Watts Industries Reports Fourth Quarter Financial Results.Business Editors NORTH ANDOVER North Andover (ăn`dōvər), town (1990 pop. 22,792), Essex co., NE Mass., on the Merrimack River, in a dairy and farm area; settled c.1644, set off from Andover and inc. 1855. , Mass.--(BUSINESS WIRE)--Feb. 12, 2003 Watts Industries, Inc. (NYSE NYSE See: New York Stock Exchange Symbol "WTS See Windows Terminal Server. ") today announced fourth quarter earnings, which include costs for its previously announced manufacturing restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). plan. For the three months ended December 31, 2002, sales were $161,507,000, an increase of 16% from the comparable period last year. Net income for the quarter was $7,576,000 or $.28 per share, including $1,122,000 of after-tax costs, or $.04 per share, incurred for the manufacturing restructuring plan. Excluding the cost of the manufacturing restructuring plan, the net income for the fourth quarter on a pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma basis would have been $8,698,000 or $.32 per share, which met consensus estimates. The Company has adopted FAS 142 "Goodwill and Other Intangible Assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. " and accordingly did not record goodwill amortization in the quarter ended December 31, 2002. Diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of for the fourth quarter ended December 31, 2001, which includes goodwill amortization and manufacturing restructuring plan costs, were $.17 per share. Excluding goodwill amortization and manufacturing restructuring plan costs, diluted earnings per share for the quarter ended December 31, 2001, were $.33 per share on a pro forma basis. Sales for the quarter ended December 31, 2002, increased 16% to $161,507,000 compared to $139,444,000 for the comparable period last year, primarily due to the inclusion of the sales of acquired companies and increased sales into both the North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. wholesale and home improvement retail markets. Sales for the twelve-month period ended December 31, 2002, increased 12% to $616,143,000 from $548,940,000 for the twelve-month period ended December 31, 2001. Net income for the twelve-month period ended December 31, 2002, was $33,038,000 compared to $26,556,000 for the twelve-month period ended December 31, 2001. Excluding the costs of the manufacturing restructuring plan for 2001 and 2002, and excluding goodwill amortization for 2001, net income for the twelve-month period ended December 31, 2002, increased 7% to $35,590,000 from $33,369,000 for the twelve-month period ended December 31, 2001. The following chart compares the fourth quarter and fiscal year diluted earnings per share as reported under Generally Accepted Accounting Principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ) to such earnings per share on a pro forma basis excluding goodwill amortization and restructuring costs.
Three Months Ended Twelve Months Ended
12/31/01 12/31/02 12/31/01 12/31/02
As Reported GAAP $.17 $.28 $0.99 $1.22
Excluding Goodwill Amortization $.20 $.28 $1.11 $1.22
Excluding Goodwill Amortization
and Restructuring Cost $.33 $.32 $1.25 $1.32
Patrick S. O'Keefe, Chief Executive Officer, commented, "We are pleased with our strong showing for our quarterly and year end results, despite the weakness we experienced in our core markets in both North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. and Europe for most of the year. Our internal growth rate for North American sales was 7% for the quarter over the fourth quarter of 2001 compared to 3% year over year. Our sales to North American wholesalers had an internal growth rate of 6% for the quarter over the fourth quarter of 2001. We continue to show gains in our sales into the North American retail market with an internal growth rate of 10% for the quarter over the fourth quarter of 2001. Our total sales into the North American retail market in the quarter were $30,803,000. Our overall sales in Europe for the quarter increased 37% from the comparable quarter last year. This increase is primarily due to the inclusion of the sales of three acquisitions consummated con·sum·mate tr.v. con·sum·mat·ed, con·sum·mat·ing, con·sum·mates 1. a. To bring to completion or fruition; conclude: consummate a business transaction. b. during 2002. On July 15, 2002, we acquired ADEV ADEV Allan Deviation Electronic S.A. located in Rosieres, France, and its closely affiliated distributor, E.K. Eminent located in Gothenburg, Sweden; on July 29, 2002, we acquired F&R Foerster Rothmann Gmbh located in Neuenburg am Rhein, Germany. These European acquisitions contributed approximately $7,943,000 of revenue during the quarter. Sales appreciated in the quarter due to the stronger euro by approximately $4,339,000 as compared to the comparable quarter last fiscal year. Excluding acquisitions, sales into our European wholesale and OEM (Original Equipment Manufacturer) The rebranding of equipment and selling it. The term initially referred to the company that made