Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

x

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 29, 2013

 

or

 

o

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 001-11499

 

WATTS WATER TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

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)

 

Registrant’s Telephone Number, Including Area Code: (978) 688-1811

 

 

(Former Name, Former Address and Former Fiscal year, if changed since last report.)

 

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.   Yes x   No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yesx                      No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  x

 

Accelerated filer  o  

 

 

 

 

 

Non-accelerated filer o

 

Smaller reporting company  o

 

 

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x

 

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 November 4, 2013

Class A Common Stock, $0.10 par value

 

28,810,548

 

 

 

Class B Common Stock, $0.10 par value

 

6,489,290

 

 

 



Table of Contents

 

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

 

INDEX

 

Part I. Financial Information

 

 

 

Item 1.

Financial Statements

 

 

 

 

Consolidated Balance Sheets at September 29, 2013 and December 31, 2012 (unaudited)

 

 

 

 

 

Consolidated Statements of Operations for the Third Quarters and Nine Months Ended September 29, 2013 and September 30, 2012 (unaudited)

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the Third Quarters and Nine Months Ended September 29, 2013 and September 30, 2012 (unaudited)

 

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 29, 2013 and September 30, 2012 (unaudited)

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

Item 4.

Controls and Procedures

 

 

 

Part II. Other Information

 

 

 

 

Item 1.

Legal Proceedings

 

 

 

 

Item 1A.

Risk Factors

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

 

Item 6.

Exhibits

 

 

 

 

Signatures

 

 

 

Exhibit Index

 

2



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except share information)

(Unaudited)

 

 

 

September 29,

 

December 31,

 

 

 

2013

 

2012

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

227.2

 

$

271.3

 

Short-term investment securities

 

 

2.1

 

Trade accounts receivable, less allowance for doubtful accounts of $10.3 million at September 29, 2013 and $9.5 million at December 31, 2012

 

228.9

 

206.2

 

Inventories, net:

 

 

 

 

 

Raw materials

 

109.4

 

110.8

 

Work in process

 

21.7

 

20.5

 

Finished goods

 

179.7

 

156.7

 

Total Inventories

 

310.8

 

288.0

 

Prepaid expenses and other assets

 

21.4

 

22.5

 

Deferred income taxes

 

23.3

 

21.5

 

Asset held for sale

 

1.3

 

 

Assets of discontinued operations

 

 

11.7

 

Total Current Assets

 

812.9

 

823.3

 

PROPERTY, PLANT AND EQUIPMENT:

 

 

 

 

 

Property, plant and equipment, at cost

 

530.6

 

510.2

 

Accumulated depreciation

 

(311.2

)

(288.5

)

Property, plant and equipment, net

 

219.4

 

221.7

 

OTHER ASSETS:

 

 

 

 

 

Goodwill

 

509.8

 

504.0

 

Intangible assets, net

 

135.6

 

145.4

 

Deferred income taxes

 

3.6

 

4.8

 

Other, net

 

9.1

 

9.8

 

TOTAL ASSETS

 

$

1,690.4

 

$

1,709.0

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

134.6

 

$

131.3

 

Accrued expenses and other liabilities

 

129.6

 

116.6

 

Accrued compensation and benefits

 

44.0

 

41.9

 

Current portion of long-term debt

 

2.1

 

77.1

 

Liabilities of discontinued operations

 

 

1.5

 

Total Current Liabilities

 

310.3

 

368.4

 

LONG-TERM DEBT, NET OF CURRENT PORTION

 

306.2

 

307.5

 

DEFERRED INCOME TAXES

 

43.1

 

44.9

 

OTHER NONCURRENT LIABILITIES

 

44.9

 

48.7

 

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; 80,000,000 shares authorized; 1 vote per share; issued and outstanding 28,784,168 shares at September 29, 2013 and 28,673,639 shares at December 31, 2012

 

2.9

 

2.9

 

Class B Common Stock, $0.10 par value; 25,000,000 shares authorized; 10 votes per share; issued and outstanding, 6,504,290 shares at September 29, 2013 and 6,588,680 at December 31, 2012

 

0.6

 

0.6

 

Additional paid-in capital

 

468.2

 

448.7

 

Retained earnings

 

512.6

 

498.1

 

Accumulated other comprehensive income (loss)

 

1.6

 

(10.8

)

Total Stockholders’ Equity

 

985.9

 

939.5

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,690.4

 

$

1,709.0

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in millions, except per share information)

(Unaudited)

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

 

 

September 29,
2013

 

September 30,
2012

 

September 29,
2013

 

September 30,
 2012

 

Net sales

 

$

371.8

 

$

352.8

 

$

1,097.5

 

$

1,072.9

 

Cost of goods sold

 

237.9

 

225.1

 

701.9

 

688.0

 

GROSS PROFIT

 

133.9

 

127.7

 

395.6

 

384.9

 

Selling, general and administrative expenses

 

100.7

 

91.7

 

294.0

 

285.9

 

Restructuring and other charges, net

 

2.8

 

(0.5

)

7.0

 

1.8

 

Adjustment to gain on disposal of business

 

 

1.6

 

 

1.6

 

Goodwill and other long-lived asset impairment charges

 

0.2

 

2.4

 

0.2

 

3.0

 

OPERATING INCOME

 

30.2

 

32.5

 

94.4

 

92.6

 

Other (income) expense:

 

 

 

 

 

 

 

 

 

Interest income

 

(0.1

)

(0.1

)

(0.4

)

(0.5

)

Interest expense

 

5.1

 

6.1

 

16.6

 

18.4

 

Other expense (income), net

 

0.3

 

(0.6

)

1.7

 

(1.5

)

Total other expense

 

5.3

 

5.4

 

17.9

 

16.4

 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

 

24.9

 

27.1

 

76.5

 

76.2

 

Provision for income taxes

 

7.4

 

8.8

 

23.8

 

24.0

 

