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Watts Water Technologies Reports Third Quarter 2005 Results

NORTH ANDOVER, Mass.--(BUSINESS WIRE)--Oct. 31, 2005--Watts Water Technologies, Inc. (NYSE Symbol "WTS") today announced results for the third quarter ended October 2, 2005. Sales for the third quarter ended October 2, 2005 were $232,729,000, an increase of $22,539,000, or 11%, from the third quarter last year. Net income for the third quarter ended October 2, 2005 was $13,368,000, or $0.40 per share, which includes a loss from discontinued operations of $71,000, versus net income of $13,705,000, or $0.42 per share, which included a loss from discontinued operations of $130,000 for the third quarter last year. Income from continuing operations for the third quarter ended October 2, 2005 decreased $396,000, or 3%, to $13,439,000, or $0.41 per share, compared to income from continuing operations for the third quarter last year of $13,835,000, or $0.42 per share.

Costs incurred for our manufacturing restructuring plan, net of tax, in the third quarters of 2005 and 2004 were $655,000, or $0.02 per share, and $349,000, or $0.01 per share, respectively.

Sales for the nine months ended October 2, 2005 were $679,939,000, an increase of $76,787,000, or 13%, from the same period last year. Net income for the nine months ended October 2, 2005 was $39,639,000, or $1.20 per share, which includes a loss from discontinued operations of $185,000, versus net income of $38,659,000, or $1.18 per share, which included a loss of $230,000 from discontinued operations for the same period last year. Income from continuing operations increased $935,000, or 2%, for the nine months ended October 2, 2005, to $39,824,000, or $1.21 per share, compared to income from continuing operations for the same period last year of $38,889,000, or $1.19 per share.

Costs incurred for our manufacturing restructuring plans, net of tax, in the nine months of 2005 and 2004 were $1,392,000, or $0.04 per share, and $1,417,000, or $0.04 per share, respectively.

Patrick S. O'Keefe, Chief Executive Officer, commented, "Our overall increase in sales for the third quarter as compared to last year was achieved by internal growth and contributions from acquired companies. Changes in net foreign exchange had a minimal positive effect on sales. Our internal growth contributed $11,845,000 of the increase in sales in the third quarter ended October 2, 2005. Acquisitions contributed sales of $10,473,000 for the third quarter. This acquired growth was attributable to the July 2005 acquisitions of the water connecter business of Donald E. Savard Company and Microflex N.V., the June 2005 acquisition of the water softener business of Alamo Water Refiners, Inc., the May 2005 acquisition of Electro Controls Ltd., and the January 2005 acquisitions of HF Scientific, Inc. and Sea Tech, Inc."

"Our North American segment increased sales for the third quarter ended October 2, 2005 by 14% to $160,029,000 compared to $140,403,000 last year. This increase in North American sales was achieved through internal sales growth of $11,757,000, the inclusion of sales from the acquisitions of the water connecter business of Donald E. Savard Company, the water softener business of Alamo Water Refiners, Inc., HF Scientific, Inc. and Sea Tech, Inc. totaling $6,924,000, and $945,000 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 third quarter ended October 2, 2005 increased 8% as compared to the third 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 13% for the third quarter ended October 2, 2005 over last year. This increase was primarily due to the new product introduction of FloodSafe(TM )connectors."

"We derived 28% of our total sales for the third quarter ended October 2, 2005 from Europe compared to 30% last year. Sales in Europe for the third quarter ended October 2, 2005 increased $3,168,000, or 5%, to $65,554,000, compared to last year. This increase is due to the inclusion of the acquired sales of Microflex N.V. and Electro Controls Ltd. totaling $3,549,000, internal sales growth of $495,000 offset by $876,000 of unfavorable foreign exchange associated with the weakening of the euro versus the U.S. dollar. We experienced increased market share gains in Germany due to increased marketing and sales efforts and increased sales into the Eastern European wholesale market, offset by decreased sales in the OEM market primarily due to the weak economic environments."

"Sales in China decreased $255,000 to $7,146,000 for the quarter ended October 2, 2005 from $7,401,000 last year. Sales into the Chinese domestic market increased offset by a decrease in the Chinese export market which is now handled by our U.S. subsidiaries. Our China segment experienced favorable foreign exchange rates associated with the strengthening of the yuan versus the U.S. dollar."

