UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended
or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number
WATTS WATER TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of Incorporation or | (I.R.S. Employer Identification No.) | |
(Address of Principal Executive Offices) | (Zip Code) |
(
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐ | ||
Non-accelerated filer ☐ | Smaller reporting company Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at July 26, 2020 | |
Class A Common Stock, $0.10 par value | ||
Class B Common Stock, $0.10 par value |
1
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
| 3 | ||
3 | |||
Consolidated Balance Sheets at June 28, 2020 and December 31, 2019 (unaudited) | 3 | ||
4 | |||
5 | |||
6 | |||
8 | |||
9 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 | ||
36 | |||
37 | |||
38 | |||
38 | |||
38 | |||
38 | |||
40 | |||
41 | |||
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except share information)
(Unaudited)
June 28, | December 31, | |||||
| 2020 |
| 2019 | |||
ASSETS |
| |||||
CURRENT ASSETS: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Trade accounts receivable, less reserve allowances of $ |
| |
| | ||
Raw materials | | | ||||
Work in process | | | ||||
Finished goods | | | ||||
Total Inventories | | | ||||
Prepaid expenses and other current assets |
| |
| | ||
Total Current Assets |
| |
| | ||
PROPERTY, PLANT AND EQUIPMENT |
|
| ||||
Property, plant and equipment, at cost | | | ||||
Accumulated depreciation | ( | ( | ||||
Property, plant and equipment, net | | | ||||
OTHER ASSETS: | ||||||
Goodwill |
| |
| | ||
Intangible assets, net |
| |
| | ||
Deferred income taxes |
| |
| | ||
Other, net |
| |
| | ||
TOTAL ASSETS | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
CURRENT LIABILITIES: | ||||||
Accounts payable | $ | | $ | | ||
Accrued expenses and other liabilities |
| |
| | ||
Accrued compensation and benefits |
| |
| | ||
Current portion of long-term debt |
| — |
| | ||
Total Current Liabilities |
| |
| | ||
LONG-TERM DEBT, NET OF CURRENT PORTION |
| |
| | ||
DEFERRED INCOME TAXES |
| |
| | ||
OTHER NONCURRENT LIABILITIES |
| |
| | ||
STOCKHOLDERS’ EQUITY: | ||||||
Preferred Stock, $ |
|
| ||||
Class A common stock, $ |
| |
| | ||
Class B common stock, $ |
| |
| | ||
Additional paid-in capital |
| |
| | ||
Retained earnings |
| |
| | ||
Accumulated other comprehensive loss |
| ( |
| ( | ||
Total Stockholders’ Equity |
| |
| | ||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | | $ | |
See accompanying notes to consolidated financial statements.
3
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in millions, except per share information)
(Unaudited)
Second Quarter Ended | Six Months Ended | |||||||||||
June 28, | June 30, | June 28, | June 30, | |||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||||
Net sales | $ | | $ | | $ | | $ | | ||||
Cost of goods sold |
| |
| |
| |
| | ||||
GROSS PROFIT |
| |
| |
| |
| | ||||
Selling, general and administrative expenses |
| |
| |
| |
| | ||||
Restructuring |
| |
| |
| |
| | ||||
Other long-lived asset impairment charge |
| |
| — |
| |
| — | ||||
OPERATING INCOME |
| |
| |
| |
| | ||||
Other (income) expense: | ||||||||||||
Interest income |
| ( |
| ( |
| ( |
| ( | ||||
Interest expense |
| |
| |
| |
| | ||||
Other (income) expense |
| ( |
| ( |
| ( |
| | ||||
Total other expense |
| |
| |
| |
| | ||||
INCOME BEFORE INCOME TAXES |
| |
| |
| |
| | ||||
Provision for income taxes |
| |
| |
| |
| | ||||
NET INCOME | $ | | $ | | $ | | $ | | ||||
Basic EPS | ||||||||||||
NET INCOME PER SHARE | $ | | $ | | $ | | $ | | ||||
Weighted average number of shares |
| |
| |
| |
| | ||||
Diluted EPS | ||||||||||||
NET INCOME PER SHARE | $ | | $ | | $ | | $ | | ||||
Weighted average number of shares |
| |
| |
| |
| | ||||
Dividends declared per share | $ | | $ | | $ | | $ | |
See accompanying notes to consolidated financial statements.
4
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in millions)
(Unaudited)
| Second Quarter Ended |
| Six Months Ended | |||||||||
June 28, | June 30, | June 28, | June 30, | |||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||||
Net income | $ | | $ | | $ | | $ | | ||||
Other comprehensive income (loss) net of tax: | ||||||||||||
Foreign currency translation adjustments |
| |
| |
| ( |
| ( | ||||
Cash flow hedges | ( | ( | ( | ( | ||||||||
Other comprehensive income (loss) |
| |
| |
| ( |
| ( | ||||
Comprehensive income | $ | | $ | | $ | | $ | |
See accompanying notes to consolidated financial statements.
5
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in millions)
(Unaudited)
Accumulated | ||||||||||||||||||||||
Class A | Class B | Additional | Other | Total | ||||||||||||||||||
Common Stock | Common Stock | Paid-In | Retained | Comprehensive | Stockholders’ | |||||||||||||||||
(For the six months ended June 28, 2020) |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Loss |
| Equity | ||||||
Balance at December 31, 2019 |
| | $ | |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net income | — | — | — | — | — | | — | | ||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | ( | ( | ||||||||||||||
Comprehensive income | | |||||||||||||||||||||
Shares of Class B common stock converted to Class A common stock |
| | — | ( | — | — | — | — | — | |||||||||||||
Stock-based compensation |
| — | — | — | — | | — | — | | |||||||||||||
Stock repurchase |
| ( | — | — | — | — | ( | — | ( | |||||||||||||
Net change in restricted and performance stock units | | — | — | — | | ( | — | ( | ||||||||||||||
Common stock dividends | — | — | — | — | — | ( | — | ( | ||||||||||||||
Balance at June 28, 2020 |
| | $ | |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Accumulated | ||||||||||||||||||||||
Class A | Class B | Additional | Other | Total | ||||||||||||||||||
Common Stock | Common Stock | Paid-In | Retained | Comprehensive | Stockholders’ | |||||||||||||||||
(For the three months ended June 28, 2020) |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Loss |
| Equity | ||||||
Balance at March 29, 2020 |
| | $ | |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net income | — | — | — | — | — | | — | | ||||||||||||||
Other comprehensive income | — | — | — | — | — | — | | | ||||||||||||||
Comprehensive income | | |||||||||||||||||||||
Stock-based compensation |
| — | — | — | — | | — | — | | |||||||||||||
Stock repurchase |
| ( | — | — | — | — | ( | — | ( | |||||||||||||
Net change in restricted and performance stock units | ( | — | — | — | — | ( | — | ( | ||||||||||||||
Common stock dividends | — | — | — | — | — | ( | — | ( | ||||||||||||||
Balance at June 28, 2020 |
| | $ | |
| | $ | | $ | | $ | | $ | ( | $ | |
6
Accumulated | ||||||||||||||||||||||
Class A | Class B | Additional | Other | Total | ||||||||||||||||||
Common Stock | Common Stock | Paid-In | Retained | Comprehensive | Stockholders’ | |||||||||||||||||
(For the six months ended June 30, 2019) |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Loss |
| Equity | ||||||
Balance at December 31, 2018 |
| | $ | |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net income | — | — | — | — | — | | — | | ||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | ( | ( | ||||||||||||||
Comprehensive income | | |||||||||||||||||||||
Shares of Class B common stock converted to Class A common stock | | — | ( | — | — | — | — | — | ||||||||||||||
Shares of Class A common stock issued upon the exercise of stock options | | — | — | — | | — | — | | ||||||||||||||
Stock-based compensation | — | — | — | — | | — | — | | ||||||||||||||
Stock repurchase | ( | — | — | — | — | ( | — | ( | ||||||||||||||
Net change in restricted and performance stock units | | — | — | — | | ( | — | ( | ||||||||||||||
Common stock dividends | — | — | — | — | — | ( | — | ( | ||||||||||||||
Balance at June 30, 2019 | | $ | | | $ | | $ | | $ | | $ | ( | | |||||||||
Accumulated | ||||||||||||||||||||||
Class A | Class B | Additional | Other | Total | ||||||||||||||||||
Common Stock | Common Stock | Paid-In | Retained | Comprehensive | Stockholders’ | |||||||||||||||||
(For the three months ended June 30, 2019) |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Loss |
| Equity | ||||||
Balance at March 31, 2019 |
| | $ | |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net income | — | — | — | — | — | | — | | ||||||||||||||
Other comprehensive income | — | — | — | — | — | — | | | ||||||||||||||
Comprehensive income | | |||||||||||||||||||||
Shares of Class A common stock issued upon the exercise of stock options | | — | — | — | | — | — | | ||||||||||||||
Stock-based compensation | — | — | — | — | | — | — | | ||||||||||||||
Stock repurchase | ( | — | — | — | — | ( | — | ( | ||||||||||||||
Net change in restricted and performance stock units | ( | — | — | — | | ( | — | ( | ||||||||||||||
Common stock dividends | — | — | — | — | — | ( | — | ( | ||||||||||||||
Balance at June 30, 2019 | | $ | | | $ | | $ | | $ | | $ | ( | |
See accompanying notes to consolidated financial statements.
7
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)
Six Months Ended | ||||||
June 28, | June 30, | |||||
| 2020 |
| 2019 | |||
OPERATING ACTIVITIES | ||||||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Depreciation |
| |
| | ||
Amortization of intangibles |
| |
| | ||
Loss on disposal and impairment of property, plant and equipment and other |
| |
| | ||
Stock-based compensation |
| |
| | ||
Deferred income tax |
| |
| | ||
Changes in operating assets and liabilities: | ||||||
Accounts receivable |
| |
| ( | ||
Inventories |
| ( |
| | ||
Prepaid expenses and other assets |
| ( |
| ( | ||
Accounts payable, accrued expenses and other liabilities |
| ( |
| ( | ||
Net cash provided by operating activities |
| |
| | ||
INVESTING ACTIVITIES | ||||||
Additions to property, plant and equipment |
| ( |
| ( | ||
Proceeds from sale of property, plant, and equipment |
| |
| — | ||
Net cash used in investing activities |
| ( |
| ( | ||
FINANCING ACTIVITIES | ||||||
Proceeds from long-term borrowings | | | ||||
Payments of long-term debt |
| ( |
| ( | ||
Payments for withholding taxes on vested awards |
| ( |
| ( | ||
Payments for finance leases | ( | ( | ||||
Proceeds from share transactions under employee stock plans |
| — |
| | ||
Debt issuance costs | ( | — | ||||
Payments to repurchase common stock |
| ( |
| ( | ||
Dividends |
| ( |
| ( | ||
Net cash used in financing activities |
| ( |
| ( | ||
Effect of exchange rate changes on cash and cash equivalents |
| ( |
| ( | ||
DECREASE IN CASH AND CASH EQUIVALENTS |
| ( |
| ( | ||
Cash and cash equivalents at beginning of year |
| |
| | ||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | | $ | | ||
NON CASH INVESTING AND FINANCING ACTIVITIES | ||||||
Issuance of stock under management stock purchase plan | $ | | $ | | ||
CASH PAID FOR: | ||||||
Interest | $ | | $ | | ||
Income taxes | $ | | $ | |
See accompanying notes to consolidated financial statements.
8
WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the Watts Water Technologies, Inc. (the Company) Consolidated Balance Sheet as of June 28, 2020, the Consolidated Statements of Operations for the second quarters and six months ended June 28, 2020 and June 30, 2019, the Consolidated Statements of Comprehensive Income for the second quarters and six months ended June 28, 2020 and June 30, 2019, the Consolidated Statements of Stockholders’ Equity for the second quarters and six months ended June 28, 2020 and June 30, 2019, and the Consolidated Statements of Cash Flows for the six months ended June 28, 2020 and June 30, 2019.
The consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date. The accounting policies followed by the Company are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The financial statements included in this report should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2019. Operating results for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2020, and may be further impacted by the effects of the Coronavirus Disease 2019 (“COVID-19”) global pandemic.
The Company operates on a
-week fiscal year ending on December 31, with each quarter, except the fourth quarter, ending on a Sunday. Any quarterly data contained in this Quarterly Report on Form 10-Q generally reflect the results of operations for a -week period.Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to the Company’s estimates or judgments or require the Company to revise the carrying value of the Company’s assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ from those estimates.
9
COVID-19
In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continues to impact the countries and markets in which the Company operates, and new and evolving government actions to address the COVID-19 pandemic continue to occur on a regular basis. For the second quarter and six months ended June 28, 2020, temporary closures, lockdowns and other restrictions mandated by various governmental authorities intended to combat the COVID-19 pandemic have negatively impacted the Company’s revenue at varying levels within each of the Company’s business segments. The Company’s cost management actions, capital preservation steps and related impacts to the Company’s financial results and operations through June 28, 2020 are discussed within Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Due to the risk and uncertainties resulting from the COVID-19 pandemic, the extent of the impact on the Company’s business is highly uncertain and difficult to predict. Developments and information related to the response to the pandemic continue to occur and evolve rapidly. Many of the Company’s products qualify as “essential products” under local, state and national guidelines and orders. As a provider of essential products, the Company has made significant efforts to keep its facilities open, its employees working and its products available to its customers. The Company remains focused on protecting the health and safety of its employees and the communities in which it operates while maintaining the continuity of its business operations. Early in the pandemic, the Company created a COVID-19 Task Force to protect its employees while maintaining production capabilities, and the Company has implemented social distancing guidelines and temperature monitoring, provided personal protective equipment, established a COVID-19 website for employees which includes the latest Centers for Disease Control and Prevention (“CDC”) and other government protocols, and promoted work-from-home policies where practical.
Capital markets and economies worldwide continue to be negatively impacted by the protective measures taken by governments in response to the COVID-19 pandemic, and these measures have resulted in a global economic recession. Such economic disruption will likely have a material adverse effect on the Company’s business if customers continue to curtail and reduce overall spending, which may not return to pre-pandemic levels. Policymakers around the globe have responded with fiscal policy actions to bolster their local economies. The magnitude and overall effectiveness of these actions remains uncertain. The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, operations, distribution and suppliers, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers. However, the Company does not anticipate any adverse impacts on its ability to pay its debt obligations as they become due. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.
The Company intends to continue to assess the evolving impact of the COVID-19 pandemic and expects to continue to make adjustments to its responses to address the situation as it develops.
2. Accounting Policies
The significant accounting policies used in preparation of these consolidated financial statements for the second quarter ended June 28, 2020 are consistent with those discussed 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, 2019.
Recently Adopted Accounting Standards
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)-Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
10
implementation costs incurred to develop or obtain internal-use software. This guidance requires an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period. The Company adopted this standard in the first quarter of 2020, and it did not have a material impact on the Company’s financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326).” ASU 2016-13 replaces the incurred loss impairment methodology under current Generally Accepted Accounting Principles (“GAAP”) with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivable, loans, and other financial instruments. The financial assets for which this standard is applicable on the Company’s balance sheet are accounts receivable and contract assets. The standard requires the Company to pool financial assets based on similar risk and economic characteristics and estimate expected credit losses over the contractual life of the asset. This standard is effective for reporting periods beginning after December 15, 2019. The standard requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company adopted this standard in the first quarter of 2020, and it did not have a material impact on the Company’s financial statements.
Accounting Standards Updates
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating its contracts and the optional expedients provided by the new standard.
Shipping and Handling
Shipping and handling costs included in selling, general and administrative expenses amounted to $
Research and Development
Research and development costs included in selling, general and administrative expenses amounted to $
11
3. Revenue Recognition
The Company is a leading supplier of products that manage and conserve the flow of fluids and energy into, through and out of buildings in the commercial and residential markets of the Americas, Europe, and Asia-Pacific, Middle East, and Africa (“APMEA”). For over
The Company distributes products through
● | Residential & commercial flow control products—includes products typically sold into plumbing and hot water applications such as backflow preventers, water pressure regulators, temperature and pressure relief valves, and thermostatic mixing valves. |
● | HVAC & gas products—includes commercial high-efficiency boilers, water heaters and heating solutions, hydronic and electric heating systems for under-floor radiant applications, custom heat and hot water solutions, hydronic pump groups for boiler manufacturers and alternative energy control packages, and flexible stainless steel connectors for natural and liquid propane gas in commercial food service and residential applications. HVAC is an acronym for heating, ventilation and air conditioning. |
● | Drainage & water re-use products—includes drainage products and engineered rain water harvesting solutions for commercial, industrial, marine and residential applications. |
● | Water quality products—includes point-of-use and point-of-entry water filtration, conditioning and scale prevention systems for commercial, marine and residential applications. |
The following table disaggregates revenue, which is presented as net sales in the financial statements, for each reportable segment, by distribution channel and principal product line:
For the second quarter ended June 28, 2020 | For the six months ended June 28, 2020 | |||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||
Distribution Channel | Americas | Europe | APMEA | Consolidated | Americas | Europe | APMEA | Consolidated | ||||||||||||||||
Wholesale | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
OEM | |
| |
| |
| | |
| |
| |
| | ||||||||||
Specialty | |
| — |
| |
| | |
| — |
| |
| | ||||||||||
DIY |
| |
| |
| — |
| |
| |
| |
| — |
| | ||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
For the second quarter ended June 28, 2020 | For the six months ended June 28, 2020 | |||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||
Principal Product Line | Americas | Europe | APMEA | Consolidated | Americas | Europe | APMEA | Consolidated | ||||||||||||||||
Residential & Commercial Flow Control | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
HVAC and Gas Products | |
| |
| |
| | |
| |
| |
| | ||||||||||
Drainage and Water Re-use Products | |
| |
| — |
| | |
| |
| |
| | ||||||||||
Water Quality Products |
| |
| |
| |
| |
| |
| |
| |
| | ||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
12
For the second quarter ended June 30, 2019 | For the six months ended June 30, 2019 | |||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||
Distribution Channel | Americas | Europe | APMEA | Consolidated | Americas | Europe | APMEA | Consolidated | ||||||||||||||||
Wholesale | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
OEM | |
| |
| |
| | |
| |
| |
| | ||||||||||
Specialty | |
| — |
| |
| | |
| — |
| |
| | ||||||||||
DIY |
| |
| |
| — |
| |
| |
| |
| — |
| | ||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
For the second quarter ended June 30, 2019 | For the six months ended June 30, 2019 | |||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||
Principal Product Line | Americas | Europe | APMEA | Consolidated | Americas | Europe | APMEA | Consolidated | ||||||||||||||||
Residential & Commercial Flow Control | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
HVAC and Gas Products | |
| |
| |
| | |
| |
| |
| | ||||||||||
Drainage and Water Re-use Products | |
| |
| |
| | |
| |
| |
| | ||||||||||
Water Quality Products |
| |
| |
| |
| |
| |
| |
| |
| | ||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
The Company generally considers customer purchase orders, which in some cases are governed by master sales agreements, to represent the contract with a customer. The Company’s contracts with customers are generally for products only and typically do not include other performance obligations such as professional services, extended warranties, or other material rights. In situations where sales are to a distributor, the Company has concluded that its contracts are with the distributor as the Company holds a contract bearing enforceable rights and obligations only with the distributor. As part of its consideration of the contract, the Company evaluates certain factors including the customer’s ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled. As the Company’s standard payment terms are less than one year, the Company has elected not to assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on its relative standalone selling price. The product price as specified on the purchase order is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs at shipment from the Company’s manufacturing site or distribution center, or delivery to the customer’s named location. In certain circumstances, revenue from shipments to retail customers is recognized only when the product is consumed by the customer, as based on the terms of the arrangement, transfer of control is not satisfied until that point in time. In determining whether control has transferred, the Company considers if there is a present right to payment, physical possession and legal title, along with risks and rewards of ownership having transferred to the customer. In certain circumstances, the Company manufactures customized product without alternative use for its customers. However, as these arrangements do not entitle the Company a right to payment of cost plus a profit for work completed, the Company has concluded that revenue recognition at the point in time control transfers is appropriate and not over time recognition.
