Watts Water Annual Report 2020

FY2020 Annual Report · Watts Water

Loading PDF…

3/11/21 9:22 PM

60542_CVR.indd 2

Our Mission

To improve comfort, safety, and quality of life for people around the world through
our expertise in a wide range of water technologies. To be the best in the eyes of our
employees, customers, and shareholders.

Our Corporate Strategy
Our strategy focuses on 5 key pillars:
1. Growth
2. Operational Excellence
3. Commercial Excellence
4. One Watts
5. Talent & Performance Culture

Focus Areas
Our solutions offer customers
benefits in 3 key areas:
1. Safety & Regulation
2. Energy Efficiency
3. Water Conservation

Patents
Watts has a portfolio of over
400 listed patents worldwide.

Solutions for:
• Plumbing & Flow Control
• HVAC
• Water Reuse & Drainage
• Water Quality & Conditioning
• Municipal Waterworks

Our Customers
• Contractors/Installers
• Wholesalers
• Engineers/Designers
• OEMs
• Consumers
• Facility Managers/Owners

Founded
1874 by Joseph Watts
Lawrence, MA

Headquarters
Americas & Corporate Headquarters:
North Andover, Massachusetts, USA
European Headquarters:
Amsterdam, Netherlands
Asia-Pacific, Middle East &
Africa Headquarters:
Shanghai, China

Regions
We have over 4,800 employees
on 5 continents, located in
more than 24 countries, and
they collectively speak more
than 18 languages.

60542_NAR.indd 3

3/12/21 1:23 PM

To Our Shareholders

Robert J.
Pagano, Jr., Chief
Executive Officer
and President;
Shashank Patel,
Chief Financial
Officer.

A s a company, we were challenged in unprecedented ways during 2020. In the

face of global disruption caused by the COVID-19 pandemic, we remained focused
on our key strategic initiatives, while adapting and proactively responding to extreme

volatility in our end markets.

I would like to express my deepest gratitude to our employees around the world. Their dedi-
cation since the start of the pandemic has been unwavering – ensuring our customers’ needs
were being met and staying focused on the long-term goals of our business. I would also like to
thank all of our global channel and supply chain partners for their commitment to Watts.

This past year tested everyone’s patience, resolve and commitment, both on a personal
and professional level. I am so grateful to our experienced team whose leadership and agility
helped us endure the dynamics of a constantly changing economic environment against the
backdrop of serious and evolving health issues.

Inevitably, the pandemic had a significant impact on our financial results. However, due to
our swift and decisive actions, we were able to mitigate the adverse effects while still investing
for the future.

Pandemic Response

We took bold action early to ensure the continuity of our operations. We quickly established
a COVID-19 Task Force to govern our pandemic response and execute on our global pre-
paredness plan.
• Workplace Health and Safety – We implemented numerous safety protocols that met
or exceeded CDC, WHO and other country-specific requirements. Face coverings, so-
cial distancing and frequent hand washing practices were standardized across all our

60542_NAR.indd 4

3/12/21 1:28 PM

Total Net Sales
1.60

1.46

1.57

1.51

1.40

s
n
o

i
l
l
i

B
$

2016

2017

2018

2019

2020

Adjusted Operating Margin•

11.9%

12.3%

11.4%

12.9% 12.9%

2016

2017

2018

2019

2020

Adjusted Earnings
Per Share*

$4.07

$3.88

$3.74

$3.02

$2.67

operations. We instituted enhanced cleaning procedures, temperature scanning and
monitoring, and material handling methods. To protect our employees and their families,
and to limit the spread of the coronavirus, we enacted international and domestic travel
restrictions, guidelines for self-quarantining and temporary work-from-home policies.
• Employee and Customer Support – As front-line workers kept our factories running
throughout global lockdown periods, our “connected” workforce pivoted to a remote
work structure. To support their needs, we doubled our global information security team,
ensuring rapid deployment of needed equipment and response to technical issues. We
strengthened our core infrastructure capabilities, boosted email security through multi-factor
authentication, and launched a cyber risk awareness campaign, which reduced potential
security threats. For our customers, we instituted a dedicated hotline to support critical in-
frastructure projects and facilitate ongoing communications to help maintain the continuity
of their operations. We expanded our library of online learning tools and continued to invest
in new product development to address our customers’ long-term needs.

• Mitigating Actions – We executed immediate cost reduction measures to mitigate the
impact of lower demand and volume declines, including merit deferrals, salary reductions,
furloughs and reduced discretionary spending. We also focused on liquidity by carefully
managing working capital, extending our credit agreement, and aggressively paying down
existing debt through cash repatriation and generating strong operating cash flow.

Financial Performance*

In 2020, sales for the full year were $1.5 billion, down $92 million, or 6% on a reported basis
and down 7% organically. Organic sales decreased in all three regions due to the pandemic’s
impact. Despite top-line headwinds, we were able to maintain our adjusted operating margin
at 12.9% due to the mitigating actions implemented. We achieved this while still investing
an incremental $9 million to support our smart and connected strategy and productivity en-
hancements.

Adjusted earnings per share (EPS) of $3.88 decreased 5% as lower sales volume was
partially offset by a lower adjusted effective income tax rate and favorable foreign currency
translation movements. Free cash flow was $187 million, a 14% increase year-over-year
and a record for the Company. We achieved this record while increasing capital expenditure
outlays by 50% over 2019 to $44 million, to upgrade our manufacturing capabilities and
accelerate productivity.

Growth

In 2020, we continued to drive new product development and execute on our smart and
connected strategy – investing $42 million in research and development, a 7% increase over
the prior year.

In the Americas, we introduced a range of new products and solutions, including Ames

2016

2017

2018

2019

2020

*
For further discussion of “organic sales,” “adjusted operating margin,” “adjusted earnings per share,” and “free
cash flow,” which are non-GAAP financial measures, and the comparable GAAP measures, see the section
titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form
10-K included in this Annual Report to Shareholders. See last page for a reconciliation of GAAP to non-GAAP
items, including adjusted operating margin and adjusted earnings per share.

60542_NAR.indd 5

3/11/21 6:54 PM

Deringer™ stainless steel backflow prevention assemblies, and new sizes and enhanced
functionality in our AERCO Benchmark® Platinum condensing boilers and PVI condensing
water heaters. We also expanded our iDroset™ calibrated flow measurement and balanc-
ing valve offering into the region, as well as our line of Pronto!® adjustable floor drains and
cleanouts. In Europe, we launched a variety of OneFlow® water quality products, and
BLÜCHER standard and connected roof drains. In China, we added new products and
seized growth opportunities in the data center segment, which accounted for 40% of valve
sales in the region last year.

