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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 27, 2015, the Consolidated Statements of Operations for the third quarters and nine months ended September 27, 2015 and September 28, 2014, the Consolidated Statements of Comprehensive Income (Loss) for the third quarters and nine months ended September 27, 2015 and September 28, 2014, and the Consolidated Statements of Cash Flows for the nine months ended September 27, 2015 and September 28, 2014.
The consolidated balance sheet at December 31, 2014 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, 2014. 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, 2014. Operating results for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2015.
The Company operates on a 52-week fiscal year ending on December 31st. Any quarterly data contained in this Quarterly Report on Form 10-Q generally reflect the results of operations for a 13-week period or 39-week period, respectively.
|
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2.Accounting Policies
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. Actual results could differ from those estimates.
Goodwill and Long-Lived Assets
During the second quarter of 2015, $4.1 million of goodwill in the Americas segment was reclassified to assets held for sale and included in the net assets sold during the third quarter of 2015. Refer to Note 6 Sale of Business, for further discussion. Also during the second quarter of 2015, the working capital adjustment relating to the AERCO International, Inc. (“AERCO”) acquisition was finalized resulting in a $0.7 million reduction in the purchase price and goodwill recorded in the Americas segment. Both of these reductions to goodwill have been included in the “Foreign Currency Translation and Other” category in the table below.
The changes in the carrying amount of goodwill by geographic segment are as follows:
|
|
|
September 27, 2015 |
|
||||||||||||||||||||||
|
|
|
Gross Balance |
|
Accumulated Impairment Losses |
|
Net Goodwill |
|
||||||||||||||||||
|
|
|
Balance |
|
Acquired |
|
Foreign |
|
Balance |
|
Balance |
|
Impairment |
|
Balance |
|
September 27, |
|
||||||||
|
|
|
(in millions ) |
|
||||||||||||||||||||||
|
Americas |
|
$ |
398.0 |
|
$ |
— |
|
$ |
(6.4 |
) |
$ |
391.6 |
|
$ |
(24.5 |
) |
$ |
— |
|
$ |
(24.5 |
) |
$ |
367.1 |
|
|
Europe, Middle East and Africa (EMEA) |
|
265.5 |
|
— |
|
(18.7 |
) |
246.8 |
|
— |
|
— |
|
— |
|
246.8 |
|
||||||||
|
Asia-Pacific |
|
12.9 |
|
— |
|
— |
|
12.9 |
|
(12.9 |
) |
— |
|
(12.9 |
) |
— |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Total |
|
$ |
676.4 |
|
$ |
— |
|
$ |
(25.1 |
) |
$ |
651.3 |
|
$ |
(37.4 |
) |
$ |
— |
|
$ |
(37.4 |
) |
$ |
613.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2014 |
|
||||||||||||||||||||||
|
|
|
Gross Balance |
|
Accumulated Impairment Losses |
|
Net Goodwill |
|
||||||||||||||||||
|
|
|
Balance |
|
Acquired |
|
Foreign |
|
Balance |
|
Balance |
|
Impairment |
|
Balance |
|
September 28, |
|
||||||||
|
|
|
(in millions) |
|
||||||||||||||||||||||
|
Americas |
|
$ |
224.7 |
|
$ |
— |
|
$ |
(0.5 |
) |
$ |
224.2 |
|
$ |
(24.5 |
) |
$ |
— |
|
$ |
(24.5 |
) |
$ |
199.7 |
|
|
EMEA |
|
301.3 |
|
— |
|
(21.3 |
) |
280.0 |
|
— |
|
— |
|
— |
|
280.0 |
|
||||||||
|
Asia-Pacific |
|
13.3 |
|
— |
|
(0.2 |
) |
13.1 |
|
— |
|
— |
|
— |
|
13.1 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Total |
|
$ |
539.3 |
|
$ |
— |
|
$ |
(22.0 |
) |
$ |
517.3 |
|
$ |
(24.5 |
) |
$ |
— |
|
$ |
(24.5 |
) |
$ |
492.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
The EMEA reporting unit represents the EMEA geographic segment excluding the Blücher reporting unit and had a goodwill balance of $182.2 million as of September 27, 2015. The Company continues to monitor the impact the current economic environment in Europe is having on the EMEA reporting unit’s operating results and growth expectations. At the most recent annual impairment date of October 26, 2014, the Company performed a qualitative fair value assessment, including an evaluation of certain key assumptions. The Company concluded that the fair value of the EMEA reporting unit continued to exceed its carrying value.
Intangible assets with estimable lives and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of intangible assets with estimable lives and other long-lived assets are measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted pretax cash flows expected to be generated by the asset or asset group. If these comparisons indicate that an asset is not recoverable, the impairment loss recognized is the amount by which the carrying amount of the asset or asset group exceeds the related estimated fair value. Estimated fair value is based on either discounted future pretax operating cash flows or appraised values, depending on the nature of the asset. The Company determines the discount rate for this analysis based on the weighted average cost of capital based on the market and guideline public companies for the related business, and does not allocate interest charges to the asset or asset group being measured. Judgment is required to estimate future operating cash flows.
Intangible assets include the following:
|
|
|
September 27, 2015 |
|
December 31, 2014 |
|
||||||||||||||
|
|
|
Gross |
|
Accumulated |
|
Net |
|
Gross |
|
Accumulated |
|
Net |
|
||||||
|
|
|
(in millions) |
|
||||||||||||||||
|
Patents |
|
$ |
16.2 |
|
$ |
(14.0 |
) |
$ |
2.2 |
|
$ |
16.2 |
|
$ |
(13.3 |
) |
$ |
2.9 |
|
|
Customer relationships |
|
204.4 |
|
(98.5 |
) |
105.9 |
|
206.7 |
|
(87.5 |
) |
119.2 |
|
||||||
|
Technology |
|
41.5 |
|
(15.3 |
) |
26.2 |
|
42.1 |
|
(12.9 |
) |
29.2 |
|
||||||
|
Trade Names |
|
20.4 |
|
(5.9 |
) |
14.5 |
|
20.6 |
|
(4.2 |
) |
16.4 |
|
||||||
|
Other |
|
9.4 |
|
(5.8 |
) |
3.6 |
|
9.5 |
|
(5.7 |
) |
3.8 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Total amortizable intangibles |
|
291.9 |
|
(139.5 |
) |
152.4 |
|
295.1 |
|
(123.6 |
) |
171.5 |
|
||||||
|
Indefinite-lived intangible assets |
|
37.2 |
|
— |
|
37.2 |
|
38.6 |
|
— |
|
38.6 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Total |
|
$ |
329.1 |
|
$ |
(139.5 |
) |
$ |
189.6 |
|
$ |
333.7 |
|
$ |
(123.6 |
) |
$ |
210.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense for amortizable intangible assets for the third quarters of 2015 and 2014 was $5.6 million and $3.7 million, respectively, and for the first nine months of 2015 and 2014 was $15.9 million and $11.1 million, respectively. Additionally, future amortization expense for the next five years on amortizable intangible assets is expected to be approximately $4.7 million for the remainder of 2015, $19.1 million for 2016, $18.8 million for 2017, $15.6 million for 2018 and $11.8 million for 2019. Amortization expense is recorded on a straight-line basis over the estimated useful lives of the intangible assets. The weighted-average remaining life of total amortizable intangible assets is 12.0 years. Patents, customer relationships, technology, trade names and other amortizable intangibles have weighted-average remaining lives of 3.9 years, 11.7 years, 9.8 years, 14.4 years and 32.7 years, respectively. Indefinite-lived intangible assets primarily include trademarks and trade names.
Stock-Based Compensation
The Company maintains one stock incentive plan, the Second Amended and Restated 2004 Stock Incentive Plan (the “2004 Stock Incentive Plan”). Under this plan, key employees have been granted nonqualified stock options to purchase the Company’s Class A common stock. Options typically become exercisable over a four-year period at the rate of 25% per year and expire ten years after the grant date. However, with the introduction in 2014 of performance stock units discussed below, most options granted in 2014 become exercisable over a three-year period at the rate of one-third per year. Options granted under the plan may have exercise prices of not less than 100% of the fair market value of the Class A common stock on the date of grant. The Company’s practice has been to grant all options at fair market value on the grant date. The Company did not issue any stock options in the first nine months of 2015 and issued 114,211 stock options during the first nine months of 2014.
The Company grants shares of restricted stock and deferred shares 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 non-employee members of the Company’s Board of Directors are fully vested upon grant. Employees’ restricted stock awards and deferred shares typically vest over a three-year period at the rate of one-third per year. However, with the introduction in 2014 of performance stock units discussed below, most restricted stock awards and deferred shares granted in 2014 vest over a two-year period at the rate of 50% per year. The restricted stock awards and deferred shares are amortized to expense on a straight-line basis over the vesting period. The Company issued 174,575 and 150,577 shares of restricted stock in the first nine months of 2015 and 2014, respectively.
Beginning in 2014, the Company also grants performance stock units to key employees under the 2004 Stock Incentive Plan. Performance stock units vest at the end of the performance period set by the Compensation Committee of our Board of Directors at the time of grant. 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 recipient of a performance stock unit award may earn from no shares to twice the number of target shares awarded to such recipient. The performance stock units are amortized to expense over the vesting period, and based on the Company’s performance relative to the performance goals, may be adjusted. If the performance goals are not met, no awards are earned and previously recognized compensation expense is reversed. The Company awarded 631 and 117,619 performance stock units in the first nine months of 2015 and 2014, respectively.
The Company has a Management Stock Purchase Plan that allows for the purchase of restricted stock units (RSUs) by key employees. On an annual basis, key employees may elect to receive a portion of their annual incentive compensation in RSUs instead of cash. Each RSU represents one share of Class A common stock and is purchased by the employee at 67% of the fair market value of the Company’s Class A common stock on the date of grant. Beginning with annual incentive compensation for 2016, the purchase price for RSUs will be increased to 80% of the fair market value of the Company’s Class A common stock. RSUs vest either annually over a three-year period from the grant date or upon the third anniversary of the grant date and receipt of the shares underlying RSUs is deferred for a minimum of three years or such greater number of years as is chosen by the employee. An aggregate of 2,000,000 shares of Class A common stock may be issued under the Management Stock Purchase Plan. The Company granted 59,995 RSUs and 30,561 RSUs in the first nine months of 2015 and 2014, respectively.
The fair value of each RSU 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:
|
|
|
2015 |
|
2014 |
|
|
Expected life (years) |
|
3.0 |
|
3.0 |
|
|
Expected stock price volatility |
|
23.4 |
% |
31.2 |
% |
|
Expected dividend yield |
|
1.2 |
% |
0.9 |
% |
|
Risk-free interest rate |
|
1.1 |
% |
0.7 |
% |
The above assumptions were used to determine the RSUs weighted average grant-date fair value of $19.04 and $22.57 in 2015 and 2014, respectively.
