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1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the Watts Water Technologies, Inc. (the Company) Consolidated Balance Sheet as of June 30, 2013, the Consolidated Statements of Operations for the second quarters and six months ended June 30, 2013 and July 1, 2012, the Consolidated Statements of Comprehensive Income (Loss) for the second quarters and six months ended June 30, 2013 and July 1, 2012, and the Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and July 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 or six month data contained in this Quarterly Report on Form 10-Q generally reflect the results of operations for a 13-week period or 26-week period, respectively.
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2. Accounting Policies
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Goodwill and Long-Lived Assets
The changes in the carrying amount of goodwill by geographic segment are as follows:
|
|
|
June 30, 2013 |
| ||||||||||||||||||||||
|
|
|
Gross Balance |
|
Accumulated Impairment Losses |
|
Net Goodwill |
| ||||||||||||||||||
|
|
|
Balance |
|
Acquired |
|
Foreign |
|
Balance |
|
Balance 2013 |
|
Impairment |
|
Balance |
|
June 30, |
| ||||||||
|
|
|
(in millions) |
| ||||||||||||||||||||||
|
North America |
|
$ |
225.6 |
|
$ |
— |
|
$ |
(0.7 |
) |
$ |
224.9 |
|
$ |
(24.2 |
) |
$ |
— |
|
$ |
(24.2 |
) |
$ |
200.7 |
|
|
Europe, Middle East and Africa (EMEA) |
|
293.9 |
|
— |
|
(4.1 |
) |
289.8 |
|
— |
|
— |
|
— |
|
289.8 |
| ||||||||
|
Asia |
|
12.9 |
|
— |
|
— |
|
12.9 |
|
— |
|
— |
|
— |
|
12.9 |
| ||||||||
|
Total |
|
$ |
532.4 |
|
$ |
— |
|
$ |
(4.8 |
) |
$ |
527.6 |
|
$ |
(24.2 |
) |
$ |
— |
|
$ |
(24.2 |
) |
$ |
503.4 |
|
|
|
|
July 1, 2012 |
| ||||||||||||||||||||||
|
|
|
Gross Balance |
|
Accumulated Impairment Losses |
|
Net Goodwill |
| ||||||||||||||||||
|
|
|
Balance |
|
Acquired Period |
|
Foreign Currency |
|
Balance |
|
Balance 2012 |
|
Impairment |
|
Balance 2012 |
|
July 1, |
| ||||||||
|
|
|
(in millions) |
| ||||||||||||||||||||||
|
North America |
|
$ |
213.8 |
|
$ |
13.1 |
|
$ |
(0.3 |
) |
$ |
226.6 |
|
$ |
(23.2 |
) |
$ |
— |
|
$ |
(23.2 |
) |
$ |
203.4 |
|
|
EMEA |
|
285.3 |
|
— |
|
(10.8 |
) |
274.5 |
|
— |
|
— |
|
— |
|
274.5 |
| ||||||||
|
Asia |
|
12.7 |
|
— |
|
(0.1 |
) |
12.6 |
|
— |
|
— |
|
— |
|
12.6 |
| ||||||||
|
Total |
|
$ |
511.8 |
|
$ |
13.1 |
|
$ |
(11.2 |
) |
$ |
513.7 |
|
$ |
(23.2 |
) |
$ |
— |
|
$ |
(23.2 |
) |
$ |
490.5 |
|
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.
Goodwill and indefinite-lived intangible assets are tested for impairment at least annually or more frequently if events or circumstances indicate that it is “more likely than not” that they might be impaired, such as from a change in business conditions. The Company performs its annual impairment assessment of goodwill and indefinite-lived intangible assets in the fourth quarter of each year.
As of October 28, 2012, the annual impairment analysis date, the fair value of the EMEA reporting unit exceeded the carrying value by a significant amount. The EMEA reporting unit represents the EMEA geographic segment excluding the Blücher reporting unit. During the six months ended June 30, 2013, operating results for the EMEA reporting unit have been hindered by the downturn in the economic environment in Europe and continued to fall below the expected operating results and growth rates used in the calculation of the present value of future cash flow projections, triggering the decision to update the impairment analysis. As a result of the updated fair value assessment, it was determined that the fair value of the EMEA reporting unit did decrease from year end but continues to exceed its carrying value by approximately 15%. The Company also performed an analysis on the long-lived assets in the EMEA reporting unit as a result of the triggering event and concluded that these assets were not impaired.
Should the EMEA reporting unit’s operating results decline further for any reason, including if the European marketplace deteriorates beyond current expectations or should interest rates increase significantly, then the reporting unit’s goodwill may be at risk for impairment in the future. The EMEA reporting unit’s goodwill balance as of June 30, 2013 was $214.8 million.
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:
|
|
|
June 30, 2013 |
|
December 31, 2012 |
| ||||||||||||||
|
|
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
| ||||||
|
|
|
(in millions) |
| ||||||||||||||||
|
Patents |
|
$ |
16.5 |
|
$ |
(12.1 |
) |
$ |
4.4 |
|
$ |
16.5 |
|
$ |
(11.7 |
) |
$ |
4.8 |
|
|
Customer relationships |
|
133.8 |
|
(74.0 |
) |
59.8 |
|
134.3 |
|
(68.7 |
) |
65.6 |
| ||||||
|
Technology |
|
28.1 |
|
(10.3 |
) |
17.8 |
|
28.5 |
|
(9.3 |
) |
19.2 |
| ||||||
|
Trade Names |
|
13.8 |
|
(2.6 |
) |
11.2 |
|
13.9 |
|
(1.9 |
) |
12.0 |
| ||||||
|
Other |
|
8.6 |
|
(5.6 |
) |
3.0 |
|
8.7 |
|
(5.5 |
) |
3.2 |
| ||||||
|
Total amortizable intangibles |
|
200.8 |
|
(104.6 |
) |
96.2 |
|
201.9 |
|
(97.1 |
) |
104.8 |
| ||||||
|
Indefinite-lived intangible assets |
|
41.5 |
|
— |
|
41.5 |
|
41.8 |
|
— |
|
41.8 |
| ||||||
|
Total |
|
$ |
242.3 |
|
$ |
(104.6 |
) |
$ |
137.7 |
|
$ |
243.7 |
|
$ |
(97.1 |
) |
$ |
146.6 |
|
Aggregate amortization expense for amortizable intangible assets for the second quarters of 2013 and 2012 was $3.7 million and $4.2 million, respectively, and for the first six months of 2013 and 2012 was $7.5 million and $8.3 million, respectively. Additionally, future amortization expense for the next five years on amortizable intangible assets is expected to be approximately $7.7 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 8.8 years. Patents, customer relationships, technology, trade names and other amortizable intangibles have weighted-average remaining lives of 6.0 years, 6.1 years, 11.5 years, 11.2 years and 41.1 years, respectively. Indefinite-lived intangible assets primarily include trademarks and trade names.
