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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 25, 2022

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 23, 2022

Class A Common Stock, $0.10 par value

27,284,921

Class B Common Stock, $0.10 par value

6,008,290

1

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

INDEX

Part I. Financial Information

    

3

Item 1.

Financial Statements

3

Consolidated Balance Sheets at September 25, 2022 and December 31, 2021 (unaudited)

3

Consolidated Statements of Operations for the Third Quarters and Nine Months ended September 25, 2022 and September 26, 2021 (unaudited)

4

Consolidated Statements of Comprehensive Income for the Third Quarters and Nine Months ended September 25, 2022 and September 26, 2021 (unaudited)

5

Consolidated Statements of Stockholders’ Equity for the Third Quarters and Nine Months ended September 25, 2022 and September 26, 2021 (unaudited)

6

Consolidated Statements of Cash Flows for the Nine Months ended September 25, 2022 and September 26, 2021 (unaudited)

8

Notes to Consolidated Financial Statements (unaudited)

9

Item 2.

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

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

34

Part II. Other Information

35

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

Item 6.

Exhibits

37

Signatures

38

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 25,

December 31,

    

2022

    

2021

ASSETS

    

CURRENT ASSETS:

Cash and cash equivalents

$

219.5

$

242.0

Trade accounts receivable, less reserve allowances of $11.7 million at September 25, 2022 and $10.3 million at December 31, 2021

 

257.0

 

220.9

Raw materials

153.1

119.4

Work in process

24.0

20.4

Finished goods

245.5

230.9

Total Inventories

422.6

370.7

Prepaid expenses and other current assets

 

37.7

 

27.9

Total Current Assets

 

936.8

 

861.5

PROPERTY, PLANT AND EQUIPMENT

 

 

Property, plant and equipment, at cost

578.4

608.8

Accumulated depreciation

(389.3)

(408.1)

Property, plant and equipment, net

189.1

200.7

OTHER ASSETS:

Goodwill

 

582.5

 

600.7

Intangible assets, net

 

114.9

 

128.6

Deferred income taxes

 

3.5

 

3.5

Other, net

 

58.8

 

60.6

TOTAL ASSETS

$

1,885.6

$

1,855.6

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$

131.6

$

143.4

Accrued expenses and other liabilities

 

174.0

 

186.9

Accrued compensation and benefits

 

72.9

 

78.2

Total Current Liabilities

 

378.5

 

408.5

LONG-TERM DEBT

 

182.4

 

141.9

DEFERRED INCOME TAXES

 

33.8

 

40.5

OTHER NONCURRENT LIABILITIES

 

83.2

 

91.5

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, 27,294,207 shares at September 25, 2022 and 27,584,525 shares at December 31, 2021

 

2.7

 

2.8

Class B common stock, $0.10 par value; 25,000,000 shares authorized; 10 votes per share; issued and outstanding, 6,008,290 shares at September 25, 2022 and 6,024,290 shares at December 31, 2021

 

0.6

 

0.6

Additional paid-in capital

 

646.6

 

631.2

Retained earnings

 

741.4

 

665.9

Accumulated other comprehensive loss

 

(183.6)

 

(127.3)

Total Stockholders’ Equity

 

1,207.7

 

1,173.2

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

1,885.6

$

1,855.6

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 25,

September 26,

September 25,

September 26,

    

2022

    

2021

    

2022

    

2021

    

Net sales

$

487.8

$

455.0

$

1,477.6

$

1,335.3

Cost of goods sold

 

269.9

 

261.0

 

821.9

 

767.5

GROSS PROFIT

 

217.9

 

194.0

 

655.7

 

567.8

Selling, general and administrative expenses

 

135.8

 

128.4

 

403.5

 

372.6

Restructuring

 

1.7

 

0.9

 

4.4

 

18.2

OPERATING INCOME

 

80.4

 

64.7

 

247.8

 

177.0

Other (income) expense:

Interest income

 

(0.2)

 

 

(0.3)

 

Interest expense

 

1.9

 

1.4

 

5.0

 

4.9

Other (income) expense, net

 

(0.1)

 

(0.2)

 

0.2

 

(1.0)

Total other expense

 

1.6

 

1.2

 

4.9

 

3.9

INCOME BEFORE INCOME TAXES

 

78.8

 

63.5

 

242.9

 

173.1

Provision for income taxes

 

20.1

 

17.1

 

60.0

 

47.5

NET INCOME

$

58.7

$

46.4

$

182.9

$

125.6

Basic EPS

NET INCOME PER SHARE

$

1.76

$

1.38

$

5.46

$

3.72

Weighted average number of shares

 

33.4

 

33.7

 

33.5

 

33.8

Diluted EPS

NET INCOME PER SHARE

$

1.75

$

1.37

$

5.43

$

3.70

Weighted average number of shares

 

33.5

 

33.9

 

33.7

 

33.9

Dividends declared per share

$

0.30

$

0.26

$

0.86

$

0.75

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 25,

September 26,

September 25,

September 26,

    

2022

    

2021

    

2022

    

2021

    

Net income

$

58.7

$

46.4

$

182.9

$

125.6

Other comprehensive (loss) gain net of tax:

Foreign currency translation adjustments

 

(30.4)

 

(8.4)

 

(63.4)

 

(16.7)

Cash flow hedges

2.0

0.5

7.1

(0.4)

Other comprehensive loss

 

(28.4)

 

(7.9)

 

(56.3)

 

(17.1)

Comprehensive income

$

30.3

$

38.5

$

126.6

$

108.5

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 25, 2022)

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Loss  

    

Equity

Balance at December 31, 2021

 

27,584,525

$

2.8

 

6,024,290

$

0.6

$

631.2

$

665.9

$

(127.3)

$

1,173.2

Net income

182.9

182.9

Other comprehensive loss

(56.3)

(56.3)

Comprehensive income

126.6

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

 

16,000

(16,000)

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

 

2,325

0.2

0.2

Stock-based compensation

 

13.2

13.2

Stock repurchase

 

(462,956)

(0.1)

(65.0)

(65.1)

Net change in restricted and performance stock units

154,313

2.0

(13.0)

(11.0)

Common stock dividends

(29.4)

(29.4)

Balance at September 25, 2022

 

27,294,207

$

2.7

 

6,008,290

$

0.6

$

646.6

$

741.4

$

(183.6)

$

1,207.7

Accumulated

Class A

Class B

Additional

Other

Total

(For the third quarter ended

Common Stock

Common Stock

Paid-In

Retained

Comprehensive

Stockholders’

September 25, 2022)

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Loss  

    

Equity

Balance at June 26, 2022

 

27,297,954

$

2.7

 

6,024,290

$

0.6

$

641.6

$

696.8

$

(155.2)

$

1,186.5

Net income

58.7

58.7

Other comprehensive loss

(28.4)

(28.4)

Comprehensive income

30.3

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

 

16,000

(16,000)

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

Stock-based compensation

 

5.0

5.0

Stock repurchase

 

(29,333)

(3.9)

(3.9)

Net change in restricted and performance stock units

9,586

(0.1)

(0.1)

Common stock dividends

(10.1)

(10.1)

Balance at September 25, 2022

 

27,294,207

$

2.7

 

6,008,290

$

0.6

$

646.6

$

741.4

$

(183.6)

$

1,207.7

6

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

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 25,

September 26,