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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 June 26, 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 July 24, 2022

Class A Common Stock, $0.10 par value

27,304,015

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 June 26, 2022 and December 31, 2021 (unaudited)

3

Consolidated Statements of Operations for the Second Quarters and Six Months ended June 26, 2022 and June 27, 2021 (unaudited)

4

Consolidated Statements of Comprehensive Income for the Second Quarters and Six Months ended June 26, 2022 and June 27, 2021 (unaudited)

5

Consolidated Statements of Stockholders’ Equity for the Second Quarters and Six Months ended June 26, 2022 and June 27, 2021 (unaudited)

6

Consolidated Statements of Cash Flows for the Six Months ended June 26, 2022 and June 27, 2021 (unaudited)

8

Notes to Consolidated Financial Statements (unaudited)

9

Item 2.

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

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

Part II. Other Information

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 6.

Exhibits

36

Signatures

37

2

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except share information)

(Unaudited)

June 26,

December 31,

    

2022

    

2021

ASSETS

    

CURRENT ASSETS:

Cash and cash equivalents

$

230.0

$

242.0

Trade accounts receivable, less reserve allowances of $11.2 million at June 26, 2022 and $10.3 million at December 31, 2021

 

267.1

 

220.9

Raw materials

150.3

119.4

Work in process

27.0

20.4

Finished goods

254.4

230.9

Total Inventories

431.7

370.7

Prepaid expenses and other current assets

 

38.9

 

27.9

Total Current Assets

 

967.7

 

861.5

PROPERTY, PLANT AND EQUIPMENT

 

 

Property, plant and equipment, at cost

594.8

608.8

Accumulated depreciation

(400.8)

(408.1)

Property, plant and equipment, net

194.0

200.7

OTHER ASSETS:

Goodwill

 

590.9

 

600.7

Intangible assets, net

 

119.4

 

128.6

Deferred income taxes

 

3.3

 

3.5

Other, net

 

59.0

 

60.6

TOTAL ASSETS

$

1,934.3

$

1,855.6

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$

166.3

$

143.4

Accrued expenses and other liabilities

 

189.3

 

186.9

Accrued compensation and benefits

 

65.5

 

78.2

Total Current Liabilities

 

421.1

 

408.5

LONG-TERM DEBT

 

202.2

 

141.9

DEFERRED INCOME TAXES

 

39.2

 

40.5

OTHER NONCURRENT LIABILITIES

 

85.3

 

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, 27,297,954 shares at June 26, 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, 6,024,290 shares at June 26, 2022 and at December 31, 2021

 

0.6

 

0.6

Additional paid-in capital

 

641.6

 

631.2

Retained earnings

 

696.8

 

665.9

Accumulated other comprehensive loss

 

(155.2)

 

(127.3)

Total Stockholders’ Equity

 

1,186.5

 

1,173.2

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

1,934.3

$

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)

Second Quarter Ended

Six Months Ended

June 26,

June 27,

June 26,

June 27,

    

2022

    

2021

    

2022

    

2021

    

Net sales

$

526.6

$

467.0

$

989.8

$

880.3

Cost of goods sold

 

287.4

 

266.9

 

552.0

 

506.5

GROSS PROFIT

 

239.2

 

200.1

 

437.8

 

373.8

Selling, general and administrative expenses

 

141.6

 

130.4

 

267.7

 

244.2

Restructuring

 

1.7

 

17.0

 

2.7

 

17.3

OPERATING INCOME

 

95.9

 

52.7

 

167.4

 

112.3

Other (income) expense:

Interest income

 

 

 

(0.1)

 

Interest expense

 

1.7

 

1.5

 

3.1

 

3.5

Other (income) expense, net

 

 

(0.5)

 

0.3

 

(0.8)

Total other expense

 

1.7

 

1.0

 

3.3

 

2.7

INCOME BEFORE INCOME TAXES

 

94.2

 

51.7

 

164.1

 

109.6

Provision for income taxes

 

24.5

 

14.2

 

39.9

 

30.4

NET INCOME

$

69.7

$

37.5

$

124.2

$

79.2

Basic EPS

NET INCOME PER SHARE

$

2.08

$

1.11

$

3.70

$

2.34

Weighted average number of shares

 

33.5

 

33.8

 

33.6

 

33.8

Diluted EPS

NET INCOME PER SHARE

$

2.07

$

1.11

$

3.68

$

2.34

Weighted average number of shares

 

33.6

 

33.9

 

33.7

 

33.9

Dividends declared per share

$

0.30

$

0.26

$

0.56

$

0.49

See accompanying notes to consolidated financial statements.