NET INCOME FROM CONTINUING OPERATIONS

 

17.5

 

18.3

 

52.7

 

52.2

 

(Loss) income from discontinued operations, net of tax

 

(2.1

)

0.4

 

(2.3

)

0.7

 

NET INCOME

 

$

15.4

 

$

18.7

 

$

50.4

 

$

52.9

 

 

 

 

 

 

 

 

 

 

 

BASIC EPS

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.49

 

$

0.52

 

$

1.48

 

$

1.44

 

Discontinued operations

 

(0.06

)

0.01

 

(0.06

)

0.02

 

NET INCOME

 

$

0.43

 

$

0.53

 

$

1.42

 

$

1.46

 

Weighted average number of shares

 

35.4

 

35.1

 

35.5

 

36.1

 

 

 

 

 

 

 

 

 

 

 

DILUTED EPS

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.49

 

$

0.52

 

$

1.48

 

$

1.44

 

Discontinued operations

 

(0.06

)

0.01

 

(0.07

)

0.02

 

NET INCOME

 

$

0.43

 

$

0.53

 

$

1.41

 

$

1.46

 

Weighted average number of shares

 

35.6

 

35.2

 

35.6

 

36.3

 

 

 

 

 

 

 

 

 

 

 

Dividends per share

 

$

0.13

 

$

0.11

 

$

0.37

 

$

0.33

 

 

See accompanying notes to consolidated financial statements.

 

4



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WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in millions)

(Unaudited)

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

 

 

September 29,
2013

 

September 30,
2012

 

September 29,
2013

 

September 30,
2012

 

Net income

 

$

15.4

 

$

18.7

 

$

50.4

 

$

52.9

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

24.4

 

25.1

 

12.0

 

1.9

 

Defined benefit pension plans:

 

 

 

 

 

 

 

 

 

Amortization of net losses included in net periodic pension cost

 

0.1

 

0.2

 

0.4

 

0.5

 

Other comprehensive income, net of tax

 

24.5

 

25.3

 

12.4

 

2.4

 

Comprehensive income

 

$

39.9

 

$

44.0

 

$

62.8

 

$

55.3

 

 

See accompanying notes to consolidated financial statements.

 

5



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WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 29,
2013

 

September 30,
2012

 

OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

50.4

 

$

52.9

 

Less: (Loss) income from discontinued operations, net of taxes

 

(2.3

)

0.7

 

Net income from continuing operations

 

52.7

 

52.2

 

Adjustments to reconcile net income from continuing operations to net cash provided by continuing operating activities:

 

 

 

 

 

Depreciation

 

25.4

 

24.2

 

Amortization of intangibles

 

11.0

 

11.8

 

Stock-based compensation

 

6.6

 

4.2

 

Deferred income tax benefit

 

(3.0

)

(1.1

)

Loss on disposal and impairment of goodwill, property, plant and equipment and other

 

0.2

 

3.5

 

Changes in operating assets and liabilities, net of effects from business acquisitions and divestures:

 

 

 

 

 

Accounts receivable

 

(20.8

)

(10.9

)

Inventories

 

(20.2

)

(17.8

)

Prepaid expenses and other assets

 

2.1

 

(8.5

)

Accounts payable, accrued expenses and other liabilities

 

13.7

 

13.9

 

Net cash provided by continuing operations

 

67.7

 

71.5

 

INVESTING ACTIVITIES

 

 

 

 

 

Additions to property, plant and equipment

 

(22.6

)

(18.6

)

Proceeds from the sale of property, plant and equipment

 

1.4

 

0.2

 

Investments in securities

 

 

(2.1

)

Proceeds from the sale of asset held for sale

 

 

0.7

 

Proceeds from sale of securities

 

2.1

 

4.1

 

Business acquisitions, net of cash acquired

 

 

(17.5

)

Net cash used in investing activities

 

(19.1

)

(33.2

)

FINANCING ACTIVITIES

 

 

 

 

 

Proceeds from long-term debt

 

 

9.2

 

Payments of long-term debt

 

(76.4

)

(23.4

)

Payment of capital leases and other

 

(3.9

)

(2.1

)

Proceeds from share transactions under employee stock plans

 

9.4

 

9.4

 

Tax benefit of stock awards exercised

 

1.7

 

1.6

 

Dividends

 

(13.1

)

(12.1

)

Payments to repurchase common stock

 

(20.0

)

(65.8

)

Net cash used in financing activities

 

(102.3

)

(83.2

)

Effect of exchange rate changes on cash and cash equivalents

 

1.8

 

1.6

 

Net cash (used in) provided by operating activities of discontinued operations

 

(0.6

)

2.2

 

Net cash provided by investing activities of discontinued operations

 

7.9

 

 

DECREASE IN CASH AND CASH EQUIVALENTS

 

(44.6

)

(41.1

)

Cash and cash equivalents at beginning of year

 

271.8

 

250.6

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

227.2

 

$

209.5

 

NON-CASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

Acquisition of businesses:

 

 

 

 

 

Fair value of assets acquired

 

$

 

$

26.8

 

Cash paid, net of cash acquired

 

 

17.5

 

Liabilities assumed

 

$

 

$

9.3

 

Acquisitions of fixed assets under financing agreement

 

$

0.7

 

$

0.8

 

Issuance of stock under management stock purchase plan

 

$

0.5

 

$

0.7

 

 

 

 

 

 

 

CASH PAID FOR:

 

 

 

 

 

Interest

 

$

12.3

 

$

12.7

 

Income taxes

 

$

25.1

 

$

20.8

 

 

See accompanying notes to consolidated financial statements.

 

6



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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 September 29, 2013, the Consolidated Statements of Operations for the third quarters and nine months ended September 29, 2013 and September 30, 2012, the Consolidated Statements of Comprehensive Income for the third quarters and nine months ended September 29, 2013 and September 30, 2012, and the Consolidated Statements of Cash Flows for the nine months ended September 29, 2013 and September 30, 2012.

