Watts Water Technologies Inc 10-Q for FY2021 Q1

Watts Water Technologies Inc (WTS)

10-Q 2021-05-05 For: 2021-03-28

Added on April 12, 2026

About this 10-Q

Watts Water Technologies Inc filed this 10-Q on May 5, 2021, covering the quarter ended March 28, 2021 (FY2021 Q1).

Headline figures

Quarter ended March 28, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $413.3M; up 8.0% from $382.6M a year earlier
Net income: $41.7M; up 30.3% from net income of $32M a year earlier
Diluted EPS: $1.23; up 30.9% from $0.94 a year earlier


Exhibit No.		Description
3.1		Restated Certificate of Incorporation, as amended. Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 (File No. 001-11499).
3.2		Amended and Restated By-Laws. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 27, 2015 (File No. 001- 11499).
10. 1†		Form of 2021 Performance Stock Unit Award Agreement under the Watts Water Technologies, Inc. Second Amended and Restated 2004 Stock Incentive Plan.
10.2		Second Amended and Restated Credit Agreement, dated as of March 30, 2021, by and among the Registrant, the Subsidiary Borrowers party thereto, the Lenders party thereto, JP Morgan Chase Bank, N.A., as Administrative Agent, Bank of America N.A., Keybank National Association, Wells Fargo Bank, National Association, and T.D. Bank, N.A., as Co-Syndication Agents, and PNC Bank, National Association, U.S. Bank National Association, HSBC Bank USA, National Association and HSBC Bank Canada, as Co-Documentation Agents. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 30, 2021 (File No. 001-11499).
10.3		Second Amended and Restated Guaranty, dated as of March 30, 2021, by the Registrant and the Subsidiaries of the Registrant set forth therein, in favor of JPMorgan Chase Bank N.A. and the other lenders referred to therein. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 30, 2021 (File No. 001-11499).
31.1†		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2†		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
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)

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Delaware		04-2916536
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

815 Chestnut Street, North Andover, MA		01845
(Address of Principal Executive Offices)		(Zip Code)


Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐ Emerging growth company ☐


Class		Outstanding at April 25, 2021
Class A Common Stock, $0.10 par value		27,547,434

Class B Common Stock, $0.10 par value		6,124,290


Part I. Financial Information		3

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at March 28, 2021 and December 31, 2020 (unaudited)	3

	Consolidated Statements of Operations for the First Quarters ended March 28, 2021 and March 29, 2020 (unaudited)	4

	Consolidated Statements of Comprehensive Income for the First Quarters ended March 28, 2021 and March 29, 2020 (unaudited)	5

	Consolidated Statements of Stockholders’ Equity for the First Quarters ended March 28, 2021 and March 29, 2020 (unaudited)	6

	Consolidated Statements of Cash Flows for the First Quarters ended March 28, 2021 and March 29, 2020 (unaudited)	7

	Notes to Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

Item 4.	Controls and Procedures	31

Part II. Other Information		31

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 6.	Exhibits	33

Signatures		34


	March 28,		December 31,
	2021		2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	225.4	$	218.9
Trade accounts receivable, less reserve allowances of $11.9 million at March 28, 2021 and $11.1 million at December 31, 2020		238.6		197.6
Raw materials		92.5		79.6
Work in process		17.1		16.1
Finished goods		169.4		167.9
Total Inventories		279.0		263.6
Prepaid expenses and other current assets		31.6		29.4
Total Current Assets		774.6		709.5
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost		602.1		608.6
Accumulated depreciation		(396.3)		(396.3)
Property, plant and equipment, net		205.8		212.3
OTHER ASSETS:
Goodwill		597.3		602.4
Intangible assets, net		137.0		141.8
Deferred income taxes		4.4		4.4
Other, net		65.3		67.8
TOTAL ASSETS	$	1,784.4	$	1,738.2
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	141.5	$	110.1
Accrued expenses and other liabilities		145.5		137.4
Accrued compensation and benefits		58.2		65.3
Total Current Liabilities		345.2		312.8
LONG-TERM DEBT		198.6		198.2
DEFERRED INCOME TAXES		54.3		51.1
OTHER NONCURRENT LIABILITIES		105.1		106.3
STOCKHOLDERS’ EQUITY:
Preferred Stock, $0.10 par value; 5,000,000 shares authorized; no shares issued or outstanding		—		—
Class A common stock, $0.10 par value; 120,000,000 shares authorized; 1 vote per share; issued and outstanding, 27,585,082 shares at March 28, 2021 and 27,478,512 shares at December 31, 2020		2.8		2.8
Class B common stock, $0.10 par value; 25,000,000 shares authorized; 10 votes per share; issued and outstanding, 6,124,290 shares at March 28, 2021 and 6,144,290 shares at December 31, 2020		0.6		0.6
Additional paid-in capital		611.0		606.3
Retained earnings		581.0		560.1
Accumulated other comprehensive loss		(114.2)		(100.0)
Total Stockholders’ Equity		1,081.2		1,069.8
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,784.4	$	1,738.2