Inorganic growth initiatives strengthened our market presence in key geographies and
product categories. The acquisition of Australian Valve Group (AVG) broadened our product
offering and channel access in the Australian market. We also acquired The Detection Group
(TDG), a U.S.-based company that makes wireless sensor technologies and solutions for
smart water leakage detection. TDG will enhance our smart and connected product offering
to owners and tenants of commercial and multifamily buildings.

We shifted our 2020 training offerings to 100% virtual through Watts Works Online. By ex-
panding our e-learning program outside the U.S. and Canada, and into Mexico, France and
Italy, customers and sales reps completed more than 100,000 on-demand virtual training
courses. Internally, we rolled out a robust course curriculum for employees transitioning to
remote work, including topics such as managing stress, balancing work and life, and navigat-
ing unexpected change. In all, employees completed more than 10,000 online courses – an
83% increase from the prior year.

We made investments to enrich the digital experience for our customers. On Watts.com, we
implemented over 150 enhancements, improving the site’s search capabilities and expanding
our growing resource library with hundreds of new assets. We released new online specifica-
tion tools, like SpecHUB™, Selexit and Digisco, and optimized several websites across our
family of brands, including AERCO and BLÜCHER. Further, we expanded our e-commerce
offerings to better serve key verticals – such as the fire protection and agriculture industries –
and amplified our social media footprint.

Operational Excellence

We continued driving operational excellence through the One Watts Performance System
(OWPS). This integrated framework of tools, processes and behaviors serves as a blueprint
for how we innovate, drive superior quality and performance, and ultimately deliver value to
our customers.

Safety is one aspect of the OWPS and is always a top priority for us. Each year, we strive
for zero hazards and zero injuries by educating and training employees on safety best prac-
tices through awareness campaigns and related engagement initiatives. For example, our
Near Miss and Safety Observation program serves to prevent injuries and accidents. In 2020,

AERCO Benchmark®
Platinum condensing boilers

BLÜCHER connected
roof drain

Ames Deringer™ stainless steel
backflow prevention assemblies

Pronto!® adjustable floor drain
with integrated level

60542_NAR.indd 6

3/15/21 9:16 AM

employees generated over 4,000 near miss reports and more than 13,000 safety observa-
tions, reducing our Total Recordable Incident Rate (TRIR) by 29% and Lost Time Incident
Rate (LTIR) by 37% year over year. Additionally, six of our sites were certified to ISO 45001 for
occupational health and safety.

We also made great strides to drive continuous improvement throughout our facilities
around the world. Through our Quick Kaizen program, more than 1,000 individual contribu-
tors completed 5,000 improvement events globally. Beyond the manufacturing floor, teams
in sales and marketing, product management and finance completed other lean initiatives to
generate cost savings and eliminate waste.

Our sustainability efforts were instrumental in minimizing our impact on the environment with
reductions in water consumption, greenhouse gas (GHG) emissions and hazardous waste.
Seven sites were certified to ISO 14001 for environmental management systems.

Diversity, Equity and Inclusion

At Watts, we are committed to providing a diverse, safe and inclusive environment. We value
the collective voice of our employees and encourage ongoing feedback to make Watts an even
better place to work for everyone.

In 2020, we launched a global Diversity, Equity and Inclusion (DEI) survey. Using data gleaned
from the results, we identified key areas of focus and formed a working group to lead our global
diversity initiatives. Throughout the year, we enhanced our talent recruitment processes with
new hiring standards for diversity. We deployed training and development programs on relevant
topics such as unconscious bias, inclusive leadership and communicating about culturally
sensitive issues.

Also, our “Black Matters at Watts” employee resource group initiated a Black awareness and
education campaign to reaffirm our commitment to providing a safe and inclusive workplace
for our employees. In doing so, we implemented a pay equity assessment for Black employ-
ees and other underrepresented minorities. Additionally, we forged partnerships with several
Historically Black Colleges and Universities (HBCUs), providing scholarships and funding
other engagement programs, with the expectation that recipients will intern with us and
potentially become full-time employees.

Corporate Social Responsibility

As highlighted in our fourth annual Sustainability Report, we made significant strides
regarding our commitment to responsible Environment, Social and Governance (ESG)
business practices.

In 2020, our sustainability performance improved following evaluations from several
leading ESG ratings agencies. Also, for the second consecutive year, Newsweek named
Watts among “America’s Most Responsible Companies.” More than 2,000 of the largest

New Fort Myers facility
successfully opened in 2020

Sorgues, France facility scores
high on employee safety survey

St. Neots marks 6 years incident free

2020 Sustainability
Report

60542_NAR.indd 7

3/12/21 1:34 PM

U.S. firms were evaluated. In total, only 400 companies, spanning 14 industries, made the
final list.

Our partnership with Planet Water Foundation entered its fifth year. In 2020, we supported the
installation of two water filtration systems in Aguascalientes, Mexico, providing 3,600 people
with 10,000 liters of clean water daily. To date, our joint efforts have made clean water a reality
for more than 30,000 people in the world’s most disadvantaged areas.

We supported local communities impacted by the coronavirus pandemic. Through our
“Ready to Serve” campaign in the U.S., Watts donated $1 to the Restaurant Employee Relief
Fund (RERF) for every Dormont Blue Hose® kit sold over the summer, totaling $17,000. The
fund raised more than $21.5 million to help 43,000 restaurant workers in all 50 states, half of
which included racial minorities.

Watts supplied front-line healthcare workers with surgical face masks, latex gloves and
other personal protective equipment, and donated laptops and school supplies to students
attending school remotely. We also donated smart and connected products to support vari-
ous non-profit organizations, as well as military veterans and other families in need, including
high-efficiency boilers, radiant heating systems and water filtration devices.

Our employees did their part, too, making charitable contributions to a range of social
causes, and volunteering their time to clean up neighborhoods, pack meals for the hungry and
mentor undergraduates pursuing careers in advanced manufacturing.

Planet Water tower in
Aquascalientes, Mexico

Looking Ahead

We expect 2021 may be a transition year, as growth in single family homes will be more
than offset by softening nonresidential and multi-family new construction. As vaccinations for
the coronavirus continue to roll out globally, we are hopeful that the uncertainty created by
the pandemic will recede and our markets return to growth. The safety and wellbeing of our
employees will continue to be a top priority, as will delivering on our commitment to serve our
customers. We will remain focused, but flexible in these challenging times and leverage the
strength of our financial position to set us up for future success.

