UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

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

For the quarterly period ended ~~September 29, 2019~~June 28, 2020

☐

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

For the transition period from to

Commission file number 001-11499

WATTS WATER TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)


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

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

(978) 688-1811

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Class A common stock, par value $0.10 per share

WTS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

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


Large accelerated filer ☒		Accelerated filer ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at ~~October 27, 2019~~July 26, 2020
Class A Common Stock, $0.10 par value		~~27,602,056~~27,446,694

Class B Common Stock, $0.10 par value		~~6,279,290~~6,229,290

Table of Contents

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

INDEX


Part I. Financial Information		3

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at ~~September 29, 2019~~June 28, 2020 and December 31, ~~2018~~2019 (unaudited)	3

	Consolidated Statements of Operations for the ~~Third~~Second Quarters and ~~Nine~~Six Months ended ~~September 29,~~June 28, 2020 and June 30, 2019 ~~and September 30, 2018~~ (unaudited)	4

	Consolidated Statements of Comprehensive Income for the ~~Third~~Second Quarters and ~~Nine~~Six Months ended ~~September 29,~~June 28, 2020 and June 30, 2019 ~~and September 30, 2018~~ (unaudited)	5

	Consolidated Statements of Stockholders’ Equity for the ~~Third~~Second Quarters and ~~Nine~~Six Months ended ~~September 29,~~June 28, 2020 and June 30, 2019 ~~and September 30, 2018~~ (unaudited)	6

	Consolidated Statements of Cash Flows for the ~~Nine~~Six Months ended ~~September 29,~~June 28, 2020 and June 30, 2019 ~~and September 30, 2018~~ (unaudited)	8

	Notes to Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2726

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3536

Item 4.	Controls and Procedures	3637

Part II. Other Information		3738

Item 1.	Legal Proceedings	3738

Item 1A.	Risk Factors	3738

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3738

Item 6.	Exhibits	3840

Signatures		4041

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except share information)

(Unaudited)


	September 29,		December 31,		June 28,		December 31,
	2019		2018		2020		2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	173.7	$	204.1	$	148.7	$	219.7
Trade accounts receivable, less allowance for doubtful accounts of $14.6 million at September 29, 2019 and $15.0 million at December 31, 2018		238.6		205.5
Inventories, net
Trade accounts receivable, less reserve allowances of $12.7 million at June 28, 2020 and $14.3 million at December 31, 2019						209.2		219.8
Raw materials		88.2		87.4		95.4		83.3
Work in process		17.1		17.3		18.1		15.5
Finished goods		173.9		182.1		170.4		171.3
Total Inventories		279.2		286.8		283.9		270.1
Prepaid expenses and other current assets		22.6		24.9		25.7		25.3
Total Current Assets		714.1		721.3		667.5		734.9
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost		542.0		537.4		577.0		557.9
Accumulated depreciation		(346.2)		(335.5)		(370.1)		(357.9)
Property, plant and equipment, net		195.8		201.9		206.9		200.0
OTHER ASSETS:
Goodwill		577.3		544.8		580.1		581.1
Intangible assets, net		154.2		165.2		143.4		151.4
Deferred income taxes		2.4		1.6		2.6		2.7
Other, net		52.5		18.9		47.8		53.0
TOTAL ASSETS	$	1,696.3	$	1,653.7	$	1,648.3	$	1,723.1
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	103.4	$	127.2	$	103.4	$	123.3
Accrued expenses and other liabilities		135.5		130.6		129.8		133.4
Accrued compensation and benefits		52.6		60.9		45.7		57.6
Current portion of long-term debt		105.0		30.0		—		105.0
Total Current Liabilities		396.5		348.7		278.9		419.3
LONG-TERM DEBT, NET OF CURRENT PORTION		238.5		323.4		262.5		204.2
DEFERRED INCOME TAXES		38.5		38.5		41.2		38.6
OTHER NONCURRENT LIABILITIES		80.8		51.8		80.5		83.0
STOCKHOLDERS’ EQUITY:
Preferred Stock, $0.10 par value; 5,000,000 shares authorized; 0 shares issued or outstanding		—		—		—		—
Class A common stock, $0.10 par value; 120,000,000 shares authorized; 1 vote per share; issued and outstanding, 27,617,045 shares at September 29, 2019 and 27,646,465 shares at December 31, 2018		2.8		2.8
Class B common stock, $0.10 par value; 25,000,000 shares authorized; 10 votes per share; issued and outstanding, 6,279,290 shares at September 29, 2019 and 6,329,290 shares at December 31, 2018		0.6		0.6
Class A common stock, $0.10 par value; 120,000,000 shares authorized; 1 vote per share; issued and outstanding, 27,461,833 shares at June 28, 2020 and 27,586,416 shares at December 31, 2019						2.8		2.8
Class B common stock, $0.10 par value; 25,000,000 shares authorized; 10 votes per share; issued and outstanding, 6,229,290 shares at June 28, 2020 and 6,279,290 shares at December 31, 2019						0.6		0.6
Additional paid-in capital		585.9		568.3		598.9		591.5
Retained earnings		494.9		440.7		521.4		513.9
Accumulated other comprehensive loss		(142.2)		(121.1)		(138.5)		(130.8)
Total Stockholders’ Equity		942.0		891.3		985.2		978.0
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,696.3	$	1,653.7	$	1,648.3	$	1,723.1

See accompanying notes to consolidated financial statements.

Table of Contents

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in millions, except per share information)

(Unaudited)

Third Quarter Ended

Nine Months Ended

September 29,

September 30,

September 29,

September 30,


2019

2018

2019

2018
Net sales

$
394.7

$
390.9

$
1,200.2

$
1,177.3
Cost of goods sold

226.1

226.4

692.8

686.7
GROSS PROFIT

168.6

164.5

507.4

490.6
Selling, general and administrative expenses

119.8

114.2

354.9

344.2
Restructuring

—

3.4

2.7

3.4
OPERATING INCOME

48.8

46.9

149.8

143.0
Other (income) expense:

Interest income

(0.1)

(0.1)

(0.3)

(0.6)
Interest expense

3.5

3.9

10.8

12.6
Other income

(0.8)

(0.9)

(0.4)

(2.0)
Total other expense

2.6

2.9

10.1

10.0
INCOME BEFORE INCOME TAXES

46.2

44.0

139.7

133.0
Provision for income taxes

13.9

12.5

40.0

37.3
NET INCOME

$
32.3

$
31.5

$
99.7

$
95.7
Basic EPS

NET INCOME PER SHARE

$
0.95

$
0.92

$
2.92

$
2.79
Weighted average number of shares

34.0

34.3

34.1

34.3
Diluted EPS

NET INCOME PER SHARE

$
0.94

$
0.92

$
2.91

$
2.78
Weighted average number of shares

34.2

34.4

34.2

34.4
Dividends declared per share

$
0.23

$
0.21

$
0.67

$
0.61


	Second Quarter Ended				Six Months Ended
	June 28,		June 30,		June 28,		June 30,
	2020		2019		2020		2019
Net sales	$	338.7	$	416.8	$	721.3	$	805.5
Cost of goods sold		203.8		242.2		423.6		466.7
GROSS PROFIT		134.9		174.6		297.7		338.8
Selling, general and administrative expenses		97.6		119.0		212.6		235.1
Restructuring		5.3		1.3		5.3		2.7
Other long-lived asset impairment charge		1.0		—		1.0		—
OPERATING INCOME		31.0		54.3		78.8		101.0
Other (income) expense:
Interest income		(0.1)		(0.1)		(0.2)		(0.2)
Interest expense		4.0		3.7		7.0		7.3
Other (income) expense		(0.4)		(0.1)		(0.1)		0.4
Total other expense		3.5		3.5		6.7		7.5
INCOME BEFORE INCOME TAXES		27.5		50.8		72.1		93.5
Provision for income taxes		7.3		14.4		19.9		26.1
NET INCOME	$	20.2	$	36.4	$	52.2	$	67.4
Basic EPS
NET INCOME PER SHARE	$	0.60	$	1.06	$	1.54	$	1.97
Weighted average number of shares		33.8		34.1		33.9		34.1
Diluted EPS
NET INCOME PER SHARE	$	0.59	$	1.06	$	1.53	$	1.97
Weighted average number of shares		34.0		34.2		34.0		34.2
Dividends declared per share	$	0.23	$	0.23	$	0.46	$	0.44

See accompanying notes to consolidated financial statements.

Table of Contents

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in millions)

(Unaudited)


	Third Quarter Ended				Nine Months Ended				Second Quarter Ended				Six Months Ended
	September 29,		September 30,		September 29,		September 30,		June 28,		June 30,		June 28,		June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Net income	$	32.3	$	31.5	$	99.7	$	95.7	$	20.2	$	36.4	$	52.2	$	67.4
Other comprehensive (loss) income, net of tax:
Other comprehensive income (loss) net of tax:
Foreign currency translation adjustments		(15.8)		2.5		(16.9)		(14.4)		10.0		3.5		(6.5)		(1.1)
Cash flow hedges		(0.5)		(0.1)		(4.2)		3.7		(0.3)		(2.4)		(1.2)		(3.7)
Other comprehensive (loss) income		(16.3)		2.4		(21.1)		(10.7)
Other comprehensive income (loss)										9.7		1.1		(7.7)		(4.8)
Comprehensive income	$	16.0	$	33.9	$	78.6	$	85.0	$	29.9	$	37.5	$	44.5	$	62.6

See accompanying notes to consolidated financial statements.

Table of Contents

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in millions)

(Unaudited)

Accumulated

Class A

Class B

Additional

Other

Total

Class A

Class B

Additional

Other

Total

Common Stock

Paid-In

Retained

Comprehensive

Stockholders’

Common Stock

Paid-In

Retained

Comprehensive

Stockholders’

Shares

Amount

Shares

Amount

Capital

Earnings

Loss

Equity

Balance at December 31, 2018

27,646,465

2.8

6,329,290

0.6

568.3

440.7

(121.1)

891.3

(For the six months ended June 28, 2020)

Shares

Amount

Shares

Amount

Capital

Earnings

Loss

Equity

Balance at December 31, 2019

27,586,416

2.8

6,279,290

0.6

591.5

513.9

(130.8)

978.0

Net income

—

99.7

—

99.7

—

52.2

—

52.2

Other comprehensive loss

—

(21.1)

—

(7.7)

Comprehensive income

78.6

44.5

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

50,000

—

(50,000)

—

50,000

—

(50,000)

—

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

19,155

—

1.0

—

1.0

Stock-based compensation

—

13.3

—

13.3

—

5.4

—

5.4

Stock repurchase

(178,340)

—

(14.8)

—

(14.8)

(253,535)

—

(21.1)

—

(21.1)

Net change in restricted and performance stock units

79,765

—

3.3

(7.1)

—

(3.8)

78,952

—

2.0

(7.8)

—

(5.8)

Common stock dividends

—

(23.6)

—

(23.6)

—

(15.8)

—

(15.8)

Balance at September 29, 2019

27,617,045

2.8

6,279,290

0.6

585.9

494.9

(142.2)

942.0

Balance at June 28, 2020

27,461,833

2.8

6,229,290

0.6

598.9

521.4

(138.5)

985.2

Accumulated

Class A

Class B

Additional

Other

Total

Class A

Class B

Additional

Other

Total

Common Stock

Paid-In

Retained

Comprehensive

Stockholders’

Common Stock

Paid-In

Retained

Comprehensive

Stockholders’

Shares

Amount

Shares

Amount

Capital

Earnings

Loss

Equity

Balance at June 30, 2019

27,657,544

2.8

6,279,290

0.6

581.1

475.6

(125.9)

934.2

(For the three months ended June 28, 2020)

Shares

Amount

Shares

Amount

Capital

Earnings

Loss

Equity

Balance at March 29, 2020

27,544,757

2.8

6,229,290

0.6

597.1

515.5

(148.2)

967.8

Net income

—

32.3

—

32.3

—

20.2

—

20.2

Other comprehensive loss

—

(16.3)

Other comprehensive income

—

9.7

Comprehensive income

16.0

29.9

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

3,368

—

0.2

—

0.2

Stock-based compensation

—

4.6

—

4.6

—

1.8

—

1.8

Stock repurchase

(47,943)

—

(4.5)

—

(4.5)

(78,828)

—

(6.4)

—

(6.4)

Net change in restricted and performance stock units

4,076

—

(0.1)

—

(0.1)

(4,096)

—

(0.1)

—

(0.1)

Common stock dividends

—

(8.4)

—

(8.4)

—

(7.8)

—

(7.8)

Balance at September 29, 2019

27,617,045

2.8

6,279,290

0.6

585.9

494.9

(142.2)

942.0

Balance at June 28, 2020

27,461,833

2.8

6,229,290

0.6

598.9

521.4

(138.5)

985.2

~~See accompanying notes to consolidated financial statements.~~

~~WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES~~Table of Contents

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)~~

~~(Dollars in millions)~~

~~(Unaudited)~~


											Accumulated															Accumulated
	Class A			Class B			Additional				Other		Total		Class A				Class B			Additional				Other		Total
	Common Stock			Common Stock			Paid-In		Retained		Comprehensive		Stockholders’		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)
(For the six months ended June 30, 2019)															Shares		Amount		Shares	Amount		Capital		Earnings		Loss		Equity
Balance at December 31, 2018															27,646,465		$	2.8	6,329,290	$	0.6	$	568.3	$	440.7	$	(121.1)	$	891.3
Net income	—		—	—		—		—		95.7		—		95.7	—			—	—		—		—		67.4		—		67.4
Other comprehensive loss	—		—	—		—		—		—		(10.7)		(10.7)	—			—	—		—		—		—		(4.8)		(4.8)
Comprehensive income														85.0															62.6
Shares of Class B common stock converted to Class A common stock	50,000		—	(50,000)		—		—		—		—		—	50,000	��		—	(50,000)		—		—		—		—		—
Shares of Class A common stock issued upon the exercise of stock options	37,632		—	—		—		2.1		—		—		2.1	15,787			—	—		—		0.8		—		—		0.8
Stock-based compensation	—		—	—		—		10.0		—		—		10.0	—			—	—		—		8.7		—		—		8.7
Stock repurchase	(195,790)		—	—		—		—		(15.5)		—		(15.5)	(130,397)			—	—		—		—		(10.3)		—		(10.3)
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)	75,689			—	—		—		3.3		(7.0)		—		(3.7)
Common stock dividends	—		—	—		—		—		(21.1)		—		(21.1)	—			—	—		—		—		(15.2)		—		(15.2)
Balance at September 30, 2018	27,781,427	$	2.8	6,329,290	$	0.6	$	564.5	$	426.1	$	(109.8)		884.2

��											Accumulated
Balance at June 30, 2019															27,657,544		$	2.8	6,279,290	$	0.6	$	581.1	$	475.6	$	(125.9)		934.2
	Class A			Class B			Additional				Other		Total
	Common Stock			Common Stock			Paid-In		Retained		Comprehensive		Stockholders’													Accumulated
	Shares	Amount		Shares	Amount		Capital		Earnings		Loss		Equity		Class A				Class B			Additional				Other		Total
Balance at July 1, 2018	27,803,429	$	2.8	6,329,290	$	0.6	$	559.6	$	407.4	$	(112.2)	$	858.2
															Common Stock				Common Stock			Paid-In		Retained		Comprehensive		Stockholders’
(For the three months ended June 30, 2019)															Shares		Amount		Shares	Amount		Capital		Earnings		Loss		Equity
Balance at March 31, 2019															27,710,297		$	2.8	6,279,290	$	0.6	$	576.6	$	452.1	$	(127.0)	$	905.1
Net income	—		—	—		—		—		31.5		—		31.5	—			—	—		—		—		36.4		—		36.4
Other comprehensive income	—		—	—		—		—		—		2.4		2.4	—			—	—		—		—		—		1.1		1.1
Comprehensive income														33.9															37.5
Shares of Class A common stock issued upon the exercise of stock options	25,049		—	—		—		2.1		—		—		2.1	5,906			—	—		—		0.2		—		—		0.2
Stock-based compensation	—		—	—		—		3.7		—		—		3.7	—			—	—		—		4.1		—		—		4.1
Stock repurchase	(57,156)		—	—		—		—		(4.7)		—		(4.7)	(55,988)			—	—		—		—		(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)	(2,671)			—	—		—		0.2		(0.3)		—		(0.1)
Common stock dividends	—		—	—		—		—		(7.2)		—		(7.2)	—			—	—		—		—		(7.9)		—		(7.9)
Balance at September 30, 2018	27,781,427	$	2.8	6,329,290	$	0.6	$	564.5	$	426.1	$	(109.8)		884.2
Balance at June 30, 2019															27,657,544		$	2.8	6,279,290	$	0.6	$	581.1	$	475.6	$	(125.9)		934.2

See accompanying notes to consolidated financial statements.