 

The consolidated balance sheet at December 31, 2012 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, 2012.  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, 2012. Operating results for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2013.

 

The Company operates on a 52-week fiscal year ending on December 31st.  Any quarterly or nine month data contained in this Quarterly Report on Form 10-Q generally reflect the results of operations for a 13-week period or 39-week period, respectively.

 

2.              Accounting Policies

 

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. Actual results could differ from those estimates.

 

Goodwill and Long-Lived Assets

 

The changes in the carrying amount of goodwill by geographic segment are as follows:

 

 

 

September 29, 2013

 

 

 

Gross Balance

 

Accumulated Impairment Losses

 

Net Goodwill

 

 

 

Balance
January 1,
2013

 

Acquired
During
the
Period

 

Foreign
Currency
Translation
and Other

 

Balance
September 29,
2013

 

Balance
January 1,
2013

 

Impairment
Loss
During the
Period

 

Balance
September 29,
2013

 

September 29,
2013

 

 

 

(in millions)

 

North America

 

$

225.6

 

$

 

$

(0.5

)

$

225.1

 

$

(24.2

)

$

 

$

(24.2

)

$

200.9

 

Europe, Middle East and Africa (EMEA)

 

289.7

 

 

6.1

 

295.8

 

 

 

 

295.8

 

Asia

 

12.9

 

 

0.2

 

13.1

 

 

 

 

13.1

 

Total

 

$

528.2

 

$

 

$

5.8

 

$

534.0

 

$

(24.2

)

$

 

$

(24.2

)

$

509.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012

 

 

 

Gross Balance

 

Accumulated Impairment Losses

 

Net Goodwill

 

 

 

Balance
January 1,
2012

 

Acquired
During the
Period

 

Foreign
Currency
Translation
and Other

 

Balance
September 30,
2012

 

Balance
January 1,
2012

 

Impairment
Loss During
the Period

 

Balance
September
30, 2012

 

September 30,
2012

 

 

 

(in millions)

 

North America

 

$

213.8

 

$

13.3

 

$

0.3

 

$

227.4

 

$

(23.2

)

$

(1.0

)

$

(24.2

)

$

203.2

 

EMEA

 

281.1

 

 

(0.2

)

280.9

 

 

 

 

280.9

 

Asia

 

12.7

 

 

 

12.7

 

 

 

 

12.7

 

Total

 

$

507.6

 

$

13.3

 

$

0.1

 

$

521.0

 

$

(23.2

)

$

(1.0

)

$

(24.2

)

$

496.8

 

 

On January 31, 2012, the Company completed the acquisition of tekmar Control Systems (tekmar) in a share purchase transaction.  The initial purchase price paid was CAD $18.0 million, with post-closing adjustments related to working capital and an earnout based on the attainment of certain future earnings levels.  The initial purchase price paid was equal to approximately $17.8 million based on the exchange rate of Canadian dollar to U.S. dollar as of January 31, 2012.   The total purchase price will not exceed CAD $26.2

 

7



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million.  The Company accounted for the transaction as a business combination.  In January 2013, the Company completed a purchase price allocation that resulted in the recognition of $11.7 million in goodwill and $10.1 million in intangible assets.

 

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 impairment assessment of goodwill and indefinite-lived intangible assets in the fourth quarter of each year.

 

As of October 28, 2012, the annual impairment analysis date, the fair value of the EMEA reporting unit exceeded the carrying value by a significant amount.  The EMEA reporting unit represents the EMEA geographic segment excluding the Blücher reporting unit.  During the six months ended June 30, 2013, operating results for the EMEA reporting unit had been hindered by the downturn in the economic environment in Europe and continued to fall below the expected operating results and growth rates used in the calculation of the present value of future cash flow projections, triggering the decision to update the impairment analysis.  As a result of the updated fair value assessment, it was determined that the fair value of the EMEA reporting unit did decrease from year end but continues to exceed its carrying value by approximately 15%. The Company also performed an analysis on the long-lived assets in the EMEA reporting unit as a result of the triggering event and concluded that these assets were not impaired.

 

Based on the operating results for the three months ended September 29, 2013 and the expected savings from the European operations restructuring program approved by the Board on July 30, 2013, it was determined that the fair value of the EMEA reporting unit continues to exceed its carrying value.  Should the EMEA reporting unit’s operating results decline further for any reason, including if the European marketplace deteriorates beyond current expectations or should interest rates increase significantly, then the reporting unit’s goodwill may be at risk for impairment in the future. The EMEA reporting unit’s goodwill balance as of September 29, 2013 was $218.2 million.

 

During the third quarter of 2012, the Company recorded a pre-tax goodwill impairment charge of $1.0 million relating to the Blue Ridge Atlantic Enterprises, Inc. (BRAE) reporting unit in North America as it continued to fall below expectations and triggered the decision to update the impairment analysis. The Company also reviewed the BRAE earnout calculation and recorded a $1.0 million reduction in the contingent earnout liability during the third quarter of 2012 (see Note 5).

 

Intangible assets with estimable lives and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of intangible assets with estimable lives and other long-lived assets are measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted pretax cash flows expected to be generated by the asset or asset group. If these comparisons indicate that an asset is not recoverable, the impairment loss recognized is the amount by which the carrying amount of the asset or asset group exceeds the related estimated fair value. Estimated fair value is based on either discounted future pretax operating cash flows or appraised values, depending on the nature of the asset. The Company determines the discount rate for this analysis based on the weighted average cost of capital based on the market and guideline public companies for the related business, and does not allocate interest charges to the asset or asset group being measured.  Judgment is required to estimate future operating cash flows.

 

The Company recorded impairment charges related to certain assets held for sale of $0.2 million and $1.4 million in the third quarter of 2013 and 2012, respectively.