Dormont donates to Relief Fund

AERCO keeps hospital running

Sincerely,

Robert J. Pagano, Jr.

Chief Executive Officer and President

PPE donation

60542_NAR.indd 8

3/15/21 7:45 PM

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

For the fiscal year ended December 31, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

Commission file number 001-11499

WATTS WATER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)

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

04-2916536
(I.R.S. Employer
Identification No.)

01845
(Zip Code)

Registrant’s telephone number, including area code: (978) 688-1811

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

Title of each class

Class A common stock, par value $0.10 per share

Trading
Symbol(s)
WTS

Name of each exchange on which registered

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes  No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934

during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of

Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an

emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or

revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 26, 2020, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $2,137,251,957

based on the closing sale price as reported on the New York Stock Exchange.

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

Class
Class A common stock, $0.10 par value per share
Class B common stock, $0.10 par value per share

Outstanding at January 24, 2021
27,470,911 shares
6,144,290 shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for its Annual Meeting of Stockholders to be held on May 12, 2021 are incorporated by reference into Part III

of this Annual Report on Form 10-K.

TABLE OF CONTENTS

Page

PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

PART II
Item 5.

Item 6.
Item 7.

BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED

STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES

SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET

RISK

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

CONTROLS AND PROCEDURES
OTHER INFORMATION

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT AND RELATED STOCKHOLDER MATTERS

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND

DIRECTOR INDEPENDENCE

PRINCIPAL ACCOUNTANT FEES AND SERVICES

EXHIBITS, FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY.

Item 8.
Item 9.

Item 9A.
Item 9B.

PART III
Item 10.
Item 11.
Item 12.

Item 13.

Item 14.

PART IV
Item 15.
Item 16.

EXHIBIT INDEX
SIGNATURES

3
13
20
20
21
21

23
24

40
40
43

43
43
43

45
45

88
91

Item 1. BUSINESS.

PART I

This Annual Report on Form 10-K contains statements that are not historical facts and are considered forward-looking
within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements contain
projections of our future results of operations or our financial position or state other forward-looking information. In
some cases, you can identify these forward-looking statements by words such as “anticipate,” “believe,” “could,”
“estimate,” “expect,” “intend,” “may,” “should,” and “would” or similar words. You should not rely on
forward-looking statements because they involve known and unknown risks, uncertainties and other factors, some of
which are beyond our control. These risks, uncertainties and other factors may cause our actual results, performance or
achievements to differ materially from the anticipated future results, performance or achievements expressed or implied
by the forward-looking statements. Some of the factors that might cause these differences are described under Item 1A—
“Risk Factors.” You should carefully review all of these factors, and you should be aware that there may be other
factors that could cause these differences. These forward-looking statements were based on information, plans and
estimates at the date of this report, and, except as required by law, we undertake no obligation to update any
forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or
other changes.

In this Annual Report on Form 10-K, references to “the Company,” “Watts Water,” “Watts,” “we,” “us” or “our” refer to
Watts Water Technologies, Inc. and its consolidated subsidiaries.

Overview

Watts Regulator Co. was founded by Joseph E. Watts in 1874 in Lawrence, Massachusetts. Watts Regulator Co. started
as a small machine shop supplying parts to the New England textile mills of the 19th century and grew into a global
manufacturer of products and systems focused on the control, conservation and quality of water and the comfort and
safety of the people using it. Watts Water Technologies, Inc. was incorporated in Delaware in 1985 and is the parent
company of Watts Regulator Co.

Our strategy is to be the preferred supplier of differentiated products, solutions and systems that manage and conserve
the flow of fluids and energy into, through and out of buildings in the commercial and residential markets of the
Americas, Europe, and Asia-Pacific, Middle East and Africa (“APMEA”), our three geographic segments. Within this
framework, we focus upon three themes: safety & regulation, energy efficiency and water conservation. This strategy
provides us with a platform to increase our earnings via sales growth, both organic and inorganic, and the systematic
reduction of manufacturing costs and operational expenses.

Our strategy is to expand organically by introducing new complementary products and solutions in existing markets, by
enhancing our preferred brands, by promoting plumbing code development to drive the need for safety and quality
products and by continually improving merchandising in our wholesale distribution channels. We focus on selling
solutions to our customers that integrate a variety of our product offerings. We target selected new products and
geographic markets based on growth potential, including our ability to leverage our existing distribution channels.
Additionally, we leverage our distribution channels through the introduction of new products and solutions, as well as
the integration of products of our acquired companies.

The Internet of Things “IoT” has allowed companies to transform components and products into smart and connected
devices. We remain committed to enhancing our smart and connected capabilities by expanding our internal
competencies and making strategic acquisitions. We continue to focus our efforts related to our smart and connected
strategy by investing in IoT architecture development, enhancing digital tools used by our customers, including Watts’
website, and investing in new smart and connected product development projects. Our strategy focuses on three
dimensions: Connect, Control and Conserve. We have introduced and plan to continue offering new products that will
connect our customers with smart systems, control systems for optimal performance, and conserve critical resources by
increasing operability, efficiency and safety. Our goal is to derive 25 percent of our revenue from smart and connected
products by 2023.

We intend to generate incremental growth by targeting select acquisitions, both in our core markets and in new
complementary markets. We have completed 12 acquisitions in the last decade. Our acquisition strategy focuses on

businesses that manufacture preferred brand name products that address our themes of safety & regulation, energy
efficiency and water conservation. We target businesses that will provide us with one or more of the following: an entry
into new markets, improved channel access, unique and/or proprietary technologies, advanced production capabilities or
complementary solution offerings.

We are committed to reducing our manufacturing and operating costs using Lean methodologies to drive improvement
across all key processes. We have a number of manufacturing facilities in lower-cost regions. In recent years, we have
announced global restructuring plans which reduced our manufacturing and distribution footprint in order to reduce our
costs and to realize incremental operating efficiencies.

Additionally, a majority of our manufacturing facilities are ISO 9000, 9001 or 9002 certified by the International
Organization for Standardization.

The majority of our sales are for products that have been approved under regulatory standards incorporated into state and
municipal plumbing, heating, building and fire protection codes in the Americas, Europe, and certain countries within
APMEA. We have consistently advocated for the development and enforcement of plumbing codes and are committed to
providing products to meet these standards.