Table of Contents

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)


	Nine Months Ended				Six Months Ended
	September 29,		September 30,		June 28,		June 30,
	2019		2018		2020		2019
OPERATING ACTIVITIES
Net income	$	99.7	$	95.7	$	52.2	$	67.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		22.7		21.5		15.3		15.0
Amortization of intangibles		11.6		15.2		7.6		7.8
Loss (gain) on disposal and impairment of property, plant and equipment and other		0.7		(0.1)
Loss on disposal and impairment of property, plant and equipment and other						1.3		0.6
Stock-based compensation		13.3		10.0		5.4		8.7
Deferred income tax		2.0		(4.0)		1.9		4.5
Changes in operating assets and liabilities, net of effects from business acquisitions:
Changes in operating assets and liabilities:
Accounts receivable		(36.5)		(17.4)		9.2		(48.9)
Inventories		5.1		(35.4)		(14.3)		3.6
Prepaid expenses and other assets		0.2		(4.9)		(1.3)		(1.1)
Accounts payable, accrued expenses and other liabilities		(23.9)		(14.0)		(30.0)		(37.9)
Net cash provided by operating activities		94.9		66.6		47.3		19.7
INVESTING ACTIVITIES
Additions to property, plant and equipment		(19.1)		(24.1)		(23.8)		(14.3)
Proceeds from the sale of property, plant and equipment		0.1		0.1
Net proceeds from the sale of assets, and other		—		0.2
Business acquisitions, net of cash acquired and other		(42.7)		(2.2)
Proceeds from sale of property, plant, and equipment						1.5		—
Net cash used in investing activities		(61.7)		(26.0)		(22.3)		(14.3)
FINANCING ACTIVITIES
Proceeds from long-term borrowings		82.0		50.0		407.5		40.0
Payments of long-term debt		(92.5)		(168.9)		(452.5)		(50.0)
Payments for tax withholdings on vested stock awards, finance leases and other		(11.1)		(6.4)
Payments for withholding taxes on vested awards						(7.8)		(7.0)
Payments for finance leases						(1.0)		(0.8)
Proceeds from share transactions under employee stock plans		1.0		2.1		—		0.8
Debt issuance costs						(2.2)		—
Payments to repurchase common stock		(14.8)		(15.5)		(21.1)		(10.3)
Dividends		(23.6)		(21.1)		(15.8)		(15.2)
Net cash used in financing activities		(59.0)		(159.8)		(92.9)		(42.5)
Effect of exchange rate changes on cash and cash equivalents		(4.6)		(4.2)		(3.1)		(0.2)
DECREASE IN CASH AND CASH EQUIVALENTS		(30.4)		(123.4)		(71.0)		(37.3)
Cash and cash equivalents at beginning of year		204.1		280.2		219.7		204.1
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	173.7	$	156.8	$	148.7	$	166.8
NON CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of businesses:
Fair value of assets acquired	$	43.3	$	4.1
Cash paid, net of cash acquired		42.7		1.7
Liabilities assumed	$	0.6	$	2.4
Issuance of stock under management stock purchase plan	$	1.6	$	1.5	$	0.7	$	1.3
CASH PAID FOR:
Interest	$	12.0	$	13.6	$	7.2	$	8.4
Income taxes	$	38.9	$	49.5	$	12.4	$	26.9

See accompanying notes to consolidated financial statements.

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WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the Watts Water Technologies, Inc. (the Company) Consolidated Balance Sheet as of ~~September 29, 2019,~~June 28, 2020, the Consolidated Statements of Operations for the ~~third~~second quarters and ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019, ~~and September 30, 2018,~~ the Consolidated Statements of Comprehensive Income for the ~~third~~second quarters and ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019, ~~and September 30, 2018,~~ the Consolidated Statements of Stockholders’ Equity for the ~~third~~second quarters and ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019, ~~and September 30, 2018,~~ and the Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 and ~~September~~June 30, ~~2018.~~2019.

The consolidated balance sheet at December 31, ~~2018~~2019 has been derived from the audited consolidated financial statements at that date. The accounting policies followed by the Company are described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. The financial statements included in this report should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. Operating results for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, ~~2019.~~2020, and may be further impacted by the effects of the Coronavirus Disease 2019 (“COVID-19”) global pandemic.

The Company operates on a ~~52-week~~52-week fiscal year ending on December ~~31.~~31, with each quarter, except the fourth quarter, ending on a Sunday. Any quarterly data contained in this Quarterly Report on Form 10-Q generally reflect the results of operations for a ~~13-week~~13-week period.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to the Company’s estimates or judgments or require the Company to revise the carrying value of the Company’s assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ from those estimates.

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COVID-19

In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continues to impact the countries and markets in which the Company operates, and new and evolving government actions to address the COVID-19 pandemic continue to occur on a regular basis. For the second quarter and six months ended June 28, 2020, temporary closures, lockdowns and other restrictions mandated by various governmental authorities intended to combat the COVID-19 pandemic have negatively impacted the Company’s revenue at varying levels within each of the Company’s business segments. The Company’s cost management actions, capital preservation steps and related impacts to the Company’s financial results and operations through June 28, 2020 are discussed within Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Due to the risk and uncertainties resulting from the COVID-19 pandemic, the extent of the impact on the Company’s business is highly uncertain and difficult to predict. Developments and information related to the response to the pandemic continue to occur and evolve rapidly. Many of the Company’s products qualify as “essential products” under local, state and national guidelines and orders. As a provider of essential products, the Company has made significant efforts to keep its facilities open, its employees working and its products available to its customers. The Company remains focused on protecting the health and safety of its employees and the communities in which it operates while maintaining the continuity of its business operations. Early in the pandemic, the Company created a COVID-19 Task Force to protect its employees while maintaining production capabilities, and the Company has implemented social distancing guidelines and temperature monitoring, provided personal protective equipment, established a COVID-19 website for employees which includes the latest Centers for Disease Control and Prevention (“CDC”) and other government protocols, and promoted work-from-home policies where practical.

Capital markets and economies worldwide continue to be negatively impacted by the protective measures taken by governments in response to the COVID-19 pandemic, and these measures have resulted in a global economic recession. Such economic disruption will likely have a material adverse effect on the Company’s business if customers continue to curtail and reduce overall spending, which may not return to pre-pandemic levels. Policymakers around the globe have responded with fiscal policy actions to bolster their local economies. The magnitude and overall effectiveness of these actions remains uncertain. The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, operations, distribution and suppliers, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers. However, the Company does not anticipate any adverse impacts on its ability to pay its debt obligations as they become due. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

The Company intends to continue to assess the evolving impact of the COVID-19 pandemic and expects to continue to make adjustments to its responses to address the situation as it develops.

2. Accounting Policies

The significant accounting policies used in preparation of these consolidated financial statements for the ~~third~~second quarter ~~and nine months~~ ended ~~September 29, 2019~~June 28, 2020 are consistent with those discussed 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, ~~2018, with the exception of the Company’s change in its accounting policy for Leases resulting from the adoption of ASC 842 as of January 1, 2019 described herein.~~2019.

~~Leases~~

The Company has leases for the following classes of underlying assets: real estate, automobiles, manufacturing equipment, facility equipment, office equipment and certain service arrangements that are dependent on an identified asset. The Company determines if an arrangement qualifies as a lease at its inception. The Company, as the lessee, recognizes in the statement of financial position a liability to make lease payments and a right-of-use asset (“ROU”) representing the right to use the underlying asset for both finance and operating leases with a lease term longer than twelve months. The Company elected the short-term lease recognition exemption for all leases that qualify and does not recognize ROU assets or lease liabilities for short-term leases. The Company recognizes short-term lease payments on a straight-line basis over the lease term in the consolidated statement of operations. The Company determines the initial classification and measurement of its ROU assets and lease liabilities at the lease commencement date and thereafter if modified.

For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. For finance leases, the lease liability is initially measured in the same manner and date as operating leases and is subsequently measured at amortized cost using the effective interest method.

Measuring the lease liability requires certain estimates and judgements. These estimates and judgments include how the Company determines 1) the discount rate it uses to discount the unpaid lease payments to present value; 2) lease term; and 3) lease payments.

●

The present value of lease payments is determined using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its incremental borrowing rate. Generally, the Company cannot determine the interest rate implicit in the lease because it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, the Company uses the incremental borrowing rate as the discount rate for the lease. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under a similar term. The Company’s incremental borrowing rate is determined by using a portfolio approach by geographic region, considering many factors, such as the Company’s specific credit risk, the amount of the lease payments, collateralized nature of the lease, both borrowing term and the lease term, and geographical economic considerations.

●

The lease term for all of the Company’s leases includes the fixed, noncancelable term of the lease plus (a) all periods, if any, covered by options to extend the lease if the Company is reasonably certain to exercise that option, (b) all periods, if any, covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option, and (c) all periods, if any, covered by an option to extend (or not to terminate) the lease in which exercise of the option is controlled by the lessor. When determining if a renewal option is reasonably certain of being exercised, the Company considers several economic factors, including but not limited to, the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, underlying contractual obligations, or specific characteristics unique to that particular lease that would make it reasonably certain to exercise such option.

●

~~Lease payments included in the measurement of the lease liability include the following:~~

Fixed payments, including in-substance fixed payments, owed over the lease term (which includes termination penalties the Company would owe if the lease term assumes Company exercise of a termination option), less any lease incentives paid or payable to the Company;

~~Variable lease payments that depend on an index or rate initially measured using the index or rate at the commencement date;~~

~~Amounts expected to be payable under a Company-provided residual value guarantee;~~

~~The exercise price of a Company option to purchase the underlying asset if the Company is reasonably certain to exercise that option; and~~

~~Fees paid by the Company to the owners of a special purpose entity for structuring the transaction.~~

The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for the lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received.

For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in cost of goods sold or within selling, general and administrative expenses in the consolidated statements of operations, based on the primary use of the ROU asset.

For finance leases, the Company recognizes the amortization of the ROU asset on a straight-line basis from the lease commencement date to the earlier of the end of the useful life or the end of the lease term unless the lease transfers ownership of the underlying asset to the Company or the Company is reasonably certain to exercise an option to purchase the underlying asset. In those cases, the ROU asset is amortized over the useful life of the underlying asset. Amortization of the ROU asset is recognized in depreciation in the consolidated statements of operations. The interest expense related to finance leases is recognized using the effective interest method and is included within interest expense.

Variable lease payments associated with the Company’s leases are recognized in the period when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs and are included in cost of goods sold or within selling, general and administrative expenses in the consolidated statements of operations, based on the primary use of the ROU asset.

~~ROU assets for operating and finance leases are periodically reduced by impairment losses. The Company uses the long-lived assets impairment guidance in ASC Subtopic 360-10,~~ ~~Property, Plant, and Equipment- Overall,~~ ~~to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize.~~

The Company monitors for events or changes in circumstances that require a reassessment of one of its leases. When a reassessment results in a remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in the statement of operations.

Recently Adopted Accounting Standards

In August ~~2017,~~2018, the Financial Accounting Standards Board (“FASB”) issued ASU ~~2017-12 “Derivatives~~2018-15, “Intangibles-Goodwill and ~~Hedging (Topic 815)-Targeted Improvements to~~Other-Internal-Use Software (Subtopic 350-40)-Customer’s Accounting for ~~Hedging Activities.~~Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” ASU ~~2017-12 amends~~2018-15 aligns the ~~hedge accounting guidance~~requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing

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implementation costs incurred to ~~improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in the financial statements.~~develop or obtain internal-use software. This guidance ~~permits hedge accounting for risk components~~requires an entity in ~~hedging relationships~~a hosting arrangement that ~~involve nonfinancial risk, reduces complexity~~is a service contract to follow the guidance in ~~hedging for fair value hedges of interest rate risk, eliminates~~Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the ~~requirement~~service contract and which costs to ~~separately measure and report hedging ineffectiveness, and simplifies certain hedge effectiveness assessment requirements.~~expense. This standard is effective for fiscal years beginning after December 15, ~~2018,~~2019, including interim periods within that reporting period. The Company adopted this standard in the first quarter of ~~2019,~~2020, and it did not have a material impact on the Company’s financial statements.

In ~~February~~June 2016, the FASB issued ASU ~~2016-02, “Leases~~2016-13, “Financial Instruments - Credit Losses (Topic ~~842)~~326).” ASU ~~2016-02 requires a lessee to recognize in~~2016-13 replaces the ~~statement of financial position a liability to make lease payments and an ROU asset representing the right to use the underlying asset for the lease term for both finance and operating leases~~incurred loss impairment methodology under current Generally Accepted Accounting Principles (“GAAP”) with a ~~term longer than twelve months. Topic 842 was subsequently amended by ASU 2018-01, “Land Easement Practical Expedient~~methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for ~~Transition~~accounts receivable, loans, and other financial instruments. The financial assets for which this standard is applicable on the Company’s balance sheet are accounts receivable and contract assets. The standard requires the Company to ~~Topic 842,” ASU 2018-10, “Codification Improvements to Topic 842, Leases,”~~pool financial assets based on similar risk and ~~ASU 2018-11 “Targeted Improvements.” ASU 2016-02~~economic characteristics and estimate expected credit losses over the contractual life of the asset. This standard is effective for ~~financial statements issued for fiscal years~~reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. Under ASC 842, leases are classified as finance or operating, with the classification determining the pattern and classification of expense recognition in the income statement.

A2019. The standard requires a modified retrospective ~~transition~~ approach ~~was required, applying the new standard~~through a cumulative-effect adjustment to ~~all leases existing at the date~~retained earnings as of ~~initial application. The Company could choose to use either 1) the effective date of the standard or 2)~~ the beginning of the ~~earliest comparable~~first reporting period ~~presented~~ in which the ~~financial statements as the date of initial application.~~guidance is effective. The Company adopted this standard in the ~~new standard on January 1, 2019~~first quarter of 2020, and used the effective date of the standard as the date of the Company’s initial application. By electing this approach, the financial information and the disclosures required under the new standard are not provided for dates and periods before January 1, 2019. The Company designed the necessary changes to its existing processes and configured all system requirements that were necessary to implement this new standard.

The new standard provides a number of optional practical expedients throughout the transition. The Company elected the “package of practical expedients,” which permitted the Company to not reassess under the new standard the Company’s prior conclusions about lease identification, lease classification, and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements, the latter not being applicable to the Company. The Company also elected the practical expedient to not separate lease and non-lease components for all of the Company’s leases.

~~As a result of adopting ASC 842, the Company recorded operating ROU assets of $33.6 million and operating lease liabilities of $33.9~~ million as of January 1, 2019 on the consolidated balance sheet. The difference between the ROU assets and lease liabilities related to the impact of eliminating deferred and prepaid lease payments recognized under the previous lease accounting standard. The Company’s adoption of ASC 842 did not result in a change to the Company’s recognition of its existing finance leases as of January 1, 2019. The adoption of the new lease accounting standardit did not have a material impact on ~~either the consolidated statement of operations or the consolidated statement of cash flows.~~

~~However, ASU 2016-02 has significantly affected~~ the Company’s ~~disclosures about noncash activities related~~financial statements.