A more detailed description of each of these plans can be found in Note 12 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
Shipping and Handling
The Company’s shipping and handling costs included in selling, general and administrative expenses were $12.9 million and $15.8 million for the third quarters of 2015 and 2014, respectively, and were $41.1 million and $46.3 million for the first nine months of 2015 and 2014, respectively.
Research and Development
Research and development costs included in selling, general and administrative expenses were $5.6 million and $5.3 million for the third quarters of 2015 and 2014, respectively, and were $18.3 million and $17.2 million for the first nine months of 2015 and 2014, respectively.
Taxes, Other than Income Taxes
Taxes assessed by governmental authorities on sale transactions are recorded on a net basis and excluded from sales in the Company’s consolidated statements of operations.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
New Accounting Standards
In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-16, “Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments”. ASU 2015-16 eliminates the requirement to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. ASU 2015-16 is effective in the first quarter of 2016 for public companies with calendar year ends, and should be applied prospectively with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
In July 2015, the FASB issued ASU 2015-11, “Inventory: Simplifying the Measurement of Inventory”. This new standard changes inventory measurement from lower of cost or market to lower of cost and net realizable value. The standard eliminates the requirement to consider replacement cost or net realizable value less a normal profit margin when measuring inventory. ASU 2015-11 is effective in the first quarter of 2017 for public companies with calendar year ends, and should be applied prospectively with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
In April 2015, the FASB issued ASU 2015-03, “Interest — Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs”. Under ASU 2015-03, debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. The cost of issuing debt will no longer be recorded as a separate asset, except when incurred before receipt of the funding from the associated debt liability. ASU 2015-03 is effective in the first quarter of 2016 for public companies with calendar year ends, with early adoption permitted. The ASU requires retrospective application to all prior periods presented in the financial statements. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
In January 2015, the FASB issued ASU 2015-01, “Income Statement—Extraordinary and Unusual Items: Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items”. ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items as part of its initiative to reduce complexity in accounting standards. ASU 2015-01 is effective in the first quarter of 2016 for public companies with calendar year ends, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The ASU may be applied prospectively or retrospectively to all prior periods presented. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
|
|||
3.Acquisitions
On December 1, 2014, the Company completed the acquisition of AERCO in a share purchase transaction. The aggregate purchase price was $271.5 million and was financed from a borrowing under the Company’s Credit Agreement. During the second quarter of 2015, the working capital adjustment was finalized resulting in a $0.7 million reduction in the final purchase price.
The Company accounted for the transaction as a business combination. The Company completed a purchase price allocation that resulted in the recognition of $173.3 million in goodwill and $102.4 million in intangible assets. The goodwill balance was reduced during the second quarter of 2015 primarily related to the finalization of the working capital adjustment. Intangible assets consist primarily of customer relationships valued at $78.5 million with estimated lives of 16 years, developed technology valued at $15.8 million with estimated lives of 10 years and trade name valued at $7.4 million with a 20 year life. The goodwill is attributable to the workforce of AERCO and the strategic platform adjacency that will allow the Company to extend its product offerings as a result of the acquisition. Approximately $19.4 million of the goodwill is deductible for tax purposes. The following table summarizes the value of the assets and liabilities acquired (in millions):
|
Accounts receivable |
|
$ |
17.2 |
|
|
Inventory |
|
16.3 |
|
|
|
Fixed assets |
|
7.7 |
|
|
|
Deferred tax assets |
|
8.2 |
|
|
|
Other assets |
|
7.6 |
|
|
|
Intangible assets |
|
102.4 |
|
|
|
Goodwill |
|
173.3 |
|
|
|
Accounts payable |
|
(6.8 |
) |
|
|
Accrued expenses and other |
|
(18.4 |
) |
|
|
Deferred tax liability |
|
(36.0 |
) |
|
|
|
|
|
|
|
|
Purchase price |
|
$ |
271.5 |
|
|
|
|
|
|
|
The consolidated statement of operations for the third quarter and the nine months ended September 27, 2015 includes the results of AERCO. The third quarter and the nine months ended September 27, 2015 results include $34.9 million and $89.5 million of revenues, respectively, and $7.8 million and $15.1 million of operating income, respectively, attributable to AERCO. The nine months ended September 27, 2015 operating income of AERCO includes $0.9 million of purchase accounting charges.
Supplemental pro-forma information
Had the acquisition of AERCO been completed at the beginning of 2014, the Company’s consolidated net sales, net income and earnings per share would have been as follows:
|
|
|
Third Quarter |
|
Nine Months |
|
|||||
|
Amounts in millions (except per share information) |
|
September 28, |
|
September 27, |
|
September 28, |
|
|||
|
Net sales |
|
$ |
408.2 |
|
$ |
1,109.4 |
|
$ |
1,218.0 |
|
|
Net income |
|
$ |
26.2 |
|
$ |
5.9 |
|
$ |
63.9 |
|
|
Net income per share: |
|
|
|
|
|
|
|
|||
|
Basic EPS |
|
$ |
0.74 |
|
$ |
0.17 |
|
$ |
1.81 |
|
|
Diluted EPS |
|
$ |
0.74 |
|
$ |
0.17 |
|
$ |
1.81 |
|
Net income for the third quarter and nine months ended September 28, 2014 was adjusted to include $0.9 million and $2.5 million, respectively, of net interest expense related to the financing of the acquisition and $1.1 million and $3.3 million, respectively, of net amortization expense resulting from the estimated allocation of purchase price to amortizable tangible and intangible assets. Net income for the nine months ended September 27, 2015 was also adjusted to exclude $0.7 million of net acquisition-related and purchase accounting charges.
|
|||
4.Financial Instruments and Derivative Instruments
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including deferred compensation plan assets and related liability, and contingent consideration. There were no designated cash flow hedges as of September 27, 2015 and December 31, 2014. The fair values of these certain financial assets and liabilities were determined using the following inputs at September 27, 2015 and December 31, 2014:
|
|
|
Fair Value Measurements at September 27, 2015 Using: |
|
||||||||||
|
|
|
|
|
Quoted Prices in |
|
Significant Other |
|
Significant |
|
||||
|
|
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Assets |
|
|
|
|
|
|
|
|
|
||||
|
Plan asset for deferred compensation(1) |
|
$ |
3.3 |
|
$ |
3.3 |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3.3 |
|
$ |
3.3 |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
||||
|
Plan liability for deferred compensation(2) |
|
$ |
3.3 |
|
$ |
3.3 |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
3.3 |
|
$ |
3.3 |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2014 Using: |
|
||||||||||
|
|
|
|
|
Quoted Prices in |
|
Significant Other |
|
Significant |
|
||||
|
|
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Assets |
|
|
|
|
|
|
|
|
|
||||
|
Plan asset for deferred compensation(1) |
|
$ |
4.0 |
|
$ |
4.0 |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4.0 |
|
$ |
4.0 |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
||||
|
Plan liability for deferred compensation(2) |
|
$ |
4.0 |
|
$ |
4.0 |
|
$ |
— |
|
$ |
— |
|
|
Contingent consideration(3) |
|
2.5 |
|
— |
|
— |
|
2.5 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total liabilities |
|
$ |
6.5 |
|
$ |
4.0 |
|
$ |
— |
|
$ |
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 as of December 31, 2014. |
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.
Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase and consist primarily of certificates of deposit and money market funds, for which the carrying amount is a reasonable estimate of fair value.
The fair value of the Company’s 5.85% senior notes due 2016 and 5.05% senior notes due 2020 is based on quoted market prices of similar notes (level 2). The fair value of the Company’s borrowings outstanding under the Credit Agreement and the Company’s variable rate debt approximates its carrying value. The carrying amount and the estimated fair market value of the Company’s long-term debt, including the current portion, are as follows:
|
|
|
September 27, |
|
December 31, |
|
||
|
|
|
2015 |
|
2014 |
|
||
|
|
|
(in millions) |
|
||||
|
Carrying amount |
|
$ |
578.0 |
|
$ |
579.7 |
|
|
Estimated fair value |
|
$ |
590.1 |
|
$ |
599.3 |
|
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.
The Company has exposure to a number of foreign currency rates, including the Canadian dollar, the euro, the Chinese yuan and the British pound sterling. To manage this risk, the Company generally uses a layering methodology whereby at the end of any quarter, the Company has generally entered into forward exchange contracts which hedge approximately 50% of the projected intercompany purchase transactions for the next twelve months. The Company presently does not have any open forward exchange contracts.
|
|||
5.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 and other charges in the Company’s consolidated statements of operations.
A summary of the pre-tax cost by restructuring program is as follows:
|
|
|
Third Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 27, |
|
September 28 |
|
September 27, |
|
September 28, |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Restructuring costs: |
|
|
|
|
|
|
|
|
|
||||
|
2015 Actions |
|
$ |
5.0 |
|
$ |
— |
|
$ |
10.3 |
|
$ |
— |
|
|
2013 Actions |
|
— |
|
0.4 |
|
0.5 |
|
2.9 |
|
||||
|
Other Actions |
|
0.8 |
|
— |
|
1.7 |
|
4.3 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total restructuring |
|
$ |
5.8 |
|
$ |
0.4 |
|
$ |
12.5 |
|
$ |
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded pre-tax restructuring in its business segments as follows:
|
|
|
Third Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 27, |
|
September 28, |
|
September 27, |
|
September 28, |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Americas |
|
$ |
4.8 |
|
$ |
— |
|
$ |
6.8 |
|
$ |
2.3 |
|
|
EMEA |
|
0.8 |
|
0.4 |
|
2.3 |
|
4.1 |
|
||||
|
Asia-Pacific |
|
0.2 |
|
— |
|
3.5 |
|
— |
|
||||
|
Corporate |
|
— |
|
— |
|
(0.1 |
) |
0.8 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total |
|
$ |
5.8 |
|
$ |
0.4 |
|
$ |
12.5 |
|
$ |
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Actions
On February 17, 2015, the Board of Directors of the Company approved the initial phase of a transformation program relating to the Company’s Americas and Asia-Pacific businesses, which primarily involves product line rationalization efforts relating to non-core products (“phase one”). The Company expects to ultimately eliminate between $175 million to $200 million of the combined Americas and Asia-Pacific net sales primarily within the Company’s do-it-yourself (DIY) distribution channel. The total estimated pre-tax cost for phase one is $33 million, including restructuring of $9.4 million, goodwill and intangible asset impairments of $13.4 million and other transformation and deployment costs of $10.2 million. Total phase one program costs of $27.6 million have been incurred to date. Total phase one non-cash charges are estimated to be $18 million, and after-tax charges are estimated to be $28 million.
