EX-99.1 3 ex99-1.txt EARNINGS RELEASE EXHIBIT 99.1 FOR IMMEDIATE RELEASE Contact: William C. McCartney --------------------- Chief Financial Officer Telephone: (978) 688-1811 Fax: (978) 688-2976 WATTS INDUSTRIES REPORTS SECOND QUARTER RESULTS North Andover, MA...August 7, 2003. Watts Industries, Inc. (NYSE Symbol "WTS") today announced earnings for the quarter ended June 30, 2003. For the three months ended June 30, 2003, sales were $173,512,000, an increase of $22,007,000, or 15% from the comparable period last year. Net income for the three months ended June 30, 2003, was $8,106,00 or $0.30 per share, which includes a net loss from discontinued operations of $574,000, or $0.02 per share, compared to net income of $8,633,000, or $0.32 per share, for the quarter ended June 30, 2002. Income from continuing operations for the quarter ended June 30, 2003, was $8,680,000, or $0.32 per share, which includes $399,000 of after-tax costs, or $0.01 per share, incurred for the previously announced manufacturing restructuring plan. Income from continuing operations for the three months ended June 30, 2002, was $8,633,000, or $0.32 per share, which includes $477,000 of after-tax costs, or $0.02 per share, incurred for the manufacturing restructuring plan. Excluding the manufacturing restructuring costs in both periods, income from continuing operations was $9,079,000 for the three months ended June 30, 2003, compared to $9,110,000 for the three months ended June 30, 2002. Sales for the six-month period ended June 30, 2003, increased 15% to $339,204,000 from $294,825,000 for the six-month period ended June 30, 2002. Net income for the six months ended June 30, 2003 was $14,716,000, or $0.54 per share, compared to $16,689,000 for the six months ended June 30, 2002. Income from continuing operations increased $927,000, or 6%, to $17,616,000 for the six-month period ended June 30, 2003 compared to $16,689,000 for the six months ended June 30, 2002. Excluding the costs incurred for the Company's manufacturing restructuring plan from both periods, income from continuing operations increased $571,000, or 3%, to $18,292,000, or $0.67 per share, for the six months ended June 30, 2003 compared to $17,721,000, or $0.66 per share, for the six months ended June 30, 2002. Please refer to the table 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 our strong showing for the quarter. Our increase in revenue was achieved from the change in foreign exchange rates, our acquisition program and an increase in our internal growth rate. Our overall sales in North America increased by approximately $4,485,000, or 4%, due to our continuing gains in sales into the North American home improvement retail market and increased sales of our backflow product line which is distributed through our wholesale network. Our sales into the North American home improvement market for the quarter increased by 11%, with total sales of $33,478,000, compared to $30,116,000 for the second quarter of last year. Our sales into the North American wholesale market for the quarter increased 1% from the comparable period last year to $84,684,000, primarily due to improved sales of our well-known backflow prevention product line." Mr. O'Keefe continued, "We derived 29% of our total revenue for the quarter ended June 30, 2003, from Europe compared to 21% in the quarter ended June 30, 2002. Sales in Europe, in local currency, for the three months ended June 30, 2003, increased 31% compared to the comparable period last year due to an internal growth rate of 10% and inclusion of the acquisitions consummated during 2002. On July 15, 2002, we acquired ADEV Electronic SA located in Rosieres, France, and its closely affiliated distributor, E.K. Eminent in Gothenburg, Sweden, and on July 29, 2002, we acquired F&R Foerster Rothmann GmbH located in Neuenburg am Rhein, Germany. These European acquisitions contributed $7,957,000 of revenue during the quarter. The euro has appreciated approximately 22% versus the quarter ended June 30, 2002, resulting in a positive impact on sales of $7,184,000 and on earnings of $0.02 per share in the quarter ended June 30, 2003. Our internal growth rate of 10% for sales in Europe is primarily attributable to increased shipments into the European O.E.M. market." Mr. O'Keefe also commented, "We experienced a delay in production at our new wholly-owned bronze and brass manufacturing plant in Tianjin, China, which had an adverse effect on earnings of $0.02 per share due to under-absorbed manufacturing costs. This delay was primarily due to the inability of the Company's foreign-based vendors to complete the installation of machine tools due to SARS related travel restrictions. We anticipate production will increase from this factory in the third quarter of 2003. The results of the quarter also include an adjustment of $2,200,000 of revenue previously recorded at our TWT joint venture in Tianjin, which