	First Quarter Ended
	March 28,		March 29,
	2021		2020
Net sales	$	413.3	$	382.6
Cost of goods sold		239.6		219.8
GROSS PROFIT		173.7		162.8
Selling, general and administrative expenses		113.8		115.0
Restructuring		0.3		—
OPERATING INCOME		59.6		47.8
Other (income) expense:
Interest income		—		(0.1)
Interest expense		2.0		3.0
Other expense (income), net		(0.3)		0.3
Total other expense		1.7		3.2
INCOME BEFORE INCOME TAXES		57.9		44.6
Provision for income taxes		16.2		12.6
NET INCOME	$	41.7	$	32.0
Basic EPS
NET INCOME PER SHARE	$	1.23	$	0.94
Weighted average number of shares		33.8		34.0
Diluted EPS
NET INCOME PER SHARE	$	1.23	$	0.94
Weighted average number of shares		33.9		34.1
Dividends declared per share	$	0.23	$	0.23


											Accumulated
	Class A			Class B			Additional				Other		Total
(For the first quarter ended	Common Stock			Common Stock			Paid-In		Retained		Comprehensive		Stockholders’
March 29, 2020)	Shares	Amount		Shares	Amount		Capital		Earnings		Loss		Equity
Balance at December 31, 2019	27,586,416	$	2.8	6,279,290	$	0.6	$	591.5	$	513.9	$	(130.8)	$	978.0
Net income	—		—	—		—		—		32.0		—		32.0
Other comprehensive loss	—		—	—		—		—		—		(17.4)		(17.4)
Comprehensive income														14.6
Shares of Class B common stock converted to Class A common stock	50,000		—	(50,000)		—		—		—		—		—
Stock-based compensation	—		—	—		—		3.6		—		—		3.6
Stock repurchase	(174,707)		—	—		—		—		(14.7)		—		(14.7)
Net change in restricted and performance stock units	83,048		—	—		—		2.0		(7.7)		—		(5.7)
Common stock dividends	—		—	—		—		—		(8.0)		—		(8.0)
Balance at March 29, 2020	27,544,757	$	2.8	6,229,290	$	0.6	$	597.1	$	515.5	$	(148.2)		967.8


	For the first quarter ended March 29, 2020
			(in millions)
Distribution Channel	Americas		Europe		APMEA		Consolidated
Wholesale	$	147.4	$	75.1	$	9.3	$	231.8
OEM		19.5		34.5		0.2		54.2
Specialty		78.4		—		0.5		78.9
DIY		17.1		0.6		—		17.7
Total	$	262.4	$	110.2	$	10.0	$	382.6

	For the first quarter ended March 29, 2020
			(in millions)
Principal Product Line	Americas		Europe		APMEA		Consolidated
Residential & Commercial Flow Control	$	148.7	$	41.0	$	8.0	$	197.7
HVAC and Gas Products		67.6		44.4		1.6		113.6
Drainage and Water Re-use Products		18.5		23.9		0.3		42.7
Water Quality Products		27.6		0.9		0.1		28.6
Total	$	262.4	$	110.2	$	10.0	$	382.6


	Contract		Contract		Contract
	Assets		Liabilities - Current		Liabilities - Noncurrent
			(in millions)
Balance - January 1, 2021	$	—	$	13.5	$	2.5
Change in period		—		1.0		(0.2)
Balance - March 28, 2021	$	—	$	14.5	$	2.3


Balance - January 1, 2020	$	0.4	$	11.5	$	2.9
Change in period		(0.1)		0.2		(0.1)
Balance - March 29, 2020	$	0.3	$	11.7	$	2.8


	December 31, 2020
	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,
	2020		Period		and Other		2020		2020		the Period		2020		2020

