WATTS WATER TECHNOLOGIES INC, 10-Q filed on 5/9/2013
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2013
May 6, 2013
Class A Common Stock
May 6, 2013
Class B Common Stock
Entity Registrant Name
WATTS WATER TECHNOLOGIES INC 
 
 
Entity Central Index Key
0000795403 
 
 
Document Type
10-Q 
 
 
Document Period End Date
Mar. 31, 2013 
 
 
Amendment Flag
false 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
28,762,203 
6,588,680 
Document Fiscal Year Focus
2013 
 
 
Document Fiscal Period Focus
Q1 
 
 
CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
CURRENT ASSETS:
 
 
Cash and cash equivalents
$ 251.0 
$ 271.8 
Short-term investment securities
2.1 
2.1 
Trade accounts receivable, less allowance for doubtful accounts of $10.4 million at March 31, 2013 and $9.7 million at December 31, 2012
218.5 
207.1 
Inventories, net:
 
 
Raw materials
104.9 
111.7 
Work in process
21.7 
20.5 
Finished goods
173.1 
158.5 
Total Inventories
299.7 
290.7 
Prepaid expenses and other assets
27.8 
22.7 
Deferred income taxes
23.3 
21.6 
Total Current Assets
822.4 
816.0 
PROPERTY, PLANT AND EQUIPMENT:
 
 
Property, plant and equipment, at cost
514.9 
515.0 
Accumulated depreciation
(292.7)
(291.4)
Property, plant and equipment, net
222.2 
223.6 
OTHER ASSETS:
 
 
Goodwill
499.5 
508.2 
Intangible assets, net
140.5 
146.6 
Deferred income taxes
3.9 
4.8 
Other, net
9.6 
9.8 
TOTAL ASSETS
1,698.1 
1,709.0 
CURRENT LIABILITIES:
 
 
Accounts payable
134.1 
131.6 
Accrued expenses and other liabilities
114.1 
116.8 
Accrued compensation and benefits
40.1 
42.5 
Current portion of long-term debt
77.0 
77.1 
Total Current Liabilities
365.3 
368.0 
LONG-TERM DEBT, NET OF CURRENT PORTION
306.8 
307.5 
DEFERRED INCOME TAXES
44.5 
45.2 
OTHER NONCURRENT LIABILITIES
45.5 
48.8 
STOCKHOLDERS' EQUITY:
 
 
Preferred Stock, $0.10 par value; 5,000,000 shares authorized; no shares issued or outstanding
   
   
Additional paid-in capital
453.8 
448.7 
Retained earnings
509.2 
498.1 
Accumulated other comprehensive loss
(30.5)
(10.8)
Total Stockholders' Equity
936.0 
939.5 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
1,698.1 
1,709.0 
Class A Common Stock
 
 
STOCKHOLDERS' EQUITY:
 
 
Common Stock
2.9 
2.9 
Class B Common Stock
 
 
STOCKHOLDERS' EQUITY:
 
 
Common Stock
$ 0.6 
$ 0.6 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Trade accounts receivable, allowance for doubtful accounts (in dollars)
$ 10.4 
$ 9.7 
Preferred Stock, par value (in dollars per share)
$ 0.10 
$ 0.10 
Preferred Stock, shares authorized
5,000,000 
5,000,000 
Preferred Stock, shares issued
Preferred Stock, shares outstanding
Class A Common Stock
 
 
Common Stock, par value (in dollars per share)
$ 0.10 
$ 0.10 
Common Stock, shares authorized
80,000,000 
80,000,000 
Common Stock, votes per share (Number of votes)
Common Stock, issued shares
28,761,901 
28,673,639 
Common Stock, outstanding shares
28,761,901 
28,673,639 
Class B Common Stock
 
 
Common Stock, par value (in dollars per share)
$ 0.10 
$ 0.10 
Common Stock, shares authorized
25,000,000 
25,000,000 
Common Stock, votes per share (Number of votes)
10 
10 
Common Stock, issued shares
6,588,680 
6,588,680 
Common Stock, outstanding shares
6,588,680 
6,588,680 
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Apr. 1, 2012
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
Net sales
$ 362.1 
$ 361.2 
Cost of goods sold
232.6 
232.7 
GROSS PROFIT
129.5 
128.5 
Selling, general and administrative expenses
99.0 
100.2 
Restructuring and other charges, net
2.2 
1.7 
OPERATING INCOME
28.3 
26.6 
Other (income) expense:
 
 
Interest income
(0.1)
(0.2)
Interest expense
6.0 
6.2 
Other income, net
 
(0.9)
Total other expense
5.9 
5.1 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
22.4 
21.5 
Provision for income taxes
6.3 
6.0 
NET INCOME FROM CONTINUING OPERATIONS
16.1 
15.5 
Income from discontinued operations, net of taxes
 
0.2 
NET INCOME
$ 16.1 
$ 15.7 
Net income per share:
 
 
Continuing operations (in dollars per share)
$ 0.45 
$ 0.42 
NET INCOME (in dollars per share)
$ 0.45 
$ 0.42 
Weighted average number of shares (in shares)
35.5 
36.9 
Net income per share:
 
 
Continuing operations (in dollars per share)
$ 0.45 
$ 0.42 
NET INCOME (in dollars per share)
$ 0.45 
$ 0.42 
Weighted average number of shares (in shares)
35.6 
37.0 
Dividends per share (in dollars per share)
$ 0.11 
$ 0.11 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Apr. 1, 2012
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
 
Net income
$ 16.1 
$ 15.7 
Other comprehensive income (loss), net of tax:
 
 
Foreign currency translation adjustments
(19.9)
16.5 
Defined benefit pension plans:
 
 
Amortization of net losses included in net periodic pension cost
0.2 
0.2 
Defined benefit pension plans
0.2 
0.2 
Other comprehensive income (loss), net of tax
(19.7)
16.7 
Comprehensive income (loss)
$ (3.6)
$ 32.4 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Apr. 1, 2012
OPERATING ACTIVITIES
 
 
Net income
$ 16.1 
$ 15.7 
Less: Income from discontinued operations, net of taxes
 
0.2 
Net income from continuing operations
16.1 
15.5 
Adjustments to reconcile net income from continuing operations to net cash provided by (used in) continuing operating activities:
 
 
Depreciation
8.7 
8.3 
Amortization of intangibles
3.7 
4.2 
Stock-based compensation
1.6 
1.1 
Deferred income tax (benefit)
(0.6)
2.9 
Loss on disposal and impairment of property, plant and equipment and other
(0.1)
0.4 
Changes in operating assets and liabilities, net of effects from business acquisitions and divestures:
 
 
Accounts receivable
(14.8)
(14.3)
Inventories
(12.2)
(5.1)
Prepaid expenses and other assets
(5.2)
(15.6)
Accounts payable, accrued expenses and other liabilities
0.1 
5.6 
Net cash provided by (used in) continuing operations
(2.7)
3.0 
INVESTING ACTIVITIES
 
 
Additions to property, plant and equipment
(11.0)
(4.9)
Proceeds from the sale of property, plant and equipment
 
0.3 
Business acquisitions, net of cash acquired
 
(17.6)
Net cash used in investing activities
(11.0)
(22.2)
FINANCING ACTIVITIES
 
 
Payments of long-term debt
(0.5)
(4.4)
Payment of capital leases and other
(1.3)
(0.2)
Proceeds from share transactions under employee stock plans
1.4 
6.0 
Tax benefit of stock awards exercised
0.5 
0.4 
Dividends
(3.9)
(4.2)
Net cash used in financing activities
(3.8)
(2.4)
Effect of exchange rate changes on cash and cash equivalents
(3.3)
1.6 
Net cash provided in operating activities of discontinued operations
 
0.2 
DECREASE IN CASH AND CASH EQUIVALENTS
(20.8)
(19.8)
Cash and cash equivalents at beginning of year
271.8 
250.6 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
251.0 
230.8 
Acquisition of businesses:
 
 
Fair value of assets acquired
 
27.7 
Cash paid, net of cash acquired
 
17.6 
Liabilities assumed
 
10.1 
Issuance of stock under management stock purchase plan
0.4 
0.4 
CASH PAID FOR:
 
 
Interest
0.6 
0.8 
Income taxes
$ 10.0 
$ 5.4 
Basis of Presentation
Basis of Presentation

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 March 31, 2013, the Consolidated Statements of Operations for the first quarter ended March 31, 2013 and April 1, 2012, the Consolidated Statements of Comprehensive Income (Loss) for the first quarter ended March 31, 2013 and April 1, 2012, and the Consolidated Statements of Cash Flows for the first quarter ended March 31, 2013 and April 1, 2012.

 

The consolidated balance sheet at December 31, 2012 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, 2012.  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, 2012. Operating results for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2013.

 

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.