Accounting Standards Updates

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments provide optional guidance for a limited time to ~~leases. Additionally,~~ease the ~~Company’s lease-related disclosures have significantly increased as of~~potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating its contracts and the ~~period ended September 29, 2019 as compared to prior years. See Note 4 to~~optional expedients provided by the ~~consolidated financial statements.~~

new standard.

Shipping and Handling

Shipping and handling costs included in selling, general and administrative expenses amounted to ~~$14.5~~$12.5 million and ~~$14.2~~$14.6 million for the ~~third~~second quarters of ~~2019~~2020 and ~~2018,~~2019, respectively, and were ~~$43.0~~$26.5 million and ~~$42.1~~$28.5 million for the first ~~nine~~six months of ~~2019~~2020 and ~~2018,~~2019, respectively.

Research and Development

Research and development costs included in selling, general and administrative expenses amounted to $9.8 million and ~~$8.7~~$9.5 million for the ~~third~~second quarters of ~~2019~~2020 and ~~2018,~~2019, respectively, and were ~~$28.6~~$21.3 million and ~~$25.5~~$18.8 million for the first ~~nine~~six months of ~~2019~~2020 and ~~2018,~~2019, respectively.

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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~~commercial and ~~commercial~~residential markets of the Americas, Europe, and 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 4 primary distribution channels: wholesale, original equipment manufacturers (OEMs), specialty, and do-it-yourself (DIY). The Company operates in 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 boilers, water heaters and heating solutions, hydronic and electric heating systems for 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 products—includes drainage products and engineered rain water harvesting solutions for commercial, industrial, marine and residential applications.

●

Water quality products—includes point-of-use and point-of-entry water filtration, conditioning and scale prevention systems for 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 second quarter ended June 28, 2020

For the six months ended June 28, 2020

(in millions)

Distribution Channel

Americas

Europe

APMEA

Consolidated

Americas

Europe

APMEA

Consolidated

Wholesale

130.8

55.1

11.2

197.1

278.1

130.2

20.5

428.8

OEM

16.7

32.5

0.6

49.8

36.2

67.1

0.8

104.1

Specialty

72.0

—

1.4

73.4

150.5

—

1.9

152.4

DIY

17.9

0.5

—

18.4

35.0

1.0

—

36.0

Total

237.4

88.1

13.2

338.7

499.8

198.3

23.2

721.3

For the second quarter ended June 28, 2020

For the six months ended June 28, 2020

(in millions)

Principal Product Line

Americas

Europe

APMEA

Consolidated

Americas

Europe

APMEA

Consolidated

Residential & Commercial Flow Control

130.7

30.7

8.9

170.3

279.4

71.7

17.0

368.1

HVAC and Gas Products

63.0

38.5

4.0

105.5

130.6

82.9

5.6

219.1

Drainage and Water Re-use Products

19.3

18.1

—

37.4

37.8

42.0

0.1

79.9

Water Quality Products

24.4

0.8

0.3

25.5

52.0

1.7

0.5

54.2

Total

237.4

88.1

13.2

338.7

499.8

198.3

23.2

721.3

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~~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 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

$
152.1

$
72.2

$
15.0

$
239.3

$
459.8

$
226.9

$
43.2

$
729.9
OEM

20.0

35.1

0.4

55.5

62.7

108.5

1.2

172.4
Specialty

83.6

—

1.1

84.7

247.5

—

2.2

249.7
DIY

14.6

0.6

—

15.2

46.2

2.0

—

48.2
Total

$
270.3

$
107.9

$
16.5

$
394.7

$
816.2

$
337.4

$
46.6

$
1,200.2

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
Residential & Commercial Flow Control

$
151.0

$
41.1

$
10.6

$
202.7

$
459.7

$
130.1

$
32.9

$
622.7
HVAC and Gas Products

73.4

44.7

4.4

122.5

221.9

139.0

10.0

370.9
Drainage and Water Re-use Products

20.7

21.5

1.3

43.5

60.4

66.4

3.0

129.8
Water Quality Products

25.2

0.6

0.2

26.0

74.2

1.9

0.7

76.8
Total

$
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								For the second quarter ended June 30, 2019								For the six months ended June 30, 2019
			(in millions)								(in millions)								(in millions)								(in millions)
Distribution Channel	Americas		Europe		APMEA		Consolidated		Americas		Europe		APMEA		Consolidated		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	$	162.0	$	75.2	$	15.6	$	252.8	$	307.6	$	154.7	$	28.2	$	490.5
OEM		19.4		37.5		0.3		57.2		58.6		114.9		1.1		174.6		21.9		37.4		0.3		59.6		42.7		73.4		0.9		117.0
Specialty		82.7		—		1.5		84.2		236.4		—		4.3		240.7		87.9		—		0.7		88.6		163.9		—		1.0		164.9
DIY		13.9		0.6		—		14.5		46.9		2.1		—		49.0		15.2		0.6		—		15.8		31.7		1.4		—		33.1
Total	$	262.7	$	111.6	$	16.6	$	390.9	$	775.8	$	351.7	$	49.8	$	1,177.3	$	287.0	$	113.2	$	16.6	$	416.8	$	545.9	$	229.5	$	30.1	$	805.5

	For the third quarter ended September 30, 2018								For the nine months ended September 30, 2018								For the second quarter ended June 30, 2019								For the six months ended June 30, 2019
			(in millions)								(in millions)								(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	$	161.3	$	43.6	$	11.6	$	216.5	$	308.7	$	89.1	$	22.3	$	420.1
HVAC and Gas Products		77.1		49.4		4.3		130.8		220.2		152.7		13.6		386.5		79.8		45.9		3.6		129.3		148.5		94.3		5.7		248.5
Drainage and Water Re-use Products		19.8		21.7		0.7		42.2		55.2		65.9		1.4		122.5		21.6		23.0		1.1		45.7		39.7		44.9		1.6		86.2
Water Quality Products		21.4		0.3		0.4		22.1		65.1		0.9		1.0		67.0		24.3		0.7		0.3		25.3		49.0		1.2		0.5		50.7
Total	$	262.7	$	111.6	$	16.6	$	390.9	$	775.8	$	351.7	$	49.8	$	1,177.3	$	287.0	$	113.2	$	16.6	$	416.8	$	545.9	$	229.5	$	30.1	$	805.5

The Company generally 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 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.

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 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.

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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		Contract		Contract		Contract
							Assets		Liabilities - Current		Liabilities - Noncurrent
									(in millions)
Balance - January 1, 2020							$	0.4	$	11.5	$	2.9
Change in period								(0.1)		0.2		(0.1)
Balance - March 29, 2020							$	0.3	$	11.7	$	2.8
Change in period								—		—		(0.1)
Balance - June 28, 2020							$	0.3	$	11.7	$	2.7
	Assets		Liabilities - Current		Liabilities - Noncurrent
			(in millions)
Balance - January 1, 2019	$	1.0	$	11.3	$	2.7	$	1.0	$	11.3	$	2.7
Change in period		(0.7)		0.1		—		(0.7)		0.1		—
Balance - March 31, 2019	$	0.3	$	11.4	$	2.7	$	0.3	$	11.4	$	2.7
Change in period		(0.2)		0.7		0.1		(0.2)		0.7		0.1
Balance - June 30, 2019	$	0.1	$	12.1	$	2.8	$	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

The amount of revenue recognized during the ~~third~~second quarter and ~~nine~~six months ended ~~September 29,~~June 28, 2020 that was included in the opening contract liability balance was $2.5 million and $4.8 million, respectively. The amount of revenue recognized during the second quarter and six months ended June 30, 2019 that was included in the opening contract liability balance was ~~$3.1~~$2.8 million and ~~$9.2~~$6.1 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~~ respectively.~~$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. There were 0 impairment losses related to ~~Contract Assets~~contract assets for the ~~third quarter~~second quarters and ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019.

The Company incurs costs to obtain and fulfill a contract; however, the Company has elected 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~~

The 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 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 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 the fixed lease payments for the single, combined lease component and used to measure the lease liability. Variable lease costs are recognized in the period when the event, activity, or circumstance in the lease agreement occurs.

Some of the Company’s lease agreements include Company options to either extend and/or early terminate the lease, the costs of which are included in the Company’s 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 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 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 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’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 information related to operating and 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~~	%

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5.4. Goodwill & Intangibles

The Company operates in 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

June 28, 2020

Gross Balance

Accumulated Impairment Losses

Net Goodwill

Gross Balance

Accumulated Impairment Losses

Net Goodwill

Acquired

Foreign

Acquired

Foreign

Balance

During

Currency

Balance

Impairment

Balance

During

Currency

Balance

Impairment

Balance

January 1,

the

Translation

September 29,

January 1,

Loss During

September 29,

January 1,

the

Translation

June 28,

January 1,

Loss During

June 28,

2019

Period

and Other

2019

the Period

2019

2020

Period

and Other

2020

the Period

2020

(in millions)

Americas

438.1

38.3

0.3

476.7

(24.5)

—

(24.5)

452.2

476.8

—

(0.4)

476.4

(24.5)

—

(24.5)

451.9

Europe

243.7

—

(5.0)

238.7

(129.7)

—

(129.7)

109.0

241.4

—

0.2

241.6

(129.7)

—

(129.7)

111.9

APMEA

30.1

—

(1.1)

29.0

(12.9)

—

(12.9)

16.1

30.0

—

(0.8)

29.2

(12.9)

—

(12.9)

16.3

Total

711.9

38.3

(5.8)

744.4

(167.1)

—

(167.1)

577.3

748.2

—

(1.0)

747.2

(167.1)

—

(167.1)

580.1


	December 31, 2018																December 31, 2019
	Gross Balance								Accumulated Impairment Losses						Net Goodwill		Gross Balance								Accumulated Impairment Losses						Net Goodwill
			Acquired		Foreign														Acquired		Foreign
	Balance		During		Currency		Balance		Balance		Impairment		Balance				Balance		During		Currency		Balance		Balance		Impairment		Balance
	January 1,		the		Translation		December 31,		January 1,		Loss During		December 31,		December 31,		January 1,		the		Translation		December 31,		January 1,		Loss During		December 31,		December 31,
	2018		Period		and Other		2018		2018		the Period		2018		2018		2019		Period		and Other		2019		2019		the Period		2019		2019

	(in millions)																(in millions)
Americas	$	437.4	$	1.5	$	(0.8)	$	438.1	$	(24.5)	$	—	$	(24.5)	$	413.6	$	438.1	$	38.3	$	0.4	$	476.8	$	(24.5)	$	—	$	(24.5)	$	452.3
Europe		249.3		—		(5.6)		243.7		(129.7)		—		(129.7)		114.0		243.7		—		(2.3)		241.4		(129.7)		—		(129.7)		111.7
APMEA		30.9		—		(0.8)		30.1		(12.9)		—		(12.9)		17.2		30.1		—		(0.1)		30.0		(12.9)		—		(12.9)		17.1
Total	$	717.6	$	1.5	$	(7.2)	$	711.9	$	(167.1)	$	—	$	(167.1)	$	544.8	$	711.9	$	38.3	$	(2.0)	$	748.2	$	(167.1)	$	—	$	(167.1)	$	581.1

Goodwill and indefinite-lived intangible assets are tested for impairment at least annually or more frequently if events or circumstances indicate that it is “more likely than not” that they might be impaired, such as from a change in business conditions. The Company performs its annual goodwill and indefinite-lived intangible assets impairment assessment in the fourth quarter of each year. At the most recent annual impairment test date of October 27, 2019, the Company performed qualitative fair value assessments, including an evaluation of certain key assumptions for all 7 of its reporting units. The Company concluded that the fair value of all 7 reporting units exceed its carrying value at that time.

As a result of the impact of the COVID-19 global pandemic, the Company reviewed the guidance outlined in ASC 350 to determine if there was an event or change in circumstance to indicate it is more likely than not that an impairment loss has been incurred during the first six months of 2020. The Company performed an analysis of the decline in stock price when compared to December 31, 2019, assessed other market risk factors, and performed a market capitalization reconciliation of its reporting units. The Company concluded a triggering event did not occur as of June 28, 2020 and it was not “more likely than not” that the Company’s reporting units might be impaired.

Additionally, the Company noted the Heating and Hot Water Solutions (“HHWS”) reporting unit had a goodwill balance of $218.9 million as of June 28, 2020, which holds the greatest amount of goodwill and the least amount of excess of fair value over carrying value. While the Company concluded that a triggering event did not occur during the second quarter and six months ended June 28, 2020, the impact of a prolonged COVID-19 pandemic could impact the results of

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operations due to changes to assumptions utilized in the determination of the estimated fair values of the HHWS reporting unit that may be significant enough to trigger an impairment determination.

Intangible assets include the following:


	September 29, 2019						December 31, 2018						June 28, 2020						December 31, 2019
	Gross				Net		Gross				Net		Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount		Amount		Amortization		Amount		Amount		Amortization		Amount

	(in millions)												(in millions)
Patents	$	16.1	$	(15.8)	$	0.3	$	16.1	$	(15.8)	$	0.3	$	16.1	$	(15.9)	$	0.2	$	16.1	$	(15.9)	$	0.2
Customer relationships		232.3		(154.0)		78.3		232.9		(146.9)		86.0		232.5		(160.9)		71.6		232.8		(156.3)		76.5
Technology		56.8		(30.5)		26.3		54.6		(27.3)		27.3		56.8		(33.8)		23.0		56.9		(31.6)		25.3
Trade names		25.8		(12.7)		13.1		26.1		(11.5)		14.6		25.9		(13.8)		12.1		26.0		(13.1)		12.9
Other		4.3		(3.6)		0.7		4.3		(3.5)		0.8		4.3		(3.7)		0.6		4.3		(3.6)		0.7
Total amortizable intangibles		335.3		(216.6)		118.7		334.0		(205.0)		129.0		335.6		(228.1)		107.5		336.1		(220.5)		115.6
Indefinite-lived intangible assets		35.5		—		35.5		36.2		—		36.2		35.9		—		35.9		35.8		—		35.8
	$	370.8	$	(216.6)	$	154.2	$	370.2	$	(205.0)	$	165.2	$	371.5	$	(228.1)	$	143.4	$	371.9	$	(220.5)	$	151.4

Aggregate amortization expense for amortized intangible assets for the ~~third~~second quarters ended ~~September 29,~~June 28, 2020 and June 30, 2019 ~~and September 30, 2018~~ was $3.8 million and ~~$4.5~~$3.9 million, respectively, and for the first ~~nine~~six months of 2020 and 2019 ~~and 2018~~ was ~~$11.6~~$7.6 million and ~~$15.2~~$7.8 million, ~~respectively. As a result of the acquisition completed in the third quarter of 2019, the Company recorded $2.2 million of intangible assets related to developed technology.~~respectively.

~~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.

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 included reductions in force and other related costs within the Company’s Europe segment. The total restructuring charges associated with the program 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 the 2018 program had been fully incurred. Through September 29, 2019 the Company paid approximately $4.1 million of severance benefits and other related costs. The restructuring reserve associated with these actions as of September 29, 2019 was approximately $2.4 million, and primarily relates to severance benefits.