On October 26, 2015, the Board of Directors of the Company completed its approval of the second phase of the Company’s transformation program related to its Americas and Asia-Pacific businesses (“phase two”). Phase two involves reducing the square footage of the Company’s North American facilities, which together with phase one, is expected to reduce the Americas net operating footprint by approximately 30%. Phase two is designed to improve the utilization of the Company’s remaining facilities, better leverage the Company’s cost structure, reduce working capital, and improve execution of customer delivery requirements. The total estimated pre-tax cost for phase two is $30 million to $35 million, including restructuring of $12 million and other transformation and deployment costs of $18 million to $23 million. Total phase two program costs of $2.8 million have been incurred to date. Total phase two non-cash charges are estimated to be $5 million, and after-tax charges are estimated to be $18 million to $22 million.
On a combined basis, the total estimated pre-tax cost for phase one and phase two is $63 million to $68 million, including restructuring costs of $21.4 million, goodwill and intangible asset impairments of $13.4 million and other transformation and deployment costs of $28.2 to $33.2 million. The other transformation and deployment costs include consulting and project management fees and other associated costs. Costs of the program are expected to be incurred through 2017.
The following table summarizes by type, the total expected, incurred and remaining pre-tax restructuring costs for phase one and phase two combined:
|
|
|
Severance |
|
Legal and |
|
Asset |
|
Facility |
|
Total |
|
|||||
|
|
|
(in millions) |
|
|||||||||||||
|
Costs incurred—first quarter 2015 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
1.3 |
|
$ |
1.3 |
|
|
Costs incurred—second quarter 2015 |
|
3.7 |
|
— |
|
0.3 |
|
— |
|
4.0 |
|
|||||
|
Costs incurred—third quarter 2015 |
|
2.5 |
|
0.3 |
|
0.9 |
|
1.3 |
|
5.0 |
|
|||||
|
Remaining costs to be incurred |
|
2.6 |
|
0.2 |
|
1.8 |
|
6.5 |
|
11.1 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Total restructuring costs |
|
$ |
8.8 |
|
$ |
0.5 |
|
$ |
3.0 |
|
$ |
9.1 |
|
$ |
21.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes total incurred for the three and nine months ended September 27, 2015, incurred program to date and expected pre-tax restructuring costs by business segment for the Company’s Americas and Asia-Pacific 2015 transformation program:
|
|
|
Third Quarter |
|
Nine Months Ended |
|
|
|
|
|
||||
|
|
|
September 27, |
|
September 27, |
|
Incurred |
|
Total |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Asia-Pacific |
|
$ |
0.2 |
|
$ |
3.5 |
|
$ |
3.5 |
|
$ |
3.7 |
|
|
Americas |
|
4.8 |
|
6.8 |
|
6.8 |
|
17.7 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total restructuring costs |
|
$ |
5.0 |
|
$ |
10.3 |
|
$ |
10.3 |
|
$ |
21.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of the restructuring reserve activity for the Company’s Americas and Asia-Pacific 2015 transformation program for the nine months ended September 27, 2015 are as follows:
|
|
|
|
|
|
|
|
|
Facility |
|
|
|
|||||
|
|
|
|
|
Legal and |
|
Asset |
|
exit |
|
|
|
|||||
|
|
|
Severance |
|
consultancy |
|
write-downs |
|
and other |
|
Total |
|
|||||
|
|
|
(in millions) |
|
|||||||||||||
|
Balance at December 31, 2014 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Net pre-tax restructuring charges |
|
— |
|
— |
|
— |
|
1.3 |
|
1.3 |
|
|||||
|
Utilization and foreign currency impact |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Balance at March 29, 2015 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
1.3 |
|
$ |
1.3 |
|
|
Net pre-tax restructuring charges |
|
3.7 |
|
— |
|
0.3 |
|
— |
|
4.0 |
|
|||||
|
Utilization and foreign currency impact |
|
— |
|
— |
|
(0.3 |
) |
— |
|
(0.3 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Balance at June 28, 2015 |
|
$ |
3.7 |
|
$ |
— |
|
$ |
— |
|
$ |
1.3 |
|
$ |
5.0 |
|
|
Net pre-tax restructuring charges |
|
2.5 |
|
0.3 |
|
0.9 |
|
1.3 |
|
5.0 |
|
|||||
|
Utilization and foreign currency impact |
|
(1.1 |
) |
(0.1 |
) |
(0.9 |
) |
(0.7 |
) |
(2.8 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Balance at September 27, 2015 |
|
$ |
5.1 |
|
$ |
0.2 |
|
$ |
— |
|
$ |
1.9 |
|
$ |
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Actions
The Company also periodically initiates other actions which are not part of a major program. In the fourth quarter of 2014, management initiated certain restructuring actions and strategic initiatives with respect to the Company’s EMEA segment in response to the ongoing economic challenges in Europe and additional product rationalization. The restructuring actions primarily include expected severance benefits and limited costs relating to asset write offs, professional fees and relocation. The total pre-tax charge for these restructuring initiatives is expected to be approximately $9.9 million, of which approximately $8.3 million were incurred as of September 27, 2015 for the program to date. The remaining expected costs relate to severance, asset write-offs and relocation costs and are expected to be completed by the end of the fourth quarter of fiscal 2016.
The following table summarizes total expected, incurred and remaining pre-tax restructuring costs for the EMEA 2014 restructuring actions:
|
|
|
Severance |
|
Legal and |
|
Asset |
|
Facility |
|
Total |
|
|||||
|
|
|
(in millions) |
|
|||||||||||||
|
Costs incurred—2014 |
|
$ |
6.9 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
6.9 |
|
|
Costs incurred—first quarter 2015 |
|
— |
|
0.2 |
|
0.1 |
|
— |
|
0.3 |
|
|||||
|
Costs incurred—second quarter 2015 |
|
0.5 |
|
— |
|
— |
|
— |
|
0.5 |
|
|||||
|
Costs incurred—third quarter 2015 |
|
0.5 |
|
— |
|
0.1 |
|
— |
|
0.6 |
|
|||||
|
Remaining costs to be incurred |
|
0.9 |
|
— |
|
0.6 |
|
0.1 |
|
1.6 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Total restructuring costs |
|
$ |
8.8 |
|
$ |
0.2 |
|
$ |
0.8 |
|
$ |
0.1 |
|
$ |
9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of the Company’s EMEA 2014 restructuring reserve activity for the nine months ended September 27, 2015 are as follows:
|
|
|
Severance |
|
Legal and |
|
Asset |
|
Total |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Balance at December 31, 2014 |
|
$ |
6.9 |
|
$ |
— |
|
$ |
— |
|
$ |
6.9 |
|
|
Net pre-tax restructuring charges |
|
— |
|
0.2 |
|
0.1 |
|
0.3 |
|
||||
|
Utilization and foreign currency impact |
|
(0.8 |
) |
(0.2 |
) |
(0.1 |
) |
(1.1 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance at March 29, 2015 |
|
$ |
6.1 |
|
$ |
— |
|
$ |
— |
|
$ |
6.1 |
|
|
Net pre-tax restructuring charges |
|
0.5 |
|
— |
|
— |
|
0.5 |
|
||||
|
Utilization and foreign currency impact |
|
(0.2 |
) |
— |
|
— |
|
(0.2 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance at June 28, 2015 |
|
$ |
6.4 |
|
$ |
— |
|
$ |
— |
|
$ |
6.4 |
|
|
Net pre-tax restructuring charges |
|
0.5 |
|
— |
|
0.1 |
|
0.6 |
|
||||
|
Utilization and foreign currency impact |
|
(1.1 |
) |
— |
|
(0.1 |
) |
(1.2 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance at September 27, 2015 |
|
$ |
5.8 |
|
$ |
— |
|
$ |
— |
|
$ |
5.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
6.Sale of Business
Sale of Certain Americas Product Lines
On September 15, 2015, the Company completed the sale of certain assets related to the Company’s fittings, brass and tubular and vinyl tubing product lines to Sioux Chief Mfg. Co., Inc. in an all-cash transaction. The Company received net cash proceeds of approximately $33.1 million, after inventory adjustments and transaction fees. Total net assets sold were $33.4 million with a pre-tax loss on the sale of approximately $0.3 million.
The carrying amounts of the net assets sold were as follows:
|
|
|
September 27, |
|
|
|
|
|
2015 |
|
|
|
|
|
(in millions) |
|
|
|
Inventories, net |
|
$ |
21.9 |
|
|
Other assets |
|
3.1 |
|
|
|
Property, plant and equipment, net |
|
4.3 |
|
|
|
Goodwill |
|
4.1 |
|
|
|
|
|
|
|
|
|
Total net assets sold |
|
$ |
33.4 |
|
|
|
|
|
|
|
|
|||
8.Segment Information
The Company operates in three geographic segments: Americas, EMEA, and Asia-Pacific. AERCO is included in the Americas segment results for the third quarter and the first nine months ended September 27, 2015. Each of these segments is managed separately and has separate financial results that are reviewed by the Company’s chief operating decision-maker. All intercompany sales transactions have been eliminated. Sales by region are based upon location of the entity recording the sale. The accounting policies for each segment are the same as those described in the summary of significant accounting policies.