	(in millions)
Americas	$	476.8	$	5.5	$	0.2	$	482.5	$	(24.5)	$	—	$	(24.5)	$	458.0
Europe		241.4		—		10.7		252.1		(129.7)		—		(129.7)		122.4
APMEA		30.0		3.9		1.0		34.9		(12.9)		—		(12.9)		22.0
Total	$	748.2	$	9.4	$	11.9	$	769.5	$	(167.1)	$	—	$	(167.1)	$	602.4


	March 28, 2021						December 31, 2020
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount

	(in millions)
Patents	$	16.1	$	(16.0)	$	0.1	$	16.1	$	(16.0)	$	0.1
Customer relationships		235.9		(168.0)		67.9		236.2		(165.8)		70.4
Technology		58.0		(37.5)		20.5		58.0		(36.4)		21.6
Trade names		26.9		(15.6)		11.3		27.0		(15.1)		11.9
Other		4.3		(3.7)		0.6		4.3		(3.7)		0.6
Total amortizable intangibles		341.2		(240.8)		100.4		341.6		(237.0)		104.6
Indefinite-lived intangible assets		36.6		—		36.6		37.2		—		37.2
	$	377.8	$	(240.8)	$	137.0	$	378.8	$	(237.0)	$	141.8


	Fair Value Measurement at March 28, 2021 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)	$	2.5	$	2.5	$	—	$	—
Total assets	$	2.5	$	2.5	$	—	$	—
Liabilities
Plan liability for deferred compensation(2)	$	2.5	$	2.5	$		$	—
Designated foreign currency hedges (3)	$	0.3	$	—	$	0.3	$	—
Contingent consideration(4)	$	3.1	$	—	$	—	$	3.1
Total liabilities	$	5.9	$	2.5	$	0.3	$	3.1


	Fair Value Measurements at December 31, 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)	$	2.5	$	2.5	$	—	$	—
Total assets	$	2.5	$	2.5	$	—	$	—
Liabilities
Interest rate swaps(3)	$	0.6		—		0.6		—
Plan liability for deferred compensation(2)	$	2.5	$	2.5	$	—	$	—
Designated foreign currency hedge(3)	$	0.1	$	—	$	0.1	$	—
Contingent consideration(4)	$	3.2	$	—	$	—	$	3.2
Total liabilities	$	6.4	$	2.5	$	0.7	$	3.2


	For the First Quarter Ended			For the First Quarter Ended
	March 28, 2021			March 29, 2020
	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:
$150 million	31,153	$	3.8	174,707	$	14.7
Total stock repurchased during the period:	31,153	$	3.8	174,707	$	14.7


	2021		2020
Expected life (years)	3.0		3.0
Expected stock price volatility	32.7	%	24.6	%
Expected dividend yield	0.75	%	1.1	%
Risk-free interest rate	0.3	%	0.6	%


	First Quarter Ended
	March 28,		March 29,
	2021		2020
OPERATING ACTIVITIES
Net income	$	41.7	$	32.0
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		8.0		7.6
Amortization of intangibles		3.8		3.8
Loss on disposal and impairment of property, plant and equipment and other		0.6		—
Stock-based compensation		2.9		3.6
Deferred income tax		4.3		3.9
Changes in operating assets and liabilities:
Accounts receivable		(44.0)		(20.6)
Inventories		(18.8)		(12.7)
Prepaid expenses and other assets		(4.6)		(4.6)
Accounts payable, accrued expenses and other liabilities		40.0		(13.9)
Net cash provided by (used in) operating activities		33.9		(0.9)
INVESTING ACTIVITIES
Additions to property, plant and equipment		(4.9)		(8.9)
Proceeds from the sale of property, plant and equipment		2.9		1.4
Net cash used in investing activities		(2.0)		(7.5)
FINANCING ACTIVITIES
Proceeds from long-term borrowings		20.0		70.0
Payments of long-term debt		(20.0)		—
Payments for withholding taxes on vested awards		(9.2)		(7.7)
Payments for finance leases and other		(0.4)		(0.5)
Payments to repurchase common stock		(3.8)		(14.7)
Dividends		(7.8)		(8.0)
Net cash (used in) provided by financing activities		(21.2)		39.1
Effect of exchange rate changes on cash and cash equivalents		(4.2)		(5.0)
INCREASE IN CASH AND CASH EQUIVALENTS		6.5		25.7
Cash and cash equivalents at beginning of year		218.9		219.7
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	225.4	$	245.4
NON CASH INVESTING AND FINANCING ACTIVITIES
Issuance of stock under management stock purchase plan	$	0.5	$	0.7
CASH PAID FOR:
Interest	$	2.3	$	2.5
Income taxes	$	5.0	$	5.0