7.5. 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% 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 Amended and Restated Credit Agreement (the "New Credit Agreement") entered into on April 24, 2020 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 29,

December 31,

2019

2018

(in millions)
Carrying amount

$
344.5

$
355.0
Estimated fair value

$
345.3

$
355.4

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 29, 2019~~June 28, 2020 and December 31, ~~2018:~~2019:


	Fair Value Measurement at September 29, 2019 Using:								Fair Value Measurement at June 28, 2020 Using:
			Quoted Prices in Active		Significant Other		Significant				Quoted Prices in Active		Significant Other		Significant
			Markets for Identical		Observable		Unobservable				Markets for Identical		Observable		Unobservable
			Assets		Inputs		Inputs				Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)

	(in millions)								(in millions)
Assets
Plan asset for deferred compensation(1)	$	2.4	$	2.4	$	—	$	—	$	2.0	$	2.0	$	—	$	—
Interest rate swaps (1)	$	1.5	$	—	$	1.5	$	—
Designated foreign currency hedges (4)									$	0.1	$	—	$	0.1	$	—
Total assets	$	3.9	$	2.4	$	1.5	$	—	$	2.1	$	2.0	$	0.1	$	—
Liabilities
Interest rate swaps (3)									$	1.9	$	—	$	1.9	$	—
Plan liability for deferred compensation(2)	$	2.4	$	2.4	$	—	$	—	$	2.0	$	2.0	$	—	$	—
Designated foreign currency hedges (4)	$	0.3	$	—	$	0.3	$	—
Total liabilities	$	2.7	$	2.4	$	0.3	$	—	$	3.9	$	2.0	$	1.9	$	—

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	Fair Value Measurements at December 31, 2018 Using:								Fair Value Measurements at December 31, 2019 Using:
			Quoted Prices in Active		Significant Other		Significant				Quoted Prices in Active		Significant Other		Significant
			Markets for Identical		Observable		Unobservable				Markets for Identical		Observable		Unobservable
			Assets		Inputs		Inputs				Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)

	(in millions)								(in millions)
Assets
Plan asset for deferred compensation(1)	$	2.6	$	2.6	$	—	$	—	$	2.5	$	2.5	$	—	$	—
Interest rate swaps (1)	$	6.5	$	—	$	6.5	$	—	$	1.2	$	—	$	1.2	$	—
Total assets	$	9.1	$	2.6	$	6.5	$	—	$	3.7	$	2.5	$	1.2	$	—
Liabilities
Plan liability for deferred compensation(2)	$	2.6	$	2.6	$	—	$	—	$	2.5	$	2.5	$	—	$	—
Redeemable financial instrument(3)	$	2.8	$	—	$	—	$	2.8
Designated foreign currency hedge(3)									$	0.2	$	—	$	0.2	$	—
Total liabilities	$	5.4	$	2.6	$	—	$	2.8	$	2.7	$	2.5	$	0.2	$	—

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

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

~~(3)~~

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

(3)

~~(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 outstanding shares of Apex. The aggregate purchase price was $20.4 million and the Company recorded a long-term liability of $5.5 million as the estimate of the acquisition date fair value(4)Included on the ~~contractual call option to purchase the remaining 20% within three years of closing. The Company acquired an additional 10% ownership~~Company’s consolidated balance sheet in the first quarter of 2017 for $2.9 million, increasing the Company’s ownership to 90% of Apex outstanding shares. In the fourth quarter of 2018, the Company executed an agreement to extend the exercise of the contractual call option. The Company exercised the contractual call option to purchase the remaining 10% of Apex shares in the third quarter of 2019 for approximately $2.8 million.other current assets (prepaids expenses and other current assets).

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~~“Prior 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 $37.0~~ ~~million had been drawn as of September 29, 2019. Both facilities mature on February 12, 2021.~~million. For each facility, the Company ~~can~~could choose either an Adjusted LIBOR or Alternative Base Rate (“ABR”). Accordingly, the Company’s earnings and cash flows ~~are~~were 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 2 interest rate swaps. For each interest rate swap, the Company ~~receives~~received the three-month USD-LIBOR subject to a 0% floor, and ~~pays~~paid a fixed rate of 1.31375% on a notional amount of $225.0 million. The swaps were expected to mature on the same date as the Prior Credit Agreement 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.~~2021, and were designated as cash flow hedges. On ~~a quarterly basis,~~April 24, 2020, the Company ~~assesses whether~~entered into a New Credit Agreement. The New Credit Agreement amends and restates the Prior Credit Agreement in its entirety while increasing the amount of revolving credit available from $500 million to $800 million, and extending the maturity by one additional year to February 2022. As part of the New Credit Agreement, the LIBOR rate is subject to a 1% floor as opposed to a 0% floor in the Prior Credit Agreement. The change in the LIBOR floor in the New Credit Agreement caused the interest rate swaps ~~are~~to no longer be considered highly effective in offsetting changes in the cash flow of the hedged item, as critical terms of the New Credit Agreement no longer match the hedged item. ~~The Company does not hold or issue interest rate swaps for trading purposes. The swaps are designated as~~As a result, the cash flow ~~hedges. For~~hedges no longer qualify for hedge accounting as of the ~~third quarter and nine months ended September 29, 2019, a loss~~date of ~~$0.5 million and $3.6 million, respectively, was recorded in Accumulated Other Comprehensive Loss to recognize~~execution of the New Credit Agreement. As of June 28, 2020, the balance of the previously effective portion of the fair value of the interest rate swaps ~~that qualify as~~recorded in other comprehensive income was a ~~cash flow hedge.~~loss of $1.2 million, all of which is expected to be reclassified

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into earnings within interest expense through February 2021. For the ~~third~~second quarter and ~~nine~~six months ended ~~September 30, 2018, a gain~~June 28, 2020, $0.3 million of ~~$0.1~~loss has been reclassified into interest expense from other comprehensive income and $0.4 million ~~and $2.4 million, respectively, was recorded in Accumulated Other Comprehensive Loss~~has been recognized to ~~recognize~~interest expense for mark-to-market valuation changes subsequent to the ~~effective portion of the fair value of~~ interest rate swaps ~~that qualify as a cash flow hedge.~~no longer being effective.

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, the euro, and the Chinese yuan. ~~Since the first quarter of 2018, the~~The Company ~~has used~~uses 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~~The Company ~~has used the~~uses a similar layering methodology ~~and entered~~when entering 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 29, 2019,~~June 28, 2020, 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 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 reclassified to earnings.

The notional amounts outstanding as of ~~September 29, 2019~~June 28, 2020 for the Canadian dollar to U.S. dollar contracts and the U.S. dollar to the Chinese yuan contracts were ~~$13.7~~$11.4 million and ~~$5.2~~$7.3 million, respectively. The ~~combined~~ fair value of the Company’s designated foreign hedge contracts outstanding as of ~~September 29, 2019~~June 28, 2020 was ~~a liability~~an asset balance of ~~$0.3~~$0.1 million. As of ~~September 29, 2019,~~June 28, 2020, the amount expected to be reclassified into cost of goods sold from other comprehensive income in the next twelve months ~~for both programs~~ is a ~~loss~~gain of ~~$0.2~~$0.3 million.

~~8. Earnings per Share~~6. Restructuring and ~~Stock Repurchase Program~~Other Charges, Net

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


	Second Quarter Ended				Six Months Ended
	June 28,		June 30,		June 28,		June 30,
	2020		2019		2020		2019

	(in millions)
Restructuring costs:
Other Actions	$	5.3	$	1.3	$	5.3	$	2.7
Total restructuring charges	$	5.3	$	1.3	$	5.3	$	2.7

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

Second Quarter Ended

Six Months Ended

June 28,

June 30,

June 28,

June 30,

2020

2019

2020

2019

(in millions)

Americas

4.6

—

4.6

—

Europe

(0.3)

1.3

(0.3)

2.7

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APMEA		0.9		—		0.9		—
Corporate		0.1		—		0.1		—
Total	$	5.3	$	1.3	$	5.3	$	2.7

Other Actions

The Company periodically initiates other actions which are not part of a major program. Total “Other Actions” pre-tax restructuring expense was $5.3 million for the second quarter and six months ended June 28, 2020. Total “Other Actions” pre-tax restructuring expense was $1.3 million and $2.7 million for the second quarter and six months ended June 30, 2019, respectively. Included in “Other Actions” for the period ended June 28, 2020, were actions taken in the Americas, APMEA and Corporate primarily in response to the COVID-19 pandemic. Also included in “Other Actions” in 2019 were European restructuring activities that were initiated in 2018 and extended through 2019, as discussed below.

2020 Other Actions

In the second quarter of 2020 management initiated certain restructuring actions with respect to the Company’s Americas and APMEA segments as well as at Corporate primarily in response to the economic challenges related to the COVID-19 pandemic. The restructuring actions included costs mainly for severance benefits due to reductions in force, as well as costs relating to asset write offs, facility exit and other exit costs.

The total pre-tax charge for the 2020 restructuring initiatives is expected to be approximately $9.5 million, of which approximately $5.6 million has been incurred as of June 28, 2020 for the program to date. Through June 28, 2020 the Company has paid approximately $3.3 million of severance benefits and other related costs. The restructuring reserve associated with these actions was approximately $2.7 million as of June 30, 2020 and primarily related to severance benefits. The remaining expected costs relate to severance, asset write off, facility exit and other exit costs and are expected to be completed by the end of 2020.

The following ~~tables set forth~~table summarizes total expected, incurred and remaining pre-tax restructuring costs for the ~~reconciliation of the calculation of earnings per share:~~2020 restructuring actions:

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


					Facility
			Asset		exit
	Severance		write-downs		and other		Total

	(in millions)
Costs incurred—second quarter 2020	$	5.3	$	0.3	$	—	$	5.6
Remaining costs to be incurred		1.0		1.4		1.5		3.9
Total expected restructuring costs	$	6.3	$	1.7	$	1.5	$	9.5

2018 Other Actions

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 included reductions in force and other related costs within the Company’s Europe segment. Total pre-tax charges for the program were reduced in the second quarter of 2020 by approximately $0.3 million due primarily to decreased severance costs. This resulted in total program restructuring charges of approximately $8.0 million which have been fully incurred. Pre-tax restructuring charges of approximately $1.3 million and $2.7 million were incurred for the three and six months ended June 30, 2019, respectively. The restructuring reserve associated with these actions as of June 28, 2020 was approximately $1.0 million, and primarily relates to severance benefits.

2019

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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

7. Earnings per Share and Stock Repurchase Program

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

For the Second Quarter Ended June 28, 2020

For the Second Quarter Ended June 30, 2019

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

20.2

33.8

0.60

36.4

34.1

1.06

Effect of dilutive securities:

Common stock equivalents

0.2

(0.01)

0.1

Diluted EPS:

Net income

20.2

34.0

0.59

36.4

34.2

1.06

For the Six Months Ended June 28, 2020

For the Six Months Ended June 30, 2019

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

52.2

33.9

1.54

67.4

34.1

1.97

Effect of dilutive securities:

Common stock equivalents

0.1

(0.01)

0.1

—

Diluted EPS:

Net income

52.2

34.0

1.53

67.4

34.2

1.97

There were 0 options to purchase Class A common stock outstanding during the ~~third~~second quarters and ~~nine~~six months ended ~~September 29,~~June 28, 2020 or June 30, 2019 ~~or September 30, 2018~~ that would have been anti-dilutive.

OnSince July ~~27,~~ 2015, the Company’s Board of Directors has authorized 2 stock repurchase programs. The first program approved the repurchase of up to $100 million ofand the ~~Company’s Class A common stock from time to time on the open market or in privately negotiated transactions. On February 6, 2019, the Board of Directors authorized an additional stock repurchase~~second 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~~Company temporarily suspended the stock repurchase program for a portion of the second quarter of 2020 as a measure to conserve cash in response to the business impact of the COVID-19 pandemic. The repurchase program was reinstated effective June 29, 2020 pursuant to the terms of a new 10b5-1 agreement entered into as of June 12, 2020. The $100 million stock repurchase program was ~~completed in~~completely expended by August ~~2019 after the Company expended the entire~~ ~~$100 million authorized under the program.~~2019. As of ~~September 29, 2019,~~June 28, 2020, there was ~~approximately $147.0~~$121.3 million remaining authorized for share repurchases under the ~~February 6, 2019~~$150 million program.

The following table summarizes the cost and the number of shares of Class A common stock repurchased under the ~~July 27, 2015 and February 6, 2019~~2 repurchase programs during the ~~third~~second quarter ended June 28, 2020 and ~~nine months ended September 29, 2019 and September~~June 30, ~~2018:~~2019:

For the Third Quarter Ended

For the Second Quarter Ended

September 29, 2019

September 30, 2018

June 28, 2020

June 30, 2019

Number of shares

Cost of shares

Number of shares

Cost of shares

Number of shares

Cost of shares

Number of shares

Cost of shares

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

—

$100 million

—

55,988

4.7

$150 million

78,828

6.4

—

Total stock repurchased during the period:

47,943

4.5

57,156

4.7

78,828

6.4

55,988

4.7

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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


	For the Six Months Ended			For the Six Months Ended
	June 28, 2020			June 30, 2019
	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:
$100 million	—		—	130,397	$	10.3
$150 million	253,535	$	21.1	—		—
Total stock repurchased during the period:	253,535	$	21.1	130,397	$	10.3

9.8. Stock-Based Compensation

The Company issued ~~94,849~~80,052 and ~~140,937~~89,053 shares of ~~restricted~~deferred stock ~~and deferred shares~~awards during the first ~~nine~~six months of ~~2019~~2020 and ~~2018,~~2019, respectively. The ~~company~~Company grants ~~these~~shares of deferred stock awards to key employees and stock awards to non-employee members of the Company’s Board of Directors under the 2004 Stock Incentive Plan. Stock awards to employees typically vest over a three-year period and awards to non-employee members of the Company’s Board of Directors vest immediately.

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 ~~with~~set by the Compensation Committee of the Board of Directors at the time of grant, which is currently three years. Upon vesting, 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 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 with changes to the related expense recorded in the period of adjustment. If the performance goals are not met, no awards are earned and previously recognized compensation expense is reversed. The Company granted ~~82,898~~73,106 and ~~96,128~~82,898 performance stock units during the first ~~nine~~six months of ~~2019~~2020 and ~~2018,~~2019, respectively.

Under the Management Stock Purchase Plan (“MSPP”) the Company granted 27,495 and 37,486 of restricted stock units (“RSUs”) ~~and 36,208~~ ~~RSUs~~ during the first ~~nine~~six months of ~~2019~~2020 and ~~2018,~~2019, respectively. The MSPP allows for the granting of 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.

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


	2019		2018		2020		2019
Expected life (years)	3.0		3.0		3.0		3.0
Expected stock price volatility	23.3	%	24.1	%	24.6	%	23.3	%
Expected dividend yield	1.1	%	1.0	%	1.1	%	1.1	%
Risk-free interest rate	2.5	%	2.4	%	0.6	%	2.5	%

The 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 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 fair value of the discount on RSUs granted in 2020 and 2019 of ~~$22.16~~$22.36 and ~~$21.80 in 2019 and 2018,~~$22.16, respectively.

A more detailed description of each of these plans can be found in Note 1413 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

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~~10.~~9. Segment Information

The Company operates in 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-maker. Each segment earns revenue and income almost exclusively from the sale of its 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, ~~2018.~~2019.