The following is a summary of the Company’s significant accounts and balances by segment, reconciled to the consolidated totals:
|
|
|
Third Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 27, |
|
September 28, |
|
September 27, |
|
September 28, |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Net sales |
|
|
|
|
|
|
|
|
|
||||
|
Americas |
|
$ |
245.0 |
|
$ |
228.6 |
|
$ |
745.2 |
|
$ |
689.5 |
|
|
EMEA |
|
110.9 |
|
136.4 |
|
332.1 |
|
419.4 |
|
||||
|
Asia-Pacific |
|
10.4 |
|
11.0 |
|
32.1 |
|
28.3 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consolidated net sales |
|
$ |
366.3 |
|
$ |
376.0 |
|
$ |
1,109.4 |
|
$ |
1,137.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
||||
|
Americas |
|
$ |
30.3 |
|
$ |
33.4 |
|
$ |
90.6 |
|
$ |
85.0 |
|
|
EMEA |
|
10.9 |
|
15.1 |
|
25.7 |
|
37.1 |
|
||||
|
Asia-Pacific |
|
1.2 |
|
1.7 |
|
0.9 |
|
4.7 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Subtotal reportable segments |
|
42.4 |
|
50.2 |
|
117.2 |
|
126.8 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Corporate (*) |
|
(72.6 |
) |
(7.5 |
) |
(89.8 |
) |
(21.7 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consolidated operating (loss) income |
|
(30.2 |
) |
42.7 |
|
27.4 |
|
105.1 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Interest income |
|
0.3 |
|
0.1 |
|
0.7 |
|
0.4 |
|
||||
|
Interest expense |
|
(6.2 |
) |
(4.8 |
) |
(18.0 |
) |
(14.6 |
) |
||||
|
Other income (expense), net |
|
0.2 |
|
(1.6 |
) |
0.8 |
|
(1.9 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
(Loss) Income before income taxes |
|
$ |
(35.9 |
) |
$ |
36.4 |
|
$ |
10.9 |
|
$ |
89.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
||||
|
Americas |
|
$ |
4.6 |
|
$ |
2.5 |
|
$ |
12.8 |
|
$ |
7.4 |
|
|
EMEA |
|
1.8 |
|
2.7 |
|
5.6 |
|
7.8 |
|
||||
|
Asia-Pacific |
|
0.3 |
|
0.3 |
|
0.8 |
|
0.9 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consolidated capital expenditures |
|
$ |
6.7 |
|
$ |
5.5 |
|
$ |
19.2 |
|
$ |
16.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
||||
|
Americas |
|
$ |
8.0 |
|
$ |
4.8 |
|
$ |
22.1 |
|
$ |
14.5 |
|
|
EMEA |
|
5.3 |
|
6.4 |
|
15.9 |
|
19.8 |
|
||||
|
Asia-Pacific |
|
0.5 |
|
0.5 |
|
1.7 |
|
1.5 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consolidated depreciation and amortization |
|
$ |
13.8 |
|
$ |
11.7 |
|
$ |
39.7 |
|
$ |
35.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Identifiable assets (at end of period) |
|
|
|
|
|
|
|
|
|
||||
|
Americas |
|
|
|
|
|
$ |
1,033.6 |
|
$ |
696.7 |
|
||
|
EMEA |
|
|
|
|
|
744.1 |
|
840.8 |
|
||||
|
Asia-Pacific |
|
|
|
|
|
80.6 |
|
139.2 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consolidated identifiable assets |
|
|
|
|
|
$ |
1,858.3 |
|
$ |
1,676.7 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Property, plant and equipment, net (at end of period) |
|
|
|
|
|
|
|
|
|
||||
|
Americas |
|
|
|
|
|
$ |
86.3 |
|
$ |
82.8 |
|
||
|
EMEA |
|
|
|
|
|
86.9 |
|
105.8 |
|
||||
|
Asia-Pacific |
|
|
|
|
|
11.9 |
|
13.5 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consolidated property, plant and equipment, net |
|
|
|
|
|
$ |
185.1 |
|
$ |
202.1 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
* Corporate expenses are primarily for administrative compensation expense, internal controls costs, professional fees, including corporate-related legal and audit expenses, shareholder services and benefit administration costs. Included in Corporate’s operating loss for the three and nine months ended September 27, 2015 is a $59.7 million charge related to the Company’s settlement of its Pension Plan and SERP benefit obligations. Refer to Note 12 Defined Benefit Plans for further discussion.
The above operating segments are presented on a basis consistent with the presentation included in the Company’s December 31, 2014 consolidated financial statements included in its Annual Report on Form 10-K. The EMEA segment was significantly impacted by foreign currency translation in the first nine months of 2015 compared to the first nine months of 2014.
The U.S. property, plant and equipment of the Company’s Americas segment was $82.8 million and $78.5 million at September 27, 2015 and September 28, 2014, respectively. The following includes U.S. net sales of the Company’s Americas segment:
|
|
|
Third Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 27, |
|
September 28, |
|
September 27, |
|
September 28, |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
U.S. net sales |
|
$ |
227.8 |
|
$ |
207.8 |
|
$ |
693.6 |
|
$ |
631.5 |
|
The following includes intersegment sales for Americas, EMEA and Asia-Pacific:
|
|
|
Third Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 27, |
|
September 28, |
|
September 27, |
|
September 28, |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Intersegment Sales |
|
|
|
|
|
|
|
|
|
||||
|
Americas |
|
$ |
2.1 |
|
$ |
1.5 |
|
$ |
5.8 |
|
$ |
4.6 |
|
|
EMEA |
|
2.3 |
|
3.3 |
|
7.8 |
|
10.7 |
|
||||
|
Asia-Pacific |
|
27.9 |
|
36.5 |
|
91.0 |
|
116.9 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Intersegment sales |
|
$ |
32.3 |
|
$ |
41.3 |
|
$ |
104.6 |
|
$ |
132.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
9.Accumulated Other Comprehensive (Loss) Income
Accumulated other comprehensive (loss) income consists of the following:
|
|
|
Foreign |
|
Pension |
|
Accumulated Other |
|
|||
|
|
|
(in millions) |
|
|||||||
|
|
|
|
|
|
|
|
|
|||
|
Balance December 31, 2014 |
|
$ |
(53.0 |
) |
$ |
(36.1 |
) |
$ |
(89.1 |
) |
|
Change in period |
|
(65.1 |
) |
0.2 |
|
(64.9 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Balance March 29, 2015 |
|
$ |
(118.1 |
) |
$ |
(35.9 |
) |
$ |
(154.0 |
) |
|
Change in period |
|
18.4 |
|
0.2 |
|
18.6 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Balance June 28, 2015 |
|
$ |
(99.7 |
) |
$ |
(35.7 |
) |
$ |
(135.4 |
) |
|
Change in period |
|
(5.8 |
) |
35.7 |
|
29.9 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Balance September 27, 2015 |
|
$ |
(105.5 |
) |
$ |
— |
|
$ |
(105.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Balance December 31, 2013 |
|
$ |
37.9 |
|
$ |
(25.9 |
) |
$ |
12.0 |
|
|
Change in period |
|
(4.3 |
) |
0.2 |
|
(4.1 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Balance March 30, 2014 |
|
$ |
33.6 |
|
$ |
(25.7 |
) |
$ |
7.9 |
|
|
Change in period |
|
(4.3 |
) |
0.1 |
|
(4.2 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Balance June 29, 2014 |
|
$ |
29.3 |
|
$ |
(25.6 |
) |
$ |
3.7 |
|
|
Change in period |
|
(44.4 |
) |
(10.3 |
) |
(54.7 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Balance September 28, 2014 |
|
$ |
(15.1 |
) |
$ |
(35.9 |
) |
$ |
(51.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
10.Debt
On February 18, 2014, the Company terminated its prior credit agreement and entered into a new Credit Agreement (the Credit Agreement) among the Company, certain subsidiaries of the Company who become borrowers under the Credit Agreement, JPMorgan Chase Bank, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the other lenders referred to therein. The Credit Agreement provides for a $500 million, five-year, senior unsecured revolving credit facility which may be increased by an additional $500 million under certain circumstances and subject to the terms of the Credit Agreement. The Credit Agreement has a sublimit of up to $100 million in letters of credit. The Credit Agreement matures on February 18, 2019.
Borrowings outstanding under the Credit Agreement bear interest at a fluctuating rate per annum equal to an applicable percentage equal to (1) in the case of Eurocurrency rate loans, the British Bankers Association LIBOR rate plus an applicable percentage, ranging from 0.975% to 1.45%, determined by reference to the Company’s consolidated leverage ratio, or (2) in the case of base rate loans and swing line loans, the highest of (a) the federal funds rate plus 0.5%, (b) the rate of interest in effect for such day as announced by JPMorgan Chase Bank, N.A. as its “prime rate,” and (c) the British Bankers Association LIBOR rate plus 1.0%, plus an applicable percentage, ranging from 0.00% to 0.45%, determined by reference to the Company’s consolidated leverage ratio. In addition to paying interest under the Credit Agreement, the Company is also required to pay certain fees in connection with the Credit Agreement, including, but not limited to, an unused facility fee and letter of credit fees. Under the Credit Agreement, the Company is required to satisfy and maintain specified financial ratios and other financial condition tests. The Company may repay loans outstanding under the Credit Agreement from time to time without premium or penalty, other than customary breakage costs, if any, and subject to the terms of the Credit Agreement. As of September 27, 2015, the Company was in compliance with all covenants related to the Credit Agreement. The Company had $200.2 million of unused and available credit, $24.8 million of stand-by letters of credit outstanding and $275 million of borrowings outstanding under the Credit Agreement at September 27, 2015.
The Company is a party to several note agreements as further detailed in Note 10 of Notes to Consolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 2014. In the second quarter of 2015, the Company reclassified $225.0 million of 5.85% senior unsecured notes due April 2016 from long-term debt to current portion of long-term debt on the balance sheet. These note agreements require 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 27, 2015, the Company was in compliance with all covenants regarding these note agreements.
|
|||
11.Contingencies and Environmental Remediation
Accrual and Disclosure Policy
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.
The Company reviews its lawsuits and other legal proceedings on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. The Company establishes accruals for matters when the Company assesses that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company’s assessment of whether a loss is probable is based on its assessment of the ultimate outcome of the matter following all appeals.
Under the FASB-issued ASC 450 “Contingencies”, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote” if “the chance of the future event or events occurring is slight”. Thus, references to the upper end of the range of reasonably possible loss for cases in which the Company is able to estimate a range of reasonably possible loss mean the upper end of the range of loss for cases for which the Company believes the risk of loss is more than slight.
There may continue to be exposure to loss in excess of any amount accrued. When it is possible to estimate the reasonably possible loss or range of loss above the amount accrued for the matters disclosed, that estimate is aggregated and disclosed. The Company records legal costs associated with its legal contingencies as incurred, except for legal costs associated with product liability claims which are included in the actuarial estimates used in determining the product liability accrual.
As of September 27, 2015, the Company estimates that the aggregate amount of reasonably possible loss in excess of the amount accrued for its legal contingencies is approximately $4.4 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 described below, 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.
Connector Class Actions
In November and December 2014, Watts Water Technologies, Inc. and Watts Regulator Co. were named as defendants in three separate putative nationwide class action complaints (Meyers v. Watts Water Technologies, Inc., United States District Court for the Southern District of Ohio; Ponzo v. Watts Regulator Co., United States District Court for the District of Massachusetts; Sharp v. Watts Regulator Co., United States District Court for the District of Massachusetts) seeking to recover damages and other relief based on the alleged failure of water heater connectors. On June 26, 2015, plaintiffs in the three actions filed a consolidated amended complaint, under the case captioned Ponzo v. Watts Regulator Co., in the United States District Court for the District of Massachusetts. The complaint seeks among other items, damages in an unspecified amount, replacement costs, injunctive relief, declaratory relief, and attorneys’ fees and costs. On August 7, 2015, the Company filed a motion to dismiss the complaint.
