EX-99.1 2 ex99-1.txt Exhibit 99.1 FOR IMMEDIATE RELEASE Contact: William C. McCartney --------------------- Chief Financial Officer Telephone: (978) 688-1811 Fax: (978) 688-2976 WATTS WATER TECHNOLOGIES REPORTS THIRD QUARTER 2006 RESULTS North Andover, MA...October 31, 2006. Watts Water Technologies, Inc. (NYSE: WTS) today announced results for the third quarter ended October 1, 2006. Sales were $325,137,000, an increase of $92,408,000, or 40%, compared to the third quarter of 2005. Net income for the third quarter of 2006 was $18,187,000, or $0.55 per share, which includes a loss from discontinued operations of $3,137,000, or ($0.09) per share, compared to net income of $13,368,000, or $0.40 per share, which included a loss from discontinued operations of $71,000, for the third quarter of 2005. Income from continuing operations for the third quarter of 2006 increased by $7,885,000, or 59%, to $21,324,000, or $0.65 per share, compared to income from continuing operations for the third quarter of 2005 of $13,439,000, or $0.41 per share. Sales for the first nine months of 2006 were $900,262,000, an increase of $220,323,000, or 32%, compared to the first nine months of 2005. Net income for the first nine months of 2006 was $55,596,000, or $1.68 per share, which includes a loss from discontinued operations of $3,358,000, or ($0.10) per share, versus net income of $39,639,000, or $1.20 per share, which included a loss from discontinued operations of $185,000, or ($0.01) per share, for the first nine months of 2005. Income from continuing operations for the first nine months of 2006 increased by $19,130,000, or 48%, to $58,954,000, or $1.79 per share, compared to income from continuing operations for the first nine months of 2005 of $39,824,000, or $1.21 per share. Patrick S. O'Keefe, Chief Executive Officer, commented, "The Company achieved record results in both sales and earnings during the quarter. All segments contributed to the results, which were primarily due to acquisitions and internal growth. The sales increase was achieved through contributions from acquired companies of $55,573,000, or 24%, internal growth of $31,948,000, or 14%, and, to a lesser extent, from favorable changes in foreign exchange rates of $4,887,000, or 2%. Acquired growth was primarily attributable to the December 2005 acquisitions of Core Industries Inc. (which included the FEBCO, Mueller Steam Specialty and Polyjet Valves product lines) and Dormont Manufacturing Company and the May 2006 acquisition of ATS Expansion Group. "Sales in our North American segment increased for the third quarter of 2006 by $51,740,000, or 32%, to $211,769,000 compared to $160,029,000 for the third quarter of 2005. This increase was achieved through the inclusion of acquired company sales of $33,348,000, or 21%, internal sales growth of $17,447,000, or 11%, and, to a lesser extent, from favorable foreign exchange rates of $945,000 associated with the strengthening of the Canadian dollar versus the U.S. dollar. "Internal sales in our North American wholesale market increased 14% over the third quarter of 2005. This increase was primarily due to price increases implemented to cover increases in the costs of copper and other raw materials, and increased unit sales of our plumbing and heating and backflow products. Internal growth in our North American home improvement retail market was 2% for the third quarter of 2006 over the third quarter of 2005. This increase is primarily due to price increases in certain product lines. "We derived 31% of our total sales for the third quarter of 2006 from our European segment. European sales increased $35,883,000, or 55%, to $101,437,000 compared to $65,554,000 for the third quarter of 2005. This increase was achieved through the inclusion of acquired company sales totaling $17,848,000, or 27%, internal growth of $14,239,000, or 22%, and a favorable foreign exchange movement associated with the strengthening of the euro versus the US dollar of $3,796,000, or 6%. Our internal growth in Europe was broad-based with most markets and channels showing improvement. Sales growth in our German OEM and wholesale markets was particularly strong in the third quarter. "China's segment sales in the third quarter of 2006 increased $4,785,000, or 67%, to $11,931,000 compared to the third quarter of 2005. This increase was achieved through the inclusion of acquired company sales totaling $4,377,000, or 61%, internal growth of $262,000, or 4%, and favorable foreign exchange rates associated with the yuan strengthening against the U.S. dollar of $146,000, or 