Stock-Based Compensation
The Company maintains two stock incentive plans under which key employees 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 Second Amended and Restated 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% of the fair market value of the Class A Common Stock on the date of grant. The Company’s current practice is to grant all options at fair market value on the grant date. The Company issued 9,500 stock options during the first six months 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 are fully vested upon grant, 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 3,167 shares of restricted stock under the 2004 Stock Incentive Plan in the first six months 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 six months 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 $10.2 million and $9.2 million for the second quarters of 2013 and 2012, respectively, and were $19.3 million and $18.8 million for the first six months of 2013 and 2012, respectively.
Research and Development
Research and development costs included in selling, general and administrative expenses were $5.5 million and $5.2 million for the second quarters of 2013 and 2012, respectively, and were $10.9 million and $10.5 million for the first six months 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 July 2013, the Financial Accounting Standards Board (“FASB”) issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”, which is intended to eliminate the diversity in practice in the presentation of unrecognized tax benefits in those instances. ASU 2013-11 is effective for fiscal years and interim periods beginning after December 15, 2013. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
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, with early adoption permitted, and must be applied prospectively. The Company early adopted the ASU in fiscal year 2013.
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.
|
|||
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.
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, 2013 |
|
July 1, 2012 |
|
June 30, 2013 |
|
July 1, 2012 |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Operating income — Flomatic |
|
$ |
— |
|
$ |
0.5 |
|
$ |
— |
|
$ |
0.8 |
|
|
Income before income taxes |
|
— |
|
0.5 |
|
— |
|
0.8 |
| ||||
|
Income tax expense . |
|
— |
|
0.2 |
|
— |
|
0.3 |
| ||||
|
Income from discontinued operations, net of taxes |
|
$ |
— |
|
$ |
0.3 |
|
$ |
— |
|
$ |
0.5 |
|
Revenues reported in discontinued operations are as follows:
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, 2013 |
|
July 1, 2012 |
|
June 30, 2013 |
|
July 1, 2012 |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Flomatic revenues. |
|
$ |
— |
|
$ |
3.7 |
|
$ |
— |
|
$ |
6.7 |
|
Sale of Watts Insulation GmbH Austria (“Austroflex”)
On August 1, 2013, the Company completed the sale of all of the outstanding shares of an indirectly wholly-owned subsidiary, Austroflex, receiving proceeds from the sale of approximately $9 million. Austroflex is an Austrian-based manufacturer of pre-insulated flexible pipe systems for district heating, solar applications and under-floor radiant heating systems. Austroflex did not meet performance expectations since its purchase approximately three years ago. The estimated loss after tax on disposal of the business is approximately $2 million. Further, for the year ended December 31, 2011, the Company wrote down Austroflex’s long-lived assets by $14.8 million. Austroflex’s results of operations will be presented as discontinued operations beginning the third quarter of 2013. The carrying amounts of major classes of assets and liabilities associated with the assets held in use as of June 30, 2013 and December 31, 2012 are as follows:
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
(in millions) |
| ||||
|
Inventory and accounts receivable |
|
$ |
4.9 |
|
$ |
3.7 |
|
|
Prepaid expenses and other assets |
|
2.9 |
|
3.8 |
| ||
|
Property, plant and equipment |
|
1.6 |
|
1.9 |
| ||
|
Goodwill |
|
4.2 |
|
4.2 |
| ||
|
Assets of discontinued operations |
|
$ |
13.6 |
|
$ |
13.6 |
|
|
|
|
|
|
|
| ||
|
Accrued expenses and other liabilities |
|
$ |
2.3 |
|
$ |
1.9 |
|
|
Deferred income taxes |
|
0.3 |
|
0.3 |
| ||
|
Liabilities of discontinued operations |
|
$ |
2.6 |
|
$ |
2.2 |
|
|
|||
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 June 30, 2013 and December 31, 2012. The fair values of these certain financial assets and liabilities were determined using the following inputs at June 30, 2013 and December 31, 2012:
|
|
|
Fair Value Measurements at June 30, 2013 Using: |
| ||||||||||
|
|
|
|
|
Quoted Prices in |
|
Significant Other |
|
Significant |
| ||||
|
|
|
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) |
|
3.8 |
|
— |
|
— |
|
3.8 |
| ||||
|
Total liabilities |
|
$ |
8.1 |
|
$ |
4.3 |
|
$ |
— |
|
$ |
3.8 |
|
|
|
|
Fair Value Measurements at December 31, 2012 Using: |
| ||||||||||
|
|
|
|
|
Quoted Prices in Active |
|
Significant Other |
|
Significant |
| ||||
|
|
|
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 June 30, 2013.
|
|
|
Balance |
|
Purchases, |
|
Total realized and |
|
Balance |
| |||||||
|
|
|
December 31, |
|
sales, |
|
Earnings |
|
Comprehensive |
|
June 30, |
| |||||
|
|
|
(in millions) |
| |||||||||||||
|
Contingent consideration |
|
$ |
5.2 |
|
$ |
(1.2 |
) |
$ |
0.1 |
|
$ |
(0.3 |
) |
$ |
3.8 |
|
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. A portion of the contingent consideration was paid out during the period ended June 30, 2013, in the amount of $1.2 million, based on performance metrics achieved in fiscal year 2012. The contingent liability was increased by $0.1 million during the period based on performance metrics achieved to date.