 

Accounting Policies
Accounting Policies

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

 

The changes in the carrying amount of goodwill by geographic segment are as follows:

 

 

 

March 31, 2013

 

 

 

Gross Balance

 

Accumulated Impairment Losses

 

Net Goodwill

 

 

 

Balance
January 1,
2013

 

Acquired
During
the
Period

 

Foreign
Currency
Translation
and Other

 

Balance
March 31,
2013

 

Balance
January 1,
2013

 

Impairment
Loss During
the Period

 

Balance
March 31,
2013

 

March 31,
2013

 

 

 

(in millions)

 

North America

 

$

225.6

 

$

 

$

(0.3

)

$

225.3

 

$

(24.2

)

$

 

$

(24.2

)

$

201.1

 

Europe, Middle East and Africa (EMEA)

 

293.9

 

 

(8.4

)

285.5

 

 

 

 

285.5

 

Asia

 

12.9

 

 

 

12.9

 

 

 

 

12.9

 

Total

 

$

532.4

 

$

 

$

(8.7

)

$

523.7

 

$

(24.2

)

$

 

$

(24.2

)

$

499.5

 

 

 

 

April 1, 2012

 

 

 

Gross Balance

 

Accumulated Impairment Losses

 

Net Goodwill

 

 

 

Balance
January 1,
2012

 

Acquired
During the
Period

 

Foreign Currency
Translation and
Other

 

Balance
April 1,
2012

 

Balance
January 1,
2012

 

Impairment
Loss During
the Period

 

Balance
April 1,
2012

 

April 1, 2012

 

 

 

(in millions)

 

North America

 

$

213.8

 

$

13.1

 

$

0.1

 

$

227.0

 

$

(23.2

)

$

 

$

(23.2

)

$

203.8

 

EMEA

 

285.3

 

 

7.6

 

292.9

 

 

 

 

292.9

 

Asia

 

12.7

 

 

0.1

 

12.8

 

 

 

 

12.8

 

Total

 

$

511.8

 

$

13.1

 

$

7.8

 

$

532.7

 

$

(23.2

)

$

 

$

(23.2

)

$

509.5

 

 

On January 31, 2012, the Company completed the acquisition of tekmar Control Systems (tekmar) in a share purchase transaction.  The initial purchase price paid was CAD $18.0 million, with post-closing adjustments related to working capital and an earnout based on the attainment of certain future earnings levels.  The initial purchase price paid was equal to approximately $17.8 million based on the exchange rate of Canadian dollar to U.S. dollar as of January 31, 2012.   The total purchase price will not exceed CAD $26.2 million.  The Company accounted for the transaction as a business combination.  In January 2013, the Company completed a purchase price allocation that resulted in the recognition of $11.7 million in goodwill and $10.1 million in intangible assets.

 

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:

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Amount

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Amount

 

 

 

(in millions)

 

Patents

 

$

16.4

 

$

(11.9

)

$

4.5

 

$

16.5

 

$

(11.7

)

$

4.8

 

Customer relationships

 

133.1

 

(71.4

)

61.7

 

134.3

 

(68.7

)

65.6

 

Technology

 

28.3

 

(9.8

)

18.5

 

28.5

 

(9.3

)

19.2

 

Trade Names

 

13.7

 

(2.2

)

11.5

 

13.9

 

(1.9

)

12.0

 

Other

 

8.7

 

(5.6

)

3.1

 

8.7

 

(5.5

)

3.2

 

Total amortizable intangibles

 

200.2

 

(100.9

)

99.3

 

201.9

 

(97.1

)

104.8

 

Indefinite-lived intangible assets

 

41.2

 

 

41.2

 

41.8

 

 

41.8

 

Total

 

$

241.4

 

$

(100.9

)

$

140.5

 

$

243.7

 

$

(97.1

)

$

146.6

 

 

Aggregate amortization expense for amortizable intangible assets for the first quarters of 2013 and 2012 was $3.7 million and $4.2 million.  Additionally, future amortization expense for the next five years on amortizable intangible assets is expected to be approximately $11.1 million for the remainder of 2013, $14.8 million for 2014, $14.5 million for 2015, $14.0 million for 2016 and $13.6 million for 2017. 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 9.0 years. Patents, customer relationships, technology, trade names  and other amortizable intangibles have weighted-average remaining lives of 6.2 years, 6.3 years, 11.7 years, 11.3 years and 41.4 years, respectively. Indefinite-lived intangible assets primarily include trademarks and trade names.

 

Stock-Based Compensation

 

The Company maintains three stock incentive plans under which key employees and non-employee members of the Company’s Board of Directors have been granted incentive stock options (ISOs) and nonqualified stock options (NSOs) to purchase the Company’s Class A Common Stock. Only one plan, the 2004 Stock Incentive Plan, is currently available for the grant of new stock options, which are currently being granted only to employees.  Under the 2004 Stock Incentive Plan, options become exercisable over a four-year period at the rate of 25% per year and expire ten years after the grant date. ISOs and NSOs granted under the plans may have exercise prices of not less than 100% and 50% of the fair market value of the Class A Common Stock on the date of grant, respectively. The Company’s current practice is to grant all options at fair market value on the grant date. The Company issued 2,000 stock options during the first quarter of 2013.

 

The Company has also granted shares of restricted stock 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 vest immediately, and employees’ restricted stock awards vest over a three-year period at the rate of one-third per year. The restricted stock awards are amortized to expense on a straight-line basis over the vesting period. The Company issued 667 shares of restricted stock under the 2004 Stock Incentive Plan in the first quarter of 2013.

 

The Company also 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.  RSUs vest annually over a three-year period from 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 44,777 RSUs and 63,739 RSUs in the first quarters of 2013 and 2012, 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:

 

 

 

2013

 

2012

 

Expected life (years)

 

3.0

 

3.0

 

Expected stock price volatility

 

34.1

%

38.3

%

Expected dividend yield

 

0.9

%

1.1

%

Risk-free interest rate

 

0.4

%

0.4

%

 

The above assumptions were used to determine the weighted average grant-date fair value of RSUs of $18.05 and $15.68 in 2013 and 2012, 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, 2012.

 

Shipping and Handling

 

The Company’s shipping costs included in selling, general and administrative expenses were $9.1 million and $9.6 million for the first quarters of 2013 and 2012, respectively.

 

Research and Development

 

Research and development costs included in selling, general and administrative expenses were $5.4 million and $5.3 million for the first quarters of 2013 and 2012, 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 March 2013, the FASB issued Accounting Standards Update (ASU) No. 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Group of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” This ASU is intended to eliminate diversity in practice on the release of cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest. In addition, the amendments in this ASU resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. The provisions of this ASU are effective for interim and annual periods beginning after December 15, 2013 and must be applied prospectively. The Company is currently evaluating the potential impact of this ASU.

 

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”, which requires additional disclosures about amounts reclassified out of OCI by component, either on the face of the income statement or as a separate footnote to the financial statements.  ASU 2013-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. The adoption of this guidance has not had a material impact on the Company’s financial statements.

 

Discontinued Operations
Discontinued Operations

3. Discontinued Operations

 

On December 21, 2012, the Company completed the sale of all of the outstanding shares of its subsidiary, Flomatic Corporation (Flomatic). The sale excluded the backflow product line of Flomatic, which was retained by the Company.  Flomatic, located in Glens Falls, New York, specializes in manufacturing and selling check valves, foot valves and automatic hydraulic control valves for the well water industry. The Company acquired Flomatic as part of its acquisition of Danfoss Socla S.A.S. (Socla) in April 2011.  The Company evaluated the operations of Flomatic and determined that it would not have a substantial continuing involvement in Flomatic’s operations and cash flows. As a result, Flomatic’s cash flows and operations were eliminated from the continuing operations of the Company and classified as discontinued operations for all periods presented.

 

 

 

First Quarter Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

 

 

(in millions)

 

Operating income - Flomatic

 

$

 

$

0.3

 

Income before income taxes

 

 

0.3

 

Income tax expense

 

 

0.1

 

Income from discontinued operations, net of taxes

 

$

 

$

0.2

 

 

Revenues reported in discontinued operations are as follows:

 

 

 

First Quarter Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

 

 

(in millions)

 

Flomatic revenues — discontinued operations

 

$

 

$

3.0

 

 

Financial Instruments and Derivative Instruments
Financial Instruments and Derivative Instruments

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 March 31, 2013 and December 31, 2012.  The fair values of these certain financial assets and liabilities were determined using the following inputs at March 31, 2013 and December 31, 2012:

 

 

 

Fair Value Measurements at March 31, 2013 Using:

 

 

 

 

 

Quoted Prices in
Active
Markets for Identical
Assets

 

Significant Other
Observable
Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

Plan asset for deferred compensation(1)

 

$

4.3

 

$

4.3

 

$

 

$

 

Total assets

 

$

4.3

 

$

4.3

 

$

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

Plan liability for deferred compensation(2)

 

$

4.3

 

$

4.3

 

$

 

$

 

Contingent consideration(3)

 

5.0

 

 

 

5.0

 

Total liabilities

 

$

9.3

 

$

4.3

 

$

 

$

5.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2012 Using:

 

 

 

 

 

Quoted Prices in Active
Markets for Identical Assets

 

Significant Other
Observable
Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

Plan asset for deferred compensation(1)

 

$

4.2

 

$

4.2

 

$

 

$

 

Total assets

 

$

4.2

 

$

4.2

 

$

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

Plan liability for deferred compensation(2)

 

$

4.2

 

$

4.2

 

$

 

$

 

Contingent consideration(3)

 

5.2

 

 

 

5.2

 

Total liabilities

 

$

9.4

 

$

4.2

 

$

 

$

5.2

 

 

 

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

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

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

 

The table below provides a summary of the changes in fair value of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period December 31, 2012 to March 31, 2013.

