However, ASU 2016-02 has significantly affected the Company’s disclosures about noncash activities related to leases. Additionally, the Company’s lease-related disclosures have significantly increased as of and for the period ended September 29, 2019 as compared to prior years. See Note 4 to the consolidated financial statements.

Shipping and Handling

Shipping and handling costs included in selling, general and administrative expenses amounted to ~~$14.2~~$14.5 million and ~~$12.8~~$14.2 million for the third quarters of ~~2018~~2019 and ~~2017,~~2018, respectively, and were ~~$42.1~~$43.0 million and ~~$37.8~~$42.1 million for the first nine months of ~~2018~~2019 and ~~2017,~~2018, respectively.

Research and Development

Research and development costs included in selling, general and administrative expenses amounted to ~~$8.7~~$9.8 million and ~~$7.3~~$8.7 million for the third quarters of ~~2018~~2019 and ~~2017,~~2018, respectively, and were ~~$25.5~~$28.6 million and ~~$21.6~~$25.5 million for the first nine months of ~~2018~~2019 and ~~2017,~~2018, respectively.

3. Revenue Recognition

The Company is a leading supplier of products that manage and conserve the flow of fluids and energy into, through and out of buildings in the residential and commercial markets of the Americas, Europe, and ~~Asia~~‑~~Pacific,~~Asia-Pacific, Middle East, and Africa (“APMEA”). For over 140 years, the Company has designed and produced valve systems that safeguard and regulate water systems, energy efficient heating and hydronic systems, drainage systems and water filtration technology that helps purify and conserve water.

The Company distributes products through ~~four~~4 primary distribution channels: wholesale, original equipment manufacturers (OEMs), specialty, and do-it-yourself (DIY). The Company operates in ~~three~~3 geographic segments: Americas, Europe, and APMEA. Each of these segments sells similar products, which are comprised of the following principal product lines:

●

Residential & commercial flow control products—includes products typically sold into plumbing and hot water applications such as backflow preventers, water pressure regulators, temperature and pressure relief valves, and thermostatic mixing valves.

●

HVAC & gas products—includes commercial ~~high~~‑~~efficiency~~high-efficiency boilers, water heaters and heating solutions, hydronic and electric heating systems for ~~under~~‑~~floor~~under-floor radiant applications, custom heat and hot water solutions,

~~Table of Contents~~

hydronic pump groups for boiler manufacturers and alternative energy control packages, and flexible stainless steel connectors for natural and liquid propane gas in commercial food service and residential applications. HVAC is an acronym for heating, ventilation and air conditioning.

●

Drainage & water re‑~~use~~re-use products—includes drainage products and engineered rain water harvesting solutions for commercial, industrial, marine and residential applications.

●

Water quality products—includes ~~point~~‑of‑~~use~~point-of-use and ~~point~~‑of‑~~entry~~point-of-entry water filtration, conditioning and scale prevention systems for ~~both~~ commercial, marine and residential applications.

The following table disaggregates revenue, which is presented as net sales in the financial statements, for each reportable segment, by distribution channel and principal product line:


	For the three months ended September 30, 2018								For the nine months ended September 30, 2018
			(in millions)								(in millions)
	Americas		Europe		APMEA		Consolidated		Americas		Europe		APMEA		Consolidated

																	For the third quarter ended September 29, 2019								For the nine months ended September 29, 2019
																			(in millions)								(in millions)
Distribution Channel																	Americas		Europe		APMEA		Consolidated		Americas		Europe		APMEA		Consolidated
Wholesale	$	146.7	$	73.5	$	14.8	$	235.0	$	433.9	$	234.7	$	44.4	$	713.0	$	152.1	$	72.2	$	15.0	$	239.3	$	459.8	$	226.9	$	43.2	$	729.9
OEM		19.4		37.5		0.3		57.2		58.6		114.9		1.1		174.6		20.0		35.1		0.4		55.5		62.7		108.5		1.2		172.4
Specialty		82.7		—		1.5		84.2		236.4		—		4.3		240.7		83.6		—		1.1		84.7		247.5		—		2.2		249.7
DIY		13.9		0.6		—		14.5		46.9		2.1		—		49.0		14.6		0.6		—		15.2		46.2		2.0		—		48.2
Total	$	262.7	$	111.6	$	16.6	$	390.9	$	775.8	$	351.7	$	49.8	$	1,177.3	$	270.3	$	107.9	$	16.5	$	394.7	$	816.2	$	337.4	$	46.6	$	1,200.2

	For the three months ended September 30, 2018								For the nine months ended September 30, 2018
			(in millions)								(in millions)

																	For the third quarter ended September 29, 2019								For the nine months ended September 29, 2019
																			(in millions)								(in millions)
Principal Product Line	Americas		Europe		APMEA		Consolidated		Americas		Europe		APMEA		Consolidated		Americas		Europe		APMEA		Consolidated		Americas		Europe		APMEA		Consolidated
Residential & Commercial Flow Control	$	144.4	$	40.2	$	11.2	$	195.8	$	435.3	$	132.2	$	33.8	$	601.3	$	151.0	$	41.1	$	10.6	$	202.7	$	459.7	$	130.1	$	32.9	$	622.7
HVAC and Gas Products		77.1		49.4		4.3		130.8		220.2		152.7		13.6		386.5		73.4		44.7		4.4		122.5		221.9		139.0		10.0		370.9
Drainage and Water Re-use Products		19.8		21.7		0.7		42.2		55.2		65.9		1.4		122.5		20.7		21.5		1.3		43.5		60.4		66.4		3.0		129.8
Water Quality Products		21.4		0.3		0.4		22.1		65.1		0.9		1.0		67.0		25.2		0.6		0.2		26.0		74.2		1.9		0.7		76.8
Total	$	262.7	$	111.6	$	16.6	$	390.9	$	775.8	$	351.7	$	49.8	$	1,177.3	$	270.3	$	107.9	$	16.5	$	394.7	$	816.2	$	337.4	$	46.6	$	1,200.2


	For the third quarter ended September 30, 2018								For the nine months ended September 30, 2018
			(in millions)								(in millions)
Distribution Channel	Americas		Europe		APMEA		Consolidated		Americas		Europe		APMEA		Consolidated
Wholesale	$	146.7	$	73.5	$	14.8	$	235.0	$	433.9	$	234.7	$	44.4	$	713.0
OEM		19.4		37.5		0.3		57.2		58.6		114.9		1.1		174.6
Specialty		82.7		—		1.5		84.2		236.4		—		4.3		240.7
DIY		13.9		0.6		—		14.5		46.9		2.1		—		49.0
Total	$	262.7	$	111.6	$	16.6	$	390.9	$	775.8	$	351.7	$	49.8	$	1,177.3

	For the third quarter ended September 30, 2018								For the nine months ended September 30, 2018
			(in millions)								(in millions)
Principal Product Line	Americas		Europe		APMEA		Consolidated		Americas		Europe		APMEA		Consolidated
Residential & Commercial Flow Control	$	144.4	$	40.2	$	11.2	$	195.8	$	435.3	$	132.2	$	33.8	$	601.3
HVAC and Gas Products		77.1		49.4		4.3		130.8		220.2		152.7		13.6		386.5
Drainage and Water Re-use Products		19.8		21.7		0.7		42.2		55.2		65.9		1.4		122.5
Water Quality Products		21.4		0.3		0.4		22.1		65.1		0.9		1.0		67.0
Total	$	262.7	$	111.6	$	16.6	$	390.9	$	775.8	$	351.7	$	49.8	$	1,177.3

The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to represent the contract with a customer. The Company’s contracts with customers are generally for products only and typically do not include other performance obligations such as professional services, extended warranties, or other material rights. In situations where sales are to a distributor, the Company has concluded that its contracts are with the distributor as the Company holds a contract bearing enforceable rights and obligations only with the distributor. As part of its consideration of the contract, the Company evaluates certain factors including the customer’s ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled. As the Company’s standard payment terms are less than one year, the Company has elected ~~the practical expedient under ASC 606-10-32-18~~ not to assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on its relative standalone selling price. The product price as specified on the purchase order is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance

obligation is satisfied), which typically occurs at shipment from the Company’s manufacturing site or distribution center, or delivery to the customer’s named location. In certain circumstances, revenue from shipments to retail customers is recognized only when the product is consumed by the customer, as based on the terms of the arrangement, transfer of control is not satisfied until that point in time. In determining whether control has transferred, the Company considers if there is a present right to payment, physical possession and legal title, along with risks and rewards of ownership having transferred to the customer. In certain circumstances, the Company manufactures customized product without alternative use for its customers. However, as these arrangements do not entitle the Company a right to payment of cost plus a profit for work completed, the Company has concluded that revenue recognition at the point in time control transfers is appropriate and not over time recognition.

~~Table of Contents~~

At times, the Company receives orders for products to be delivered over multiple dates that may extend across reporting periods. The Company invoices for each delivery upon shipment and recognizes revenues for each distinct product delivered, assuming transfer of control has occurred. As scheduled delivery dates are within one year, under the optional exemption provided by ~~ASC 606-10-50-14,~~the guidance, revenues allocated to future shipments of partially completed contracts are not disclosed.

The Company generally provides an assurance warranty that its products will substantially conform to the published specification. The Company’s liability is limited to either a credit equal to the purchase price or replacement of the defective part. Returns under warranty have historically been immaterial. The Company does not consider activities related to such warranty, if any, to be a separate performance obligation. For certain of its products, the Company will separately sell extended warranty and service policies to its customers. The Company considers the sale of the extended warranty a separate performance obligation. These policies typically are for periods ranging from one to three years. Payments received are deferred and recognized over the policy period. For all periods presented, the revenue recognized and the revenue deferred under these policies is not material to the consolidated financial statements.

The timing of revenue recognition, billings and cash collections from the Company’s contracts with customers can vary based on the payment terms and conditions in the customer contracts. In some cases, customers will partially prepay for their goods; in other cases, after appropriate credit evaluations, payment is due in arrears. In addition, there are constraints which cause variability in the ultimate consideration to be recognized. These constraints typically include early payment discounts, volume rebates, rights of return, cooperative advertising, and market development funds. The Company includes these constraints in the estimated transaction price when there is a basis to reasonably estimate the amount of variable consideration. These estimates are based on historical experience, anticipated future performance and the Company’s best judgment at the time. When the timing of the Company’s recognition of revenue is different from the timing of payments made by the customer, the Company recognizes either a contract asset (performance precedes contractual due date) or a contract liability (customer payment precedes performance). Contracts with payment in arrears are recognized as receivables. The opening and closing balances of the Company’s contract assets and contract liabilities are as follows:


	Contract		Contract		Contract
	Assets		Liabilities - Current		Liabilities - Noncurrent
			(in millions)
Balance - January 1, 2019	$	1.0	$	11.3	$	2.7
Change in period		(0.7)		0.1		—
Balance - March 31, 2019	$	0.3	$	11.4	$	2.7
Change in period		(0.2)		0.7		0.1
Balance - June 30, 2019	$	0.1	$	12.1	$	2.8
Change in period		—		(0.3)		0.2
Balance - September 29, 2019	$	0.1	$	11.8	$	3.0

Balance - January 1, 2018	$	0.6	$	11.3	$	2.1
Change in period		1.1		0.2		0.3
Balance - April 1, 2018	$	1.7	$	11.5	$	2.4
Change in period		(0.3)		0.1		0.3
Balance - July 1, 2018	$	1.4	$	11.6	$	2.7
Change in period		0.4		(0.4)		—
Balance - September 30, 2018	$	1.8	$	11.2	$	2.7

Contract

Contract

Contract

Assets

Liabilities - Current

Liabilities - Noncurrent

(in millions)

Balance - January 1, 2018

$
0.6

$
11.3

$
2.1

Change in period

1.1

0.2

0.3

Balance - April 1, 2018

$
1.7

$
11.5

$
2.4

Change in period

(0.3)

0.1

0.3

Balance - July 1, 2018

$
1.4

$
11.6

$
2.7

Change in period

0.4

(0.4)

—

Balance - September 30, 2018

$
1.8

$
11.2

$
2.7

The amount of revenue recognized during the ~~three~~third quarter and nine months ended September 29, 2019 that was included in the opening contract liability balance was $3.1 million and $9.2 million, respectively. The amount of revenue recognized during the third quarter and nine months ended September 30, 2018 that was included in the opening contract liability balance was ~~$5.4~~$5.4 million and $11.5 million, respectively. This revenue consists primarily of revenue recognized for shipments of product which had been prepaid as well as the amortization of extended warranty and service policy revenue. The Company did not recognize any material revenue from obligations satisfied in prior periods. ~~The change in Contract Liabilities is not material for the three and nine months ended September 30, 2018.~~ There were no0 impairment losses related to Contract Assets for the third quarter and nine months ended September ~~30, 2018.~~29, 2019.

The Company incurs costs to obtain and fulfill a contract; however, the Company has elected ~~the practical expedient under ASC 340-40-24-4~~ to recognize all incremental costs to obtain a contract as an expense when incurred if the amortization period is one year or less. The Company has elected to treat shipping and handling activities performed after the customer has obtained control of the related goods as a fulfillment cost and the related cost is accrued for in conjunction with the recording of revenue for the goods.

4. Leases

~~4. Income Taxes~~

The ~~2017 Tax Act was enacted~~Company adopted ASC 842 effective January 1, 2019. The Company has a variety of categories of lease arrangements, including real estate, automobiles, manufacturing equipment, facility equipment, office equipment and certain service arrangements that are dependent on ~~December 22, 2017~~an identified asset. The Company’s real estate leases, which consist primarily of manufacturing facilities, office space and warehouses, represent approximately 85% of the Company’s operating lease liabilities and generally have a lease term between 2 and 15 years. The remaining leases primarily consist of automobiles, machinery and equipment used in the manufacturing processes (e.g., forklifts and pallets), general office equipment and certain service arrangements, each with various lease terms. The Company’s automobile leases typically have terms ranging from 3 to 5 years. The Company’s remaining population of leases have terms ranging from 2 to 15 years. Certain lease arrangements may contain renewal terms ranging from 1 to 5 years. The majority of the Company’s real estate, automobile, and equipment leases consist of fixed lease payments plus, for many of the Company’s leases, variable payments. For the Company’s real estate leases, variable payments include those for common area maintenance, property taxes, and insurance. For automobile leases, variable payments primarily include maintenance, taxes, and insurance. For equipment leases, variable payments include maintenance and payments based on usage. The Company has ~~resulted~~elected to account for lease and non-lease components as a single component for all leases. Therefore, all fixed costs within a lease arrangement are included in ~~significant changes to~~ the U.S. corporate income tax system. These changes include (1) lowering the U.S. corporate income tax rate from 35% to 21%, (2) implementing a base erosion and anti-abuse tax, (3) generally eliminating U.S. federal income taxes on dividends from

~~Table of Contents~~

~~foreign subsidiaries, (4) a new provision designed to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries, which allows~~fixed lease payments for the ~~possibility of utilizing foreign tax credits~~single, combined lease component and used to ~~offset~~measure the tax liability (subject to limitations), (5) a lower effective U.S. tax rate on certain revenues from sources outside the U.S., and (6) a one-time mandatory deemed repatriation tax (“Toll Tax”) on foreign subsidiaries’ previously untaxed accumulated foreign earnings.

In the period ended December 31, 2017, the Company recorded a provisional tax expense of $25.1 million related to the 2017 Tax Act, which included a $23.3 million charge for the Toll Tax. For the nine months ended September 30, 2018, the Company has not recorded any additional provisional expense or benefit related to the 2017 Tax Act.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows companies to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. These provisional amounts may be impacted by further analysis and future clarification and guidance regarding available tax accounting methods and elections, earnings and profits computations, foreign tax credit computations, and state tax conformity to federal tax changes. When the Company refines these provisional amounts, any adjustments will be recordedlease liability. Variable lease costs are recognized in the period ~~completed. The final analysis may be different from~~when the event, activity, or circumstance in the lease agreement occurs.

Some of the Company’s ~~current provisional amounts,~~lease agreements include Company options to either extend and/or early terminate the lease, the costs of which ~~could materially affect the Company’s tax obligations and effective tax rate in the period or periods in which the adjustments~~ are ~~made.~~

As of September 30, 2018, the amounts recorded for the 2017 Tax Act remain provisional for the Toll Tax, the remeasurement of deferred taxes, and gross foreign tax credit carryforwards and related valuation allowances to offset foreign tax credit carryforwards. Given the complexity of the 2017 Tax Act, the Company continues to gather additional information required to complete the accounting and evaluate the tax impact. The Company will continue its analysis and documentation through the measurement period taking into consideration any further guidance provided. The Company has not yet determined its policy election with respect to whether to record deferred taxes for basis differences expected to reverse as a result of the GILTI provisions in future periods or use the period cost method.