 

Intangible assets include the following:

 

 

 

September 29, 2013

 

December 31, 2012

 

 

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Amount

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Amount

 

 

 

(in millions)

 

Patents

 

$

16.5

 

$

(12.4

)

$

4.1

 

$

16.5

 

$

(11.7

)

$

4.8

 

Customer relationships

 

132.3

 

(73.7

)

58.6

 

131.4

 

(65.9

)

65.5

 

Technology

 

27.1

 

(10.4

)

16.7

 

27.4

 

(9.0

)

18.4

 

Trade Names

 

13.6

 

(2.7

)

10.9

 

13.5

 

(1.8

)

11.7

 

Other

 

8.7

 

(5.6

)

3.1

 

8.7

 

(5.5

)

3.2

 

Total amortizable intangibles

 

198.2

 

(104.8

)

93.4

 

197.5

 

(93.9

)

103.6

 

Indefinite-lived intangible assets

 

42.2

 

 

42.2

 

41.8

 

 

41.8

 

Total

 

$

240.4

 

$

(104.8

)

$

135.6

 

$

239.3

 

$

(93.9

)

$

145.4

 

 

Aggregate amortization expense for amortizable intangible assets for the third quarters of 2013 and 2012 was $3.7 million and $3.6 million, respectively, and for the first nine months of 2013 and 2012 was $11.0 million and $11.8 million, respectively.  Additionally, future amortization expense for the next five years on amortizable intangible assets is expected to be approximately $3.7 million for the remainder of 2013, $14.6 million for 2014, $14.3 million for 2015, $13.8 million for 2016 and $13.5 million for 2017. Amortization expense is recorded on a straight-line basis over the estimated useful lives of the intangible assets. The weighted-average remaining life of total amortizable intangible assets is 8.6 years. Patents, customer relationships, technology, trade names and other

 

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Table of Contents

 

amortizable intangibles have weighted-average remaining lives of 5.8 years, 5.8 years, 11.6 years, 11.1 years and 40.9 years, respectively. Indefinite-lived intangible assets primarily include trademarks and trade names.

 

Stock-Based Compensation

 

The Company maintains two stock incentive plans under which key employees have been granted incentive stock options (ISOs) and nonqualified stock options (NSOs) to purchase the Company’s Class A common stock. Only one plan, the Second Amended and Restated 2004 Stock Incentive Plan, is currently available for the grant of new stock options, which are currently being granted only to employees.  Under the 2004 Stock Incentive Plan, options become exercisable over a four-year period at the rate of 25% per year and expire ten years after the grant date. ISOs and NSOs granted under the plans may have exercise prices of not less than 100% of the fair market value of the Class A Common Stock on the date of grant. The Company’s current practice is to grant all options at fair market value on the grant date. The Company issued 340,367 stock options during the third quarter and 349,867 during the first nine months of 2013.

 

The fair value of each option issued under the 2004 Stock Incentive Plan is estimated on the date of grant, using the Black-Scholes-Merton Model, based on the following weighted average assumptions:

 

 

 

2013

 

2012

 

Expected life (years)

 

6.0

 

6.0

 

Expected stock price volatility

 

40.3

%

41.2

%

Expected dividend yield

 

1.0

%

1.2

%

Risk-free interest rate

 

1.7

%

0.9

%

 

The above assumptions were used to determine the weighted average grant-date fair value of stock options of $20.30 and $13.49 in 2013 and 2012, respectively.

 

The Company has also granted shares of restricted stock and deferred shares 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 non-employee members of the Company’s Board of Directors are fully vested upon grant.  Employees’ restricted stock awards and deferred shares vest over a three-year period at the rate of one-third per year. The restricted stock awards and deferred shares are amortized to expense on a straight-line basis over the vesting period. The Company issued 116,851 shares of restricted stock and 11,492 deferred shares in the third quarter and 120,018 shares of restricted stock and 11,492 deferred shares in the first nine months of 2013 under the 2004 Stock Incentive Plan.

 

The Company also has a Management Stock Purchase Plan that allows for the purchase of restricted stock units (RSUs) by key employees.  On an annual basis, key employees may elect to receive a portion of their annual incentive compensation in RSUs instead of cash.  Each RSU represents one share of Class A common stock and is purchased by the employee at 67% of the fair market value of the Company’s Class A common stock on the date of grant.  RSUs vest either annually over a three-year period from the grant date or upon the third anniversary of the grant date and receipt of the shares underlying RSUs is deferred for a minimum of three years or such greater number of years as is chosen by the employee.  An aggregate of 2,000,000 shares of Class A common stock may be issued under the Management Stock Purchase Plan. The Company granted 45,196 RSUs and 63,739 RSUs in the nine months of 2013 and 2012, respectively.

 

The fair value of each RSU 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:

 

 

 

2013

 

2012

 

Expected life (years)

 

3.0

 

3.0

 

Expected stock price volatility

 

34.1

%

38.3

%

Expected dividend yield

 

0.9

%

1.1

%

Risk-free interest rate

 

0.4

%

0.4

%

 

The above assumptions were used to determine the weighted average grant-date fair value of RSUs of $18.05 and $15.68 in 2013 and 2012, respectively.

 

A more detailed description of each of these plans can be found in Note 12 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

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Table of Contents

 

Shipping and Handling

 

The Company’s shipping costs included in selling, general and administrative expenses were $10.0 million and $9.4 million for the third quarters of 2013 and 2012, respectively, and were $29.3 million and $28.2 million for the first nine months of 2013 and 2012, respectively.

 

Research and Development

 

Research and development costs included in selling, general and administrative expenses were $5.2 million and $4.9 million for the third quarters of 2013 and 2012, respectively, and were $16.1 million and $15.3 million for the first nine months of 2013 and 2012, respectively.

 

Taxes, Other than Income Taxes

 

Taxes assessed by governmental authorities on sale transactions are recorded on a net basis and excluded from sales in the Company’s consolidated statements of operations.