Impact of COVID-19

The unprecedented COVID-19 pandemic and its widespread global impact presented new and unique challenges for us,
affecting our employees, operations and how we safely work, as well as impacting our customers, supply chain, channels
and distribution partners. Many of our products qualify as “essential products” under local, state and national guidelines
and orders. Throughout 2020, we experienced temporary shutdowns of a few of our facilities in Europe and temporarily
reduced capacity at other facilities, but otherwise we were able to keep most of our facilities open and employees
working, manage our supply chain and continue to make our products available to our customers. Our operations in
China were impacted beginning early in the first quarter of 2020, followed by our Europe and then Americas segments,
which experienced the initial impact of the pandemic late in the first quarter of 2020. Temporary closures, lockdowns
and other restrictions mandated by various government authorities intended to combat the COVID-19 pandemic
negatively impacted our business at varying levels within each of our operating segments as customers curtailed and
reduced overall spending in response to the protective measures implemented and the resulting economic impacts. Our
operating response, cost management and capital preservation actions are discussed within Item. 7 “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” Despite these unusual challenges, we
continued to invest in our business, including new products, our connected solutions and our growth and productivity
initiatives. We achieved a solid performance for fiscal year 2020 despite the market headwinds, while committing to the
safety of our employees, meeting our customers’ needs and continuing to invest in our long-term strategy.

Products

We have a broad range of products in terms of design distinction, size and configuration. We classify our many products
into four global product lines. These product lines are:

• Residential & commercial flow control products—includes products typically sold into plumbing and hot
water applications such as backflow preventers, water pressure regulators, temperature and pressure relief
valves, and thermostatic mixing valves. Residential & commercial flow control products accounted for
approximately 52% of our total net sales in 2020, 2019 and 2018.

• HVAC & gas products—includes commercial high-efficiency boilers, water heaters and custom heat and
hot water solutions, hydronic and electric heating systems for under-floor radiant applications, hydronic
pump groups for boiler manufacturers and alternative energy control packages, and flexible stainless steel
connectors for natural and liquid propane gas in commercial food service and residential applications.
HVAC & gas products accounted for approximately 30% of our total net sales in 2020, 31% of our total net
sales in 2019, and 32% of our total net sales in 2018. HVAC is an acronym for heating, ventilation and air
conditioning.

• Drainage & water re-use products—includes drainage products and engineered rain water harvesting

solutions for commercial, industrial, marine and residential applications. Drainage & water re-use products

accounted for approximately 11% of our total net sales in 2020 and 2019, and 10% of our total net sales in
2018.

• Water quality products—includes point-of-use and point-of-entry water filtration, conditioning and scale

prevention systems and monitoring and metering products for commercial, marine and residential
applications. Water quality products accounted for approximately 7% of our total net sales in 2020, and 6%
of our total net sales in 2019 and 2018.

Commercial and Operational Excellence

We strive to invest in product innovation that meets the wants and needs of our customers. Our focus is on differentiated
products and solutions that will provide greater opportunity to distinguish and defend ourselves in the marketplace.
Conversely, we continue to migrate away from commoditized products where it is more difficult to add value. Our goal
is to be a solutions provider, not merely a components supplier. We refer to this customer-facing mindset as commercial
excellence, and we are continually looking for strategic opportunities to invest or divest, where necessary, in order to
meet those objectives. In conjunction with this customer-centric focus, we continually review our operations to ensure
we can efficiently and effectively produce and deliver products to customers. We are striving to simplify our
administrative operations as well to drive further efficiencies. We call this aspect of our business operational excellence.

Customers and Markets

We sell our products to plumbing, heating and mechanical wholesale distributors and dealers, original equipment
manufacturers (OEMs), specialty product distributors, and major do-it-yourself (DIY) and retail chains.

Wholesalers. Approximately 60% of our net sales in 2020 and 61% of our net sales in 2019 and 2018, were to wholesale
distributors for commercial and residential applications.

OEMs. Approximately 15%, 14% and 15% of our net sales in 2020, 2019 and 2018, respectively, were to OEMs. In the
Americas, our typical OEM customers are water heater manufacturers and equipment and water systems manufacturers
needing flow control devices and other products. Our sales to OEMs in Europe are primarily to boiler manufacturers and
radiant system manufacturers. Our sales to OEMs in APMEA are primarily to water heater, air conditioning, and
appliance manufacturers.

Specialty. Approximately 19%, 21% and 20% of our net sales in 2020, 2019 and 2018, respectively, were through our
specialty channel. The specialty channel primarily includes sales related to high-efficiency boilers and water heaters,
water filtration and conditioning products, specialty floor and tile products, and food service products.

DIY Chains. Approximately 6% of our net sales in 2020 and 4% of our net sales in 2019 and 2018 were to DIY chains.
The DIY channel primarily includes sales related to valves and a portion of our water quality products.

In 2020, 2019 and 2018, no customer accounted for more than 10% of our total net sales. Our top ten customers
accounted for $344.1 million, or 22.8%, of our total net sales in 2020; $359.1 million, or 22.4%, of our total net sales in
2019; and $329.5 million, or 21.1%, of our total net sales in 2018. Thousands of other customers constituted the balance
of our net sales in each of those years.

Marketing and Sales

For product sales in the Americas, we rely primarily on commissioned manufacturers’ representatives to market our
product lines, some of which maintain a consigned inventory of our products. These representatives sell primarily to
plumbing and heating wholesalers and contractors or supply DIY stores. Our specialty channel products in the Americas
are sold through independent representatives, dealers and distributors. We also sell products directly to wholesalers,
OEMs and private label accounts primarily in Europe and APMEA, and, to a lesser extent, in the Americas.

Manufacturing

We have integrated and automated manufacturing capabilities, including a state-of-the-art foundry dedicated exclusively
to the production of products that qualify as “lead-free” under the U.S. Safe Drinking Water Act; a traditional brass and

bronze foundry; and machining capabilities, plastic extrusion, and injection molding and assembly operations. Our
foundry operations include metal pouring systems, automatic core making, and brass and bronze die-castings. Our
machining operations feature computer-controlled machine tools, high-speed chucking machines with robotics, robotic
assembly capability, laser cutting technology, and automatic screw machines for machining bronze, brass and steel
components. Our heating and hot water product manufacturing capabilities include all phases of light and heavy gauge
metal fabrication, incorporating the latest technology for welding and brazing, as well as laser cutting; automated and
robotic applications; and metal finishing, which includes chemical passivation of stainless steel. We have invested in
recent years to expand our manufacturing capabilities and to adopt the most efficient and productive equipment. We are
committed to maintaining our manufacturing equipment at a level consistent with current technology in order to
maintain high levels of quality and manufacturing efficiencies. In 2020, we continued to invest in our systems and in our
manufacturing facilities and our commercial and operational excellence initiatives.