Short-term investment securities as of December 31, 2012 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. There were no short-term investment securities as of June 30, 2013.
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 $4 million to $15 million in open contracts at the end of any given quarter. At June 30, 2013, the Company had contracts for notional amounts aggregating to $4.5 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 5.85% 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:
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
(in millions) |
| ||||
|
Carrying amount |
|
$ |
308.4 |
|
$ |
384.6 |
|
|
Estimated fair value |
|
$ |
337.1 |
|
$ |
420.8 |
|
|
|||
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 the first six months of 2013, the Company initiated restructuring activities in Europe to relocate certain manufacturing activities. Total expected costs are $6.0 million, including severance and relocation costs. The net after tax charge of $4.2 million will be incurred through mid-2014. A summary of the pre-tax cost by restructuring program is as follows:
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, |
|
July 1, |
|
June 30, |
|
July 1, |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Restructuring costs: |
|
|
|
|
|
|
|
|
| ||||
|
2010 Actions |
|
$ |
0.1 |
|
$ |
0.1 |
|
$ |
0.1 |
|
$ |
0.1 |
|
|
2011 Actions |
|
— |
|
0.1 |
|
— |
|
0.6 |
| ||||
|
Other Actions |
|
1.9 |
|
0.9 |
|
4.1 |
|
1.6 |
| ||||
|
Total restructuring charges |
|
2.0 |
|
1.1 |
|
4.2 |
|
2.3 |
| ||||
|
Other charges related to impairments |
|
— |
|
0.1 |
|
— |
|
0.6 |
| ||||
|
Total restructuring and other charges, net |
|
$ |
2.0 |
|
$ |
1.2 |
|
$ |
4.2 |
|
$ |
2.9 |
|
The Company recorded pre-tax restructuring and other charges, net in its business segments as follows:
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, |
|
July 1, |
|
June 30, |
|
July 1, |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
North America |
|
$ |
0.1 |
|
$ |
0.4 |
|
$ |
0.3 |
|
$ |
0.8 |
|
|
EMEA |
|
1.9 |
|
0.8 |
|
3.9 |
|
2.1 |
| ||||
|
Total |
|
$ |
2.0 |
|
$ |
1.2 |
|
$ |
4.2 |
|
$ |
2.9 |
|
|
|||
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:
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, 2013 |
|
July 1, 2012 |
|
June 30, 2013 |
|
July 1, 2012 |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Net Sales |
|
|
|
|
|
|
|
|
| ||||
|
North America |
|
$ |
224.4 |
|
$ |
218.1 |
|
$ |
437.4 |
|
$ |
425.1 |
|
|
EMEA |
|
138.6 |
|
142.8 |
|
281.0 |
|
292.0 |
| ||||
|
Asia |
|
8.3 |
|
6.5 |
|
15.0 |
|
11.5 |
| ||||
|
Consolidated net sales |
|
$ |
371.3 |
|
$ |
367.4 |
|
$ |
733.4 |
|
$ |
728.6 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Operating income (loss) |
|
|
|
|
|
|
|
|
| ||||
|
North America |
|
$ |
31.5 |
|
$ |
26.2 |
|
$ |
55.5 |
|
$ |
46.1 |
|
|
EMEA |
|
9.8 |
|
12.0 |
|
20.4 |
|
24.8 |
| ||||
|
Asia |
|
2.4 |
|
2.1 |
|
5.3 |
|
3.5 |
| ||||
|
Subtotal reportable segments |
|
43.7 |
|
40.3 |
|
81.2 |
|
74.4 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Corporate (*) |
|
(8.1 |
) |
(7.1 |
) |
(17.3 |
) |
(14.6 |
) | ||||
|
Consolidated operating income |
|
35.6 |
|
33.2 |
|
63.9 |
|
59.8 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Interest income |
|
0.2 |
|
0.2 |
|
0.3 |
|
0.4 |
| ||||
|
Interest expense |
|
(5.5 |
) |
(6.1 |
) |
(11.5 |
) |
(12.3 |
) | ||||
|
Other income (expense), net |
|
(1.4 |
) |
— |
|
(1.4 |
) |
0.9 |
| ||||
|
Income from continuing operations before income taxes |
|
$ |
28.9 |
|
$ |
27.3 |
|
$ |
51.3 |
|
$ |
48.8 |
|
|
Capital Expenditures |
|
|
|
|
|
|
|
|
| ||||
|
North America |
|
$ |
4.6 |
|
$ |
1.8 |
|
$ |
12.8 |
|
$ |
4.4 |
|
|
EMEA |
|
2.1 |
|
2.4 |
|
4.3 |
|
4.6 |
| ||||
|
Asia |
|
0.3 |
|
0.5 |
|
0.9 |
|
0.6 |
| ||||
|
Consolidated capital expenditures |
|
$ |
7.0 |
|
$ |
4.7 |
|
$ |
18.0 |
|
$ |
9.6 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Depreciation and Amortization |
|
|
|
|
|
|
|
|
| ||||
|
North America |
|
$ |
5.1 |
|
$ |
4.9 |
|
$ |
10.1 |
|
$ |
9.7 |
|
|
EMEA |
|
6.6 |
|
6.8 |
|
13.3 |
|
14.1 |
| ||||
|
Asia |
|
0.6 |
|
0.5 |
|
1.3 |
|
1.0 |
| ||||
|
Consolidated depreciation and amortization |
|
$ |
12.3 |
|
$ |
12.2 |
|
$ |
24.7 |
|
$ |
24.8 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Identifiable Assets (at end of period) |
|
|
|
|
|
|
|
|
| ||||
|
North America |
|
|
|
|
|
$ |
743.0 |
|
$ |
779.1 |
| ||
|
EMEA |
|
|
|
|
|
812.7 |
|
750.5 |
| ||||
|
Asia. |
|
|
|
|
|
80.1 |
|
90.8 |
| ||||
|
Discontinued operations |
|
|
|
|
|
— |
|
10.9 |
| ||||
|
Consolidated identifiable assets |
|
|
|
|
|
$ |
1,635.8 |
|
$ |
1,631.3 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Property, plant and equipment, net (at end of period) |