At times, the Company receives orders for products to be delivered over multiple dates that may extend across reporting periods. The Company invoices for each delivery upon shipment and recognizes revenues for each distinct product delivered, assuming transfer of control has occurred. As scheduled delivery dates are within one year, under the optional exemption provided by the guidance, revenues allocated to future shipments of partially completed contracts are not disclosed.
The Company generally provides an assurance warranty that its products will substantially conform to the published specification. The Company’s liability is limited to either a credit equal to the purchase price or replacement of the defective part. Returns under warranty have historically been immaterial. The Company does not consider activities related to such warranty, if any, to be a separate performance obligation. For certain of its products, the Company will separately sell extended warranty and service policies to its customers. The Company considers the sale of the extended warranty a separate performance obligation. These policies typically are for periods ranging from
13
Payments received are deferred and recognized over the policy period. For all periods presented, the revenue recognized and the revenue deferred under these policies is not material to the consolidated financial statements.
The timing of revenue recognition, billings and cash collections from the Company’s contracts with customers can vary based on the payment terms and conditions in the customer contracts. In some cases, customers will partially prepay for their goods; in other cases, after appropriate credit evaluations, payment is due in arrears. In addition, there are constraints which cause variability in the ultimate consideration to be recognized. These constraints typically include early payment discounts, volume rebates, rights of return, cooperative advertising, and market development funds. The Company includes these constraints in the estimated transaction price when there is a basis to reasonably estimate the amount of variable consideration. These estimates are based on historical experience, anticipated future performance and the Company’s best judgment at the time. When the timing of the Company’s recognition of revenue is different from the timing of payments made by the customer, the Company recognizes either a contract asset (performance precedes contractual due date) or a contract liability (customer payment precedes performance). Contracts with payment in arrears are recognized as receivables. The opening and closing balances of the Company’s contract assets and contract liabilities are as follows:
Contract | Contract | Contract | |||||||
Assets | Liabilities - Current | Liabilities - Noncurrent | |||||||
(in millions) | |||||||||
Balance - January 1, 2020 | $ | | $ | | $ | | |||
Change in period | ( | | ( | ||||||
Balance - March 29, 2020 | $ | | $ | | $ | | |||
Change in period | — | — | ( | ||||||
Balance - June 28, 2020 | $ | | $ | | $ | | |||
Balance - January 1, 2019 | $ | | $ | | $ | | |||
Change in period | ( | | — | ||||||
Balance - March 31, 2019 | $ | | $ | | $ | | |||
Change in period | ( | | | ||||||
Balance - June 30, 2019 | $ | | $ | | $ | |
The amount of revenue recognized during the second quarter and six months ended June 28, 2020 that was included in the opening contract liability balance was $
The Company incurs costs to obtain and fulfill a contract; however, the Company has elected to recognize all incremental costs to obtain a contract as an expense when incurred if the amortization period is one year or less. The Company has elected to treat shipping and handling activities performed after the customer has obtained control of the related goods as a fulfillment cost and the related cost is accrued for in conjunction with the recording of revenue for the goods.
14
4. Goodwill & Intangibles
The Company operates in
June 28, 2020 | ||||||||||||||||||||||||
Gross Balance | Accumulated Impairment Losses | Net Goodwill | ||||||||||||||||||||||
Acquired | Foreign | |||||||||||||||||||||||
Balance | During | Currency | Balance | Balance | Impairment | Balance | ||||||||||||||||||
January 1, | the | Translation | June 28, | January 1, | Loss During | June 28, | June 28, | |||||||||||||||||
| 2020 |
| Period |
| and Other |
| 2020 |
| 2020 |
| the Period |
| 2020 |
| 2020 | |||||||||
(in millions) | ||||||||||||||||||||||||
Americas | $ | | — | $ | ( | $ | | $ | ( | — | $ | ( | $ | | ||||||||||
Europe |
| |
| — |
| |
| |
| ( |
| — |
| ( |
| | ||||||||
APMEA |
| |
| — |
| ( |
| |
| ( |
| — |
| ( |
| | ||||||||
Total | $ | | — | $ | ( | $ | | $ | ( | — | $ | ( | $ | |
December 31, 2019 | ||||||||||||||||||||||||
Gross Balance | Accumulated Impairment Losses | Net Goodwill | ||||||||||||||||||||||
Acquired | Foreign | |||||||||||||||||||||||
Balance | During | Currency | Balance | Balance | Impairment | Balance | ||||||||||||||||||
January 1, | the | Translation | December 31, | January 1, | Loss During | December 31, | December 31, | |||||||||||||||||
| 2019 |
| Period |
| and Other |
| 2019 |
| 2019 |
| the Period |
| 2019 |
| 2019 | |||||||||
(in millions) | ||||||||||||||||||||||||
Americas | $ | | $ | | $ | | $ | | $ | ( | $ | — | $ | ( | $ | | ||||||||
Europe |
| |
| — |
| ( |
| |
| ( |
| — |
| ( |
| | ||||||||
APMEA |
| |
| — |
| ( |
| |
| ( |
| — |
| ( |
| | ||||||||
Total | $ | | $ | | $ | ( | $ | | $ | ( | $ | — | $ | ( | $ | |
Goodwill and indefinite-lived intangible assets are tested for impairment at least annually or more frequently if events or circumstances indicate that it is “more likely than not” that they might be impaired, such as from a change in business conditions. The Company performs its annual goodwill and indefinite-lived intangible assets impairment assessment in the fourth quarter of each year. At the most recent annual impairment test date of October 27, 2019, the Company performed qualitative fair value assessments, including an evaluation of certain key assumptions for all
As a result of the impact of the COVID-19 global pandemic, the Company reviewed the guidance outlined in ASC 350 to determine if there was an event or change in circumstance to indicate it is more likely than not that an impairment loss has been incurred during the first six months of 2020. The Company performed an analysis of the decline in stock price when compared to December 31, 2019, assessed other market risk factors, and performed a market capitalization reconciliation of its reporting units. The Company concluded a triggering event did not occur as of June 28, 2020 and it was not “more likely than not” that the Company’s reporting units might be impaired.
Additionally, the Company noted the Heating and Hot Water Solutions (“HHWS”) reporting unit had a goodwill balance of $
15
operations due to changes to assumptions utilized in the determination of the estimated fair values of the HHWS reporting unit that may be significant enough to trigger an impairment determination.
Intangible assets include the following:
June 28, 2020 | December 31, 2019 | |||||||||||||||||
Gross | Net | Gross | Net | |||||||||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||
| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount | |||||||
(in millions) | ||||||||||||||||||
Patents | $ | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||
Customer relationships |
| |
| ( |
| |
| |
| ( |
| | ||||||
Technology |
| |
| ( |
| |
| |
| ( |
| | ||||||
Trade names |
| |
| ( |
| |
| |
| ( |
| | ||||||
Other |
| |
| ( |
| |
| |
| ( |
| | ||||||
Total amortizable intangibles |
| |
| ( |
| |
| |
| ( |
| | ||||||
Indefinite-lived intangible assets |
| |
| — |
| |
| |
| — |
| | ||||||
$ | | $ | ( | $ | | $ | | $ | ( | $ | |
Aggregate amortization expense for amortized intangible assets for the second quarters ended June 28, 2020 and June 30, 2019 was $
5. Financial Instruments and Derivative Instruments
Fair Value
The carrying amounts of cash and cash equivalents, trade receivables and trade payables approximate fair value because of the short maturity of these financial instruments. The fair value of the Company’s borrowings under the Amended and Restated Credit Agreement (the "New Credit Agreement") entered into on April 24, 2020 and the Company’s variable rate debt approximates its carrying value.
Financial Instruments
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including deferred compensation plan assets and related liabilities, and derivatives. The fair values of these financial assets and liabilities were determined using the following inputs at June 28, 2020 and December 31, 2019:
Fair Value Measurement at June 28, 2020 Using: | ||||||||||||
Quoted Prices in Active | Significant Other | Significant | ||||||||||
Markets for Identical | Observable | Unobservable | ||||||||||
Assets | Inputs | Inputs | ||||||||||
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) | |||||
(in millions) | ||||||||||||
Assets | ||||||||||||
Plan asset for deferred compensation(1) | $ | | $ | | $ | — | $ | — | ||||
Designated foreign currency hedges (4) | $ | | $ | — | $ | | $ | — | ||||
Total assets | $ | | $ | | $ | | $ | — | ||||
Liabilities | ||||||||||||
Interest rate swaps (3) | $ | | $ | — | $ | | $ | — | ||||
Plan liability for deferred compensation(2) | $ | | $ | | $ | — | $ | — | ||||
Total liabilities | $ | | $ | | $ | | $ | — |
16
Fair Value Measurements at December 31, 2019 Using: | ||||||||||||
Quoted Prices in Active | Significant Other | Significant | ||||||||||
Markets for Identical | Observable | Unobservable | ||||||||||
| Assets | Inputs | Inputs | |||||||||
Total |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||||
(in millions) | ||||||||||||
Assets | ||||||||||||
Plan asset for deferred compensation(1) | $ | | $ | | $ | — | $ | — | ||||
Interest rate swaps (1) | $ | | $ | — | $ | | $ | — | ||||
Total assets | $ | | $ | | $ | | $ | — | ||||
Liabilities | ||||||||||||
Plan liability for deferred compensation(2) | $ | | $ | | $ | — | $ | — | ||||
Designated foreign currency hedge(3) | $ | | $ | — | $ | | $ | — | ||||
Total liabilities | $ | | $ | | $ | | $ | — |
(1) | Included on the Company’s consolidated balance sheet in other assets (other, net). |
(2) | Included on the Company’s consolidated balance sheet in accrued compensation and benefits. |
(3)Included on the Company’s consolidated balance sheet in accrued expenses and other liabilities.
(4)Included on the Company’s consolidated balance sheet in other current assets (prepaids expenses and other current assets).
Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase and consist primarily of money market funds, for which the carrying amount is a reasonable estimate of fair value.
The Company uses financial instruments from time to time to enhance its ability to manage risk, including foreign currency and commodity pricing exposures, which exist as part of its ongoing business operations. The use of derivatives exposes the Company to counterparty credit risk for nonperformance and to market risk related to changes in currency exchange rates and commodity prices. The Company manages its exposure to counterparty credit risk through diversification of counterparties. The Company’s counterparties in derivative transactions are substantial commercial banks with significant experience using such derivative instruments. The impact of market risk on the fair value and cash flows of the Company’s derivative instruments is monitored and the Company restricts the use of derivative financial instruments to hedging activities. The Company does not enter into contracts for trading purposes nor does the Company enter into any contracts for speculative purposes. The use of derivative instruments is approved by senior management under written guidelines.
Interest Rate Swaps
On February 12, 2016, the Company entered into a Credit Agreement (the “Prior Credit Agreement”) pursuant to which it received a funding commitment under a Term Loan of $
17
into earnings within interest expense through February 2021. For the second quarter and six months ended June 28, 2020, $
Designated Foreign Currency Hedges
The Company’s foreign subsidiaries transact most business, including certain intercompany transactions, in foreign currencies. Such transactions are principally purchases or sales of materials. The Company has exposure to a number of foreign currencies, including the Canadian dollar, the euro, and the Chinese yuan. The Company uses a layering methodology, whereby at the end of each quarter, the Company enters into forward exchange contracts hedging Canadian dollar to U.S. dollar, which hedge approximately
The notional amounts outstanding as of June 28, 2020 for the Canadian dollar to U.S. dollar contracts and the U.S. dollar to the Chinese yuan contracts were $
6. Restructuring and Other Charges, Net
The Company’s Board of Directors approves all major restructuring programs that may involve the discontinuance of significant product lines or the shutdown of significant facilities. From time to time, the Company takes additional restructuring actions, including involuntary terminations that are not part of a major program. The Company accounts for these costs in the period that the liability is incurred. These costs are included in restructuring charges in the Company’s consolidated statements of operations.
A summary of the pre-tax cost by restructuring program is as follows:
Second Quarter Ended | Six Months Ended | ||||||||||||
June 28, | June 30, | June 28, | June 30, | ||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| |||||
(in millions) | |||||||||||||
Restructuring costs: | |||||||||||||
Other Actions | $ | | $ | | $ | | $ | | |||||
Total restructuring charges | $ | | $ | | $ | | $ | |
The Company recorded pre-tax restructuring costs in its business segments as follows:
Second Quarter Ended | Six Months Ended | ||||||||||||
June 28, | June 30, | June 28, | June 30, | ||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| |||||
(in millions) | |||||||||||||
Americas | $ | | $ | — | $ | | $ | — | |||||
Europe |
| ( |
| |
| ( |
| |
18
APMEA |
| |
| — |
| |
| — | |||||
Corporate | | — | | — | |||||||||
Total | $ | | $ | | $ | | $ | |
Other Actions
The Company periodically initiates other actions which are not part of a major program. Total “Other Actions” pre-tax restructuring expense was $
2020 Other Actions
In the second quarter of 2020 management initiated certain restructuring actions with respect to the Company’s Americas and APMEA segments as well as at Corporate primarily in response to the economic challenges related to the COVID-19 pandemic. The restructuring actions included costs mainly for severance benefits due to reductions in force, as well as costs relating to asset write offs, facility exit and other exit costs.
The total pre-tax charge for the 2020 restructuring initiatives is expected to be approximately $
The following table summarizes total expected, incurred and remaining pre-tax restructuring costs for the 2020 restructuring actions:
| Facility | |||||||||||
Asset | exit | |||||||||||
| Severance |
| write-downs |
| and other |
| Total | |||||
(in millions) | ||||||||||||
Costs incurred—second quarter 2020 |
| $ | |
| $ | |
| $ | — |
| $ | |
Remaining costs to be incurred | | | | | ||||||||
Total expected restructuring costs |
| $ | | $ | | $ | |
| $ | |
2018 Other Actions
In the third quarter of 2018, management initiated restructuring actions primarily associated with the Company’s European headquarters as well as cost savings initiatives at certain European manufacturing facilities. These actions included reductions in force and other related costs within the Company’s Europe segment. Total pre-tax charges for the program were reduced in the second quarter of 2020 by approximately $
19
7. Earnings per Share and Stock Repurchase Program
The following tables set forth the reconciliation of the calculation of earnings per share:
For the Second Quarter Ended June 28, 2020 | For the Second Quarter Ended June 30, 2019 |
| |||||||||||||||
Income | Shares | Per Share | Income | Shares | Per Share | ||||||||||||
| (Numerator) |
| (Denominator) |
| Amount |
| (Numerator) |
| (Denominator) |
| Amount |
| |||||
(Amounts in millions, except per share information) |
| ||||||||||||||||
Basic EPS: | |||||||||||||||||
Net income | $ | | | $ | | $ | | | $ | | |||||||
Effect of dilutive securities: | |||||||||||||||||
Common stock equivalents | | ( |
| | |||||||||||||
Diluted EPS: | |||||||||||||||||
Net income | $ | | | $ | | $ | |
| | $ | |
For the Six Months Ended June 28, 2020 | For the Six Months Ended June 30, 2019 | ||||||||||||||||
Income | Shares | Per Share | Income | Shares | Per Share | ||||||||||||
| (Numerator) |
| (Denominator) |
| Amount |
| (Numerator) |
| (Denominator) |
| Amount | ||||||
(Amounts in millions, except per share information) | |||||||||||||||||
Basic EPS: | |||||||||||||||||
Net income | $ | | | $ | | $ | | | $ | | |||||||
Effect of dilutive securities: | |||||||||||||||||
Common stock equivalents | | ( |
| | — | ||||||||||||
Diluted EPS: | |||||||||||||||||
Net income | $ | | | $ | | $ | |
| | $ | |
There were
Since July 2015, the Company’s Board of Directors has authorized
The following table summarizes the cost and the number of shares of Class A common stock repurchased under the
For the Second Quarter Ended | For the Second Quarter Ended | |||||||||
June 28, 2020 | June 30, 2019 | |||||||||
Number of shares | Cost of shares | Number of shares | Cost of shares | |||||||
| repurchased |
| repurchased |
| repurchased |
| repurchased | |||
(Amounts in millions, except share amount) | ||||||||||
Stock repurchase programs: | ||||||||||
$ | — | — | | $ | | |||||
$ | | $ | | — | — | |||||
Total stock repurchased during the period: |
| | $ | |
| | $ | |
20
For the Six Months Ended | For the Six Months Ended | |||||||||
June 28, 2020 | June 30, 2019 | |||||||||
Number of shares | Cost of shares | Number of shares | Cost of shares | |||||||
| repurchased |
| repurchased |
| repurchased |
| repurchased | |||
(Amounts in millions, except share amount) | ||||||||||
Stock repurchase programs: | ||||||||||
$ | — | — | | $ | | |||||
$ | | $ | | — | — | |||||
Total stock repurchased during the period: |
| | $ | |
| | $ | |
8. Stock-Based Compensation
The Company issued
The Company also grants performance stock units to key employees under the 2004 Stock Incentive Plan. Performance stock units cliff vest at the end of a performance period set by the Compensation Committee of the Board of Directors at the time of grant, which is currently
Under the Management Stock Purchase Plan (“MSPP”) the Company granted
The fair value of each share issued under the Management Stock Purchase Plan is estimated on the date of grant, using the Black-Scholes-Merton Model, based on the following weighted average assumptions:
| 2020 |
| 2019 |
| |
Expected life (years) | |||||
Expected stock price volatility |
| | % | | % |
Expected dividend yield |
| | % | | % |
Risk-free interest rate |
| | % | | % |
The risk-free interest rate is based upon the U.S. Treasury yield curve at the time of grant for the respective expected life of the RSUs. The expected life (estimated period of time outstanding) of RSUs and volatility were calculated using historical data. The expected dividend yield of stock is the Company’s best estimate of the expected future dividend yield.