In February 2015, Watts Regulator Co. was named as a defendant in a putative nationwide class action complaint (Klug v. Watts Water Technologies, Inc., et al., United States District Court for the District of Nebraska) seeking to recover damages and other relief based on the alleged failure of the Company’s Floodsafe connectors. On June 26, 2015, the Company filed a partial motion to dismiss the complaint. In response, on July 17, 2015, plaintiff filed an amended complaint, Klug v. Watts Regulator Co., United States District Court for the District of Nebraska. The complaint seeks among other items, damages in an unspecified amount, injunctive relief, declaratory relief, and attorneys’ fees and costs. On July 31, 2015, the Company filed a partial motion to dismiss the complaint.
The Company is unable to estimate a range of reasonably possible loss for the above matters in which damages have not been specified because: (i) the proceedings are in the early stages; (ii) there is uncertainty as to the likelihood of a class being certified or the ultimate size of the class; (iii) there is uncertainty as to the resolution of certain legal and procedural motions; (iv) there are significant factual issues to be resolved; and (v) there are novel legal issues presented.
Product Liability
The Company is subject to a variety of potential liabilities in connection with product liability cases. The Company maintains high-deductible product liability and other insurance coverage, which the Company believes to be generally in accordance with industry practices. For product liability cases in the U.S., management establishes its product liability accrual, which includes legal costs associated with accrued claims, by utilizing third-party actuarial valuations which incorporate historical trend factors and the Company’s specific claims experience derived from loss reports provided by third-party claims administrators.
Changes in the nature of product liability claims, legal costs, or the actual settlement amounts could affect the adequacy of the estimates and require changes to the accrual. Because the liability is an estimate, the ultimate liability may be more or less than reported.
Environmental Remediation
The Company has been named as a potentially responsible party with respect to a limited number of identified contaminated sites. The levels of contamination vary significantly from site to site as do the related levels of remediation efforts. Environmental liabilities are recorded based on the most probable cost, if known, or on the reasonably estimated minimum cost of remediation. Accruals are not discounted to their present value, unless the amount and timing of expenditures are fixed and reliably determinable. The Company accrues reasonably estimated environmental liabilities based on assumptions, which are subject to a number of factors and uncertainties. Circumstances that can affect the reliability and precision of these estimates include identification of additional sites, environmental regulations, level of clean-up required, technologies available, number and financial condition of other contributors to remediation and the time period over which remediation may occur. The Company recognizes changes in estimates as new remediation requirements are defined or as new information becomes available.
Asbestos Litigation
The Company is defending approximately 280 lawsuits in different jurisdictions, alleging injury or death as a result of exposure to asbestos. The complaints in these cases typically name a large number of defendants and do not identify any particular Company products as a source of asbestos exposure. To date, discovery has failed to yield evidence of substantial exposure to any Company products and no judgments have been entered against the Company.
Other Litigation
Other lawsuits and proceedings or claims, arising from the ordinary course of operations, are also pending or threatened against the Company.
|
|||
12.Defined Benefit Plans
For the majority of its U.S. employees, the Company sponsored a funded non-contributory defined benefit pension plan, the Watts Water Technologies, Inc. Pension Plan (the “Pension Plan”), and an unfunded non-contributory defined benefit pension plan, the Watts Water Technologies, Inc. Supplemental Employees Retirement Plan (the “SERP”). Benefits were based primarily on years of service and employees’ compensation. The funding policy of the Company for these plans was to contribute an annual amount that met the Pension Plan’s minimum funding requirements and did not exceed the maximum amount that can be deducted for federal income tax purposes. On October 31, 2011, the Company’s Board of Directors voted to cease accruals effective December 31, 2011 under both the Company’s Pension Plan and the SERP. On April 28, 2014, the Company’s Board of Directors voted to terminate the Company’s Pension Plan and the SERP. The Board of Directors authorized the Company to make such contributions to the Pension Plan and SERP as may be necessary to make the plans sufficient to settle all plan liabilities.
The Pension Plan was terminated effective July 31, 2014, and on June 4, 2015 the Company received the Internal Revenue Service (IRS) favorable determination letter for terminating the Pension Plan. The SERP was terminated effective May 15, 2014. In September 2015, the Company settled its Pension Plan and SERP benefit obligations, which included the following actions:
|
· |
The Company settled all liabilities under the SERP in accordance with Section 409A of the Internal Revenue Code by paying lump sums to all plan participants. |
|
· |
The Company transferred the Pension Plan assets and benefit obligations to an annuity provider and distributed lump sum payments to participants based on their elections. |
|
· |
The Company made cash contributions of $43.2 million to fully fund the above settlement actions. |
The cumulative actuarial losses of $59.7 million that were previously recorded in accumulated other comprehensive income were recognized in selling, general and administrative expenses for the quarter ended September 27, 2015. The associated deferred tax asset of $23.0 million that was previously recorded in accumulated other comprehensive income and netted within long-term deferred tax liabilities was reversed in the quarter ended September 27, 2015.
The components of net periodic benefit cost are as follows:
|
|
|
Third Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 27, |
|
September 28, |
|
September 27, |
|
September 28, |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Service cost — administrative costs |
|
$ |
0.5 |
|
$ |
0.2 |
|
$ |
1.3 |
|
$ |
0.5 |
|
|
Interest costs on benefits obligation |
|
1.4 |
|
1.5 |
|
4.2 |
|
4.5 |
|
||||
|
Expected return on assets |
|
(1.2 |
) |
(1.5 |
) |
(3.6 |
) |
(4.5 |
) |
||||
|
Net actuarial loss amortization |
|
0.3 |
|
0.3 |
|
1.1 |
|
0.8 |
|
||||
|
Settlement charge |
|
59.7 |
|
— |
|
59.7 |
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net periodic benefit cost |
|
$ |
60.7 |
|
$ |
0.5 |
|
$ |
62.7 |
|
$ |
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s employer contributions made for the Pension Plan and SERP were $43.8 million and $0.6 million for the nine months ended September 27, 2015 and September 28, 2014, respectively. The $43.8 million contribution in 2015 included the $43.2 million in cash contributions for the settlement and $0.6 million contributed throughout the nine months ended September 27, 2015 related to the SERP.
On August 18, 2015, the Company entered into Amendment No. 3 to Supplemental Compensation Agreement (the “Amendment”) with Timothy P. Horne, the Company’s former Chief Executive Officer and President and a principal stockholder. Under the Supplemental Compensation Agreement, dated September 1, 1995, as amended on July 25, 2000 and October 23, 2002 (the “Compensation Agreement”), between the Company and Mr. Horne, Mr. Horne received payments for consulting services equal to the greater of (i) one-half of the average of his annual base salary as an employee of the Company during the three years immediately prior to his retirement and (ii) $400,000 for each calendar year following his retirement until the date of his death, subject to certain cost-of-living increases each year. Mr. Horne was paid $598,562 for his consulting services in 2014. Under the Compensation Agreement Mr. Horne was also entitled to receive lifetime benefits, including use of secretarial services, use of an office, retiree health insurance, reimbursement of tax and financial planning expenses, and certain other benefits. The Amendment provides for a $6 million lump-sum buyout of all of the Company’s ongoing lifetime payment obligations and all benefits under the Compensation Agreement, except for the use of an office and administrative support. The Amendment also provides for consulting services from Mr. Horne as requested by the Company rather than per year hourly requirements. The Company paid the $6 million lump-sum buyout amount to Mr. Horne in September 2015, which resulted in a $5 million pre-tax charge for the quarter ended September 27, 2015.
|
|||
13.Subsequent Events
Dividend Declared
On October 27, 2015, the Company declared a quarterly dividend of seventeen cents ($0.17) per share on each outstanding share of Class A common stock and Class B common stock payable on December 11, 2015 to stockholders of record at the close of business on November 30, 2015.
Definitive Agreement to Purchase Shares of Apex Valves Limited
On October 27, 2015, the Company signed a definitive agreement to purchase 80% of the outstanding shares of Apex Valves Limited (“Apex”), a New Zealand company, for approximately $22 million, with a commitment to purchase the remaining 20% ownership within three years of closing. Apex designs, manufactures and distributes control valves for hot water and filtration systems and float and reservoir valves for agricultural applications. The transaction is expected to close in the fourth quarter.
|
|||
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. Actual results could differ from those estimates.
Goodwill and Long-Lived Assets
During the second quarter of 2015, $4.1 million of goodwill in the Americas segment was reclassified to assets held for sale and included in the net assets sold during the third quarter of 2015. Refer to Note 6 Sale of Business, for further discussion. Also during the second quarter of 2015, the working capital adjustment relating to the AERCO International, Inc. (“AERCO”) acquisition was finalized resulting in a $0.7 million reduction in the purchase price and goodwill recorded in the Americas segment. Both of these reductions to goodwill have been included in the “Foreign Currency Translation and Other” category in the table below.
The changes in the carrying amount of goodwill by geographic segment are as follows:
|
|
|
September 27, 2015 |
|
||||||||||||||||||||||
|
|
|
Gross Balance |
|
Accumulated Impairment Losses |
|
Net Goodwill |
|
||||||||||||||||||
|
|
|
Balance |
|
Acquired |
|
Foreign |
|
Balance |
|
Balance |
|
Impairment |
|
Balance |
|
September 27, |
|
||||||||
|
|
|
(in millions ) |
|
||||||||||||||||||||||
|
Americas |
|
$ |
398.0 |
|
$ |
— |
|
$ |
(6.4 |
) |
$ |
391.6 |
|
$ |
(24.5 |
) |
$ |
— |
|
$ |
(24.5 |
) |
$ |
367.1 |
|
|
Europe, Middle East and Africa (EMEA) |
|
265.5 |
|
— |
|
(18.7 |
) |
246.8 |
|
— |
|
— |
|
— |
|
246.8 |
|
||||||||
|
Asia-Pacific |
|
12.9 |
|
— |
|
— |
|
12.9 |
|
(12.9 |
) |
— |
|
(12.9 |
) |
— |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Total |
|
$ |
676.4 |
|
$ |
— |
|
$ |
(25.1 |
) |
$ |
651.3 |
|
$ |
(37.4 |
) |
$ |
— |
|
$ |
(37.4 |
) |
$ |
613.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2014 |
|
||||||||||||||||||||||
|
|
|
Gross Balance |
|
Accumulated Impairment Losses |
|
Net Goodwill |
|
||||||||||||||||||
|
|
|
Balance |
|
Acquired |
|
Foreign |
|
Balance |
|
Balance |
|
Impairment |
|
Balance |
|
September 28, |
|
||||||||
|
|
|
(in millions) |
|
||||||||||||||||||||||
|
Americas |
|
$ |
224.7 |
|
$ |
— |
|
$ |
(0.5 |
) |
$ |
224.2 |
|
$ |
(24.5 |
) |
$ |
— |
|
$ |
(24.5 |
) |
$ |
199.7 |
|
|
EMEA |
|
301.3 |
|
— |
|
(21.3 |
) |
280.0 |
|
— |
|
— |
|
— |
|
280.0 |
|
||||||||
|
Asia-Pacific |
|
13.3 |
|
— |
|
(0.2 |
) |
13.1 |
|
— |
|
— |
|
— |
|
13.1 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Total |
|
$ |
539.3 |
|
$ |
— |
|
$ |
(22.0 |
) |
$ |
517.3 |
|
$ |
(24.5 |
) |
$ |
— |
|
$ |
(24.5 |
) |
$ |
492.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
The EMEA reporting unit represents the EMEA geographic segment excluding the Blücher reporting unit and had a goodwill balance of $182.2 million as of September 27, 2015. The Company continues to monitor the impact the current economic environment in Europe is having on the EMEA reporting unit’s operating results and growth expectations. At the most recent annual impairment date of October 26, 2014, the Company performed a qualitative fair value assessment, including an evaluation of certain key assumptions. The Company concluded that the fair value of the EMEA reporting unit continued to exceed its carrying value.