the products (the "original" manufacturer), but eventually became widely used to refer to the organization that buys the products and markets, without the effect of foreign exchange, decreased by 1% as compared to the fourth quarter last year. Our joint venture with Cheng Guan guan: see curassow. Metal Hose Factory, established in March 2002 and located in Taizhou, Zheijiang Province of the Peoples Republic of China, also contributed to our increased revenue in the quarter." O'Keefe continued, "As previously announced, we are implementing a plan to consolidate several of our manufacturing plants in North America and Europe. At the same time, we are expanding our manufacturing capacity in China and other areas of the world, such as Tunisia and Bulgaria, that have lower-cost manufacturing. The implementation of the manufacturing restructuring plan began in the fourth quarter of fiscal 2001. We expect that the Company's new factory in Tianjin, China will be operational during fiscal 2003, where we will manufacture some of our more traditional bronze plumbing products. We also acquired in 2002, with our acquisition of ADEV Electronic, a low cost manufacturing plant in Tunisia. Additionally, we are well underway consolidating the manufacturing of our temperature and pressure gauge pressure gauge Instrument for measuring the condition of a fluid (liquid or gas) that is specified by the force the fluid would apply, when at rest, to a unit area, such as pounds per square inch (psi) or pascals (Pa). line at our recently opened plant in Plovdiv, Bulgaria. We anticipate that the pre-tax cost of our restructuring plan and other costs will be $12,788,000. The Company recorded pre-tax manufacturing restructuring plan costs of $5,831,000 in the fourth quarter of 2001, and $4,089,000 for the twelve months ended December 31, 2002. The Company decided to expand the scope of our manufacturing restructuring plan, and we anticipate recording additional pre-tax costs of approximately $2,868,000 in 2003. The manufacturing restructuring plan is expected to be completed in fiscal 2003. We estimate an annual pre-tax savings of approximately $5,000,000 following the completion of the plan. The manufacturing restructuring plan costs, recorded in 2001 and 2002, consist primarily of severance costs, asset write-downs and accelerated depreciation Accelerated Depreciation Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset. Notes: The straight-line depreciation method spreads the cost evenly over the life of an asset. . Tax benefits of costs incurred and asset write-downs will approximate cash outlays Outlays Payments on obligations in the form of cash, checks, the issuance of bonds or notes, or the maturing of interest coupons. to implement this plan, which will allow us to complete the restructuring plan with minimal consumption of cash." A reconciliation of the pro forma earnings pro forma earnings Income not necessarily calculated in accordance with generally accepted accounting principles. For example, a company might report pro forma earnings that exclude depreciation expense and nonrecurring expenses such as restructuring costs. , which exclude restructuring, impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. and related cost to earnings as reported in the three and twelve months ended December 31, 2002, and the three and twelve months ended December 31, 2001, which also exclude goodwill amortization, is as follows:
Three Twelve Three Twelve
Months Months Months Months
Ended Ended Ended Ended
12/31/02 12/31/02 12/31/01 12/31/01
Restructuring $420,000 $638,000 $1,454,000 $1,454,000
Other Costs 1,338,000 3,451,000 4,377,000 4,377,000
Total Costs 1,758,000 4,089,000 5,831,000 5,831,000
Tax Benefit 636,000 1,537,000 2,238,000 2,238,000
After Tax Cost $1,122,000 $2,552,000 $3,593,000 $3,593,000
Earnings as Reported $7,576,000 $33,038,000 $4,439,000 $26,556,000
Cost of Restructuring 1,122,000 2,552,000 3,593,000 3,593,000
Goodwill Amortization - - 844,000 3,220,000
Pro-Forma Earnings $8,698,000 $35,590,000 $8,876,000 $33,369,000
The restructuring costs are severance costs. Other costs relate to increased depreciation expenses due to shorter estimated useful life on certain manufacturing equipment and include inventory write-offs for products that were discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: . 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 The situation that arises when a parent corporation organizes a subsidiary corporation, to which it transfers a portion of its assets in exchange for all of the subsidiary's capital stock, which is subsequently transferred to the parent corporation's shareholders. of our industrial and oil and gas businesses in October of 1999, the Company has continually generated a strong level of cash from operations. In this regard, the Company generated $51,769,000 of cash from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the for the twelve-month period ended December 31, 2002. This cash from operations produced $28,656,000 of free cash flow for the twelve months ended December 31, 2002, which represents approximately 87% of our net earnings. The Company invested $41,137,000 in four acquisitions and one joint venture during the fiscal year. The Company's free cash flow has enabled it to repay approximately 70% of the debt incurred to finance these investments. The Company's net debt to capital employed Capital Employed 1. The total amount of capital used for the acquisition of profits. 