|
|
|
|
|
|
|
|
| ||||
|
North America |
|
|
|
|
|
$ |
86.0 |
|
$ |
73.7 |
| ||
|
EMEA |
|
|
|
|
|
121.1 |
|
123.9 |
| ||||
|
Asia |
|
|
|
|
|
14.6 |
|
14.5 |
| ||||
|
Consolidated property, plant and equipment, net |
|
|
|
|
|
$ |
221.7 |
|
$ |
212.1 |
| ||
* 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:
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, 2013 |
|
July 1, 2012 |
|
June 30, 2013 |
|
July 1, 2012 |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
U.S. net sales |
|
$ |
201.6 |
|
$ |
196.0 |
|
$ |
394.4 |
|
$ |
383.0 |
|
|
U.S. property, plant and equipment (at end of period) |
|
|
|
|
|
$ |
81.0 |
|
$ |
68.2 |
| ||
The following includes intersegment sales for North America, EMEA and Asia:
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, 2013 |
|
July 1, 2012 |
|
June 30, 2013 |
|
July 1, 2012 |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Intersegment Sales |
|
|
|
|
|
|
|
|
| ||||
|
North America |
|
$ |
1.3 |
|
$ |
1.2 |
|
$ |
2.6 |
|
$ |
2.6 |
|
|
EMEA |
|
2.4 |
|
2.0 |
|
5.1 |
|
4.6 |
| ||||
|
Asia |
|
47.5 |
|
35.3 |
|
89.1 |
|
66.4 |
| ||||
|
Intersegment sales |
|
$ |
51.2 |
|
$ |
38.5 |
|
$ |
96.8 |
|
$ |
73.6 |
|
The North America segment includes $3.8 million in assets held for sale at July 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:
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, 2013 |
|
July 1, 2012 |
|
June 30, 2013 |
|
July 1, 2012 |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Net Sales |
|
|
|
|
|
|
|
|
| ||||
|
Residential & commercial flow control |
|
$ |
209.2 |
|
$ |
207.5 |
|
$ |
409.6 |
|
$ |
405.7 |
|
|
HVAC & gas |
|
107.0 |
|
106.9 |
|
214.7 |
|
216.6 |
| ||||
|
Drains & water re-use |
|
36.3 |
|
35.0 |
|
70.2 |
|
68.8 |
| ||||
|
Water quality |
|
18.8 |
|
18.0 |
|
38.9 |
|
37.5 |
| ||||
|
Consolidated net sales |
|
$ |
371.3 |
|
$ |
367.4 |
|
$ |
733.4 |
|
$ |
728.6 |
|
|
|||
8. Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) consists of the following:
|
|
|
Foreign |
|
Pension |
|
Accumulated Other |
| |||
|
|
|
(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 |
) |
|
Change in period |
|
7.5 |
|
0.1 |
|
7.6 |
| |||
|
Balance June 30, 2013 |
|
$ |
2.0 |
|
$ |
(24.9 |
) |
$ |
(22.9 |
) |
|
|
|
|
|
|
|
|
| |||
|
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 |
) |
|
Change in period |
|
(39.7 |
) |
0.1 |
|
(39.6 |
) | |||
|
Balance July 1, 2012 |
|
$ |
(23.1 |
) |
$ |
(18.8 |
) |
$ |
(41.9 |
) |
|
|||
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 June 30, 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 June 30, 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 June 30, 2013, the Company was in compliance with all covenants regarding these note agreements. The Company repaid the $75.0 million of unsecured senior notes that matured on May 15, 2013 during the period ended June 30, 2013 with available cash.
|
|||
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 June 30, 2013, the Company estimates that the aggregate amount of reasonably possible loss in excess of the amount accrued for its legal contingencies is approximately $8.2 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.
|
|||
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:
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, |
|
July 1, |
|
June 30, |
|
July 1, |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Service cost — administrative costs |
|
$ |
0.1 |
|
$ |
0.2 |
|
$ |
0.2 |
|
$ |
0.4 |
|
|
Interest costs on benefits obligation |
|
1.4 |
|
1.4 |
|
2.8 |
|
2.8 |
| ||||
|
Expected return on assets |
|
(1.7 |
) |
(1.7 |
) |
(3.4 |
) |
(3.5 |
) | ||||
|
Net actuarial loss amortization |
|
0.2 |
|
0.1 |
|
0.4 |
|
0.3 |
| ||||
|
Net periodic benefit cost |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
The information related to the Company’s pension funds cash flow is as follows:
|
|
|
Six Months Ended |
| ||||
|
|
|
June 30, 2013 |
|
July 1, 2012 |
| ||
|
|
|
(in millions) |
| ||||
|
Employer contributions |
|
$ |
0.4 |
|
$ |
0.4 |
|
The Company expects to contribute approximately $0.4 million to its pension plans for the remainder of 2013.
|
|||
12. Subsequent Events
Dividend Declared
On July 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 August 30, 2013 to stockholders of record at the close of business on August 19, 2013.
Approved European Restructuring Program
On July 30, 2013, the Board of Directors authorized the initiation of a restructuring program with respect to the Company’s European operations to reduce its European manufacturing footprint by approximately 10%, improve organizational and operational efficiency and better align costs with expected revenues in response to changing market conditions.