 

 

 

Balance

 

Purchases,

 

Total realized and
unrealized gains
(losses) included in:

 

Balance

 

 

 

December 31,
2012

 

sales,
settlements, net

 

Earnings

 

Comprehensive
income

 

March 31,
2013

 

 

 

(in millions)

 

Contingent consideration

 

$

5.2

 

$

 

$

 

$

(0.2

)

$

5.0

 

 

In connection with the tekmar acquisition in January 2012, a contingent liability of $5.1 million was recognized as the estimate of the acquisition date fair value of the contingent consideration. This liability was classified as Level 3 under the fair value hierarchy as it was based on the probability of achievement of a future performance metric as of the date of the acquisition, which was not observable in the market.  Failure to meet the performance metrics would reduce this liability to zero; while complete achievement would increase this liability to the full remaining purchase price of $8.2 million.

 

Short-term investment securities as of March 31, 2013 consist of a certificate of deposit with a remaining maturity of greater than three months at the date of purchase, for which the carrying amount is a reasonable estimate of fair value.

 

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 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. 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 primarily uses this strategy for purchases between Canada and the U.S. The average volume of contracts can vary but generally is approximately $5 million to $15 million in open contracts at the end of any given quarter. At March 31, 2013, the Company had contracts for notional amounts aggregating to $7.5 million.  The Company accounts for the forward exchange contracts as an economic hedge. Realized and unrealized gains and losses on the contracts are recognized in other (income) expense in the consolidated statement of operations. These contracts do not subject the Company to significant market risk from exchange movement because they offset gains and losses on the related foreign currency denominated transactions.

 

Fair Value

 

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

 

The fair values of the Company’s 5.47% senior notes due 2013, 5.85% senior notes due 2016, and 5.05% senior notes due 2020, are based on a discounted cash flow model using comparable industrial companies, the Company’s credit metrics, the Company’s size, as well as current market interest rates quoted in active markets and are classified within Level 2 of the valuation hierarchy.  The fair value of 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:

 

 

 

March 31,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(in millions)

 

Carrying amount

 

$

383.8

 

$

384.6

 

Estimated fair value

 

$

418.6

 

$

420.8

 

 

Restructuring and Other Charges, Net
Restructuring and Other Charges, Net

5. Restructuring and Other Charges, Net

 

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

 

The Company also periodically initiates other actions which are not part of a major program.  In December 2012 and March 2013, the Company initiated restructuring activities in Europe to relocate certain manufacturing activities.  Total expected costs are $5.0 million, including severance and relocation costs. The net after tax charge of $3.5 million will be incurred through mid-2014.

 

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

 

 

 

First Quarter Ended

 

 

 

March 31,
2013

 

April 1,
2012

 

 

 

(in millions)

 

Restructuring costs:

 

 

 

 

 

2010 Actions

 

$

0.4

 

$

 

2011 Actions

 

0.1

 

0.5

 

Other Actions

 

1.7

 

0.7

 

Total restructuring charges

 

2.2

 

1.2

 

Other charges related to impairments

 

 

0.5

 

Total restructuring and other charges, net

 

$

2.2

 

$

1.7

 

 

The Company recorded pre-tax restructuring and other charges, net in its business segments as follows:

 

 

 

First Quarter Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

 

 

(in millions)

 

North America

 

$

0.2

 

$

0.4

 

EMEA

 

2.0

 

1.3

 

Total

 

$

2.2

 

$

1.7

 

 

Earnings per Share
Earnings per Share

6. Earnings per Share

 

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

 

 

 

For the First Quarter Ended March 31, 2013

 

For the First Quarter Ended April 1, 2012

 

 

 

Income
(Numerator)

 

Shares
(Denominator)

 

Per Share
Amount

 

Income
(Numerator)

 

Shares
(Denominator)

 

Per Share
Amount

 

 

 

(amounts in millions, except per share amounts)

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

16.1

 

35.5

 

$

0.45

 

$

15.5

 

36.9

 

$

0.42

 

Discontinued operations

 

 

 

 

 

0.2

 

 

 

 

Net income

 

$

16.1

 

 

 

$

0.45

 

$

15.7

 

 

 

$

0.42

 

Effect of dilutive securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock equivalents

 

 

 

0.1

 

 

 

 

 

0.1

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

16.1

 

 

 

$

0.45

 

$

15.5

 

 

 

$

0.42

 

Discontinued operations

 

 

 

 

 

0.2

 

 

 

 

Net income

 

$

16.1

 

35.6

 

$

0.45

 

$

15.7

 

37.0

 

$

0.42

 

 

Options to purchase 0.4 million and 0.3 million shares of Class A Common Stock were outstanding during the first quarters of 2013 and 2012, respectively, but were not included in the computation of diluted EPS because to do so would be anti-dilutive.

 

On April 30, 2013, the Company announced that its Board of Directors has authorized the repurchase of up to $90 million of the Company’s Class A Common Stock from time to time on the open market or in privately negotiated transactions.  The timing and number of any shares repurchased will be determined by the Company’s management based on its evaluation of market conditions.  Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws.  The repurchase program may be suspended or discontinued at any time.

 

Segment Information
Segment Information

7. Segment Information

 

The Company operates in three geographic segments: North America, EMEA, and Asia. 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:

 

 

 

First Quarter Ended

 

 

 

March 31,
2013

 

April 1,
2012

 

 

 

(in millions)

 

Net Sales

 

 

 

 

 

North America

 

$

213.0

 

$

207.0

 

EMEA

 

142.4

 

149.2

 

Asia

 

6.7

 

5.0

 

Consolidated net sales

 

$

362.1

 

$

361.2

 

 

 

 

 

 

 

Operating income (loss)

 

 

 

 

 

North America

 

$

24.0

 

$

19.9

 

EMEA

 

10.6

 

12.8

 

Asia

 

2.9

 

1.4

 

Subtotal reportable segments

 

37.5

 

34.1

 

 

 

 

 

 

 

Corporate (*)

 

(9.2

)

(7.5

)

Consolidated operating income

 

28.3

 

26.6

 

 

 

 

 

 

 

Interest income

 

0.1

 

0.2

 

Interest expense

 

(6.0

)

(6.2

)

Other income, net

 

 

0.9

 

Income from continuing operations before income taxes

 

$

22.4

 

$

21.5

 

 

 

 

 

 

 

Capital Expenditures

 

 

 

 

 

North America

 

$

8.2

 

$

2.6

 

EMEA

 

2.2

 

2.2

 

Asia

 

0.6

 

0.1

 

Consolidated capital expenditures

 

$

11.0

 

$

4.9

 

 

 

 

 

 

 

Depreciation and Amortization

 

 

 

 

 

North America

 

$

5.0

 

$

4.7

 

EMEA

 

6.7

 

7.3

 

Asia

 

0.7

 

0.5

 

Consolidated depreciation and amortization

 

$

12.4

 

$

12.5

 

 

 

 

 

 

 

Identifiable Assets (at end of period)

 

 

 

 

 

North America

 

810.8

 

847.2

 

EMEA

 

795.5

 

808.3

 

Asia

 

91.8

 

79.1

 

Discontinued operations

 

 

14.3

 

Consolidated identifiable assets

 

$

1,698.1

 

$

1,748.9

 

 

 

 

 

 

 

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

 

 

 

 

 

North America

 

$

85.2

 

$

75.2

 

EMEA

 

122.2

 

134.1

 

Asia

 

14.8

 

14.7

 

Consolidated property, plant and equipment, net

 

$

222.2

 

$

224.0

 

 

*                      Corporate expenses are primarily for administrative compensation expense, internal controls costs, professional fees, including legal and audit expenses, shareholder services and benefit administration costs. These costs are not allocated to the geographic segments as they are viewed as corporate functions that support all activities.

 

The above operating segments are presented on a basis consistent with the presentation included in the Company’s December 31, 2012 consolidated financial statements included in its Annual Report on Form 10-K.

 

The following includes U.S. net sales and U.S. property, plant and equipment of the Company’s North America segment:

 

 

 

First Quarter Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

 

 

(in millions)

 

 

 

 

 

 

 

U.S. net sales

 

$

192.8

 

$

187.0

 

U.S. property, plant and equipment (at end of period)

 

$

79.9

 

$

69.2

 

 

The following includes intersegment sales for North America, EMEA and Asia:

 

 

 

First Quarter Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

 

 

(in millions)

 

Intersegment Sales

 

 

 

 

 

North America

 

$

1.3

 

$

1.4

 

EMEA

 

2.7

 

2.6

 

Asia

 

41.6

 

31.1

 

Intersegment sales

 

$

45.6

 

$

35.1

 

 

The North America segment includes $4.4 million in assets held for sale at April 1, 2012.