Intangible assets with estimable lives and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of intangible assets with estimable lives and other long-lived assets are measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted pretax cash flows expected to be generated by the asset or asset group. If these comparisons indicate that an asset is not recoverable, the impairment loss recognized is the amount by which the carrying amount of the asset or asset group exceeds the related estimated fair value. Estimated fair value is based on either discounted future pretax operating cash flows or appraised values, depending on the nature of the asset. The Company determines the discount rate for this analysis based on the weighted average cost of capital based on the market and guideline public companies for the related business, and does not allocate interest charges to the asset or asset group being measured. Judgment is required to estimate future operating cash flows.
Intangible assets include the following:
|
|
|
September 27, 2015 |
|
December 31, 2014 |
|
||||||||||||||
|
|
|
Gross |
|
Accumulated |
|
Net |
|
Gross |
|
Accumulated |
|
Net |
|
||||||
|
|
|
(in millions) |
|
||||||||||||||||
|
Patents |
|
$ |
16.2 |
|
$ |
(14.0 |
) |
$ |
2.2 |
|
$ |
16.2 |
|
$ |
(13.3 |
) |
$ |
2.9 |
|
|
Customer relationships |
|
204.4 |
|
(98.5 |
) |
105.9 |
|
206.7 |
|
(87.5 |
) |
119.2 |
|
||||||
|
Technology |
|
41.5 |
|
(15.3 |
) |
26.2 |
|
42.1 |
|
(12.9 |
) |
29.2 |
|
||||||
|
Trade Names |
|
20.4 |
|
(5.9 |
) |
14.5 |
|
20.6 |
|
(4.2 |
) |
16.4 |
|
||||||
|
Other |
|
9.4 |
|
(5.8 |
) |
3.6 |
|
9.5 |
|
(5.7 |
) |
3.8 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Total amortizable intangibles |
|
291.9 |
|
(139.5 |
) |
152.4 |
|
295.1 |
|
(123.6 |
) |
171.5 |
|
||||||
|
Indefinite-lived intangible assets |
|
37.2 |
|
— |
|
37.2 |
|
38.6 |
|
— |
|
38.6 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Total |
|
$ |
329.1 |
|
$ |
(139.5 |
) |
$ |
189.6 |
|
$ |
333.7 |
|
$ |
(123.6 |
) |
$ |
210.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense for amortizable intangible assets for the third quarters of 2015 and 2014 was $5.6 million and $3.7 million, respectively, and for the first nine months of 2015 and 2014 was $15.9 million and $11.1 million, respectively. Additionally, future amortization expense for the next five years on amortizable intangible assets is expected to be approximately $4.7 million for the remainder of 2015, $19.1 million for 2016, $18.8 million for 2017, $15.6 million for 2018 and $11.8 million for 2019. Amortization expense is recorded on a straight-line basis over the estimated useful lives of the intangible assets. The weighted-average remaining life of total amortizable intangible assets is 12.0 years. Patents, customer relationships, technology, trade names and other amortizable intangibles have weighted-average remaining lives of 3.9 years, 11.7 years, 9.8 years, 14.4 years and 32.7 years, respectively. Indefinite-lived intangible assets primarily include trademarks and trade names.
Stock-Based Compensation
The Company maintains one stock incentive plan, the Second Amended and Restated 2004 Stock Incentive Plan (the “2004 Stock Incentive Plan”). Under this plan, key employees have been granted nonqualified stock options to purchase the Company’s Class A common stock. Options typically become exercisable over a four-year period at the rate of 25% per year and expire ten years after the grant date. However, with the introduction in 2014 of performance stock units discussed below, most options granted in 2014 become exercisable over a three-year period at the rate of one-third per year. Options granted under the plan may have exercise prices of not less than 100% of the fair market value of the Class A common stock on the date of grant. The Company’s practice has been to grant all options at fair market value on the grant date. The Company did not issue any stock options in the first nine months of 2015 and issued 114,211 stock options during the first nine months of 2014.
The Company grants shares of restricted stock and deferred shares 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 non-employee members of the Company’s Board of Directors are fully vested upon grant. Employees’ restricted stock awards and deferred shares typically vest over a three-year period at the rate of one-third per year. However, with the introduction in 2014 of performance stock units discussed below, most restricted stock awards and deferred shares granted in 2014 vest over a two-year period at the rate of 50% per year. The restricted stock awards and deferred shares are amortized to expense on a straight-line basis over the vesting period. The Company issued 174,575 and 150,577 shares of restricted stock in the first nine months of 2015 and 2014, respectively.
Beginning in 2014, the Company also grants performance stock units to key employees under the 2004 Stock Incentive Plan. Performance stock units vest at the end of the performance period set by the Compensation Committee of our Board of Directors at the time of grant. 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 recipient of a performance stock unit award may earn from no shares to twice the number of target shares awarded to such recipient. The performance stock units are amortized to expense over the vesting period, and based on the Company’s performance relative to the performance goals, may be adjusted. If the performance goals are not met, no awards are earned and previously recognized compensation expense is reversed. The Company awarded 631 and 117,619 performance stock units in the first nine months of 2015 and 2014, respectively.
The Company has a Management Stock Purchase Plan that allows for the purchase of restricted stock units (RSUs) by key employees. On an annual basis, key employees may elect to receive a portion of their annual incentive compensation in RSUs instead of cash. Each RSU represents one share of Class A common stock and is purchased by the employee at 67% of the fair market value of the Company’s Class A common stock on the date of grant. Beginning with annual incentive compensation for 2016, the purchase price for RSUs will be increased to 80% of the fair market value of the Company’s Class A common stock. RSUs vest either annually over a three-year period from the grant date or upon the third anniversary of the grant date and receipt of the shares underlying RSUs is deferred for a minimum of three years or such greater number of years as is chosen by the employee. An aggregate of 2,000,000 shares of Class A common stock may be issued under the Management Stock Purchase Plan. The Company granted 59,995 RSUs and 30,561 RSUs in the first nine months of 2015 and 2014, respectively.
The fair value of each RSU 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:
|
|
|
2015 |
|
2014 |
|
|
Expected life (years) |
|
3.0 |
|
3.0 |
|
|
Expected stock price volatility |
|
23.4 |
% |
31.2 |
% |
|
Expected dividend yield |
|
1.2 |
% |
0.9 |
% |
|
Risk-free interest rate |
|
1.1 |
% |
0.7 |
% |
The above assumptions were used to determine the RSUs weighted average grant-date fair value of $19.04 and $22.57 in 2015 and 2014, respectively.
A more detailed description of each of these plans can be found in Note 12 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
Shipping and Handling
The Company’s shipping and handling costs included in selling, general and administrative expenses were $12.9 million and $15.8 million for the third quarters of 2015 and 2014, respectively, and were $41.1 million and $46.3 million for the first nine months of 2015 and 2014, respectively.
Research and Development
Research and development costs included in selling, general and administrative expenses were $5.6 million and $5.3 million for the third quarters of 2015 and 2014, respectively, and were $18.3 million and $17.2 million for the first nine months of 2015 and 2014, respectively.