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

New Accounting Standards

 

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”, which is intended to eliminate the diversity in practice in the presentation of unrecognized tax benefits in those instances.  ASU 2013-11 is effective for fiscal years and interim periods beginning after December 15, 2013. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

 

In March 2013, the FASB issued ASU No. 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” This ASU is intended to eliminate diversity in practice on the release of cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest. In addition, the amendments in this ASU resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. The provisions of this ASU are effective for interim and annual periods beginning after December 15, 2013, with early adoption permitted, and must be applied prospectively. The Company early adopted the ASU in 2013.

 

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”, which requires additional disclosures about amounts reclassified out of OCI by component, either on the face of the income statement or as a separate footnote to the financial statements.  ASU 2013-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. The adoption of this guidance has not had a material impact on the Company’s financial statements.

 

3.              Discontinued Operations

 

On August 1, 2013, the Company completed the sale of all of the outstanding shares of an indirectly wholly-owned subsidiary, Watts Insulation GmbH (Austroflex), receiving net cash proceeds of $7.9 million.  Austroflex is an Austrian-based manufacturer of pre-insulated flexible pipe systems for district heating, solar applications and under-floor radiant heating systems. Austroflex did not meet performance expectations since its purchase approximately three years ago.  The loss after tax on disposal of the business was approximately $2.2 million. Further, during the year ended December 31, 2011, the Company wrote down Austroflex’s long-lived assets by $14.8 million. The Company evaluated the operations of Austroflex and determined that it would not have a substantial continuing involvement in Austroflex’s operations and cash flows. Austroflex’s results of operations have been presented as discontinued operations in the quarter ended September 29, 2013 and all comparative periods presented have been adjusted in the consolidated interim financial statements to reflect Austroflex’s results as discontinued operations.

 

On December 21, 2012, the Company completed the sale of all of the outstanding shares of its indirectly wholly-owned subsidiary, Flomatic Corporation (Flomatic). The sale excluded the backflow product line of Flomatic, which was retained by the Company.  Flomatic, located in Glens Falls, New York, specializes in manufacturing and selling check valves, foot valves and automatic hydraulic control valves for the well water industry. The Company acquired Flomatic as part of its acquisition of Danfoss Socla S.A.S. (Socla) in April 2011.  The Company evaluated the operations of Flomatic and determined that it would not have a substantial continuing involvement in Flomatic’s operations and cash flows. As a result, Flomatic’s cash flows and operations were eliminated from the continuing operations of the Company and classified as discontinued operations for all periods presented.

 

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Table of Contents

 

Pretax profit or losses in discontinued operations are as follows:

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

 

 

September 29,
2013

 

September 30,
2012

 

September 29,
2013

 

September 30,
2012

 

 

 

(in millions)

 

Flomatic pretax profit in discontinued operations

 

$

 

$

0.4

 

$

 

$

1.1

 

Austroflex pretax (loss) profit in discontinued operations

 

(2.1

)

0.2

 

(2.4

)

(0.1

)

Total pretax (loss) profit in discontinued operations

 

$

(2.1

)

$

0.6

 

$

(2.4

)

$

1.0

 

 

Revenues reported in discontinued operations are as follows:

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

 

 

September 29,
2013

 

September 30,
2012

 

September 29,
2013

 

September 30,
2012

 

 

 

(in millions)

 

Flomatic revenues

 

$

 

$

3.4

 

$

 

$

10.1

 

Austroflex revenues

 

1.8

 

5.0

 

9.5

 

13.6

 

Total revenues

 

$

1.8

 

$

8.4

 

$

9.5

 

$

23.7

 

 

4.              Financial Instruments and Derivative Instruments

 

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including deferred compensation plan assets and related liability, and contingent consideration. There were no designated cash flow hedges as of September 29, 2013 and December 31, 2012.  The fair values of these certain financial assets and liabilities were determined using the following inputs at September 29, 2013 and December 31, 2012:

 

 

 

Fair Value Measurements at September 29, 2013 Using:

 

 

 

 

 

Quoted Prices in
Active
Markets for Identical
Assets

 

Significant Other
Observable
Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

Plan asset for deferred compensation(1)

 

$

4.5

 

$

4.5

 

$

 

$

 

Total assets

 

$

4.5

 

$

4.5

 

$

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

Plan liability for deferred compensation(2)

 

$

4.5

 

$

4.5

 

$

 

$

 

Contingent consideration(3)

 

4.0

 

 

 

4.0

 

Total liabilities

 

$

8.5

 

$

4.5

 

$

 

$

4.0

 

 

 

 

Fair Value Measurements at December 31, 2012 Using:

 

 

 

 

 

Quoted Prices in Active
Markets for Identical Assets

 

Significant Other
Observable
Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

Plan asset for deferred compensation(1)

 

$

4.2

 

$

4.2

 

$

 

$

 

Total assets

 

$

4.2

 

$

4.2

 

$

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

Plan liability for deferred compensation(2)

 

$

4.2

 

$

4.2

 

$

 

$

 

Contingent consideration(3)

 

5.2

 

 

 

5.2

 

Total liabilities

 

$

9.4

 

$

4.2

 

$

 

$

5.2

 

 


(1)         Included in other, net on the Company’s consolidated balance sheet.

(2)         Included in accrued compensation and benefits on the Company’s consolidated balance sheet.

(3)         Included in other noncurrent liabilities and accrued expenses and other liabilities on the Company’s consolidated balance sheet.

 

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Table of Contents

 

The table below provides a summary of the changes in fair value of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period December 31, 2012 to September 29, 2013.

 

 

 

Balance

 

Purchases,

 

Total realized and
unrealized (gains)
losses included in:

 

Balance

 

 

 

December 31,
2012

 

sales,
settlements, net

 

Earnings

 

Comprehensive
income

 

September 29,
2013

 

 

 

(in millions)

 

Contingent consideration

 

$

5.2

 

$

(1.2

)

$

0.3

 

$

(0.3

)

$

4.0

 

 

In connection with the tekmar acquisition in January 2012, a contingent liability of $5.1 million was recognized as the estimate of the acquisition date fair value of the contingent consideration. This liability was classified as Level 3 under the fair value hierarchy as it was based on the probability of achievement of a future performance metric as of the date of the acquisition, which was not observable in the market.  Failure to meet the performance metrics would reduce this liability to zero, while complete achievement would increase this liability to the full remaining purchase price of CAD $8.2 million. A portion of the contingent consideration was paid out during 2013, in the amount of $1.2 million, based on performance metrics achieved in 2012. The contingent liability was increased by $0.3 million during the nine month period based on performance metrics achieved to date.

 

Short-term investment securities as of December 31, 2012 consist of a certificate of deposit with a remaining maturity of greater than three months at the date of purchase, for which the carrying amount is a reasonable estimate of fair value.  There were no short-term investment securities as of September 29, 2013.

 

Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase and consist primarily of certificates of deposit and 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.

 

The Company has exposure to a number of foreign currency rates, including the Canadian Dollar, the Euro, the Chinese Yuan and the British Pound Sterling. To manage this risk, the Company generally uses a layering methodology whereby at the end of any quarter the Company has generally entered into forward exchange contracts which hedge approximately 50% of the projected intercompany purchase transactions for the next twelve months. The Company primarily uses this strategy for purchases between Canada and the U.S. The average volume of contracts can vary but generally is approximately $2 million to $10 million in open contracts at the end of any given quarter. At September 29, 2013, the Company had contracts for notional amounts aggregating to $2.3 million.  The Company accounts for the forward exchange contracts as an economic hedge. Realized and unrealized gains and losses on the contracts are recognized in other (income) expense in the consolidated statement of operations. These contracts do not subject the Company to significant market risk from exchange movement because they offset gains and losses on the related foreign currency denominated transactions.

 

Fair Value

 

The carrying amounts of cash and cash equivalents, short-term investments, trade receivables and trade payables approximate fair value because of the short maturity of these financial instruments.

 

The fair values of the Company’s 5.85% senior notes due 2016, and 5.05% senior notes due 2020, are based on a discounted cash flow model using comparable industrial companies, the Company’s credit metrics, the Company’s size, as well as current market interest rates quoted in active markets and are classified within Level 2 of the valuation hierarchy.  The fair value of the Company’s variable rate debt approximates its carrying value. The carrying amount and the estimated fair market value of the Company’s long-term debt, including the current portion, are as follows:

 

 

 

September 29,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(in millions)

 

Carrying amount

 

$

308.3

 

$

384.6

 

Estimated fair value

 

$

336.3

 

$

420.8

 

 

 

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Table of Contents

 

5.              Restructuring and Other Charges, Net

 

The Company’s Board of Directors approves all major restructuring programs that involve the discontinuance of product lines or the shutdown of 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 individual employees are notified or the liability is incurred.  These costs are included in restructuring and other charges in the Company’s consolidated statements of operations.

 

On July 30, 2013, the Board of Directors authorized the initiation of a restructuring program with respect to our European operations to reduce our European manufacturing footprint by approximately 10%, improve organizational and operational efficiency and better align costs with expected revenues in response to changing market conditions.  The restructuring program (‘2013 Actions’) is expected to include a pre-tax charge to earnings totaling approximately $14.0 million, approximately $9.8 million of which is expected to be recorded through fiscal 2014 and the remainder of which is expected to be recorded during fiscal 2015.  This total charge is expected to include costs for severance benefits, relocation, clean-up, professional fees and certain asset write-downs.  The total net after-tax charge for the restructuring program is expected to be approximately $10.0 million.  The restructuring program is expected to be completed by the end of the fourth quarter of fiscal 2015.  Certain aspects of the restructuring program are subject to further analysis and determinations by local management and consultation and negotiation with various workers’ councils.

 

The Company also periodically initiates other actions which are not part of a major program.  In 2011, 2012 and the first nine months of 2013, the Company initiated restructuring activities in Europe and North America to relocate certain manufacturing activities.  Total expected costs are $4.4 million, including severance and relocation costs. The net after tax charge of $3.1 million will be incurred through mid-2014.

 

A summary of the pre-tax cost by restructuring program is as follows:

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

 

 

September 29,
2013

 

September 30,
2012

 

September 29,
2013

 

September 30,
2012

 

 

 

(in millions)

 

Restructuring costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2011 Actions

 

$

 

$

 

$

 

$

0.6

 

2013 Actions

 

2.5

 

 

3.1

 

 

Other Actions

 

0.3

 

0.5

 

3.9

 

2.2

 

Total restructuring charges

 

2.8

 

0.5

 

7.0

 

2.8

 

Adjustment related to contingent liability reduction

 

 

(1.0

)

 

(1.0

)

Total restructuring and other charges, net

 

$

2.8

 

$

(0.5

)

$

7.0

 

$

1.8

 

 

The Company recorded pre-tax restructuring and other charges, net in its business segments as follows:

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

 

 

September 29,
2013

 

September 30,
2012

 

September 29,
2013

 

September 30,
2012

 

 

 

(in millions)

 

North America

 

$

 

$

(0.8

)

$

0.3

 

$

0.1

 

EMEA

 

2.8

 

0.3

 

6.7

 

1.7

 

Total

 

$

2.8

 

$

(0.5

)

$

7.0

 

$

1.8

 

 

Adjustment to gain on disposal of business. During the quarter ended September 30, 2012, the Company recorded a charge of $1.6 million related to an adjustment to the gain on disposal of Tianjin Watts Valve Company Ltd. (TWVC) within the Asia segment. In 2011, the Company had sold its equity ownership and remaining assets of TWVC and recognized a net pre-tax gain of $7.7 million and an after-tax gain of approximately $11.4 million relating mainly to the recognition of a cumulative translation adjustment and a tax benefit related to the reversal of a tax claw back in China. This gain was adjusted in 2012.