 

The Company sells its products into various end markets around the world and groups net sales to third parties into four product categories.  Because many of the Company’s sales are through distributors and third-party manufacturers’ representatives, a portion of the product categorization is based on management’s understanding of final product use and, as such, allocations have been made to align sales into a product category.  Net sales to third parties for the four product categories are as follows:

 

 

 

First Quarter Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

 

 

(in millions)

 

Net Sales

 

 

 

 

 

Residential & commercial flow control

 

$

200.4

 

$

198.2

 

HVAC & gas

 

107.7

 

109.7

 

Drains & water re-use

 

33.9

 

33.8

 

Water quality

 

20.1

 

19.5

 

Consolidated net sales

 

$

362.1

 

$

361.2

 

 

Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)

8. Accumulated Other Comprehensive Income (Loss)

 

Accumulated other comprehensive income (loss) consists of the following:

 

 

 

Foreign
Currency
Translation

 

Pension
Adjustment

 

Accumulated Other
Comprehensive
Income (Loss)

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

Balance December 31, 2012

 

$

14.4

 

$

(25.2

)

$

(10.8

)

Change in period

 

(19.9

)

0.2

 

(19.7

)

Balance March 31, 2013

 

$

(5.5

)

$

(25.0

)

$

(30.5

)

 

 

 

 

 

 

 

 

Balance December 31, 2011

 

$

0.1

 

$

(19.1

)

$

(19.0

)

Change in period

 

16.5

 

0.2

 

16.7

 

Balance April 1, 2012

 

$

16.6

 

$

(18.9

)

$

(2.3

)

 

Accumulated other comprehensive income (loss) in the consolidated balance sheets as of March 31, 2013 and April 1, 2012 consists primarily of cumulative translation adjustments and pension related net actuarial loss.

Debt
Debt

9. Debt

 

The Company’s credit agreement (the Credit Agreement)  provides for a multi-currency $300.0 million, five-year, senior unsecured revolving credit facility which may be increased by an additional $150.0 million under certain circumstances and subject to the terms of the Credit Agreement. The Credit Agreement has a sublimit of up to $75.0 million in letters of credit. The Credit Agreement matures on June 18, 2015.

 

Borrowings outstanding under the Credit Agreement bear interest at a fluctuating rate per annum equal to (i) in the case of Eurocurrency rate loans, the British Bankers’ Association LIBOR rate plus an applicable percentage, ranging from 1.70% to 2.30%, determined by reference to the Company’s consolidated leverage ratio plus, in the case of certain lenders, a mandatory cost calculated in accordance with the terms of the Credit Agreement, or (ii) in the case of base rate loans and swing line loans, the highest of (a) the federal funds rate plus 0.5%, (b) the rate of interest in effect for such day as announced by Bank of America, N.A. as its “prime rate,” and (c) the British Bankers’ Association LIBOR rate plus 1.0%, plus an applicable percentage, ranging from 0.70% to 1.30%, 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 facility, including, but not limited to, a 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 March 31, 2013, the Company was in compliance with all covenants related to the Credit Agreement and had $270.4 million of unused and available credit under the Credit Agreement and $29.6 million of stand-by letters of credit outstanding on the Credit Agreement. The Company did not have any borrowings outstanding under the Credit Agreement at March 31, 2013.

 

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, 2012.  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 March 31, 2013, the Company was in compliance with all covenants regarding these note agreements.  The note agreements include $75.0 million of unsecured senior notes maturing on May 15, 2013 which have been included in the current portion of long-term debt in the Company’s consolidated balance sheet.

 

Contingencies and Environmental Remediation
Contingencies and Environmental Remediation

10. 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, net of any applicable insurance proceeds.  The Company does not establish accruals for such matters when the Company does not believe both 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.

 

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.

 

As of March 31, 2013, the Company estimates that the aggregate amount of reasonably possible loss in excess of the amount accrued for its legal contingencies is approximately $8.3 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 described below, as they are resolved over time, is not likely to have a material effect on the financial position of the Company.

 

On March 8, 2012, Watts Water Technologies, Inc., Watts Regulator Co., and Watts Plumbing Technologies (Taizho) Co., Ltd., among other companies, were named as defendants in a putative nationwide class action complaint filed in the U.S. District Court for the Northern District of California seeking to recover damages and other relief based on the alleged failure of toilet connectors.  The complaint seeks among other items, damages in an unspecified amount, replacement costs, injunctive relief, and attorneys’ fees and costs.

 

The Company is unable to estimate a range of reasonably possible loss for the above matter in which damages have not been specified because: (i) the 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 are significant factual issues to be resolved; and (iv) there are novel legal issues presented.  However, based on information currently known to the Company, it does not believe that these proceedings will have a material effect on its financial position, results of operations, cash flows or liquidity.

 

Product Liability

 

The Company is subject to a variety of potential liabilities in connection with product liability cases.  The Company maintains 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 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 administrators.  In other countries, the Company maintains insurance coverage with relatively high deductible payments, as product liability claims tend to be smaller than those experienced in the U.S.

 

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 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 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 cleanup 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 42 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, the Company has obtained a dismissal in every case before it has reached trial because discovery has failed to yield evidence of substantial exposure to any Company products.

 

Other Litigation

 

Other lawsuits and proceedings or claims, arising from the ordinary course of operations, are also pending or threatened against the Company.

 

Defined Benefit Plans
Defined Benefit Plans

11. Defined Benefit Plans

 

The Company sponsors funded and unfunded non-contributing defined benefit pension plans that together cover substantially all of its U.S. employees. Benefits are based primarily on years of service and employees’ compensation. The funding policy of the Company for these plans is to contribute an annual amount that does 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 Supplemental Employees Retirement Plan.

 

The components of net periodic benefit cost are as follows:

 

 

 

First Quarter Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

 

 

(in millions)

 

Service cost

 

$

0.1

 

$

0.2

 

Interest costs on benefits obligation

 

1.4

 

1.4

 

Expected return on assets

 

(1.7

)

(1.7

)

Net actuarial loss amortization

 

0.2

 

0.1

 

Net periodic benefit cost

 

$

 

$

 

 

The information related to the Company’s pension funds cash flow is as follows:

 

 

 

First Quarter Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

 

 

(in millions)

 

Employer contributions

 

$

0.2

 

$

0.2

 

 

The Company expects to contribute approximately $0.6 million to its pension plans for the remainder of 2013.

 

Subsequent Event
Subsequent Event

12. Subsequent Event

 

Dividend Declared

 

On April 30, 2013, the Company declared a quarterly dividend of thirteen cents ($0.13) per share on each outstanding share of Class A Common Stock and Class B Common Stock payable on May 31, 2013 to stockholders of record at the close of business on May 20, 2013.

 

Stock Repurchase Program

 

On April 30, 2013, the Board of Directors authorized a stock repurchase program of up to $90 million of the Company’s Class A Common Stock to be purchased from time to time on the open market or in privately negotiated transactions.  The timing and number of any shares repurchased will be determined by the Company’s management based on its evaluation of market conditions.

 

Accounting Policies (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

 

The changes in the carrying amount of goodwill by geographic segment are as follows:

 

 

 

March 31, 2013

 

 

 

Gross Balance

 

Accumulated Impairment Losses

 

Net Goodwill

 

 

 

Balance
January 1,
2013

 

Acquired
During
the
Period

 

Foreign
Currency
Translation
and Other

 

Balance
March 31,
2013

 

Balance
January 1,
2013

 

Impairment
Loss During
the Period

 

Balance
March 31,
2013

 

March 31,
2013

 

 

 

(in millions)

 

North America

 

$

225.6

 

$

 

$

(0.3

)

$

225.3

 

$

(24.2

)

$

 

$

(24.2

)

$

201.1

 

Europe, Middle East and Africa (EMEA)

 

293.9

 

 

(8.4

)

285.5

 

 

 

 

285.5

 

Asia

 

12.9

 

 

 

12.9

 

 

 

 

12.9

 

Total

 

$

532.4

 

$

 

$

(8.7

)

$

523.7

 

$

(24.2

)

$

 

$

(24.2

)

$

499.5

 

 

 

 

April 1, 2012

 

 

 

Gross Balance

 

Accumulated Impairment Losses

 

Net Goodwill

 

 

 

Balance
January 1,
2012

 

Acquired
During the
Period

 

Foreign Currency
Translation and
Other

 

Balance
April 1,
2012

 

Balance
January 1,
2012

 

Impairment
Loss During
the Period

 

Balance
April 1,
2012

 

April 1, 2012

 

 

 

(in millions)

 

North America

 

$

213.8

 

$

13.1

 

$

0.1

 

$

227.0

 

$

(23.2

)

$

 

$

(23.2

)

$

203.8

 

EMEA

 

285.3

 

 

7.6

 

292.9

 

 

 

 

292.9

 

Asia

 

12.7

 

 

0.1

 

12.8

 

 

 

 

12.8

 

Total

 

$

511.8

 

$

13.1

 

$

7.8

 

$

532.7

 

$

(23.2

)

$

 

$

(23.2

)

$

509.5

 

 

On January 31, 2012, the Company completed the acquisition of tekmar Control Systems (tekmar) in a share purchase transaction.  The initial purchase price paid was CAD $18.0 million, with post-closing adjustments related to working capital and an earnout based on the attainment of certain future earnings levels.  The initial purchase price paid was equal to approximately $17.8 million based on the exchange rate of Canadian dollar to U.S. dollar as of January 31, 2012.   The total purchase price will not exceed CAD $26.2 million.  The Company accounted for the transaction as a business combination.  In January 2013, the Company completed a purchase price allocation that resulted in the recognition of $11.7 million in goodwill and $10.1 million in intangible assets.