4

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in millions)

(Unaudited)

    

Second Quarter Ended

    

Six Months Ended

    

June 26,

June 27,

June 26,

June 27,

    

2022

    

2021

    

2022

    

2021

    

Net income

$

69.7

$

37.5

$

124.2

$

79.2

Other comprehensive (loss) gain net of tax:

Foreign currency translation adjustments

 

(23.6)

 

5.8

 

(33.0)

 

(8.3)

Cash flow hedges

1.6

(0.8)

5.1

(0.9)

Other comprehensive (loss) gain

 

(22.0)

 

5.0

 

(27.9)

 

(9.2)

Comprehensive income

$

47.7

$

42.5

$

96.3

$

70.0

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 six months ended

Common Stock

Common Stock

Paid-In

Retained

Comprehensive

Stockholders’

June 26, 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

124.2

124.2

Other comprehensive loss

(27.9)

(27.9)

Comprehensive income

96.3

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

 

2,325

0.2

0.2

Stock-based compensation

 

8.2

8.2

Stock repurchase

 

(433,623)

(0.1)

(61.1)

(61.2)

Net change in restricted and performance stock units

144,727

2.0

(12.9)

(10.9)

Common stock dividends

(19.3)

(19.3)

Balance at June 26, 2022

 

27,297,954

$

2.7

 

6,024,290

$

0.6

$

641.6

$

696.8

$

(155.2)

$

1,186.5

Accumulated

Class A

Class B

Additional

Other

Total

(For the second quarter ended

Common Stock

Common Stock

Paid-In

Retained

Comprehensive

Stockholders’

June 26, 2022)

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Loss  

    

Equity

Balance at March 27, 2022

 

27,437,126

$

2.7

 

6,024,290

$

0.6

$

636.5

$

655.9

$

(133.2)

$

1,162.5

Net income

69.7

69.7

Other comprehensive loss

(22.0)

(22.0)

Comprehensive income

47.7

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

0.2

0.2

Stock-based compensation

 

4.9

4.9

Stock repurchase

 

(140,233)

(18.2)

(18.2)

Net change in restricted and performance stock units

1,061

(0.3)

(0.3)

Common stock dividends

(10.3)

(10.3)

Balance at June 26, 2022

 

27,297,954

$

2.7

 

6,024,290

$

0.6

$

641.6

$

696.8

$

(155.2)

$

1,186.5

6

Accumulated

Class A

Class B

Additional

Other

Total

(For the six months ended

Common Stock

Common Stock

Paid-In

Retained

Comprehensive

Stockholders’

June 27, 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

79.2

79.2

Other comprehensive loss

(9.2)

(9.2)

Comprehensive income

70.0

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

112

Stock-based compensation

9.9

9.9

Stock repurchase

(62,070)

(7.8)

(7.8)

Net change in restricted and performance stock units

90,556

1.9

(9.2)

(7.3)

Common stock dividends

(16.7)

(16.7)

Balance at June 27, 2021

27,577,110

$

2.8

6,074,290

$

0.6

$

618.1

$

605.6

$

(109.2)

$

1,117.9

Accumulated

Class A

Class B

Additional

Other

Total

(For the second quarter ended

Common Stock

Common Stock

Paid-In

Retained

Comprehensive

Stockholders’

June 27, 2021)

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Loss  

    

Equity

Balance at March 28, 2021

 

27,585,082

$

2.8

 

6,124,290

$

0.6

$

611.0

$

581.0

$

(114.2)

$

1,081.2

Net income

37.5

37.5

Other comprehensive income

5.0

5.0

Comprehensive income

42.5

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

50,000

(50,000)

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

112

Stock-based compensation

7.1

7.1

Stock repurchase

(30,917)

(4.0)

(4.0)

Net change in restricted and performance stock units

(27,167)

Common stock dividends

(8.9)

(8.9)

Balance at June 27, 2021

27,577,110

$

2.8

6,074,290

$

0.6

$

618.1

$

605.6

$

(109.2)

$

1,117.9

See accompanying notes to consolidated financial statements.

7

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)

Six Months Ended

June 26,

June 27,

    

2022

    

2021

OPERATING ACTIVITIES

Net income

$

124.2

$

79.2

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

Depreciation

 

14.2

 

16.0

Amortization of intangibles

 

6.1

 

7.3

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

 

1.5

 

0.7

Stock-based compensation

 

8.2

 

9.9

Deferred income tax

 

(1.1)

 

(4.8)

Changes in operating assets and liabilities:

Accounts receivable

 

(54.1)

 

(60.8)

Inventories

 

(72.5)

 

(52.1)

Prepaid expenses and other assets

 

(6.0)

 

(7.5)

Accounts payable, accrued expenses and other liabilities

 

24.4

 

85.3

Net cash provided by operating activities

 

44.9

 

73.2

INVESTING ACTIVITIES

Additions to property, plant and equipment

 

(13.1)

 

(13.0)

Proceeds from the sale of property, plant and equipment

 

0.8

 

4.9

Net cash used in investing activities

 

(12.3)

 

(8.1)

FINANCING ACTIVITIES

Proceeds from long-term borrowings

75.0