Taxes, Other than Income Taxes
Taxes assessed by governmental authorities on sale transactions are recorded on a net basis and excluded from sales in the Company’s consolidated statements of operations.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
New Accounting Standards
In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-16, “Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments”. ASU 2015-16 eliminates the requirement to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. ASU 2015-16 is effective in the first quarter of 2016 for public companies with calendar year ends, and should be applied prospectively with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
In July 2015, the FASB issued ASU 2015-11, “Inventory: Simplifying the Measurement of Inventory”. This new standard changes inventory measurement from lower of cost or market to lower of cost and net realizable value. The standard eliminates the requirement to consider replacement cost or net realizable value less a normal profit margin when measuring inventory. ASU 2015-11 is effective in the first quarter of 2017 for public companies with calendar year ends, and should be applied prospectively with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
In April 2015, the FASB issued ASU 2015-03, “Interest — Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs”. Under ASU 2015-03, debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. The cost of issuing debt will no longer be recorded as a separate asset, except when incurred before receipt of the funding from the associated debt liability. ASU 2015-03 is effective in the first quarter of 2016 for public companies with calendar year ends, with early adoption permitted. The ASU requires retrospective application to all prior periods presented in the financial statements. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
In January 2015, the FASB issued ASU 2015-01, “Income Statement—Extraordinary and Unusual Items: Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items”. ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items as part of its initiative to reduce complexity in accounting standards. ASU 2015-01 is effective in the first quarter of 2016 for public companies with calendar year ends, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The ASU may be applied prospectively or retrospectively to all prior periods presented. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
|
|||
|
|
|
September 27, 2015 |
|
||||||||||||||||||||||
|
|
|
Gross Balance |
|
Accumulated Impairment Losses |
|
Net Goodwill |
|
||||||||||||||||||
|
|
|
Balance |
|
Acquired |
|
Foreign |
|
Balance |
|
Balance |
|
Impairment |
|
Balance |
|
September 27, |
|
||||||||
|
|
|
(in millions ) |
|
||||||||||||||||||||||
|
Americas |
|
$ |
398.0 |
|
$ |
— |
|
$ |
(6.4 |
) |
$ |
391.6 |
|
$ |
(24.5 |
) |
$ |
— |
|
$ |
(24.5 |
) |
$ |
367.1 |
|
|
Europe, Middle East and Africa (EMEA) |
|
265.5 |
|
— |
|
(18.7 |
) |
246.8 |
|
— |
|
— |
|
— |
|
246.8 |
|
||||||||
|
Asia-Pacific |
|
12.9 |
|
— |
|
— |
|
12.9 |
|
(12.9 |
) |
— |
|
(12.9 |
) |
— |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Total |
|
$ |
676.4 |
|
$ |
— |
|
$ |
(25.1 |
) |
$ |
651.3 |
|
$ |
(37.4 |
) |
$ |
— |
|
$ |
(37.4 |
) |
$ |
613.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2014 |
|
||||||||||||||||||||||
|
|
|
Gross Balance |
|
Accumulated Impairment Losses |
|
Net Goodwill |
|
||||||||||||||||||
|
|
|
Balance |
|
Acquired |
|
Foreign |
|
Balance |
|
Balance |
|
Impairment |
|
Balance |
|
September 28, |
|
||||||||
|
|
|
(in millions) |
|
||||||||||||||||||||||
|
Americas |
|
$ |
224.7 |
|
$ |
— |
|
$ |
(0.5 |
) |
$ |
224.2 |
|
$ |
(24.5 |
) |
$ |
— |
|
$ |
(24.5 |
) |
$ |
199.7 |
|
|
EMEA |
|
301.3 |
|
— |
|
(21.3 |
) |
280.0 |
|
— |
|
— |
|
— |
|
280.0 |
|
||||||||
|
Asia-Pacific |
|
13.3 |
|
— |
|
(0.2 |
) |
13.1 |
|
— |
|
— |
|
— |
|
13.1 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Total |
|
$ |
539.3 |
|
$ |
— |
|
$ |
(22.0 |
) |
$ |
517.3 |
|
$ |
(24.5 |
) |
$ |
— |
|
$ |
(24.5 |
) |
$ |
492.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, 2015 |
|
December 31, 2014 |
|
||||||||||||||
|
|
|
Gross |
|
Accumulated |
|
Net |
|
Gross |
|
Accumulated |
|
Net |
|
||||||
|
|
|
(in millions) |
|
||||||||||||||||
|
Patents |
|
$ |
16.2 |
|
$ |
(14.0 |
) |
$ |
2.2 |
|
$ |
16.2 |
|
$ |
(13.3 |
) |
$ |
2.9 |
|
|
Customer relationships |
|
204.4 |
|
(98.5 |
) |
105.9 |
|
206.7 |
|
(87.5 |
) |
119.2 |
|
||||||
|
Technology |
|
41.5 |
|
(15.3 |
) |
26.2 |
|
42.1 |
|
(12.9 |
) |
29.2 |
|
||||||
|
Trade Names |
|
20.4 |
|
(5.9 |
) |
14.5 |
|
20.6 |
|
(4.2 |
) |
16.4 |
|
||||||
|
Other |
|
9.4 |
|
(5.8 |
) |
3.6 |
|
9.5 |
|
(5.7 |
) |
3.8 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Total amortizable intangibles |
|
291.9 |
|
(139.5 |
) |
152.4 |
|
295.1 |
|
(123.6 |
) |
171.5 |
|
||||||
|
Indefinite-lived intangible assets |
|
37.2 |
|
— |
|
37.2 |
|
38.6 |
|
— |
|
38.6 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Total |
|
$ |
329.1 |
|
$ |
(139.5 |
) |
$ |
189.6 |
|
$ |
333.7 |
|
$ |
(123.6 |
) |
$ |
210.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
2014 |
|
|
Expected life (years) |
|
3.0 |
|
3.0 |
|
|
Expected stock price volatility |
|
23.4 |
% |
31.2 |
% |
|
Expected dividend yield |
|
1.2 |
% |
0.9 |
% |
|
Risk-free interest rate |
|
1.1 |
% |
0.7 |
% |
|
|||
The following table summarizes the value of the assets and liabilities acquired (in millions):
|
Accounts receivable |
|
$ |
17.2 |
|
|
Inventory |
|
16.3 |
|
|
|
Fixed assets |
|
7.7 |
|
|
|
Deferred tax assets |
|
8.2 |
|
|
|
Other assets |
|
7.6 |
|
|
|
Intangible assets |
|
102.4 |
|
|
|
Goodwill |
|
173.3 |
|
|
|
Accounts payable |
|
(6.8 |
) |
|
|
Accrued expenses and other |
|
(18.4 |
) |
|
|
Deferred tax liability |
|
(36.0 |
) |
|
|
|
|
|
|
|
|
Purchase price |
|
$ |
271.5 |
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
Nine Months |
|
|||||
|
Amounts in millions (except per share information) |
|
September 28, |
|
September 27, |
|
September 28, |
|
|||
|
Net sales |
|
$ |
408.2 |
|
$ |
1,109.4 |
|
$ |
1,218.0 |
|
|
Net income |
|
$ |
26.2 |
|
$ |
5.9 |
|
$ |
63.9 |
|
|
Net income per share: |
|
|
|
|
|
|
|
|||
|
Basic EPS |
|
$ |
0.74 |
|
$ |
0.17 |
|
$ |
1.81 |
|
|
Diluted EPS |
|
$ |
0.74 |
|
$ |
0.17 |
|
$ |
1.81 |
|
|
|||
|
|
|
Fair Value Measurements at September 27, 2015 Using: |
|
||||||||||
|
|
|
|
|
Quoted Prices in |
|
Significant Other |
|
Significant |
|
||||
|
|
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Assets |
|
|
|
|
|
|
|
|
|
||||
|
Plan asset for deferred compensation(1) |
|
$ |
3.3 |
|
$ |
3.3 |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3.3 |
|
$ |
3.3 |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
||||
|
Plan liability for deferred compensation(2) |
|
$ |
3.3 |
|
$ |
3.3 |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
3.3 |
|
$ |
3.3 |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2014 Using: |
|
||||||||||
|
|
|
|
|
Quoted Prices in |
|
Significant Other |
|
Significant |
|
||||
|
|
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Assets |
|
|
|
|
|
|
|
|
|
||||
|
Plan asset for deferred compensation(1) |
|
$ |
4.0 |
|
$ |
4.0 |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4.0 |
|
$ |
4.0 |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
||||
|
Plan liability for deferred compensation(2) |
|
$ |
4.0 |
|
$ |
4.0 |
|
$ |
— |
|
$ |
— |
|
|
Contingent consideration(3) |
|
2.5 |
|
— |
|
— |
|
2.5 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total liabilities |
|
$ |
6.5 |
|
$ |
4.0 |
|
$ |
— |
|
$ |
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 as of December 31, 2014. |
|
|
|
September 27, |
|
December 31, |
|
||
|
|
|
2015 |
|
2014 |
|
||
|
|
|
(in millions) |
|
||||
|
Carrying amount |
|
$ |
578.0 |
|
$ |
579.7 |
|
|
Estimated fair value |
|
$ |
590.1 |
|
$ |
599.3 |
|
|
|||
|
|
|
Third Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 27, |
|
September 28 |
|
September 27, |
|
September 28, |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Restructuring costs: |
|
|
|
|
|
|
|
|
|
||||
|
2015 Actions |
|
$ |
5.0 |
|
$ |
— |
|
$ |
10.3 |
|
$ |
— |
|
|
2013 Actions |
|
— |
|
0.4 |
|
0.5 |
|
2.9 |
|
||||
|
Other Actions |
|
0.8 |
|
— |
|
1.7 |
|
4.3 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total restructuring |
|
$ |
5.8 |
|
$ |
0.4 |
|
$ |
12.5 |
|
$ |
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 27, |
|
September 28, |
|
September 27, |
|
September 28, |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Americas |
|
$ |
4.8 |
|
$ |
— |
|
$ |
6.8 |
|
$ |
2.3 |
|
|
EMEA |
|
0.8 |
|
0.4 |
|
2.3 |
|
4.1 |
|
||||
|
Asia-Pacific |
|
0.2 |
|
— |
|
3.5 |
|
— |
|
||||
|
Corporate |
|
— |
|
— |
|
(0.1 |
) |
0.8 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total |
|
$ |
5.8 |
|
$ |
0.4 |
|
$ |
12.5 |
|
$ |
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
Nine Months Ended |
|
|
|
|
|
||||
|
|
|
September 27, |
|
September 27, |
|
Incurred |
|
Total |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Asia-Pacific |
|
$ |
0.2 |
|
$ |
3.5 |
|
$ |
3.5 |
|
$ |
3.7 |
|
|
Americas |
|
4.8 |
|
6.8 |
|
6.8 |
|
17.7 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total restructuring costs |
|
$ |
5.0 |
|
$ |
10.3 |
|
$ |
10.3 |
|
$ |
21.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
Legal and |
|
Asset |
|
Facility |
|
Total |
|
|||||
|
|
|
(in millions) |
|
|||||||||||||
|
Costs incurred—first quarter 2015 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
1.3 |
|
$ |
1.3 |
|
|
Costs incurred—second quarter 2015 |
|
3.7 |
|
— |
|
0.3 |
|
— |
|
4.0 |
|
|||||
|
Costs incurred—third quarter 2015 |
|
2.5 |
|
0.3 |
|
0.9 |
|
1.3 |
|
5.0 |
|
|||||
|
Remaining costs to be incurred |
|
2.6 |
|
0.2 |
|
1.8 |
|
6.5 |
|
11.1 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Total restructuring costs |