2. The value of all the assets employed in a business. 3. Fixed assets plus working capital. 4. Total assets less current liabilities. ratio was 29.3% at December 31, 2002. We are pleased we have been able to maintain a conservative capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. while maintaining the growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. we have achieved this year. The Company maintains a $150,000,000 revolving line of credit Revolving line of credit A bank line of credit on which the customer pays a commitment fee and can take and repay funds at will. Normally a revolving LOC involves a firm commitment from the bank for a period of several years. of which $108,351,000 was unused and available at December 31, 2002." A reconciliation of net cash provided by continuing operations to free cash flow is provided below:
Twelve Months
Ended
12/31/02
Net cash provided by continuing operations $51,769,000
Less: additions to property, plant, and equipment (19,817,000)
Plus: proceeds from sale of property, plant, and
equipment 3,194,000
Less: dividends (6,490,000)
Free cash flow $28,656,000
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 The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. reflect Watts Industries' 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 or delay in developing new products, lack of acceptance of new products, failure to manufacture products that meet required performance and safety standards Safety standards are standards designed to ensure the safety of products, activities or processes, etc. They may be advisory or compulsory and are normally laid down by an advisory or regulatory body that may be either voluntary or statutory. , foreign exchange 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 remodeling /re·mod·el·ing/ (re-mod´el-ing) reorganization or renovation of an old structure. bone 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 An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. , including the James Jones James Jones is the name of:
A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December 31, 2001 filed with the Securities and 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 Industries, Inc. designs, manufactures and sells an extensive line of valves and other products to the water quality and water regulation and control markets.
CONDENSED CONSOLIDATED FINANCIAL STATEMENT
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
(UNAUDITED)
Fourth Quarter Ended Twelve Months Ended
December 31, December 31,
2002 2001 2002 2001
STATEMENTS OF
INCOME
Net sales $161,507,000 $139,444,000 $616,143,000 $548,940,000
Cost of sales 106,775,000 95,868,000 406,193,000 365,408,000
Selling,
general and
administrative 40,486,000 33,162,000 150,383,000 131,795,000
Restructuring
charges 420,000 1,454,000 638,000 1,454,000
Other (income)
expense, net 2,041,000 2,637,000 8,137,000 10,115,000
Income before
income taxes 11,785,000 6,323,000 50,792,000 40,168,000
Provision for
income taxes 4,209,000 1,884,000 17,754,000 13,612,000
Net income $ 7,576,000 $ 4,439,000 $ 33,038,000 $ 26,556,000
DILUTED EARNINGS
PER SHARE
Weighted Average
Number of Common
Shares &
Equivalents 27,235,226 26,735,543 27,055,789 26,801,557
Earnings per
Share:
Net income $ 0.28 $ 0.17 $ 1.22 $ 0.99
Cash dividends
per share $ 0.06 $ 0.06 $ 0.24 $ 0.24
CONDENSED CONSOLIDATED FINANCIAL STATEMENT
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
(UNAUDITED)
Fourth Quarter Ended Twelve Months Ended
December 31, December 31,
2002 2001 2002 2001
STATEMENTS OF
INCOME
Net Sales $161,507,000 $139,444,000 $616,143,000 $548,940,000
Net Income $ 7,576,000 $ 4,439,000 $ 33,038,000 $ 26,556,000
DILUTED EARNINGS
PER SHARE
Weighted Average
Number of Common
Shares &
Equivalents 27,235,226 26,735,543 27,055,789 26,801,557
Earnings per
Share:
Net income $ 0.28 $ 0.17 $ 1.22 $ 0.99
Cash dividends
per share $ 0.06 $ 0.06 $ 0.24 $ 0.24
COMPARATIVE CONDENSED BALANCE SHEET
WATTS INDUSTRIES, INC. AND SUBSIDIARIES
December 31, December 31,
2002 2001
(UNAUDITED)
Cash and short-term investments $ 11,094,000 $ 11,997,000
Other current assets 298,373,000 244,127,000
Property, plant and equipment, at cost 249,157,000 218,235,000
Less: accumulated depreciation (114,635,000) (89,629,000)
Net property, plant and equipment 134,522,000 128,606,000
Other assets 191,050,000 135,740,000
$ 635,039,000 $520,470,000
Current liabilities $ 231,073,000 $113,529,000
Long-term debt 56,276,000 123,212,000
Deferred income taxes 20,792,000 15,692,000
Other liabilities 30,545,000 18,723,000
Stockholders' equity 296,353,000 249,314,000
$ 635,039,000 $520,470,000
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