Capital expenditures and depreciation for each of the last three years were as follows:

Years Ended December 31,
2018

2020

2019
(in millions)

Capital expenditures
Depreciation

$ 43.8 $ 29.2 $ 35.9
$ 31.3 $ 31.0 $ 28.9

Purchased Raw Materials and Components

Our products are made using various purchased components and raw materials, including primarily bronze, brass, cast
iron, stainless steel, steel, and plastic. Substantially all of the raw materials we require to manufacture our products are
purchased from outside sources. The commodity markets have experienced volatility over the past several years,
particularly with respect to copper and stainless steel. Tariffs impact the total cost of our products and the components
and raw materials that go into manufacturing them. Increased tariff costs could adversely impact the gross margin we
earn on our products. Because we internationally source a significant amount of raw materials and components, several
months of raw materials and work in process are moving through our supply chain at any point in time. We are not able
to predict whether component costs or commodity costs, including copper and stainless steel, will significantly increase
or decrease in the future. If component costs or commodity costs increase in the future and we are not able to reduce or
eliminate the effect of the cost increases by reducing production costs or implementing price increases, our profit
margins could decrease. If component costs or commodity costs were to decline, we may experience pressure from
customers to reduce our selling prices. The timing of any price reductions and decreases in commodity costs may not
align. As a result, our margins could be affected.

With limited exceptions, we have multiple suppliers for our components and raw materials. We believe our relationships
with our key suppliers are good and that an interruption in supply from any one supplier would not materially affect our
ability to meet our immediate demands while another supplier is qualified. We regularly review our suppliers to evaluate
their strengths. If a supplier is unable to meet our demands, we believe that in most cases our inventory of components
and raw materials will allow for sufficient time to identify and obtain the necessary commodities and other raw materials
from an alternate source. We believe that the nature of the components and raw materials used in our business are such
that multiple sources are generally available in the market. However, our current and alternative suppliers are largely
concentrated in China. The occurrence of natural disasters, public health crises such as pandemics or epidemics,
political crises such as war, terrorism or political instability, or other events that result in widespread business or supply
chain disruptions in China could have a material adverse effect on our ability to obtain necessary components and raw
materials and our business and operating results could suffer.

Code Compliance

Products representing a majority of our sales are subject to regulatory standards and code enforcement, which typically
require that these products meet stringent performance criteria. Codes and standards in the Americas are established by
industry and government organizations such as the American Society of Mechanical Engineers (ASME),the Canadian
Standards Association (CSA), the American Society of Sanitary Engineering (ASSE), NSF International (NSF)
Underwriters Laboratories (UL), the Environmental Protection Agency (EPA), the Californian Energy Commission
(CEC), the International Code Council (ICC) and the International Association of Plumbing and Mechanical Officials
(IAPMO). Many of the codes and standards are incorporated into state and municipal plumbing and heating, building
and fire protection codes.

National regulatory standards in Europe vary by country. The major standards and/or guidelines that our products must
meet are AFNOR (France), DVGW (Germany), UNI/ICIM (Italy), SVGW (Switzerland), SITAC (Sweden), WRAS
(United Kingdom) and CEN (Denmark). Further, there are local regulatory standards requiring compliance as well.

We consistently advocate for the development and enforcement of plumbing codes and standards. Our product-testing
capabilities and dedicated investments are areas of strength for us. Manufacturing operations consistently maintain
stringent quality control and testing procedures, thus ensuring products remain in continuous compliance with all
requirements. Investment in product-testing capability and in plant and equipment also ensure ongoing continuous
product compliance. Additionally, a majority of our manufacturing facilities are ISO 9000, 9001 or 9002 certified by the
International Organization for Standardization.

Watts also proactively monitors and participates in regulatory, codes and standards development activities with the
various aforementioned entities and others. We are a primary participating member of the U.S.-based voluntary industry
association American Supply Association (ASA), which provides its members with industry information and coordinates
resources for addressing regulatory issues and developing and maintaining codes and standards. Watts is also a member
of the Canadian Institute of Plumbing and Heating (CIPH), which provides a similar function and benefit as ASA by
monitoring and advocating on behalf of its members on various legislative and regulatory issues.

New Product Development and Engineering

We retain our own product development staff, design teams, and testing laboratories in the Americas, Europe and
APMEA that work to enhance our existing products and develop new products and solutions with a focus on customer-
centric technological innovation and smart and connected solutions. We maintain sophisticated product development and
testing laboratories and continue to invest in our smart and connected product pipeline. We employ a global new-product
development process that is used to control, steer and support new projects. Over the years, we have continued to bring
innovation to our markets, including the successful roll-out of the iDROSET™ CSD calibrated flow measuring and
balancing valve designed for hydronic heating and cooling systems, Watts SentryPlus Alert™ connected backflow
preventer, the expansion of our IntelliStation™ smart mixing system with the IntelliStation™ Junior smart mixing
system, the Invita® thermostat with home automation voice recognition capabilities and the AERCO Benchmark®
Platinum boiler with the new EDGE™ controller providing expanded remote monitoring and control. We continued to
focus on and invest in our global new product development program to leverage new technologies, inhouse expertise and
our electronics capabilities to drive our smart and connected strategy.

Competition

The domestic and international markets for energy efficient products, water conservation devices, and products that
address the safety and regulation for the flow of fluids, are intensely competitive and require us to compete against some
companies possessing greater financial, marketing and other resources than ours. Due to the breadth of our product
offerings, the number and identities of our competitors vary by product line and market. We consider quality, brand
preference, delivery times, engineering specifications, plumbing code requirements, price, technological expertise,
breadth of product offerings and smart and connected products and solutions to be the primary competitive factors. We
believe that new product development and product engineering are also important to success in the water industry and
that our position in the industry is attributable in part to our ability to develop new and innovative products quickly and
to adapt and enhance existing products. We continue to develop new and innovative products to expand our market
position and are implementing manufacturing and design programs to reduce costs. We cannot be certain that our efforts
to develop new products will be successful or that our customers will accept our new products. Although we own certain
patents and trademarks that we consider to be of importance, we do not believe that our business and competitiveness as
a whole are dependent on any one of our patents or trademarks or on patent or trademark protection generally.

Backlog

Backlog was approximately $127.1 million at December 31, 2020 and $78.6 million at December 31, 2019. We do not
believe that our backlog at any point in time is indicative of future operating results, and we expect our entire current
backlog to be converted to sales in 2021.