|
$ |
8.8 |
|
$ |
0.5 |
|
$ |
3.0 |
|
$ |
9.1 |
|
$ |
21.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility |
|
|
|
|||||
|
|
|
|
|
Legal and |
|
Asset |
|
exit |
|
|
|
|||||
|
|
|
Severance |
|
consultancy |
|
write-downs |
|
and other |
|
Total |
|
|||||
|
|
|
(in millions) |
|
|||||||||||||
|
Balance at December 31, 2014 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Net pre-tax restructuring charges |
|
— |
|
— |
|
— |
|
1.3 |
|
1.3 |
|
|||||
|
Utilization and foreign currency impact |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Balance at March 29, 2015 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
1.3 |
|
$ |
1.3 |
|
|
Net pre-tax restructuring charges |
|
3.7 |
|
— |
|
0.3 |
|
— |
|
4.0 |
|
|||||
|
Utilization and foreign currency impact |
|
— |
|
— |
|
(0.3 |
) |
— |
|
(0.3 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Balance at June 28, 2015 |
|
$ |
3.7 |
|
$ |
— |
|
$ |
— |
|
$ |
1.3 |
|
$ |
5.0 |
|
|
Net pre-tax restructuring charges |
|
2.5 |
|
0.3 |
|
0.9 |
|
1.3 |
|
5.0 |
|
|||||
|
Utilization and foreign currency impact |
|
(1.1 |
) |
(0.1 |
) |
(0.9 |
) |
(0.7 |
) |
(2.8 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Balance at September 27, 2015 |
|
$ |
5.1 |
|
$ |
0.2 |
|
$ |
— |
|
$ |
1.9 |
|
$ |
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
Legal and |
|
Asset |
|
Facility |
|
Total |
|
|||||
|
|
|
(in millions) |
|
|||||||||||||
|
Costs incurred—2014 |
|
$ |
6.9 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
6.9 |
|
|
Costs incurred—first quarter 2015 |
|
— |
|
0.2 |
|
0.1 |
|
— |
|
0.3 |
|
|||||
|
Costs incurred—second quarter 2015 |
|
0.5 |
|
— |
|
— |
|
— |
|
0.5 |
|
|||||
|
Costs incurred—third quarter 2015 |
|
0.5 |
|
— |
|
0.1 |
|
— |
|
0.6 |
|
|||||
|
Remaining costs to be incurred |
|
0.9 |
|
— |
|
0.6 |
|
0.1 |
|
1.6 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Total restructuring costs |
|
$ |
8.8 |
|
$ |
0.2 |
|
$ |
0.8 |
|
$ |
0.1 |
|
$ |
9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
Legal and |
|
Asset |
|
Total |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Balance at December 31, 2014 |
|
$ |
6.9 |
|
$ |
— |
|
$ |
— |
|
$ |
6.9 |
|
|
Net pre-tax restructuring charges |
|
— |
|
0.2 |
|
0.1 |
|
0.3 |
|
||||
|
Utilization and foreign currency impact |
|
(0.8 |
) |
(0.2 |
) |
(0.1 |
) |
(1.1 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance at March 29, 2015 |
|
$ |
6.1 |
|
$ |
— |
|
$ |
— |
|
$ |
6.1 |
|
|
Net pre-tax restructuring charges |
|
0.5 |
|
— |
|
— |
|
0.5 |
|
||||
|
Utilization and foreign currency impact |
|
(0.2 |
) |
— |
|
— |
|
(0.2 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance at June 28, 2015 |
|
$ |
6.4 |
|
$ |
— |
|
$ |
— |
|
$ |
6.4 |
|
|
Net pre-tax restructuring charges |
|
0.5 |
|
— |
|
0.1 |
|
0.6 |
|
||||
|
Utilization and foreign currency impact |
|
(1.1 |
) |
— |
|
(0.1 |
) |
(1.2 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance at September 27, 2015 |
|
$ |
5.8 |
|
$ |
— |
|
$ |
— |
|
$ |
5.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
September 27, |
|
|
|
|
|
2015 |
|
|
|
|
|
(in millions) |
|
|
|
Inventories, net |
|
$ |
21.9 |
|
|
Other assets |
|
3.1 |
|
|
|
Property, plant and equipment, net |
|
4.3 |
|
|
|
Goodwill |
|
4.1 |
|
|
|
|
|
|
|
|
|
Total net assets sold |
|
$ |
33.4 |
|
|
|
|
|
|
|
|
|||
|
|
|
Third Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 27, |
|
September 28, |
|
September 27, |
|
September 28, |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Net sales |
|
|
|
|
|
|
|
|
|
||||
|
Americas |
|
$ |
245.0 |
|
$ |
228.6 |
|
$ |
745.2 |
|
$ |
689.5 |
|
|
EMEA |
|
110.9 |
|
136.4 |
|
332.1 |
|
419.4 |
|
||||
|
Asia-Pacific |
|
10.4 |
|
11.0 |
|
32.1 |
|
28.3 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consolidated net sales |
|
$ |
366.3 |
|
$ |
376.0 |
|
$ |
1,109.4 |
|
$ |
1,137.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
||||
|
Americas |
|
$ |
30.3 |
|
$ |
33.4 |
|
$ |
90.6 |
|
$ |
85.0 |
|
|
EMEA |
|
10.9 |
|
15.1 |
|
25.7 |
|
37.1 |
|
||||
|
Asia-Pacific |
|
1.2 |
|
1.7 |
|
0.9 |
|
4.7 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Subtotal reportable segments |
|
42.4 |
|
50.2 |
|
117.2 |
|
126.8 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Corporate (*) |
|
(72.6 |
) |
(7.5 |
) |
(89.8 |
) |
(21.7 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consolidated operating (loss) income |
|
(30.2 |
) |
42.7 |
|
27.4 |
|
105.1 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Interest income |
|
0.3 |
|
0.1 |
|
0.7 |
|
0.4 |
|
||||
|
Interest expense |
|
(6.2 |
) |
(4.8 |
) |
(18.0 |
) |
(14.6 |
) |
||||
|
Other income (expense), net |
|
0.2 |
|
(1.6 |
) |
0.8 |
|
(1.9 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
(Loss) Income before income taxes |
|
$ |
(35.9 |
) |
$ |
36.4 |
|
$ |
10.9 |
|
$ |
89.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
||||
|
Americas |
|
$ |
4.6 |
|
$ |
2.5 |
|
$ |
12.8 |
|
$ |
7.4 |
|
|
EMEA |
|
1.8 |
|
2.7 |
|
5.6 |
|
7.8 |
|
||||
|
Asia-Pacific |
|
0.3 |
|
0.3 |
|
0.8 |
|
0.9 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consolidated capital expenditures |
|
$ |
6.7 |
|
$ |
5.5 |
|
$ |
19.2 |
|
$ |
16.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
||||
|
Americas |
|
$ |
8.0 |
|
$ |
4.8 |
|
$ |
22.1 |
|
$ |
14.5 |
|
|
EMEA |
|
5.3 |
|
6.4 |
|
15.9 |
|
19.8 |
|
||||
|
Asia-Pacific |
|
0.5 |
|
0.5 |
|
1.7 |
|
1.5 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consolidated depreciation and amortization |
|
$ |
13.8 |
|
$ |
11.7 |
|
$ |
39.7 |
|
$ |
35.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Identifiable assets (at end of period) |
|
|
|
|
|
|
|
|
|
||||
|
Americas |
|
|
|
|
|
$ |
1,033.6 |
|
$ |
696.7 |
|
||
|
EMEA |
|
|
|
|
|
744.1 |
|
840.8 |
|
||||
|
Asia-Pacific |
|
|
|
|
|
80.6 |
|
139.2 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consolidated identifiable assets |
|
|
|
|
|
$ |
1,858.3 |
|
$ |
1,676.7 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Property, plant and equipment, net (at end of period) |
|
|
|
|
|
|
|
|
|
||||
|
Americas |
|
|
|
|
|
$ |
86.3 |
|
$ |
82.8 |
|
||
|
EMEA |
|
|
|
|
|
86.9 |
|
105.8 |
|
||||
|
Asia-Pacific |
|
|
|
|
|
11.9 |
|
13.5 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consolidated property, plant and equipment, net |
|
|
|
|
|
$ |
185.1 |
|
$ |
202.1 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
* Corporate expenses are primarily for administrative compensation expense, internal controls costs, professional fees, including corporate-related legal and audit expenses, shareholder services and benefit administration costs. Included in Corporate’s operating loss for the three and nine months ended September 27, 2015 is a $59.7 million charge related to the Company’s settlement of its Pension Plan and SERP benefit obligations. Refer to Note 12 Defined Benefit Plans for further discussion.
|
|
|
Third Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 27, |
|
September 28, |
|
September 27, |
|
September 28, |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
U.S. net sales |
|
$ |
227.8 |
|
$ |
207.8 |
|
$ |
693.6 |
|
$ |
631.5 |
|
|
|
|
Third Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 27, |
|
September 28, |
|
September 27, |
|
September 28, |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Intersegment Sales |
|
|
|
|
|
|
|
|
|
||||
|
Americas |
|
$ |
2.1 |
|
$ |
1.5 |
|
$ |
5.8 |
|
$ |
4.6 |
|
|
EMEA |
|
2.3 |
|
3.3 |
|
7.8 |
|
10.7 |
|
||||
|
Asia-Pacific |
|
27.9 |
|
36.5 |
|
91.0 |
|
116.9 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Intersegment sales |
|
$ |
32.3 |
|
$ |
41.3 |
|
$ |
104.6 |
|
$ |
132.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
Foreign |
|
Pension |
|
Accumulated Other |
|
|||
|
|
|
(in millions) |
|
|||||||
|
|
|
|
|
|
|
|
|
|||
|
Balance December 31, 2014 |
|
$ |
(53.0 |
) |
$ |
(36.1 |
) |
$ |
(89.1 |
) |
|
Change in period |
|
(65.1 |
) |
0.2 |
|
(64.9 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Balance March 29, 2015 |
|
$ |
(118.1 |
) |
$ |
(35.9 |
) |
$ |
(154.0 |
) |
|
Change in period |
|
18.4 |
|
0.2 |
|
18.6 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Balance June 28, 2015 |
|
$ |
(99.7 |
) |
$ |
(35.7 |
) |
$ |
(135.4 |
) |
|
Change in period |
|
(5.8 |
) |
35.7 |
|
29.9 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Balance September 27, 2015 |
|
$ |
(105.5 |
) |
$ |
— |
|
$ |
(105.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Balance December 31, 2013 |
|
$ |
37.9 |
|
$ |
(25.9 |
) |
$ |
12.0 |
|
|
Change in period |
|
(4.3 |
) |
0.2 |
|
(4.1 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Balance March 30, 2014 |
|
$ |
33.6 |
|
$ |
(25.7 |
) |
$ |
7.9 |
|
|
Change in period |
|
(4.3 |
) |
0.1 |
|
(4.2 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Balance June 29, 2014 |
|
$ |
29.3 |
|
$ |
(25.6 |
) |
$ |
3.7 |
|
|
Change in period |
|
(44.4 |
) |
(10.3 |
) |
(54.7 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Balance September 28, 2014 |
|
$ |
(15.1 |
) |
$ |
(35.9 |
) |
$ |
(51.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
Third Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 27, |
|
September 28, |
|
September 27, |
|
September 28, |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Service cost — administrative costs |
|
$ |
0.5 |
|
$ |
0.2 |
|
$ |
1.3 |
|
$ |
0.5 |
|
|
Interest costs on benefits obligation |
|
1.4 |
|
1.5 |
|
4.2 |
|
4.5 |
|
||||
|
Expected return on assets |
|
(1.2 |
) |
(1.5 |
) |
(3.6 |
) |
(4.5 |
) |
||||
|
Net actuarial loss amortization |
|
0.3 |
|
0.3 |
|
1.1 |
|
0.8 |
|
||||
|
Settlement charge |
|
59.7 |
|
— |
|
59.7 |
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net periodic benefit cost |
|
$ |
60.7 |
|
$ |
0.5 |
|
$ |
62.7 |
|
$ |
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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