2%." Mr. O'Keefe concluded, "Our operating income for the third quarter of 2006 increased by $13,133,000, or 57%, to $36,038,000 as compared to $22,905,000 in the third quarter of 2005. Operating margins in the third quarter of 2006 increased by approximately 120 basis points to 11.1% as compared to 9.8% in the third quarter of 2005. Our quarter-on-quarter internal growth contributed $7,459,000, or 32%, acquisitions provided $5,132,000, or 22%, and favorable foreign exchange movements contributed $828,000, or 4%, partially offset by increased restructuring costs of $286,000, or 1%. Our `overall margins were positively affected by a favorable mix within the North American wholesale market, manufacturing efficiencies in China, acquisitions and leveraged selling, general and administrative expenses in Europe, partially offset by increased administration costs in Corporate." Included in the above results, as part of its manufacturing restructuring plan, the Company recorded a charge, net of tax, of $834,000, or $0.02 per share, in the third quarter of 2006 compared to a charge, net of tax, of $655,000, or $0.02 per share, in the third quarter of 2005. For the third quarter of 2006, these costs were primarily for severance costs related to its European and Chinese restructuring plans. For the third quarter of 2005, the costs were primarily for accelerated depreciation for both the closure of a U.S. manufacturing plant and for severance costs related to the Company's European restructuring plan. As part of its manufacturing restructuring plan for the first nine months of 2006, the Company recorded a gain, net of tax, of $2,571,000, or $0.08 per share, compared to a charge, net of tax, of $1,392,000, or $0.04 per share, in the first nine months of 2005. In the first nine months of 2006, the Company benefited from an after-tax gain of approximately $4,100,000, or $0.12 per share, related to the sale of a building in Italy, which was recorded in the second quarter of 2006. This benefit was offset by after-tax costs of approximately $1,529,000, or $0.04 per share, primarily for severance costs related to the Company's European and Chinese restructuring plans. For the first nine months of 2005, the costs were primarily for accelerated depreciation for both the closure of a U.S. manufacturing plant and for severance costs related to the Company's European restructuring plan. The Company recorded a charge, net of tax, to discontinued operations in the third quarter of 2006 of $3,137,000, or ($0.09) per share on a diluted basis. This charge was primarily due to a recent federal appellate court decision which affirmed that an arbitration panel could decide which deductible agreements between Watts and Zurich American Insurance Company (Zurich) would control Zurich's reimbursement claim for defense costs paid in the James Jones case. As a result of this development, the Company recorded a pre-tax charge of $5,000,000 in the third quarter of 2006 to provide for a contingency for this reimbursement claim. Watts Water Technologies, Inc. will hold a live web cast of its conference call to discuss third quarter results for 2006 on Wednesday, November 1, 2006, at 9:00 a.m. Eastern Time. This 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 November 1, 2007. Watts Water Technologies, Inc. is a world leader in the manufacture of innovative products to control the efficiency, safety, and quality of water within residential, commercial, and institutional applications. Its expertise in a wide variety of water technologies enables it to be a comprehensive supplier to the water industry. This Press Release includes statements that are not historical facts and are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect Watts Water Technologies' current views about future results of operations and other forward-looking information. In some cases you can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will" and "would" or similar words. You should not rely on forward-looking statements because Watts' actual results may differ materially from those indicated by these forward-looking statements as a result of a number of important factors. These factors include, but are not limited to, the following: shortages in and pricing of raw materials and supplies including recent price increases by suppliers of raw materials and the Company's ability to pass these costs on to customers, loss of market share through competition, introduction of competing products by other companies, pressure on prices from competitors, suppliers, and/or customers, changes in variable