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				Second Quarter Ended				Six Months Ended
	September 29,		September 30,		September 29,		September 30,		June 28,		June 30,		June 28,		June 30,
	2019		2018		2019		2018		2020		2019		2020		2019

	(in millions)												(in millions)
Net Sales
Americas	$	270.3	$	262.7	$	816.2	$	775.8	$	237.4	$	287.0	$	499.8	$	545.9
Europe		107.9		111.6		337.4		351.7		88.1		113.2		198.3		229.5
APMEA		16.5		16.6		46.6		49.8		13.2		16.6		23.2		30.1
Consolidated net sales	$	394.7	$	390.9	$	1,200.2	$	1,177.3	$	338.7	$	416.8	$	721.3	$	805.5
Operating income
Americas	$	48.5	$	45.0	$	142.3	$	128.1	$	29.5	$	50.7	$	72.9	$	93.8
Europe		12.1		9.4		38.1		37.2		9.2		12.8		22.9		26.0
APMEA		1.4		2.5		3.9		5.5		0.8		1.2		0.7		2.4
Subtotal reportable segments		62.0		56.9		184.3		170.8		39.5		64.7		96.5		122.2
Corporate(*)		(13.2)		(10.0)		(34.5)		(27.8)		(8.5)		(10.4)		(17.7)		(21.2)
Consolidated operating income		48.8		46.9		149.8		143.0		31.0		54.3		78.8		101.0
Interest income		(0.1)		(0.1)		(0.3)		(0.6)		(0.1)		(0.1)		(0.2)		(0.2)
Interest expense		3.5		3.9		10.8		12.6		4.0		3.7		7.0		7.3
Other income, net		(0.8)		(0.9)		(0.4)		(2.0)
Other (income) expense, net										(0.4)		(0.1)		(0.1)		0.4
Income before income taxes	$	46.2	$	44.0	$	139.7	$	133.0	$	27.5	$	50.8	$	72.1	$	93.5
Capital Expenditures
Americas	$	3.1	$	5.1	$	10.5	$	15.0	$	11.1	$	3.6	$	17.7	$	7.5
Europe		1.5		3.4		8.1		8.1		3.8		3.5		6.0		6.5
APMEA		0.1		0.4		0.5		1.0		—		0.3		0.1		0.3
Consolidated capital expenditures	$	4.7	$	8.9	$	19.1	$	24.1	$	14.9	$	7.4	$	23.8	$	14.3
Depreciation and Amortization
Americas	$	7.3	$	7.4	$	21.6	$	21.7	$	7.5	$	7.2	$	14.9	$	14.3
Europe		3.6		3.7		10.7		13.1		3.5		3.5		6.9		7.1
APMEA		0.7		0.6		2.0		1.9		0.5		0.7		1.1		1.4
Consolidated depreciation and amortization	$	11.6	$	11.7	$	34.3	$	36.7	$	11.5	$	11.4	$	22.9	$	22.8
Identifiable assets (at end of period)
Americas					$	1,098.1	$	1,024.2					$	1,079.0	$	1,052.4
Europe						504.6		520.2						479.7		516.3
APMEA						93.6		105.2						89.6		109.7
Consolidated identifiable assets					$	1,696.3	$	1,649.6					$	1,648.3	$	1,678.4
Property, plant and equipment, net (at end of period)
Americas					$	113.5	$	113.0					$	123.9	$	114.0
Europe						76.4		78.9						77.8		80.5
APMEA						5.9		6.6						5.2		6.4
Consolidated property, plant and equipment, net					$	195.8	$	198.5					$	206.9	$	200.9

* 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, 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 $109.6 million and $109.0 million at September 29, 2019 and September 30, 2018, respectively.~~

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The above operating segments are presented on a basis consistent with the presentation included in the Company’s December 31, 2019 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 $120.0 million and $109.9 million at June 28, 2020 and June 30, 2019, respectively.

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

Third Quarter Ended

Nine Months Ended

Second Quarter Ended

Six Months Ended

September 29,

September 30,

September 29,

September 30,

June 28,

June 30,

June 28,

June 30,

2019

2018

2019

2018

2020

2019

2020

2019

(in millions)

U.S. net sales

252.0

245.5

764.9

725.1

222.6

269.4

469.3

512.9

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


	Third Quarter Ended				Nine Months Ended				Second Quarter Ended				Six Months Ended
	September 29,		September 30,		September 29,		September 30,		June 28,		June 30,		June 28,		June 30,
	2019		2018		2019		2018		2020		2019		2020		2019

	(in millions)												(in millions)
Intersegment Sales
Americas	$	3.2	$	3.7	$	9.1	$	9.7	$	2.9	$	3.0	$	5.5	$	5.9
Europe		3.4		3.7		11.3		10.6		5.3		4.2		9.5		7.9
APMEA		17.7		27.3		53.4		68.7		21.0		18.8		34.5		35.7
Intersegment sales	$	24.3	$	34.7	$	73.8	$	89.0	$	29.2	$	26.0	$	49.5	$	49.5

~~11.~~10. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of the following:


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

	(in millions)						(in millions)

Balance December 31, 2019							$	(131.3)	$	0.5	$	(130.8)
Change in period								(16.5)		(0.9)		(17.4)
Balance March 29, 2020							$	(147.8)	$	(0.4)	$	(148.2)
Change in period								10.0		(0.3)		9.7
Balance June 28, 2020							$	(137.8)	$	(0.7)	$	(138.5)

Balance December 31, 2018	$	(126.3)	$	5.2	$	(121.1)	$	(126.3)	$	5.2	$	(121.1)
Change in period		(4.6)		(1.3)		(5.9)		(4.6)		(1.3)		(5.9)
Balance March 31, 2019	$	(130.9)	$	3.9	$	(127.0)	$	(130.9)	$	3.9	$	(127.0)
Change in period		3.5		(2.4)		1.1		3.5		(2.4)		1.1
Balance June 30, 2019	$	(127.4)	$	1.5	$	(125.9)	$	(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)

(1)	Cash flow hedges include interest rate swaps and designated foreign currency hedges. See Note 75 for further details.

~~12.~~11. Debt

In February 2016, the Company entered into ~~the~~a Credit Agreement (the “Prior Credit Agreement”) among the Company, certain subsidiaries of the Company who become borrowers under the Prior 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 Prior Credit Agreement ~~provides~~provided for a $500 million, five-year, senior unsecured revolving credit facility (the ~~“Revolving~~“Prior Revolving Credit Facility”) with a sublimit of up to $100 million in letters of credit. ~~As of September 29, 2019, the Company had drawn $37.0~~ ~~million on this line of 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 Prior Credit Agreement also ~~provides~~provided for a ~~$300~~$300 million, 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.

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On April 24, 2020, the Company entered into an Amended and Restated Credit Agreement (the "New Credit Agreement") among the Company, certain subsidiaries of the Company who become borrowers thereunder, JPMorgan Chase Bank, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the other lenders referred to therein. The New Credit Agreement amends and restates the Prior Credit Agreement in its entirety while increasing the amount of revolving credit available from $500 million to $800 million, and extending the maturity by one additional year to February 2022. This senior unsecured revolving credit facility (the "Revolving Credit Facility") also includes sublimits of $100 million for letters of credit and $15 million for swing line loans. As of June 28, 2020, the Company had ~~$232.5~~drawn down $265.0 million on this line of credit and had $16.3 million in letters of credit outstanding, which resulted in $518.7 million of ~~borrowings~~unused and available credit under the Revolving Credit Facility. The term loan facility under the Prior Credit Agreement was terminated and paid off effective April 24, 2020, with funds from the Revolving Credit Facility. 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 adjusted British Bankers Association LIBOR rate (which at all times will not be less than 1.00%) plus an applicable percentage, ranging from 1.50% to 2.10%, determined by reference to the Company's consolidated leverage ratio, or (ii) in the case of alternate base rate loans and swing line loans, interest (which at all times will not be less than 2.00%) at the greatest of (a) the Prime Rate in effect on such day, (b) the ~~Term Loan Facility~~FRBNY Rate in effect on such day plus 0.5% and (c) the adjusted LIBOR rate plus 1.0% for a one month interest period in dollars. The interest rate as of September 29, 2019 and $260.6 million outstanding as of September 30, 2018. The Company paid total installments on the Term Loan Facility of $22.5 million during the first nine months of 2019. The interest rates as of September 29, 2019June 28, 2020 on the Revolving Credit Facility ~~and on the Term Loan Facility were 3.11% and 3.43%, respectively.~~was 2.5%. The terms of the Prior Credit Agreement are further detailed in Note 1211 of the Notes to Consolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. As of ~~September 29, 2019,~~June 28, 2020, the Company was in compliance with all covenants related to the New Credit Agreement.

In addition to paying interest under the New Credit Agreement, the Company is also required 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 New Credit Agreement matures on February 12, 2022, subject to extension under certain circumstances and subject to the terms of the New Credit Agreement. The Company may repay loans outstanding under the New Credit Agreement from time to time without premium or penalty, other than customary breakage costs, if any, and subject to the terms of the New Credit Agreement.

The New Credit Agreement imposes various restrictions on the Company and its subsidiaries, including restrictions pertaining to: (i) the incurrence of additional indebtedness, (ii) limitations on liens, (iii) making distributions, dividends and other payments, (iv) mergers, consolidations and acquisitions, (v) dispositions of assets, (vi) certain consolidated leverage ratios and consolidated interest coverage ratios, (vii) transactions with affiliates, (viii) changes to governing documents, and (ix) changes in control.

As a result of entering the New Credit Agreement, interest rate swaps as referred to in Note 5 of Notes to the Consolidated Financial Statements are no longer effective in offsetting changes in the cash flow of the hedged item as the critical terms of the New Credit Agreement do not match to the hedged item. The Company now recognizes the mark-to-market fair value adjustments on a monthly basis in the consolidated statement of operations through the expiration date of the swaps, which is February 12, 2021.

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~~$16.3 million as of ~~September 29, 2019 and September 30, 2018.~~June 28, 2020. 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.~~issuance. These instruments may exist or expire without being drawn down. Therefore, they do not necessarily represent future cash flow obligations.

~~The~~On June 18, 2010, the Company ~~is a party to~~entered into a note purchase agreement ~~as further detailed~~with certain institutional investors (the 2010 Note Purchase Agreement). Pursuant to the 2010 Note Purchase Agreement, the Company issued senior notes of $75.0 million in ~~Note 12~~principal, due June 18, 2020. On June 18, 2020, the Company borrowed $40.0 million under the Revolving Credit Facility and used $35.0 million of the ~~Notes~~Company’s available cash to ~~Consolidated Financial Statements of~~pay off all amounts outstanding under the Annual Report on Form 10-K for the year ended December 31, 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 29, 2019, the Company was in compliance with all covenants regarding this note agreement.2010 Note Purchase Agreement.

~~13.~~12. 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.

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Other than the items described below, significant commitments and contingencies at ~~September 29, 2019~~June 28, 2020 are consistent with those discussed in Note 1615 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

As of ~~September 29, 2019,~~June 28, 2020, the Company estimates that the aggregate amount of reasonably possible loss in excess of the amount accrued for its legal contingencies is approximately ~~$5.3~~$4.8 million 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 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”) 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. 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. 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 implement a remediation plan acceptable to USEPA is uncertain.

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13. Subsequent Events

On July 27, 2020, the Company declared a quarterly dividend of NaN cents ($0.23) per share on each outstanding share of Class A common stock and Class B common stock payable on September 15, 2020 to stockholders of record on September 1, 2020.

On July 3, 2020, the Company completed the acquisition of 100% of the shares of Australian Valve Group Pty Ltd (“AVG”) in an all-cash transaction. AVG is based in Perth, Australia, and specializes in the design, marketing and distribution of heating control valves used in the Australian residential and commercial end markets. The acquisition of AVG aligns with the Company’s strategy to expand geographically into countries with mature and enforced plumbing codes. AVG will enhance the Company’s product offering and channel access into the Australian marketplace. The acquisition of AVG was deemed not to be material.

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 are a leading supplier of products, solutions and systems that manage and conserve the flow of fluids and energy into, through and out of buildings in the commercial and residential markets in the Americas, Europe and 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 boilers, water heaters and heating solutions, hydronic and electric heating systems for 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 products—includes drainage products and engineered rain water harvesting solutions for commercial, industrial, marine and residential applications.

● Water quality products—includes point-of-use and point-of-entry water filtration, conditioning and scale prevention systems for 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; and continued enforcement of plumbing and building ~~codes; and a healthy economic environment.~~codes. We have completed 12 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~~continue to migrate away from commoditized products where we cannot add value. Our goal is to be a solutions provider, not ~~just~~merely a components supplier. We continually look for

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strategic opportunities to invest in new products ~~solutions~~ and markets or divest existing product lines where necessary in order to meet ~~this goal.~~those objectives.

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. 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.

~~During~~COVID-19 Pandemic

The global COVID-19 pandemic presents significant risks to our company, and we are not able to fully evaluate or forecast the impact on our business at the current time. Our revenues for the second quarter ended June 28, 2020 were adversely impacted as a result COVID-19. Demand for our products significantly decreased as compared to the same period in 2019 as the pandemic expanded and country and state stay-at-home orders were announced. However, as the second quarter progressed, we noted sequential monthly improvements in our order and sales rates as customers increased their operating levels as government restrictions and lockdowns eased. Future sales expansion or contraction is dependent on the duration and severity of the COVID-19 pandemic, including the resumption of stay-at-home orders and the reclosing of businesses in certain geographies, the time it takes for normal economic and operating conditions to resume, easing of the lending markets, improvements in overall investments and capital spending in building services construction markets, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date, and numerous other uncertainties, including the time to develop an effective vaccine or therapeutic treatments.

Our operations in the third quarter ~~of 2019, sales increased 1.0%, or $3.8 million,~~are expected to continue to be negatively impacted by COVID-19. Sequentially, we believe the impact should lessen when compared to the second quarter as our end markets gain some momentum with the forecasted sequential recovery in the global economy. Currently, we estimate third quarter sales may decline by 8% to 12% compared to prior-year. We continue to be concerned about the far reaching impacts of ~~2018.~~the pandemic on our business, operations, and financial results and conditions, directly and indirectly, including, without limitation, impacts on the health of our employees, manufacturing capabilities, supply chain, distribution networks, sales opportunities, customer and consumer behaviors, and on the overall economy. The ~~increase included organic~~scope and nature of these potential impacts are pervasive, many are beyond our control, continue to evolve and their outcomes are uncertain.

Many of our products qualify as “essential products” under local, state, and national guidelines and orders. We remain focused on protecting the health and safety of our employees and the communities in which we operate while maintaining the continuity of our business operations. The Company created a COVID-19 Task Force to protect our employees while maintaining production capabilities, and we have implemented social distancing guidelines and temperature monitoring, provided personal protective equipment, established a COVID-19 website for employees, which includes the latest CDC and other government protocols and promoted work-from-home policies where practical. We are in communication with both customers and suppliers, we established a COVID-19 customer hotline in the US to support critical infrastructure projects, and we worked with our suppliers to ensure they could obtain the “essential” product classification from various government organizations.

In response to the business impact of the COVID-19 pandemic, we undertook several cost management actions in order to reduce ongoing costs, including merit deferrals, salary and incentive reductions, furloughs, reduced discretionary spending, factory overhead cost reductions, renegotiating material costs and reductions-in-force and other exit activities initiated in the second quarter of 2020. We also implemented various measures to conserve cash. In addition to the cost actions noted above, we temporarily suspended our stock repurchase program, which was reinstated on June 29, 2020,

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continued to maintain a flat dividend rate, reduced planned capital expenditures and deferred employer payroll tax payments as permitted under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). We have also implemented additional procedures to manage risks related to our working capital, specifically the collectability of our trade accounts receivables, by monitoring the financial stability, credit rating, payment terms and credit limits of our credit customers.

Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the second quarter and six months ended June 28, 2020 are not necessarily indicative of the results to be expected for the full fiscal year. Management cannot predict the full impact of the COVID-19 pandemic on the Company’s sales, ~~growth~~supply chain, manufacturing and distribution or to economic conditions generally, including the effects on customer spending. The extent of ~~2.4%~~the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic might end. For further information regarding the impact of COVID-19 on the Company, see Part II, Item 1A, “Risk Factors.”