The restructuring program is expected to include a pre-tax charge to earnings totaling approximately $14.0 million, approximately $9.8 million of which is expected to be recorded through fiscal 2014 and the remainder of which is expected to be recorded during fiscal 2015. This total charge is expected to include costs for severance benefits, relocation, clean-up, professional fees and certain asset write-downs. The total net after-tax charge for the restructuring program is expected to be approximately $10.0 million. The restructuring program is expected to be completed by the end of the fourth quarter of fiscal 2015. Certain aspects of the restructuring program will be subject to further analysis and determinations by local management and consultation and negotiation with various outside agencies.
|
|||
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:
|
|
|
June 30, 2013 |
| ||||||||||||||||||||||
|
|
|
Gross Balance |
|
Accumulated Impairment Losses |
|
Net Goodwill |
| ||||||||||||||||||
|
|
|
Balance |
|
Acquired |
|
Foreign |
|
Balance |
|
Balance 2013 |
|
Impairment |
|
Balance |
|
June 30, |
| ||||||||
|
|
|
(in millions) |
| ||||||||||||||||||||||
|
North America |
|
$ |
225.6 |
|
$ |
— |
|
$ |
(0.7 |
) |
$ |
224.9 |
|
$ |
(24.2 |
) |
$ |
— |
|
$ |
(24.2 |
) |
$ |
200.7 |
|
|
Europe, Middle East and Africa (EMEA) |
|
293.9 |
|
— |
|
(4.1 |
) |
289.8 |
|
— |
|
— |
|
— |
|
289.8 |
| ||||||||
|
Asia |
|
12.9 |
|
— |
|
— |
|
12.9 |
|
— |
|
— |
|
— |
|
12.9 |
| ||||||||
|
Total |
|
$ |
532.4 |
|
$ |
— |
|
$ |
(4.8 |
) |
$ |
527.6 |
|
$ |
(24.2 |
) |
$ |
— |
|
$ |
(24.2 |
) |
$ |
503.4 |
|
|
|
|
July 1, 2012 |
| ||||||||||||||||||||||
|
|
|
Gross Balance |
|
Accumulated Impairment Losses |
|
Net Goodwill |
| ||||||||||||||||||
|
|
|
Balance |
|
Acquired Period |
|
Foreign Currency |
|
Balance |
|
Balance 2012 |
|
Impairment |
|
Balance 2012 |
|
July 1, |
| ||||||||
|
|
|
(in millions) |
| ||||||||||||||||||||||
|
North America |
|
$ |
213.8 |
|
$ |
13.1 |
|
$ |
(0.3 |
) |
$ |
226.6 |
|
$ |
(23.2 |
) |
$ |
— |
|
$ |
(23.2 |
) |
$ |
203.4 |
|
|
EMEA |
|
285.3 |
|
— |
|
(10.8 |
) |
274.5 |
|
— |
|
— |
|
— |
|
274.5 |
| ||||||||
|
Asia |
|
12.7 |
|
— |
|
(0.1 |
) |
12.6 |
|
— |
|
— |
|
— |
|
12.6 |
| ||||||||
|
Total |
|
$ |
511.8 |
|
$ |
13.1 |
|
$ |
(11.2 |
) |
$ |
513.7 |
|
$ |
(23.2 |
) |
$ |
— |
|
$ |
(23.2 |
) |
$ |
490.5 |
|
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.
Goodwill and indefinite-lived intangible assets are tested for impairment at least annually or more frequently if events or circumstances indicate that it is “more likely than not” that they might be impaired, such as from a change in business conditions. The Company performs its annual impairment assessment of goodwill and indefinite-lived intangible assets in the fourth quarter of each year.
As of October 28, 2012, the annual impairment analysis date, the fair value of the EMEA reporting unit exceeded the carrying value by a significant amount. The EMEA reporting unit represents the EMEA geographic segment excluding the Blücher reporting unit. During the six months ended June 30, 2013, operating results for the EMEA reporting unit have been hindered by the downturn in the economic environment in Europe and continued to fall below the expected operating results and growth rates used in the calculation of the present value of future cash flow projections, triggering the decision to update the impairment analysis. As a result of the updated fair value assessment, it was determined that the fair value of the EMEA reporting unit did decrease from year end but continues to exceed its carrying value by approximately 15%. The Company also performed an analysis on the long-lived assets in the EMEA reporting unit as a result of the triggering event and concluded that these assets were not impaired.
Should the EMEA reporting unit’s operating results decline further for any reason, including if the European marketplace deteriorates beyond current expectations or should interest rates increase significantly, then the reporting unit’s goodwill may be at risk for impairment in the future. The EMEA reporting unit’s goodwill balance as of June 30, 2013 was $214.8 million.
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:
|
|
|
June 30, 2013 |
|
December 31, 2012 |
| ||||||||||||||
|
|
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
| ||||||
|
|
|
(in millions) |
| ||||||||||||||||
|
Patents |
|
$ |
16.5 |
|
$ |
(12.1 |
) |
$ |
4.4 |
|
$ |
16.5 |
|
$ |
(11.7 |
) |
$ |
4.8 |
|
|
Customer relationships |
|
133.8 |
|
(74.0 |
) |
59.8 |
|
134.3 |
|
(68.7 |
) |
65.6 |
| ||||||
|
Technology |
|
28.1 |
|
(10.3 |
) |
17.8 |
|
28.5 |
|
(9.3 |
) |
19.2 |
| ||||||
|
Trade Names |
|
13.8 |
|
(2.6 |
) |
11.2 |
|
13.9 |
|
(1.9 |
) |
12.0 |
| ||||||
|
Other |
|
8.6 |
|
(5.6 |
) |
3.0 |
|
8.7 |
|
(5.5 |
) |
3.2 |
| ||||||
|
Total amortizable intangibles |
|
200.8 |
|
(104.6 |
) |
96.2 |
|
201.9 |
|
(97.1 |
) |
104.8 |
| ||||||
|
Indefinite-lived intangible assets |
|
41.5 |
|
— |
|
41.5 |
|
41.8 |
|
— |
|
41.8 |
| ||||||
|
Total |
|
$ |
242.3 |
|
$ |
(104.6 |
) |
$ |
137.7 |
|
$ |
243.7 |
|
$ |
(97.1 |
) |
$ |
146.6 |
|
Aggregate amortization expense for amortizable intangible assets for the second quarters of 2013 and 2012 was $3.7 million and $4.2 million, respectively, and for the first six months of 2013 and 2012 was $7.5 million and $8.3 million, respectively. Additionally, future amortization expense for the next five years on amortizable intangible assets is expected to be approximately $7.7 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 8.8 years. Patents, customer relationships, technology, trade names and other amortizable intangibles have weighted-average remaining lives of 6.0 years, 6.1 years, 11.5 years, 11.2 years and 41.1 years, respectively. Indefinite-lived intangible assets primarily include trademarks and trade names.