 

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:

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Amount

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Amount

 

 

 

(in millions)

 

Patents

 

$

16.4

 

$

(11.9

)

$

4.5

 

$

16.5

 

$

(11.7

)

$

4.8

 

Customer relationships

 

133.1

 

(71.4

)

61.7

 

134.3

 

(68.7

)

65.6

 

Technology

 

28.3

 

(9.8

)

18.5

 

28.5

 

(9.3

)

19.2

 

Trade Names

 

13.7

 

(2.2

)

11.5

 

13.9

 

(1.9

)

12.0

 

Other

 

8.7

 

(5.6

)

3.1

 

8.7

 

(5.5

)

3.2

 

Total amortizable intangibles

 

200.2

 

(100.9

)

99.3

 

201.9

 

(97.1

)

104.8

 

Indefinite-lived intangible assets

 

41.2

 

 

41.2

 

41.8

 

 

41.8

 

Total

 

$

241.4

 

$

(100.9

)

$

140.5

 

$

243.7

 

$

(97.1

)

$

146.6

 

 

Aggregate amortization expense for amortizable intangible assets for the first quarters of 2013 and 2012 was $3.7 million and $4.2 million.  Additionally, future amortization expense for the next five years on amortizable intangible assets is expected to be approximately $11.1 million for the remainder of 2013, $14.8 million for 2014, $14.5 million for 2015, $14.0 million for 2016 and $13.6 million for 2017. 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 9.0 years. Patents, customer relationships, technology, trade names  and other amortizable intangibles have weighted-average remaining lives of 6.2 years, 6.3 years, 11.7 years, 11.3 years and 41.4 years, respectively. Indefinite-lived intangible assets primarily include trademarks and trade names.

 

Stock-Based Compensation

 

The Company maintains three stock incentive plans under which key employees and non-employee members of the Company’s Board of Directors have been granted incentive stock options (ISOs) and nonqualified stock options (NSOs) to purchase the Company’s Class A Common Stock. Only one plan, the 2004 Stock Incentive Plan, is currently available for the grant of new stock options, which are currently being granted only to employees.  Under the 2004 Stock Incentive Plan, options become exercisable over a four-year period at the rate of 25% per year and expire ten years after the grant date. ISOs and NSOs granted under the plans may have exercise prices of not less than 100% and 50% of the fair market value of the Class A Common Stock on the date of grant, respectively. The Company’s current practice is to grant all options at fair market value on the grant date. The Company issued 2,000 stock options during the first quarter of 2013.

 

The Company has also granted shares of restricted stock 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 vest immediately, and employees’ restricted stock awards vest over a three-year period at the rate of one-third per year. The restricted stock awards are amortized to expense on a straight-line basis over the vesting period. The Company issued 667 shares of restricted stock under the 2004 Stock Incentive Plan in the first quarter of 2013.

 

The Company also 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.  RSUs vest annually over a three-year period from 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 44,777 RSUs and 63,739 RSUs in the first quarters of 2013 and 2012, 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:

 

 

 

2013

 

2012

 

Expected life (years)

 

3.0

 

3.0

 

Expected stock price volatility

 

34.1

%

38.3

%

Expected dividend yield

 

0.9

%

1.1

%

Risk-free interest rate

 

0.4

%

0.4

%

 

The above assumptions were used to determine the weighted average grant-date fair value of RSUs of $18.05 and $15.68 in 2013 and 2012, 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, 2012.

 

Shipping and Handling

 

The Company’s shipping costs included in selling, general and administrative expenses were $9.1 million and $9.6 million for the first quarters of 2013 and 2012, respectively.

 

Research and Development

 

Research and development costs included in selling, general and administrative expenses were $5.4 million and $5.3 million for the first quarters of 2013 and 2012, 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 March 2013, the FASB issued Accounting Standards Update (ASU) No. 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Group of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” This ASU is intended to eliminate diversity in practice on the release of cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest. In addition, the amendments in this ASU resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. The provisions of this ASU are effective for interim and annual periods beginning after December 15, 2013 and must be applied prospectively. The Company is currently evaluating the potential impact of this ASU.

 

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”, which requires additional disclosures about amounts reclassified out of OCI by component, either on the face of the income statement or as a separate footnote to the financial statements.  ASU 2013-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. The adoption of this guidance has not had a material impact on the Company’s financial statements.

 

Accounting Policies (Tables)

 

 

 

 

March 31, 2013

 

 

 

Gross Balance

 

Accumulated Impairment Losses

 

Net Goodwill

 

 

 

Balance
January 1,
2013

 

Acquired
During
the
Period

 

Foreign
Currency
Translation
and Other

 

Balance
March 31,
2013

 

Balance
January 1,
2013

 

Impairment
Loss During
the Period

 

Balance
March 31,
2013

 

March 31,
2013

 

 

 

(in millions)

 

North America

 

$

225.6

 

$

 

$

(0.3

)

$

225.3

 

$

(24.2

)

$

 

$

(24.2

)

$

201.1

 

Europe, Middle East and Africa (EMEA)

 

293.9

 

 

(8.4

)

285.5

 

 

 

 

285.5

 

Asia

 

12.9

 

 

 

12.9

 

 

 

 

12.9

 

Total

 

$

532.4

 

$

 

$

(8.7

)

$

523.7

 

$

(24.2

)

$

 

$

(24.2

)

$

499.5

 

 

 

 

April 1, 2012

 

 

 

Gross Balance

 

Accumulated Impairment Losses

 

Net Goodwill

 

 

 

Balance
January 1,
2012

 

Acquired
During the
Period

 

Foreign Currency
Translation and
Other

 

Balance
April 1,
2012

 

Balance
January 1,
2012

 

Impairment
Loss During
the Period

 

Balance
April 1,
2012

 

April 1, 2012

 

 

 

(in millions)

 

North America

 

$

213.8

 

$

13.1

 

$

0.1

 

$

227.0

 

$

(23.2

)

$

 

$

(23.2

)

$

203.8

 

EMEA

 

285.3

 

 

7.6

 

292.9

 

 

 

 

292.9

 

Asia

 

12.7

 

 

0.1

 

12.8

 

 

 

 

12.8

 

Total

 

$

511.8

 

$

13.1

 

$

7.8

 

$

532.7

 

$

(23.2

)

$

 

$

(23.2

)

$

509.5

 

 

 

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Amount

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Amount

 

 

 

(in millions)

 

Patents

 

$

16.4

 

$

(11.9

)

$

4.5

 

$

16.5

 

$

(11.7

)

$

4.8

 

Customer relationships

 

133.1

 

(71.4

)

61.7

 

134.3

 

(68.7

)

65.6

 

Technology

 

28.3

 

(9.8

)

18.5

 

28.5

 

(9.3

)

19.2

 

Trade Names

 

13.7

 

(2.2

)

11.5

 

13.9

 

(1.9

)

12.0

 

Other

 

8.7

 

(5.6

)

3.1

 

8.7

 

(5.5

)

3.2

 

Total amortizable intangibles

 

200.2

 

(100.9

)

99.3

 

201.9

 

(97.1

)

104.8

 

Indefinite-lived intangible assets

 

41.2

 

 

41.2

 

41.8

 

 

41.8

 

Total

 

$

241.4

 

$

(100.9

)

$

140.5

 

$

243.7

 

$

(97.1

)

$

146.6

 

 

 

 

 

 

2013

 

2012

 

Expected life (years)

 

3.0

 

3.0

 

Expected stock price volatility

 

34.1

%

38.3

%

Expected dividend yield

 

0.9

%

1.1

%

Risk-free interest rate

 

0.4

%

0.4

%

 

Discontinued Operations (Tables)

 

 

 

 

First Quarter Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

 

 

(in millions)

 

Operating income - Flomatic

 

$

 

$

0.3

 

Income before income taxes

 

 

0.3

 

Income tax expense

 

 

0.1

 

Income from discontinued operations, net of taxes

 

$

 

$

0.2

 

 

 

 

 

 

First Quarter Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

 

 

(in millions)

 

Flomatic revenues — discontinued operations

 

$

 

$

3.0

 

 

Financial Instruments and Derivative Instruments (Tables)

 

 

 

 

Fair Value Measurements at March 31, 2013 Using:

 

 

 

 

 

Quoted Prices in
Active
Markets for Identical
Assets

 

Significant Other
Observable
Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

Plan asset for deferred compensation(1)

 

$

4.3

 

$

4.3

 

$

 

$

 

Total assets

 

$

4.3

 

$

4.3

 

$

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

Plan liability for deferred compensation(2)

 

$

4.3

 

$

4.3

 

$

 

$

 

Contingent consideration(3)

 

5.0

 

 

 

5.0

 

Total liabilities

 

$

9.3

 

$

4.3

 

$

 

$

5.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2012 Using:

 

 

 

 

 

Quoted Prices in Active
Markets for Identical Assets

 

Significant Other
Observable
Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

Plan asset for deferred compensation(1)

 

$

4.2

 

$

4.2

 

$

 

$

 

Total assets

 

$

4.2

 

$

4.2

 

