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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

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

For the quarterly period ended September 26, 2021

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 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)

(978) 688-1811

(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

Class A common stock, par value $0.10 per share

WTS

New York Stock Exchange

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    No 

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). Yes    No 

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.

Large accelerated filer  

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    No 

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 October 24, 2021

Class A Common Stock, $0.10 par value

27,558,076

Class B Common Stock, $0.10 par value

6,064,290

1

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

INDEX

Part I. Financial Information

    

3

Item 1.

Financial Statements

3

Consolidated Balance Sheets at September 26, 2021 and December 31, 2020 (unaudited)

3

Consolidated Statements of Operations for the Third Quarters and Nine Months ended September 26, 2021 and September 27, 2020 (unaudited)

4

Consolidated Statements of Comprehensive Income for the Third Quarters and Nine Months ended September 26, 2021 and September 27, 2020 (unaudited)

5

Consolidated Statements of Stockholders’ Equity for the Third Quarters and Nine Months ended September 26, 2021 and September 27, 2020 (unaudited)

6

Consolidated Statements of Cash Flows for the Nine Months ended September 26, 2021 and September 27, 2020 (unaudited)

8

Notes to Consolidated Financial Statements (unaudited)

9

Item 2.

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

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

36

Part II. Other Information

37

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 6.

Exhibits

39

Signatures

40

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)

September 26,

December 31,

    

2021

    

2020

ASSETS

    

CURRENT ASSETS:

Cash and cash equivalents

$

238.7

$

218.9

Trade accounts receivable, less reserve allowances of $10.8 million at September 26, 2021 and $11.1 million at December 31, 2020

 

243.2

 

197.6

Raw materials

119.8

79.6

Work in process

20.9

16.1

Finished goods

212.0

167.9

Total Inventories

352.7

263.6

Prepaid expenses and other current assets

 

28.4

 

29.4

Total Current Assets

 

863.0

 

709.5

PROPERTY, PLANT AND EQUIPMENT

 

 

Property, plant and equipment, at cost

612.9

608.6

Accumulated depreciation

(408.7)

(396.3)

Property, plant and equipment, net

204.2

212.3

OTHER ASSETS:

Goodwill

 

596.5

 

602.4

Intangible assets, net

 

130.2

 

141.8

Deferred income taxes

 

8.3

 

4.4

Other, net

 

61.0

 

67.8

TOTAL ASSETS

$

1,863.2

$

1,738.2

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$

151.6

$

110.1

Accrued expenses and other liabilities

 

187.5

 

137.4

Accrued compensation and benefits

 

78.7

 

65.3

Total Current Liabilities

 

417.8

 

312.8

LONG-TERM DEBT

 

151.7

 

198.2

DEFERRED INCOME TAXES

 

45.2

 

51.1

OTHER NONCURRENT LIABILITIES

 

98.4

 

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, 27,565,116 shares at September 26, 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, 6,064,290 shares at September 26, 2021 and 6,144,290 shares at December 31, 2020

 

0.6

 

0.6

Additional paid-in capital

 

625.0

 

606.3

Retained earnings

 

638.8

 

560.1

Accumulated other comprehensive loss

 

(117.1)

 

(100.0)

Total Stockholders’ Equity

 

1,150.1

 

1,069.8

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

1,863.2

$

1,738.2

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)

Third Quarter Ended

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

    

2021

    

2020

    

2021

    

2020

Net sales

$

455.0

$

383.9

$

1,335.3

$

1,105.2

Cost of goods sold

 

261.0

 

225.4

 

767.5

 

649.0

GROSS PROFIT

 

194.0

 

158.5

 

567.8

 

456.2

Selling, general and administrative expenses

 

128.4

 

106.6

 

372.6

 

319.2

Restructuring

 

0.9

 

3.4

 

18.2

 

8.7

Other long-lived asset impairment charge

 

 

 

 

1.0

Loss on disposition

0.6

0.6

OPERATING INCOME

 

64.7

 

47.9

 

177.0

 

126.7

Other (income) expense:

Interest income

 

 

 

 

(0.2)

Interest expense

 

1.4

 

3.0

 

4.9

 

10.0

Other (income) expense, net

 

(0.2)

 

1.1

 

(1.0)

 

1.0

Total other expense

 

1.2

 

4.1

 

3.9

 

10.8

INCOME BEFORE INCOME TAXES

 

63.5

 

43.8

 

173.1

 

115.9

Provision for income taxes

 

17.1

 

10.9

 

47.5

 

30.8

NET INCOME

$

46.4

$

32.9

$

125.6

$

85.1

Basic EPS

NET INCOME PER SHARE

$

1.38

$

0.97

$

3.72

$

2.51

Weighted average number of shares

 

33.7

 

33.8

 

33.8

 

33.9

Diluted EPS

NET INCOME PER SHARE

$

1.37

$

0.97

$

3.70

$

2.50

Weighted average number of shares

 

33.9

 

33.9

 

33.9

 

34.0

Dividends declared per share

$

0.26

$

0.23

$

0.75

$

0.69

See accompanying notes to consolidated financial statements.