 

13



Table of Contents

 

2013 Actions

 

Details of the Company’s 2013 European footprint program reserve, which for the nine months ended September 29, 2013 only relates to severance, is as follows:

 

 

 

Nine Months Ended

 

 

 

September, 2013

 

 

 

(in millions)

 

Balance at March 31, 2013

 

$

 

Net pre-tax restructuring charges

 

0.6

 

Utilization and foreign currency impact

 

(0.3

)

Balance at June 30, 2013

 

$

0.3

 

Net pre-tax restructuring charges

 

2.5

 

Utilization and foreign currency impact

 

(0.8

)

Balance at September 29, 2013

 

$

2.0

 

 

The following table summarizes total expected, incurred and remaining pre-tax costs for 2013 European footprint program actions by type, and all attributable to the EMEA reportable segment:

 

 

 

Severance

 

Legal and
consultancy

 

Asset
 write-downs

 

Facility
exit

and other

 

Total

 

 

 

(in millions)

 

Expected costs

 

$

12.0

 

$

1.6

 

$

0.2

 

$

0.2

 

$

14.0

 

Costs incurred—second quarter 2013

 

(0.6

)

 

 

 

(0.6

)

Costs incurred— third quarter 2013

 

(2.5

)

 

 

 

(2.5

)

 

 

 

 

 

 

 

 

 

 

 

 

Remaining costs at September 29, 2013

 

$

8.9

 

$

1.6

 

$

0.2

 

$

0.2

 

$

10.9

 

 

6.              Earnings per Share

 

The following tables set forth the reconciliation of the calculation of earnings per share:

 

 

 

For the Third Quarter Ended September 29, 2013

 

For the Third Quarter Ended September 30, 2012

 

 

 

Income
(Numerator)

 

Shares
(Denominator)

 

Per Share
Amount

 

Income
(Numerator)

 

Shares
(Denominator)

 

Per Share
Amount

 

 

 

(amounts in millions, except per share amounts)

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

17.5

 

35.4

 

$

0.49

 

$

18.3

 

35.1

 

$

0.52

 

Discontinued operations

 

(2.1

)

 

 

(0.06

)

0.4

 

 

 

0.01

 

Net income

 

$

15.4

 

 

 

$

0.43

 

$

18.7

 

 

 

$

0.53

 

Effect of dilutive securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock equivalents

 

 

 

0.2

 

 

 

 

 

0.1

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

17.5

 

 

 

$

0.49

 

$

18.3

 

 

 

$

0.52

 

Discontinued operations

 

(2.1

)

 

 

(0.06

)

0.4

 

 

 

0.01

 

Net income

 

$

15.4

 

35.6

 

$

0.43

 

$

18.7

 

35.2

 

$

0.53

 

 

14



Table of Contents

 

Options to purchase 0.2 million and 0.3 million shares of Class A common stock were outstanding during the third quarters of 2013 and 2012, respectively, but were not included in the computation of diluted EPS because to do so would be anti-dilutive.

 

 

 

For the First Nine Months Ended September 29, 2013

 

For the First Nine Months Ended September 30, 2012

 

 

 

Income
(Numerator)

 

Shares
(Denominator)

 

Per Share
Amount

 

Income
(Numerator)

 

Shares
(Denominator)

 

Per Share
Amount

 

 

 

(amounts in millions, except per share amounts)

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

52.7

 

35.5

 

$

1.48

 

$

52.2

 

36.1

 

$

1.44

 

Discontinued operations

 

(2.3

)

 

 

(0.06

)

0.7

 

 

 

0.02

 

Net income

 

$

50.4

 

 

 

$

1.42

 

$

52.9

 

 

 

$

1.46

 

Effect of dilutive securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock equivalents

 

 

 

0.1

 

 

 

 

 

0.2

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

52.7

 

 

 

$

1.48

 

$

52.2

 

 

 

$

1.44

 

Discontinued operations

 

(2.3

)

 

 

(0.07

)

0.7

 

 

 

0.02

 

Net income

 

$

50.4

 

35.6

 

$

1.41

 

$

52.9

 

36.3

 

$

1.46

 

 

Options to purchase 0.3 million and 0.3 million shares of Class A common stock were outstanding during the first nine months of 2013 and 2012, respectively, but were not included in the computation of diluted EPS because to do so would be anti-dilutive.

 

On April 30, 2013, the Company announced that its Board of Directors has authorized the repurchase of up to $90 million of the Company’s Class A common stock from time to time on the open market or in privately negotiated transactions.  The timing and number of any shares repurchased will be determined by the Company’s management based on its evaluation of market conditions.  Repurchases may also be made under a Rule 10b5-1 plan, which would permit 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 any Rule 10b5-1 plan the Company may enter into with respect to the repurchase program.  During the quarter ended September 29, 2013, the Company repurchased approximately 189,000 shares of Class A common stock at a cost of approximately $10.0 million.  During the first nine month of 2013, the Company repurchased approximately 402,000 shares of Class A common stock at a cost of approximately $20.0 million.

 

On May 16, 2012, the Board of Directors authorized a stock repurchase program of up to two million shares of the Company’s Class A common stock.  The stock repurchase program was completed in July 2012, as the Company repurchased the entire 2.0 million shares of Class A common stock at a cost of approximately $65.8 million

 

7.              Segment Information

 

The Company operates in three geographic segments: North America, EMEA, and Asia. Each of these segments is managed separately and has separate financial results that are reviewed by the Company’s chief operating decision-maker. All intercompany sales transactions have been eliminated. Sales by region are based upon location of the entity recording the sale. The accounting policies for each segment are the same as those described in the summary of significant accounting policies.