"Operating income for the quarter ended October 2, 2005 remained relatively flat at $22,905,000 as compared to $22,890,000 last year. This 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. We were not able to completely recover these increased costs through reduced manufacturing costs or increased selling prices in the North American market. Additionally, the economies in our main European countries of Germany, Italy and France continued to be weak. These factors are offset by the contribution of operating income from our acquired companies and increased profits in China due to increased capacity utilization and low cost sourcing."

"We are continuing 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 third quarter ended October 2, 2005 we recorded a pre-tax charge of approximately $995,000, which was comprised of $991,000 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 $4,000 recorded in selling, general and administrative expenses for severance costs related to European restructuring. This compares to $567,000 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.

Watts Water Technologies, Inc. will hold a live web cast of its conference call to discuss third quarter results for 2005 on Tuesday, November 1, 2005, at 3:00 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 November 1, 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 or to absorb these costs by reducing manufacturing costs, 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)


                              Third Quarter Ended   Nine Months Ended
                              -------------------  -------------------
                               October  September  October   September
                                  2,       26,        2,        26,
                                2005      2004       2005      2004
                              --------- ---------  --------  ---------
STATEMENTS OF INCOME
--------------------

Net sales                     $232,729  $210,190  $679,939  $ 603,152

Income from continuing
 operations                    $13,439   $13,835  $ 39,824  $  38,889
Loss from discontinued
 operations                        (71)     (130)     (185)      (230)
                              --------- ---------  --------  ---------
Net income                     $13,368   $13,705  $ 39,639  $  38,659
                              ========= =========  ========  =========


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

Weighted Average Number of
 Common Shares & Equivalents    33,062    32,792    33,006     32,673

Earnings per Share:
     Continuing operations       $0.41     $0.42  $  $1.21  $   $1.19
     Discontinued operations         -         -     (0.01)     (0.01)
                              --------- ---------  --------  ---------
     Net income                  $0.40     $0.42  $  $1.20  $   $1.18
                              ========= =========  ========  =========


Cash dividends per share         $0.08     $0.07  $   0.24  $    0.21



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


                                                   October   December
                                                      2,        31,
ASSETS                                               2005      2004
                                                   --------- ---------
CURRENT ASSETS:
   Cash and cash equivalents                        $56,876   $65,913
   Investment securities                                  -    26,600
   Trade accounts receivable, less allowance for
    doubtful accounts of $8,690 at October 2, 2005
    and $7,551 at December 31, 2004                 171,802   150,073
   Inventories, net:
      Raw materials                                  74,162    61,250
      Work in process                                27,013    28,020
      Finished goods                                121,313   113,774
                                                   --------- ---------
         Total Inventories                          222,488   203,044
   Prepaid expenses and other assets                 17,936    14,359
   Deferred income taxes                             28,265    27,463
   Assets of discontinued operations                  9,480    10,227
                                                   --------- ---------
      Total Current Assets                          506,847   497,679
                                                   --------- ---------
PROPERTY, PLANT AND EQUIPMENT:
   Property, plant and equipment, at cost           306,421   321,655
   Accumulated depreciation                        (160,581) (170,966)
                                                   --------- ---------
      Property, plant and equipment, net            145,840   150,689
                                                   --------- ---------
OTHER ASSETS:
   Goodwill                                         240,756   226,178
   Other                                             60,075    49,702
                                                   --------- ---------
TOTAL ASSETS                                       $953,518  $924,248
                                                   ========= =========


LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable                                 $75,614   $73,606
   Accrued expenses and other liabilities            68,959    64,604
   Accrued compensation and benefits                 30,715    29,679
   Current portion of long-term debt                  6,043     4,981
   Liabilities of discontinued operations            22,914    24,303
                                                   --------- ---------
      Total Current Liabilities                     204,245   197,173
                                                   --------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION              185,081   180,562
DEFERRED INCOME TAXES                                21,971    19,578
OTHER NONCURRENT LIABILITIES                         24,407    26,632
MINORITY INTEREST                                     7,715     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: 25,189,164 shares at October 2,
    2005 and 25,049,338 shares at December 31, 2004   2,519     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 October 2,
    2005 and at December 31, 2004                       734       734
   Additional paid-in capital                       143,517   140,172
   Retained earnings                                355,956   324,145
   Deferred compensation                             (1,935)   (1,386)
   Accumulated other comprehensive income             9,308    26,618
                                                   --------- ---------
      Total Stockholders' Equity                    510,099   492,788
                                                   --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY         $953,518  $924,248
                                                   ========= =========