The above assumptions were used to determine the weighted average grant-date fair value of the discount on RSUs granted in 2020 and 2019 of $
A more detailed description of each of these plans can be found in Note 13 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
21
9. Segment Information
The Company operates in
The following is a summary of the Company’s significant accounts and balances by segment, reconciled to its consolidated totals:
Second Quarter Ended | Six Months Ended | |||||||||||
June 28, | June 30, | June 28, | June 30, | |||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||||
(in millions) | ||||||||||||
Net Sales |
|
|
|
| ||||||||
Americas | $ | | $ | | $ | | $ | | ||||
Europe |
| |
| |
| |
| | ||||
APMEA |
| |
| |
| |
| | ||||
Consolidated net sales | $ | | $ | | $ | | $ | | ||||
Operating income | ||||||||||||
Americas | $ | | $ | | $ | | $ | | ||||
Europe |
| |
| |
| |
| | ||||
APMEA |
| |
| |
| |
| | ||||
Subtotal reportable segments |
| |
| |
| |
| | ||||
Corporate(*) |
| ( |
| ( |
| ( |
| ( | ||||
Consolidated operating income |
| |
| |
| |
| | ||||
Interest income |
| ( |
| ( |
| ( |
| ( | ||||
Interest expense |
| |
| |
| |
| | ||||
Other (income) expense, net |
| ( |
| ( |
| ( |
| | ||||
Income before income taxes | $ | | $ | | $ | | $ | | ||||
Capital Expenditures | ||||||||||||
Americas | $ | | $ | | $ | | $ | | ||||
Europe |
| |
| |
| |
| | ||||
APMEA |
| — |
| |
| |
| | ||||
Consolidated capital expenditures | $ | | $ | | $ | | $ | | ||||
Depreciation and Amortization | ||||||||||||
Americas | $ | | $ | | $ | | $ | | ||||
Europe |
| |
| |
| |
| | ||||
APMEA |
| |
| |
| |
| | ||||
Consolidated depreciation and amortization | $ | | $ | | $ | | $ | | ||||
Identifiable assets (at end of period) | ||||||||||||
Americas | $ | | $ | | ||||||||
Europe |
| |
| | ||||||||
APMEA |
| |
| | ||||||||
Consolidated identifiable assets | $ | | $ | | ||||||||
Property, plant and equipment, net (at end of period) | ||||||||||||
Americas | $ | | $ | | ||||||||
Europe |
| |
| | ||||||||
APMEA |
| |
| | ||||||||
Consolidated property, plant and equipment, net | $ | | $ | |
* 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.
22
The above operating segments are presented on a basis consistent with the presentation included in the Company’s December 31, 2019 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 $
The following includes U.S. net sales of the Company’s Americas segment:
Second Quarter Ended | Six Months Ended | |||||||||||
June 28, | June 30, | June 28, | June 30, | |||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||||
(in millions) | ||||||||||||
U.S. net sales | $ | | $ | | $ | | $ | |
The following includes intersegment sales for Americas, Europe and APMEA:
Second Quarter Ended | Six Months Ended | |||||||||||
June 28, | June 30, | June 28, | June 30, | |||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||||
(in millions) | ||||||||||||
Intersegment Sales |
|
|
|
| ||||||||
Americas | $ | | $ | | $ | | $ | | ||||
Europe |
| |
| |
| |
| | ||||
APMEA |
| |
| |
| |
| | ||||
Intersegment sales | $ | | $ | | $ | | $ | |
10. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consists of the following:
|
|
| Accumulated | ||||||
Foreign | Other | ||||||||
Currency | Cash Flow | Comprehensive | |||||||
| Translation |
| Hedges (1) |
| Loss | ||||
(in millions) | |||||||||
Balance December 31, 2019 | $ | ( | $ | | $ | ( | |||
Change in period |
| ( |
| ( |
| ( | |||
Balance March 29, 2020 | $ | ( | $ | ( | $ | ( | |||
Change in period |
| |
| ( |
| | |||
Balance June 28, 2020 | $ | ( | $ | ( | $ | ( | |||
Balance December 31, 2018 | $ | ( | $ | | $ | ( | |||
Change in period |
| ( |
| ( |
| ( | |||
Balance March 31, 2019 | $ | ( | $ | | $ | ( | |||
Change in period |
| |
| ( |
| | |||
Balance June 30, 2019 | $ | ( | $ | | $ | ( |
(1) | Cash flow hedges include interest rate swaps and designated foreign currency hedges. See Note 5 for further details. |
11. Debt
In February 2016, the Company entered into a Credit Agreement (the “Prior Credit Agreement”) among the Company, certain subsidiaries of the Company who become borrowers under the Prior Credit Agreement, JPMorgan Chase Bank, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the other lenders referred to therein. The Prior Credit Agreement provided for a $
23
On April 24, 2020, the Company entered into an Amended and Restated Credit Agreement (the "New Credit Agreement") among the Company, certain subsidiaries of the Company who become borrowers thereunder, JPMorgan Chase Bank, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the other lenders referred to therein. The New Credit Agreement amends and restates the Prior Credit Agreement in its entirety while increasing the amount of revolving credit available from $
In addition to paying interest under the New Credit Agreement, the Company is also required to pay certain fees in connection with the Revolving Credit Facility, including, but not limited to, an unused facility fee and letter of credit fees. The New Credit Agreement matures on February 12, 2022, subject to extension under certain circumstances and subject to the terms of the New Credit Agreement. The Company may repay loans outstanding under the New Credit Agreement from time to time without premium or penalty, other than customary breakage costs, if any, and subject to the terms of the New Credit Agreement.
The New Credit Agreement imposes various restrictions on the Company and its subsidiaries, including restrictions pertaining to: (i) the incurrence of additional indebtedness, (ii) limitations on liens, (iii) making distributions, dividends and other payments, (iv) mergers, consolidations and acquisitions, (v) dispositions of assets, (vi) certain consolidated leverage ratios and consolidated interest coverage ratios, (vii) transactions with affiliates, (viii) changes to governing documents, and (ix) changes in control.
As a result of entering the New Credit Agreement, interest rate swaps as referred to in Note 5 of Notes to the Consolidated Financial Statements are no longer effective in offsetting changes in the cash flow of the hedged item as the critical terms of the New Credit Agreement do not match to the hedged item. The Company now recognizes the mark-to-market fair value adjustments on a monthly basis in the consolidated statement of operations through the expiration date of the swaps, which is February 12, 2021.
The Company maintains letters of credit that guarantee its performance or payment to third parties in accordance with specified terms and conditions. Amounts outstanding were $
On June 18, 2010, the Company entered into a note purchase agreement with certain institutional investors (the 2010 Note Purchase Agreement). Pursuant to the 2010 Note Purchase Agreement, the Company issued senior notes of $
12. Contingencies and Environmental Remediation
The Company is a defendant in numerous legal matters arising from its ordinary course of operations, including those involving product liability, environmental matters, and commercial disputes.
24
Other than the items described below, significant commitments and contingencies at June 28, 2020 are consistent with those discussed in Note 15 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
As of June 28, 2020, the Company estimates that the aggregate amount of reasonably possible loss in excess of the amount accrued for its legal contingencies is approximately $
Chemetco, Inc. Superfund Site, Hartford, Illinois
In August 2017, Watts Regulator Co. (a wholly-owned subsidiary of the Company) received a “Notice of Environmental Liability” from the Chemetco Site Group (“Group”) alleging that it is a potentially responsible party for the Chemetco, Inc. Superfund Site in Hartford, Illinois (the “Site”) because it arranged for the disposal or treatment of hazardous substances that were contained in materials sent to the Site and that resulted in the release or threat of release of hazardous substances at the Site. The letter offered Watts Regulator Co. the opportunity to join the Group and participate in the Remedial Investigation and Feasibility Study (“RI/FS”) at the Site. Watts Regulator Co. joined the Group in September 2017 and was added in March 2018 as a signatory to the Administrative Settlement Agreement and Order on Consent with the United States Environmental Protection Agency (“USEPA”) governing completion of the RI/FS. Based on information currently known to it, management believes that Watts Regulator Co.’s share of the costs of the RI/FS is not likely to have a material adverse effect on the financial condition of the Company, or have a material adverse effect on the Company’s operating results for any particular period. The Company is unable to estimate a range of reasonably possible loss for the above matter in which damages have not been specified because: (i) the RI/FS has not been completed to determine what remediation plan will be implemented and the costs of such plan; (ii) the total number of potentially responsible parties who may or may not agree to fund or perform any remediation has not yet been determined; (iii) the share contribution for potentially responsible parties to any remediation has not been determined; and (iv) the number of years required to implement a remediation plan acceptable to USEPA is uncertain.
25
13. Subsequent Events
On July 27, 2020, the Company declared a quarterly dividend of
On July 3, 2020, the Company completed the acquisition of
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following discussion and analysis are provided to increase the understanding of, and should be read in conjunction with, the accompanying unaudited consolidated financial statements and related notes. In this quarterly report on Form 10-Q, references to “the Company,” “Watts,” “we,” “us” or “our” refer to Watts Water Technologies, Inc. and its consolidated subsidiaries.
We are a leading supplier of products, solutions and systems that manage and conserve the flow of fluids and energy into, through and out of buildings in the commercial and residential markets in the Americas, Europe and Asia-Pacific, Middle East and Africa (“APMEA”). For over 140 years, we have designed and produced valve systems that safeguard and regulate water systems, energy efficient heating and hydronic systems, drainage systems and water filtration technology that helps purify and conserve water. We earn revenue and income almost exclusively from the sale of our products. Our principal product lines include:
● Residential & commercial flow control products—includes products typically sold into plumbing and hot water applications such as backflow preventers, water pressure regulators, temperature and pressure relief valves, and thermostatic mixing valves.
● HVAC & gas products—includes commercial high-efficiency boilers, water heaters and heating solutions, hydronic and electric heating systems for under-floor radiant applications, custom heat and hot water solutions, hydronic pump groups for boiler manufacturers and alternative energy control packages, and flexible stainless steel connectors for natural and liquid propane gas in commercial food service and residential applications. HVAC is an acronym for heating, ventilation and air conditioning.
● Drainage & water re-use products—includes drainage products and engineered rain water harvesting solutions for commercial, industrial, marine and residential applications.
● Water quality products—includes point-of-use and point-of-entry water filtration, conditioning and scale prevention systems for commercial, marine and residential applications.
We believe that the factors relating to our future growth include continued product innovation that meets the needs of our customers and our end markets; our ability to continue to make selective acquisitions, both in our core markets as well as in complementary markets; regulatory requirements relating to the quality and conservation of water and the safe use of water; increased demand for clean water; and continued enforcement of plumbing and building codes. We have completed 12 acquisitions in the last decade. Our acquisition strategy focuses on businesses that promote our key macro themes around safety and regulation, energy efficiency and water conservation. We target businesses that will provide us with one or more of the following: an entry into new markets and/or new geographies, improved channel access, unique and/or proprietary technologies, advanced production capabilities or complementary solution offerings.
Our innovation strategy is focused on differentiated products and solutions that will provide greater opportunity to distinguish ourselves in the marketplace. Conversely, we continue to migrate away from commoditized products where we cannot add value. Our goal is to be a solutions provider, not merely a components supplier. We continually look for
26
strategic opportunities to invest in new products and markets or divest existing product lines where necessary in order to meet those objectives.
The Internet of Things (“IoT”) has allowed companies to transform components into smart and connected devices. Over the last few years we have been building our smart and connected foundation by expanding our internal capabilities and making strategic acquisitions. Our strategy is to deliver superior customer value through smart and connected products and solutions. This strategy focuses on three dimensions: Connect, Control and Conserve. We intend to introduce products that will connect our customers with smart systems, control systems for optimal performance, and conserve critical resources by increasing operability, efficiency and safety.
Products representing a majority of our sales are subject to regulatory standards and code enforcement, which typically require that these products meet stringent performance criteria. We have consistently advocated for the development and enforcement of such plumbing codes. We are focused on maintaining stringent quality control and testing procedures at each of our manufacturing facilities in order to manufacture products in compliance with code requirements and take advantage of the resulting demand for compliant products. We believe that product development, product testing capability and investment in plant and equipment needed to manufacture products in compliance with code requirements, represent a competitive advantage for us.
COVID-19 Pandemic
The global COVID-19 pandemic presents significant risks to our company, and we are not able to fully evaluate or forecast the impact on our business at the current time. Our revenues for the second quarter ended June 28, 2020 were adversely impacted as a result COVID-19. Demand for our products significantly decreased as compared to the same period in 2019 as the pandemic expanded and country and state stay-at-home orders were announced. However, as the second quarter progressed, we noted sequential monthly improvements in our order and sales rates as customers increased their operating levels as government restrictions and lockdowns eased. Future sales expansion or contraction is dependent on the duration and severity of the COVID-19 pandemic, including the resumption of stay-at-home orders and the reclosing of businesses in certain geographies, the time it takes for normal economic and operating conditions to resume, easing of the lending markets, improvements in overall investments and capital spending in building services construction markets, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date, and numerous other uncertainties, including the time to develop an effective vaccine or therapeutic treatments.
Our operations in the third quarter are expected to continue to be negatively impacted by COVID-19. Sequentially, we believe the impact should lessen when compared to the second quarter as our end markets gain some momentum with the forecasted sequential recovery in the global economy. Currently, we estimate third quarter sales may decline by 8% to 12% compared to prior-year. We continue to be concerned about the far reaching impacts of the pandemic on our business, operations, and financial results and conditions, directly and indirectly, including, without limitation, impacts on the health of our employees, manufacturing capabilities, supply chain, distribution networks, sales opportunities, customer and consumer behaviors, and on the overall economy. The scope and nature of these potential impacts are pervasive, many are beyond our control, continue to evolve and their outcomes are uncertain.
Many of our products qualify as “essential products” under local, state, and national guidelines and orders. We remain focused on protecting the health and safety of our employees and the communities in which we operate while maintaining the continuity of our business operations. The Company created a COVID-19 Task Force to protect our employees while maintaining production capabilities, and we have implemented social distancing guidelines and temperature monitoring, provided personal protective equipment, established a COVID-19 website for employees, which includes the latest CDC and other government protocols and promoted work-from-home policies where practical. We are in communication with both customers and suppliers, we established a COVID-19 customer hotline in the US to support critical infrastructure projects, and we worked with our suppliers to ensure they could obtain the “essential” product classification from various government organizations.
In response to the business impact of the COVID-19 pandemic, we undertook several cost management actions in order to reduce ongoing costs, including merit deferrals, salary and incentive reductions, furloughs, reduced discretionary spending, factory overhead cost reductions, renegotiating material costs and reductions-in-force and other exit activities initiated in the second quarter of 2020. We also implemented various measures to conserve cash. In addition to the cost actions noted above, we temporarily suspended our stock repurchase program, which was reinstated on June 29, 2020,
27
continued to maintain a flat dividend rate, reduced planned capital expenditures and deferred employer payroll tax payments as permitted under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). We have also implemented additional procedures to manage risks related to our working capital, specifically the collectability of our trade accounts receivables, by monitoring the financial stability, credit rating, payment terms and credit limits of our credit customers.
Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the second quarter and six months ended June 28, 2020 are not necessarily indicative of the results to be expected for the full fiscal year. Management cannot predict the full impact of the COVID-19 pandemic on the Company’s sales, supply chain, manufacturing and distribution or to economic conditions generally, including the effects on customer spending. The extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic might end. For further information regarding the impact of COVID-19 on the Company, see Part II, Item 1A, “Risk Factors.”
Financial Overview
During the second quarter of 2020, sales decreased 18.7%, or $78.1 million, on a reported basis and 18.6%, or $77.4 million, on an organic basis, compared to the second quarter of 2019, primarily due to the impact of the COVID-19 pandemic across all of our operating segments. There was also a decline in sales from the impact of foreign exchange of 0.6%, or $2.9 million, primarily driven by a weaker euro and Canadian dollar. The reported decline was partially offset by an increase in acquired sales of $2.2 million. Organic sales is a non-GAAP financial measure that excludes the impacts of acquisitions, divestitures and foreign exchange from year-over-year comparisons. Management believes reporting organic sales growth provides useful information to investors, potential investors and others, because it allows for additional insight into underlying sales trends by providing sales growth on a consistent basis. We reconcile the change in organic sales to our reported sales for each region within our results below. Operating income of $31.0 million decreased by $23.3 million, or 42.9%, in the second quarter of 2020 as compared to the second quarter of 2019. This decrease was primarily driven by volume declines as result of the COVID-19 pandemic, incremental strategic investments, increased restructuring costs and impairment charges, partially offset by benefits from price, productivity initiatives and cost reduction actions in response to the COVID-19 pandemic.
Recent Developments
On July 27, 2020, we declared a quarterly dividend of twenty-three cents ($0.23) per share on each outstanding share of Class A common stock and Class B common stock payable on September 15, 2020 to stockholders of record on September 1, 2020.