 

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

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

 

 

September 29,
2013

 

September 30,
2012

 

September 29,
2013

 

September 30,
2012

 

 

 

(in millions)

 

Net Sales

 

 

 

 

 

 

 

 

 

North America

 

$

220.5

 

$

204.0

 

$

657.9

 

$

629.1

 

EMEA

 

142.7

 

141.5

 

416.0

 

425.0

 

Asia

 

8.6

 

7.3

 

23.6

 

18.8

 

Consolidated net sales

 

$

371.8

 

$

352.8

 

$

1,097.5

 

$

1,072.9

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

 

 

 

 

 

 

 

North America

 

$

23.5

 

$

25.5

 

$

79.0

 

$

71.6

 

EMEA

 

13.5

 

14.9

 

34.2

 

40.0

 

Asia

 

2.0

 

0.8

 

7.3

 

4.3

 

Subtotal reportable segments

 

39.0

 

41.2

 

120.5

 

115.9

 

 

 

 

 

 

 

 

 

 

 

Corporate (*)

 

(8.8

)

(8.7

)

(26.1

)

(23.3

)

Consolidated operating income

 

30.2

 

32.5

 

94.4

 

92.6

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

0.1

 

0.1

 

0.4

 

0.5

 

Interest expense

 

(5.1

)

(6.1

)

(16.6

)

(18.4

)

Other income (expense), net

 

(0.3

)

0.6

 

(1.7

)

1.5

 

Income from continuing operations before income taxes

 

$

24.9

 

$

27.1

 

$

76.5

 

$

76.2

 

Capital Expenditures

 

 

 

 

 

 

 

 

 

North America

 

$

2.4

 

$

5.7

 

$

15.2

 

$

10.0

 

EMEA

 

2.0

 

2.9

 

6.3

 

7.5

 

Asia

 

0.2

 

0.5

 

1.1

 

1.1

 

Consolidated capital expenditures

 

$

4.6

 

$

9.1

 

$

22.6

 

$

18.6

 

 

 

 

 

 

 

 

 

 

 

Depreciation and Amortization

 

 

 

 

 

 

 

 

 

North America

 

$

5.2

 

$

5.0

 

$

15.3

 

$

14.6

 

EMEA

 

6.4

 

6.2

 

19.3

 

19.9

 

Asia

 

0.5

 

0.5

 

1.8

 

1.5

 

Consolidated depreciation and amortization

 

$

12.1

 

$

11.7

 

$

36.4

 

$

36.0

 

 

 

 

 

 

 

 

 

 

 

Identifiable Assets (at end of period)

 

 

 

 

 

 

 

 

 

North America

 

 

 

 

 

$

703.6

 

$

794.6

 

EMEA

 

 

 

 

 

864.5

 

781.3

 

Asia

 

 

 

 

 

122.3

 

91.3

 

Discontinued operations

 

 

 

 

 

 

23.8

 

Consolidated identifiable assets

 

 

 

 

 

$

1,690.4

 

$

1,691.0

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net (at end of period)

 

 

 

 

 

 

 

 

 

North America

 

 

 

 

 

$

84.7

 

$

76.3

 

EMEA

 

 

 

 

 

120.1

 

125.2

 

Asia

 

 

 

 

 

14.6

 

14.6

 

Consolidated property, plant and equipment, net

 

 

 

 

 

$

219.4

 

$

216.1

 

 


*   Corporate expenses are primarily for administrative compensation expense, internal controls costs, professional fees, including legal and audit expenses, shareholder services and benefit administration costs. These costs are not allocated to the geographic segments as they are viewed as corporate functions that support all activities.

 

The above operating segments are presented on a basis consistent with the presentation included in the Company’s December 31, 2012 consolidated financial statements included in its Annual Report on Form 10-K.

 

15



Table of Contents

 

The following includes U.S. net sales and U.S. property, plant and equipment of the Company’s North America segment:

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

 

 

September 29,
2013

 

September 30,
2012

 

September 29,
2013

 

September 30,
2012

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

U.S. net sales

 

$

198.0

 

$

181.4

 

$

592.4

 

$

564.4

 

U.S. property, plant and equipment (at end of period)

 

 

 

 

 

$

79.7

 

$

70.6

 

 

The following includes intersegment sales for North America, EMEA and Asia:

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

 

 

September 29,
2013

 

September 30,
2012

 

September 29,
2013

 

September 30,
2012

 

 

 

(in millions)

 

Intersegment Sales

 

 

 

 

 

 

 

 

 

North America

 

$

1.3

 

$

1.3

 

$

3.9

 

$

3.9

 

EMEA

 

2.6

 

3.3

 

7.7

 

7.9

 

Asia

 

39.7

 

35.9

 

128.8

 

102.3

 

Intersegment sales

 

$

43.6

 

$

40.5

 

$

140.4

 

$

114.1

 

 

The EMEA segment includes $1.3 million in assets held for sale at September 29, 2013.  North America segment includes $2.4 million in assets held for sale at September 30, 2012.

 

16



Table of Contents

 

8.              Accumulated Other Comprehensive Income (Loss)

 

Accumulated other comprehensive income (loss) consists of the following:

 

 

 

Foreign
Currency
Translation

 

Pension
Adjustment

 

Accumulated Other
Comprehensive
Income (Loss)

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

Balance December 31, 2012

 

$

14.4

 

$

(25.2

)

$

(10.8

)

Change in period

 

(19.9

)

0.2

 

(19.7

)

Balance March 31, 2013

 

$

(5.5

)

$

(25.0

)

$

(30.5

)

Change in period

 

7.5

 

0.1

 

7.6

 

Balance June 30, 2013

 

$

2.0

 

$

(24.9

)

$

(22.9

)

Change in period

 

24.4

 

0.1

 

24.5

 

Balance September 29, 2013

 

$

26.4

 

$

(24.8

)

$

1.6

 

 

 

 

 

 

 

 

 

Balance December 31, 2011

 

$

0.1

 

$

(19.1

)

$

(19.0

)

Change in period

 

16.5

 

0.2

 

16.7