           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  September  October   September
                                  2,       26,        2,        26,
                                 2005     2004       2005      2004
                              --------- ---------  --------  ---------
Net sales                     $232,729  $210,190  $679,939  $ 603,152
Cost of goods sold             152,916   135,822   441,565    388,245
                              --------- ---------  --------  ---------
   GROSS PROFIT                 79,813    74,368   238,374    214,907
Selling, general &
 administrative expenses        56,908    51,478   169,958    147,532
                              --------- ---------  --------  ---------
   OPERATING INCOME             22,905    22,890    68,416     67,375
                              --------- ---------  --------  ---------
Other (income) expense:
   Interest income                (243)     (229)     (881)      (792)
   Interest expense              2,579     2,628     7,667      7,930
   Minority interest               106       380       243        895
   Other                          (369)     (239)     (546)      (495)
                              --------- ---------  --------  ---------
                                 2,073     2,540     6,483      7,538
                              --------- ---------  --------  ---------
    INCOME FROM CONTINUING
     OPERATIONS BEFORE INCOME
     TAXES                      20,832    20,350    61,933     59,837
Provision for income taxes       7,393     6,515    22,109     20,948
                              --------- ---------  --------  ---------
   INCOME  FROM CONTINUING
    OPERATIONS                  13,439    13,835    39,824     38,889
Loss from discontinued
 operations, net of taxes          (71)     (130)     (185)      (230)
                              --------- ---------  --------  ---------
   NET INCOME                  $13,368   $13,705  $ 39,639  $  38,659
                              ========= =========  ========  =========
BASIC EPS
Income (loss) per share:
   Continuing operations         $0.41     $0.43  $   1.23  $    1.21
   Discontinued operations           -     (0.01)    (0.01)     (0.01)
                              --------- ---------  --------  ---------
   NET INCOME                    $0.41     $0.42  $   1.22  $    1.20
                              ========= =========  ========  =========
Weighted average number of
 shares                         32,525    32,320    32,470     32,242
                              ========= =========  ========  =========
DILUTED EPS
Income (loss) per share:
   Continuing operations         $0.41     $0.42  $   1.21  $    1.19
   Discontinued operations           -         -     (0.01)     (0.01)
                              --------- ---------  --------  ---------
   NET INCOME                    $0.40     $0.42  $   1.20  $    1.18
                              ========= =========  ========  =========
Weighted average number of
 shares                         33,062    32,792    33,006     32,673
                              ========= =========  ========  =========
    Dividends per share          $0.08     $0.07  $   0.24  $    0.21
                              ========= =========  ========  =========



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


                               Net Sales

                         Third Quarter Ended      Nine Months Ended
                       ----------------------- -----------------------
                         October    September    October    September
                            2,          26,         2,         26,
                           2005        2004        2005       2004
                       ----------- ----------- ----------- -----------

North America            $160,029    $140,403     464,622     400,167
Europe                     65,554      62,386     195,624     183,400
China                       7,146       7,401      19,693      19,585
                       ----------- ----------- ----------- -----------
Total                    $232,729    $210,190     679,939     603,152
                       =========== =========== =========== ===========


                           Operating Income

                         Third Quarter Ended      Nine Months Ended
                       ----------------------- -----------------------
                         October    September    October    September
                            2,          26,         2,         26,
                           2005        2004        2005       2004
                       ----------- ----------- ----------- -----------

North America             $17,829     $18,565      55,352      54,800
Europe                      7,854       8,023      23,299      23,460
China                       1,433       1,277       2,550       1,276
Corporate                  (4,211)     (4,975)    (12,785)    (12,161)
                       ----------- ----------- ----------- -----------
Total                     $22,905     $22,890      68,416      67,375
                       =========== =========== =========== ===========

CONTACT: Watts Water Technologies, Inc.
William C. McCartney, 978-688-1811
Chief Financial Officer
Fax: 978-688-2976

SOURCE: Watts Water Technologies, Inc.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Watts Water Technologies's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.