reduced earnings by $0.02 per share in the quarter." During the quarter ended June 30, 2003, the Company recorded an after-tax charge of $574,000 or $0.02 per share to discontinued operations. This charge is primarily attributable to payments made to the selling shareholders of a business that is now treated as a discontinued operation, pursuant to the Company's original purchase agreement. On July 30, 2003, a wholly owned subsidiary of the Company acquired Giuliani Anello S.r.l. located in Cento (Ferrara) Bologna Italy, for approximately $12 million in cash. Giuliani Anello manufactures and distributes valves and filters utilized in heating applications including strainer filters, solenoid valves, flow stop valves, stainless steel water filter elements and steam cleaning filters. Giuliani Anello's annual revenue, prior to the acquisition, was $7 million at the exchange rate in effect as of the closing date. To supplement our unaudited consolidated financial statements presented on a 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 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 of 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 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, 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, 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 Industries, Inc. designs, manufactures and sells an extensive line of valves and other products to the water quality and water regulation and control markets. WATTS INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENT (Thousands, except per share amounts) (Unaudited) Second Quarter Ended Six Months Ended June 30, June 30, 2003 2002 2003 2002 -------- -------- -------- -------- STATEMENTS OF INCOME -------------------- Net Sales $173,512 $151,505 $339,204 $294,825 Income from continuing operations $ 8,680 $ 8,633 $ 17,616 $ 16,689 Loss from discontinued operations (574) -- (2,900) -- -------- -------- -------- -------- Net income $ 8,106 $ 8,633 $ 14,716 $ 16,689 ======== ======== ======== ======== DILUTED EARNINGS PER SHARE -------------------------- Weighted Average Number of Common Shares & Equivalents 27,471 27,172 27,352 27,048 Earnings per Share: Continuing operations $ 0.32 $ 0.32 $ 0.65 $ 0.62 Discontinued operations (0.02) -- (0.11) -- -------- -------- -------- -------- Net income $ 0.30 $ 0.32 $ 0.54 $ 0.62 ======== ======== ======== ======== Cash dividends per share $ 0.06 $ 0.06 $ 0.12 $ 0.12 WATTS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Thousands, except share amounts)
(Unaudited) June 30, December 31, 2003 2002 ---------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents ............................................ $ 35,293 $ 10,973 Restricted treasuries ................................................ 77,834 -- Trade accounts receivable, less allowance for doubtful accounts of $7,997 at June 30, 2003 and $7,322 at December 31, 2002 ........... 142,017 123,504 Inventories: Raw materials ..................................................... 44,290 40,591 Work in process ................................................... 21,255 17,289 Finished goods .................................................... 89,202 75,535 --------- --------- Total Inventories .............................................. 154,747 133,415 Prepaid expenses and other assets .................................... 12,599 10,732 Deferred income taxes ................................................ 24,388 21,927 Net assets held for sale ............................................. 2,478 2,464 --------- --------- Total Current Assets .............................................. 449,356 303,015 --------- --------- PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment, at cost ............................... 265,722 248,933 Accumulated depreciation ............................................. (129,326) (114,557) --------- --------- Property, plant and equipment, net ................................ 136,396 134,376 --------- --------- OTHER ASSETS: Goodwill ............................................................. 169,951 163,226 Other ................................................................ 36,541 33,895 --------- --------- TOTAL ASSETS ............................................................. $ 792,244 $ 634,512 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ..................................................... $ 67,671 $ 64,704 Accrued expenses and other liabilities ............................... 69,296 69,202 Accrued compensation and benefits .................................... 14,668 15,514 Current portion of long-term debt .................................... 87,660 82,211 --------- --------- Total Current Liabilities ......................................... 239,295 231,631 --------- --------- LONG-TERM DEBT, NET OF CURRENT PORTION ................................... 177,128 56,276 DEFERRED INCOME TAXES .................................................... 