Financial Overview

During the second quarter of 2020, sales decreased 18.7%, or ~~$9.5~~$78.1 million, on a reported basis and 18.6%, or $77.4 million, on an organic basis, compared to the second quarter of 2019, primarily ~~within~~due to the ~~Americas and Europe~~impact of the COVID-19 pandemic across all of our operating segments. ~~This~~There was ~~partially offset by~~also a ~~decrease~~decline in sales from the impact of foreign exchange of ~~1.4%~~0.6%, or ~~$5.7~~$2.9 million, primarily driven by a weaker ~~euro.~~euro and Canadian dollar. The reported decline was partially offset by an increase in acquired sales of $2.2 million. 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 ~~$48.8~~$31.0 million ~~increased~~decreased by ~~$1.9~~$23.3 million, or ~~4.1%~~42.9%, in the ~~third~~second quarter of ~~2019~~2020 as compared to the ~~third~~second quarter of ~~2018.~~2019. This ~~increase is~~decrease was primarily driven by ~~price,~~ volume ~~lower~~declines as result of the COVID-19 pandemic, incremental strategic investments, increased restructuring costs and ~~savings from productivity initiatives,~~impairment charges, partially offset by ~~higher general inflation including tariffs, investments in strategic growth~~benefits from price, productivity initiatives and ~~increased Corporate expenses, including higher professional fees and acquisition related costs.~~cost reduction actions in response to the COVID-19 pandemic.

Recent ~~Events~~Developments

~~In the third quarter~~On July 27, 2020, we declared a quarterly dividend of ~~2019~~twenty-three cents ($0.23) per share on each outstanding share of Class A common stock and Class B common stock payable on September 15, 2020 to stockholders of record on September 1, 2020.

On July 3, 2020, we completed the acquisition of 100% of the shares of Australian Valve Group Pty Ltd (“AVG”) in an ~~immaterial acquisition to purchase substantially all the assets of Backflow Direct LLC,~~all-cash transaction. AVG is based in ~~Rancho Cordova, California. Backflow Direct~~Perth, Australia, and specializes in the design, marketing and ~~manufacture~~distribution of ~~backflow prevention~~heating control valves used ~~primarily~~ in ~~fire protection applications.~~the Australian residential and commercial end markets. The acquisition of AVG aligns with our strategy to expand geographically into countries with mature and enforced plumbing codes. AVG will enhance our product offering and channel access into the Australian marketplace. The acquisition of AVG was deemed not to be material.

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Results of Operations

~~Third~~Second Quarter Ended ~~September 29, 2019~~June 28, 2020 Compared to ~~Third~~Second Quarter Ended ~~September~~June 30, ~~2018~~2019

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~~second quarters of ~~2019~~2020 and ~~2018~~2019 were as follows:


	Third Quarter Ended				Third Quarter Ended						% Change to		Second Quarter Ended				Second Quarter Ended						% Change to
	September 29, 2019				September 30, 2018						Consolidated		June 28, 2020				June 30, 2019						Consolidated
	Net Sales		% Sales		Net Sales		% Sales		Change		Net Sales		Net Sales		% Sales		Net Sales		% Sales		Change		Net Sales

	(dollars in millions)												(dollars in millions)
Americas	$	270.3	68.5	%	$	262.7	67.2	%	$	7.6	1.9	%	$	237.4	70.1	%	$	287.0	68.9	%	$	(49.6)	(11.9)	%
Europe		107.9	27.3			111.6	28.6			(3.7)	(0.9)			88.1	26.0			113.2	27.1			(25.1)	(6.0)
APMEA		16.5	4.2			16.6	4.2			(0.1)	—			13.2	3.9			16.6	4.0			(3.4)	(0.8)
Total	$	394.7	100.0	%	$	390.9	100.0	%	$	3.8	1.0	%	$	338.7	100.0	%	$	416.8	100.0	%	$	(78.1)	(18.7)	%

The change in net sales was attributable to the following:


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

	Americas		Europe		APMEA		Total		Americas		Europe		APMEA		Total		Americas		Europe		APMEA		Americas		Europe		APMEA		Total		Americas		Europe		APMEA		Total		Americas		Europe		APMEA
	(dollars in millions)																						(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	%	$	(51.2)	$	(23.2)	$	(3.0)	$	(77.4)	(12.3)	%	(5.6)	%	(0.7)	%	(18.6)	%	(17.8)	%	(20.5)	%	(18.3)	%
Foreign exchange		(0.3)		(5.1)		(0.3)		(5.7)	—		(1.3)		(0.1)		(1.4)		(0.1)		(4.6)		(1.8)			(0.6)		(1.9)		(0.4)		(2.9)	(0.1)		(0.4)		(0.1)		(0.6)		(0.3)		(1.7)		(2.6)
Acquisition																								2.2		—		—		2.2	0.5		—		—		0.5		0.8		—		—
Total	$	7.6	$	(3.7)	$	(0.1)	$	3.8	1.9	%	(0.9)	%	—	%	1.0	%	2.9	%	(3.3)	%	(0.6)	%	$	(49.6)	$	(25.1)	$	(3.4)	$	(78.1)	(11.9)	%	(6.0)	%	(0.8)	%	(18.7)	%	(17.3)	%	(22.2)	%	(20.9)	%

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 %																			Change As a %
											of Prior Year Sales																			of Prior Year Sales
	Wholesale		OEMs		DIY		Specialty		Total		Wholesale		OEMs		DIY		Specialty		Wholesale		OEMs		DIY		Specialty		Total		Wholesale			OEMs			DIY			Specialty

	(dollars in millions)																		(dollars in millions)
Americas	$	5.6	$	0.6	$	0.7	$	1.0	$	7.9	3.8	%	2.8	%	5.1	%	1.2	%	$	(32.5)	$	(5.2)	$	2.7	$	(16.2)	$	(51.2)		(20.1)	%		(23.7)	%		17.8	%		(18.5)	%
Europe		2.1		(0.8)		0.1		—		1.4	2.9		(2.0)		11.8		—			(18.8)		(4.2)		(0.2)		—		(23.2)		(25.1)			(11.2)			(31.3)			—
APMEA		0.4		0.1		—		(0.3)		0.2	3.0		29.9		—		(22.5)			(4.0)		0.2		—		0.8		(3.0)		(25.8)			50.4			—			121.6
Total	$	8.1	$	(0.1)	$	0.8	$	0.7	$	9.5									$	(55.3)	$	(9.2)	$	2.5	$	(15.4)	$	(77.4)

Organic net sales in the Americas decreased in a majority of our product lines primarily due to the impact of the COVID-19 pandemic. This decrease was partially offset by increased volume within our DIY channel as many DIY consumers worked on home projects during government-imposed stay-at-home directives.

Organic net sales in Europe decreased primarily due to lost volume related to the COVID-19 pandemic within all regions and across all of our product lines.

~~The increase in Americas organic~~Organic net sales ~~was~~in APMEA decreased primarily due to a ~~combination of price across many of our product lines~~decline in volume related to the COVID-19 pandemic, primarily in China, the Middle East and ~~volume within our valve, drainage, and water quality products, which are sold through each of our channels.~~New Zealand. This was partially offset by aincreased sales in Korea.

The net decrease in sales due to foreign exchange was primarily due to the depreciation of the euro, Canadian dollar, and Chinese yuan, against the U.S. dollar in the second quarter of 2020. We cannot predict whether foreign currencies will

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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 second quarters of 2020 and 2019 were as follows:


	Second Quarter Ended
	June 28, 2020			June 30, 2019

	(dollars in millions)
Gross profit	$	134.9		$	174.6
Gross margin		39.8	%		41.9	%

Gross profit and gross margin declined primarily from lower sales volume as a result of the COVID-19 pandemic, partially offset by benefits from price, productivity initiatives, government subsidies within Europe and APMEA and cost reduction actions in response to the COVID-19 pandemic.

Selling, General and Administrative Expenses. Selling, general and administrative, or SG&A, expenses decreased $21.4 million, or 17.9%, in the second quarter of 2020 compared to the second quarter of 2019. The decrease in SG&A expenses was attributable to the following:


	(in millions)		% Change
Organic	$	(20.8)	(17.4)	%
Foreign exchange		(0.6)	(0.5)
Total	$	(21.4)	(17.9)	%

The organic decrease was related to cost reduction actions in response to the COVID-19 pandemic of $13.9 million, decreased variable costs due to the decline in sales volume of $5.1 million, restructuring savings of $2.5 million, and decreased stock compensation expense of $1.7 million due to a change in the expected attainment of performance goals related to our performance stock units. These decreases were partially offset by an increase in strategic investments of $1.3 million, including investments in research and development for new products, commercial excellence, and technology and information systems as well as general inflation of $1.6 million compared to the second quarter of 2019. 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 28.8% in the second quarter of 2020 compared to 28.6% in the second quarter of 2019.

Restructuring.In the second quarter of 2020, we recorded a net charge of $5.3 million compared to a net charge of $1.3 million in the second quarter of 2019. The charge for the second quarter of 2020 is primarily for severance benefits related to reductions in force initiated in the second quarter of 2020 in response to the economic challenges from the COVID-19 pandemic. For a more detailed description of our current restructuring plans, see Note 6 of Notes to Consolidated Financial Statements.

Other long-lived asset impairment charge.In the second quarter of 2020, we recorded an impairment charge of $1.0 million in our Americas segment related to a long-lived asset in which market value expectations indicated the carrying amount of this asset was in excess of the fair value.

Operating Income. Operating income (loss) by segment for the second quarters of 2020 and 2019 was as follows:


							% Change to
	Second Quarter Ended						Consolidated
	June 28,		June 30,				Operating
	2020		2019		Change		Income

	(dollars in millions)
Americas	$	29.5	$	50.7	$	(21.2)	(39.0)	%
Europe		9.2		12.8		(3.6)	(6.6)
APMEA		0.8		1.2		(0.4)	(0.7)
Corporate		(8.5)		(10.4)		1.9	3.4
Total	$	31.0	$	54.3	$	(23.3)	(42.9)	%

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The (decrease) increase 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)
Organic	$	(15.6)	$	(5.1)	$	0.6	$	2.0	$	(18.1)	(28.7)	%	(9.4)	%	1.1	%	3.7	%	(33.3)	%	(30.8)	%	(39.8)	%	50.0	%	19.2	%
Foreign exchange		—		(0.1)		(0.1)		—		(0.2)	—		(0.2)		(0.2)		—		(0.4)		—		(0.8)		(8.3)		—
Restructuring, impairment charges		(5.6)		1.6		(0.9)		(0.1)		(5.0)	(10.3)		2.9		(1.6)		(0.2)		(9.2)		(11.0)		12.5		(75.0)		(1.0)
Total	$	(21.2)	$	(3.6)	$	(0.4)	$	1.9	$	(23.3)	(39.0)	%	(6.7)	%	(0.7)	%	3.5	%	(42.9)	%	(41.8)	%	(28.1)	%	(33.3)	%	18.2	%

The decrease in organic operating income was due to lower sales volume as a result of the COVID-19 pandemic, higher general inflation, including tariffs, and strategic investments, partially offset by benefits from price, productivity initiatives, reduced variable costs due to sales volume declines, reduced Corporate long-term incentive costs and cost reduction actions in response to the COVID-19 pandemic.

Interest Expense. Interest expense in the second quarter of 2020 increased $0.3 million, or 8.1%, compared to the second quarter of 2019 due to increased amortization of deferred financing costs related to the New Credit Agreement, and unfavorable performance of our interest rate swaps compared to the second quarter of 2019, partially offset by a decline in interest rates. Refer to Note 11 of the Notes to Consolidated Financial Statements for further details.

Other income. Other income increased $0.3 million compared to the second quarter of 2019. The increase was primarily due to higher net foreign currency gains.

Income Taxes.Our effective income tax rate decreased to 26.5% in the second quarter of 2020, from 28.3% in the second quarter of 2019. The lower rate is primarily driven by the foreign exchange impact of repatriating funds related to the Toll Tax as part of the Tax Cuts and Jobs Act of 2017.

Net Income. Net income was $20.2 million, or $0.59 per common share, for the second quarter of 2020, compared to $36.4 million, or $1.06 per common share, for the second quarter of 2019. Results for the second quarter of 2020 include an after-tax charge of $4.0 million, or $0.12 per common share, for restructuring; $0.7 million, or $0.02 per common share, for other long-lived asset impairment charges, and $0.3 million, or $0.01 per common share, for footprint optimization. Results for the second quarter of 2019 include an after-tax charge of $0.9 million, or $0.03 per common share, for restructuring.

Six Months Ended June 28, 2020 Compared to Six Months Ended June 30, 2019

Net Sales. Our business is reported in three geographic segments: Americas, Europe and APMEA. Our net sales in each of these segments for the first six months of 2020 and 2019 were as follows:


	Six Months Ended				Six Months Ended						% Change to
	June 28, 2020				June 30, 2019						Consolidated
	Net Sales		% Sales		Net Sales		% Sales		Change		Net Sales

	(dollars in millions)
Americas	$	499.8	69.3	%	$	545.9	67.8	%	$	(46.1)	(5.7)	%
Europe		198.3	27.5			229.5	28.5			(31.2)	(3.9)
APMEA		23.2	3.2			30.1	3.7			(6.9)	(0.9)
Total	$	721.3	100.0	%	$	805.5	100.0	%	$	(84.2)	(10.5)	%

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	$	(50.2)	$	(25.9)	$	(6.1)	$	(82.2)	(6.2)	%	(3.2)	%	(0.8)	%	(10.2)	%	(9.2)	%	(11.3)	%	(20.2)	%
Foreign exchange		(0.7)		(5.3)		(0.8)		(6.8)	(0.1)		(0.7)		(0.1)		(0.9)		(0.1)		(2.3)		(2.8)
Acquisitions		4.8		—		—		4.8	0.6		—		—		0.6		0.9		—		—
Total	$	(46.1)	$	(31.2)	$	(6.9)	$	(84.2)	(5.7)	%	(3.9)	%	(0.9)	%	(10.5)	%	(8.4)	%	(13.6)	%	(23.0)	%

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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)
Americas	$	(32.7)	$	(6.6)	$	3.4	$	(14.3)	$	(50.2)	(10.6)	%	(15.4)	%	10.7	%	(8.8)	%
Europe		(20.9)		(4.7)		(0.3)		—		(25.9)	(13.5)		(6.3)		(24.0)		—
APMEA		(7.0)		(0.1)		—		1.0		(6.1)	(24.7)		(9.2)		—		95.3
Total	$	(60.6)	$	(11.4)	$	3.1	$	(13.3)	$	(82.2)

Organic net sales in the Americas decreased in a majority of our product lines primarily due the impact of the COVID-19 pandemic. This decrease was partially offset by a general price increase across the majority of our channels and higher volume within our ~~heating and hot water products.~~DIY channel as many DIY consumers worked on home projects during government imposed stay-at-home directives.

Organic net sales in Europe ~~increased~~decreased primarily due to ~~price~~lost volume related to the COVID-19 pandemic within all regions and ~~higher volume. The increase in wholesale sales was driven by our drainage and valve products. The decrease in OEM sales was mainly due to a decrease in volume~~across all of our ~~electronics products.~~product lines.

Organic net sales in APMEA ~~increased~~decreased primarily due to ~~increased sales~~a decline in volume related to the COVID-19 pandemic, primarily in China, the Middle East and New Zealand. This was partially offset by ~~decreased~~increased sales ~~within the Middle East due to project delays as well as softness within~~in Korea.

The net decrease in sales due to foreign exchange was primarily due to the depreciation of the euro, Chinese yuan, and Canadian dollar against the U.S. dollar in the ~~third quarter of 2019.~~first six months 2020. 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~~first six months of ~~2019~~2020 and ~~2018~~2019 were as follows:


	Third Quarter Ended						Six Months Ended
	September 29, 2019			September 30, 2018			June 28, 2020			June 30, 2019

	(dollars in millions)						(dollars in millions)
Gross profit	$	168.6		$	164.5		$	297.7		$	338.8
Gross margin		42.7	%		42.1	%		41.3	%		42.1	%

Gross profit and gross margin ~~percentage increased compared to~~declined primarily from lower sales volume as a result of the ~~third quarter of 2018 due to price, higher volume, and savings from productivity initiatives, which were~~COVID-19 pandemic, partially offset by ~~higher general inflation costs, including tariffs.~~benefits from price, productivity initiatives, government subsidies within Europe and APMEA, and cost reduction actions in response to the pandemic.

