Segment Information

9 Months Ended

Oct. 01, 2017

Segment Information

Segment Information

9. Segment Information

The Company operates in three geographic segments: Americas, Europe, and APMEA. Each of these segments sells similar products and has separate financial results that are reviewed by the Company’s chief operating decision‑maker. Each segment earns revenue and income almost exclusively from the sale of our products.  The Company sells its products into various end markets around the world, with sales by region based upon location of the entity recording the sale. Products are sold into four product categories: 1) residential & commercial flow control products, 2) HVAC & gas products, 3) drainage & water re-use products, and 4) water quality products.  The Americas sells products across all four product categories, Europe primarily sells residential & commercial flow products, HVAC & gas products and drainage products, and APMEA primarily sells residential & commercial flow products and HVAC & gas products.  All intercompany sales transactions have been eliminated. The accounting policies for each segment are the same as those described in Note 2 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

As of January 1, 2017, the Company began reporting the results of Watts Industries Middle East FZE (“Watts Middle East”), an indirect, wholly owned subsidiary, as part of the Company’s former Asia-Pacific segment, which is now referred to as APMEA. Watts Middle East had previously been reported within the former EMEA segment, which is now referred to as Europe. This change in segment composition aligns with the structure of the Company’s internal organization and did not result in a material change to previously reported segment information. The 2016 results by segment have been retrospectively revised for comparative purposes.

The following is a summary of the Company’s significant accounts and balances by segment, reconciled to its consolidated totals:

	Third Quarter Ended				Nine Months Ended
	October 1,		October 2,		October 1,		October 2,
	2017		2016		2017		2016
	(in millions)
Net Sales
Americas	$	239.1	$	215.8	$	718.3	$	677.6
Europe		109.0		107.0		324.6		329.6
APMEA		16.6		18.3		47.5		49.2
Consolidated net sales	$	364.7	$	341.1	$	1,090.4	$	1,056.4
Operating income (loss)
Americas	$	39.8	$	32.2	$	110.5	$	95.7
Europe		13.4		12.3		38.5		32.3
APMEA		0.5		1.6		3.3		13.1
Subtotal reportable segments		53.7		46.1		152.3		141.1
Corporate(*)		(9.4)		(9.6)		(27.5)		(27.7)
Consolidated operating income		44.3		36.5		124.8		113.4
Interest income		(0.2)		(0.3)		(0.6)		(0.8)
Interest expense		4.7		4.9		14.5		17.1
Other expense (income), net		0.3		(0.5)		0.8		(3.6)
Income before income taxes	$	39.5	$	32.4	$	110.1	$	100.7
Capital Expenditures
Americas	$	4.4	$	5.1	$	12.5	$	19.5
Europe		1.7		1.9		4.2		6.2
APMEA		0.1		0.1		0.4		0.6
Consolidated capital expenditures	$	6.2	$	7.1	$	17.1	$	26.3
Depreciation and Amortization
Americas	$	7.6	$	7.7	$	22.8	$	20.9
Europe		4.9		4.8		13.8		14.6
APMEA		0.4		0.7		2.1		2.5
Consolidated depreciation and amortization	$	12.9	$	13.2	$	38.7	$	38.0
Identifiable assets (at end of period)
Americas					$	1,074.0	$	1,011.1
Europe						510.4		605.6
APMEA						131.2		130.6
Consolidated identifiable assets					$	1,715.6	$	1,747.3
Property, plant and equipment, net (at end of period)
Americas					$	105.7	$	95.8
Europe						79.2		80.9
APMEA						7.2		8.1
Consolidated property, plant and equipment, net					$	192.1	$	184.8

*     Corporate expenses are primarily for administrative compensation expense, compliance costs, professional fees, including corporate-related legal and audit expenses, shareholder services and benefit administration costs.

Other than the change in composition as noted above, the above operating segments are presented on a basis consistent with the presentation included in the Company’s December 31, 2016 consolidated financial statements included in its Annual Report on Form 10-K.

The U.S. property, plant and equipment of the Company’s Americas segment was $102.0 million and $92.0 million at October 1, 2017 and October 2, 2016, respectively.

The following includes U.S. net sales of the Company’s Americas segment:

	Third Quarter Ended				Nine Months Ended
	October 1,		October 2,		October 1,		October 2,
	2017		2016		2017		2016
	(in millions)
U.S. net sales	$	222.0	$	200.5	$	670.6	$	631.9

The following includes intersegment sales for Americas, Europe and APMEA:

	Third Quarter Ended				Nine Months Ended
	October 1,		October 2,		October 1,		October 2,
	2017		2016		2017		2016
	(in millions)
Intersegment Sales
Americas	$	2.5	$	2.9	$	9.0	$	9.1
Europe		4.0		2.9		11.9		8.8
APMEA		12.8		17.2		52.8		58.3
Intersegment sales	$	19.3	$	23.0	$	73.7	$	76.2