interest rates on Company borrowings, identification and disclosure of material weaknesses in our internal control 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, affecting 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 "Item 1A. Risk Factors" in the Watts Water Technologies, Inc. Annual Report on Form 10-K for the year ended December 31, 2005 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 -------------------------- -------------------------- October 1, October 2, October 1, October 2, 2006 2005 2006 2005 --------- --------- --------- --------- STATEMENTS OF INCOME Net sales $ 325,137 $ 232,729 $ 900,262 $ 679,939 Income from continuing operations $ 21,324 $ 13,439 $ 58,954 $ 39,824 Loss from discontinued operations (3,137) (71) (3,358) (185) --------- --------- --------- --------- Net income $ 18,187 $ 13,368 $ 55,596 $ 39,639 ========= ========= ========= ========= DILUTED EARNINGS PER SHARE Weighted Average Number of Common Shares & Equivalents 33,051 33,062 33,027 33,006 Earnings per Share: Continuing operations $ 0.65 $ 0.41 $ 1.79 $ 1.21 Discontinued operations (0.09) -- (0.10) (0.01) --------- --------- --------- --------- Net income $ 0.55 $ 0.40 $ 1.68 $ 1.20 ========= ========= ========= ========= Cash dividends per share $ 0.09 $ 0.08 $ 0.27 $ 0.24
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share information) (Unaudited)
October 1, December 31, 2006 2005 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 116,621 $ 45,758 Trade accounts receivable, less allowance for doubtful accounts of $10,733 at October 1, 2006 and $9,296 at December 31, 2005 ............. 237,707 177,364 Inventories, net: Raw materials .......................................................... 102,152 84,087 Work in process ........................................................ 44,860 23,201 Finished goods ......................................................... 166,258 135,549 ----------- ----------- Total Inventories ................................................... 313,270 242,837 Prepaid expenses and other assets ......................................... 20,610 25,361 Deferred income taxes ..................................................... 37,303 27,540 Assets of discontinued operations ......................................... 10,072 9,555 ----------- ----------- Total Current Assets ................................................... 735,583 528,415 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment, at cost .................................... 383,992 328,812 Accumulated depreciation .................................................. (179,960) (163,813) ----------- ----------- Property, plant and equipment, net ..................................... 204,032 164,999 ----------- ----------- OTHER ASSETS: Goodwill .................................................................. 349,595 296,636 Other, net ................................................................ 145,824 110,920 ----------- ----------- TOTAL ASSETS ................................................................... $ 1,435,034 $ 1,100,970 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable .......................................................... $ 110,619 $ 91,053 Accrued expenses and other liabilities .................................... 105,151 67,071 Accrued compensation and benefits ......................................... 38,391 28,496 Current portion of long-term debt ......................................... 7,616 13,635 Liabilities of discontinued operations .................................... 27,940 23,068 ----------- ----------- Total Current Liabilities .............................................. 289,717 223,323 ----------- ----------- LONG-TERM DEBT, NET OF CURRENT PORTION ......................................... 457,981 293,350 DEFERRED INCOME TAXES .......................................................... 42,611 24,803 OTHER NONCURRENT LIABILITIES ................................................... 50,585 32,187 MINORITY INTEREST .............................................................. 7,559 7,831 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: 25,440,882 shares at October 1, 2006 and 25,205,210 shares at December 31, 2005 ............. 2,544 2,521 Class B Common Stock, $.10 par value; 25,000,000 shares authorized; 10 votes per share; issued and outstanding: 7,293,880 shares at October 1, 2006 and 7,343,880 at December 31, 2005 ..................... 729 734 Additional paid-in capital ................................................ 146,829 142,694 Retained earnings ......................................................... 414,882 368,264 Accumulated other comprehensive income .................................... 21,597 5,263 ----------- ----------- Total Stockholders' Equity ............................................. 586,581 519,476 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................................... $ 1,435,034 $ 1,100,970 =========== ===========