Selling, General and Administrative Expenses. ~~Selling, general and administrative, or~~ SG&A expenses ~~increased $5.6~~for the first six months of 2020 decreased $22.5 million, or ~~4.9%~~9.6%, ~~in the third quarter of 2019~~ compared to the ~~third quarter~~first six months of ~~2018.~~2019. The ~~increase~~decrease in SG&A expenses was attributable to the following:


	(in millions)		% Change		(in millions)		% Change
Organic	$	7.0	6.1	%	$	(20.7)	(8.8)	%
Foreign exchange		(1.4)	(1.2)			(1.8)	(0.8)
Total	$	5.6	4.9	%	$	(22.5)	(9.6)	%

The organic ~~increase~~decrease was related to ~~investments~~cost reduction actions in ~~strategic growth initiatives~~response to the COVID-19 pandemic of ~~$3.0~~$16.4 million, ~~including investments in research and development for new products, commercial excellence, and technology and information systems. The increase was also~~decreased variable costs due to ~~increased Corporate expenses, including higher professional fees~~sales volume declines of ~~$2.3~~$5.5 million, restructuring savings of $3.2 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~~decreased stock compensation expense of ~~$0.8~~$2.3 million primarily due to a change in the expected attainment of performance goals related to our performance stock units. These ~~increases~~decreases were partially offset by ~~a $0.5 million decrease in amortization costs for certain intangible assets that reached the end~~strategic investments of ~~their useful lives, incremental European restructuring savings of $0.5 million, and a reduction of certain selling and marketing costs of $0.7 million compared to the third quarter~~ ~~of 2018. The decrease in foreign exchange was mainly due to the depreciation of the euro 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.~~

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

% Change to


Third Quarter Ended



Consolidated

September 29,

September 30,

Operating

2019

2018

Change

Income

(dollars in millions)

Americas

$
48.5

$
45.0

$
3.5

7.4
%
Europe

12.1

9.4

2.7

5.8

APMEA

1.4

2.5

(1.1)

(2.3)

Corporate

(13.2)

(10.0)

(3.2)

(6.8)

Total

$
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)

Organic

$
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

—

(0.6)

(0.1)

—

(0.7)

—

(1.3)

(0.2)

—

(1.5)

—

(6.4)

(4.0)

—

Restructuring, impairment charges

—

3.4

—

—

3.4

—

7.3

—

—

7.3

—

36.2

—

—

Total

$
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 decreased by $0.8 million compared to the third quarter of 2018. Increases in operating income were due to price, volume and savings from productivity initiatives including savings from restructuring actions. These increases were more than offset by increased Corporate expenses including higher professional fees and acquisition related costs, higher general inflation including the impact of tariffs, investments in strategic growth initiatives and the impact in APMEA of the reduction in affiliate volume.

~~Interest Expense.~~ ~~Interest expense decreased $0.4 million, or 10.3%, compared to the third quarter of 2018~~ due to a reduction in the principal balance of debt outstanding. As a result of the 2017 Tax Act, we repatriated approximately $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. Refer to Note 12 of the Notes to Consolidated Financial Statements for further details.

~~Other income.~~ ~~Other income decreased $0.1 million compared to the third quarter of 2018.~~ ~~The decrease was primarily due to lower net foreign currency gains.~~

~~Income Taxes.~~Our effective income tax rate increased to 30.1% in the third quarter of 2019, from 28.4% in the third quarter of 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 2019, compared to $31.5 million, or $0.92 per common share, for the third quarter of 2018. Results for the third quarter of 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.~~

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

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

~~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

$
42.1

$
7.7

$
(1.7)

$
48.1

3.6
%
0.7
%
(0.2)
%
4.1
%
5.4
%
2.2
%
(3.4)
%
Foreign exchange

(1.7)

(22.0)

(1.5)

(25.2)

(0.1)

(1.9)

(0.1)

(2.1)

(0.2)

(6.3)

(3.0)

Total

$
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)

Americas

$
27.3

$
4.1

$
(0.5)

$
11.2

$
42.1

6.3
%
7.0
%
(1.1)
%
4.7
%
Europe

7.0

0.6

0.1

—

7.7

3.0

0.6

4.5

—

APMEA

0.1

0.2

—

(2.0)

(1.7)

0.4

15.8

—

(47.2)

Total

$
34.4

$
4.9

$
(0.4)

$
9.2

$
48.1

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

Organic net sales in Europe increased primarily due to price and volume. The increase in wholesale sales was driven by our drainage and valve products. The increase in OEM sales was mainly due to increases in certain HVAC products.

~~Organic net sales in APMEA decreased primarily due to project delays within the Middle East and softness within Korea, partially offset by increased commercial valve sales in China.~~

The net decrease in sales due to foreign exchange was primarily due to the depreciation of the euro, Chinese yuan, and Canadian dollar against the U.S. dollar in the first nine months 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 first nine months of 2019 and 2018 were as follows:~~

Nine Months Ended

September 29, 2019

September 30, 2018

(dollars in millions)

Gross profit

$
507.4

$
490.6

Gross margin

42.3
%

41.7
%

Gross profit and gross margin percentage increased compared to the first nine months of 2018 due to price, volume, and savings from productivity initiatives, which were partially offset by higher general inflation costs, including tariffs.

~~Selling, General and Administrative Expenses.~~ ~~SG&A expenses for the first nine months of 2019 increased $10.7 million, or 3.1%, compared to the first nine months of 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
%

~~The organic increase was related to investments in strategic growth initiatives of $8.4~~$3.5 million, including investments in research and development for new products, commercial excellence, and technology and information ~~systems. The increase was also due to increased Corporate expenses, including higher professional fees of $2.3 million and acquisition related costs of $0.9 million,~~ systems as well as general~~higher variable costs related to increased sales totaling $2.8 million, general~~ inflation of ~~$5.1~~$3.1 million ~~increased product liability costs of $1.5 million, and~~ an increase in stock compensation expense of $3.0 million due to a change in the expected attainment of performance goals related to our performance stock units. These increases were partially offset by a $3.3 million decrease in amortization costs for certain intangible assets that reached the end of their useful 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~~six months of ~~2018.~~2019. The decrease in foreign exchange was mainly due to the depreciation of the euro, Canadian dollar, and Chinese yuan

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against the U.S. dollar. Total SG&A expenses, as a percentage of sales, were ~~29.6%~~29.5% in the first ~~nine~~six months of ~~2019~~2020 compared to 29.2% in the first ~~nine~~six months of ~~2018.~~2019.

Restructuring. In the first ~~nine~~six months of ~~2019,~~2020, we recorded a net charge of $5.3 million compared to a net charge of $2.7 million in the first six months of 2019. The charge for ~~additional~~the first six months of 2020 is primarily for severance benefits ~~and cost cutting actions related~~due to ~~our European restructuring plan~~reductions in force initiated in the ~~third~~second quarter of ~~2018.~~ 2020 in response to economic challenges related to the COVID-19 pandemic. For a more detailed description of our current restructuring plans, see Note 6 of Notes to Consolidated Financial Statements.

Other long-lived asset impairment charge.In first six months of 2020, we recorded an impairment charge of $1.0 million in our Americas segment related to a long-lived asset in which market value expectations indicated the carrying amount of this asset was in excess of the fair value.

Operating Income. Operating income (loss) by segment for the first ~~nine~~six months of ~~2019~~2020 and ~~2018~~2019 was as follows:


							% Change to								% Change to
	Nine Months Ended						Consolidated		Six Months Ended						Consolidated
	September 29,		September 30,				Operating		June 28,		June 30,				Operating
	2019		2018		Change		Income		2020		2019		Change		Income

	(Dollars in millions)								(Dollars in millions)
Americas	$	142.3	$	128.1	$	14.2	9.9	%	$	72.9	$	93.8	$	(20.9)	(20.7)	%
Europe		38.1		37.2		0.9	0.7			22.9		26.0		(3.1)	(3.1)
APMEA		3.9		5.5		(1.6)	(1.1)			0.7		2.4		(1.7)	(1.7)
Corporate		(34.5)		(27.8)		(6.7)	(4.7)			(17.7)		(21.2)		3.5	3.5
Total	$	149.8	$	143.0	$	6.8	4.8	%	$	78.8	$	101.0	$	(22.2)	(22.0)	%

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


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

	Americas		Europe		APMEA		Corporate		Total		Americas		Europe		APMEA		Corporate		Total		Americas		Europe		APMEA		Corporate		Americas		Europe		APMEA		Corporate		Total		Americas		Europe		APMEA		Corporate		Total		Americas		Europe		APMEA		Corporate

	(Dollars in millions)																												(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)	%	$	(15.3)	$	(5.6)	$	(0.7)	$	3.6	$	(18.0)	(15.2)	%	(5.6)	%	(0.7)	%	3.6	%	(17.9)	%	(16.3)	%	(6.0)	%	(0.7)	%	3.8	%
Foreign exchange		(0.2)		(2.6)		(0.3)		—		(3.1)	(0.2)		(1.8)		(0.2)		—		(2.2)		(0.2)		(7.0)		(5.5)		—			—		(0.5)		(0.1)		—		(0.6)	—		(0.5)		(0.1)		—		(0.6)		—		(0.5)		(0.1)		—
Restructuring		—		0.7		—		—		0.7	—		0.5		—		—		0.5		—		1.9		—		—
Restructuring, impairment charges																														(5.6)		3.0		(0.9)		(0.1)		(3.6)	(5.5)		3.0		(0.9)		(0.1)		(3.5)		(6.0)		3.2		(1.0)		(0.1)
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)	%	$	(20.9)	$	(3.1)	$	(1.7)	$	3.5	$	(22.2)	(20.7)	%	(3.1)	%	(1.7)	%	3.5	%	(22.0)	%	(22.3)	%	(3.3)	%	(1.8)	%	3.7	%

Organic operating income increased by $9.2 million compared to the first nine months of 2018, mainly due to price, volume, and savings from productivity initiatives, including savings from restructuring actions. This increaseThe decrease in organic operating income was ~~partially offset by~~due to lower sales volume as a result of the COVID-19 pandemic, higher general inflation, including ~~the impact of~~ tariffs, and strategic investments, ~~in strategic growth~~partially offset by benefits from price, productivity initiatives, ~~Corporate professional fees and acquisition related~~reduced variable costs due to sales volume decline, reduced corporate long-term incentive costs and cost reduction actions in response to the ~~impact in APMEA of the reduction in affiliate volume.~~COVID-19 pandemic.

Interest Expense. Interest expense decreased ~~$1.8~~$0.3 million, or ~~14.3%~~4.1%, in the first ~~nine~~six months of ~~2019~~2020 as compared to the first ~~nine~~six months of ~~2018~~2019 primarily due to a ~~reduction~~decline in the principal balance of debt outstanding. As a result of the 2017 Tax Act, we repatriated approximately $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.interest rates. Refer to Note 1211 of the Notes to Consolidated Financial Statements for further details.

Other ~~income~~(income), expense net. Other (income) expense increased $0.5 million to an income ~~decreased $1.6~~balance of $0.1 million compared to the first ~~nine~~six months ~~2018. The decrease was~~of 2019 primarily due to ~~lower~~higher net foreign currency gains.

Income Taxes. Our effective income tax rate ~~increased~~decreased slightly to ~~28.6%~~27.6% in the ~~first nine months~~second quarter of ~~2019,~~2020, from ~~28.0%~~27.9 % in the ~~first nine months~~second quarter of ~~2018. The higher rate is primarily related to the impact of changes in the worldwide earnings mix.~~2019.

Net Income. Net income was ~~$99.7~~$52.2 million, or ~~$2.91~~$1.53 per common share, for the first ~~nine~~six months of ~~2019,~~2020, compared to ~~$95.7~~$67.4 million, or ~~$2.78~~$1.97 per common share, for the first ~~nine~~six months of ~~2018.~~2019. Results for the first ~~nine~~six months of 2020 include an after-tax charge of $4.0 million, or $0.12 per common share, for restructuring; $0.7 million, or $0.02 per common share, for other long-lived asset impairment charges, and $0.6 million, or $0.02 per common share, for footprint optimization. Results for the first six months of 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~~restructuring.

Table of ~~2018 include an after-tax charge of $2.5 million, or $0.08 per common share, for restructuring.~~Contents

Liquidity and Capital Resources

We generated ~~$94.9~~$47.3 million of net cash infrom operating activities in the first ~~nine~~six months of ~~2019~~2020 as compared to ~~$66.6~~$19.7 million of net cash provided by operating activities in the first ~~nine~~six months of ~~2018.~~2019. The increase in cash was primarily related to ~~inventory reductions and higher~~the reduction in accounts receivable that more than offset lower net income ~~compared to the first nine months of 2018. Additionally,~~and an increase in ~~2018 we made higher tax payments, including withholding taxes on repatriated cash.~~inventory.

We used ~~$61.7~~$22.3 million of net cash for investing activities in the first six months of 2020 compared to ~~$26.0~~$14.3 million used in the ~~in the~~ first ~~nine~~six months ~~of 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 ~~$5.0~~$9.5 million ~~less~~more cash for capital expenditures in the first ~~nine~~six months of ~~2019~~2020 compared to the first ~~nine~~six months of ~~2018.~~2019. We received $1.5 million in cash proceeds from the sale of property, plant and equipment in the first six months of 2020. For the ~~remainder~~last six months of ~~2019,~~2020, we expect to invest approximately ~~$11~~$15 million to $20 million in capital equipment as part of our ongoing commitment to improve our operating capabilities.

We used ~~$59.0~~$92.9 million of net cash ~~from~~in financing activities in the first ~~nine~~six months of ~~2019~~2020 primarily ~~through~~due to long-term debt repayments of ~~$92.5~~$452.5 million, dividend payments of ~~$23.6~~$15.8 million, ~~payments for finance leases and~~ tax withholding payments on vested stock awards ~~totaling $8.3~~of $7.8 million, ~~share repurchases~~and payments of $21.1 million to repurchase approximately ~~178,000~~254,000 shares of Class A common ~~stock at a cost~~stock. The debt repayments of ~~$14.8~~$452.5 million include the termination of the term loan facility under the Prior Credit Agreement, payments under both our Prior and current Revolving Credit Facilities, and payment of ~~a contractual call option~~$75 million to ~~purchase~~retire notes issued under the ~~remaining 10% of Apex shares of $2.8 million.~~2010 Note Purchase Agreement. These ~~cash outflows~~payments were partially offset by proceeds from ~~additional draws~~drawdowns on both our ~~line of credit~~Prior and current Revolving Credit Facilities totaling ~~$82.0 million during the first nine months of 2019.~~$407.5 million.