21,883 20,792 OTHER NONCURRENT LIABILITIES ............................................. 21,018 19,743 MINORITY INTEREST ........................................................ 10,185 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: 19,457,466 shares at June 30, 2003 and 18,863,482 shares at December 31, 2002 .......... 1,946 1,886 Class B Common Stock, $.10 par value; 25,000,000 shares authorized; 10 votes per share; issued and outstanding: 7,805,224 shares at June 30, 2003 and 8,185,224 shares at December 31, 2002 ........... 781 819 Additional paid-in capital ........................................... 47,840 45,132 Retained earnings .................................................... 271,323 259,893 Accumulated other comprehensive income/(loss) ........................ 845 (11,794) --------- --------- Total Stockholders' Equity ........................................ 322,735 295,936 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................... $ 792,244 $ 634,512 ========= =========
WATTS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Thousands, except per share amounts) (Unaudited)
Three Months Ended Six Months Ended ---------------------- --------------------- June 30, June 30, June 30, June 30, 2003 2002 2003 2002 --------- --------- --------- --------- Net sales ........................................ $ 173,512 $ 151,505 $ 339,204 $ 294,825 Cost of goods sold ............................... 114,947 99,273 224,875 193,114 --------- --------- --------- --------- GROSS PROFIT ................................. 58,565 52,232 114,329 101,711 Selling, general & administrative expenses ....... 42,111 37,138 81,965 72,365 Restructuring .................................... 114 -- 114 10 --------- --------- --------- --------- OPERATING INCOME ............................. 16,340 15,094 32,250 29,336 --------- --------- --------- --------- Other (income) expense: Interest income .............................. (267) (370) (382) (456) Interest expense ............................. 2,820 2,299 4,904 4,129 Other, net ................................... (90) (200) (152) (125) Minority interest ............................ (17) 71 (38) 106 --------- --------- --------- --------- 2,446 1,800 4,332 3,654 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES .................. 13,894 13,294 27,918 25,682 Provision for income taxes ....................... 5,214 4,661 10,302 8,993 --------- --------- --------- --------- INCOME FROM CONTINUING OPERATIONS ........... 8,680 8,633 17,616 16,689 Loss from discontinued operations, net of taxes .. (574) -- (2,900) -- --------- --------- --------- --------- NET INCOME ................................... $ 8,106 $ 8,633 $ 14,716 $ 16,689 ========= ========= ========= ========= BASIC EARNINGS PER SHARE Continuing Operations ........................ $ 0.32 $ 0.32 $ 0.65 $ 0.63 Discontinued Operations ...................... (0.02) -- (0.11) -- --------- --------- --------- --------- NET INCOME ................................... $ 0.30 $ 0.32 $ 0.54 $ 0.63 ========= ========= ========= ========= Weighted average number of shares ................ 27,210 26,637 27,139 26,586 ========= ========= ========= ========= DILUTED EARNINGS PER SHARE Continuing Operations ........................ $ 0.32 $ 0.32 $ 0.65 $ 0.62 Discontinued Operations ...................... (0.02) -- (0.11) -- --------- --------- --------- --------- NET INCOME ................................... $ 0.30 $ 0.32 $ 0.54 $ 0.62 ========= ========= ========= ========= Weighted average number of shares ................ 27,471 27,172 27,352 27,048 ========= ========= ========= ========= Dividends per common share .................. $ 0.06 $ 0.06 $ 0.12 $ 0.12 ========= ========= ========= =========
WATTS INDUSTRIES, INC. AND SUBSIDIARIES RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED INCOME FROM CONTINUING OPERATIONS (Thousands, except per share amounts) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Net income $ 8,106 $ 8,633 $ 14,716 $ 16,689 Add back: loss from discontinued operations 574 -- 2,900 -- ---------- ---------- ---------- ---------- Income from continuing operations 8,680 8,633 17,616 16,689 ---------- ---------- ---------- ---------- Add back: cost of restructuring 399 477 676 1,032 ---------- ---------- ---------- ---------- Adjusted income from continuing operations $ 9,079 $ 9,110 $ 18,292 $ 17,721 ========== ========== ========== ========== Diluted earnings per share: Net income $ 0.30 $ 0.32 $ 0.54 $ 0.62 Add back: discontinued operations 0.02 -- 0.11 -- ---------- ---------- ---------- ---------- Continuing operations 0.32 0.32 0.65 0.62 ---------- ---------- ---------- ---------- Add back: cost of restructuring 0.01 0.02 0.02 0.04 ---------- ---------- ---------- ---------- Adjusted income from continuing operations $ 0.33 $ 0.34 $ 0.67 $ 0.66 ========== ========== ========== ==========