On July 3, 2020, we completed the acquisition of 100% of the shares of Australian Valve Group Pty Ltd (“AVG”) in an all-cash transaction. AVG is based in Perth, Australia, and specializes in the design, marketing and distribution of heating control valves used in the Australian residential and commercial end markets. The acquisition of AVG aligns with our strategy to expand geographically into countries with mature and enforced plumbing codes. AVG will enhance our product offering and channel access into the Australian marketplace. The acquisition of AVG was deemed not to be material.
28
Results of Operations
Second Quarter Ended June 28, 2020 Compared to Second Quarter Ended June 30, 2019
Net Sales. Our business is reported in three geographic segments: Americas, Europe and APMEA. Our net sales in each of these segments for each of the second quarters of 2020 and 2019 were as follows:
Second Quarter Ended | Second Quarter Ended | % Change to |
| |||||||||||||
June 28, 2020 | June 30, 2019 | Consolidated |
| |||||||||||||
| Net Sales |
| % Sales |
| Net Sales |
| % Sales |
| Change |
| Net Sales |
| ||||
(dollars in millions) |
| |||||||||||||||
Americas | $ | 237.4 | 70.1 | % | $ | 287.0 | 68.9 | % | $ | (49.6) | (11.9) | % | ||||
Europe |
| 88.1 |
| 26.0 |
| 113.2 |
| 27.1 |
| (25.1) |
| (6.0) | ||||
APMEA |
| 13.2 |
| 3.9 |
| 16.6 |
| 4.0 |
| (3.4) |
| (0.8) | ||||
Total | $ | 338.7 |
| 100.0 | % | $ | 416.8 |
| 100.0 | % | $ | (78.1) |
| (18.7) | % |
The change in net sales was attributable to the following:
Change As a % | Change As a % |
| |||||||||||||||||||||||||||||||||||||||||||||||
of Consolidated Net Sales | of Segment Net Sales |
| |||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Americas | Europe | APMEA | Total | Americas | Europe | APMEA | Total | Americas | Europe | APMEA |
| ||||||||||||||||||||||||||||||||||||||
(dollars in millions) |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Organic | $ | (51.2) | $ | (23.2) | $ | (3.0) |
| $ | (77.4) |
| (12.3) | % | (5.6) | % | (0.7) | % | (18.6) | % | (17.8) | % | (20.5) | % | (18.3) | % | |||||||||||||||||||||||||
Foreign exchange |
| (0.6) |
| (1.9) |
| (0.4) |
| (2.9) |
| (0.1) |
| (0.4) |
| (0.1) |
| (0.6) |
| (0.3) |
| (1.7) |
| (2.6) | |||||||||||||||||||||||||||
Acquisition |
| 2.2 |
| — |
| — |
| 2.2 |
| 0.5 |
| — |
| — |
| 0.5 |
| 0.8 |
| — |
| — | |||||||||||||||||||||||||||
Total | $ | (49.6) | $ | (25.1) | $ | (3.4) | $ | (78.1) |
| (11.9) | % | (6.0) | % | (0.8) | % | (18.7) | % | (17.3) | % | (22.2) | % | (20.9) | % |
Our products are sold to wholesalers, OEMs, DIY chains, and through various specialty channels. The change in organic net sales by channel was attributable to the following:
Change As a % |
| ||||||||||||||||||||||||||||||||||||
of Prior Year Sales |
| ||||||||||||||||||||||||||||||||||||
| Wholesale |
| OEMs |
| DIY |
| Specialty |
| Total |
| Wholesale |
| OEMs |
| DIY | Specialty |
| ||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||||||
Americas | $ | (32.5) | $ | (5.2) | $ | 2.7 | $ | (16.2) | $ | (51.2) |
| (20.1) | % | (23.7) | % | 17.8 | % | (18.5) | % | ||||||||||||||||||
Europe |
| (18.8) |
| (4.2) |
| (0.2) | — |
| (23.2) |
| (25.1) |
| (11.2) | (31.3) | — | ||||||||||||||||||||||
APMEA |
| (4.0) |
| 0.2 |
| — | 0.8 |
| (3.0) |
| (25.8) |
| 50.4 |
| — | 121.6 | |||||||||||||||||||||
Total | $ | (55.3) | $ | (9.2) | $ | 2.5 | $ | (15.4) | $ | (77.4) |
Organic net sales in the Americas decreased in a majority of our product lines primarily due to the impact of the COVID-19 pandemic. This decrease was partially offset by increased volume within our DIY channel as many DIY consumers worked on home projects during government-imposed stay-at-home directives.
Organic net sales in Europe decreased primarily due to lost volume related to the COVID-19 pandemic within all regions and across all of our product lines.
Organic net sales in APMEA decreased primarily due to a decline in volume related to the COVID-19 pandemic, primarily in China, the Middle East and New Zealand. This was partially offset by increased sales in Korea.
The net decrease in sales due to foreign exchange was primarily due to the depreciation of the euro, Canadian dollar, and Chinese yuan, against the U.S. dollar in the second quarter of 2020. We cannot predict whether foreign currencies will
29
appreciate or depreciate against the U.S. dollar in future periods or whether future foreign exchange rate fluctuations will have a positive or negative impact on our net sales.
Gross Profit. Gross profit and gross profit as a percent of net sales (gross margin) for the second quarters of 2020 and 2019 were as follows:
Second Quarter Ended |
| ||||||
June 28, 2020 | June 30, 2019 | ||||||
(dollars in millions) |
| ||||||
Gross profit | $ | 134.9 | $ | 174.6 | |||
Gross margin |
| 39.8 | % |
| 41.9 | % |
Gross profit and gross margin declined primarily from lower sales volume as a result of the COVID-19 pandemic, partially offset by benefits from price, productivity initiatives, government subsidies within Europe and APMEA and cost reduction actions in response to the COVID-19 pandemic.
Selling, General and Administrative Expenses. Selling, general and administrative, or SG&A, expenses decreased $21.4 million, or 17.9%, in the second quarter of 2020 compared to the second quarter of 2019. The decrease in SG&A expenses was attributable to the following:
| (in millions) |
| % Change |
| ||
Organic | $ | (20.8) |
| (17.4) | % | |
Foreign exchange |
| (0.6) |
| (0.5) | ||
Total | $ | (21.4) |
| (17.9) | % |
The organic decrease was related to cost reduction actions in response to the COVID-19 pandemic of $13.9 million, decreased variable costs due to the decline in sales volume of $5.1 million, restructuring savings of $2.5 million, and decreased stock compensation expense of $1.7 million due to a change in the expected attainment of performance goals related to our performance stock units. These decreases were partially offset by an increase in strategic investments of $1.3 million, including investments in research and development for new products, commercial excellence, and technology and information systems as well as general inflation of $1.6 million compared to the second quarter of 2019. The decrease in foreign exchange was mainly due to the depreciation of the euro, Canadian dollar, and Chinese yuan against the U.S. dollar. Total SG&A expenses, as a percentage of sales, were 28.8% in the second quarter of 2020 compared to 28.6% in the second quarter of 2019.
Restructuring. In the second quarter of 2020, we recorded a net charge of $5.3 million compared to a net charge of $1.3 million in the second quarter of 2019. The charge for the second quarter of 2020 is primarily for severance benefits related to reductions in force initiated in the second quarter of 2020 in response to the economic challenges from the COVID-19 pandemic. For a more detailed description of our current restructuring plans, see Note 6 of Notes to Consolidated Financial Statements.
Other long-lived asset impairment charge. In the second quarter of 2020, we recorded an impairment charge of $1.0 million in our Americas segment related to a long-lived asset in which market value expectations indicated the carrying amount of this asset was in excess of the fair value.
Operating Income. Operating income (loss) by segment for the second quarters of 2020 and 2019 was as follows:
% Change to |
| |||||||||||
| Second Quarter Ended |
|
| Consolidated |
| |||||||
June 28, | June 30, | Operating |
| |||||||||
2020 | 2019 | Change | Income | |||||||||
| (dollars in millions) | |||||||||||
Americas | $ | 29.5 | $ | 50.7 | $ | (21.2) |
| (39.0) | % | |||
Europe |
| 9.2 |
| 12.8 |
| (3.6) |
| (6.6) | ||||
APMEA |
| 0.8 |
| 1.2 |
| (0.4) |
| (0.7) | ||||
Corporate |
| (8.5) |
| (10.4) |
| 1.9 |
| 3.4 | ||||
Total | $ | 31.0 | $ | 54.3 | $ | (23.3) |
| (42.9) | % |
30
The (decrease) increase in operating income (loss) was attributable to the following:
Change As a % of | Change As a % of |
| ||||||||||||||||||||||||||||||||
Consolidated Operating Income | Segment Operating Income |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Americas | Europe | APMEA | Corporate | Total | Americas | Europe | APMEA | Corporate | Total | Americas | Europe | APMEA | Corporate |
| ||||||||||||||||||||
(dollars in millions) |
| |||||||||||||||||||||||||||||||||
Organic | $ | (15.6) | $ | (5.1) | $ | 0.6 | $ | 2.0 | $ | (18.1) | (28.7) | % | (9.4) | % | 1.1 | % | 3.7 | % | (33.3) | % | (30.8) | % | (39.8) | % | 50.0 | % | 19.2 | % | ||||||
Foreign exchange | — | (0.1) | (0.1) | — | (0.2) | — | (0.2) | (0.2) | — | (0.4) | — | (0.8) | (8.3) | — |
| |||||||||||||||||||
Restructuring, impairment charges |
| (5.6) |
| 1.6 |
| (0.9) |
| (0.1) |
| (5.0) |
| (10.3) |
| 2.9 |
| (1.6) |
| (0.2) |
| (9.2) |
| (11.0) |
| 12.5 |
| (75.0) |
| (1.0) | ||||||
Total | $ | (21.2) | $ | (3.6) | $ | (0.4) | $ | 1.9 | $ | (23.3) |
| (39.0) | % | (6.7) | % | (0.7) | % | 3.5 | % | (42.9) | % | (41.8) | % | (28.1) | % | (33.3) | % | 18.2 | % |
The decrease in organic operating income was due to lower sales volume as a result of the COVID-19 pandemic, higher general inflation, including tariffs, and strategic investments, partially offset by benefits from price, productivity initiatives, reduced variable costs due to sales volume declines, reduced Corporate long-term incentive costs and cost reduction actions in response to the COVID-19 pandemic.
Interest Expense. Interest expense in the second quarter of 2020 increased $0.3 million, or 8.1%, compared to the second quarter of 2019 due to increased amortization of deferred financing costs related to the New Credit Agreement, and unfavorable performance of our interest rate swaps compared to the second quarter of 2019, partially offset by a decline in interest rates. Refer to Note 11 of the Notes to Consolidated Financial Statements for further details.
Other income. Other income increased $0.3 million compared to the second quarter of 2019. The increase was primarily due to higher net foreign currency gains.
Income Taxes. Our effective income tax rate decreased to 26.5% in the second quarter of 2020, from 28.3% in the second quarter of 2019. The lower rate is primarily driven by the foreign exchange impact of repatriating funds related to the Toll Tax as part of the Tax Cuts and Jobs Act of 2017.
Net Income. Net income was $20.2 million, or $0.59 per common share, for the second quarter of 2020, compared to $36.4 million, or $1.06 per common share, for the second quarter of 2019. Results for the second quarter of 2020 include an after-tax charge of $4.0 million, or $0.12 per common share, for restructuring; $0.7 million, or $0.02 per common share, for other long-lived asset impairment charges, and $0.3 million, or $0.01 per common share, for footprint optimization. Results for the second quarter of 2019 include an after-tax charge of $0.9 million, or $0.03 per common share, for restructuring.
Six Months Ended June 28, 2020 Compared to Six Months Ended June 30, 2019
Net Sales. Our business is reported in three geographic segments: Americas, Europe and APMEA. Our net sales in each of these segments for the first six months of 2020 and 2019 were as follows:
Six Months Ended | Six Months Ended | % Change to |
| |||||||||||||
June 28, 2020 | June 30, 2019 | Consolidated |
| |||||||||||||
| Net Sales |
| % Sales |
| Net Sales |
| % Sales |
| Change |
| Net Sales |
| ||||
| (dollars in millions) | |||||||||||||||
Americas | $ | 499.8 |
| 69.3 | % | $ | 545.9 |
| 67.8 | % | $ | (46.1) |
| (5.7) | % | |
Europe |
| 198.3 |
| 27.5 |
| 229.5 |
| 28.5 |
| (31.2) |
| (3.9) | ||||
APMEA |
| 23.2 |
| 3.2 |
| 30.1 |
| 3.7 |
| (6.9) |
| (0.9) | ||||
Total | $ | 721.3 |
| 100.0 | % | $ | 805.5 |
| 100.0 | % | $ | (84.2) |
| (10.5) | % |
The change in net sales was attributable to the following:
Change as a % | Change as a % | ||||||||||||||||||||||||||
of Consolidated Net Sales | of Segment Net Sales | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Americas | Europe | APMEA | Total | Americas | Europe | APMEA | Total | Americas | Europe | APMEA | |||||||||||||||||
(dollars in millions) | |||||||||||||||||||||||||||
Organic | $ | (50.2) | $ | (25.9) | $ | (6.1) | $ | (82.2) |
| (6.2) | % | (3.2) | % | (0.8) | % | (10.2) | % | (9.2) | % | (11.3) | % | (20.2) | % | ||||
Foreign exchange |
| (0.7) |
| (5.3) |
| (0.8) |
| (6.8) |
| (0.1) |
| (0.7) |
| (0.1) |
| (0.9) |
| (0.1) |
| (2.3) |
| (2.8) |
| ||||
Acquisitions | 4.8 | — | — | 4.8 | 0.6 | — | — | 0.6 | 0.9 | — | — | ||||||||||||||||
Total | $ | (46.1) | $ | (31.2) | $ | (6.9) | $ | (84.2) |
| (5.7) | % | (3.9) | % | (0.9) | % | (10.5) | % | (8.4) | % | (13.6) | % | (23.0) | % |
31
Our products are sold to wholesalers, OEMs, DIY chains, and through various specialty channels. The change in organic net sales by channel was attributable to the following:
Change As a % | ||||||||||||||||||||||||
of Prior Year Sales | ||||||||||||||||||||||||
| Wholesale |
| OEMs |
| DIY |
| Specialty |
| Total |
| Wholesale |
| OEMs |
| DIY | Specialty |
| |||||||
(dollars in millions) |
| |||||||||||||||||||||||
Americas | $ | (32.7) | $ | (6.6) | $ | 3.4 | $ | (14.3) | $ | (50.2) |
| (10.6) | % | (15.4) | % | 10.7 | % | (8.8) | % | |||||
Europe |
| (20.9) |
| (4.7) |
| (0.3) |
| — |
| (25.9) |
| (13.5) |
| (6.3) |
| (24.0) | — | |||||||
APMEA |
| (7.0) |
| (0.1) |
| — |
| 1.0 |
| (6.1) |
| (24.7) |
| (9.2) |
| — | 95.3 | |||||||
Total | $ | (60.6) | $ | (11.4) | $ | 3.1 | $ | (13.3) | $ | (82.2) |
Organic net sales in the Americas decreased in a majority of our product lines primarily due the impact of the COVID-19 pandemic. This decrease was partially offset by a general price increase across the majority of our channels and higher volume within our DIY channel as many DIY consumers worked on home projects during government imposed stay-at-home directives.
Organic net sales in Europe decreased primarily due to lost volume related to the COVID-19 pandemic within all regions and across all of our product lines.
Organic net sales in APMEA decreased primarily due to a decline in volume related to the COVID-19 pandemic, primarily in China, the Middle East and New Zealand. This was partially offset by increased sales in Korea.
The net decrease in sales due to foreign exchange was primarily due to the depreciation of the euro, Chinese yuan, and Canadian dollar against the U.S. dollar in the first six months 2020. We cannot predict whether foreign currencies will appreciate or depreciate against the U.S. dollar in future periods or whether future foreign exchange rate fluctuations will have a positive or negative impact on our net sales.
Gross Profit. Gross profit and gross profit as a percent of net sales (gross margin) for the first six months of 2020 and 2019 were as follows:
Six Months Ended |
| ||||||
June 28, 2020 | June 30, 2019 | ||||||
(dollars in millions) |
| ||||||
Gross profit | $ | 297.7 | $ | 338.8 | |||
Gross margin |
| 41.3 | % |
| 42.1 | % |
Gross profit and gross margin declined primarily from lower sales volume as a result of the COVID-19 pandemic, partially offset by benefits from price, productivity initiatives, government subsidies within Europe and APMEA, and cost reduction actions in response to the pandemic.
Selling, General and Administrative Expenses. SG&A expenses for the first six months of 2020 decreased $22.5 million, or 9.6%, compared to the first six months of 2019. The decrease in SG&A expenses was attributable to the following:
| (in millions) |
| % Change |
| ||
Organic | $ | (20.7) |
| (8.8) | % | |
Foreign exchange |
| (1.8) |
| (0.8) | ||
Total | $ | (22.5) |
| (9.6) | % |
The organic decrease was related to cost reduction actions in response to the COVID-19 pandemic of $16.4 million, decreased variable costs due to sales volume declines of $5.5 million, restructuring savings of $3.2 million, and decreased stock compensation expense of $2.3 million primarily due to a change in the expected attainment of performance goals related to our performance stock units. These decreases were partially offset by strategic investments of $3.5 million, including investments in research and development for new products, commercial excellence, and technology and information systems as well as general inflation of $3.1 million compared to the first six months of 2019. The decrease in foreign exchange was mainly due to the depreciation of the euro, Canadian dollar, and Chinese yuan
32
against the U.S. dollar. Total SG&A expenses, as a percentage of sales, were 29.5% in the first six months of 2020 compared to 29.2% in the first six months of 2019.
Restructuring. In the first six months of 2020, we recorded a net charge of $5.3 million compared to a net charge of $2.7 million in the first six months of 2019. The charge for the first six months of 2020 is primarily for severance benefits due to reductions in force initiated in the second quarter of 2020 in response to economic challenges related to the COVID-19 pandemic. For a more detailed description of our current restructuring plans, see Note 6 of Notes to Consolidated Financial Statements.
Other long-lived asset impairment charge. In first six months of 2020, we recorded an impairment charge of $1.0 million in our Americas segment related to a long-lived asset in which market value expectations indicated the carrying amount of this asset was in excess of the fair value.