In February 2016, wethe Company entered into the Credit Agreement (the “Prior Credit Agreement”) among the Company, certain subsidiaries of the Company who become borrowers under the Prior 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 Prior Credit Agreement ~~provides~~provided for a $500 million, five-year, senior unsecured revolving credit facility (the ~~“Revolving~~“Prior 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 Prior Credit Agreement also ~~provides~~provided for a $300 million, 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. We

On April 24, 2020, we entered into an Amended and Restated Credit Agreement (the "New Credit Agreement") among the Company, certain subsidiaries of the Company who become borrowers thereunder, JPMorgan Chase Bank, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the other lenders referred to therein. The New Credit Agreement amends and restates the Prior Credit Agreement in its entirety while increasing the amount of revolving credit available from $500 million to $800 million, and extending the maturity by one additional year to February 2022. This senior unsecured revolving credit facility (the "Revolving Credit Facility") also includes sublimits of $100 million for letters of credit and $15 million for swing line loans. As of June 28, 2020, we had ~~$232.5~~drawn down $265.0 million on this line of ~~borrowings outstanding on the Term Loan Facility as of September 29, 2019. We paid total installments on the Term Loan Facility of $22.5~~credit and had $16.3 million ~~during the first nine months of 2019. We had $25.8 million of stand-by~~in letters of credit outstanding, ~~and had $437.2~~which resulted in $518.7 million of unused and available credit under the Revolving Credit Facility. The term loan facility under the Prior Credit Agreement was terminated and paid off effective April 24, 2020, with funds from the Revolving Credit Facility. 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 adjusted British Bankers Association LIBOR rate (which at all times will not be less than 1.00%) plus an applicable percentage, ranging from 1.50% to 2.10%, determined by reference to the Company's consolidated leverage ratio, or (ii) in the case of alternate base rate loans and swing line loans, interest (which at all times will not be less than 2.00%) at the greatest of (a) the Prime Rate in effect on such day, (b) the FRBNY Rate in effect on such day plus 0.5% and (c) the adjusted LIBOR rate plus 1.0% for a one month interest period in dollars. In addition to paying interest under the New Credit Agreement, the Company is also required 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 New Credit Agreement matures on February 12, 2022, subject to extension under certain circumstances and subject to the terms of the New Credit Agreement. The Company may repay loans outstanding under the New Credit Agreement from time to time without premium or penalty, other than customary breakage costs, if any, and subject to the terms of the New Credit Agreement. As of ~~September 29, 2019, we were~~June 28, 2020, the Company was in compliance with all covenants related to the New Credit Agreement.

On June 18, 2010, we entered into a note purchase agreement with certain institutional investors (the 2010 Note Purchase Agreement). Pursuant to the 2010 Note Purchase Agreement, we issued senior notes of $75.0 million in principal, due June 18, 2020. On June 18, 2020, we borrowed $40.0 million under the Revolving Credit Facility and used $35.0 million of our available cash to pay off all amounts outstanding under the 2010 Note Purchase Agreement.

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As of ~~September 29, 2019,~~June 28, 2020, we held ~~$173.7~~$148.7 million in cash and cash equivalents. Of this amount, ~~$132.3~~ $103.7 million of cash and cash equivalents were held by foreign subsidiaries. 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,~~outlays, we can do so at reasonable interest rates by utilizing the ~~uncommitted~~undrawn borrowings under our Revolving Credit Facility. We believe that our financial resources allow us to manage the anticipated impacts of the COVID-19 pandemic on our business operations for the foreseeable future, which include reductions in revenues and potential delays in payments from customers. We anticipate the impacts of COVID-19 will continue to evolve rapidly, and, as a result we will continue to evaluate our financial position as additional information becomes available, particularly relating to COVID-19. Subsequent to recording the Toll Tax as part of the Tax Cuts and Jobs Act of 2017, our intent is to permanently reinvest undistributed earnings of foreign subsidiaries, and we do not have any current plans to repatriate post-Toll Tax 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 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 provided by operating activities in accordance with U.S. GAAP. Therefore, it should not be considered an alternative to net cash provided by or used in 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~~used in operating activities to free cash flow is provided below:


	Nine Months Ended						Six Months Ended
	September 29,			September 30,			June 28,			June 30,
	2019			2018			2020			2019

	(in millions)						(in millions)
Net cash provided by operating activities	$	94.9		$	66.6		$	47.3		$	19.7
Less: additions to property, plant, and equipment		(19.1)			(24.1)			(23.8)			(14.3)
Plus: proceeds from the sale of property, plant, and equipment		0.1			0.1			1.5			—
Free cash flow	$	75.9		$	42.6		$	25.0		$	5.4
Net income —as reported	$	99.7		$	95.7		$	52.2		$	67.4
Cash conversion rate of free cash flow to net income		76.1	%		44.5	%		47.9	%		8.0	%

~~Our free~~Free cash flow ~~increased~~improved in the first ~~nine months~~half of ~~2019~~2020 when compared to the first ~~nine months~~half of ~~2018~~2019 primarily from ~~inventory reductions, higher~~the reduction in accounts receivable that more than offset lower net income and ~~lower capital expenditures~~an increase in ~~2019. Additionally, in 2018 we made higher tax payments, including withholding taxes on repatriated cash.~~inventory.

Our net debt to capitalization ratio, a non-GAAP financial measure used by management, at ~~September 29, 2019~~June 28, 2020 was ~~15.3%~~10.4% compared to ~~14.3%~~8.4% at December 31, ~~2018.~~2019. The increase was driven by an increase in net debt outstanding at ~~September 29, 2019~~June 28, 2020 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~~$71.0 million. Management believes the net debt to capitalization ratio is an appropriate supplemental measure because it helps investors understand our ability to meet our

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financing needs and 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 debt (including current portion) to net debt and our net debt to capitalization ratio is provided below:


	September 29,		December 31,		June 28,		December 31,
	2019		2018		2020		2019

	(in millions)				(in millions)
Current portion of long‑term debt	$	105.0	$	30.0	$	—	$	105.0
Plus: long-term debt, net of current portion		238.5		323.4		262.5		204.2
Less: cash and cash equivalents		(173.7)		(204.1)		(148.7)		(219.7)
Net debt	$	169.8	$	149.3	$	113.8	$	89.5

A reconciliation of capitalization is provided below:


	September 29,			December 31,			June 28,			December 31,
	2019			2018			2020			2019

	(in millions)						(in millions)
Net debt	$	169.8		$	149.3		$	113.8		$	89.5
Total stockholders’ equity		942.0			891.3			985.2			978.0
Capitalization	$	1,111.8		$	1,040.6		$	1,099.0		$	1,067.5
Net debt to capitalization ratio		15.3	%		14.3	%		10.4	%		8.4	%

Off-Balance Sheet Arrangements

We have no 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~~require application of significant judgment by our management. In applying these policies, management uses its judgment in making certain assumptions and estimates. Our 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 22, 2019, with the exception of the change in our lease accounting policy resulting from the adoption of ASC 842 as described in Note 2 in the Notes to Consolidated Financial Statements in this Form 10-Q.20, 2020.

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 75 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 denominated commitments to sell products to third parties. ~~Beginning in the first quarter of 2018, we~~We have entered into forward exchange contracts which hedge approximately 70% to 80% of the forecasted intercompany purchases between one of

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our Canadian subsidiaries and our U.S. operating subsidiaries for the next twelve months.

~~Beginning in the first quarter of 2019, we~~ We also 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 associated with the hedged forecasted transaction occurs, the effective portion of any related gain or loss on the designated foreign currency hedge is reclassified into cost of goods sold within earnings. The fair value of our designated foreign hedge contracts outstanding as of ~~September 29, 2019~~June 28, 2020 was ~~a liability~~an asset balance of ~~$0.3~~$0.1 million.

Under the Prior Credit Agreement, we ~~can~~could choose either an Adjusted LIBOR or Alternative Base Rate (“ABR”). Accordingly, our earnings and cash flows ~~are~~were exposed to interest rate risk from changes in Adjusted LIBOR. In order to manage our exposure to changes in cash flows attributable to fluctuations in LIBOR-indexed interest payments related to our floating rate debt, we entered into two interest rate swaps. For each interest rate swap, 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. As a result of entering the New Credit Agreement, interest rate swaps as referred to in Note 5 of Notes to the Consolidated Financial Statements are no longer effective in offsetting changes in the cash flow of the hedged item as the critical terms of the New Credit Agreement do not match to the hedged item. We will recognize the mark-to-market fair value adjustments on a monthly basis in the consolidated statement of operations through the expiration date of the swaps, which is February 12, 2021. Information about our long-term debt including principal amounts and related interest rates appears in Note 711 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) 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, in that they provide reasonable assurance that information required to be disclosed by us 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 Chief Financial Officer, as ~~of that date due~~appropriate to ~~a material weakness in internal control over financial reporting that 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 these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal 2019.

~~Changes in Internal Control Over Financial Reporting~~allow timely decisions regarding required disclosure.

There was no change in our internal control over financial reporting that occurred during the ~~third~~second quarter ended ~~September 29, 2019,~~June 28, 2020, 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 leasing controls resulting from the adoption of ASC 842 as described in Note 2 in the Notes to Consolidated Financial Statements. Although the new leasing standard did not have a material impact on our consolidated statement of operations or our consolidated statement of cash flows, it did have a material impact on our consolidated balance sheet and disclosures. We implemented changes to our processes related to lease accounting and the control activities within them. These included the development of new policies based on the

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

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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, ~~2018,~~2019, we are party to certain litigation. There have been no material developments with respect to our contingencies and environmental remediation proceedings during the quarter ended ~~September 29, 2019,~~June 28, 2020, other than as described in Note 1312 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, ~~2018,~~2019, which risk factors are incorporated herein by ~~reference.~~reference, with the exception of the below updated risk factor.

We face risks related to the impact of the COVID-19 pandemic.

In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. We are subject to risk and uncertainties as a result of the COVID-19 impact, and the extent of the impact on the Company's business is highly uncertain and difficult to predict, as the response to the pandemic continues to unfold and information is rapidly evolving. In response to COVID-19, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, stay-at-home orders and recommendations to practice social distancing. These measures have resulted in business closures and slowdowns which have already adversely impacted and will likely continue to adversely impact us directly. The health and safety measures we’ve adopted to slow the spread of the COVID-19 pandemic have resulted in reduced production capacity and, in some cases, required temporary closures of certain of our facilities, among other impacts. While certain of these measures have begun to be lifted, the duration of these measures is unknown, and they may be extended, reinstated and additional measures may be imposed. The measures imposed have resulted in supply chain disruption, reduced demand and higher absenteeism in our manufacturing facilities. There remains a risk of future employee health concerns, and we cannot predict whether any of our manufacturing facilities will experience disruptions or how long such disruptions would last. While we are unable to predict the magnitude of such impact at this time, the loss of, or significant reduction in, purchases by our customers could materially impair our business, operating results, prospects and financial condition.

Capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic. This economic disruption had a material adverse effect on our business as customers curtail and reduce capital and overall spending. The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers and suppliers, all of which are uncertain and cannot be predicted. We may also incur additional costs to remedy damages caused by business disruptions, performance delays or interruptions, payment delays, and defaults or bankruptcy of our third-party customers and suppliers, which could adversely affect our consolidated financial condition, liquidity and results of operations. Additionally, the impact of any initiatives or programs that we may undertake to address financial and operational challenges faced as a result of COVID-19 may not be successful.

Due to the evolving and highly uncertain nature of this event, we cannot predict at this time the full extent to which the COVID-19 pandemic will adversely impact our business, results and financial condition, which will depend on many factors that are not known at this time. There is no guarantee that our efforts to mitigate the impact of COVID-19 will be effective.

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.

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The following table includes information with respect to shares of our Class A common stock withheld to satisfy withholding tax obligations during the ~~third~~second quarter ended ~~September 29, 2019.~~June 28, 2020.


	Issuer Purchases of Equity Securities					Issuer Purchases of Equity Securities
					(d) Maximum Number (or					(d) Maximum Number (or
	(a) Total			(c) Total Number of	Approximate Dollar	(a) Total			(c) Total Number of	Approximate Dollar
	Number of			Shares (or Units)	Value) of Shares (or	Number of			Shares (or Units)	Value) of Shares (or
	Shares (or	(b) Average		Purchased as Part of	Units) that May Yet Be	Shares (or	(b) Average		Purchased as Part of	Units) that May Yet Be
	Units)	Price Paid per		Publicly Announced	Purchased Under the	Units)	Price Paid per		Publicly Announced	Purchased Under the
Period	Purchased	Share (or Unit)		Plans or Programs	Plans or Programs	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	—	$	—	—	—
March 30, 2020 – April 26, 2020						105	$	80.30	—	—
April 27, 2020 – May 24, 2020						—	$	—	—	—
May 25, 2020 - June 28, 2020						—	$	—	—	—
Total	2,021	$	91.87	—	—	105	$	80.30	—	—

The following table includes information with respect to repurchases of our Class A common stock during the ~~third~~second quarter ended ~~September 29, 2019~~June 28, 2020 under our stock repurchase program.


	Issuer Purchases of Equity Securities						Issuer Purchases of Equity Securities
					(d) Maximum Number (or						(d) Maximum Number (or
	(a) Total			(c) Total Number of	Approximate Dollar		(a) Total			(c) Total Number of	Approximate Dollar
	Number of	(b) Average		Shares (or Units)	Value) of Shares (or		Number of	(b) Average		Shares (or Units)	Value) of Shares (or
	Shares (or	Price Paid		Purchased as Part of	Units) that May Yet Be		Shares (or	Price Paid		Purchased as Part of	Units) that May Yet Be
	Units)	per Share		Publicly Announced	Purchased Under the		Units)	per Share		Publicly Announced	Purchased Under the
Period	Purchased(1)	(or Unit)		Plans or Programs	Plans or Programs		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
March 30, 2020 – April 26, 2020							55,310	$	80.52	55,310	$	123,180,361
April 27, 2020 – May 24, 2020							23,518	$	80.81	23,518	$	121,279,920
May 25, 2020 - June 28, 2020							—	$	—	—	$	121,279,920
Total	47,943	$	92.93	47,943			78,828	$	80.61	78,828

(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~~a 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.

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Item 6. Exhibits


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 June 30, 2019 (File No. 001-11499).
3.2		Amended and Restated By-Laws. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 27, 2015 (File No. 001- 11499).
10.1		Amended and Restated Credit Agreement, dated as of April 24, 2020, by and among the Registrant, the Subsidiary Borrowers party thereto, the Lenders party thereto, JP Morgan Chase Bank, N.A., as Administrative Agent, Bank of America N.A., Keybank National Association, Wells Fargo Bank, National Association, and T.D. Bank, N.A., as Co-Syndication Agents, and PNC Bank, National Association and U.S. Bank National Association, as Co-Documentation Agents. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated April 24, 2020 (File No. 001-11499).
10.2		Amended and Restated Guaranty, dated as of April 24, 2020, by the Registrant and the Subsidiaries of the Registrant set forth therein, in favor of JPMorgan Chase Bank N.A. and other lenders referred to therein. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated April 24, 2020 (File No. 001-11499).
31.1†		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 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) or Rule 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
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase 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 29, 2019~~June 28, 2020 and December 31, ~~2018,~~2019, (ii) Consolidated Statements of Operations for the ~~Third~~Second Quarters and ~~Nine~~Six Months Ended ~~September 29,~~June 28, 2020 and June 30, 2019, ~~and September 30, 2018,~~ (iii) Consolidated Statements of Comprehensive Income for the ~~Third~~Second Quarters and ~~Nine~~Six Months Ended

~~September 29,~~ June 28, 2020 and June 30, 2019, ~~and September 30, 2018,~~ (iv) Consolidated Statements of Stockholders’ Equity for the ~~Third~~Second Quarters and ~~Nine~~Six Months Ended ~~September 29,~~June 28, 2020 and June 30, 2019, ~~and September 30, 2018,~~ (v) Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September 29,~~June 28, 2020 and June 30, 2019, ~~and September 30, 2018,~~ and (vi) Notes to Consolidated Financial Statements.

3940

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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: ~~October 31, 2019~~August 4, 2020	By:	/s/ Robert J. Pagano, Jr.
		Robert J. Pagano, Jr.
		Chief Executive Officer (principal executive officer)

Date: ~~October 31, 2019~~August 4, 2020	By:	/s/ Shashank Patel
		Shashank Patel Chief Financial Officer (principal financial officer)

Date: ~~October 31, 2019~~August 4, 2020

By:

/s/ Virginia A. Halloran

Virginia A. Halloran

Chief Accounting Officer (principal accounting officer)

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	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


	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


	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


	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