~~Due to the complexity of the new GILTI tax rules, the Company has~~ included ~~an estimate of the current GILTI impact~~ in the Company’s ~~tax provision~~lease liability to the extent that such options are reasonably certain of being exercised. Renewal options are generally not included in the lease term for ~~2018.~~the Company’s existing leases because the Company is not reasonably certain to exercise these renewal options. The Company does not generally enter into leases involving the construction or design of the underlying asset, and nearly all of the assets the Company leases are not specialized in nature. The Company’s ~~GILTI estimate may be revised~~leases generally do not include termination options for either party to the lease or restrictive financial or other covenants. The Company’s lease agreements generally do not include residual value guarantees.

Right-of-use asset amounts reported in ~~future periods~~the consolidated balance sheet by asset category as of September 29, 2019 were as follows:


	September 29, 2019
	(in millions)
Operating Leases (1)
Real Estate	$	31.0
Automobile		3.0
Machinery and equipment		3.1
Total operating lease ROU Asset	$	37.1

Finance Leases (2)
Real Estate	$	14.1
Machinery and equipment		4.4
Less: Accumulated depreciation		(8.3)
Finance Leases, net	$	10.2

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

(2)	Included on the Company’s consolidated balance sheet in property, plant and equipment.

The maturity of the ~~Company obtains~~Company’s operating and finance lease liabilities as of September 29, 2019 was as follows:


	September 29, 2019
	Operating Leases		Finance Leases
	(in millions)
2019 (excluding the nine months ended September 29, 2019)	$	2.7	$	0.5
2020		10.7		1.8
2021		6.6		1.0
2022		4.5		0.6
2023		3.4		0.3
Thereafter		18.2		0.1
Total undiscounted minimum lease payments	$	46.1	$	4.3
Less imputed interest		6.8		0.2
Total lease liabilities	$	39.3	$	4.1
Included in the consolidated balance sheet
Current lease liabilities (included in other current liabilities)		10.1		1.7
Non-Current lease liabilities (included in other non-current liabilities)		29.2		2.4
Total lease liabilities	$	39.3	$	4.1

The total lease cost consisted of the following amounts:


		Third Quarter Ended		Nine Months Ended
		September 29, 2019		September 29, 2019
		(in millions)
Operating lease cost	$	3.0	$	8.9
Amortization of finance lease right-of-use assets		0.3		0.9
Interest on lease liabilities		0.1		0.2
Variable lease cost		0.8		2.3
Total lease cost	$	4.2	$	12.3

The following information represents supplemental disclosure for the statement of cash flows related to operating and finance leases:


	September 29, 2019
	(in millions)
Operating cash flows from operating leases	$	8.8
Operating cash flows from finance leases		0.2
Financing cash flows from finance leases		1.2
Total cash paid for amounts included in the measurement of lease liabilities		10.2
Finance lease liabilities arising from obtaining right-of-use assets		1.1
Operating lease liabilities arising from obtaining right-of-use assets		11.8

The following summarizes additional ~~data,~~information related to operating and ~~as the IRS issues new guidance on implementing the 2017 Tax Act.~~finance leases:


	September 29, 2019
Weighted-average remaining lease term - finance leases		2.9	years
Weighted-average remaining lease term - operating leases		7.5	years
Weighted-average discount rate - finance leases		3.8	%
Weighted-average discount rate - operating leases		3.7	%

5. Goodwill & Intangibles

The Company operates in ~~three~~3 geographic segments: Americas, Europe, and APMEA. During the third quarter ended September 29, 2019, the Company completed an acquisition within the Americas segment resulting in $38.3 million of goodwill. The acquisition is not considered material to the Company’s consolidated financial statements. The changes in the carrying amount of goodwill by geographic segment are as follows:

September 29, 2019

Gross Balance

Accumulated Impairment Losses

Net Goodwill

Acquired

Foreign

Balance

During

Currency

Balance

Impairment

Balance

January 1,

the

Translation

September 29,

January 1,

Loss During

September 29,

2019

Period

and Other

2019

the Period

2019

(in millions)

Americas

438.1

38.3

0.3

476.7

(24.5)

—

(24.5)

452.2

Europe

243.7

—

(5.0)

238.7

(129.7)

—

(129.7)

109.0

APMEA

30.1

—

(1.1)

29.0

(12.9)

—

(12.9)

16.1

Total

711.9

38.3

(5.8)

744.4

(167.1)

—

(167.1)

577.3


	December 31, 2018
	Gross Balance								Accumulated Impairment Losses						Net Goodwill
			Acquired		Foreign
	Balance		During		Currency		Balance		Balance		Impairment		Balance
	January 1,		the		Translation		December 31,		January 1,		Loss During		December 31,		December 31,
	2018		Period		and Other		2018		2018		the Period		2018		2018
	(in millions)
Americas	$	437.4	$	1.5	$	(0.8)	$	438.1	$	(24.5)	$	—	$	(24.5)	$	413.6
Europe		249.3		—		(5.6)		243.7		(129.7)		—		(129.7)		114.0
APMEA		30.9		—		(0.8)		30.1		(12.9)		—		(12.9)		17.2
Total	$	717.6	$	1.5	$	(7.2)	$	711.9	$	(167.1)	$	—	$	(167.1)	$	544.8

September 30, 2018

Gross Balance

Accumulated Impairment Losses

Net Goodwill

Acquired

Foreign

Balance

During

Currency

Balance

Balance

Impairment

Balance

January 1,

the

Translation

September 30,

January 1,

Loss During

September 30,

September 30,


2018

Period (1)

and Other

2018

2018

the Period

2018

2018

(in millions)

Americas

$
437.4

1.5

(0.4)

438.5

$
(24.5)

—

(24.5)

414.0

Europe

249.3

—

(3.0)

246.3

(129.7)

—

(129.7)

116.6

APMEA

30.9

—

(1.0)

29.9

(12.9)

—

(12.9)

17.0

Total

$
717.6

1.5

(4.4)

714.7

$
(167.1)

—

(167.1)

547.6

~~Table of Contents~~

December 31, 2017

Gross Balance

Accumulated Impairment Losses

Net Goodwill

Acquired

Foreign

Balance

During

Currency

Balance

Balance

Impairment

Balance

January 1,

the

Translation

December 31,

January 1,

Loss During

December 31,

December 31,


2017

Period

and Other

2017

2017

the Period

2017

2017

(in millions)

Americas

$
434.7

2.0

0.7

437.4

$
(24.5)

—

(24.5)

412.9

Europe

234.9

—

14.4

249.3

(129.7)

—

(129.7)

119.6

APMEA

30.2

—

0.7

30.9

(12.9)

—

(12.9)

18.0

Total

$
699.8

2.0

15.8

717.6

$
(167.1)

—

(167.1)

550.5

~~(1)Americas goodwill additions during the first nine months of 2018 relate to immaterial acquisitions.~~

Intangible assets include the following:


	September 30, 2018						December 31, 2017
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
	(in millions)

													September 29, 2019						December 31, 2018
													Gross				Net		Gross				Net
													Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
													Amount		Amortization		Amount		Amount		Amortization		Amount
													(in millions)
Patents	$	16.1	$	(15.7)	$	0.4	$	16.1	$	(15.4)	$	0.7	$	16.1	$	(15.8)	$	0.3	$	16.1	$	(15.8)	$	0.3
Customer relationships		232.9		(144.0)		88.9		233.2		(133.5)		99.7		232.3		(154.0)		78.3		232.9		(146.9)		86.0
Technology		54.6		(26.2)		28.4		53.9		(23.1)		30.8		56.8		(30.5)		26.3		54.6		(27.3)		27.3
Trade names		26.1		(11.1)		15.0		25.5		(9.7)		15.8		25.8		(12.7)		13.1		26.1		(11.5)		14.6
Other		4.3		(3.5)		0.8		6.9		(6.0)		0.9		4.3		(3.6)		0.7		4.3		(3.5)		0.8
Total amortizable intangibles		334.0		(200.5)		133.5		335.6		(187.7)		147.9		335.3		(216.6)		118.7		334.0		(205.0)		129.0
Indefinite-lived intangible assets		36.5		—		36.5		37.3		—		37.3		35.5		—		35.5		36.2		—		36.2
	$	370.5	$	(200.5)	$	170.0	$	372.9	$	(187.7)	$	185.2
													$	370.8	$	(216.6)	$	154.2	$	370.2	$	(205.0)	$	165.2

Aggregate amortization expense for amortized intangible assets for the third quarters ofended September 29, 2019 and September 30, 2018 ~~and 2017~~ was ~~$4.5~~$3.8 million and ~~$5.7~~$4.5 million, respectively, and for the first nine months of 2019 and 2018 was $11.6 million and ~~2017, was~~ $15.2 million, ~~and $16.8~~respectively. As a result of the acquisition completed in the third quarter of 2019, the Company recorded $2.2 million ~~respectively.~~of intangible assets related to developed technology.

6. Restructuring

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

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

Three Months Ended

Nine Months Ended

September 30,

October 1,

September 30,

October 1,

2018

2017

2018

2017

(in millions)
Restructuring costs:

2015 Actions

$
—

$
0.5

$
—

$
2.1
Other Actions

3.4

0.9

3.4

1.5
Total restructuring charges

$
3.4

$
1.4

$
3.4

$
3.6

~~Table of Contents~~17

~~The Company recorded pre-tax restructuring costs in its business segments as follows:~~

Three Months Ended

Nine Months Ended

September 30,

October 1,

September 30,

October 1,

2018

2017

2018

2017

(in millions)
Americas

$
—

$
0.7

$
—

$
2.6
Europe

3.4

0.5

3.4

0.6
APMEA

—

0.2

—

0.4
Total

$
3.4

$
1.4

$
3.4

$
3.6

~~Other Actions~~

The Company periodically initiates other actions which are not part of a major program. Total “Other Actions” pre-tax restructuring expense was $3.4 million during the three and nine months ended September 30, 2018. Included in “Other Actions” are European restructuring activities initiated in 2017 and 2018.

In the fourth quarter of 2017, management initiated certain restructuring actions related to reductions in force within the Company’s Europe segment. The restructuring activities primarily included severance benefits. The total pre-tax charges associated with the Europe restructuring activities were initially expected to be approximately $4.1 million with costs being fully incurred in 2017. The company reduced its total pre-tax charges for the program to approximately $3.4 million as of September 30, 2018, primarily related to reduced severance costs. The restructuring reserve associated with these actions is approximately $0.2 million as of September 30, 2018, and relates to severance benefits.

In the third quarter of 2018, management initiated restructuring actions primarily associated with the Company’s European headquarters as well as cost savings initiatives at certain European manufacturing facilities. These actions ~~include~~included reductions in force and other related costs within the Company’s Europe segment. The ~~pre-tax charges for the third quarter of 2018 were approximately $4.4 million and primarily included severance benefits. The~~ total restructuring charges associated with the program ~~are~~were initially estimated to be approximately $5.0 million. The Company increased its total expected pre-tax charges for the program to approximately $6.7 million as of June 30, 2019, primarily related to increased severance and other related costs, at which time costs associated with ~~costs to be~~the 2018 program had been fully ~~incurred within~~incurred. Through September 29, 2019 the ~~next 12 months.~~Company paid approximately $4.1 million of severance benefits and other related costs. The restructuring reserve associated with these actions ~~is approximately $3.7 million~~ as of September ~~30, 2018,~~29, 2019 was approximately $2.4 million, and primarily relates to severance benefits.

7. Financial Instruments and Derivative Instruments

Fair Value

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

The fair value of the Company’s ~~5.05%~~5.05% senior notes due 2020 is based on quoted market prices of similar notes (level 2). The fair value of the Company’s borrowings outstanding under the Credit Agreement and 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 30,		December 31,
	2018		2017
	(in millions)

					September 29,		December 31,
					2019		2018
					(in millions)
Carrying amount	$	380.6	$	499.5	$	344.5	$	355.0
Estimated fair value	$	381.1	$	501.1	$	345.3	$	355.4

~~Table of Contents~~

Financial Instruments

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including deferred compensation plan assets and related liabilities, redeemable financial instruments, and derivatives. The fair values of these financial assets and liabilities were determined using the following inputs at September ~~30, 2018~~29, 2019 and December 31, ~~2017:~~2018:


	Fair Value Measurement at September 30, 2018 Using:
			Quoted Prices in Active		Significant Other		Significant
			Markets for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in millions)

									Fair Value Measurement at September 29, 2019 Using:
											Quoted Prices in Active		Significant Other		Significant
											Markets for Identical		Observable		Unobservable
											Assets		Inputs		Inputs
									Total		(Level 1)		(Level 2)		(Level 3)
									(in millions)
Assets
Plan asset for deferred compensation(1)	$	3.1	$	3.1	$	—	$	—	$	2.4	$	2.4	$	—	$	—
Interest rate swaps (1)	$	8.9	$	—	$	8.9	$	—	$	1.5	$	—	$	1.5	$	—
Total assets	$	12.0	$	3.1	$	8.9	$	—	$	3.9	$	2.4	$	1.5	$	—
Liabilities
Plan liability for deferred compensation(2)	$	3.1	$	3.1	$	—	$	—	$	2.4	$	2.4	$	—	$	—
Redeemable financial instrument(3)	$	2.8	$	—	$	—	$	2.8
Designated foreign currency hedges (4)									$	0.3	$	—	$	0.3	$	—
Total liabilities	$	5.9	$	3.1	$	—	$	2.8	$	2.7	$	2.4	$	0.3	$	—

Fair Value Measurements at December 31, 2017 Using:

Quoted Prices in Active

Significant Other

Significant

Markets for Identical

Observable

Unobservable



Assets

Inputs

Inputs

Total

(Level 1)

(Level 2)

(Level 3)

(in millions)

Assets

Plan asset for deferred compensation(1)

$
3.2

$
3.2

$
—

$
—

Interest rate swaps (1)

$
5.6

$
—

$
5.6

$
—

Total assets

$
8.8

$
3.2

$
5.6

$
—

Liabilities

Plan liability for deferred compensation(2)

$
3.2

$
3.2

$
—

$
—

Redeemable financial instrument(3)

2.9

—

—

2.9

Total liabilities

$
6.1

$
3.2

$
—

$
2.9


	Fair Value Measurements at December 31, 2018 Using:
			Quoted Prices in Active		Significant Other		Significant
			Markets for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in millions)
Assets
Plan asset for deferred compensation(1)	$	2.6	$	2.6	$	—	$	—
Interest rate swaps (1)	$	6.5	$	—	$	6.5	$	—
Total assets	$	9.1	$	2.6	$	6.5	$	—
Liabilities
Plan liability for deferred compensation(2)	$	2.6	$	2.6	$	—	$	—
Redeemable financial instrument(3)	$	2.8	$	—	$	—	$	2.8
Total liabilities	$	5.4	$	2.6	$	—	$	2.8

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

~~(1)~~

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

(3)

Included on the Company’s consolidated balance sheet in accrued expenses and other ~~assets (other, net).~~

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

~~(3)Included on the Company’s consolidated balance sheet in other current~~ liabilities and relates to a mandatorily redeemable equity instrument as part of the Apex Valves Limited (“Apex”) acquisition in 2015.

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

On November 30, 2015, the Company acquired 80% of the ~~Apex~~ ~~Valves Limited (“Apex”)~~ ~~acquisition in 2015.~~

outstanding shares of Apex. The ~~table below provides~~aggregate purchase price was $20.4 million and the Company recorded 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, 2017 to September 30, 2018.

Total realized and unrealized

Balance

(gains) losses included in:

Balance

December 31,

Net earnings

Comprehensive

September 30,


2017

Settlements

Purchases

adjustments

income

2018

(in millions)

Redeemable financial instrument

$
2.9

—

$
—

—

$
(0.1)

$
2.8

~~In connection with the acquisition of Apex, a~~long-term liability of $5.5 million ~~was recognized on November 30, 2015~~ as the estimate of the acquisition date fair value on the contractual call option to purchase the remaining 20% within three years of ~~the mandatorily redeemable equity instrument.~~closing. The Company acquired an additional 10% ownership in the ~~third~~first quarter of 2017 for ~~approximately~~ $2.9 million, ~~and now owns~~increasing the Company’s ownership to 90% of Apex

~~Table of Contents~~

outstanding shares. In the fourth quarter of 2018, the Company executed an agreement to extend the exercise of the contractual call option. The ~~remaining liability is classified as Level 3 under~~Company exercised the ~~fair value hierarchy as it is based on the commitment~~contractual call option to purchase the remaining 10% of Apex shares ~~within the next year, which is not observable~~ in the ~~market.~~third quarter of 2019 for approximately $2.8 million.

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

Interest Rate Swaps

On February 12, 2016, the Company entered into a Credit Agreement (the “Credit Agreement”) pursuant to which it received a funding commitment under a Term Loan of $300 million, of which the entire $300 million has been drawn on, and a Revolving Commitment (“Revolver”) of $500 million, of which ~~$45.0~~$37.0 million had been drawn as of September ~~30, 2018.~~29, 2019. Both facilities mature on February 12, 2021. For each facility, the Company can choose either an Adjusted LIBOR or Alternative Base Rate (“ABR”). Upon intended election of Adjusted LIBOR as the interest rate, the Term Loan has quarterly interest payments that began in May 2016, quarterly principal repayments that commenced on March 31, 2017, with a balloon payment of principal on maturity date. The Revolver has quarterly interest payments.

Accordingly, the Company’s earnings and cash flows are exposed to interest rate risk from changes in Adjusted LIBOR. In order to manage the Company’s exposure to changes in cash flows attributable to fluctuations in LIBOR-indexed interest payments related to the Company’s floating rate debt, the Company entered into ~~two~~2 interest rate swaps. For each interest rate swap, the Company receives the three-month USD-LIBOR subject to a 0% floor, and pays a fixed rate of 1.31375% on a notional amount of $225.0 million. The swaps mature on February 12, 2021. The Company formally documents the hedge relationships at hedge inception to ensure

that its interest rate swaps qualify for hedge accounting. On a quarterly basis, the Company assesses whether the interest rate swaps are highly effective in offsetting changes in the cash flow of the hedged item. The Company does not hold or issue interest rate swaps for trading purposes. The swaps are designated as cash flow hedges. For the ~~three~~third quarter and nine months ended September 29, 2019, a loss of $0.5 million and $3.6 million, respectively, was recorded in Accumulated Other Comprehensive Loss to recognize the effective portion of the fair value of interest rate swaps that qualify as a cash flow hedge. For the third quarter and nine months ended September 30, 2018, a gain of $0.1 million and $2.4 million, respectively, was recorded in Accumulated Other Comprehensive ~~Income~~Loss to recognize the effective portion of the fair value of interest rate swaps that qualify as a cash flow hedge. ~~For the three and nine months ended October 1, 2017, a gain of $0.~~1 million and a loss of $0.4 million, respectively, was recorded in Accumulated Other Comprehensive Income to recognize the effective portion of the fair value of interest rate swaps that qualify as a cash flow hedge.

Designated Foreign Currency Hedges

The Company’s foreign subsidiaries transact most business, including certain intercompany transactions, in foreign currencies. Such transactions are principally purchases or sales of materials. The Company has exposure to a number of foreign currencies, including the Canadian ~~Dollar,~~dollar, the euro, and the Chinese ~~Yuan. Beginning in~~yuan. Since the first quarter of 2018, the Company has used a layering methodology, whereby at the end of each quarter, the Company enters into forward exchange contracts hedging Canadian dollar to U.S. dollar, which hedge approximately 70% to 80% of the forecasted intercompany purchase transactions between one of the Company’s Canadian subsidiaries and the Company’s U.S. operating subsidiaries for the next twelve months. Beginning in the first quarter of 2019, the Company has used the similar layering methodology and entered into forward exchange contracts hedging U.S. dollar to the Chinese yuan, which hedge up to 60% of the forecasted intercompany sales transactions between one of the Company’s Chinese subsidiaries and one of the Company’s U.S. operating subsidiaries for the next twelve months. As of September ~~30, 2018,~~29, 2019, all designated foreign exchange hedge contracts were cash flow hedges under ASC 815, Derivatives and Hedging ("ASC 815"). The Company records the effective portion of the designated foreign currency hedge contracts in other comprehensive income until inventory turns and is sold to a third-party. Once the third-party transaction associated with the hedged forecasted transaction occurs, the effective portion of any related gain or loss on the designated foreign currency hedge will be reclassified into ~~earnings.~~earnings within cost of goods sold. In the event the notional amount of the derivatives exceeds the forecasted intercompany purchases for a given month, the excess hedge position will be attributed to the following month’s forecasted purchases. However, if the following month’s forecasted purchases cannot absorb the excess hedge position from the current month, the effective portion of the hedge recorded in other comprehensive income will be

~~Table of Contents~~

reclassified to earnings.

The notional amounts outstanding as of September 29, 2019 for the Canadian dollar to U.S. dollar contracts and the U.S. dollar to the Chinese yuan contracts were $13.7 million and $5.2 million, respectively. The combined fair value of the Company’s designated foreign hedge contracts outstanding as of September ~~30, 2018~~29, 2019 was ~~immaterial. For the three and~~ ~~nine months ended~~a liability balance of $0.3 million. As of September ~~30, 2018~~,29, 2019, the amount expected to be reclassified into ~~earnings~~cost of goods sold from other comprehensive income in the next twelve months for both programs is ~~not material to the financial statements.~~a loss of $0.2 million.

8. Earnings per Share and Stock Repurchase Program

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

For the Third Quarter Ended September 29, 2019

For the Third Quarter Ended September 30, 2018

Income

Shares

Per Share

Income

Shares

Per Share

(Numerator)

(Denominator)

Amount

(Numerator)

(Denominator)

Amount

(Amounts in millions, except per share information)

Basic EPS:

Net income

32.3

34.0

0.95

31.5

34.3

0.92

Effect of dilutive securities:

Common stock equivalents

0.2

(0.01)

0.1

Diluted EPS:

Net income

32.3

34.2

0.94

31.5

34.4

0.92

For the Three Months Ended September 30, 2018

For the Three Months Ended October 1, 2017

Income

Shares

Per Share

Income

Shares

Per Share


(Numerator)

(Denominator)

Amount

(Numerator)

(Denominator)

Amount

(Amounts in millions, except per share information)

Basic EPS:

Net income

$
31.5

34.3

$
0.92

$
26.5

34.4

$
0.77

Effect of dilutive securities:

Common stock equivalents

0.1

—

Diluted EPS:

Net income

$
31.5

34.4

$
0.92

$
26.5

34.4

$
0.77

For the Nine Months Ended September 29, 2019

For the Nine Months Ended September 30, 2018

Income

Shares

Per Share

Income

Shares

Per Share

(Numerator)

(Denominator)

Amount

(Numerator)

(Denominator)

Amount

(Amounts in millions, except per share information)

Basic EPS:

Net income

99.7

34.1

2.92

95.7

34.3

2.79

Effect of dilutive securities:

Common stock equivalents

0.1

(0.01)

0.1

(0.01)

Diluted EPS:

Net income

99.7

34.2

2.91

95.7

34.4

2.78

For the Nine Months Ended September 30, 2018

For the Nine Months Ended October 1, 2017

Income

Shares

Per Share

Income

Shares

Per Share


(Numerator)

(Denominator)

Amount

(Numerator)

(Denominator)

Amount

(Amounts in millions, except per share information)

Basic EPS:

Net income

$
95.7

34.3

$
2.79

$
75.4

34.4

$
2.19

Effect of dilutive securities:

Common stock equivalents

0.1

(0.01)

0.1

Diluted EPS:

Net income

$
95.7

34.4

$
2.78

$
75.4

34.5

$
2.19

There were no0 options to purchase Class A common stock outstanding during the ~~three~~third quarters and nine months ended September 29, 2019 or September 30, 2018 that would have been anti-dilutive. Options to purchase 0.1 million shares of Class A common stock were outstanding during the three and nine months ended October 1, 2017 but were not included in the computation of diluted EPS because to do so would be anti-dilutive.

On July 27, 2015, the Company’s Board of Directors authorized the repurchase of up to $100 million of the Company’s Class A common stock from time to time on the open market or in privately negotiated transactions. ~~In connection with this~~On February 6, 2019, the Board of Directors authorized an additional stock repurchase program of up to $150 million of the Company’s Class A common stock to be purchased from time to time on the open market or in privately negotiated transactions. For both stock repurchase programs, the Company has entered into a Rule 10b5-1 plan, which permits 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 the Rule 10b5-1 plan the Company entered into with respect to the repurchase program. The July 27, 2015 stock repurchase program was completed in August 2019 after the Company expended the entire $100 million authorized under the program. As of September ~~30, 2018,~~29, 2019, there was approximately ~~$22.3~~$147.0 million remaining authorized for share repurchases under ~~this~~the February 6, 2019 program.

The following table summarizes the cost and the number of shares of Class A common stock repurchased under the July 27, 2015 ~~program~~and February 6, 2019 programs during the ~~three~~third quarter and nine months ended September 29, 2019 and September 30, ~~2018 and October 1, 2017:~~2018:

For the Three Months Ended

For the Three Months Ended

September 30, 2018

October 1, 2017

Number of shares

Cost of shares

Number of shares

Cost of shares


repurchased

repurchased

repurchased

repurchased

(amounts in millions, except share amount)
Total stock repurchased during the period:

57,156

$
4.7

72,669

$
4.7


	For the Third Quarter Ended			For the Third Quarter Ended
	September 29, 2019			September 30, 2018
	Number of shares	Cost of shares		Number of shares	Cost of shares
	repurchased	repurchased		repurchased	repurchased
	(Amounts in millions, except share amount)
Stock repurchase programs:
July 27 2015	15,907	$	1.5	57,156	$	4.7
February 6, 2019	32,036		3.0	—		—
Total stock repurchased during the period:	47,943	$	4.5	57,156	$	4.7


	For the Nine Months Ended			For the Nine Months Ended
	September 29, 2019			September 30, 2018
	Number of shares	Cost of shares		Number of shares	Cost of shares
	repurchased	repurchased		repurchased	repurchased
	(Amounts in millions, except share amount)
Stock repurchase programs:
July 27 2015	146,304	$	11.8	195,790	$	15.5
February 6, 2019	32,036		3.0	—		—
Total stock repurchased during the period:	178,340	$	14.8	195,790	$	15.5

~~Table of Contents~~

For the Nine Months Ended

For the Nine Months Ended

September 30, 2018

October 1, 2017

Number of shares

Cost of shares

Number of shares

Cost of shares


repurchased

repurchased

repurchased

repurchased

(amounts in millions, except share amount)

Total stock repurchased during the period:

195,790

$
15.5

214,455

$
13.6

9. Stock-Based Compensation

~~9. Stock‑Based Compensation~~

The Company ~~maintains one stock incentive plan, the Second Amended~~issued 94,849 and ~~Restated 2004 Stock Incentive Plan (the “2004 Stock Incentive Plan”). The Company grants~~140,937 shares of restricted stock and deferred shares during the first nine months of 2019 and 2018, respectively. The company grants these awards to key employees and stock awards to ~~non‑employee~~non-employee members of the Company’s Board of Directors under the 2004 Stock Incentive Plan. Stock awards to ~~non‑employee~~employees typically vest over a three-year period and awards to non-employee members of the Company’s Board of Directors vest immediately. Employees’ restricted stock awards and deferred shares typically 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 140,937 and 127,960 shares of restricted stock awards and deferred shares during the first nine months of 2018 and 2017, respectively.

The Company also grants performance stock units to key employees under the 2004 Stock Incentive Plan. Performance stock units cliff vest at the end of a three-year performance period ~~set by the Compensation Committee of the Board of Directors at the time of grant. Upon vesting,~~with the number of shares of the Company’s Class A common stock awarded to each performance stock unit recipient ~~will be~~ determined based on the Company’s performance relative to certain performance goals set at the time the performance stock units were granted. ~~The recipient of a performance stock unit award may earn from zero shares to twice the number of target shares awarded to such recipient.~~ The performance stock units are amortized to expense over the vesting period, and based on the Company’s performance relative to the performance goals, which may be ~~adjusted. Changes to the estimated shares expected to vest will result in adjustments~~adjusted with changes to the related ~~share-based compensation~~ expense ~~that will be~~ recorded in the period of ~~change.~~adjustment. If the performance goals are not met, no awards are earned and previously recognized compensation expense is reversed. The Company granted ~~96,128~~82,898 and ~~98,812 of annual awards for~~96,128 performance stock units during the first nine months of 2019 and 2018, ~~and 2017,~~ respectively. The performance goals for the performance stock units are based on the compound annual growth rate of the Company’s revenue over the three-year performance period and the Company’s return on invested capital (“ROIC”) for the third year of the performance period.

~~The Company also has a~~Under the Management Stock Purchase Plan ~~that~~(“MSPP”) the Company granted 37,486 restricted stock units (“RSUs”) and 36,208 RSUs during the first nine months of 2019 and 2018, respectively. The MSPP allows for the granting of ~~restricted stock units (RSUs)~~RSUs to key employees. On an annual basis, key employees may elect to receive a portion of their annual incentive compensation in RSUs instead of cash. Participating employees may use up to 50% of their annual incentive bonus to purchase RSUs for a purchase price equal to 80% of the fair market value of the Company’s Class A common stock as of the date of grant. Upon vesting, each RSU is converted into one share of Class A common stock. RSUs vest either annually over a three-year period from the grant date or upon the third anniversary of the grant date. 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, from the date of grant. An aggregate of 2,000,000 shares of Class A common stock may be issued under the Management Stock Purchase Plan. The Company granted 36,208 RSU’s and 47,222 RSU’s during the first nine months of 2018 and 2017, respectively.

The fair value of ~~the 20% discount on~~ each ~~RSU~~share issued under the Management Stock Purchase Plan is estimated on the date of grant, using the ~~Black‑Scholes‑Merton~~Black-Scholes-Merton Model, based on the following weighted average assumptions:


	2018		2017

					2019		2018
Expected life (years)	3.0		3.0		3.0		3.0
Expected stock price volatility	24.1	%	25.0	%	23.3	%	24.1	%
Expected dividend yield	1.0	%	1.2	%	1.1	%	1.0	%
Risk-free interest rate	2.4	%	1.5	%	2.5	%	2.4	%

The ~~risk‑free~~risk-free interest rate is based upon the U.S. Treasury yield curve at the time of grant for the respective expected life of the RSUs. The expected life (estimated period of time outstanding) of RSUs and volatility were calculated using

~~Table of Contents~~

historical data. The expected dividend yield of stock is the Company’s best estimate of the expected future dividend yield.

The above assumptions were used to determine the weighted average ~~grant‑date~~grant-date fair value ~~of the discount~~ of RSUs granted of $22.16 and $21.80 in 2019 and ~~$16.84 in~~ 2018, ~~and 2017,~~ respectively.

A more detailed description of each of these plans can be found in Note 1314 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

10. Segment Information

The Company operates in ~~three~~3 geographic segments: Americas, Europe, and APMEA. Each of these segments sells similar products and has separate financial results that are reviewed by the Company’s chief operating ~~decision‑~~decision-maker. Each segment earns revenue and income almost exclusively from the sale of its ~~products~~.products. The Company sells its products into various end markets around the world, with sales by region based upon location of the entity recording the sale. See Note 3 for further detail on the product lines sold into by region. All intercompany sales transactions have been eliminated. The accounting policies for each segment are the same as those described in Note 2 above and in Note 2 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

~~Table of Contents~~22

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


	Third Quarter Ended				Nine Months Ended
	September 29,		September 30,		September 29,		September 30,
	2019		2018		2019		2018
	(in millions)
Net Sales
Americas	$	270.3	$	262.7	$	816.2	$	775.8
Europe		107.9		111.6		337.4		351.7
APMEA		16.5		16.6		46.6		49.8
Consolidated net sales	$	394.7	$	390.9	$	1,200.2	$	1,177.3
Operating income
Americas	$	48.5	$	45.0	$	142.3	$	128.1
Europe		12.1		9.4		38.1		37.2
APMEA		1.4		2.5		3.9		5.5
Subtotal reportable segments		62.0		56.9		184.3		170.8
Corporate(*)		(13.2)		(10.0)		(34.5)		(27.8)
Consolidated operating income		48.8		46.9		149.8		143.0
Interest income		(0.1)		(0.1)		(0.3)		(0.6)
Interest expense		3.5		3.9		10.8		12.6
Other income, net		(0.8)		(0.9)		(0.4)		(2.0)
Income before income taxes	$	46.2	$	44.0	$	139.7	$	133.0
Capital Expenditures
Americas	$	3.1	$	5.1	$	10.5	$	15.0
Europe		1.5		3.4		8.1		8.1
APMEA		0.1		0.4		0.5		1.0
Consolidated capital expenditures	$	4.7	$	8.9	$	19.1	$	24.1
Depreciation and Amortization
Americas	$	7.3	$	7.4	$	21.6	$	21.7
Europe		3.6		3.7		10.7		13.1
APMEA		0.7		0.6		2.0		1.9
Consolidated depreciation and amortization	$	11.6	$	11.7	$	34.3	$	36.7
Identifiable assets (at end of period)
Americas					$	1,098.1	$	1,024.2
Europe						504.6		520.2
APMEA						93.6		105.2
Consolidated identifiable assets					$	1,696.3	$	1,649.6
Property, plant and equipment, net (at end of period)
Americas					$	113.5	$	113.0
Europe						76.4		78.9
APMEA						5.9		6.6
Consolidated property, plant and equipment, net					$	195.8	$	198.5

Three Months Ended

Nine Months Ended

September 30,

October 1,

September 30,

October 1,


2018

2017

2018

2017

(in millions)
Net Sales








Americas

$
262.7

$
239.1

$
775.8

$
718.3
Europe

111.6

109.0

351.7

324.6
APMEA

16.6

16.6

49.8

47.5
Consolidated net sales

$
390.9

$
364.7

$
1,177.3

$
1,090.4
Operating income

Americas

$
45.0

$
39.8

$
128.1

$
110.5
Europe

9.4

13.4

37.2

38.5
APMEA

2.5

0.5

5.5

3.3
Subtotal reportable segments

56.9

53.7

170.8

152.3
Corporate(*)

(10.0)

(9.4)

(27.8)

(27.5)
Consolidated operating income

46.9

44.3

143.0

124.8
Interest income

(0.1)

(0.2)

(0.6)

(0.6)
Interest expense

3.9

4.7

12.6

14.5
Other (income) expense, net

(0.9)

0.3

(2.0)

0.8
Income before income taxes

$
44.0

$
39.5

$
133.0

$
110.1
Capital Expenditures

Americas

$
5.1

$
4.4

$
15.0

$
12.5
Europe

3.4

1.7

8.1

4.2
APMEA

0.4

0.1

1.0

0.4
Consolidated capital expenditures

$
8.9

$
6.2

$
24.1

$
17.1
Depreciation and Amortization

Americas

$
7.4

$
7.6

$
21.7

$
22.8
Europe

3.7

4.9

13.1

13.8
APMEA

0.6

0.4

1.9

2.1
Consolidated depreciation and amortization

$
11.7

$
12.9

$
36.7

$
38.7
Identifiable assets (at end of period)

Americas

$
1,024.2

$
1,074.0
Europe

520.2

510.4
APMEA

105.2

131.2
Consolidated identifiable assets

$
1,649.6

$
1,715.6
Property, plant and equipment, net (at end of period)

Americas

$
113.0

$
105.7
Europe

78.9

79.2
APMEA

6.6

7.2
Consolidated property, plant and equipment, net

$
198.5

$
192.1

* Corporate expenses are primarily for administrative compensation expense, compliance costs, professional fees, including corporate-related legal and audit expenses, shareholder services and benefit administration costs.

The above operating segments are presented on a basis consistent with the presentation included in the Company’s December 31, ~~2017~~2018 consolidated financial statements included in its Annual Report on Form 10-K.

The U.S. property, plant and equipment of the Company’s Americas segment was ~~$109.0~~$109.6 million and ~~$102.0~~$109.0 million at September 29, 2019 and September 30, 2018, ~~and October 1, 2017,~~ respectively.

~~Table of Contents~~23

The following includes U.S. net sales of the Company’s Americas segment:

Three Months Ended

Nine Months Ended

September 30,

October 1,

September 30,

October 1,


2018

2017

2018

2017

(in millions)
U.S. net sales

$
245.5

$
222.0

$
725.1

$
670.6

Third Quarter Ended

Nine Months Ended

September 29,

September 30,

September 29,

September 30,

2019

2018

2019

2018

(in millions)

U.S. net sales

252.0

245.5

764.9

725.1

The following includes intersegment sales for Americas, Europe and APMEA:


	Three Months Ended				Nine Months Ended
	September 30,		October 1,		September 30,		October 1,
	2018		2017		2018		2017
	(in millions)

									Third Quarter Ended				Nine Months Ended
									September 29,		September 30,		September 29,		September 30,
									2019		2018		2019		2018
									(in millions)
Intersegment Sales
Americas	$	3.7	$	2.5	$	9.7	$	9.0	$	3.2	$	3.7	$	9.1	$	9.7
Europe		3.7		4.0		10.6		11.9		3.4		3.7		11.3		10.6
APMEA		27.3		12.8		68.7		52.8		17.7		27.3		53.4		68.7
Intersegment sales	$	34.7	$	19.3	$	89.0	$	73.7	$	24.3	$	34.7	$	73.8	$	89.0

11. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of the following:


					Accumulated
	Foreign				Other
	Currency			Cash Flow	Comprehensive
	Translation			Hedges (1)	Loss
	(in millions)

Balance December 31, 2018	$	(126.3)	$	5.2	$	(121.1)
Change in period		(4.6)		(1.3)		(5.9)
Balance March 31, 2019	$	(130.9)	$	3.9	$	(127.0)
Change in period		3.5		(2.4)		1.1
Balance June 30, 2019	$	(127.4)	$	1.5	$	(125.9)
Change in period		(15.8)		(0.5)		(16.3)
Balance September 29, 2019	$	(143.2)	$	1.0	$	(142.2)

Balance December 31, 2017	$	(102.6)	$	3.5	$	(99.1)
Change in period		9.7		2.8		12.5
Balance April 01, 2018	$	(92.9)	$	6.3	$	(86.6)
Change in period		(26.6)		1.0		(25.6)
Balance July 01, 2018	$	(119.5)	$	7.3	$	(112.2)
Change in period		2.5		(0.1)		2.4
Balance September 30, 2018	$	(117.0)	$	7.2	$	(109.8)

Accumulated

Foreign

Other

Currency

Cash Flow

Comprehensive


Translation


Hedges (1)

Loss

(in millions)

Balance December 31, 2017

$
(102.6)

$
3.5

$
(99.1)

Change in period

9.7

2.8

12.5

Balance April 1, 2018

$
(92.9)

$
6.3

$
(86.6)

Change in period

(26.6)

1.0

(25.6)

Balance July 1, 2018

$
(119.5)

$
7.3

$
(112.2)

Change in period

2.5

(0.1)

2.4

Balance September 30, 2018

$
(117.0)

$
7.2

$
(109.8)

Balance December 31, 2016

$
(153.7)

$
2.9

$
(150.8)

Change in period

7.9

0.1

8.0

Balance April 02, 2017

$
(145.8)

$
3.0

$
(142.8)

Change in period

21.5

(0.7)

20.8

Balance July 02, 2017

$
(124.3)

$
2.3

$
(122.0)

Change in period

15.4

0.1

15.5

Balance October 01, 2017

$
(108.9)

$
2.4

$
(106.5)

(1)

~~(1)~~

Cash flow hedges include interest rate swaps and designated foreign currency hedges. See Note 7 for further details.

12. Debt

OnIn February ~~12,~~ 2016, the Company entered into the Credit Agreement among the Company, certain subsidiaries of the Company who become borrowers under the Credit Agreement, JPMorgan Chase Bank, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the other lenders referred to therein. The Credit Agreement provides for a $500 million, ~~five‑year,~~five-year, senior unsecured revolving credit facility (the “Revolving Credit Facility”) with a sublimit of up to $100 million in letters of credit. As of September ~~30, 2018,~~29, 2019, the Company had drawn ~~$45.0~~$37.0 million on this line of ~~credit.~~credit and had $25.8 million in letters of credit outstanding, which resulted in a $437.2 million of unused and available credit under the Revolving Credit Facility. The Credit Agreement also provides for a ~~$300~~$300 million, ~~five‑year,~~five-year, term loan facility (the “Term Loan Facility”) available to the Company in a single draw, of which the entire $300 million had been drawn in February 2016. The Company had ~~$260.6~~$232.5 million of borrowings outstanding on the Term Loan Facility as of September ~~30, 2018~~29, 2019 and ~~$288.8~~

~~Table of Contents~~

$260.6 million outstanding as of October 1, 2017. Borrowings outstanding under the Revolving Credit Facility bear interest at a fluctuating rate per annum equal to an applicable percentage defined as (i) in the case of Eurocurrency rate loans, the ICE Benchmark Administration LIBOR rate plus an applicable percentage, ranging from 0.975% to 1.45%, determined by reference to the Company’s consolidated leverage ratio, or (ii) in the case of base rate loans and swing line loans, the highest of (a) the federal funds rate plus 0.5%, (b) the rate of interest in effect for such day as announced by JPMorgan Chase Bank, N.A. as its “prime rate,” and (c) the ICE Benchmark Administration LIBOR rate plus 1.0%, plus an applicable percentage, ranging from 0.00% to 0.45%, determined by reference to the Company’s consolidated leverage ratio. Borrowings outstanding underSeptember 30, 2018. The Company paid total installments on the Term Loan Facility ~~will bear interest at a fluctuating rate per annum equal to an applicable percentage defined as~~of $22.5 million during the ~~ICE Benchmark Administration LIBOR rate plus an applicable percentage, ranging from 1.125% to 1.75%, determined by reference to the Company’s consolidated leverage ratio.~~first nine months of 2019. The interest rates as of September ~~30, 2018~~29, 2019 on the Revolving Credit Facility and on the Term Loan Facility were ~~3.14%~~3.11% and ~~3.64%~~3.43%, respectively.

The loan under the Term Loan Facility amortizes as follows: 0% per annum during the first year, 7.5% in the second and third years, 10% in the fourth and fifth years, and the remaining unpaid balance paid in full on the maturity date. Payments when due are made ratably each year in quarterly installments. The Company paid total installmentsterms of ~~$16.9 million during the first nine months of 2018. In addition to paying interest under the~~ Credit Agreement are further detailed in Note 12 of the Notes to Consolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 2018. As of September 29, 2019, the Company ~~is also required~~was in compliance with all covenants related to pay certain fees in connection with the Revolving Credit Facility, including, but not limited to, an unused facility fee and letter of credit fees. The Credit Agreement matures on February 12, 2021, subject to extension under certain circumstances and subject to the terms of the Credit Agreement. The Company may repay loans outstanding under the Credit Agreement from time to time without premium or penalty, other than customary breakage costs, if any, and subject to the terms of the Credit Agreement. Once repaid, amounts borrowed under the Term Loan Facility may not be borrowed again.

The Company maintains letters of credit that guarantee its performance or payment to third parties in accordance with specified terms and conditions. Amounts outstanding were $25.8 million as of September 29, 2019 and September 30, ~~2018 and $25.7 million as of October 1, 2017.~~2018. The Company’s letters of credit are primarily associated with insurance coverage. The Company’s letters of credit generally expire within one year of issuance and are drawn down against the Revolving Credit Facility. These instruments may exist or expire without being drawn down. Therefore, they do not necessarily represent future cash flow obligations.

~~As of September 30, 2018, the Company had $429.2 million of unused and available credit under the Revolving Credit Facility and was in compliance with all covenants related to the Credit Agreement.~~

The Company is a party to a note agreement as further detailed in Note 1112 of the Notes to Consolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. This note agreement requires the Company to maintain a fixed charge coverage ratio of consolidated EBITDA plus consolidated rent expense during the period to consolidated fixed charges. Consolidated fixed charges are the sum of consolidated interest expense for the period and consolidated rent expense. As of September ~~30, 2018,~~29, 2019, the Company was in compliance with all covenants regarding this note agreement.

13. Contingencies and Environmental Remediation

The Company is a defendant in numerous legal matters arising from its ordinary course of operations, including those involving product liability, environmental matters, and commercial disputes.

Other than the items described below, significant commitments and contingencies at September ~~30, 2018~~29, 2019 are consistent with those discussed in Note 1516 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

As of September ~~30, 2018,~~29, 2019, the Company estimates that the aggregate amount of reasonably possible loss in excess of the amount accrued for its legal contingencies is approximately ~~$5.6~~$5.3 million ~~pre‑tax.~~pre-tax. With respect to the estimate of reasonably possible loss, management has estimated the upper end of the range of reasonably possible loss based on (i) the amount of money damages claimed, where applicable, (ii) the allegations and factual development to date, (iii) available defenses based on the allegations, and/or (iv) other potentially liable parties. This estimate is based upon currently available information and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. The matters underlying the estimate will change from time to time, and actual results may vary

~~Table of Contents~~

significantly from the current estimate. In the event of an unfavorable outcome in one or more of the matters, the ultimate liability may be in excess of amounts currently accrued, if any, and may be material to the Company’s operating results or cash flows for a particular quarterly or annual period. However, based on information currently known to it, management believes that the ultimate outcome of all matters, as they are resolved over time, is not likely to have a material adverse effect on the financial condition of the Company, though the outcome could be material to the Company’s operating results for any particular period depending, in part, upon the operating results for such period.

Chemetco, Inc. Superfund Site, Hartford, Illinois

In August 2017, Watts Regulator Co. (a wholly-owned subsidiary of the Company) received a “Notice of Environmental Liability” from the Chemetco Site Group (“Group”) alleging that it is a potentially responsible party for the Chemetco, Inc. Superfund Site in Hartford, Illinois (the ~~Site)~~“Site”) because it arranged for the disposal or treatment of hazardous substances that were contained in materials sent to the Site and that resulted in the release or threat of release of hazardous substances at the Site. ~~As of August 2017, 162 companies were members of the Group.~~ The letter offered Watts Regulator Co. the opportunity to join the Group and participate in the Remedial Investigation and Feasibility Study (“RI/FS”) at the Site. Watts Regulator Co. joined the Group in September 2017 and was added in March 2018 as a signatory, together with 43 other new Group members, to the Administrative Settlement Agreement and Order on Consent with the United States Environmental Protection Agency (“USEPA”) governing completion of the RI/FS. Based on information currently known to it, management believes that Watts Regulator Co.’s share of the costs of the RI/FS is not likely to have a material adverse effect on the financial condition of the Company, or have a material adverse effect on the Company’s operating results for any particular period. In February 2018, the Group commenced suit in the United States District Court for the Southern District of Illinois seeking response costs from other potentially responsible parties for the Site. The Group has identified more than 2,000 additional potentially responsible parties to date. The Company is unable to estimate a range of reasonably possible loss for the above matter in which damages have not been specified because: (i) the RI/FS has not been completed to determine what remediation plan will be implemented and the costs of such plan; (ii) the total number of potentially responsible parties who may or may not agree to fund or perform any remediation has not yet been determined; (iii) the share contribution for potentially responsible parties to any remediation has not been determined; and (iv) the number of years required to ~~complete the RI/FS and~~ implement a remediation plan acceptable to USEPA is uncertain.

~~14. Subsequent Events~~

On November 1, 2018, the Company declared a quarterly dividend of twenty-one cents ($0.21) per share on each outstanding share of Class A common stock and Class B common stock payable on December 14, 2018 to stockholders of record on November 30, 2018.

~~Table of Contents~~26

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

Overview

The following discussion and analysis are provided to increase the understanding of, and should be read in conjunction with, the accompanying unaudited consolidated financial statements and related notes. In this quarterly report on Form 10-Q, references to “the Company,” “Watts,” “we,” “us” or “our” refer to Watts Water Technologies, Inc. and its consolidated subsidiaries.

~~We operate on a 52-week calendar year ending on December 31. Any quarterly data contained in this Quarterly Report on Form 10-Q generally reflect the results of operations for a 13-week period.~~

We are a leading supplier of products, solutions and ~~solutions~~systems that ~~conserve water~~manage and ~~manage~~conserve the flow of fluids and energy into, through and out of buildings in the ~~residential~~commercial and ~~commercial~~residential markets in the Americas, Europe and ~~APMEA.~~Asia-Pacific, Middle East and Africa (“APMEA”). For over 140 years, we have designed and produced valve systems that safeguard and regulate water systems, energy efficient heating and hydronic systems, drainage systems and water filtration technology that helps purify and conserve water. We earn revenue and income almost exclusively from the sale of our products. Our principal product lines include:

●Residential & commercial flow control products—includes products typically sold into plumbing and hot water applications such as backflow preventers, water pressure regulators, temperature and pressure relief valves, and thermostatic mixing valves.

●HVAC & gas products—includes commercial ~~high‑efficiency~~high-efficiency boilers, water heaters and heating solutions, hydronic and electric heating systems for ~~under‑floor~~under-floor radiant applications, custom heat and hot water solutions, hydronic pump groups for boiler manufacturers and alternative energy control packages, and flexible stainless steel connectors for natural and liquid propane gas in commercial food service and residential applications. HVAC is an acronym for heating, ventilation and air conditioning.

●Drainage & water ~~re‑use~~re-use products—includes drainage products and engineered rain water harvesting solutions ~~for~~ commercial, industrial, marine and residential applications.

●Water quality products—includes ~~point‑of‑use~~point-of-use and ~~point‑of‑entry~~point-of-entry water filtration, conditioning and scale prevention systems for ~~both~~ commercial, marine and residential applications.

We believe that the factors relating to our future growth include continued product innovation that meets the needs of our customers and our end markets; our ability to continue to make selective acquisitions, both in our core markets as well as in complementary markets; regulatory requirements relating to the quality and conservation of water and the safe use of water; increased demand for clean water; continued enforcement of plumbing and building codes; and a healthy economic environment. We have completed 1112 acquisitions in the last decade. Our acquisition strategy focuses on businesses that promote our key macro themes around safety and regulation, energy efficiency and water conservation. We target businesses that will provide us with one or more of the following: an entry into new markets and/or new geographies, improved channel access, unique and/or proprietary technologies, advanced production capabilities or complementary solution offerings.

Our innovation strategy is focused on differentiated products and solutions that will provide greater opportunity to distinguish ourselves in the marketplace. Conversely, we want to migrate away from commoditized products where we cannot add value. Our goal is to be a solutions provider, not just a components supplier. We continually look for strategic opportunities to invest in new products, solutions and markets or divest existing product lines where necessary in order to meet this goal.

The Internet of Things (“IoT”) has allowed companies to transform components into smart and connected devices. Over the last few years we have been building our smart and connected foundation by expanding our internal capabilities and making strategic acquisitions. In 2018, we began accelerating our efforts and product innovation initiatives related to our Smart and Connected strategy by investing in IoT architecture development, enhancing digital tools used by our customers, launching our new Watts website, and investing in several new smart and connected product development projects. In 2019, we continue to focus on these efforts and initiatives. Our strategy is to deliver superior customer value through smart and connected products and solutions. This strategy focuses on three dimensions: Connect, Control and Conserve. We intend to introduce products that will connect our customers with smart systems, control systems for optimal performance, and conserve critical resources by increasing operability, efficiency and safety.

Products representing a majority of our sales are subject to regulatory standards and code enforcement, which typically require that these products meet stringent performance criteria. ~~Together with our commissioned manufacturers’ representatives, we~~We have consistently advocated for the development and enforcement of such plumbing codes. We are focused on maintaining stringent quality control and testing procedures at each of our manufacturing facilities in order to manufacture products in compliance with code requirements and take advantage of the resulting demand for compliant products. We believe that product development, product testing capability and investment in plant and equipment needed to manufacture products in compliance with code requirements, represent a competitive advantage for us.

~~Table of Contents~~

During the third quarter of ~~2018,~~2019, sales increased ~~7.2%~~1.0%, or ~~$26.2~~$3.8 million, compared to the third quarter of ~~2017.~~2018. The increase included organic sales growth of ~~8.0%~~2.4%, or ~~$29.1~~$9.5 million, primarily within the Americas ~~segment due to higher sales volume~~ and ~~price.~~Europe segments. This was partially offset by a decrease from foreign exchange of ~~0.8%~~1.4%, or ~~$2.9 million.~~$5.7 million, primarily driven by a weaker euro. Organic sales is a non-GAAP financial measure that excludes the impacts of acquisitions, divestitures and foreign exchange from year-over-year comparisons. Management believes reporting organic sales growth provides useful information to investors, potential investors and others, because it allows for additional insight into underlying sales trends by providing sales growth on a consistent basis. We reconcile the change in organic sales to our reported sales for each region within our results below. Operating income of ~~$46.9~~$48.8 million increased by ~~$2.6~~$1.9 million, or ~~5.8%~~4.1%, in the third quarter of ~~2018~~2019 as compared to the third quarter of ~~2017.~~2018. This increase is primarily driven by ~~higher sales~~price, volume, ~~increased pricing,~~lower restructuring costs and savings from productivity initiatives, partially offset by higher ~~material costs,~~general inflation including tariffs, investments in strategic growth initiatives, and increased ~~restructuring costs~~Corporate expenses, including higher professional fees and ~~general inflation.~~acquisition related costs.

Recent Events

~~On November 1, 2018,~~In the ~~Company declared a quarterly dividend~~third quarter of ~~twenty-one cents ($0.21) per share on each outstanding share~~2019 we completed an immaterial acquisition to purchase substantially all the assets of ~~Class A common stock~~Backflow Direct LLC, based in Rancho Cordova, California. Backflow Direct specializes in the design and ~~Class B common stock payable on December 14, 2018 to stockholders~~manufacture of ~~record on November 30, 2018.~~backflow prevention valves used primarily in fire protection applications.

Results of Operations

~~Three Months~~Third Quarter Ended September 29, 2019 Compared to Third Quarter Ended September 30, 2018 ~~Compared to Three Months Ended October 1, 2017~~

Net Sales. Our business is reported in three geographic segments: Americas, Europe and APMEA. Our net sales in each of these segments for each of the third quarters of ~~2018~~2019 and ~~2017~~2018 were as follows:


	Three Months Ended				Three Months Ended						% Change to
	September 30, 2018				October 1, 2017						Consolidated
	Net Sales		% Sales		Net Sales		% Sales		Change		Net Sales
	(dollars in millions)

													Third Quarter Ended				Third Quarter Ended						% Change to
													September 29, 2019				September 30, 2018						Consolidated
													Net Sales		% Sales		Net Sales		% Sales		Change		Net Sales
													(dollars in millions)
Americas	$	262.7	67.2	%	$	239.1	65.6	%	$	23.6	6.5	%	$	270.3	68.5	%	$	262.7	67.2	%	$	7.6	1.9	%
Europe		111.6	28.6			109.0	29.9			2.6	0.7			107.9	27.3			111.6	28.6			(3.7)	(0.9)
APMEA		16.6	4.2			16.6	4.5			—	—			16.5	4.2			16.6	4.2			(0.1)	—
Total	$	390.9	100.0	%	$	364.7	100.0	%	$	26.2	7.2	%	$	394.7	100.0	%	$	390.9	100.0	%	$	3.8	1.0	%

The change in net sales was attributable to the following:


									Change As a %								Change As a %
									of Consolidated Net Sales								of Segment Net Sales

	Americas		Europe		APMEA		Total		Americas		Europe		APMEA		Total		Americas		Europe		APMEA
	(dollars in millions)
Organic	$	7.9	$	1.4	$	0.2	$	9.5	1.9	%	0.4	%	0.1	%	2.4	%	3.0	%	1.3	%	1.2	%
Foreign exchange		(0.3)		(5.1)		(0.3)		(5.7)	—		(1.3)		(0.1)		(1.4)		(0.1)		(4.6)		(1.8)
Total	$	7.6	$	(3.7)	$	(0.1)	$	3.8	1.9	%	(0.9)	%	—	%	1.0	%	2.9	%	(3.3)	%	(0.6)	%

Change As a %

Change As a %

of Consolidated Net Sales

of Segment Net Sales









Americas

Europe

APMEA

Total

Americas

Europe

APMEA

Total

Americas

Europe

APMEA

(dollars in millions)

Organic

$
24.3

$
4.3

$
0.5

$
29.1

6.7
%
1.2
%
0.1
%
8.0
%
10.1
%
3.9
%
2.8
%
Foreign exchange

(0.7)

(1.7)

(0.5)

(2.9)

(0.2)

(0.5)

(0.1)

(0.8)

(0.3)

(1.5)

(2.4)

Total

$
23.6

$
2.6

$
—

$
26.2

6.5
%
0.7
%
—
%
7.2
%
9.8
%
2.4
%
0.4
%

Our products are sold to wholesalers, OEMs, DIY chains, and through various specialty channels. The change in organic net sales by channel was attributable to the following:


											Change As a %
											of Prior Year Sales
	Wholesale		OEMs		DIY		Specialty		Total		Wholesale		OEMs		DIY		Specialty
	(dollars in millions)

																													Change As a %
																													of Prior Year Sales
																			Wholesale		OEMs		DIY		Specialty		Total		Wholesale		OEMs		DIY		Specialty
																			(dollars in millions)
Americas	$	13.7	$	1.8	$	1.3	$	7.5	$	24.3	10.3	%	10.2	%	9.7	%	10.0	%	$	5.6	$	0.6	$	0.7	$	1.0	$	7.9	3.8	%	2.8	%	5.1	%	1.2	%
Europe		2.0		2.7		(0.4)		—		4.3	2.7		7.7		(38.9)		—			2.1		(0.8)		0.1		—		1.4	2.9		(2.0)		11.8		—
APMEA		0.1		—		—		0.4		0.5	0.6		—		—		36.2			0.4		0.1		—		(0.3)		0.2	3.0		29.9		—		(22.5)
Total	$	15.8	$	4.5	$	0.9	$	7.9	$	29.1									$	8.1	$	(0.1)	$	0.8	$	0.7	$	9.5

The increase in Americas organic net sales was primarily due to ~~higher sales~~a combination of price across many of our product lines and volume ~~and increased pricing in~~within our valve, drainage, and water quality products, which are sold through ~~all~~each of our channels. ~~In addition, there~~This was ~~an increase~~partially offset by a decrease in ~~sales of~~

~~Table of Contents~~

volume within our heating and hot water ~~products, including boilers, stainless steel water heaters, and aftermarket products, which are sold through the specialty channel.~~products.

Organic net sales in Europe increased primarily due to price and higher ~~volume and increased pricing. A portion of the higher volume~~volume. The increase in wholesale sales was driven by our ~~marine-based drains applications sold through our wholesale channel.~~drainage and valve products. The ~~increase~~decrease in OEM sales ~~is primarily related~~was mainly due to ~~strong demand for~~a decrease in volume of our electronics products. ~~This was partially offset by our ongoing product rationalization efforts within Europe, as we continue to focus on our core product lines.~~

Organic net sales in APMEA increased primarily due to increased sales in China and New Zealand. This was partially offset by decreased sales within the Middle East ~~and Africa, Australia, and Korea, partially offset by~~due to project delays as well as softness within ~~China.~~Korea.

The net decrease in sales due to foreign exchange was primarily due to the depreciation of the euro, Chinese yuan, and Canadian dollar ~~and Chinese Yuan~~ against the U.S. dollar in the third quarter of ~~2018.~~2019. We cannot predict whether foreign currencies will appreciate or depreciate against the U.S. dollar in future periods or whether future foreign exchange rate fluctuations will have a positive or negative impact on our net sales.

Gross Profit. Gross profit and gross profit as a percent of net sales (gross margin) for the third quarters of ~~2018~~2019 and ~~2017~~2018 were as follows:


	Three Months Ended
	September 30, 2018			October 1, 2017
	(dollars in millions)

							Third Quarter Ended
							September 29, 2019			September 30, 2018
							(dollars in millions)
Gross profit	$	164.5		$	152.7		$	168.6		$	164.5
Gross margin		42.1	%		41.9	%		42.7	%		42.1	%

Gross profit and gross margin ~~improved by 0.2% in the third quarter of 2018~~percentage increased compared to the third quarter of ~~2017. The increase in gross profit during the third quarter of~~ 2018 ~~resulted from increased pricing,~~due to price, higher ~~sales~~ volume, and savings from productivity initiatives, which were partially offset by higher ~~material~~general inflation costs, ~~mainly due to increased copper and stainless steel commodity costs, as well as higher inbound transportation costs and general inflation.~~including tariffs.

Selling, General and Administrative Expenses. Selling, general and administrative, or SG&A, expenses increased ~~$7.2~~$5.6 million, or ~~6.7%~~4.9%, in the third quarter of ~~2018~~2019 compared to the third quarter of ~~2017.~~2018. The increase in SG&A expenses was attributable to the following:


	(in millions)		% Change

					(in millions)		% Change
Organic	$	7.9	7.4	%	$	7.0	6.1	%
Foreign exchange		(0.7)	(0.7)			(1.4)	(1.2)
Total	$	7.2	6.7	%	$	5.6	4.9	%

The organic increase was ~~primarily~~ related to investments in strategic growth initiatives of ~~$4.8~~$3.0 million, including investments in research and development for new products, commercial excellence, and technology and information systems. The ~~organic~~ increase was also due to increased Corporate expenses, including higher ~~variable~~professional fees of $2.3 million and acquisition related costs of $0.9 million, general inflation of $1.6 million, increased product liability costs of $1.0 million, and an increase in stock compensation expense of $0.8 million due to a change in the expected attainment of performance goals related to ~~increased sales volume totaling $2.9 million, and inflation of $1.9 million primarily related to transportation costs.~~our performance stock units. These increases were partially offset by a $0.5 million decrease in amortization costs ~~of $1.3 million~~ for certain intangible assets that reached the end of their useful lives, ~~as well as~~ incremental European restructuring savings of ~~$0.8~~$0.5 million, and a reduction of certain selling and marketing costs of $0.7 million compared to the third quarter of ~~2017.~~2018. The decrease in foreign exchange was mainly due to the depreciation of the euro ~~Canadian dollar, and Chinese Yuan~~ against the U.S. dollar. Total SG&A expenses, as a percentage of sales, were 30.4% in the third quarter of 2019 compared to 29.2% in the third quarter of ~~2018 compared to 29.3% in the third quarter of 2017.~~

~~Restructuring.~~ In the third quarter of 2018, we recorded a net charge of $3.4 million primarily related to restructuring actions associated with our European headquarters as well as cost savings initiatives primarily within certain European manufacturing facilities, as compared to a net charge of $1.4 million in the third quarter of 2017. For a more detailed description of our current restructuring plans, see Note 6 of Notes to Consolidated Financial Statements.

2018.

~~Table of Contents~~29

Operating Income. Operating income (loss) by segment for the third quarters of ~~2018~~2019 and ~~2017~~2018 was as follows:


							% Change to
							Consolidated
	Three Months Ended						Operating
	September 30, 2018		October 1, 2017		Change		Income
	(dollars in millions)

															% Change to
									Third Quarter Ended						Consolidated
									September 29,		September 30,				Operating
									2019		2018		Change		Income
									(dollars in millions)
Americas	$	45.0	$	39.8	$	5.2	11.7	%	$	48.5	$	45.0	$	3.5	7.4	%
Europe		9.4		13.4		(4.0)	(9.0)			12.1		9.4		2.7	5.8
APMEA		2.5		0.5		2.0	4.5			1.4		2.5		(1.1)	(2.3)
Corporate		(10.0)		(9.4)		(0.6)	(1.4)			(13.2)		(10.0)		(3.2)	(6.8)
Total	$	46.9	$	44.3	$	2.6	5.8	%	$	48.8	$	46.9	$	1.9	4.1	%

The increase (decrease) in operating income (loss) was attributable to the following:


											Change As a % of										Change As a % of
											Consolidated Operating Income										Segment Operating Income

	Americas		Europe		APMEA		Corporate		Total		Americas		Europe		APMEA		Corporate		Total		Americas		Europe		APMEA		Corporate
	(dollars in millions)

																																							Change As a % of										Change As a % of
																																							Consolidated Operating Income										Segment Operating Income

																													Americas		Europe		APMEA		Corporate		Total		Americas		Europe		APMEA		Corporate		Total		Americas		Europe		APMEA		Corporate
																													(dollars in millions)
Organic	$	4.6	$	(0.8)	$	1.9	$	(0.6)	$	5.1	10.4	%	(1.8)	%	4.3	%	(1.4)	%	11.5	%	11.6	%	(6.0)	%	NMF	%	(6.4)	%	$	3.5	$	(0.1)	$	(1.0)	$	(3.2)	$	(0.8)	7.4	%	(0.2)	%	(2.1)	%	(6.8)	%	(1.7)	%	7.8	%	(1.1)	%	(40.0)	%	(32.0)	%
Foreign exchange		(0.1)		(0.3)		(0.1)		—		(0.5)	(0.3)		(0.7)		(0.2)		—		(1.2)		(0.3)		(2.2)		(20.0)		—			—		(0.6)		(0.1)		—		(0.7)	—		(1.3)		(0.2)		—		(1.5)		—		(6.4)		(4.0)		—
Restructuring		0.7		(2.9)		0.2		—		(2.0)	1.6		(6.5)		0.4		—		(4.5)		1.8		(21.6)		40.0		—
Restructuring, impairment charges																														—		3.4		—		—		3.4	—		7.3		—		—		7.3		—		36.2		—		—
Total	$	5.2	$	(4.0)	$	2.0	$	(0.6)	$	2.6	11.7	%	(9.0)	%	4.5	%	(1.4)	%	5.8	%	13.1	%	(29.8)	%	NMF	%	(6.4)	%	$	3.5	$	2.7	$	(1.1)	$	(3.2)	$	1.9	7.4	%	5.8	%	(2.3)	%	(6.8)	%	4.1	%	7.8	%	28.7	%	(44.0)	%	(32.0)	%

Organic operating income ~~increased~~decreased by ~~$2.6~~$0.8 million compared to the third quarter of ~~2017, mainly~~2018. Increases in operating income were due to ~~increased pricing, higher sales~~price, volume and savings from productivity initiatives ~~and operating~~including savings from restructuring actions. ~~This increase in operating income was partially~~These increases were more than offset by increased Corporate expenses including higher ~~material~~professional fees and acquisition related costs, ~~due to increases in the prices of copper and stainless steel,~~higher general inflation ~~increased restructuring costs and~~including the impact of tariffs, investments in strategic growth ~~initiatives.~~initiatives and the impact in APMEA of the reduction in affiliate volume.

Interest Expense. Interest expense decreased ~~$0.8~~$0.4 million, or ~~17.0%~~10.3%, compared to the third quarter of ~~2017~~ 2018 due to a reduction in the principal balance of debt outstanding. As a result of the 2017 Tax Act, we ~~have~~ repatriated approximately ~~$121~~$127 million of undistributed foreign earnings in 2018 and $37 million through ~~the first nine months of 2018~~September 29, 2019, and used the majority of that cash to reduce our outstanding debt. ~~The impact of the lower outstanding principal balance was partially offset by increased interest rates in the third quarter of 2018 compared to the third quarter of 2017.~~ Refer to Note 12 of the Notes to Consolidated Financial Statements for further details.

Other ~~(income) expense.~~income. Other ~~(income) expense increased $1.2 million to a net other~~ income ~~balance of $0.9~~decreased $0.1 million compared to the third quarter of ~~2017.~~ 2018. The ~~increase~~decrease was primarily due to lower net foreign currency gains.

Income Taxes.Our effective income tax rate ~~decreased~~increased to 30.1% in the third quarter of 2019, from 28.4% in the third quarter of ~~2018, from 32.9%~~2018. The higher rate is primarily related to the impact of changes in the worldwide earnings mix.

Net Income. Net income was $32.3 million, or $0.94 per common share, for the third quarter of ~~2017. The lower rate is associated with the lower U.S. federal tax rate as a result of the 2017 Tax Act.~~

~~Net Income.~~ ~~Net income was~~2019, compared to $31.5 million, or $0.92 per common share, for the third quarter of ~~2018, compared to $26.5 million, or $0.77 per common share,~~2018. Results for the third quarter of ~~2017.~~ 2019 include an after-tax charge of $2.3 million, or $0.07 per common share, for Corporate professional fees; $0.7 million, or $0.02 per common share, for acquisition related costs, and $0.3 million, or $0.01 per common share for footprint optimization costs. Results for the third quarter of 2018 include an after-tax charge of $2.5 million, or $0.07 per common share, for restructuring.~~Results for the third quarter of 2017 include an after-tax charge of $0.9 million, or $0.03 per common share, for restructuring.~~

Nine Months Ended September 29, 2019 Compared to Nine Months Ended September 30, 2018 ~~Compared to Nine Months Ended October 1, 2017~~

Net ~~Sales~~.Sales. Our business is reported in three geographic segments: Americas, Europe and APMEA. Our net sales in each of these segments for ~~each of~~ the first nine months ended ~~2018~~2019 and ~~2017~~2018 were as follows:


	Nine Months Ended				Nine Months Ended						% Change to
	September 29, 2019				September 30, 2018						Consolidated
	Net Sales		% Sales		Net Sales		% Sales		Change		Net Sales
	(dollars in millions)
Americas	$	816.2	68.0	%	$	775.8	65.9	%	$	40.4	3.5	%
Europe		337.4	28.1			351.7	29.9			(14.3)	(1.2)
APMEA		46.6	3.9			49.8	4.2			(3.2)	(0.3)
Total	$	1,200.2	100.0	%	$	1,177.3	100.0	%	$	22.9	2.0	%

~~Table of Contents~~

Nine Months Ended

Nine Months Ended

% Change to

September 30, 2018

October 1, 2017

Consolidated


Net Sales

% Sales

Net Sales

% Sales

Change

Net Sales

(dollars in millions)

Americas

$
775.8

65.9
%
$
718.3

65.9
%
$
57.5

5.3
%
Europe

351.7

29.9

324.6

29.8

27.1

2.5

APMEA

49.8

4.2

47.5

4.3

2.3

0.2

Total

$
1,177.3

100.0
%
$
1,090.4

100.0
%
$
86.9

8.0
%

The change in net sales was attributable to the following:


									Change as a %								Change as a %
									of Consolidated Net Sales								of Segment Net Sales

	Americas		Europe		APMEA		Total		Americas		Europe		APMEA		Total		Americas		Europe		APMEA
	(dollars in millions)

																															Change as a %								Change as a %
																															of Consolidated Net Sales								of Segment Net Sales

																							Americas		Europe		APMEA		Total		Americas		Europe		APMEA		Total		Americas		Europe		APMEA
																							(dollars in millions)
Organic	$	56.8	$	4.2	$	1.7	$	62.7	5.2	%	0.4	%	0.2	%	5.8	%	7.9	%	1.3	%	3.7	%	$	42.1	$	7.7	$	(1.7)	$	48.1	3.6	%	0.7	%	(0.2)	%	4.1	%	5.4	%	2.2	%	(3.4)	%
Foreign exchange		0.7		22.9		0.6		24.2	0.1		2.1		—		2.2		0.1		7.1		1.3			(1.7)		(22.0)		(1.5)		(25.2)	(0.1)		(1.9)		(0.1)		(2.1)		(0.2)		(6.3)		(3.0)
Total	$	57.5	$	27.1	$	2.3	$	86.9	5.3	%	2.5	%	0.2	%	8.0	%	8.0	%	8.4	%	5.0	%	$	40.4	$	(14.3)	$	(3.2)	$	22.9	3.5	%	(1.2)	%	(0.3)	%	2.0	%	5.2	%	(4.1)	%	(6.4)	%

Our products are sold to wholesalers, OEMs, DIY chains, and through various specialty channels. The change in organic net sales by channel was attributable to the following:


											Change As a %
											of Prior Year Sales
	Wholesale		OEMs		DIY		Specialty		Total		Wholesale		OEMs		DIY		Specialty
	(dollars in millions)

																													Change As a %
																													of Prior Year Sales
																			Wholesale		OEMs		DIY		Specialty		Total		Wholesale		OEMs		DIY		Specialty
																			(dollars in millions)
Americas	$	27.9	$	3.0	$	6.0	$	19.9	$	56.8	6.9	%	5.3	%	14.7	%	9.2	%	$	27.3	$	4.1	$	(0.5)	$	11.2	$	42.1	6.3	%	7.0	%	(1.1)	%	4.7	%
Europe		6.4		(1.2)		(1.0)		—		4.2	3.0		(1.1)		(33.7)		—			7.0		0.6		0.1		—		7.7	3.0		0.6		4.5		—
APMEA		2.7		(0.8)		—		(0.2)		1.7	6.5		(39.5)		—		(4.2)			0.1		0.2		—		(2.0)		(1.7)	0.4		15.8		—		(47.2)
Total	$	37.0	$	1.0	$	5.0	$	19.7	$	62.7									$	34.4	$	4.9	$	(0.4)	$	9.2	$	48.1

The increase in Americas organic net sales was primarily due to ~~higher sales~~a combination of price and volume ~~and increased pricing in~~across our valve, drainage, and water quality products, which are sold ~~across all~~through each of our channels. ~~There was~~We also ~~an increase~~had higher price in ~~sales of~~ our heating and hot water products, which are sold through ~~our~~the specialty channel.

Organic net sales in Europe increased primarily due to ~~higher volume~~price and ~~increased pricing. A portion of the higher volume~~volume. The increase in wholesale sales was driven by our ~~marine-based drains applications through our wholesale channel. This~~drainage and valve products. The increase in OEM sales was ~~partially offset by our ongoing product rationalization efforts within Europe, as we continue~~mainly due to ~~focus on our core product lines.~~increases in certain HVAC products.

Organic net sales in APMEA ~~increased~~decreased primarily due to ~~increased sales in~~project delays within the Middle East ~~Australia,~~ and ~~Korea. These increases were~~softness within Korea, partially offset by ~~softness~~increased commercial valve sales in ~~China and product rationalization in the OEM channel.~~China.

The net ~~increase~~decrease in sales due to foreign exchange was primarily due to the ~~appreciation~~depreciation of the euro, Chinese yuan, and Canadian dollar against the U.S. dollar in the first nine months ~~of 2018.~~2019. We cannot predict whether foreign currencies will appreciate or depreciate against the U.S. dollar in future periods or whether future foreign exchange rate fluctuations will have a positive or negative impact on our net sales.

Gross ~~Profit~~.Profit. Gross profit and gross profit as a percent of net sales (gross margin) for the first nine months of ~~2018~~2019 and ~~2017~~2018 were as follows:


	Nine Months Ended
	September 30, 2018			October 1, 2017
	(dollars in millions)

							Nine Months Ended
							September 29, 2019			September 30, 2018
							(dollars in millions)
Gross profit	$	490.6		$	453.2		$	507.4		$	490.6
Gross margin		41.7	%		41.6	%		42.3	%		41.7	%

Gross profit and gross margin ~~improved by 0.1% in the first nine months of 2018~~percentage increased compared to the first nine months of ~~2017. Gross profit increased~~2018 due to ~~increased pricing, higher sales~~price, volume, and savings from productivity initiatives, ~~and restructuring savings,~~ which were

~~Table of Contents~~

~~substantially~~ partially offset by higher ~~material~~general inflation costs, ~~mainly due to increased copper and stainless steel commodity costs, as well as higher inbound transportation costs and general inflation.~~including tariffs.

Selling, General and Administrative ~~Expenses~~~~. Selling, general and administrative, or~~Expenses. SG&A expenses for the first nine months of ~~2018~~2019 increased ~~$19.4~~$10.7 million, or ~~6.0%~~3.1%, compared to the first nine months of ~~2017.~~2018. The increase in SG&A expenses was attributable to the following:


	(in millions)		% Change
Organic	$	17.1	5.0	%
Foreign exchange		(6.4)	(1.9)
Total	$	10.7	3.1	%

(in millions)

% Change

Organic

$
13.1

4.0
%
Foreign exchange

6.3

2.0

Total

$
19.4

6.0
%

The organic increase was ~~primarily~~ related to investments in strategic growth initiatives of ~~$10.0~~$8.4 million, including investments in research and development for new ~~product initiatives,~~products, commercial excellence, and technology and information systems. The ~~organic~~ increase was also due to increased Corporate expenses, including higher professional fees of $2.3 million and acquisition related costs of $0.9 million, higher variable costs related to increased sales ~~volume~~ totaling ~~$5.7~~$2.8 million, general inflation of $5.1 million, increased product liability costs of $1.5 million, and ~~inflation~~an increase in stock compensation expense of ~~$3.5~~$3.0 million ~~primarily~~due to a change in the expected attainment of performance goals related to ~~transportation costs.~~our performance stock units. These increases were partially offset by ~~restructuring savings within the Americas and Europe of $2.1~~a $3.3 million ~~as well as a~~ decrease in amortization costs ~~of $1.9 million~~ for certain intangible assets that reached the end of their useful ~~lives.~~lives, incremental European restructuring savings of $2.3 million, and a reduction of certain selling and marketing costs of $1.2 million compared to the first nine months of 2018. The ~~increase~~decrease in foreign exchange was mainly due to the ~~appreciation~~depreciation of the euro against the U.S. dollar. Total SG&A expenses, as a percentage of sales, were 29.6% in the first nine months of 2019 compared to 29.2% in the first nine months of ~~2018 compared to 29.8% in the first nine months of 2017.~~2018.

Restructuring. In the first nine months of ~~2018,~~2019, we recorded a net charge of ~~$3.4~~$2.7 million ~~primarily~~for additional severance benefits and cost cutting actions related to ~~restructuring actions associated with~~ our European ~~headquarters as well as cost savings initiatives primarily within certain manufacturing facilities in Europe as compared to a net charge of $3.6 million~~restructuring plan initiated in the ~~first nine months~~third quarter of ~~2017.~~2018. For a more detailed description of our current restructuring plans, see Note 6 of Notes to Consolidated Financial Statements.

Operating ~~Income~~.Income. Operating income (loss) by ~~geographic~~ segment for the first nine months of ~~2018~~2019 and ~~2017~~2018 was as follows:


							% Change to
	Nine Months Ended						Consolidated
	September 30,		October 1,				Operating
	2018		2017		Change		Income
	(Dollars in millions)

															% Change to
									Nine Months Ended						Consolidated
									September 29,		September 30,				Operating
									2019		2018		Change		Income
									(Dollars in millions)
Americas	$	128.1	$	110.5	$	17.6	14.1	%	$	142.3	$	128.1	$	14.2	9.9	%
Europe		37.2		38.5		(1.3)	(1.0)			38.1		37.2		0.9	0.7
APMEA		5.5		3.3		2.2	1.8			3.9		5.5		(1.6)	(1.1)
Corporate		(27.8)		(27.5)		(0.3)	(0.3)			(34.5)		(27.8)		(6.7)	(4.7)
Total	$	143.0	$	124.8	$	18.2	14.6	%	$	149.8	$	143.0	$	6.8	4.8	%

The increase (decrease) in operating income (loss) iswas attributable to the following:


											Change as a % of										Change as a % of
											Consolidated Operating Income										Segment Operating Income

	Americas		Europe		APMEA		Corporate		Total		Americas		Europe		APMEA		Corporate		Total		Americas		Europe		APMEA		Corporate
	(Dollars in millions)
Organic	$	14.4	$	2.8	$	(1.3)	$	(6.7)	$	9.2	10.1	%	2.0	%	(0.9)	%	(4.7)	%	6.5	%	11.2	%	7.5	%	(23.6)	%	(24.1)	%
Foreign exchange		(0.2)		(2.6)		(0.3)		—		(3.1)	(0.2)		(1.8)		(0.2)		—		(2.2)		(0.2)		(7.0)		(5.5)		—
Restructuring		—		0.7		—		—		0.7	—		0.5		—		—		0.5		—		1.9		—		—
Total	$	14.2	$	0.9	$	(1.6)	$	(6.7)	$	6.8	9.9	%	0.7	%	(1.1)	%	(4.7)	%	4.8	%	11.0	%	2.4	%	(29.1)	%	(24.1)	%

Change as a % of

Change as a % of

Consolidated Operating Income

Segment Operating Income





























Americas

Europe

APMEA

Corporate

Total

Americas

Europe

APMEA

Corporate

Total

Americas

Europe

APMEA

Corporate

(Dollars in millions)

Organic

$
14.8

$
(0.9)

$
1.7

$
(0.3)

$
15.3

11.9
%
(0.7)
%
1.4
%
(0.3)
%
12.3
%
13.4
%
(2.3)
%
51.5
%
(1.1)
%
Foreign exchange

0.2

2.5

—

—

2.7

0.1

2.0

—

—

2.1

0.2

6.5

—

—

Restructuring

2.6

(2.9)

0.5

—

0.2

2.1

(2.3)

0.4

—

0.2

2.4

(7.5)

15.2

—

Total

$
17.6

$
(1.3)

$
2.2

$
(0.3)

$
18.2

14.1
%
(1.0)
%
1.8
%
(0.3)
%
14.6
%
16.0
%
(3.3)
%
66.7
%
(1.1)
%

Organic operating income increased by ~~$15.3~~$9.2 million compared to the first nine months of ~~2017,~~ 2018, mainly due to ~~increased pricing, higher sales~~price, volume, and savings from productivity initiatives, ~~operating~~including savings from restructuring ~~actions, and reduced transformation costs.~~actions. This increase in operating income was partially offset by higher ~~material costs due to increases in~~general inflation, including the ~~price~~impact of ~~copper and stainless steel,~~tariffs, investments in strategic growth initiatives, Corporate professional fees and ~~general inflation.~~acquisition related costs, and the impact in APMEA of the reduction in affiliate volume.

~~Table of Contents~~

Interest Expense. Interest expense decreased ~~$1.9~~$1.8 million, or ~~13.1%~~14.3%, in the first nine months of ~~2018~~2019 as compared to the first nine months of ~~2017~~2018 due to a reduction in the principal balance of debt outstanding. As a result of the 2017 Tax Act, we ~~have~~ repatriated approximately ~~$121~~$127 million of undistributed foreign earnings in 2018 and $37 million through September 29, 2019, and used the majority of that cash to reduce our outstanding debt. ~~The impact of the lower outstanding principal balance was partially offset by increased interest rates for the first nine months of 2018 compared to the first nine months of 2017.~~ Refer to Note 12 of the Notes to Consolidated Financial Statements for further details.

Other ~~(income) expense, net~~income. Other ~~(income) expense increased $2.8 million to a net other~~ income ~~balance of $2.0~~decreased $1.6 million compared to the first nine months ~~2017.~~2018. The ~~increase~~decrease was primarily due to lower net foreign currency gains.

Income Taxes. Our effective income tax rate ~~decreased~~increased to 28.6% in the first nine months of 2019, from 28.0% in the first nine months of ~~2018, from 31.5%~~2018. The higher rate is primarily related to the impact of changes in the worldwide earnings mix.

Net Income. Net income was $99.7 million, or $2.91 per common share, for the first nine months of ~~2017.~~ ~~The lower rate in the in the first nine months of 2018 is associated with the lower U.S. federal tax rate in 2018 as a result of the 2017 Tax Act. .~~

~~Net Income. Net income was~~2019, compared to $95.7 million, or $2.78 per common share, for the first nine months of ~~2018, compared to $75.4 million, or $2.19 per common share,~~2018. Results for the first nine months of ~~2017.~~ 2019 include an after-tax charge of $2.3 million, or $0.07 per common share, for Corporate professional fees; $1.9 million, or $0.06 per common share, for restructuring charges; $0.7 million, or $0.02 per common share, for acquisition related costs; and $0.3 million, or $0.01 per common share for footprint optimization costs. Results for the first nine months of 2018 include an after-tax charge of $2.5 million, or $0.08 per common share, for restructuring.

Results for the first nine months of 2017 include an after-tax charge of $1.9 million, or $0.06 per common share, for the Europe and Americas transformation costs; $2.4 million, or $0.07 per common share, for restructuring charges; partially offset by $1.3 million or $0.04 per common share in tax benefits.

Liquidity and Capital Resources

We generated ~~$66.6~~$94.9 million of net cash ~~from~~in operating activities in the first nine months of ~~2018~~2019 as compared to ~~$73.4~~$66.6 million of net cash ~~generated from~~provided by operating activities in the first nine months of ~~2017.~~2018. The ~~decrease in cash generated~~increase was primarily related to ~~the timing of working capital fluctuations, the timing of tax payments, including payments made for the Toll Charge~~inventory reductions and ~~withholdings on repatriated cash as a result of the 2017 Tax Act. This decrease was partially offset by~~ higher net income compared to the first nine months of ~~2017.~~2018. Additionally, in 2018 we made higher tax payments, including withholding taxes on repatriated cash.

We used ~~$26.0~~$61.7 million of net cash for investing activities compared to ~~$13.5~~$26.0 million used in the in the first nine months of ~~2017.~~ 2018. The increase in cash used for investing activities was primarily due to $42.7 million of cash used for an immaterial acquisition in the Americas segment in the third quarter of 2019. We used ~~$7.0~~$5.0 million ~~more~~less cash for capital expenditures in the first nine months of ~~2018 for purchases of capital equipment and $2.2 million for immaterial acquisitions and other investments. We received $2.9 million less in cash proceeds from the sale of assets~~2019 compared to the first nine months of ~~2017.~~2018. For the remainder of ~~2018,~~2019, we expect to invest approximately ~~$7 to $10~~$11 million in capital equipment as part of our ongoing commitment to improve our operating capabilities.

We used ~~$159.8~~$59.0 million of net cash from financing activities ~~for~~in the first nine months of ~~2018~~2019 primarily ~~due to~~through long-term debt repayments of $92.5 million, dividend payments of ~~long-term debt~~$23.6 million, payments for finance leases and tax withholding on vested stock awards totaling $8.3 million, share repurchases of ~~$168.9 million, payment of dividends of $21.1 million, and payments to repurchase~~ approximately ~~196,000~~178,000 shares of Class A common stock at a cost of ~~$15.5~~$14.8 million, and payment of a contractual call option to purchase the remaining 10% of Apex shares of $2.8 million. ~~This was~~These cash outflows were partially offset by proceeds from additional draws on our line of credit ~~of $50.0~~totaling $82.0 million during the first nine months of ~~2018.~~2019.

OnIn February ~~12,~~ 2016, we entered into the Credit Agreement among the Company, certain subsidiaries of the Company who become borrowers under the Credit Agreement, JPMorgan Chase Bank, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the other lenders referred to therein. The Credit Agreement provides for a $500 million, ~~five‑year,~~five-year, senior unsecured revolving credit facility (the “Revolving Credit Facility”) with a sublimit of up to $100 million in letters of credit. As of September 29, 2019, we had drawn $37.0 million against the Revolving Credit Facility. The Credit Agreement also ~~provided~~provides for a $300 million, ~~five‑year,~~five-year, term loan facility (the “Term Loan Facility”) available to usthe Company in a single ~~draw. The Credit Agreement matures on~~draw, of which the entire $300 million had been drawn in February ~~12, 2021, subject to extension under certain circumstances and subject to the terms of the Credit Agreement. As of September 30, 2018, we~~2016. We had ~~$260.6~~$232.5 million of borrowings outstanding on the Term Loan Facility ~~and $45.0 million drawn~~as of September 29, 2019. We paid total installments on the ~~Revolving Credit Facility;~~Term Loan Facility of $22.5 million during the first nine months of 2019. We had $25.8 million of stand-by letters of credit outstanding and had ~~$429.2~~$437.2 million of unused and available credit under the Revolving Credit Facility. As of September ~~30, 2018,~~29, 2019, we were in compliance with all covenants related to the Credit Agreement.

As of September ~~30, 2018,~~29, 2019, we held ~~$156.8~~$173.7 million in cash and cash equivalents. Of this amount, ~~$133.4~~$132.3 million of cash and cash equivalents were held by foreign subsidiaries.The 2017 Tax Act requires us to pay a one-time deemed repatriation toll charge on cumulative undistributed foreign earnings for which we had not previously recorded U.S. taxes. Cumulative earnings in the form of cash and cash equivalents, as defined in the 2017 Tax Act, will be taxed at a

~~Table of Contents~~

rate of 15.5% and all other earnings will be taxed at a rate of 8.0%. We estimate that our obligation associated with this one-time deemed repatriation toll charge to be $23.3 million, which will be paid in installments over eight years. During 2018, we expect to repatriate approximately $125 million of cash back to the U.S. As of September 30, 2018, we had repatriated approximately $121 million in undistributed foreign earnings, and have used the majority of that cash to reduce our outstanding debt. Our U.S. operations typically generate sufficient cash flows to meet our domestic obligations. However, if we did have to borrow to fund some or all of our expected cash outlay, we can do so at reasonable interest rates by utilizing the uncommitted borrowings under our Revolving Credit Facility. ~~Our~~ Subsequent to recording the Toll Tax as part of the Tax Cuts and Jobs Act 2017, our intent is to permanently reinvest undistributed ~~future~~ earnings of foreign subsidiaries, and we do not have any current plans to repatriate ~~future~~foreign earnings to fund operations in the United States. However, if amounts held by foreign subsidiaries were needed to fund operations in the United States, we could be required to accrue and pay taxes to repatriate these funds. Such charges may include potential state income taxes and other tax charges.

~~Non‑GAAP~~Non-GAAP Financial Measures

In accordance with the SEC's Regulation G and Item 10(e) of Regulation S-K, the following provides definitions of the non-GAAP financial measures used by management. We believe that these measures provide additional insight into underlying business results and trends. These non-GAAP financial measures are not intended to be considered by the user in place of the related GAAP financial measure, but rather as supplemental information to more fully understand our business results. These non-GAAP financial measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted.

Organic sales growth is a non-GAAP financial measure of sales growth that excludes the impacts of acquisitions, divestitures and foreign exchange from period-over-period comparisons. A reconciliation to the most closely related U.S. GAAP financial measure, net sales, has been included in our discussion within “Results of Operations” above. Organic net sales should be considered in addition to, and not as a replacement for or as a superior measure to net sales. Management believes reporting organic sales growth provides useful information to investors, potential investors and others, by facilitating easier comparisons of our revenue performance with prior and future periods.

Free cash flow is a non-GAAP financial measure that does not represent cash ~~generated from~~provided by operating activities in accordance with U.S. GAAP. Therefore it should not be considered an alternative to net cash ~~generated from~~provided by operating activities as an indication of our performance. The cash conversion rate of free cash flow to net income is also a measure of our performance in cash flow generation. We believe free cash flow to be an appropriate supplemental measure of our operating performance because it provides investors with a measure of our ability to generate cash, repay debt, pay dividends, repurchase stock and fund acquisitions.

A reconciliation of net cash provided by operating activities to free cash flow is provided below:


	Nine Months Ended
	September 30,			October 1,
	2018			2017
	(in millions)

							Nine Months Ended
							September 29,			September 30,
							2019			2018
							(in millions)
Net cash provided by operating activities	$	66.6		$	73.4		$	94.9		$	66.6
Less: additions to property, plant, and equipment		(24.1)			(17.1)			(19.1)			(24.1)
Plus: proceeds from the sale of property, plant, and equipment		0.1			0.4			0.1			0.1
Free cash flow	$	42.6		$	56.7		$	75.9		$	42.6

Net income	$	95.7		$	75.4

Net income —as reported							$	99.7		$	95.7
Cash conversion rate of free cash flow to net income		44.5	%		75.2	%		76.1	%		44.5	%

Our free cash flow ~~decreased~~increased in the first nine months of ~~2018~~2019 when compared to the ~~free cash flow for the~~ first nine months of ~~2017~~ ~~due to working~~2018 primarily from inventory reductions, higher net income, and lower capital ~~fluctuations, timing of~~expenditures in 2019. Additionally, in 2018 we made higher tax payments, including ~~payments made for the Toll Charge and withholdings~~withholding taxes on repatriated ~~cash related to the 2017 Tax Act, and~~ ~~higher capital expenditures in the first~~ ~~nine months~~ ~~of 2018.~~cash.

Our net debt to capitalization ratio, a ~~non‑GAAP~~non-GAAP financial measure used by management, at September ~~30, 2018~~29, 2019 was ~~20.1%~~15.3% compared to ~~20.7%~~14.3% at December 31, ~~2017.~~2018. The increase was driven by an increase in net debt outstanding at September 29, 2019 primarily from a decrease in cash and cash equivalents compared to December 31, 2018 of $30.4 million, partially offset by a decrease in debt during the first nine months of 2019 of $9.9 million. Management believes the net debt to capitalization ratio is an appropriate supplemental measure because it helps investors understand our ability to meet our financing needs and

~~Table of Contents~~

serves as a basis to evaluate our financial structure. Our computation may not be comparable to other companies that may define their net debt to capitalization ratios differently.

A reconciliation of ~~long‑term~~long-term debt (including current portion) to net debt and our net debt to capitalization ratio is provided below:


	September 30,		December 31,
	2018		2017
	(in millions)
Current portion of long‑term debt	$	28.1	$	22.5

					September 29,		December 31,
					2019		2018
					(in millions)
Current portion of long‑term debt					$	105.0	$	30.0
Plus: long-term debt, net of current portion		350.7		474.6		238.5		323.4
Less: cash and cash equivalents		(156.8)		(280.2)		(173.7)		(204.1)
Net debt	$	222.0	$	216.9	$	169.8	$	149.3

A reconciliation of capitalization is provided below:


	September 30,			December 31,
	2018			2017
	(in millions)

							September 29,			December 31,
							2019			2018
							(in millions)
Net debt	$	222.0		$	216.9		$	169.8		$	149.3
Total stockholders’ equity		884.2			829.0			942.0			891.3
Capitalization	$	1,106.2		$	1,045.9		$	1,111.8		$	1,040.6
Net debt to capitalization ratio		20.1	%		20.7	%		15.3	%		14.3	%

~~Off‑Balance~~Off-Balance Sheet Arrangements

~~Except for operating lease commitments, we~~We have no ~~off‑balance~~off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Application of Critical Accounting Policies and Key Estimates

We believe that our critical accounting policies are those related to revenue recognition, inventory valuation, goodwill and other intangibles, product liability costs, legal contingencies and income taxes. We believe these accounting policies are particularly important to an understanding of our financial position and results of operations and requires application of significant judgment by our management. In applying these policies, management uses its judgment in making certain assumptions and estimates. Our ~~critical~~ accounting policies are more fully described under the heading “Accounting Policies” in Note 2 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K as filed with the SEC on February ~~23, 2018,~~22, 2019, with the exception of the change in our ~~Revenue Recognition~~lease accounting policy resulting from the adoption of ASC ~~606~~842 as described in Note 2 in the Notes to Consolidated Financial Statements in this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We use derivative financial instruments primarily to reduce exposure to adverse fluctuations in foreign exchange rates, interest rates and costs of certain raw materials used in the manufacturing process. We do not enter into derivative financial instruments for trading purposes. As a matter of policy, all derivative positions are used to reduce risk by hedging underlying economic exposure. The derivatives we use are instruments with liquid markets. See Note 7 of Notes to the Consolidated Financial Statements for further details.

Our consolidated earnings, which are reported in United States dollars, are subject to translation risks due to changes in foreign currency exchange rates. This risk is concentrated in the exchange rate between the U.S. dollar and the euro; the U.S. dollar and the Canadian dollar; and the U.S. dollar and the Chinese yuan.

Our non-U.S. subsidiaries transact most business, including certain intercompany transactions, in foreign currencies. Such transactions are principally purchases or sales of materials and are denominated in European currencies or the U.S. or Canadian dollar. We use foreign currency forward exchange contracts from time to time to manage the risk related to intercompany loans, intercompany purchases and intercompany sales that occur during the course of a year, and certain open foreign currency

~~Table of Contents~~

denominated commitments to sell products to third parties. Beginning in the first quarter of 2018, ~~the Company~~we entered into forward exchange contracts which hedge approximately 70% to 80% of the forecasted intercompany purchases between one of our Canadian subsidiaries and our U.S. operating subsidiaries for the next twelve months. ~~The Company will~~

Beginning in the first quarter of 2019, we entered into forward exchange contracts which hedge up to 60% of the forecasted intercompany sales transactions between one of our Chinese subsidiaries and one of our U.S. operating subsidiaries for the next twelve months. We record the effective portion of the designated foreign currency hedge contracts in other comprehensive income until inventory turns and is sold to a third-party. Once the third-party transaction ~~occurs~~ associated with the hedged forecasted transaction occurs, the effective portion of any related gain or loss on the designated foreign currency hedge ~~will be~~is reclassified into cost of goods sold within earnings. The fair value of ~~the Company’s~~our designated foreign hedge contracts outstanding as of September ~~30, 2018~~29, 2019 was ~~immaterial.~~a liability balance of $0.3 million.

~~On February 12, 2016,~~Under the ~~Company entered into a new~~ Credit Agreement, pursuant to which it received a funding commitment under a Term Loan Facility of $300 million, of which the entire $300 million has been drawn on, and $260.6 million is outstanding and a Revolving Credit Facility of $500 million, of which $45.0 million has been drawn as of September 30, 2018. Both facilities mature on February 12, 2021. For each facility, the Companywe can choose either an Adjusted LIBOR or Alternative Base Rate (“ABR”). Accordingly, ~~the Company’s~~our earnings and cash flows are exposed to interest rate risk from changes in Adjusted LIBOR. In order to manage ~~the Company’s~~our exposure to changes in cash flows attributable to fluctuations in LIBOR-indexed interest payments related to our floating rate debt, ~~the Company~~we entered into two interest rate swaps. For each interest rate swap, ~~the Company receives~~we receive the three-month USD-LIBOR subject to a 0% floor, and pays a fixed rate of 1.31375% on a notional amount of $225.0 million. Information about our ~~long‑term~~long-term debt including principal amounts and related interest rates appears in Note 127 of Notes to the Consolidated Financial Statements.

We purchase significant amounts of bronze ingot, brass rod, cast iron, stainless steel and plastic, which are utilized in manufacturing our many product lines. Our operating results can be adversely affected by changes in commodity prices if we are unable to pass on related price increases to our customers. We manage this risk by monitoring related market prices, working with our suppliers to achieve the maximum level of stability in their costs and related pricing, seeking alternative supply sources when necessary and passing increases in commodity costs to our customers, to the maximum extent possible, when they occur.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule ~~13a‑15(b)~~13a-15(b) under the Securities Exchange Act of 1934, as amended, or Exchange Act, as of the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily applies its judgment in evaluating and implementing possible controls and procedures. The effectiveness of our disclosure controls and procedures is also necessarily limited by the staff and other resources available to us and the geographic diversity of our operations. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective as of that date due to a material weakness in internal control over financial reporting that ~~they provide reasonable assurance~~was disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Management’s Plan to Remediate the Material Weakness

As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, we began implementing a remediation plan to address the material weakness mentioned above. The weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that ~~information required~~these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to ~~be disclosed by us~~the end of fiscal 2019.

Changes in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our Chief Executive Officer and ChiefInternal Control Over Financial ~~Officer, as appropriate to allow timely decisions regarding required disclosure.~~Reporting

There was no change in our internal control over financial reporting that occurred during the ~~three months~~third quarter ended September ~~30, 2018,~~29, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, with the exception of the change in our ~~Revenue Recognition~~leasing controls resulting from the adoption of ASC ~~606~~842 as described in Note 2 in the Notes to Consolidated Financial Statements. Although the new ~~revenue~~leasing standard ~~is expected to~~did not have ~~an immaterial~~a material impact on our ~~ongoing revenue recognition, we~~consolidated statement of operations or our consolidated statement of cash flows, it did ~~implement~~have a material impact on our consolidated balance sheet and disclosures. We implemented changes to our processes related to ~~revenue recognition~~lease accounting and the control activities within them. These included the development of new policies based on the ~~five-step model provided in the~~

requirements of ASC 842, including new ~~revenue standard,~~training, new ~~training,~~lease authorization requirements, ongoing contract review, ~~and~~ certification requirements, system controls and review, and gathering information provided for disclosures. We will continue to review and document our disclosure controls and procedures, including our internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

~~Table of Contents~~

Part II.OTHER INFORMATION

Item 1. Legal Proceedings

As disclosed in Part I, Item 1, “Product Liability, Environmental and Other Litigation Matters” and Item 3, “Legal Proceedings” of our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, we are party to certain litigation. There have been no material developments with respect to our contingencies and environmental remediation proceedings during the ~~three months~~quarter ended September ~~30, 2018,~~29, 2019, other than as described in Note 13 of the Notes to Consolidated Financial Statements, which is incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, which risk factors are incorporated herein by reference.

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

We satisfy the minimum withholding tax obligation due upon the vesting of shares of restricted stock and the conversion of restricted stock units into shares of Class A common stock by automatically withholding from the shares being issued a number of shares with an aggregate fair market value on the date of such vesting or conversion that would satisfy the withholding amount due.

The following table includes information with respect to shares of our Class A common stock withheld to satisfy withholding tax obligations during the ~~three months~~third quarter ended September ~~30, 2018.~~29, 2019.


	Issuer Purchases of Equity Securities
					(d) Maximum Number (or
	(a) Total			(c) Total Number of	Approximate Dollar
	Number of			Shares (or Units)	Value) of Shares (or
	Shares (or	(b) Average		Purchased as Part of	Units) that May Yet Be
	Units)	Price Paid per		Publicly Announced	Purchased Under the
Period	Purchased	Share (or Unit)		Plans or Programs	Plans or Programs
July 1, 2019 – July 28, 2019	1,499	$	91.97	—	—
July 29, 2019 – August 25, 2019	522	$	91.59	—	—
August 26, 2019 - September 29, 2019	—	$	—	—	—
Total	2,021	$	91.87	—	—

Issuer Purchases of Equity Securities








(d) Maximum Number (or

(a) Total

(c) Total Number of

Approximate Dollar

Number of

Shares (or Units)

Value) of Shares (or

Shares (or

(b) Average

Purchased as Part of

Units) that May Yet Be

Units)

Price Paid per

Publicly Announced

Purchased Under the

Period

Purchased

Share (or Unit)

Plans or Programs

Plans or Programs

July 2, 2018 – July 29, 2018

9,827

$
84.94

—

—

July 30, 2018 – August 26, 2018

522

$
86.50

—

—

August 27, 2018 - September 30, 2018

1,129

$
81.45

—

—

Total

11,478

$
84.67

—

—

The following table includes information with respect to repurchases of our Class A common stock during the ~~three months~~ third quarter ended September ~~30, 2018~~29, 2019 under our stock repurchase program.


	Issuer Purchases of Equity Securities
					(d) Maximum Number (or
	(a) Total			(c) Total Number of	Approximate Dollar
	Number of	(b) Average		Shares (or Units)	Value) of Shares (or
	Shares (or	Price Paid		Purchased as Part of	Units) that May Yet Be
	Units)	per Share		Publicly Announced	Purchased Under the
Period	Purchased(1)	(or Unit)		Plans or Programs	Plans or Programs
July 1, 2019 – July 28, 2019	14,586	$	91.81	14,586	$	150,132,849
July 29, 2019 – August 25, 2019	15,177	$	92.87	15,177	$	148,713,648
August 26, 2019 - September 29, 2019	18,180	$	93.87	18,180	$	147,007,058
Total	47,943	$	92.93	47,943

Issuer Purchases of Equity Securities








(d) Maximum Number (or

(a) Total

(c) Total Number of

Approximate Dollar

Number of

(b) Average

Shares (or Units)

Value) of Shares (or

Shares (or

Price Paid

Purchased as Part of

Units) that May Yet Be

Units)

per Share

Publicly Announced

Purchased Under the

Period

Purchased(1)

(or Unit)

Plans or Programs

Plans or Programs

July 2, 2018 – July 29, 2018

17,297

$
81.88

17,297

$
25,591,366

July 30, 2018 – August 26, 2018

18,150

$
84.26

18,150

$
24,061,967

August 27, 2018 - September 30, 2018

21,709

$
82.10

21,709

$
22,279,582

Total

57,156

$
82.72

57,156

(1)

On July 27, 2015, the Board of Directors authorized a stock repurchase program of up to $100 million of the Company’s Class A common stock to be purchased from time to time on the open market or in privately negotiated transactions. This repurchase program was completed in August 2019 after the Company expended the entire $100 million authorized under the program. On February 6, 2019, the Board of Directors authorized an additional stock repurchase program of up to $150 million of the Company’s Class A common stock to be purchased from time to time on the open market or in privately negotiated transactions. The timing and number of shares repurchased will be determined by the Company’s management based on its evaluation of market conditions and other factors.

~~Table of Contents~~

(1)On July 27, 2015, the Board of Directors authorized a stock repurchase program of up to $100 million of the Company’s Class A common stock to be purchased from time to time on the open market or in privately negotiated transactions. The timing and number of shares repurchased will be determined by the Company’s management based on its evaluation of market conditions and other factors.

Item 6. Exhibits


Exhibit No.		Description
3.1
~~Exhibit No.~~		~~Description~~
~~3.1~~	Restated Certificate of Incorporation, as amended. Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~July 3, 2005~~June 30, 2019 (File No. ~~001‑11499)~~001-11499).
3.2	Amended and Restated ~~By‑~~By-Laws. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 27, 2015 (File No. ~~001‑~~001- 11499).
~~10.1~~	Watts Water Technologies, Inc. Executive Severance Plan, as amended and restated as of February 8, 2018. Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2018 (File No. 001-11499).
~~10.2~~	Form of Indemnification Agreement between the Registrant and certain directors and officers of the Registrant. Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2018 (File No. 001-11499).
~~10.3~~	Form of Restricted Stock Award Agreement under the Watts Water Technologies, Inc. Second Amended and Restated 2004 Stock Incentive Plan. Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2018 (File No. 001-11499)
31.1†	Certification of Principal Executive Officer pursuant to Rule ~~13a‑14(a)~~13a-14(a) or Rule ~~15d‑14(a)~~15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2†	Certification of Principal Financial Officer pursuant to Rule ~~13a‑14(a)~~13a-14(a) or Rule ~~15d‑14(a)~~15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1††	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350
32.2††	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS*	Inline XBRL Instance ~~Document.~~Document
101.SCH*	Inline XBRL Taxonomy Extension Schema ~~Document.~~Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase ~~Document.~~Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase ~~Document.~~Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase ~~Document.~~Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

† Filed herewith.

†† Furnished herewith.

* Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at September ~~30, 2018~~29, 2019 and December 31, ~~2017,~~2018, (ii) Consolidated Statements of Operations for the ~~Three~~Third Quarters and Nine Months Ended September 29, 2019 and September 30, 2018, ~~and October 1, 2017,~~ (iii) Consolidated Statements of Comprehensive Income for the ~~Three~~Third Quarters and Nine Months Ended

September 29, 2019 and September 30, 2018, (iv) Consolidated Statements of Stockholders’ Equity for the Third Quarters and Nine Months Ended September 29, 2019 and September 30, 2018, ~~and October 1, 2017, (iv)~~(v) Consolidated Statements of Cash Flows for the Nine Months Ended September 29, 2019 and September 30, 2018, and ~~October 1, 2017, and (v)~~(vi) Notes to Consolidated Financial Statements.

~~Table of Contents~~39

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


��	WATTS WATER TECHNOLOGIES, INC.

Date: ~~November 5, 2018~~October 31, 2019	By:	/s/ Robert J. Pagano, Jr.
		Robert J. Pagano, Jr.
		Chief Executive Officer (principal executive officer)

Date: ~~November 5, 2018~~October 31, 2019	By:	/s/ Shashank Patel
		Shashank Patel Chief Financial Officer (principal financial officer)

Date: ~~November 5, 2018~~October 31, 2019

By:

/s/ Virginia A. Halloran

Virginia A. Halloran

Chief Accounting Officer (principal accounting officer)

3640


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

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


Large accelerated filer ☒		Accelerated filer ☐

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


Class		Outstanding at October ~~28, 2018~~27, 2019
Class A Common Stock, $0.10 par value		~~27,764,919~~ 27,602,056

Class B Common Stock, $0.10 par value		~~6,329,290~~ 6,279,290


Part I. Financial Information			3

~~Part I. Financial Information~~Item 1.		3
Financial Statements			3
~~Item 1.~~	~~Financial Statements~~		3

	Consolidated Balance Sheets at September ~~30, 2018~~29, 2019 and December 31, ~~2017~~2018 (unaudited)		3
			3

	Consolidated Statements of Operations for the ~~Three Months~~Third Quarters and Nine Months ended September 29, 2019 and September 30, 2018 ~~and October 1, 2017~~ (unaudited)		4
			4

	Consolidated Statements of Comprehensive Income for the ~~Three Months~~Third Quarters and Nine Months ended September 29, 2019 and September 30, 2018 ~~and October 1, 2017~~ (unaudited)		5
			5

	Consolidated Statements of Stockholders’ Equity for the Third Quarters and Nine Months ended September 29, 2019 and September 30, 2018 (unaudited)		6

	Consolidated Statements of Cash Flows for the Nine Months ended September 29, 2019 and September 30, 2018 ~~and October 1, 2017~~ (unaudited)		6
			8

	Notes to Consolidated Financial Statements (unaudited)		7 9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24 27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		32 35

Item 4.	Controls and Procedures		33 36

Part II. Other Information			34 37

Item 1.	Legal Proceedings		34 37

Item 1A.	Risk Factors		34 37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		34 37

Item 6.	Exhibits		35 38

Signatures			36
			40


	September 30,		December 31,
	2018		2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	156.8	$	280.2
Trade accounts receivable, less allowance for doubtful accounts of $15.1 million at September 30, 2018 and $14.3 million at December 31, 2017		231.3		216.1
Inventories, net
Raw materials		93.2		81.8
Work in process		20.5		17.5
Finished goods		176.5		159.8
Total Inventories		290.2		259.1
Prepaid expenses and other current assets		31.1		26.7
Assets held for sale		1.4		1.5
Total Current Assets		710.8		783.6
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost		536.8		525.8
Accumulated depreciation		(338.3)		(327.3)
Property, plant and equipment, net		198.5		198.5
OTHER ASSETS:
Goodwill		547.6		550.5
Intangible assets, net		170.0		185.2
Deferred income taxes		2.0		1.6
Other, net		20.7		17.1
TOTAL ASSETS	$	1,649.6	$	1,736.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	115.0	$	123.8
Accrued expenses and other liabilities		121.9		125.8
Accrued compensation and benefits		52.4		55.3
Current portion of long-term debt		28.1		22.5
Total Current Liabilities		317.4		327.4
LONG-TERM DEBT, NET OF CURRENT PORTION		350.7		474.6
DEFERRED INCOME TAXES		50.9		55.2
OTHER NONCURRENT LIABILITIES		46.4		50.3
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; 80,000,000 shares authorized; 1 vote per share; issued and outstanding, 27,781,427 shares at September 30, 2018 and 27,724,192 shares at December 31, 2017		2.8		2.8
Class B common stock, $0.10 par value; 25,000,000 shares authorized; 10 votes per share; issued and outstanding, 6,329,290 shares at September 30, 2018 and 6,379,290 shares at December 31, 2017		0.6		0.6
Additional paid-in capital		564.5		551.8
Retained earnings		426.1		372.9
Accumulated other comprehensive loss		(109.8)		(99.1)
Total Stockholders’ Equity		884.2		829.0
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,649.6	$	1,736.5


											Accumulated
	Class A			Class B			Additional				Other		Total
	Common Stock			Common Stock			Paid-In		Retained		Comprehensive		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Loss		Equity
Balance at December 31, 2017	27,724,192	$	2.8	6,379,290	$	0.6	$	551.8	$	372.9	$	(99.1)	$	829.0
Reporting Comprehensive Income change in accounting principle (ASU 2018-02)	—		—	—		—		—		(0.7)		—		(0.7)
Net income	—		—	—		—		—		95.7		—		95.7
Other comprehensive loss	—		—	—		—		—		—		(10.7)		(10.7)
Comprehensive income														85.0
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	37,632		—	—		—		2.1		—		—		2.1
Stock-based compensation	—		—	—		—		10.0		—		—		10.0
Stock repurchase	(195,790)		—	—		—		—		(15.5)		—		(15.5)
Issuance of net shares of restricted Class A common stock	114,461		—	—		—		—		(3.1)		—		(3.1)
Net change in restricted and performance stock units	50,932		—	—		—		0.6		(2.1)		—		(1.5)
Common stock dividends	—		—	—		—		—		(21.1)		—		(21.1)
Balance at September 30, 2018	27,781,427	$	2.8	6,329,290	$	0.6	$	564.5	$	426.1	$	(109.8)		884.2

��											Accumulated
	Class A			Class B			Additional				Other		Total
	Common Stock			Common Stock			Paid-In		Retained		Comprehensive		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Loss		Equity
Balance at July 1, 2018	27,803,429	$	2.8	6,329,290	$	0.6	$	559.6	$	407.4	$	(112.2)	$	858.2
Net income	—		—	—		—		—		31.5		—		31.5
Other comprehensive income	—		—	—		—		—		—		2.4		2.4
Comprehensive income														33.9
Shares of Class A common stock issued upon the exercise of stock options	25,049		—	—		—		2.1		—		—		2.1
Stock-based compensation	—		—	—		—		3.7		—		—		3.7
Stock repurchase	(57,156)		—	—		—		—		(4.7)		—		(4.7)
Issuance of net shares of restricted Class A common stock	17,988		—	—		—		—		(0.9)		—		(0.9)
Net change in restricted and performance stock units	(7,883)		—	—		—		(0.9)		—		—		(0.9)
Common stock dividends	—		—	—		—		—		(7.2)		—		(7.2)
Balance at September 30, 2018	27,781,427	$	2.8	6,329,290	$	0.6	$	564.5	$	426.1	$	(109.8)		884.2


	Contract		Contract		Contract
	Assets		Liabilities - Current		Liabilities - Noncurrent
			(in millions)
Balance - January 1, 2018	$	0.6	$	11.3	$	2.1
Change in period		1.1		0.2		0.3
Balance - April 1, 2018	$	1.7	$	11.5	$	2.4
Change in period		(0.3)		0.1		0.3
Balance - July 1, 2018	$	1.4	$	11.6	$	2.7
Change in period		0.4		(0.4)		—
Balance - September 30, 2018	$	1.8	$	11.2	$	2.7


	September 30, 2018
	Gross Balance								Accumulated Impairment Losses						Net Goodwill
			Acquired		Foreign
	Balance		During		Currency		Balance		Balance		Impairment		Balance
	January 1,		the		Translation		September 30,		January 1,		Loss During		September 30,		September 30,
	2018		Period (1)		and Other		2018		2018		the Period		2018		2018
	(in millions)
Americas	$	437.4		1.5		(0.4)		438.5	$	(24.5)		—		(24.5)		414.0
Europe		249.3		—		(3.0)		246.3		(129.7)		—		(129.7)		116.6
APMEA		30.9		—		(1.0)		29.9		(12.9)		—		(12.9)		17.0
Total	$	717.6		1.5		(4.4)		714.7	$	(167.1)		—		(167.1)		547.6


							Total realized and unrealized
	Balance						(gains) losses included in:				Balance
	December 31,						Net earnings		Comprehensive		September 30,
	2017		Settlements		Purchases		adjustments		income		2018
	(in millions)
Redeemable financial instrument	$	2.9		—	$	—		—	$	(0.1)	$	2.8


	For the Three Months Ended September 30, 2018					For the Three Months Ended October 1, 2017
	Income		Shares	Per Share		Income		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
	(Amounts in millions, except per share information)
Basic EPS:
Net income	$	31.5	34.3	$	0.92	$	26.5	34.4	$	0.77
Effect of dilutive securities:
Common stock equivalents			0.1					—
Diluted EPS:
Net income	$	31.5	34.4	$	0.92	$	26.5	34.4	$	0.77


	For the Nine Months Ended September 30, 2018					For the Nine Months Ended October 1, 2017
	Income		Shares	Per Share		Income		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
	(Amounts in millions, except per share information)
Basic EPS:
Net income	$	95.7	34.3	$	2.79	$	75.4	34.4	$	2.19
Effect of dilutive securities:
Common stock equivalents			0.1		(0.01)			0.1
Diluted EPS:
Net income	$	95.7	34.4	$	2.78	$	75.4	34.5	$	2.19


	For the Three Months Ended			For the Three Months Ended
	September 30, 2018			October 1, 2017
	Number of shares	Cost of shares		Number of shares	Cost of shares
	repurchased	repurchased		repurchased	repurchased
	(amounts in millions, except share amount)
Total stock repurchased during the period:	57,156	$	4.7	72,669	$	4.7


	For the Nine Months Ended			For the Nine Months Ended
	September 30, 2018			October 1, 2017
	Number of shares	Cost of shares		Number of shares	Cost of shares
	repurchased	repurchased		repurchased	repurchased
	(amounts in millions, except share amount)
Total stock repurchased during the period:	195,790	$	15.5	214,455	$	13.6


	Issuer Purchases of Equity Securities
					(d) Maximum Number (or
	(a) Total			(c) Total Number of	Approximate Dollar
	Number of			Shares (or Units)	Value) of Shares (or
	Shares (or	(b) Average		Purchased as Part of	Units) that May Yet Be
	Units)	Price Paid per		Publicly Announced	Purchased Under the
Period	Purchased	Share (or Unit)		Plans or Programs	Plans or Programs
July 2, 2018 – July 29, 2018	9,827	$	84.94	—	—
July 30, 2018 – August 26, 2018	522	$	86.50	—	—
August 27, 2018 - September 30, 2018	1,129	$	81.45	—	—
Total	11,478	$	84.67	—	—