Stock-Based Compensation
The Company maintains two stock incentive plans under which key employees 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 Second Amended and Restated 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% of the fair market value of the Class A Common Stock on the date of grant. The Company’s current practice is to grant all options at fair market value on the grant date. The Company issued 9,500 stock options during the first six months 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 are fully vested upon grant, 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 3,167 shares of restricted stock under the 2004 Stock Incentive Plan in the first six months 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 six months 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 $10.2 million and $9.2 million for the second quarters of 2013 and 2012, respectively, and were $19.3 million and $18.8 million for the first six months of 2013 and 2012, respectively.
Research and Development
Research and development costs included in selling, general and administrative expenses were $5.5 million and $5.2 million for the second quarters of 2013 and 2012, respectively, and were $10.9 million and $10.5 million for the first six months 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 July 2013, the Financial Accounting Standards Board (“FASB”) issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”, which is intended to eliminate the diversity in practice in the presentation of unrecognized tax benefits in those instances. ASU 2013-11 is effective for fiscal years and interim periods beginning after December 15, 2013. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
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, with early adoption permitted, and must be applied prospectively. The Company early adopted the ASU in fiscal year 2013.
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.
|
|||
|
|
|
June 30, 2013 |
| ||||||||||||||||||||||
|
|
|
Gross Balance |
|
Accumulated Impairment Losses |
|
Net Goodwill |
| ||||||||||||||||||
|
|
|
Balance |
|
Acquired |
|
Foreign |
|
Balance |
|
Balance 2013 |
|
Impairment |
|
Balance |
|
June 30, |
| ||||||||
|
|
|
(in millions) |
| ||||||||||||||||||||||
|
North America |
|
$ |
225.6 |
|
$ |
— |
|
$ |
(0.7 |
) |
$ |
224.9 |
|
$ |
(24.2 |
) |
$ |
— |
|
$ |
(24.2 |
) |
$ |
200.7 |
|
|
Europe, Middle East and Africa (EMEA) |
|
293.9 |
|
— |
|
(4.1 |
) |
289.8 |
|
— |
|
— |
|
— |
|
289.8 |
| ||||||||
|
Asia |
|
12.9 |
|
— |
|
— |
|
12.9 |
|
— |
|
— |
|
— |
|
12.9 |
| ||||||||
|
Total |
|
$ |
532.4 |
|
$ |
— |
|
$ |
(4.8 |
) |
$ |
527.6 |
|
$ |
(24.2 |
) |
$ |
— |
|
$ |
(24.2 |
) |
$ |
503.4 |
|
|
|
|
July 1, 2012 |
| ||||||||||||||||||||||
|
|
|
Gross Balance |
|
Accumulated Impairment Losses |
|
Net Goodwill |
| ||||||||||||||||||
|
|
|
Balance |
|
Acquired Period |
|
Foreign Currency |
|
Balance |
|
Balance 2012 |
|
Impairment |
|
Balance 2012 |
|
July 1, |
| ||||||||
|
|
|
(in millions) |
| ||||||||||||||||||||||
|
North America |
|
$ |
213.8 |
|
$ |
13.1 |
|
$ |
(0.3 |
) |
$ |
226.6 |
|
$ |
(23.2 |
) |
$ |
— |
|
$ |
(23.2 |
) |
$ |
203.4 |
|
|
EMEA |
|
285.3 |
|
— |
|
(10.8 |
) |
274.5 |
|
— |
|
— |
|
— |
|
274.5 |
| ||||||||
|
Asia |
|
12.7 |
|
— |
|
(0.1 |
) |
12.6 |
|
— |
|
— |
|
— |
|
12.6 |
| ||||||||
|
Total |
|
$ |
511.8 |
|
$ |
13.1 |
|
$ |
(11.2 |
) |
$ |
513.7 |
|
$ |
(23.2 |
) |
$ |
— |
|
$ |
(23.2 |
) |
$ |
490.5 |
|
|
|
|
June 30, 2013 |
|
December 31, 2012 |
| ||||||||||||||
|
|
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
| ||||||
|
|
|
(in millions) |
| ||||||||||||||||
|
Patents |
|
$ |
16.5 |
|
$ |
(12.1 |
) |
$ |
4.4 |
|
$ |
16.5 |
|
$ |
(11.7 |
) |
$ |
4.8 |
|
|
Customer relationships |
|
133.8 |
|
(74.0 |
) |
59.8 |
|
134.3 |
|
(68.7 |
) |
65.6 |
| ||||||
|
Technology |
|
28.1 |
|
(10.3 |
) |
17.8 |
|
28.5 |
|
(9.3 |
) |
19.2 |
| ||||||
|
Trade Names |
|
13.8 |
|
(2.6 |
) |
11.2 |
|
13.9 |
|
(1.9 |
) |
12.0 |
| ||||||
|
Other |
|
8.6 |
|
(5.6 |
) |
3.0 |
|
8.7 |
|
(5.5 |
) |
3.2 |
| ||||||
|
Total amortizable intangibles |
|
200.8 |
|
(104.6 |
) |
96.2 |
|
201.9 |
|
(97.1 |
) |
104.8 |
| ||||||
|
Indefinite-lived intangible assets |
|
41.5 |
|
— |
|
41.5 |
|
41.8 |
|
— |
|
41.8 |
| ||||||
|
Total |
|
$ |
242.3 |
|
$ |
(104.6 |
) |
$ |
137.7 |
|
$ |