$

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

Plan liability for deferred compensation(2)

 

$

4.2

 

$

4.2

 

$

 

$

 

Contingent consideration(3)

 

5.2

 

 

 

5.2

 

Total liabilities

 

$

9.4

 

$

4.2

 

$

 

$

5.2

 

 

 

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

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

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

 

 

 

 

 

Balance

 

Purchases,

 

Total realized and
unrealized gains
(losses) included in:

 

Balance

 

 

 

December 31,
2012

 

sales,
settlements, net

 

Earnings

 

Comprehensive
income

 

March 31,
2013

 

 

 

(in millions)

 

Contingent consideration

 

$

5.2

 

$

 

$

 

$

(0.2

)

$

5.0

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(in millions)

 

Carrying amount

 

$

383.8

 

$

384.6

 

Estimated fair value

 

$

418.6

 

$

420.8

 

 

Restructuring and Other Charges, Net (Tables)

 

 

 

First Quarter Ended

 

 

 

March 31,
2013

 

April 1,
2012

 

 

 

(in millions)

 

Restructuring costs:

 

 

 

 

 

2010 Actions

 

$

0.4

 

$

 

2011 Actions

 

0.1

 

0.5

 

Other Actions

 

1.7

 

0.7

 

Total restructuring charges

 

2.2

 

1.2

 

Other charges related to impairments

 

 

0.5

 

Total restructuring and other charges, net

 

$

2.2

 

$

1.7

 

 

 

 

 

First Quarter Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

 

 

(in millions)

 

North America

 

$

0.2

 

$

0.4

 

EMEA

 

2.0

 

1.3

 

Total

 

$

2.2

 

$

1.7

 

 

Earnings per Share (Tables)
Summary of reconciliation of the calculation of earnings per share

 

 

 

 

For the First Quarter Ended March 31, 2013

 

For the First Quarter Ended April 1, 2012

 

 

 

Income
(Numerator)

 

Shares
(Denominator)

 

Per Share
Amount

 

Income
(Numerator)

 

Shares
(Denominator)

 

Per Share
Amount

 

 

 

(amounts in millions, except per share amounts)

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

16.1

 

35.5

 

$

0.45

 

$

15.5

 

36.9

 

$

0.42

 

Discontinued operations

 

 

 

 

 

0.2

 

 

 

 

Net income

 

$

16.1

 

 

 

$

0.45

 

$

15.7

 

 

 

$

0.42

 

Effect of dilutive securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock equivalents

 

 

 

0.1

 

 

 

 

 

0.1

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

16.1

 

 

 

$

0.45

 

$

15.5

 

 

 

$

0.42

 

Discontinued operations

 

 

 

 

 

0.2

 

 

 

 

Net income

 

$

16.1

 

35.6

 

$

0.45

 

$

15.7

 

37.0

 

$

0.42

 

 

Segment Information (Tables)

 

 

 

 

First Quarter Ended

 

 

 

March 31,
2013

 

April 1,
2012

 

 

 

(in millions)

 

Net Sales

 

 

 

 

 

North America

 

$

213.0

 

$

207.0

 

EMEA

 

142.4

 

149.2

 

Asia

 

6.7

 

5.0

 

Consolidated net sales

 

$

362.1

 

$

361.2

 

 

 

 

 

 

 

Operating income (loss)

 

 

 

 

 

North America

 

$

24.0

 

$

19.9

 

EMEA

 

10.6

 

12.8

 

Asia

 

2.9

 

1.4

 

Subtotal reportable segments

 

37.5

 

34.1

 

 

 

 

 

 

 

Corporate (*)

 

(9.2

)

(7.5

)

Consolidated operating income

 

28.3

 

26.6

 

 

 

 

 

 

 

Interest income

 

0.1

 

0.2

 

Interest expense

 

(6.0

)

(6.2

)

Other income, net

 

 

0.9

 

Income from continuing operations before income taxes

 

$

22.4

 

$

21.5

 

 

 

 

 

 

 

Capital Expenditures

 

 

 

 

 

North America

 

$

8.2

 

$

2.6

 

EMEA

 

2.2

 

2.2

 

Asia

 

0.6

 

0.1

 

Consolidated capital expenditures

 

$

11.0

 

$

4.9

 

 

 

 

 

 

 

Depreciation and Amortization

 

 

 

 

 

North America

 

$

5.0

 

$

4.7

 

EMEA

 

6.7

 

7.3

 

Asia

 

0.7

 

0.5

 

Consolidated depreciation and amortization

 

$

12.4

 

$

12.5

 

 

 

 

 

 

 

Identifiable Assets (at end of period)

 

 

 

 

 

North America

 

810.8

 

847.2

 

EMEA

 

795.5

 

808.3

 

Asia

 

91.8

 

79.1

 

Discontinued operations

 

 

14.3

 

Consolidated identifiable assets

 

$

1,698.1

 

$

1,748.9

 

 

 

 

 

 

 

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

 

 

 

 

 

North America

 

$

85.2

 

$

75.2

 

EMEA

 

122.2

 

134.1

 

Asia

 

14.8

 

14.7

 

Consolidated property, plant and equipment, net

 

$

222.2

 

$

224.0

 

 

*                      Corporate expenses are primarily for administrative compensation expense, internal controls costs, professional fees, including legal and audit expenses, shareholder services and benefit administration costs. These costs are not allocated to the geographic segments as they are viewed as corporate functions that support all activities.

 

 

 

 

 

First Quarter Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

 

 

(in millions)

 

 

 

 

 

 

 

U.S. net sales

 

$

192.8

 

$

187.0

 

U.S. property, plant and equipment (at end of period)

 

$

79.9

 

$

69.2

 

 

 

 

 

 

First Quarter Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

 

 

(in millions)

 

Intersegment Sales

 

 

 

 

 

North America

 

$

1.3

 

$

1.4

 

EMEA

 

2.7

 

2.6

 

Asia

 

41.6

 

31.1

 

Intersegment sales

 

$

45.6

 

$

35.1

 

 

 

 

 

 

First Quarter Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

 

 

(in millions)

 

Net Sales

 

 

 

 

 

Residential & commercial flow control

 

$

200.4

 

$

198.2

 

HVAC & gas

 

107.7

 

109.7

 

Drains & water re-use

 

33.9

 

33.8

 

Water quality

 

20.1

 

19.5

 

Consolidated net sales

 

$

362.1

 

$

361.2

 

 

Accumulated Other Comprehensive Income (Loss) (Tables)
Schedule of amounts recognized in accumulated other comprehensive income (loss)

 

 

 

Foreign
Currency
Translation

 

Pension
Adjustment

 

Accumulated Other
Comprehensive
Income (Loss)

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

Balance December 31, 2012

 

$

14.4

 

$

(25.2

)

$

(10.8

)

Change in period

 

(19.9

)

0.2

 

(19.7

)

Balance March 31, 2013

 

$

(5.5

)

$

(25.0

)

$

(30.5

)

 

 

 

 

 

 

 

 

Balance December 31, 2011

 

$

0.1

 

$

(19.1

)

$

(19.0

)

Change in period

 

16.5

 

0.2

 

16.7

 

Balance April 1, 2012

 

$

16.6

 

$

(18.9

)

$

(2.3

)

 

Defined Benefit Plans (Tables)

 

 

 

First Quarter Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

 

 

(in millions)

 

Service cost

 

$

0.1

 

$

0.2

 

Interest costs on benefits obligation

 

1.4

 

1.4

 

Expected return on assets

 

(1.7

)

(1.7

)

Net actuarial loss amortization

 

0.2

 

0.1

 

Net periodic benefit cost

 

$

 

$

 

 

 

 

 

First Quarter Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

 

 

(in millions)

 

Employer contributions

 

$

0.2

 

$

0.2

 

 

Basis of Presentation (Details)
3 Months Ended
Mar. 31, 2013
Basis of Presentation
 
Length of fiscal year
364 days 
Length of fiscal quarter
91 days 
Accounting Policies (Details)
In Millions, unless otherwise specified
3 Months Ended 3 Months Ended
Mar. 31, 2013
USD ($)
Apr. 1, 2012
USD ($)
Dec. 31, 2012
USD ($)
Jan. 31, 2013
Tekmar
USD ($)
Jan. 31, 2012
Tekmar
USD ($)
Jan. 31, 2012
Tekmar
CAD ($)
Jan. 31, 2012
Tekmar
Maximum
CAD ($)
Mar. 31, 2013
North America
USD ($)
Apr. 1, 2012
North America
USD ($)
Mar. 31, 2013
Europe, Middle East and Africa (EMEA)
USD ($)
Apr. 1, 2012
Europe, Middle East and Africa (EMEA)
USD ($)
Apr. 1, 2012
Asia
USD ($)
Mar. 31, 2013
Asia
USD ($)
Dec. 31, 2012
Asia
USD ($)
Gross Balance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at the beginning of the period
$ 532.4 
$ 511.8 
 
 
 
 
 
$ 225.6 
$ 213.8 
$ 293.9 
$ 285.3 
$ 12.7 
$ 12.9 
$ 12.9 
Acquired During the Period
 
13.1 
 
 
 
 
 
 
13.1 
 
 
 
 
 