Operating Income. Operating income (loss) by segment for the first six months of 2020 and 2019 was as follows:
% Change to |
| |||||||||||
Six Months Ended | Consolidated |
| ||||||||||
| June 28, |
| June 30, |
|
| Operating |
| |||||
| 2020 |
| 2019 | Change | Income | |||||||
| (Dollars in millions) | |||||||||||
Americas | $ | 72.9 | $ | 93.8 | $ | (20.9) |
| (20.7) | % | |||
Europe |
| 22.9 |
| 26.0 |
| (3.1) |
| (3.1) | ||||
APMEA |
| 0.7 |
| 2.4 |
| (1.7) |
| (1.7) | ||||
Corporate |
| (17.7) |
| (21.2) |
| 3.5 |
| 3.5 | ||||
Total | $ | 78.8 | $ | 101.0 | $ | (22.2) |
| (22.0) | % |
The increase (decrease) in operating income (loss) was attributable to the following:
Change as a % of | Change as a % of |
| ||||||||||||||||||||||||||||||||
Consolidated Operating Income | Segment Operating Income |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Americas | Europe | APMEA | Corporate | Total | Americas | Europe | APMEA | Corporate | Total | Americas | Europe | APMEA | Corporate |
| ||||||||||||||||||||
(Dollars in millions) |
| |||||||||||||||||||||||||||||||||
Organic | $ | (15.3) | $ | (5.6) | $ | (0.7) | $ | 3.6 | $ | (18.0) |
| (15.2) | % | (5.6) | % | (0.7) | % | 3.6 | % | (17.9) | % | (16.3) | % | (6.0) | % | (0.7) | % | 3.8 | % | |||||
Foreign exchange |
| — |
| (0.5) |
| (0.1) |
| — |
| (0.6) |
| — |
| (0.5) |
| (0.1) |
| — |
| (0.6) |
| — |
| (0.5) |
| (0.1) |
| — | ||||||
Restructuring, impairment charges |
| (5.6) |
| 3.0 |
| (0.9) |
| (0.1) |
| (3.6) |
| (5.5) |
| 3.0 |
| (0.9) |
| (0.1) |
| (3.5) |
| (6.0) |
| 3.2 |
| (1.0) |
| (0.1) | ||||||
Total | $ | (20.9) | $ | (3.1) | $ | (1.7) | $ | 3.5 | $ | (22.2) |
| (20.7) | % | (3.1) | % | (1.7) | % | 3.5 | % | (22.0) | % | (22.3) | % | (3.3) | % | (1.8) | % | 3.7 | % |
The decrease in organic operating income was due to lower sales volume as a result of the COVID-19 pandemic, higher general inflation, including tariffs, and strategic investments, partially offset by benefits from price, productivity initiatives, reduced variable costs due to sales volume decline, reduced corporate long-term incentive costs and cost reduction actions in response to the COVID-19 pandemic.
Interest Expense. Interest expense decreased $0.3 million, or 4.1%, in the first six months of 2020 as compared to the first six months of 2019 primarily due to a decline in interest rates. Refer to Note 11 of the Notes to Consolidated Financial Statements for further details.
Other (income), expense net. Other (income) expense increased $0.5 million to an income balance of $0.1 million compared to the first six months of 2019 primarily due to higher net foreign currency gains.
Income Taxes. Our effective income tax rate decreased slightly to 27.6% in the second quarter of 2020, from 27.9 % in the second quarter of 2019.
Net Income. Net income was $52.2 million, or $1.53 per common share, for the first six months of 2020, compared to $67.4 million, or $1.97 per common share, for the first six months of 2019. Results for the first six months of 2020 include an after-tax charge of $4.0 million, or $0.12 per common share, for restructuring; $0.7 million, or $0.02 per common share, for other long-lived asset impairment charges, and $0.6 million, or $0.02 per common share, for footprint optimization. Results for the first six months of 2019 include an after-tax charge of $1.9 million, or $0.06 per common share, for restructuring.
33
Liquidity and Capital Resources
We generated $47.3 million of net cash from operating activities in the first six months of 2020 as compared to $19.7 million of net cash provided by operating activities in the first six months of 2019. The increase in cash was primarily related to the reduction in accounts receivable that more than offset lower net income and an increase in inventory.
We used $22.3 million of net cash for investing activities in the first six months of 2020 compared to $14.3 million used in the first six months of 2019. We used $9.5 million more cash for capital expenditures in the first six months of 2020 compared to the first six months of 2019. We received $1.5 million in cash proceeds from the sale of property, plant and equipment in the first six months of 2020. For the last six months of 2020, we expect to invest approximately $15 million to $20 million in capital equipment as part of our ongoing commitment to improve our operating capabilities.
We used $92.9 million of net cash in financing activities in the first six months of 2020 primarily due to long-term debt repayments of $452.5 million, dividend payments of $15.8 million, tax withholding payments on vested stock awards of $7.8 million, and payments of $21.1 million to repurchase approximately 254,000 shares of Class A common stock. The debt repayments of $452.5 million include the termination of the term loan facility under the Prior Credit Agreement, payments under both our Prior and current Revolving Credit Facilities, and payment of $75 million to retire notes issued under the 2010 Note Purchase Agreement. These payments were partially offset by proceeds from drawdowns on both our Prior and current Revolving Credit Facilities totaling $407.5 million.
In February 2016, the Company entered into the Credit Agreement (the “Prior Credit Agreement”) among the Company, certain subsidiaries of the Company who become borrowers under the Prior Credit Agreement, JPMorgan Chase Bank, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the other lenders referred to therein. The Prior Credit Agreement provided for a $500 million, five-year, senior unsecured revolving credit facility (the “Prior Revolving Credit Facility”) with a sublimit of up to $100 million in letters of credit. The Prior Credit Agreement also provided for a $300 million, five-year, term loan facility (the “Term Loan Facility”) available to the Company in a single draw, of which the entire $300 million had been drawn in February 2016.
On April 24, 2020, we entered into an Amended and Restated Credit Agreement (the "New Credit Agreement") among the Company, certain subsidiaries of the Company who become borrowers thereunder, JPMorgan Chase Bank, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the other lenders referred to therein. The New Credit Agreement amends and restates the Prior Credit Agreement in its entirety while increasing the amount of revolving credit available from $500 million to $800 million, and extending the maturity by one additional year to February 2022. This senior unsecured revolving credit facility (the "Revolving Credit Facility") also includes sublimits of $100 million for letters of credit and $15 million for swing line loans. As of June 28, 2020, we had drawn down $265.0 million on this line of credit and had $16.3 million in letters of credit outstanding, which resulted in $518.7 million of unused and available credit under the Revolving Credit Facility. The term loan facility under the Prior Credit Agreement was terminated and paid off effective April 24, 2020, with funds from the Revolving Credit Facility. Borrowings outstanding under the Revolving Credit Facility bear interest at a fluctuating rate per annum equal to an applicable percentage defined as (i) in the case of Eurocurrency rate loans, the adjusted British Bankers Association LIBOR rate (which at all times will not be less than 1.00%) plus an applicable percentage, ranging from 1.50% to 2.10%, determined by reference to the Company's consolidated leverage ratio, or (ii) in the case of alternate base rate loans and swing line loans, interest (which at all times will not be less than 2.00%) at the greatest of (a) the Prime Rate in effect on such day, (b) the FRBNY Rate in effect on such day plus 0.5% and (c) the adjusted LIBOR rate plus 1.0% for a one month interest period in dollars. In addition to paying interest under the New Credit Agreement, the Company is also required to pay certain fees in connection with the Revolving Credit Facility, including, but not limited to, an unused facility fee and letter of credit fees. The New Credit Agreement matures on February 12, 2022, subject to extension under certain circumstances and subject to the terms of the New Credit Agreement. The Company may repay loans outstanding under the New Credit Agreement from time to time without premium or penalty, other than customary breakage costs, if any, and subject to the terms of the New Credit Agreement. As of June 28, 2020, the Company was in compliance with all covenants related to the New Credit Agreement.
On June 18, 2010, we entered into a note purchase agreement with certain institutional investors (the 2010 Note Purchase Agreement). Pursuant to the 2010 Note Purchase Agreement, we issued senior notes of $75.0 million in principal, due June 18, 2020. On June 18, 2020, we borrowed $40.0 million under the Revolving Credit Facility and used $35.0 million of our available cash to pay off all amounts outstanding under the 2010 Note Purchase Agreement.
34
As of June 28, 2020, we held $148.7 million in cash and cash equivalents. Of this amount, $103.7 million of cash and cash equivalents were held by foreign subsidiaries. Our U.S. operations typically generate sufficient cash flows to meet our domestic obligations. However, if we did have to borrow to fund some or all of our expected cash outlays, we can do so at reasonable interest rates by utilizing the undrawn borrowings under our Revolving Credit Facility. We believe that our financial resources allow us to manage the anticipated impacts of the COVID-19 pandemic on our business operations for the foreseeable future, which include reductions in revenues and potential delays in payments from customers. We anticipate the impacts of COVID-19 will continue to evolve rapidly, and, as a result we will continue to evaluate our financial position as additional information becomes available, particularly relating to COVID-19. Subsequent to recording the Toll Tax as part of the Tax Cuts and Jobs Act of 2017, our intent is to permanently reinvest undistributed earnings of foreign subsidiaries, and we do not have any current plans to repatriate post-Toll Tax foreign earnings to fund operations in the United States. However, if amounts held by foreign subsidiaries were needed to fund operations in the United States, we could be required to accrue and pay taxes to repatriate these funds. Such charges may include potential state income taxes and other tax charges.
Non-GAAP Financial Measures
In accordance with the SEC's Regulation G and Item 10(e) of Regulation S-K, the following provides definitions of the non-GAAP financial measures used by management. We believe that these measures provide additional insight into underlying business results and trends. These non-GAAP financial measures are not intended to be considered by the user in place of the related GAAP financial measure, but rather as supplemental information to more fully understand our business results. These non-GAAP financial measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted.
Organic sales growth is a non-GAAP financial measure of sales growth that excludes the impacts of acquisitions, divestitures and foreign exchange from period-over-period comparisons. A reconciliation to the most closely related U.S. GAAP financial measure, net sales, has been included in our discussion within “Results of Operations” above. Organic net sales should be considered in addition to, and not as a replacement for or as a superior measure to net sales. Management believes reporting organic sales growth provides useful information to investors, potential investors and others, by facilitating easier comparisons of our revenue performance with prior and future periods.
Free cash flow is a non-GAAP financial measure that does not represent cash provided by operating activities in accordance with U.S. GAAP. Therefore, it should not be considered an alternative to net cash provided by or used in operating activities as an indication of our performance. The cash conversion rate of free cash flow to net income is also a measure of our performance in cash flow generation. We believe free cash flow to be an appropriate supplemental measure of our operating performance because it provides investors with a measure of our ability to generate cash, repay debt, pay dividends, repurchase stock and fund acquisitions.
A reconciliation of net cash used in operating activities to free cash flow is provided below:
Six Months Ended | |||||||
June 28, | June 30, | ||||||
2020 | 2019 | ||||||
(in millions) | |||||||
Net cash provided by operating activities | $ | 47.3 | $ | 19.7 | |||
Less: additions to property, plant, and equipment |
| (23.8) |
| (14.3) | |||
Plus: proceeds from the sale of property, plant, and equipment |
| 1.5 |
| — | |||
Free cash flow | $ | 25.0 | $ | 5.4 | |||
Net income —as reported | $ | 52.2 | $ | 67.4 | |||
Cash conversion rate of free cash flow to net income |
| 47.9 | % |
| 8.0 | % |
Free cash flow improved in the first half of 2020 when compared to the first half of 2019 primarily from the reduction in accounts receivable that more than offset lower net income and an increase in inventory.
Our net debt to capitalization ratio, a non-GAAP financial measure used by management, at June 28, 2020 was 10.4% compared to 8.4% at December 31, 2019. The increase was driven by an increase in net debt outstanding at June 28, 2020 primarily from a decrease in cash and cash equivalents of $71.0 million. Management believes the net debt to capitalization ratio is an appropriate supplemental measure because it helps investors understand our ability to meet our
35
financing needs and serves as a basis to evaluate our financial structure. Our computation may not be comparable to other companies that may define their net debt to capitalization ratios differently.
A reconciliation of long-term debt (including current portion) to net debt and our net debt to capitalization ratio is provided below:
June 28, | December 31, | |||||
2020 | 2019 | |||||
(in millions) | ||||||
Current portion of long‑term debt |
| $ | — | $ | 105.0 | |
Plus: long-term debt, net of current portion |
| 262.5 |
| 204.2 | ||
Less: cash and cash equivalents |
| (148.7) |
| (219.7) | ||
Net debt | $ | 113.8 | $ | 89.5 |
A reconciliation of capitalization is provided below:
June 28, | December 31, | ||||||
2020 | 2019 | ||||||
(in millions) |
| ||||||
Net debt | $ | 113.8 | $ | 89.5 | |||
Total stockholders’ equity |
| 985.2 |
| 978.0 | |||
Capitalization | $ | 1,099.0 | $ | 1,067.5 | |||
Net debt to capitalization ratio |
| 10.4 | % |
| 8.4 | % |
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Application of Critical Accounting Policies and Key Estimates
We believe that our critical accounting policies are those related to revenue recognition, inventory valuation, goodwill and other intangibles, product liability costs, legal contingencies and income taxes. We believe these accounting policies are particularly important to an understanding of our financial position and results of operations and require application of significant judgment by our management. In applying these policies, management uses its judgment in making certain assumptions and estimates. Our accounting policies are more fully described under the heading “Accounting Policies” in Note 2 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K as filed with the SEC on February 20, 2020.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We use derivative financial instruments primarily to reduce exposure to adverse fluctuations in foreign exchange rates, interest rates and costs of certain raw materials used in the manufacturing process. We do not enter into derivative financial instruments for trading purposes. As a matter of policy, all derivative positions are used to reduce risk by hedging underlying economic exposure. The derivatives we use are instruments with liquid markets. See Note 5 of Notes to the Consolidated Financial Statements for further details.
Our consolidated earnings, which are reported in United States dollars, are subject to translation risks due to changes in foreign currency exchange rates. This risk is concentrated in the exchange rate between the U.S. dollar and the euro; the U.S. dollar and the Canadian dollar; and the U.S. dollar and the Chinese yuan.
Our non-U.S. subsidiaries transact most business, including certain intercompany transactions, in foreign currencies. Such transactions are principally purchases or sales of materials and are denominated in European currencies or the U.S. or Canadian dollar. We use foreign currency forward exchange contracts from time to time to manage the risk related to intercompany loans, intercompany purchases and intercompany sales that occur during the course of a year, and certain open foreign currency denominated commitments to sell products to third parties. We have entered into forward exchange contracts which hedge approximately 70% to 80% of the forecasted intercompany purchases between one of
36
our Canadian subsidiaries and our U.S. operating subsidiaries for the next twelve months. We also entered into forward exchange contracts which hedge up to 60% of the forecasted intercompany sales transactions between one of our Chinese subsidiaries and one of our U.S. operating subsidiaries for the next twelve months. We record the effective portion of the designated foreign currency hedge contracts in other comprehensive income until inventory turns and is sold to a third-party. Once the third-party transaction associated with the hedged forecasted transaction occurs, the effective portion of any related gain or loss on the designated foreign currency hedge is reclassified into cost of goods sold within earnings. The fair value of our designated foreign hedge contracts outstanding as of June 28, 2020 was an asset balance of $0.1 million.
Under the Prior Credit Agreement, we could choose either an Adjusted LIBOR or Alternative Base Rate (“ABR”). Accordingly, our earnings and cash flows were exposed to interest rate risk from changes in Adjusted LIBOR. In order to manage our exposure to changes in cash flows attributable to fluctuations in LIBOR-indexed interest payments related to our floating rate debt, we entered into two interest rate swaps. For each interest rate swap, we receive the three-month USD-LIBOR subject to a 0% floor, and pays a fixed rate of 1.31375% on a notional amount of $225.0 million. As a result of entering the New Credit Agreement, interest rate swaps as referred to in Note 5 of Notes to the Consolidated Financial Statements are no longer effective in offsetting changes in the cash flow of the hedged item as the critical terms of the New Credit Agreement do not match to the hedged item. We will recognize the mark-to-market fair value adjustments on a monthly basis in the consolidated statement of operations through the expiration date of the swaps, which is February 12, 2021. Information about our long-term debt including principal amounts and related interest rates appears in Note 11 of Notes to the Consolidated Financial Statements.
We purchase significant amounts of bronze ingot, brass rod, cast iron, stainless steel and plastic, which are utilized in manufacturing our many product lines. Our operating results can be adversely affected by changes in commodity prices if we are unable to pass on related price increases to our customers. We manage this risk by monitoring related market prices, working with our suppliers to achieve the maximum level of stability in their costs and related pricing, seeking alternative supply sources when necessary and passing increases in commodity costs to our customers, to the maximum extent possible, when they occur.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, or Exchange Act, as of the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily applies its judgment in evaluating and implementing possible controls and procedures. The effectiveness of our disclosure controls and procedures is also necessarily limited by the staff and other resources available to us and the geographic diversity of our operations. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There was no change in our internal control over financial reporting that occurred during the second quarter ended June 28, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We will continue to review and document our disclosure controls and procedures, including our internal control over financial reporting, and we may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
37
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
As disclosed in Part I, Item 1, “Product Liability, Environmental and Other Litigation Matters” and Item 3, “Legal Proceedings” of our Annual Report on Form 10-K for the year ended December 31, 2019, we are party to certain litigation. There have been no material developments with respect to our contingencies and environmental remediation proceedings during the quarter ended June 28, 2020, other than as described in Note 12 of the Notes to Consolidated Financial Statements, which is incorporated herein by reference.
Item 1A. Risk Factors
There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2019, which risk factors are incorporated herein by reference, with the exception of the below updated risk factor.
We face risks related to the impact of the COVID-19 pandemic.
In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. We are subject to risk and uncertainties as a result of the COVID-19 impact, and the extent of the impact on the Company's business is highly uncertain and difficult to predict, as the response to the pandemic continues to unfold and information is rapidly evolving. In response to COVID-19, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, stay-at-home orders and recommendations to practice social distancing. These measures have resulted in business closures and slowdowns which have already adversely impacted and will likely continue to adversely impact us directly. The health and safety measures we’ve adopted to slow the spread of the COVID-19 pandemic have resulted in reduced production capacity and, in some cases, required temporary closures of certain of our facilities, among other impacts. While certain of these measures have begun to be lifted, the duration of these measures is unknown, and they may be extended, reinstated and additional measures may be imposed. The measures imposed have resulted in supply chain disruption, reduced demand and higher absenteeism in our manufacturing facilities. There remains a risk of future employee health concerns, and we cannot predict whether any of our manufacturing facilities will experience disruptions or how long such disruptions would last. While we are unable to predict the magnitude of such impact at this time, the loss of, or significant reduction in, purchases by our customers could materially impair our business, operating results, prospects and financial condition.
Capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic. This economic disruption had a material adverse effect on our business as customers curtail and reduce capital and overall spending. The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers and suppliers, all of which are uncertain and cannot be predicted. We may also incur additional costs to remedy damages caused by business disruptions, performance delays or interruptions, payment delays, and defaults or bankruptcy of our third-party customers and suppliers, which could adversely affect our consolidated financial condition, liquidity and results of operations. Additionally, the impact of any initiatives or programs that we may undertake to address financial and operational challenges faced as a result of COVID-19 may not be successful.
Due to the evolving and highly uncertain nature of this event, we cannot predict at this time the full extent to which the COVID-19 pandemic will adversely impact our business, results and financial condition, which will depend on many factors that are not known at this time. There is no guarantee that our efforts to mitigate the impact of COVID-19 will be effective.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We satisfy the minimum withholding tax obligation due upon the vesting of shares of restricted stock and the conversion of restricted stock units into shares of Class A common stock by automatically withholding from the shares being issued a number of shares with an aggregate fair market value on the date of such vesting or conversion that would satisfy the withholding amount due.
38
The following table includes information with respect to shares of our Class A common stock withheld to satisfy withholding tax obligations during the second quarter ended June 28, 2020.
Issuer Purchases of Equity Securities | |||||||||
|
|
|
| (d) Maximum Number (or | |||||
(a) Total | (c) Total Number of | Approximate Dollar | |||||||
Number of | Shares (or Units) | Value) of Shares (or | |||||||
Shares (or | (b) Average | Purchased as Part of | Units) that May Yet Be | ||||||
Units) | Price Paid per | Publicly Announced | Purchased Under the | ||||||
Period | Purchased | Share (or Unit) | Plans or Programs | Plans or Programs | |||||
March 30, 2020 – April 26, 2020 |
| 105 | $ | 80.30 |
| — |
| — | |
April 27, 2020 – May 24, 2020 |
| — | $ | — |
| — |
| — | |
May 25, 2020 - June 28, 2020 | — | $ | — | — | — | ||||
Total |
| 105 | $ | 80.30 |
| — |
| — |
The following table includes information with respect to repurchases of our Class A common stock during the second quarter ended June 28, 2020 under our stock repurchase program.
Issuer Purchases of Equity Securities | ||||||||||
|
|
|
| (d) Maximum Number (or | ||||||
(a) Total | (c) Total Number of | Approximate Dollar | ||||||||
Number of | (b) Average | Shares (or Units) | Value) of Shares (or | |||||||
Shares (or | Price Paid | Purchased as Part of | Units) that May Yet Be | |||||||
Units) | per Share | Publicly Announced | Purchased Under the | |||||||
Period | Purchased(1) | (or Unit) | Plans or Programs | Plans or Programs | ||||||
March 30, 2020 – April 26, 2020 |
| 55,310 | $ | 80.52 |
| 55,310 | $ | 123,180,361 | ||
April 27, 2020 – May 24, 2020 |
| 23,518 | $ | 80.81 |
| 23,518 | $ | 121,279,920 | ||
May 25, 2020 - June 28, 2020 | — | $ | — | — | $ | 121,279,920 | ||||
Total |
| 78,828 | $ | 80.61 |
| 78,828 |
(1) | On February 6, 2019, the Board of Directors authorized a stock repurchase program of up to $150 million of the Company’s Class A common stock to be purchased from time to time on the open market or in privately negotiated transactions. The timing and number of shares repurchased will be determined by the Company’s management based on its evaluation of market conditions and other factors. |
39
Item 6. Exhibits
Exhibit No. |
| Description |
---|---|---|
3.1 | ||
3.2 | ||
10.1 | ||
10.2 | ||
31.1† | ||
31.2† | ||
32.1†† | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 | |
32.2†† | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 | |
101.INS* | Inline XBRL Instance Document | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
† Filed herewith.
†† Furnished herewith.
* Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at June 28, 2020 and December 31, 2019, (ii) Consolidated Statements of Operations for the Second Quarters and Six Months Ended June 28, 2020 and June 30, 2019, (iii) Consolidated Statements of Comprehensive Income for the Second Quarters and Six Months Ended June 28, 2020 and June 30, 2019, (iv) Consolidated Statements of Stockholders’ Equity for the Second Quarters and Six Months Ended June 28, 2020 and June 30, 2019, (v) Consolidated Statements of Cash Flows for the Six Months Ended June 28, 2020 and June 30, 2019, and (vi) Notes to Consolidated Financial Statements.
.
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WATTS WATER TECHNOLOGIES, INC. | ||
Date: August 4, 2020 | By: | /s/ Robert J. Pagano, Jr. |
Robert J. Pagano, Jr. | ||
Chief Executive Officer (principal executive officer) | ||
Date: August 4, 2020 | By: | /s/ Shashank Patel |
Shashank Patel Chief Financial Officer (principal financial officer) |
Date: August 4, 2020 | By: | /s/ Virginia A. Halloran |
Virginia A. Halloran Chief Accounting Officer (principal accounting officer) |
41
Exhibit 31.1
WATTS WATER TECHNOLOGIES, INC.
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Robert J. Pagano, Jr., certify that:
1.I have reviewed this quarterly report on Form 10-Q of Watts Water Technologies, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 4, 2020 | |
| /s/ Robert J. Pagano, Jr. |
| Robert J. Pagano, Jr. |
| Chief Executive Officer |
Exhibit 31.2
WATTS WATER TECHNOLOGIES, INC.
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Shashank Patel, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Watts Water Technologies, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 4, 2020 | |
| /s/ Shashank Patel |
| Shashank Patel |
| Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of Watts Water Technologies, Inc. (the “Company”) hereby certifies that, to his knowledge, the Company’s quarterly report on Form 10-Q to which this certification is attached (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Date: August 4, 2020 | /s/ Robert J. Pagano, Jr. |
| Robert J. Pagano, Jr. |
| Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of Watts Water Technologies, Inc. (the “Company”) hereby certifies that, to his knowledge, the Company’s quarterly report on Form 10-Q to which this certification is attached (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Date: August 4, 2020 | /s/ Shashank Patel |
| Shashank Patel |
| Chief Financial Officer |
Consolidated Balance Sheets (Parenthetical) $ in Millions |
Jun. 28, 2020
USD ($)
$ / shares
shares
|
Dec. 31, 2019
USD ($)
$ / shares
shares
|
---|---|---|
Trade accounts receivable, reserve allowances | $ | $ 12.7 | $ 14.3 |
Preferred Stock, par value (in dollars per share) | $ / shares | $ 0.10 | $ 0.10 |
Preferred Stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred Stock, shares issued | 0 | 0 |
Preferred Stock, shares outstanding | 0 | 0 |
Class A | ||
Common Stock, par value (in dollars per share) | $ / shares | $ 0.10 | $ 0.10 |
Common Stock, shares authorized | 120,000,000 | 120,000,000 |
Common Stock, votes per share (Number of votes) | 1 | 1 |
Common Stock, issued shares | 27,461,833 | 27,586,416 |
Common Stock, outstanding shares | 27,461,833 | 27,586,416 |
Class B | ||
Common Stock, par value (in dollars per share) | $ / shares | $ 0.10 | $ 0.10 |
Common Stock, shares authorized | 25,000,000 | 25,000,000 |
Common Stock, votes per share (Number of votes) | 10 | 10 |
Common Stock, issued shares | 6,229,290 | 6,279,290 |
Common Stock, outstanding shares | 6,229,290 | 6,279,290 |
Consolidated Statements of Operations - USD ($) shares in Millions, $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 28, 2020 |
Jun. 30, 2019 |
Jun. 28, 2020 |
Jun. 30, 2019 |
|
Consolidated Statements of Operations | ||||
Net sales | $ 338.7 | $ 416.8 | $ 721.3 | $ 805.5 |
Cost of goods sold | 203.8 | 242.2 | 423.6 | 466.7 |
GROSS PROFIT | 134.9 | 174.6 | 297.7 | 338.8 |
Selling, general and administrative expenses | 97.6 | 119.0 | 212.6 | 235.1 |
Restructuring | 5.3 | 1.3 | 5.3 | 2.7 |
Other long-lived asset impairment charge | 1.0 | 1.0 | ||
OPERATING INCOME | 31.0 | 54.3 | 78.8 | 101.0 |
Other (income) expense: | ||||
Interest income | (0.1) | (0.1) | (0.2) | (0.2) |
Interest expense | 4.0 | 3.7 | 7.0 | 7.3 |
Other (income) expense | (0.4) | (0.1) | (0.1) | 0.4 |
Total other expense | 3.5 | 3.5 | 6.7 | 7.5 |
INCOME BEFORE INCOME TAXES | 27.5 | 50.8 | 72.1 | 93.5 |
Provision for income taxes | 7.3 | 14.4 | 19.9 | 26.1 |
NET INCOME | $ 20.2 | $ 36.4 | $ 52.2 | $ 67.4 |
Basic EPS | ||||
NET INCOME PER SHARE | $ 0.60 | $ 1.06 | $ 1.54 | $ 1.97 |
Weighted average number of shares | 33.8 | 34.1 | 33.9 | 34.1 |
Diluted EPS | ||||
NET INCOME PER SHARE | $ 0.59 | $ 1.06 | $ 1.53 | $ 1.97 |
Weighted average number of shares | 34.0 | 34.2 | 34.0 | 34.2 |
Dividends declared per share | $ 0.23 | $ 0.23 | $ 0.46 | $ 0.44 |
Consolidated Statements of Comprehensive Income - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 28, 2020 |
Jun. 30, 2019 |
Jun. 28, 2020 |
Jun. 30, 2019 |
|
Consolidated Statements of Comprehensive Income | ||||
Net income | $ 20.2 | $ 36.4 | $ 52.2 | $ 67.4 |
Other comprehensive income (loss) net of tax: | ||||
Foreign currency translation adjustments | 10.0 | 3.5 | (6.5) | (1.1) |
Cash flow hedges | (0.3) | (2.4) | (1.2) | (3.7) |
Other comprehensive income (loss) | 9.7 | 1.1 | (7.7) | (4.8) |
Comprehensive income | $ 29.9 | $ 37.5 | $ 44.5 | $ 62.6 |
Basis of Presentation |
6 Months Ended |
---|---|
Jun. 28, 2020 | |
Basis of Presentation | |
Basis of Presentation | 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the Watts Water Technologies, Inc. (the Company) Consolidated Balance Sheet as of June 28, 2020, the Consolidated Statements of Operations for the second quarters and six months ended June 28, 2020 and June 30, 2019, the Consolidated Statements of Comprehensive Income for the second quarters and six months ended June 28, 2020 and June 30, 2019, the Consolidated Statements of Stockholders’ Equity for the second quarters and six months ended June 28, 2020 and June 30, 2019, and the Consolidated Statements of Cash Flows for the six months ended June 28, 2020 and June 30, 2019. The consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date. The accounting policies followed by the Company are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The financial statements included in this report should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2019. Operating results for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2020, and may be further impacted by the effects of the Coronavirus Disease 2019 (“COVID-19”) global pandemic. The Company operates on a -week fiscal year ending on December 31, with each quarter, except the fourth quarter, ending on a Sunday. Any quarterly data contained in this Quarterly Report on Form 10-Q generally reflect the results of operations for a -week period.Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to the Company’s estimates or judgments or require the Company to revise the carrying value of the Company’s assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ from those estimates. COVID-19 In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continues to impact the countries and markets in which the Company operates, and new and evolving government actions to address the COVID-19 pandemic continue to occur on a regular basis. For the second quarter and six months ended June 28, 2020, temporary closures, lockdowns and other restrictions mandated by various governmental authorities intended to combat the COVID-19 pandemic have negatively impacted the Company’s revenue at varying levels within each of the Company’s business segments. The Company’s cost management actions, capital preservation steps and related impacts to the Company’s financial results and operations through June 28, 2020 are discussed within Management’s Discussion and Analysis of Financial Condition and Results of Operations. Due to the risk and uncertainties resulting from the COVID-19 pandemic, the extent of the impact on the Company’s business is highly uncertain and difficult to predict. Developments and information related to the response to the pandemic continue to occur and evolve rapidly. Many of the Company’s products qualify as “essential products” under local, state and national guidelines and orders. As a provider of essential products, the Company has made significant efforts to keep its facilities open, its employees working and its products available to its customers. The Company remains focused on protecting the health and safety of its employees and the communities in which it operates while maintaining the continuity of its business operations. Early in the pandemic, the Company created a COVID-19 Task Force to protect its employees while maintaining production capabilities, and the Company has implemented social distancing guidelines and temperature monitoring, provided personal protective equipment, established a COVID-19 website for employees which includes the latest Centers for Disease Control and Prevention (“CDC”) and other government protocols, and promoted work-from-home policies where practical. Capital markets and economies worldwide continue to be negatively impacted by the protective measures taken by governments in response to the COVID-19 pandemic, and these measures have resulted in a global economic recession. Such economic disruption will likely have a material adverse effect on the Company’s business if customers continue to curtail and reduce overall spending, which may not return to pre-pandemic levels. Policymakers around the globe have responded with fiscal policy actions to bolster their local economies. The magnitude and overall effectiveness of these actions remains uncertain. The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, operations, distribution and suppliers, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers. However, the Company does not anticipate any adverse impacts on its ability to pay its debt obligations as they become due. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain. The Company intends to continue to assess the evolving impact of the COVID-19 pandemic and expects to continue to make adjustments to its responses to address the situation as it develops.