Human Capital Management

We believe that our employees are our greatest asset. As of December 31, 2020, we had 4,465 employees globally,
including 1,945 in the Americas, 2,192 in Europe and 328 in APMEA. At Watts, hiring the right candidate is only the
beginning. By developing and promoting talented people, we are creating value for our customers and shareholders
today, while advancing our Environmental, Social, and Corporate Governance (“ESG”) goals. As the economy and our
business grow, so does the need for qualified candidates; hence we are always competing for talent in an environment of
increasingly challenged supply. To that end, we have developed, and continue to enhance and refine, a robust and
comprehensive talent management program that spans from recruitment and selection to performance management,
career development and retention of our top talent and, ultimately, to succession planning across our organization. We
continually strive to cultivate and support a highly engaged and productive workforce.

Talent Acquisition

• We engage with external professional recruiting firms to enhance our internal recruiting efforts for key

positions.

• We utilize pre-employment assessment tools to identify candidates who we believe would adapt well to our

culture and be best suited to fulfill the job responsibilities.

• We provide a robust college internship program to identify and cultivate potential new hires.
• We are actively engaging with a select group of historically Black colleges and universities to help attract and

recruit diverse professionals.

Professional Development

•

iLead Program. The iLead Program is our flagship program designed to build the skills of our employees
across each level of leadership. It includes a series of training programs tailored to reach and serve a broad
range of current and potential leaders across the organization.

• One Watts Performance System (OWPS) Training Program. We want to make sure all employees are aligned
with our operating philosophies and principles. Alignment helps us identify and eliminate waste and simplify
and standardize our work resulting in more productivity to fund our future. We launched a global training
program educating all employees on our philosophies and principles, empowering them to use OWPS tools in
their daily work.

• LinkedIn Learning Curriculum. We provide a comprehensive suite of online LinkedIn Learning courses to

supplement our management development training by providing employees with training on specialized topics
to fill in knowledge and experience gaps.

Engagement and Performance Management

•

Senior Leader Communication and Transparency. We actively seek opportunities for regular engagement and
communication by our CEO and other senior executive leaders with our broader employee population. For
example, we hold a Quarterly Connect Meeting that follows the release of our quarterly earnings and is
accessible to thousands of employees across the Company.

• Employee Engagement Surveys. We periodically conduct confidential company-wide employee engagement
surveys. Feedback from these surveys provides our management team with valuable information about our
workplace culture. Survey results are also reviewed with our Board and used to develop and refine other
aspects of our overall human capital management and other growth strategies.

• Performance Management Framework. We maintain a robust annual performance management process across
the organization. Together with their supervisors, employees identify annual goals and, at the end of the year,
provide their own self assessments as to goal achievement and defined core competencies.

Diversity, Equity & Inclusion

An integral part of our mission to build a high performance, values-driven culture is creating an inclusive culture that
welcomes and celebrates diversity. Our path to innovation starts and ends with our employees, who are fundamental to
the vibrancy and success of Watts. Everything we accomplish depends on their abilities and engagement. This is why
we have initiated a comprehensive approach to diversity, equity and inclusion focusing on awareness and education

programs for our leaders and employees; engagement through employee surveys; communicating with our employees
about diversity, equity and inclusion issues and topics through our company intranet, in employee meetings and on our
public website; and improving our hiring and leadership development processes to increase diversity, equity and
inclusion at all levels at Watts. We have also encouraged the visibility of diverse employees through the recent formation
of employee resource groups. Employee resource groups are voluntary employee-led groups that provide a forum for
employees to share common concerns and experiences, gain professional development support, engage with our
leadership teams, and drive initiatives to improve diversity, equity and inclusion at Watts.

Product Liability, Environmental and Other Litigation Matters

We are subject to a variety of potential liabilities connected with our business operations, including potential liabilities
and expenses associated with possible product defects or failures and compliance with environmental laws. We maintain
product liability and other insurance coverage, which we believe to be generally in accordance with industry practices.
Nonetheless, such insurance coverage may not be adequate to protect us fully against substantial damage claims. See
“Item 1A. Risk Factors” and Note 15 of the Notes to the Consolidated Financial Statements, both of which are
incorporated herein by reference.

Environmental Remediation

We have 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. We accrue estimated environmental liabilities based on assumptions, which are subject to a
number of factors and uncertainties. Circumstances that can affect the reliability and precision of these estimates include
identification of additional sites, environmental regulations, level of clean-up required, technologies available, number
and financial condition of other contributors to remediation and the time period over which remediation may occur. We
recognize changes in estimates as new remediation requirements are defined or as new information becomes available.
See “Item 1A. Risk Factors” and Note 15 of the Notes to the Consolidated Financial Statements, both of which are
incorporated herein by reference.

Asbestos Litigation

We are defending approximately 400 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 of our
particular products as a source of asbestos exposure. To date, discovery has failed to yield evidence of substantial
exposure to any of our products and no judgments have been entered against us.

Other Litigation

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

Available Information

We maintain a website with the address www.wattswater.com. The information contained on our website is not included
as a part of, or incorporated by reference into, this Annual Report on Form 10-K. Other than an investor’s own internet
access charges, we make available free of charge through our website our Annual Report on Form 10-K, quarterly
reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably
practicable after we have electronically filed such material with, or furnished such material to, the Securities and
Exchange Commission (SEC).

Information about Our Executive Officers and Directors

Set forth below are the names of our executive officers and directors, their respective ages and positions with our
Company and a brief summary of their business experience for at least the past five years:

Executive Officers
Robert J. Pagano, Jr.
Shashank Patel
Kenneth R. Lepage

Elie A. Melhem
Munish Nanda
Non-Employee Directors
Christopher L. Conway(2)(3)
Michael J. Dubose(2)(3)
David A. Dunbar(1)(3)
Louise K. Goeser(2)(3)
Jes Munk Hansen(2)(3)
W. Craig Kissel(3)
Joseph T. Noonan
Merilee Raines(1)(3)
Joseph W. Reitmeier(1)(3)

Position

Age
58
60
50

57
56

Chief Executive Officer, President and Director
Chief Financial Officer
General Counsel, Chief Human Resources
Officer & Secretary
President, Asia-Pacific, the Middle East & Africa
President, Americas & Europe

Director
65
Director
65
Director
59
Director
67
53 Director
70 Chairperson of the Board and Director
39 Director
65 Director
56 Director