Foreign Currency Translation and Other
(8.7)
7.8 
 
 
 
 
 
(0.3)
0.1 
(8.4)
7.6 
0.1 
 
 
Balance at the end of the period
523.7 
532.7 
 
 
 
 
 
225.3 
227.0 
285.5 
292.9 
12.8 
12.9 
12.9 
Accumulated Impairment Losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at the beginning of the period
(24.2)
(23.2)
 
 
 
 
 
(24.2)
(23.2)
 
 
 
 
 
Balance at the end of the period
(24.2)
(23.2)
 
 
 
 
 
(24.2)
(23.2)
 
 
 
 
 
Net goodwill
499.5 
509.5 
508.2 
 
 
 
 
201.1 
203.8 
285.5 
292.9 
12.8 
12.9 
 
Business combination
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Initial purchase price paid
 
 
 
 
17.8 
18.0 
 
 
 
 
 
 
 
 
Aggregate consideration, net
 
 
 
 
 
 
26.2 
 
 
 
 
 
 
 
Purchase price allocated to goodwill
 
 
 
11.7 
 
 
 
 
 
 
 
 
 
 
Purchase price allocated to intangible assets
 
 
 
$ 10.1 
 
 
 
 
 
 
 
 
 
 
Accounting Policies (Details 2) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Apr. 1, 2012
Dec. 31, 2012
Intangible assets subject to amortization
 
 
 
Gross Carrying Amount
$ 200.2 
 
$ 201.9 
Accumulated Amortization
(100.9)
 
(97.1)
Net Carrying Amount
99.3 
 
104.8 
Indefinite-lived intangible assets
 
 
 
Indefinite-lived intangible assets
41.2 
 
41.8 
Intangible assets
 
 
 
Gross Carrying Amount
241.4 
 
243.7 
Total
140.5 
 
146.6 
Weighted-average remaining life
9 years 
 
 
Long-lived assets written-down
 
0.5 
 
Aggregate amortization expense for amortized intangible assets
3.7 
4.2 
 
Future amortization expense
 
 
 
Future amortization expense for remainder of 2013
11.1 
 
 
Future amortization expense, 2014
14.8 
 
 
Future amortization expense, 2015
14.5 
 
 
Future amortization expense, 2016
14.0 
 
 
Future amortization expense, 2017
13.6 
 
 
Trade name
 
 
 
Intangible assets subject to amortization
 
 
 
Gross Carrying Amount
13.7 
 
13.9 
Accumulated Amortization
(2.2)
 
(1.9)
Net Carrying Amount
11.5 
 
12.0 
Intangible assets
 
 
 
Weighted-average remaining life
11 years 3 months 18 days 
 
 
Patents
 
 
 
Intangible assets subject to amortization
 
 
 
Gross Carrying Amount
16.4 
 
16.5 
Accumulated Amortization
(11.9)
 
(11.7)
Net Carrying Amount
4.5 
 
4.8 
Intangible assets
 
 
 
Weighted-average remaining life
6 years 2 months 12 days 
 
 
Customer relationships
 
 
 
Intangible assets subject to amortization
 
 
 
Gross Carrying Amount
133.1 
 
134.3 
Accumulated Amortization
(71.4)
 
(68.7)
Net Carrying Amount
61.7 
 
65.6 
Intangible assets
 
 
 
Weighted-average remaining life
6 years 3 months 18 days 
 
 
Technology
 
 
 
Intangible assets subject to amortization
 
 
 
Gross Carrying Amount
28.3 
 
28.5 
Accumulated Amortization
(9.8)
 
(9.3)
Net Carrying Amount
18.5 
 
19.2 
Intangible assets
 
 
 
Weighted-average remaining life
11 years 8 months 12 days 
 
 
Other
 
 
 
Intangible assets subject to amortization
 
 
 
Gross Carrying Amount
8.7 
 
8.7 
Accumulated Amortization
(5.6)
 
(5.5)
Net Carrying Amount
$ 3.1 
 
$ 3.2 
Intangible assets
 
 
 
Weighted-average remaining life
41 years 4 months 24 days 
 
 
Accounting Policies (Details 3) (USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
item
Apr. 1, 2012
Stock-based compensation
 
 
Number of stock incentive plans
 
Shipping and Handling
 
 
Shipping and handling costs included in selling, general and administrative expense
$ 9.1 
$ 9.6 
Research and Development
 
 
Research and development costs included in selling, general, and administrative expense
$ 5.4 
$ 5.3 
ISOs |
Class A Common Stock
 
 
Stock-based compensation
 
 
Minimum exercise price as percentage of fair market value of common stock on grant date
100.00% 
 
NSOs |
Class A Common Stock
 
 
Stock-based compensation
 
 
Minimum exercise price as percentage of fair market value of common stock on grant date
50.00% 
 
2004 Stock Incentive Plan
 
 
Stock-based compensation
 
 
Number of stock-based compensation plans available for grant of new equity awards
 
Options granted (in shares)
2,000 
 
2004 Stock Incentive Plan |
Stock options
 
 
Stock-based compensation
 
 
Vesting period if not immediate
4 years 
 
Percentage of stock options becoming exercisable
25.00% 
 
Expiration period
10 years 
 
2004 Stock Incentive Plan |
Restricted stock
 
 
Stock-based compensation
 
 
Vesting rate per year for maximum vesting period
0.33 
 
Granted (in shares)
667 
 
2004 Stock Incentive Plan |
Restricted stock |
Maximum
 
 
Stock-based compensation
 
 
Vesting period if not immediate
3 years 
 
Management Stock Purchase Plan |
Class A Common Stock
 
 
Stock-based compensation
 
 
Exercise price as percentage of fair market value of common stock on grant date
67.00% 
 
Shares authorized
2,000,000 
 
Management Stock Purchase Plan |
Restricted stock units (RSUs)
 
 
Stock-based compensation
 
 
Granted (in shares)
44,777 
63,739 
Number of common shares for each unit of award held
 
Fair value assumptions
 
 
Expected life
3 years 
3 years 
Expected stock price volatility (as a percent)
34.10% 
38.30% 
Expected dividend yield (as a percent)
0.90% 
1.10% 
Risk-free interest rate (as a percent)
0.40% 
0.40% 
Weighted average grant-date fair value (in dollars per share)
$ 18.05 
$ 15.68 
Management Stock Purchase Plan |
Restricted stock units (RSUs) |
Minimum
 
 
Stock-based compensation
 
 
Vesting period if not immediate
3 years 
 
Discontinued Operations (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Apr. 1, 2012
Discontinued Operations
 
Income before income taxes
$ 0.3 
Income tax expense
0.1 
Income from discontinued operations, net of taxes
0.2 
Flomatic
 
Discontinued Operations
 
Operating income
0.3 
Total revenues discontinued operations
$ 0.3 
Financial Instruments and Derivative Instruments (Details) (Fair value measured on a recurring basis, USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Fair Value Measurements at Reporting Date
 
 
Financial assets, cash flow hedges
$ 0 
$ 0 
Financial liabilities, cash flow hedges
Total
 
 
Assets
 
 
Plan asset for deferred compensation
4.3 
4.2 
Total assets
4.3 
4.2 
Liabilities
 
 
Plan liability for deferred compensation
4.3 
4.2 
Contingent consideration
5.0 
5.2 
Total liabilities
9.3 
9.4 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 
Assets
 
 
Plan asset for deferred compensation
4.3 
4.2 
Total assets
4.3 
4.2 
Liabilities
 
 
Plan liability for deferred compensation
4.3 
4.2 
Total liabilities
4.3 
4.2 
Significant Unobservable Inputs (Level 3)
 
 
Liabilities
 
 
Contingent consideration
5.0 
5.2 
Total liabilities
$ 5.0 
$ 5.2 
Financial Instruments and Derivative Instruments (Details 2) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Jan. 31, 2012
Tekmar
Mar. 31, 2013
Contingent consideration
Reconciliation of changes in fair value of all financial assets and liabilities
 
 
Balance at the beginning of the period
 
$ 5.2 
Total realized and unrealized gains (losses) included in Comprehensive income
 
(0.2)
Balance at the ending of the period
 
5.0 
Contingent liability of the acquisition date fair value
5.1 
 
Contingent liability in case of failure to meet the performance metrics
 
Contingent liability in case of complete achievement of performance metrics
$ 8.2 
 
Financial Instruments and Derivative Instruments (Details 3) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Derivative instruments
 
Percentage of projected intercompany purchases hedged by forward exchange contracts
50.00% 
Period of projected intercompany purchase transactions
12 months 
Notional amounts of foreign currency purchase contracts
$ 7.5 
High end of range
 
Derivative instruments
 
Average volume of foreign currency contracts
15 
Low end of range
 
Derivative instruments
 
Average volume of foreign currency contracts
$ 5 
Financial Instruments and Derivative Instruments (Details 4) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Long-term debt
 
 
Carrying amount
$ 383.8 
$ 384.6 
Estimated fair value
$ 418.6 
$ 420.8 
5.47% notes due May 2013
 
 
Senior notes
 
 
Interest rate (as a percent)
5.47% 
 
5.85% notes due April 2016
 
 
Senior notes
 
 
Interest rate (as a percent)
5.85% 
 
5.05% notes due June 2020
 
 
Senior notes
 
 
Interest rate (as a percent)
5.05% 
 
Restructuring and Other Charges, Net (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Apr. 1, 2012
Restructuring and other charges
 