|
Accounting Policies |
6 Months Ended |
---|---|
Jun. 28, 2020 | |
Accounting Policies | |
Accounting Policies | 2. Accounting Policies The significant accounting policies used in preparation of these consolidated financial statements for the second quarter ended June 28, 2020 are consistent with those discussed 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, 2019. Recently Adopted Accounting Standards In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)-Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance requires an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period. The Company adopted this standard in the first quarter of 2020, and it did not have a material impact on the Company’s financial statements. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326).” ASU 2016-13 replaces the incurred loss impairment methodology under current Generally Accepted Accounting Principles (“GAAP”) with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivable, loans, and other financial instruments. The financial assets for which this standard is applicable on the Company’s balance sheet are accounts receivable and contract assets. The standard requires the Company to pool financial assets based on similar risk and economic characteristics and estimate expected credit losses over the contractual life of the asset. This standard is effective for reporting periods beginning after December 15, 2019. The standard requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company adopted this standard in the first quarter of 2020, and it did not have a material impact on the Company’s financial statements. Accounting Standards Updates In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating its contracts and the optional expedients provided by the new standard. Shipping and Handling Shipping and handling costs included in selling, general and administrative expenses amounted to $12.5 million and $14.6 million for the second quarters of 2020 and 2019, respectively, and were $26.5 million and $28.5 million for the first six months of 2020 and 2019, respectively. Research and Development Research and development costs included in selling, general and administrative expenses amounted to $9.8 million and $9.5 million for the second quarters of 2020 and 2019, respectively, and were $21.3 million and $18.8 million for the first six months of 2020 and 2019, respectively. |
Revenue Recognition |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Recognition | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Recognition | 3. Revenue Recognition The Company is a leading supplier of products that manage and conserve the flow of fluids and energy into, through and out of buildings in the commercial and residential markets of the Americas, Europe, and Asia-Pacific, Middle East, and Africa (“APMEA”). For over 140 years, the Company has designed and produced valve systems that safeguard and regulate water systems, energy efficient heating and hydronic systems, drainage systems and water filtration technology that helps purify and conserve water. The Company distributes products through four primary distribution channels: wholesale, original equipment manufacturers (OEMs), specialty, and do-it-yourself (DIY). The Company operates in three geographic segments: Americas, Europe, and APMEA. Each of these segments sells similar products, which are comprised of the following principal product lines:
The following table disaggregates revenue, which is presented as net sales in the financial statements, for each reportable segment, by distribution channel and principal product line:
The Company generally considers customer purchase orders, which in some cases are governed by master sales agreements, to represent the contract with a customer. The Company’s contracts with customers are generally for products only and typically do not include other performance obligations such as professional services, extended warranties, or other material rights. In situations where sales are to a distributor, the Company has concluded that its contracts are with the distributor as the Company holds a contract bearing enforceable rights and obligations only with the distributor. As part of its consideration of the contract, the Company evaluates certain factors including the customer’s ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled. As the Company’s standard payment terms are less than one year, the Company has elected not to assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on its relative standalone selling price. The product price as specified on the purchase order is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs at shipment from the Company’s manufacturing site or distribution center, or delivery to the customer’s named location. In certain circumstances, revenue from shipments to retail customers is recognized only when the product is consumed by the customer, as based on the terms of the arrangement, transfer of control is not satisfied until that point in time. In determining whether control has transferred, the Company considers if there is a present right to payment, physical possession and legal title, along with risks and rewards of ownership having transferred to the customer. In certain circumstances, the Company manufactures customized product without alternative use for its customers. However, as these arrangements do not entitle the Company a right to payment of cost plus a profit for work completed, the Company has concluded that revenue recognition at the point in time control transfers is appropriate and not over time recognition. At times, the Company receives orders for products to be delivered over multiple dates that may extend across reporting periods. The Company invoices for each delivery upon shipment and recognizes revenues for each distinct product delivered, assuming transfer of control has occurred. As scheduled delivery dates are within one year, under the optional exemption provided by the guidance, revenues allocated to future shipments of partially completed contracts are not disclosed. The Company generally provides an assurance warranty that its products will substantially conform to the published specification. The Company’s liability is limited to either a credit equal to the purchase price or replacement of the defective part. Returns under warranty have historically been immaterial. The Company does not consider activities related to such warranty, if any, to be a separate performance obligation. For certain of its products, the Company will separately sell extended warranty and service policies to its customers. The Company considers the sale of the extended warranty a separate performance obligation. These policies typically are for periods ranging from to three years.Payments received are deferred and recognized over the policy period. For all periods presented, the revenue recognized and the revenue deferred under these policies is not material to the consolidated financial statements. The timing of revenue recognition, billings and cash collections from the Company’s contracts with customers can vary based on the payment terms and conditions in the customer contracts. In some cases, customers will partially prepay for their goods; in other cases, after appropriate credit evaluations, payment is due in arrears. In addition, there are constraints which cause variability in the ultimate consideration to be recognized. These constraints typically include early payment discounts, volume rebates, rights of return, cooperative advertising, and market development funds. The Company includes these constraints in the estimated transaction price when there is a basis to reasonably estimate the amount of variable consideration. These estimates are based on historical experience, anticipated future performance and the Company’s best judgment at the time. When the timing of the Company’s recognition of revenue is different from the timing of payments made by the customer, the Company recognizes either a contract asset (performance precedes contractual due date) or a contract liability (customer payment precedes performance). Contracts with payment in arrears are recognized as receivables. The opening and closing balances of the Company’s contract assets and contract liabilities are as follows:
The amount of revenue recognized during the second quarter and six months ended June 28, 2020 that was included in the opening contract liability balance was $2.5 million and $4.8 million, respectively. The amount of revenue recognized during the second quarter and six months ended June 30, 2019 that was included in the opening contract liability balance was $2.8 million and $6.1 million, respectively. This revenue consists primarily of revenue recognized for shipments of product which had been prepaid as well as the amortization of extended warranty and service policy revenue. The Company did not recognize any material revenue from obligations satisfied in prior periods. There were no impairment losses related to contract assets for the second quarters and six months ended June 28, 2020 and June 30, 2019. The Company incurs costs to obtain and fulfill a contract; however, the Company has elected to recognize all incremental costs to obtain a contract as an expense when incurred if the amortization period is one year or less. The Company has elected to treat shipping and handling activities performed after the customer has obtained control of the related goods as a fulfillment cost and the related cost is accrued for in conjunction with the recording of revenue for the goods. |
Goodwill & Intangibles |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill & Intangibles | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill & Intangibles | 4. Goodwill & Intangibles The Company operates in three geographic segments: Americas, Europe, and APMEA. The changes in the carrying amount of goodwill by geographic segment are as follows:
Goodwill and indefinite-lived intangible assets are tested for impairment at least annually or more frequently if events or circumstances indicate that it is “more likely than not” that they might be impaired, such as from a change in business conditions. The Company performs its annual goodwill and indefinite-lived intangible assets impairment assessment in the fourth quarter of each year. At the most recent annual impairment test date of October 27, 2019, the Company performed qualitative fair value assessments, including an evaluation of certain key assumptions for all seven of its reporting units. The Company concluded that the fair value of all seven reporting units exceed its carrying value at that time. As a result of the impact of the COVID-19 global pandemic, the Company reviewed the guidance outlined in ASC 350 to determine if there was an event or change in circumstance to indicate it is more likely than not that an impairment loss has been incurred during the first six months of 2020. The Company performed an analysis of the decline in stock price when compared to December 31, 2019, assessed other market risk factors, and performed a market capitalization reconciliation of its reporting units. The Company concluded a triggering event did not occur as of June 28, 2020 and it was not “more likely than not” that the Company’s reporting units might be impaired. Additionally, the Company noted the Heating and Hot Water Solutions (“HHWS”) reporting unit had a goodwill balance of $218.9 million as of June 28, 2020, which holds the greatest amount of goodwill and the least amount of excess of fair value over carrying value. While the Company concluded that a triggering event did not occur during the second quarter and six months ended June 28, 2020, the impact of a prolonged COVID-19 pandemic could impact the results of operations due to changes to assumptions utilized in the determination of the estimated fair values of the HHWS reporting unit that may be significant enough to trigger an impairment determination. Intangible assets include the following:
Aggregate amortization expense for amortized intangible assets for the second quarters ended June 28, 2020 and June 30, 2019 was $3.8 million and $3.9 million, respectively, and for the first six months of 2020 and 2019 was $7.6 million and $7.8 million, respectively. |
Financial Instruments and Derivative Instruments |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Instruments and Derivative Instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Instruments and Derivative Instruments | 5. Financial Instruments and Derivative Instruments Fair Value The carrying amounts of cash and cash equivalents, trade receivables and trade payables approximate fair value because of the short maturity of these financial instruments. The fair value of the Company’s borrowings under the Amended and Restated Credit Agreement (the "New Credit Agreement") entered into on April 24, 2020 and the Company’s variable rate debt approximates its carrying value. Financial Instruments The Company measures certain financial assets and liabilities at fair value on a recurring basis, including deferred compensation plan assets and related liabilities, and derivatives. The fair values of these financial assets and liabilities were determined using the following inputs at June 28, 2020 and December 31, 2019:
(3)Included on the Company’s consolidated balance sheet in accrued expenses and other liabilities. (4)Included on the Company’s consolidated balance sheet in other current assets (prepaids expenses and other current assets). Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase and consist primarily of money market funds, for which the carrying amount is a reasonable estimate of fair value. The Company uses financial instruments from time to time to enhance its ability to manage risk, including foreign currency and commodity pricing exposures, which exist as part of its ongoing business operations. The use of derivatives exposes the Company to counterparty credit risk for nonperformance and to market risk related to changes in currency exchange rates and commodity prices. The Company manages its exposure to counterparty credit risk through diversification of counterparties. The Company’s counterparties in derivative transactions are substantial commercial banks with significant experience using such derivative instruments. The impact of market risk on the fair value and cash flows of the Company’s derivative instruments is monitored and the Company restricts the use of derivative financial instruments to hedging activities. The Company does not enter into contracts for trading purposes nor does the Company enter into any contracts for speculative purposes. The use of derivative instruments is approved by senior management under written guidelines. Interest Rate Swaps On February 12, 2016, the Company entered into a Credit Agreement (the “Prior Credit Agreement”) pursuant to which it received a funding commitment under a Term Loan of $300 million, and a Revolving Commitment (“Revolver”) of $500 million. For each facility, the Company could choose either an Adjusted LIBOR or Alternative Base Rate (“ABR”). Accordingly, the Company’s earnings and cash flows were exposed to interest rate risk from changes in Adjusted LIBOR. In order to manage the Company’s exposure to changes in cash flows attributable to fluctuations in LIBOR-indexed interest payments related to the Company’s floating rate debt, the Company entered into two interest rate swaps. For each interest rate swap, the Company received the three-month USD-LIBOR subject to a 0% floor, and paid a fixed rate of 1.31375% on a notional amount of $225.0 million. The swaps were expected to mature on the same date as the Prior Credit Agreement on February 12, 2021, and were designated as cash flow hedges. On April 24, 2020, the Company entered into a New Credit Agreement. The New Credit Agreement amends and restates the Prior Credit Agreement in its entirety while increasing the amount of revolving credit available from $500 million to $800 million, and extending the maturity by one additional year to February 2022. As part of the New Credit Agreement, the LIBOR rate is subject to a 1% floor as opposed to a 0% floor in the Prior Credit Agreement. The change in the LIBOR floor in the New Credit Agreement caused the interest rate swaps to no longer be considered highly effective in offsetting changes in the cash flow of the hedged item, as critical terms of the New Credit Agreement no longer match the hedged item. As a result, the cash flow hedges no longer qualify for hedge accounting as of the date of execution of the New Credit Agreement. As of June 28, 2020, the balance of the previously effective portion of the fair value of the interest rate swaps recorded in other comprehensive income was a loss of $1.2 million, all of which is expected to be reclassified into earnings within interest expense through February 2021. For the second quarter and six months ended June 28, 2020, $0.3 million of loss has been reclassified into interest expense from other comprehensive income and $0.4 million has been recognized to interest expense for mark-to-market valuation changes subsequent to the interest rate swaps no longer being effective. Designated Foreign Currency Hedges The Company’s foreign subsidiaries transact most business, including certain intercompany transactions, in foreign currencies. Such transactions are principally purchases or sales of materials. The Company has exposure to a number of foreign currencies, including the Canadian dollar, the euro, and the Chinese yuan. The Company uses a layering methodology, whereby at the end of each quarter, the Company enters into forward exchange contracts hedging Canadian dollar to U.S. dollar, which hedge approximately 70% to 80% of the forecasted intercompany purchase transactions between one of the Company’s Canadian subsidiaries and the Company’s U.S. operating subsidiaries for the next twelve months. The Company uses a similar layering methodology when entering into forward exchange contracts hedging U.S. dollar to the Chinese yuan, which hedge up to 60% of the forecasted intercompany sales transactions between one of the Company’s Chinese subsidiaries and one of the Company’s U.S. operating subsidiaries for the next twelve months. As of June 28, 2020, all designated foreign exchange hedge contracts were cash flow hedges under ASC 815, Derivatives and Hedging ("ASC 815"). The Company records the effective portion of the designated foreign currency hedge contracts in other comprehensive income until inventory turns and is sold to a third-party. Once the third-party transaction associated with the hedged forecasted transaction occurs, the effective portion of any related gain or loss on the designated foreign currency hedge will be reclassified into earnings within cost of goods sold. In the event the notional amount of the derivatives exceeds the forecasted intercompany purchases for a given month, the excess hedge position will be attributed to the following month’s forecasted purchases. However, if the following month’s forecasted purchases cannot absorb the excess hedge position from the current month, the effective portion of the hedge recorded in other comprehensive income will be reclassified to earnings. The notional amounts outstanding as of June 28, 2020 for the Canadian dollar to U.S. dollar contracts and the U.S. dollar to the Chinese yuan contracts were $11.4 million and $7.3 million, respectively. The fair value of the Company’s designated foreign hedge contracts outstanding as of June 28, 2020 was an asset balance of $0.1 million. As of June 28, 2020, the amount expected to be reclassified into cost of goods sold from other comprehensive income in the next twelve months is a gain of $0.3 million. |
Restructuring and Other Charges, Net |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Other Charges, Net | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Other Charges, Net | 6. Restructuring and Other Charges, Net The Company’s Board of Directors approves all major restructuring programs that may involve the discontinuance of significant product lines or the shutdown of significant facilities. From time to time, the Company takes additional restructuring actions, including involuntary terminations that are not part of a major program. The Company accounts for these costs in the period that the liability is incurred. These costs are included in restructuring charges in the Company’s consolidated statements of operations. A summary of the pre-tax cost by restructuring program is as follows:
The Company recorded pre-tax restructuring costs in its business segments as follows:
Other Actions The Company periodically initiates other actions which are not part of a major program. Total “Other Actions” pre-tax restructuring expense was $5.3 million for the second quarter and six months ended June 28, 2020. Total “Other Actions” pre-tax restructuring expense was $1.3 million and $2.7 million for the second quarter and six months ended June 30, 2019, respectively. Included in “Other Actions” for the period ended June 28, 2020, were actions taken in the Americas, APMEA and Corporate primarily in response to the COVID-19 pandemic. Also included in “Other Actions” in 2019 were European restructuring activities that were initiated in 2018 and extended through 2019, as discussed below. 2020 Other Actions In the second quarter of 2020 management initiated certain restructuring actions with respect to the Company’s Americas and APMEA segments as well as at Corporate primarily in response to the economic challenges related to the COVID-19 pandemic. The restructuring actions included costs mainly for severance benefits due to reductions in force, as well as costs relating to asset write offs, facility exit and other exit costs. The total pre-tax charge for the 2020 restructuring initiatives is expected to be approximately $9.5 million, of which approximately $5.6 million has been incurred as of June 28, 2020 for the program to date. Through June 28, 2020 the Company has paid approximately $3.3 million of severance benefits and other related costs. The restructuring reserve associated with these actions was approximately $2.7 million as of June 30, 2020 and primarily related to severance benefits. The remaining expected costs relate to severance, asset write off, facility exit and other exit costs and are expected to be completed by the end of 2020. The following table summarizes total expected, incurred and remaining pre-tax restructuring costs for the 2020 restructuring actions:
2018 Other Actions In the third quarter of 2018, management initiated restructuring actions primarily associated with the Company’s European headquarters as well as cost savings initiatives at certain European manufacturing facilities. These actions included reductions in force and other related costs within the Company’s Europe segment. Total pre-tax charges for the program were reduced in the second quarter of 2020 by approximately $0.3 million due primarily to decreased severance costs. This resulted in total program restructuring charges of approximately $8.0 million which have been fully incurred. Pre-tax restructuring charges of approximately $1.3 million and $2.7 million were incurred for the three and six months ended June 30, 2019, respectively. The restructuring reserve associated with these actions as of June 28, 2020 was approximately $1.0 million, and primarily relates to severance benefits. |
Earnings per Share and Stock Repurchase Program |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings per Share and Stock Repurchase Program | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings per Share and Stock Repurchase Program | 7. Earnings per Share and Stock Repurchase Program The following tables set forth the reconciliation of the calculation of earnings per share:
There were no options to purchase Class A common stock outstanding during the second quarters and six months ended June 28, 2020 or June 30, 2019 that would have been anti-dilutive. Since July 2015, the Company’s Board of Directors has authorized two stock repurchase programs. The first program approved the repurchase of up to $100 million and the second program up to $150 million of the Company’s Class A common stock, to be purchased from time to time on the open market or in privately negotiated transactions. For both stock repurchase programs, the Company has entered into a Rule 10b5-1 plan, which permits shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The repurchase program may be suspended or discontinued at any time, subject to the terms of the Rule 10b5-1 plan the Company entered into with respect to the repurchase program. The Company temporarily suspended the stock repurchase program for a portion of the second quarter of 2020 as a measure to conserve cash in response to the business impact of the COVID-19 pandemic. The repurchase program was reinstated effective June 29, 2020 pursuant to the terms of a new 10b5-1 agreement entered into as of June 12, 2020. The $100 million stock repurchase program was completely expended by August 2019. As of June 28, 2020, there was $121.3 million remaining authorized for share repurchases under the $150 million program. The following table summarizes the cost and the number of shares of Class A common stock repurchased under the two repurchase programs during the second quarter ended June 28, 2020 and June 30, 2019:
|
Stock-Based Compensation |
6 Months Ended | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 | |||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | |||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | 8. Stock-Based Compensation The Company issued 80,052 and 89,053 shares of deferred stock awards during the first six months of 2020 and 2019, respectively. The Company grants shares of deferred stock awards to key employees and stock awards to non-employee members of the Company’s Board of Directors under the 2004 Stock Incentive Plan. Stock awards to employees typically vest over a three-year period and awards to non-employee members of the Company’s Board of Directors vest immediately. The Company also grants performance stock units to key employees under the 2004 Stock Incentive Plan. Performance stock units cliff vest at the end of a performance period set by the Compensation Committee of the Board of Directors at the time of grant, which is currently three years. Upon vesting, the number of shares of the Company’s Class A common stock awarded to each performance stock unit recipient will be determined based on the Company’s performance relative to certain performance goals set at the time the performance stock units were granted. The performance stock units are amortized to expense over the vesting period, and based on the Company’s performance relative to the performance goals, which may be adjusted with changes to the related expense recorded in the period of adjustment. If the performance goals are not met, no awards are earned and previously recognized compensation expense is reversed. The Company granted 73,106 and 82,898 performance stock units during the first six months of 2020 and 2019, respectively. Under the Management Stock Purchase Plan (“MSPP”) the Company granted 27,495 and 37,486 of restricted stock units (“RSUs”) during the first six months of 2020 and 2019, respectively. The MSPP allows for the granting of RSUs to key employees. On an annual basis, key employees may elect to receive a portion of their annual incentive compensation in RSUs instead of cash. Participating employees may use up to 50% of their annual incentive bonus to purchase RSUs for a purchase price equal to 80% of the fair market value of the Company’s Class A common stock as of the date of grant. The fair value of each share issued under the Management Stock Purchase Plan is estimated on the date of grant, using the Black-Scholes-Merton Model, based on the following weighted average assumptions:
The risk-free interest rate is based upon the U.S. Treasury yield curve at the time of grant for the respective expected life of the RSUs. The expected life (estimated period of time outstanding) of RSUs and volatility were calculated using historical data. The expected dividend yield of stock is the Company’s best estimate of the expected future dividend yield. The above assumptions were used to determine the weighted average grant-date fair value of the discount on RSUs granted in 2020 and 2019 of $22.36 and $22.16, respectively. A more detailed description of each of these plans can be found in Note 13 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. |
Segment Information |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 its 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. See Note 3 for further detail on the product lines sold into by region. All intercompany sales transactions have been eliminated. The accounting policies for each segment are the same as those described in Note 2 above and 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, 2019. The following is a summary of the Company’s significant accounts and balances by segment, reconciled to its consolidated totals:
* 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. The above operating segments are presented on a basis consistent with the presentation included in the Company’s December 31, 2019 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 $120.0 million and $109.9 million at June 28, 2020 and June 30, 2019, respectively. The following includes U.S. net sales of the Company’s Americas segment:
The following includes intersegment sales for Americas, Europe and APMEA:
|
Accumulated Other Comprehensive Loss |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Loss | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Loss | 10. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss consists of the following:
|
Debt |
6 Months Ended |
---|---|
Jun. 28, 2020 | |
Debt | |
Debt | 11. Debt In February 2016, the Company entered into a Credit Agreement (the “Prior Credit Agreement”) among the Company, certain subsidiaries of the Company who become borrowers under the Prior Credit Agreement, JPMorgan Chase Bank, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the other lenders referred to therein. The Prior Credit Agreement provided for a $500 million, five-year, senior unsecured revolving credit facility (the “Prior Revolving Credit Facility”) with a sublimit of up to $100 million in letters of credit. The Prior Credit Agreement also provided for a $300 million, five-year, term loan facility (the “Term Loan Facility”) available to the Company in a single draw, of which the entire $300 million had been drawn in February 2016. On April 24, 2020, the Company entered into an Amended and Restated Credit Agreement (the "New Credit Agreement") among the Company, certain subsidiaries of the Company who become borrowers thereunder, JPMorgan Chase Bank, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the other lenders referred to therein. The New Credit Agreement amends and restates the Prior Credit Agreement in its entirety while increasing the amount of revolving credit available from $500 million to $800 million, and extending the maturity by additional year to February 2022. This senior unsecured revolving credit facility (the "Revolving Credit Facility") also includes sublimits of $100 million for letters of credit and $15 million for swing line loans. As of June 28, 2020, the Company had drawn down $265.0 million on this line of credit and had $16.3 million in letters of credit outstanding, which resulted in $518.7 million of unused and available credit under the Revolving Credit Facility. The term loan facility under the Prior Credit Agreement was terminated and paid off effective April 24, 2020, with funds from the Revolving Credit Facility. Borrowings outstanding under the Revolving Credit Facility bear interest at a fluctuating rate per annum equal to an applicable percentage defined as (i) in the case of Eurocurrency rate loans, the adjusted British Bankers Association LIBOR rate (which at all times will not be less than 1.00%) plus an applicable percentage, ranging from 1.50% to 2.10%, determined by reference to the Company's consolidated leverage ratio, or (ii) in the case of alternate base rate loans and swing line loans, interest (which at all times will not be less than 2.00%) at the greatest of (a) the Prime Rate in effect on such day, (b) the FRBNY Rate in effect on such day plus 0.5% and (c) the adjusted LIBOR rate plus 1.0% for a one month interest period in dollars. The interest rate as of June 28, 2020 on the Revolving Credit Facility was 2.5%. The terms of the Prior Credit Agreement are further detailed in Note 11 of the Notes to Consolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 2019. As of June 28, 2020, the Company was in compliance with all covenants related to the New Credit Agreement.In addition to paying interest under the New Credit Agreement, the Company is also required to pay certain fees in connection with the Revolving Credit Facility, including, but not limited to, an unused facility fee and letter of credit fees. The New Credit Agreement matures on February 12, 2022, subject to extension under certain circumstances and subject to the terms of the New Credit Agreement. The Company may repay loans outstanding under the New Credit Agreement from time to time without premium or penalty, other than customary breakage costs, if any, and subject to the terms of the New Credit Agreement. The New Credit Agreement imposes various restrictions on the Company and its subsidiaries, including restrictions pertaining to: (i) the incurrence of additional indebtedness, (ii) limitations on liens, (iii) making distributions, dividends and other payments, (iv) mergers, consolidations and acquisitions, (v) dispositions of assets, (vi) certain consolidated leverage ratios and consolidated interest coverage ratios, (vii) transactions with affiliates, (viii) changes to governing documents, and (ix) changes in control. As a result of entering the New Credit Agreement, interest rate swaps as referred to in Note 5 of Notes to the Consolidated Financial Statements are no longer effective in offsetting changes in the cash flow of the hedged item as the critical terms of the New Credit Agreement do not match to the hedged item. The Company now recognizes the mark-to-market fair value adjustments on a monthly basis in the consolidated statement of operations through the expiration date of the swaps, which is February 12, 2021. The Company maintains letters of credit that guarantee its performance or payment to third parties in accordance with specified terms and conditions. Amounts outstanding were $16.3 million as of June 28, 2020. The Company’s letters of credit are primarily associated with insurance coverage. The Company’s letters of credit generally expire within one year of issuance. These instruments may exist or expire without being drawn down. Therefore, they do not necessarily represent future cash flow obligations. On June 18, 2010, the Company entered into a note purchase agreement with certain institutional investors (the 2010 Note Purchase Agreement). Pursuant to the 2010 Note Purchase Agreement, the Company issued senior notes of $75.0 million in principal, due June 18, 2020. On June 18, 2020, the Company borrowed $40.0 million under the Revolving Credit Facility and used $35.0 million of the Company’s available cash to pay off all amounts outstanding under the 2010 Note Purchase Agreement.