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 |
% |
|
|||
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, 2013 |
|
July 1, 2012 |
|
June 30, 2013 |
|
July 1, 2012 |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Operating income — Flomatic |
|
$ |
— |
|
$ |
0.5 |
|
$ |
— |
|
$ |
0.8 |
|
|
Income before income taxes |
|
— |
|
0.5 |
|
— |
|
0.8 |
| ||||
|
Income tax expense . |
|
— |
|
0.2 |
|
— |
|
0.3 |
| ||||
|
Income from discontinued operations, net of taxes |
|
$ |
— |
|
$ |
0.3 |
|
$ |
— |
|
$ |
0.5 |
|
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, 2013 |
|
July 1, 2012 |
|
June 30, 2013 |
|
July 1, 2012 |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Flomatic revenues. |
|
$ |
— |
|
$ |
3.7 |
|
$ |
— |
|
$ |
6.7 |
|
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
(in millions) |
| ||||
|
Inventory and accounts receivable |
|
$ |
4.9 |
|
$ |
3.7 |
|
|
Prepaid expenses and other assets |
|
2.9 |
|
3.8 |
| ||
|
Property, plant and equipment |
|
1.6 |
|
1.9 |
| ||
|
Goodwill |
|
4.2 |
|
4.2 |
| ||
|
Assets of discontinued operations |
|
$ |
13.6 |
|
$ |
13.6 |
|
|
|
|
|
|
|
| ||
|
Accrued expenses and other liabilities |
|
$ |
2.3 |
|
$ |
1.9 |
|
|
Deferred income taxes |
|
0.3 |
|
0.3 |
| ||
|
Liabilities of discontinued operations |
|
$ |
2.6 |
|
$ |
2.2 |
|
|
|||
|
|
|
Fair Value Measurements at June 30, 2013 Using: |
| ||||||||||
|
|
|
|
|
Quoted Prices in |
|
Significant Other |
|
Significant |
| ||||
|
|
|
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) |
|
3.8 |
|
— |
|
— |
|
3.8 |
| ||||
|
Total liabilities |
|
$ |
8.1 |
|
$ |
4.3 |
|
$ |
— |
|
$ |
3.8 |
|
|
|
|
Fair Value Measurements at December 31, 2012 Using: |
| ||||||||||
|
|
|
|
|
Quoted Prices in Active |
|
Significant Other |
|
Significant |
| ||||
|
|
|
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 |
|
Balance |
| |||||||
|
|
|
December 31, |
|
sales, |
|
Earnings |
|
Comprehensive |
|
June 30, |
| |||||
|
|
|
(in millions) |
| |||||||||||||
|
Contingent consideration |
|
$ |
5.2 |
|
$ |
(1.2 |
) |
$ |
0.1 |
|
$ |
(0.3 |
) |
$ |
3.8 |
|
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
(in millions) |
| ||||
|
Carrying amount |
|
$ |
308.4 |
|
$ |
384.6 |
|
|
Estimated fair value |
|
$ |
337.1 |
|
$ |
420.8 |
|
|
|||
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, |
|
July 1, |
|
June 30, |
|
July 1, |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Restructuring costs: |
|
|
|
|
|
|
|
|
| ||||
|
2010 Actions |
|
$ |
0.1 |
|
$ |
0.1 |
|
$ |
0.1 |
|
$ |
0.1 |
|
|
2011 Actions |
|
— |
|
0.1 |
|
— |
|
0.6 |
| ||||
|
Other Actions |
|
1.9 |
|
0.9 |
|
4.1 |
|
1.6 |
| ||||
|
Total restructuring charges |
|
2.0 |
|
1.1 |
|
4.2 |
|
2.3 |
| ||||
|
Other charges related to impairments |
|
— |
|
0.1 |
|
— |
|
0.6 |
| ||||
|
Total restructuring and other charges, net |
|
$ |
2.0 |
|
$ |
1.2 |
|
$ |
4.2 |
|
$ |
2.9 |
|
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, |
|
July 1, |
|
June 30, |
|
July 1, |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
North America |
|
$ |
0.1 |
|
$ |
0.4 |
|
$ |
0.3 |
|
$ |
0.8 |
|
|
EMEA |
|
1.9 |
|
0.8 |
|
3.9 |
|
2.1 |
| ||||
|
Total |
|
$ |
2.0 |
|
$ |
1.2 |
|
$ |
4.2 |
|
$ |
2.9 |
|
|
|||
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, 2013 |
|
July 1, 2012 |
|
June 30, 2013 |
|
July 1, 2012 |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Net Sales |
|
|
|
|
|
|
|
|
| ||||
|
North America |
|
$ |
224.4 |
|
$ |
218.1 |
|
$ |
437.4 |
|
$ |
425.1 |
|
|
EMEA |
|
138.6 |
|
142.8 |
|
281.0 |
|
292.0 |
| ||||
|
Asia |
|
8.3 |
|
6.5 |
|
15.0 |
|
11.5 |
| ||||
|
Consolidated net sales |
|
$ |
371.3 |
|
$ |
367.4 |
|
$ |
733.4 |
|
$ |
728.6 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Operating income (loss) |
|
|
|
|
|
|
|
|
| ||||
|
North America |
|
$ |
31.5 |
|
$ |
26.2 |
|
$ |
55.5 |
|
$ |
46.1 |
|
|
EMEA |
|
9.8 |
|
12.0 |
|
20.4 |
|
24.8 |
| ||||
|
Asia |
|
2.4 |
|
2.1 |
|
5.3 |
|
3.5 |
| ||||
|
Subtotal reportable segments |
|
43.7 |
|
40.3 |
|
81.2 |
|
74.4 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Corporate (*) |
|
(8.1 |
) |
(7.1 |
) |
(17.3 |
) |
(14.6 |
) | ||||
|
Consolidated operating income |
|
35.6 |
|
33.2 |
|
63.9 |
|
59.8 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Interest income |
|
0.2 |
|
0.2 |
|
0.3 |
|
0.4 |
| ||||
|
Interest expense |
|
(5.5 |
) |