 
Net pre-tax restructuring charges
$ 2.2 
$ 1.2 
Other charges related to impairments
 
0.5 
Total restructuring and other charges, net
2.2 
1.7 
Net restructuring costs and other charges
2.2 
1.7 
Europe
 
 
Restructuring and other charges
 
 
Net after tax charge
3.5 
 
Net restructuring costs and other charges
5.0 
 
North America
 
 
Restructuring and other charges
 
 
Net restructuring costs and other charges
0.2 
0.4 
EMEA
 
 
Restructuring and other charges
 
 
Net restructuring costs and other charges
2.0 
1.3 
2010 Actions
 
 
Restructuring and other charges
 
 
Net pre-tax restructuring charges
0.4 
 
2011 Actions
 
 
Restructuring and other charges
 
 
Net pre-tax restructuring charges
0.1 
0.5 
Other Actions
 
 
Restructuring and other charges
 
 
Net pre-tax restructuring charges
$ 1.7 
$ 0.7 
Earnings per Share (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
0 Months Ended 3 Months Ended
Apr. 30, 2013
Mar. 31, 2013
Apr. 1, 2012
Net Income
 
 
 
Continuing operations
 
$ 16.1 
$ 15.5 
Discontinued operations
 
 
0.2 
Net income
 
16.1 
15.7 
Shares
 
 
 
Shares
 
35.5 
36.9 
Per Share Amount
 
 
 
Continuing operations (in dollars per share)
 
$ 0.45 
$ 0.42 
Net income (in dollars per share)
 
$ 0.45 
$ 0.42 
Dilutive securities, principally common stock options
 
 
 
Shares
 
0.1 
0.1 
Net Income
 
 
 
Continuing operations
 
16.1 
15.5 
Discontinued operations
 
 
0.2 
Net income
 
16.1 
15.7 
Weighted average number of shares:
 
 
 
Weighted average number of shares
 
35.6 
37.0 
Per Share Amount
 
 
 
Continuing operations (in dollars per share)
 
$ 0.45 
$ 0.42 
Net income (in dollars per share)
 
$ 0.45 
$ 0.42 
Securities not included in the computation of diluted EPS
 
 
 
Options to purchase shares of Class A Common Stock
 
0.4 
0.3 
Value of the entity's Class A Common Stock authorized to be repurchased
$ 90 
 
 
Segment Information (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
item
Apr. 1, 2012
Dec. 31, 2012
Segment Information
 
 
 
Number of geographic segments
 
 
Segment information
 
 
 
Net sales
$ 362.1 
$ 361.2 
 
Operating income (loss)
28.3 
26.6 
 
Interest income
0.1 
0.2 
 
Interest expense
(6.0)
(6.2)
 
Other income, net
 
0.9 
 
Income from continuing operations before income taxes
22.4 
21.5 
 
Capital Expenditures
11.0 
4.9 
 
Depreciation and Amortization
12.4 
12.5 
 
Identifiable Assets (at end of period)
1,698.1 
1,748.9 
1,709.0 
Property, plant and equipment, net (at end of period)
222.2 
224.0 
223.6 
Intersegment sales
45.6 
35.1 
 
Number of product categories
 
 
Residential & commercial flow control
 
 
 
Segment information
 
 
 
Net sales
200.4 
198.2 
 
HVAC & gas
 
 
 
Segment information
 
 
 
Net sales
107.7 
109.7 
 
Drains & water re-use
 
 
 
Segment information
 
 
 
Net sales
33.9 
33.8 
 
Water quality
 
 
 
Segment information
 
 
 
Net sales
20.1 
19.5 
 
Discontinued operations
 
 
 
Segment information
 
 
 
Identifiable Assets (at end of period)
 
14.3 
 
Reportable Segments
 
 
 
Segment information
 
 
 
Operating income (loss)
37.5 
34.1 
 
North America
 
 
 
Segment information
 
 
 
Net sales
213.0 
207.0 
 
Operating income (loss)
24.0 
19.9 
 
Capital Expenditures
8.2 
2.6 
 
Depreciation and Amortization
5.0 
4.7 
 
Identifiable Assets (at end of period)
810.8 
847.2 
 
Property, plant and equipment, net (at end of period)
85.2 
75.2 
 
Intersegment sales
1.3 
1.4 
 
Assets held for sale
 
4.4 
 
North America |
U.S.
 
 
 
Segment information
 
 
 
Net sales
192.8 
187.0 
 
Property, plant and equipment, net (at end of period)
79.9 
69.2 
 
EMEA
 
 
 
Segment information
 
 
 
Net sales
142.4 
149.2 
 
Operating income (loss)
10.6 
12.8 
 
Capital Expenditures
2.2 
2.2 
 
Depreciation and Amortization
6.7 
7.3 
 
Identifiable Assets (at end of period)
795.5 
808.3 
 
Property, plant and equipment, net (at end of period)
122.2 
134.1 
 
Intersegment sales
2.7 
2.6 
 
Asia
 
 
 
Segment information
 
 
 
Net sales
6.7 
5.0 
 
Operating income (loss)
2.9 
1.4 
 
Capital Expenditures
0.6 
0.1 
 
Depreciation and Amortization
0.7 
0.5 
 
Identifiable Assets (at end of period)
91.8 
79.1 
 
Property, plant and equipment, net (at end of period)
14.8 
14.7 
 
Intersegment sales
41.6 
31.1 
 
Corporate
 
 
 
Segment information
 
 
 
Operating income (loss)
$ (9.2)
$ (7.5)
 
Accumulated Other Comprehensive Income (Loss) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Dec. 31, 2012
Mar. 31, 2013
Foreign Currency Translation
Apr. 1, 2012
Foreign Currency Translation
Mar. 31, 2013
Pension Adjustment
Apr. 1, 2012
Pension Adjustment
Mar. 31, 2013
Accumulated Other Comprehensive Income (Loss)
Apr. 1, 2012
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss)
 
 
 
 
 
 
 
 
Balance at the beginning of the period
$ (30.5)
$ (10.8)
$ 14.4 
$ 0.1 
$ (25.2)
$ (19.1)
$ (10.8)
$ (19.0)
Change in period
 
 
(19.9)
16.5 
0.2 
0.2 
(19.7)
16.7 
Balance at the ending of the period
$ (30.5)
$ (10.8)
$ (5.5)
$ 16.6 
$ (25.0)
$ (18.9)
$ (30.5)
$ (2.3)
Debt (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Credit Agreement
 
Credit Agreement
 
Multi-currency borrowing capacity
$ 300.0 
Term of senior unsecured revolving credit facility
5 years 
Potential additional borrowing capacity
150.0 
Sublimit on letters of credit
75.0 
Unused and available credit under the credit agreement
270.4 
Stand-by letters of credit outstanding
29.6 
Eurocurrency rate loans |
LIBOR |
Minimum
 
Credit Agreement
 
Interest rate added to base rate (as a percent)
1.70% 
Eurocurrency rate loans |
LIBOR |
Maximum
 
Credit Agreement
 
Interest rate added to base rate (as a percent)
2.30% 
Base rate loans and swing line loans |
Minimum
 
Credit Agreement
 
Interest rate added to base rate (as a percent)
0.70% 
Base rate loans and swing line loans |
Maximum
 
Credit Agreement
 
Interest rate added to base rate (as a percent)
1.30% 
Base rate loans and swing line loans |
LIBOR
 
Credit Agreement
 
Interest rate added to base rate (as a percent)
1.00% 
Base rate loans and swing line loans |
Federal funds
 
Credit Agreement
 
Interest rate added to base rate (as a percent)
0.50% 
Unsecured senior notes
 
Credit Agreement
 
Principal amount of notes issued
$ 75.0 
Contingencies and Environmental Remediation (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
item
Litigation contingencies
 
Reasonably possible loss in excess of the amount accrued for its legal contingencies
$ 8.3 
Asbestos Litigation
 
Litigation contingencies
 
Number of lawsuits the entity is defending in different jurisdictions
42 
Defined Benefit Plans (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Apr. 1, 2012
Components of net periodic benefit cost
 
 
Service cost
$ 0.1 
$ 0.2 
Interest costs on benefits obligation
1.4 
1.4 
Expected return on assets
(1.7)
(1.7)
Net actuarial loss amortization
(0.2)
(0.1)
Information related to the Company's pension funds cash flow
 
 
Employer contributions
0.2 
0.2 
Expected employer contributions in next fiscal year
$ 0.6 
 
Subsequent Event (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
0 Months Ended
Apr. 30, 2013
Subsequent events
 
Value of the entity's Class A Common Stock authorized to be repurchased
$ 90 
Dividend Declared |
Class A Common Stock
 
Subsequent events
 
Quarterly dividend declared (in dollars per share)
$ 0.13 
Dividend Declared |
Class B Common Stock
 
Subsequent events
 
Quarterly dividend declared (in dollars per share)
$ 0.13 
Stock Repurchase Program
 
Subsequent events
 
Value of the entity's Class A Common Stock authorized to be repurchased
$ 90