|
Contingencies and Environmental Remediation |
6 Months Ended |
---|---|
Jun. 28, 2020 | |
Contingencies and Environmental Remediation | |
Contingencies and Environmental Remediation | 12. Contingencies and Environmental Remediation The Company is a defendant in numerous legal matters arising from its ordinary course of operations, including those involving product liability, environmental matters, and commercial disputes. Other than the items described below, significant commitments and contingencies at June 28, 2020 are consistent with those discussed in Note 15 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. As of June 28, 2020, the Company estimates that the aggregate amount of reasonably possible loss in excess of the amount accrued for its legal contingencies is approximately $4.8 million pre-tax. With respect to the estimate of reasonably possible loss, management has estimated the upper end of the range of reasonably possible loss based on (i) the amount of money damages claimed, where applicable, (ii) the allegations and factual development to date, (iii) available defenses based on the allegations, and/or (iv) other potentially liable parties. This estimate is based upon currently available information and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. The matters underlying the estimate will change from time to time, and actual results may vary significantly from the current estimate. In the event of an unfavorable outcome in one or more of the matters, the ultimate liability may be in excess of amounts currently accrued, if any, and may be material to the Company’s operating results or cash flows for a particular quarterly or annual period. However, based on information currently known to it, management believes that the ultimate outcome of all matters, as they are resolved over time, is not likely to have a material adverse effect on the financial condition of the Company, though the outcome could be material to the Company’s operating results for any particular period depending, in part, upon the operating results for such period. Chemetco, Inc. Superfund Site, Hartford, Illinois In August 2017, Watts Regulator Co. (a wholly-owned subsidiary of the Company) received a “Notice of Environmental Liability” from the Chemetco Site Group (“Group”) alleging that it is a potentially responsible party for the Chemetco, Inc. Superfund Site in Hartford, Illinois (the “Site”) because it arranged for the disposal or treatment of hazardous substances that were contained in materials sent to the Site and that resulted in the release or threat of release of hazardous substances at the Site. The letter offered Watts Regulator Co. the opportunity to join the Group and participate in the Remedial Investigation and Feasibility Study (“RI/FS”) at the Site. Watts Regulator Co. joined the Group in September 2017 and was added in March 2018 as a signatory to the Administrative Settlement Agreement and Order on Consent with the United States Environmental Protection Agency (“USEPA”) governing completion of the RI/FS. Based on information currently known to it, management believes that Watts Regulator Co.’s share of the costs of the RI/FS is not likely to have a material adverse effect on the financial condition of the Company, or have a material adverse effect on the Company’s operating results for any particular period. The Company is unable to estimate a range of reasonably possible loss for the above matter in which damages have not been specified because: (i) the RI/FS has not been completed to determine what remediation plan will be implemented and the costs of such plan; (ii) the total number of potentially responsible parties who may or may not agree to fund or perform any remediation has not yet been determined; (iii) the share contribution for potentially responsible parties to any remediation has not been determined; and (iv) the number of years required to implement a remediation plan acceptable to USEPA is uncertain.
|
Subsequent Events |
6 Months Ended |
---|---|
Jun. 28, 2020 | |
Subsequent Events | |
Subsequent Events | 13. Subsequent Events On July 27, 2020, the Company declared a quarterly dividend of twenty-three cents ($0.23) per share on each outstanding share of Class A common stock and Class B common stock payable on September 15, 2020 to stockholders of record on September 1, 2020. On July 3, 2020, the Company completed the acquisition of 100% of the shares of Australian Valve Group Pty Ltd (“AVG”) in an all-cash transaction. AVG is based in Perth, Australia, and specializes in the design, marketing and distribution of heating control valves used in the Australian residential and commercial end markets. The acquisition of AVG aligns with the Company’s strategy to expand geographically into countries with mature and enforced plumbing codes. AVG will enhance the Company’s product offering and channel access into the Australian marketplace. The acquisition of AVG was deemed not to be material.
|
Accounting Policies (Policies) |
6 Months Ended |
---|---|
Jun. 28, 2020 | |
Accounting Policies | |
Recently Adopted Accounting Standards | Recently Adopted Accounting Standards In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)-Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance requires an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period. The Company adopted this standard in the first quarter of 2020, and it did not have a material impact on the Company’s financial statements. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326).” ASU 2016-13 replaces the incurred loss impairment methodology under current Generally Accepted Accounting Principles (“GAAP”) with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivable, loans, and other financial instruments. The financial assets for which this standard is applicable on the Company’s balance sheet are accounts receivable and contract assets. The standard requires the Company to pool financial assets based on similar risk and economic characteristics and estimate expected credit losses over the contractual life of the asset. This standard is effective for reporting periods beginning after December 15, 2019. The standard requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company adopted this standard in the first quarter of 2020, and it did not have a material impact on the Company’s financial statements. Accounting Standards Updates In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating its contracts and the optional expedients provided by the new standard. |
Shipping and Handling | Shipping and Handling Shipping and handling costs included in selling, general and administrative expenses amounted to $12.5 million and $14.6 million for the second quarters of 2020 and 2019, respectively, and were $26.5 million and $28.5 million for the first six months of 2020 and 2019, respectively. |
Research and Development | Research and Development Research and development costs included in selling, general and administrative expenses amounted to $9.8 million and $9.5 million for the second quarters of 2020 and 2019, respectively, and were $21.3 million and $18.8 million for the first six months of 2020 and 2019, respectively. |
Estimates | Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to the Company’s estimates or judgments or require the Company to revise the carrying value of the Company’s assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ from those estimates. |
Revenue Recognition (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Recognition | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of disaggregation of revenue |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of contract assets and contract liabilities |
|
Goodwill & Intangibles (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill & Intangibles | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in the carrying amount of goodwill by geographic segment |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Intangible assets |
|
Financial Instruments and Derivative Instruments (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Instruments and Derivative Instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of fair value of financial assets and liabilities |
(3)Included on the Company’s consolidated balance sheet in accrued expenses and other liabilities. (4)Included on the Company’s consolidated balance sheet in other current assets (prepaids expenses and other current assets).
|
Restructuring and Other Charges, Net (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Other Charges, Net | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of the pre-tax cost by restructuring programs |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of recorded pre-tax restructuring costs by business segment |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of total expected, incurred and remaining pre-tax restructuring costs |
|
Earnings per Share and Stock Repurchase Program (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings per Share and Stock Repurchase Program | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of reconciliation of the calculation of earnings per share |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of the cost and number of Class A common stock repurchased |
|
Stock-Based Compensation (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 | |||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | |||||||||||||||||||||||||||||||||||||
Schedule of stock-based compensation fair value assumptions |
|
Segment Information (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of the Company's significant accounts and balances by segment, reconciled to the consolidated totals |
* 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. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of U.S. net sales of the Company's Americas segment |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of intersegment sales for Americas, EMEA and Asia-Pacific |
|
Accumulated Other Comprehensive Loss (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Loss | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of amounts recognized in accumulated other comprehensive income (loss) |
|
Basis of Presentation (Details) |
6 Months Ended |
---|---|
Jun. 28, 2020 | |
Basis of Presentation | |
Length of fiscal year | 365 days |
Length of fiscal quarter | 91 days |
Accounting Policies - Other (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 28, 2020 |
Jun. 30, 2019 |
Jun. 28, 2020 |
Jun. 30, 2019 |
|
Shipping and Handling | ||||
Shipping and handling | $ 12.5 | $ 14.6 | $ 26.5 | $ 28.5 |
Research and Development | ||||
Research and development costs included in selling, general, and administrative expense | $ 9.8 | $ 9.5 | $ 21.3 | $ 18.8 |
Revenue Recognition - Performance obligation (Details) - Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-01-01 |
Jun. 28, 2020 |
---|---|
Minimum | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period | 1 year |
Maximum | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period | 3 years |
Revenue Recognition - Contract Liabilities (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|
Jun. 28, 2020 |
Mar. 29, 2020 |
Jun. 30, 2019 |
Mar. 31, 2019 |
Jun. 28, 2020 |
Jun. 30, 2019 |
Jan. 01, 2020 |
Jan. 01, 2019 |
|
Contract with Customer, Asset | ||||||||
Contract Assets | $ 0.3 | $ 0.3 | $ 0.1 | $ 0.3 | $ 0.3 | $ 0.1 | $ 0.4 | $ 1.0 |
Change in period | (0.1) | (0.2) | (0.7) | |||||
Contract Liabilities | ||||||||
Contract Liabilities - Current | 11.7 | 11.7 | 12.1 | 11.4 | 11.7 | 12.1 | 11.5 | 11.3 |
Increase (decrease) - Current Liabilities | 0.2 | 0.7 | 0.1 | |||||
Contract Liabilities - Noncurrent | 2.7 | 2.8 | 2.8 | $ 2.7 | 2.7 | 2.8 | $ 2.9 | $ 2.7 |
Increase (decrease) - Noncurrent Liabilities | (0.1) | $ (0.1) | 0.1 | |||||
Revenue recognized, contract liability | 2.5 | 2.8 | 4.8 | 6.1 | ||||
Impairment loss related to Contract Assets | $ 0.0 | $ 0.0 | $ 0.0 | $ 0.0 |
Contingencies and Environmental Remediation (Details) $ in Millions |
Jun. 28, 2020
USD ($)
|
---|---|
Contingencies and Environmental Remediation | |
Possible loss | $ 4.8 |
Subsequent Events (Details) - Subsequent event - $ / shares |
Jul. 27, 2020 |
Jul. 03, 2020 |
---|---|---|
AVG | ||
Subsequent events | ||
Outstanding shares acquired (as a percent) | 100.00% | |
Class A | ||
Subsequent events | ||
Quarterly dividend payable (in dollars per share) | $ 0.23 | |
Class B | ||
Subsequent events | ||
Quarterly dividend payable (in dollars per share) | $ 0.23 |
1X'-%TBQ)
MF'J]X;'<77> G9!+DTXIL':"%LEJ4H/>.NT<.?<;?B%&?RA)D&T
MYW$\FJD,HN.$X<=J!U+#['\SG/=
M.W>D'S4U/_>-K=9#SQ!UJXN#S:3; G,
M'6'J6CA5:D@+L LW
M:M8[3@Z8G29KIA$?2A1G]'P*C7T$A5Y7.(U ;EPP88,LE[[KGGCN1QLC7VQM6('NX:I=TTJ[UOW^:Y
MXS4VS U-BYHL:V,;YFEJJ]RU%IF(3HW*RZ)XDS=,ZFPVB6M+.YN8SBNI<6G!
M=4W#[&Z!RFRGV2@[+'R35>W#0CZ;M*S"*_1_MTM+L[QG$;)![:318'$]S>:C
MMXN3@(^ :XE;=S2&D,G*F)LP^4M,LR((0H7#P^L+^/N5,N*^;PTJA_I/#U-#O/0.":=,P#;208_#QSG\>Q40*.'WO1
M3OE.$WA\?%"_S1L/C7EB*?=E_#4*]>:Z,^B0D*]8%NM'N?O$]PWJ&;U QFG^
MG^R*9SVO0X(LU3+9!P-!$HGBE[WL.^(X8' F@.X#Z$F <^X-[C[ S1M:D.7-
M^L T&X^4W!%EG@8UW-R#: MQ8WW5(U7'O?\'\#
MZ);4ZMJI]50 B^'5TWU':S-/&&VAM2JO?M1[MT>6OH5)AB+^"J.<9@><3[>O
MLK8?I%CF;X->A)0BSB\7G$'.*P/X_E4(N?N@7C#M7RC>_ =02P,$% @
MYE,$4=X!K_RB P \ !@ !X;"]W;W)K(T[G+/V9Q&)W,Q@/4$PWT2$52_;RG3:$J@&N6
)0.!P >1L !@ !X;"]W;W)K
J9IF'S^[GWS[GSX,R6*C87R5\\UH?;SJ2#8K:CIT0_
MBI??6.G0T/07B43E_Z.7TC;HH.BDM$C+QJ @Y5GQ25_+0#0:0#_N!KAL@*\;
M#%H:D+(!R1TME.5NW5--[VZD>$'26$-OYDL>F[PU>,,S,XP;+>%7#NWTW5QD
M2B0\IIK%:*/A \9(*R1V:$[5 7V&<5:HB[YN[M'//_V"?D(\0U]XDL 8J)N^
M!@FFHWY4/NY3\3C<\K@1^B(R?5!HD<4LOFS?!^F5?GS6_PE[._S]E/40GGQ
M.,"!0\_\'9T_+U:]H-G]:?EL^+1<;3[>#
MJMM!WBUIZ78%]^PCG5.B&$GAKU ?$XJ#=I&9Z34%3-;6,L><6*K%)Q
J[S8
M&/8V3T32YQ]#KU:YL%'N=?BDP#^7N"Q2D+_=!_0E[4;C:R\J;_Y&9[PB>M
M\(D5'OU++/FTK(G'#HMC/_UI$?K1.?NT$>Q:95N>/S)DJ>8%)F7.BHT6@JV%
M6FN^WS&6JIJM 6QJJ =V\?26.W0);U&QLH:]B^
MIXVK-NQQEFP6.C.5B8][DO*]EVWW_]3*]MG9FEAB>V2B,C4$$&ZSYAB.YD\.
M@0:(D^&0-*5]#T:GJ^!>A'CR2HBP6ZO*(6E[0_F5E[_P\@OO]4:;2B\K:E'O
MV0.'$10"QU+N]7;,?F]+DY4B!A>-IQV/5*ES$(ZLR$O(._4Q47^UZGKM3:46
MIZDG'"H9R-;,C%SH\IU"U!$W^PMI] TGQ?.ET?^V=(234C__CT6R#P"$#[4@
MIGP",!RH?
B^4K&$PB**2F&-J+'8H4$U>5J@_Z!E#M).M*";<+ER*:XPK2KK26]1M
MPZCA+14/2T%,;J6I2$UJV: 'D!ZIY.Z9(O@G9OM".&Z4QE$5HP+A&'4?]#32
M1T,M]4MI#@&BS"3%;0/51>L]!"%U &!L6@]XS@(])$*[^IQ3-&RYSZW:L#-T
M3(HMF$3'/<5,!BP&S0&N^&+=+JEK;?K=VD+[B$VC0ZE[1FI1^[[:)XH95,0.
M]2.*DI/);(7[FNL&_Y.='&G4%"9Y@,8]P=H/89) S5V?_>Q$2\3_%&IE+V
M)2%=RZWS'!RL0B :"A(R@TN/\O"ZJ[.>W[@*JPR[IT.&L]+'G94*+0Q3D1H,
M3$OF]\FQ+$H*/3%-[I;'])*)&I'K0@"(A0RE6(,Q S>M3+51M!5XYFN+WQ1M
M.B@3.4&'<6HBWKD=XN#'AU(Y'=#$FVX++O2L?<@!=JO/IC^(9G9[M1Q&]ZJWB.9V,.R)ON$X+PJZ:
MMAMXF
A5G^&,6W
M%TZJM3=K>'E" >.JWO*$0N0"[<\S'W6B8#