(6.1 |
) |
(11.5 |
) |
(12.3 |
) | ||||
|
Other income (expense), net |
|
(1.4 |
) |
— |
|
(1.4 |
) |
0.9 |
| ||||
|
Income from continuing operations before income taxes |
|
$ |
28.9 |
|
$ |
27.3 |
|
$ |
51.3 |
|
$ |
48.8 |
|
|
Capital Expenditures |
|
|
|
|
|
|
|
|
| ||||
|
North America |
|
$ |
4.6 |
|
$ |
1.8 |
|
$ |
12.8 |
|
$ |
4.4 |
|
|
EMEA |
|
2.1 |
|
2.4 |
|
4.3 |
|
4.6 |
| ||||
|
Asia |
|
0.3 |
|
0.5 |
|
0.9 |
|
0.6 |
| ||||
|
Consolidated capital expenditures |
|
$ |
7.0 |
|
$ |
4.7 |
|
$ |
18.0 |
|
$ |
9.6 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Depreciation and Amortization |
|
|
|
|
|
|
|
|
| ||||
|
North America |
|
$ |
5.1 |
|
$ |
4.9 |
|
$ |
10.1 |
|
$ |
9.7 |
|
|
EMEA |
|
6.6 |
|
6.8 |
|
13.3 |
|
14.1 |
| ||||
|
Asia |
|
0.6 |
|
0.5 |
|
1.3 |
|
1.0 |
| ||||
|
Consolidated depreciation and amortization |
|
$ |
12.3 |
|
$ |
12.2 |
|
$ |
24.7 |
|
$ |
24.8 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Identifiable Assets (at end of period) |
|
|
|
|
|
|
|
|
| ||||
|
North America |
|
|
|
|
|
$ |
743.0 |
|
$ |
779.1 |
| ||
|
EMEA |
|
|
|
|
|
812.7 |
|
750.5 |
| ||||
|
Asia. |
|
|
|
|
|
80.1 |
|
90.8 |
| ||||
|
Discontinued operations |
|
|
|
|
|
— |
|
10.9 |
| ||||
|
Consolidated identifiable assets |
|
|
|
|
|
$ |
1,635.8 |
|
$ |
1,631.3 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Property, plant and equipment, net (at end of period) |
|
|
|
|
|
|
|
|
| ||||
|
North America |
|
|
|
|
|
$ |
86.0 |
|
$ |
73.7 |
| ||
|
EMEA |
|
|
|
|
|
121.1 |
|
123.9 |
| ||||
|
Asia |
|
|
|
|
|
14.6 |
|
14.5 |
| ||||
|
Consolidated property, plant and equipment, net |
|
|
|
|
|
$ |
221.7 |
|
$ |
212.1 |
| ||
* 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.
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, 2013 |
|
July 1, 2012 |
|
June 30, 2013 |
|
July 1, 2012 |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
U.S. net sales |
|
$ |
201.6 |
|
$ |
196.0 |
|
$ |
394.4 |
|
$ |
383.0 |
|
|
U.S. property, plant and equipment (at end of period) |
|
|
|
|
|
$ |
81.0 |
|
$ |
68.2 |
| ||
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, 2013 |
|
July 1, 2012 |
|
June 30, 2013 |
|
July 1, 2012 |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Intersegment Sales |
|
|
|
|
|
|
|
|
| ||||
|
North America |
|
$ |
1.3 |
|
$ |
1.2 |
|
$ |
2.6 |
|
$ |
2.6 |
|
|
EMEA |
|
2.4 |
|
2.0 |
|
5.1 |
|
4.6 |
| ||||
|
Asia |
|
47.5 |
|
35.3 |
|
89.1 |
|
66.4 |
| ||||
|
Intersegment sales |
|
$ |
51.2 |
|
$ |
38.5 |
|
$ |
96.8 |
|
$ |
73.6 |
|
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, 2013 |
|
July 1, 2012 |
|
June 30, 2013 |
|
July 1, 2012 |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Net Sales |
|
|
|
|
|
|
|
|
| ||||
|
Residential & commercial flow control |
|
$ |
209.2 |
|
$ |
207.5 |
|
$ |
409.6 |
|
$ |
405.7 |
|
|
HVAC & gas |
|
107.0 |
|
106.9 |
|
214.7 |
|
216.6 |
| ||||
|
Drains & water re-use |
|
36.3 |
|
35.0 |
|
70.2 |
|
68.8 |
| ||||
|
Water quality |
|
18.8 |
|
18.0 |
|
38.9 |
|
37.5 |
| ||||
|
Consolidated net sales |
|
$ |
371.3 |
|
$ |
367.4 |
|
$ |
733.4 |
|
$ |
728.6 |
|
|
|||
|
|
|
Foreign |
|
Pension |
|
Accumulated Other |
| |||
|
|
|
(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 |
) |
|
Change in period |
|
7.5 |
|
0.1 |
|
7.6 |
| |||
|
Balance June 30, 2013 |
|
$ |
2.0 |
|
$ |
(24.9 |
) |
$ |
(22.9 |
) |
|
|
|
|
|
|
|
|
| |||
|
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 |
) |
|
Change in period |
|
(39.7 |
) |
0.1 |
|
(39.6 |
) | |||
|
Balance July 1, 2012 |
|
$ |
(23.1 |
) |
$ |
(18.8 |
) |
$ |
(41.9 |
) |
|
|||
|
|
|
Second Quarter Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, |
|
July 1, |
|
June 30, |
|
July 1, |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Service cost — administrative costs |
|
$ |
0.1 |
|
$ |
0.2 |
|
$ |
0.2 |
|
$ |
0.4 |
|
|
Interest costs on benefits obligation |
|
1.4 |
|
1.4 |
|
2.8 |
|
2.8 |
| ||||
|
Expected return on assets |
|
(1.7 |
) |
(1.7 |
) |
(3.4 |
) |
(3.5 |
) | ||||
|
Net actuarial loss amortization |
|
0.2 |
|
0.1 |
|
0.4 |
|
0.3 |
| ||||
|
Net periodic benefit cost |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
|
|
Six Months Ended |
| ||||
|
|
|
June 30, 2013 |
|
July 1, 2012 |
| ||
|
|
|
(in millions) |
| ||||
|
Employer contributions |
|
$ |
0.4 |
|
$ |
0.4 |
|
|
|
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