(1) Member of the Audit Committee

(2) Member of the Compensation Committee

(3) Member of the Nominating and Corporate Governance Committee

Robert J. Pagano, Jr. has served as Chief Executive Officer, President and a director of our Company since May 2014.
He also served as interim Chief Financial Officer from October 2014 to April 2015 and from April 2018 to July 2018.
Mr. Pagano previously served as Senior Vice President of ITT Corporation and President, ITT Industrial Process from
April 2009 to May 2014. Mr. Pagano originally joined ITT in 1997 and served in several additional management roles
during his career at ITT, including as Vice President Finance, Corporate Controller, and President of Industrial Products.
ITT Corporation is a diversified manufacturer of highly engineered critical components and customized technology
solutions for the energy, transportation and industrial markets. Prior to joining ITT, Mr. Pagano worked at KPMG LLP.
Mr. Pagano is a Certified Public Accountant. Mr. Pagano has also served as a member of the Board of Directors of
Applied Industrial Technologies, Inc. since August 2017. Applied Industrial Technologies is a distributor of bearings,
power transmission products, fluid power components and other industrial supplies and provides engineering, design and
systems integration for industrial and fluid power applications, as well as customized mechanical, fabricated rubber and
fluid power shop services.

Shashank Patel has served as Chief Financial Officer of our Company since July 2018. Mr. Patel previously worked at
Xylem Inc. from the time of its spin-off from ITT Corporation in 2011 until June 2018. While at Xylem, Mr. Patel
served as Vice President, Finance for Xylem Applied Water Systems, Dewatering and the America’s Commercial Team
from July 2017 to June 2018, Integration Leader for the Sensus business from August 2016 to June 2017, Vice President,
Finance for Global Operations from April 2016 to July 2016, Interim Chief Financial Officer of Xylem from July 2015
to March 2016, and Vice President, Finance for the Applied Water Systems division from 2011 to July 2015. Mr. Patel
also served in several leadership roles in finance, operations and engineering at ITT from 1996 until the spin-off of
Xylem in 2011. Xylem is a global designer, manufacturer and equipment and service provider for water and wastewater
applications.

Kenneth R. Lepage has served as General Counsel and Secretary of the Company since August 2008. He has also served
as Chief Human Resources Officer since March 2020 and previously served as Executive Vice President of Human
Resources from December 2009 to October 2015. Mr. Lepage originally joined our Company in September 2003 as
Assistant General Counsel and Assistant Secretary. Prior to joining our Company, he was a junior partner at the law firm
of Hale and Dorr LLP (now Wilmer Cutler Pickering Hale and Dorr LLP).

Elie A. Melhem has served as President, Asia Pacific, Middle East & Africa since February 2016. Mr. Melhem originally
joined our Company in July 2011 as President, Asia Pacific. Mr. Melhem was previously the Managing Director of
China for Ariston Thermo Group, a global manufacturer of heating and hot water products, from 2008 to July 2011.
Prior to joining Ariston, Mr. Melhem spent eleven years with ITT Industries in China where he held several management
positions, including serving as President of ITT’s Residential and Commercial Water Group in China and President of
ITT’s Water Technology Group in Asia.

Munish Nanda has served as President, Americas & Europe since February 2016. Mr. Nanda originally joined our
Company in April 2015 as President, Americas. Mr. Nanda previously served as President of Control Technologies for
ITT Corporation from April 2011 to March 2015. Mr. Nanda also served as Group Vice President of ITT Corporation’s
Fluid and Motion Control Group from April 2008 to April 2011. Prior to joining ITT Corporation, Mr. Nanda held
several operating leadership and general management positions with Thermo Fisher Scientific Corporation and
Honeywell International Inc. Mr. Nanda has also served as a member of the Board of Directors of CECO Environmental
Corp. since June 2018. CECO Environmental provides air quality and fluid handling products and solutions serving the
energy, industrial and other niche markets.

Christopher L. Conway has served as a director of our Company since June 2015. Mr. Conway was President, Chief
Executive Officer and Chairman of the Board of CLARCOR Inc. from December 2011 until it was acquired in February
2017. Mr. Conway is now retired. Mr. Conway originally joined CLARCOR in 2006 and served in several senior
management roles prior to becoming President and Chief Executive Officer, including Chief Operating Officer,
President of CLARCOR’s PECOFacet division, President of Facet USA, Inc., an affiliate of CLARCOR, and Vice
President of Manufacturing of Baldwin Filters, Inc., another affiliate of CLARCOR. CLARCOR was a diversified
marketer and manufacturer of mobile, industrial and environmental filtration products sold in domestic and international
markets. Prior to joining CLARCOR, Mr. Conway served for two years as the Chief Operating Officer of Cortron
Corporation, Inc., a manufacturing start-up based in Minneapolis, Minnesota. Mr. Conway also served for seven years
in various management positions at Pentair, Inc., an international provider of products, services, and solutions for its
customers' diverse needs in water and other fluids, thermal management, and equipment protection.

Michael J. Dubose has served as a director of our Company since December 2020. Mr. Dubose has served as President
of the Fisher Healthcare Division of Thermo Fisher Scientific Inc. since March 2019. Thermo Fisher Scientific engages
in the provision of analytical instruments, equipment, reagents and consumables, software and services for research,
analysis, discovery, and diagnostics. Mr. Dubose previously served as Vice President of National Accounts and Cross
Border Business Globally for W.W. Grainger, Inc. from 2010 to March 2019. W. W. Grainger is a leading broad line
supplier of maintenance, repair and operating (MRO) products, with operations primarily in North America, Japan and
Europe. Prior to this position, he served as a Regional Vice President of Staples, Inc. from 2008 to 2010. Prior to 2008,
Mr. Dubose held senior management positions with Corporate Express Inc., Alliant Foodservice Inc. and Baxter
International Inc.

David A. Dunbar has served as a director of our Company since February 2017. Mr. Dunbar has served as President and
Chief Executive Officer and a member of the Board of Directors of Standex International Corporation since January
2014, and as Chairman since October 2016. Standex is a global, multi-industry manufacturer comprised of five business
segments of Electronics, Engraving, Scientific, Engineering Technologies and Specialty Solutions. Mr. Dunbar
previously served as President of the valves and controls global business unit of Pentair Ltd. from October 2009 to
December 2013. The unit was initially owned by Tyco Flow Control and Tyco Flow Control and Pentair merged in
2012. Pentair is a global provider of products and services relating to energy, water, thermal management and equipment
protection. Prior to his tenure at Pentair, Mr. Dunbar held a number of senior positions at Emerson Electric Co.,
including President of each of the following: Emerson Process Management Europe; Machinery Health Management;
and Emerson Climate Technologies Refrigeration.