											Change As a %
											of Prior Year Sales
	Wholesale		OEMs		DIY		Specialty		Total		Wholesale		OEMs		DIY		Specialty

	(dollars in millions)
Americas	$	9.1	$	1.0	$	3.6	$	(5.6)	$	8.1	6.2	%	5.1	%	20.9	%	(7.2)	%
Europe		(1.3)		3.0		0.2		—		1.9	(1.7)		8.6		37.4		—
APMEA		4.0		0.1		—		—		4.1	43.6		56.9		—		—
Total	$	11.8	$	4.1	$	3.8	$	(5.6)	$	14.1


	First Quarter Ended				First Quarter Ended						% Change to
	March 28, 2021				March 29, 2020						Consolidated
	Net Sales		% Sales		Net Sales		% Sales		Change		Net Sales

	(dollars in millions)
Americas	$	272.8	66.0	%	$	262.4	68.6	%	$	10.4	2.7	%
Europe		122.9	29.7			110.2	28.8			12.7	3.3
APMEA		17.6	4.3			10.0	2.6			7.6	2.0
Total	$	413.3	100.0	%	$	382.6	100.0	%	$	30.7	8.0	%


									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	$	8.1	$	1.9	$	4.1	$	14.1	2.1	%	0.5	%	1.1	%	3.7	%	3.1	%	1.7	%	43.2	%
Foreign exchange		1.0		10.8		1.0		12.8	0.3		2.8		0.3		3.4		0.4		9.8		10.0
Acquired/divested, net		1.3		—		2.5		3.8	0.3		—		0.6		0.9		0.5		—		22.8
Total	$	10.4	$	12.7	$	7.6	$	30.7	2.7	%	3.3	%	2.0	%	8.0	%	4.0	%	11.5	%	76.0	%


	(in millions)		% Change
Organic	$	(5.7)	(5.0)	%
Foreign exchange		3.0	2.6
Acquired/divested, net		1.5	1.4
Total	$	(1.2)	(1.0)	%


											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	$	4.9	$	4.1	$	1.9	$	(1.5)	$	9.4	10.3	%	8.5	%	3.9	%	(3.1)	%	19.6	%	11.3	%	29.8	%	1,781.3	%	(16.3)	%
Foreign exchange		0.1		1.7		0.3		—		2.1	0.3		3.5		0.5		—		4.4		0.4		12.4		246.6		—
Acquired/divested, net		0.1		—		0.5		—		0.6	0.2		—		1.1		—		1.3		0.2		—		509.3		—
Restructuring, impairment charges		—		—		(0.3)		—		(0.3)	—		—		(0.6)		—		(0.6)		—		—		(248.5)		—
Total	$	5.1	$	5.8	$	2.4	$	(1.5)	$	11.8	10.8	%	12.1	%	5.0	%	(3.1)	%	24.7	%	11.9	%	42.1	%	2,288.7	%	(16.3)	%


	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
January 1, 2021 – January 24, 2021	—	$	—	—	—
January 25, 2021 – February 21, 2021	34,109	$	129.20	—	—
February 22, 2021 - March 28, 2021	28,982	$	122.00	—	—
Total	63,091	$	125.89	—	—


	WATTS WATER TECHNOLOGIES, INC.

Date: May 5, 2021	By:	/s/ Robert J. Pagano, Jr.
		Robert J. Pagano, Jr.
		Chief Executive Officer (principal executive officer)

Date: May 5, 2021	By:	/s/ Shashank Patel
		Shashank Patel Chief Financial Officer (principal financial officer)

3 Year Revenue CAGR	ROIC
		Below Threshold	Threshold	Target	Maximum
		Payout Percentage
Below Threshold	0%	60%	75%	100%
Threshold	60%	60%	75%	125%
Target	80%	80%	100%	150%
Maximum	100%	100%	150%	200%


Date: May 5, 2021
	/s/ Shashank Patel
	Shashank Patel
	Chief Financial Officer