4

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in millions)

(Unaudited)

    

Third Quarter Ended

    

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

    

2021

    

2020

    

2021

    

2020

Net income

$

46.4

$

32.9

$

125.6

$

85.1

Other comprehensive (loss) income net of tax:

Foreign currency translation adjustments

 

(8.4)

 

14.3

 

(16.7)

 

7.8

Cash flow hedges

0.5

0.1

(0.4)

(1.1)

Other comprehensive (loss) income

 

(7.9)

 

14.4

 

(17.1)

 

6.7

Comprehensive income

$

38.5

$

47.3

$

108.5

$

91.8

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

(For the nine months ended

Common Stock

Common Stock

Paid-In

Retained

Comprehensive

Stockholders’

September 26, 2021)

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Loss  

    

Equity

Balance at December 31, 2020

 

27,478,512

$

2.8

 

6,144,290

$

0.6

$

606.3

$

560.1

$

(100.0)

$

1,069.8

Net income

125.6

125.6

Other comprehensive loss

(17.1)

(17.1)

Comprehensive income

108.5

Shares of Class B common stock converted to Class A common stock

 

80,000

(80,000)

Shares of Class A common stock issued upon the exercise of stock options

112

Stock-based compensation

 

16.8

16.8

Stock repurchase

 

(87,445)

(11.8)

(11.8)

Net change in restricted and performance stock units

93,937

1.9

(9.6)

(7.7)

Common stock dividends

(25.5)

(25.5)

Balance at September 26, 2021

 

27,565,116

$

2.8

 

6,064,290

$

0.6

$

625.0

$

638.8

$

(117.1)

$

1,150.1

Accumulated

Class A

Class B

Additional

Other

Total

(For the third quarter ended

Common Stock

Common Stock

Paid-In

Retained

Comprehensive

Stockholders’

September 26, 2021)

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Loss  

    

Equity

Balance at June 27, 2021

 

27,577,110

$

2.8

 

6,074,290

$

0.6

$

618.1

$

605.6

$

(109.2)

$

1,117.9

Net income

46.4

46.4

Other comprehensive loss

(7.9)

(7.9)

Comprehensive income

38.5

Shares of Class B common stock converted to Class A common stock

 

10,000

(10,000)

Shares of Class A common stock issued upon the exercise of stock options

Stock-based compensation

 

6.9

6.9

Stock repurchase

 

(25,375)

(4.0)

(4.0)

Net change in restricted and performance stock units

3,381

(0.4)

(0.4)

Common stock dividends

(8.8)

(8.8)

Balance at September 26, 2021

 

27,565,116

$

2.8

 

6,064,290

$

0.6

$

625.0

$

638.8

$

(117.1)

$

1,150.1

6

Accumulated

Class A

Class B

Additional

Other

Total

(For the nine months ended

Common Stock

Common Stock

Paid-In

Retained

Comprehensive

Stockholders’

September 27, 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

85.1

85.1

Other comprehensive income

6.7

6.7

Comprehensive income

91.8

Shares of Class B common stock converted to Class A common stock

70,000

(70,000)

Shares of Class A common stock issued upon the exercise of stock options

661

Stock-based compensation

8.8

8.8

Stock repurchase

(294,677)

(24.8)

(24.8)

Net change in restricted and performance stock units

83,080

1.8

(7.8)

(6.0)

Common stock dividends

(23.2)

(23.2)

Balance at September 27, 2020

27,445,480

$

2.8

6,209,290

$

0.6

$

602.1

$

543.2

$

(124.1)

1,024.6

Accumulated

Class A

Class B

Additional

Other

Total

(For the third quarter ended

Common Stock

Common Stock

Paid-In

Retained

Comprehensive

Stockholders’

September 27, 2020)

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Loss  

    

Equity

Balance at June 28, 2020

 

27,461,833

$

2.8

 

6,229,290

$

0.6

$

598.9

$

521.4

$

(138.5)

$

985.2

Net income

32.9

32.9

Other comprehensive income

14.4

14.4

Comprehensive income

47.3

Shares of Class B common stock converted to Class A common stock

20,000

(20,000)

Shares of Class A common stock issued upon the exercise of stock options

661

Stock-based compensation

3.2

3.2

Stock repurchase

(41,142)

(3.7)

(3.7)

Net change in restricted and performance stock units

4,128

Common stock dividends

(7.4)

(7.4)

Balance at September 27, 2020

27,445,480

$

2.8

6,209,290

$

0.6

$

602.1

$

543.2

$

(124.1)

1,024.6

See accompanying notes to consolidated financial statements.

7

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)

Nine Months Ended

September 26,

September 27,

    

2021

    

2020

OPERATING ACTIVITIES

Net income

$

125.6

$

85.1

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation