Watts Water Technologies Reports Third Quarter 2004 Results.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. -- Watts Watts, residential section of south central Los Angeles. Named after C. H. Watts, a Pasadena realtor, the section became part of Los Angeles in 1926. Artist Simon Rodia's celebrated Watts Towers are there. Water Technologies, Inc. (NYSE NYSE See: New York Stock Exchange : WTS See Windows Terminal Server. ) today announced results for the third quarter ended September September: see month. 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 Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. of $125,000 and $114,000, respectively. Income 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 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 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 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 December: see month. 2003. Patrick S. O'Keefe O'Keeffe, and Keeffe, are the anglicised versions of the Irish Ó Caoimh, from caomh, meaning "kind" or "gentle". The original Caomh from whom the family descend lived in the early eleventh century, and was a descendant of Art, King of Munster from 742 to 762. , Chief Executive Officer, commented, "We are pleased with the third quarter results from all three of our geographic segments, 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. , Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). 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 Mc·Coy n. Informal The authentic thing or quality; something that is not an imitation or substitute: This gem is the real 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 Financial Accounting Standards Board (FASB) Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). Interpretation No. 46, "Consolidation of Variable Interest Entities-Revised" (FIN fin, organ of locomotion characteristic of fish and consisting of thin tissue supported by cartilaginous or bony rays. In some fish, e.g., the eel, a single fin extends from the back, around the tail, and along the ventral surface. 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 (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control ." Mr. O'Keefe continued, "Our North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. 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 January: see month. 5, 2004, the inclusion of $4,653,000 in sales resulting from the consolidation of Jameco International LLC, and $582,000 due to favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. foreign exchange rates associated with the strengthening of the Canadian dollar Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents 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 backflow /back·flow/ (-flo) reflux or regurgitation (1). pyelovenous backflow drainage from the renal pelvis into the venous system occurring under certain conditions of back pressure. prevention units, as well as, strength in our plumbing plumbing, piping systems inside buildings for water supply and sewage. The Romans had a highly developed plumbing system; water was brought to Rome by aqueducts and distributed to homes in lead pipes—hence the name plumbing from the Latin word plumbum and under-floor radiant heating radiant heating: see heating. radiant heating Heating system in which heat is transmitted by radiation from a heated surface. Radiant heating systems usually employ either electric-resistance wiring or hot-water heating pipes, which may embedded in 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 European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. 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 Capacity Utilization measures the rate at which a firm makes use of their capital productive capacities, such as factories and machinery. Capacity Utilization generally rises when the economy is healthy and falls when demand softens. and gain manufacturing efficiencies. These increased manufacturing efficiencies allowed our Chinese operations to generate a profit for the second consecutive quarter. Year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current 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 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. 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 See SOX. ("SOX (1) (Schema for Object-oriented XML) An XML schema developed by Veo Systems and Muzino Communications, which was submitted to the W3C. SOX is based on DTD, but adds data typing and reuse mechanisms. "). 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 Dunnellon is a city in Marion County, Florida, United States. The population was 1,898 at the 2000 census. As of 2004, the population recorded by the U.S. Census Bureau is 1,951. , for approximately $16,800,000 in cash. Flowmatic designs and distributes high quality reverse osmosis reverse osmosis n. The movement of a solvent in the opposite direction from osmosis in such a manner that the solvent moves from a solution of greater concentration through a membrane to a solution of lesser concentration. components and filtration filtration: see sewerage; water supply. Filtration The separation of solid particles from a fluidsolids suspension of which they are a part by passage of most of the fluid through a septum or membrane that retains most of the solids equipment. Their product lines include stainless steel stainless steel: see steel. stainless steel Any of a family of alloy steels usually containing 10–30% chromium. The presence of chromium, together with low carbon content, gives remarkable resistance to corrosion and heat. and plastic housings, filter cartridges
On April 16, 2004, the Company acquired 90% of the stock of TEAM Precision Pipework, Ltd., located in Ammanford, West Wales West Wales is the western area of Wales bordered by South Wales to the east. The area is loosely-defined, but is generally considered to include Pembrokeshire, Carmarthenshire, southern areas of Ceredigion, and sometimes the city of Swansea, . , 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 ventilation, process of supplying fresh air to an enclosed space and removing from it air contaminated by odors, gases, or smoke. Proper ventilation requires also that there be a movement or circulation of the air within the space and that the temperature and and air conditioning air conditioning, mechanical process for controlling the humidity, temperature, cleanliness, and circulation of air in buildings and rooms. Indoor air is conditioned and regulated to maintain the temperature-humidity ratio that is most comfortable and healthful. 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 Kansas City, Kansas (KCK) is the third largest city in the U.S. state of Kansas and the county seat of Wyandotte County (WyCo); it is part of the "Unified Government"[2] which also includes the cities of Bonner Springs and Edwardsville. , 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 containment Strategic U.S. foreign policy of the late 1940s and early 1950s intended to check the expansionist designs of the Soviet Union through economic, military, diplomatic, and political means. It was conceived by George Kennan soon after World War II. piping systems, as well as, a line of high purity Purity: see Pearl, The. Purity See also Modesty. almond symbol of the Virgin Mary’s innocence. [O.T.: Numbers 17: 1–11; Art: Hall, 14] crystal its transparency symbolizes pureness. 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 Investor relations The process by which the corporation communicates with its 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 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 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 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 A turning aside or altering of the natural course or route of a thing. The term is chiefly applied to the unauthorized change or alteration of a water course to the prejudice of a lower riparian, or to the unauthorized use of funds. 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 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 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 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, 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
========= ========= ======== =========
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