============


LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable                               $76,577      $73,606
 Accrued expenses and other liabilities          59,226       64,604
 Accrued compensation and benefits               28,685       29,679
 Current portion of long-term debt                6,198        4,981
 Liabilities of discontinued operations          23,456       24,303
                                             ----------- ------------
    Total Current Liabilities                   194,142      197,173
                                             ----------- ------------
LONG-TERM DEBT, NET OF CURRENT PORTION          196,581      180,562
DEFERRED INCOME TAXES                            20,235       19,578
OTHER NONCURRENT LIABILITIES                     24,657       26,632
MINORITY INTEREST                                 7,525        7,515
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: 25,174,148
  shares at July 3, 2005 and 25,049,338
  shares at December 31, 2004                     2,517        2,505
 Class B Common Stock, $.10 par value;
  25,000,000 shares authorized; 10 votes per
  share; issued and outstanding: 7,343,880
  shares at July 3, 2005 and at December 31,
  2004                                              734          734
 Additional paid-in capital                     143,222      140,172
 Retained earnings                              345,194      324,145
 Deferred compensation                           (2,068)      (1,386)
 Accumulated other comprehensive income           8,096       26,618
                                             ----------- ------------
    Total Stockholders' Equity                  497,695      492,788
                                             ----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY     $940,835     $924,248
                                             =========== ============


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

                                Second Quarter        Six Months
                                     Ended               Ended
                              -------------------  ------------------
                               July 3,  June 27,   July 3,   June 27,
                                 2005      2004      2005      2004
                              --------- ---------  --------  --------
Net sales                     $228,183  $206,954  $447,210  $392,962
Cost of goods sold             147,000   131,327   288,649   252,423
                              --------- ---------  --------  --------
   GROSS PROFIT                 81,183    75,627   158,561   140,539
Selling, general &
 administrative expenses        56,886    50,920   112,592    96,054
Restructuring                       96         -       458         -
                              --------- ---------  --------  --------
   OPERATING INCOME             24,201    24,707    45,511    44,485
                              --------- ---------  --------  --------
Other (income) expense:
   Interest income                (329)     (261)     (638)     (563)
   Interest expense              2,567     2,758     5,088     5,302
   Minority interest                72       340       137       515
   Other                           (90)      (92)     (177)     (256)
                              --------- ---------  --------  --------
                                 2,220     2,745     4,410     4,998
                              --------- ---------  --------  --------
    INCOME FROM CONTINUING
     OPERATIONS BEFORE INCOME
     TAXES                      21,981    21,962    41,101    39,487
Provision for income taxes       7,993     7,903    14,716    14,433
                              --------- ---------  --------  --------
   INCOME  FROM CONTINUING
    OPERATIONS                  13,988    14,059    26,385    25,054
Loss from discontinued
 operations, net of taxes          (75)     (106)     (114)     (100)
                              --------- ---------  --------  --------
   NET INCOME                  $13,913   $13,953  $ 26,271  $ 24,954
                              ========= =========  ========  ========
BASIC EPS
Income per share:
   Continuing operations         $0.43     $0.43  $   0.81  $   0.78
   Discontinued operations           -         -         -         -
                              --------- ---------  --------  --------
   NET INCOME                    $0.43     $0.43  $   0.81  $   0.78
                              ========= =========  ========  ========
Weighted average number of
 shares                         32,475    32,265    32,442    32,202
                              ========= =========  ========  ========
DILUTED EPS
Income per share:
   Continuing operations         $0.42     $0.43  $   0.80  $   0.77
   Discontinued operations           -         -         -         -
                              --------- ---------  --------  --------
   NET INCOME                    $0.42     $0.43  $   0.80  $   0.77
                              ========= =========  ========  ========
Weighted average number of
 shares                         33,077    32,726    33,032    32,639
                              ========= =========  ========  ========
    Dividends per share          $0.08     $0.07  $   0.16  $   0.14
                              ========= =========  ========  ========


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


                              Net Sales

                      Second Quarter Ended        Six Months Ended
                   --------------------------  -----------------------
                      July 3,      June 27,      July 3,    June 27,
                       2005          2004         2005        2004
                   -------------  -----------  ----------- -----------

North America          $157,116     $138,782      304,593     259,764
Europe                   63,636       60,981      130,070     121,014
China                     7,431        7,191       12,547      12,184
                   -------------  -----------  ----------- -----------
Total                  $228,183     $206,954      447,210     392,962
                   =============  ===========  =========== ===========


                           Operating Income

                      Second Quarter Ended        Six Months Ended
                   --------------------------  -----------------------
                      July 3,      June 27,      July 3,    June 27,
                       2005         2004         2005        2004
                   -------------  -----------  ----------- -----------

North America           $19,695      $21,077       37,523      36,235
Europe                    7,952        7,992       15,445      15,437
China                       572          457        1,117          (1)
Corporate                (4,018)      (4,819)      (8,574)     (7,186)
                   -------------  -----------  ----------- -----------
Total                   $24,201      $24,707       45,511      44,485
                   =============  ===========  =========== ===========

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

SOURCE: Watts Water Technologies, Inc.

IR Contact

Tim MacPhee, Treasurer,

Vice President Investor Relations

978-689-6201

investorrelations@wattswater.com

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