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share information) (Unaudited)
Third Quarter Ended Nine Months Ended -------------------------- -------------------------- October 1, October 2, October 1, October 2, 2006 2005 2006 2005 ---------- ---------- ---------- ---------- Net sales ...................................................... $ 325,137 $ 232,729 $ 900,262 $ 679,939 Cost of goods sold ............................................. 213,218 152,916 586,166 441,565 ---------- ---------- ---------- ---------- GROSS PROFIT .............................................. 111,919 79,813 314,096 238,374 Selling, general & administrative expenses ..................... 75,549 56,904 218,399 169,496 Restructuring and other charges ................................ 332 4 (5,109) 462 ---------- ---------- ---------- ---------- OPERATING INCOME .......................................... 36,038 22,905 100,806 68,416 ---------- ---------- ---------- ---------- Other (income) expense: Interest income ........................................... (1,150) (243) (2,459) (881) Interest expense .......................................... 6,520 2,579 15,664 7,667 Minority interest ......................................... (273) 106 (131) 243 Other ..................................................... (560) (369) (1,946) (546) ---------- ---------- ---------- ---------- 4,537 2,073 11,128 6,483 ---------- ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES .... 31,501 20,832 89,678 61,933 Provision for income taxes ..................................... 10,177 7,393 30,724 22,109 ---------- ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS ........................ 21,324 13,439 58,954 39,824 Loss from discontinued operations, net of taxes ................ (3,137) (71) (3,358) (185) ---------- ---------- ---------- ---------- NET INCOME ................................................ $ 18,187 $ 13,368 $ 55,596 $ 39,639 ========== ========== ========== ========== BASIC EPS Income per share: Continuing operations ..................................... $ 0.65 $ 0.41 $ 1.81 $ 1.23 Discontinued operations ................................... $ (0.10) -- (0.10) (0.01) ---------- ---------- ---------- ---------- NET INCOME ................................................ $ 0.56 $ 0.41 $ 1.70 $ 1.22 ========== ========== ========== ========== Weighted average number of shares .............................. 32,707 32,525 32,651 32,470 ========== ========== ========== ========== DILUTED EPS Income per share: Continuing operations ..................................... $ 0.65 $ 0.41 $ 1.79 $ 1.21 Discontinued operations ................................... (0.09) -- (0.10) (0.01) ---------- ---------- ---------- ---------- NET INCOME ................................................ $ 0.55 $ 0.40 $ 1.68 $ 1.20 ========== ========== ========== ========== Weighted average number of shares .............................. 33,051 33,062 33,027 33,006 ========== ========== ========== ========== Dividends per share ...................................... $ 0.09 $ 0.08 $ 0.27 $ 0.24 ========== ========== ========== ==========
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES SEGMENT INFORMATION (Amounts in thousands) (Unaudited) Net Sales Third Quarter Ended Nine Months Ended ----------------------- ----------------------- October 1, October 2, October 1, October 2, 2006 2005 2006 2005 ---------- ---------- ---------- ---------- North America $ 211,769 $ 160,029 $ 616,584 $ 464,622 Europe 101,437 65,554 257,553 195,624 China 11,931 7,146 26,125 19,693 ---------- ---------- ---------- ---------- Total $ 325,137 $ 232,729 $ 900,262 $ 679,939 ========== ========== ========== ========== Operating Income Third Quarter Ended Nine Months Ended ------------------------ ------------------------ October 1, October 2, October 1, October 2, 2006 2005 2006 2005 ---------- ---------- ---------- ---------- North America $ 26,217 $ 18,388 $ 74,254 $ 57,088 Europe 12,889 7,854 38,067 23,299 China 3,556 1,433 6,968 2,550 Corporate (6,624) (4,770) (18,483) (14,521) ---------- ---------- ---------- ---------- Total $ 36,038 $ 22,905 $ 100,806 $ 68,416 ========== ========== ========== ==========