Louise K. Goeser has served as a director of our Company since March 2018. Ms. Goeser served as President and Chief
Executive Officer of Grupo Siemens S.A. de C.V. from March 2009 until her retirement in May 2018. In this position,
Ms. Goeser was responsible for Siemens Mesoamérica, which is the Mexican, Central American and Caribbean unit of
multinational Siemens AG, a global engineering company operating in the industrial, energy and healthcare sectors.
Ms. Goeser previously served as President and Chief Executive Officer of Ford of Mexico from January 2005 to
November 2008. Prior to this position, she served as Vice President, Global Quality for Ford Motor Company from
1999 to 2005. Prior to 1999, Ms. Goeser served as General Manager, Refrigeration and Vice President, Corporate
Quality at Whirlpool

Corporation and held various leadership positions with Westinghouse Electric Corporation. Ms. Goeser has served as a
member of the Board of Directors of MSC Industrial Direct Co., Inc. since December 2009. MSC is a North American
distributor of metal working and maintenance, repair, and operations products and services. Ms. Goeser previously
served as a member of the boards of directors of Talen Energy from June 2015 to December 2016, PPL Corporation
from March 2003 to June 2015, and Witco Corporation from 1997 to 1999.

Jes Munk Hansen has served as a director of our Company since February 2017. Mr. Hansen joined Terma A/S in April
2019 and became President and Chief Executive Officer of Terma on June 1, 2019. Terma develops and manufactures
mission-critical products and solutions for the aerospace, defense and security sectors. Prior to Terma, Mr. Hansen
served as Chief Executive Officer of OSRAM USA and Head of Global Sales for OSRAM GmbH from July 2018 to
January 2019. OSRAM is a global lighting manufacturer with a portfolio ranging from high-tech applications based on
semiconductor technology to smart and connected lighting solutions in buildings and cities. Mr. Hansen previously
served as Chief Executive Officer of LEDVANCE GmbH from July 2015 to December 2017. LEDVANCE is the
general lighting lamps business unit of OSRAM GmbH. Prior to his tenure at LEDVANCE, Mr. Hansen served as Chief
Executive Officer of the classical lamps and ballast business unit of OSRAM from January 2015 to July 2015 and as
Chief Executive Officer of OSRAM Americas and President of OSRAM Sylvania from October 2013 to January 2015.
Prior to his tenure at OSRAM, Mr. Hansen served in several senior management roles with Grundfos from 2000 to
October 2013, including as Chief Executive Officer and President of Grundfos North America from 2007 to October
2013. Grundfos is a leading global manufacturer of pumps as well as motors and electronics for monitoring and
controlling pumps.

W. Craig Kissel has served as a director of our Company since October 2011 and as Chairperson of the Board since
October 2014. Mr. Kissel previously was employed by American Standard Companies Inc. from 1980 until his
retirement in September 2008. American Standard was a leading worldwide supplier of air conditioning and heating
systems, vehicle control systems, and bathroom china and faucet ware. During his time at American Standard,
Mr. Kissel served as President of Trane Commercial Systems from 2004 to June 2008, President of WABCO Vehicle
Control Systems from 1998 to 2003, President of the Trane North American Unitary Products Group from 1994 to 1997,
Vice President of Trane Marketing of the North American Unitary Products Group from 1992 to 1994 and held various
other management positions at Trane from 1980 to 1991. From 2001 to 2008, Mr. Kissel served as Chairman of
American Standard’s Corporate Ethics and Integrity Council, which was responsible for developing the company’s
ethical business standards. Mr. Kissel also served in the U.S. Navy from 1973 to 1978. Mr. Kissel served as a director of
Chicago Bridge & Iron Company from May 2009 until its merger with McDermott International, Inc. in May 2018 and
then Mr. Kissel served as a member of the board of directors of McDermott International until June 2020. McDermott
International is a global provider of technology, engineering and construction solutions for the energy industry.

Joseph T. Noonan has served as a director of our Company since May 2013. Mr. Noonan served as Founder and Chief
Executive Officer of Linger Home, Inc., a direct-to-consumer home textile brand, from August 2018 to January 2020.
From November 2013 to January 2018, Mr. Noonan served as Chief Executive Officer of Homespun Design, Inc., an
online marketplace for American-made furniture and home accents. Mr. Noonan previously worked as an independent
digital strategy consultant from November 2012 to November 2013. Mr. Noonan was employed by Wayfair LLC from
April 2008 to November 2012. During his time at Wayfair, Mr. Noonan served as Senior Director of Wayfair
International from June 2011 to November 2012, Director of Category Management and Merchandising from February
2009 to June 2011 and Manager of Wayfair’s Business-to-Business Division from April 2008 to February 2009.
Wayfair is an online retailer of home furnishings, décor and home improvement products. Prior to joining Wayfair,
Mr. Noonan worked as a venture capitalist at Polaris Partners and as an investment banker at Cowen & Company.

Merilee Raines has served as a director of our Company since February 2011. Ms. Raines served as Chief Financial
Officer of IDEXX Laboratories, Inc. from October 2003 until her retirement in May 2013. Prior to becoming Chief
Financial Officer, Ms. Raines held several management positions with IDEXX Laboratories, including Corporate Vice
President of Finance, Vice President and Treasurer of Finance, Director of Finance, and Controller. IDEXX Laboratories
develops, manufactures and distributes diagnostic and information technology-based products and services for
companion animals, livestock, poultry, water quality and food safety, and human point of care diagnostics. Ms. Raines
served as a member of the Board of Directors of Affymetrix, Inc., a provider of life science and molecular diagnostic
products that enable analysis of biological systems at the gene, protein and cell level, from January 2015 until it was
acquired in March 2016. Ms. Raines also served as a member of the Board of Directors of Aratana Therapeutics, Inc., a
pet therapeutics company focused on licensing, developing and commercializing biopharmaceutical products for
companion animals, from February 2014 until it was acquired in July 2019. Ms. Raines has served as a member of the

Board of Directors of Benchmark Electronics, Inc., a worldwide provider of engineering services, integrated technology
solutions and electronic manufacturing services, since May 2018. Ms. Raines has also served as a member of the Board
of Directors of TransMedics Group, Inc., a medical technology company providing novel systems for the preservation
and transport of organs to be used for transplant, since January 2021.

Joseph W. Reitmeier has served as a director of our Company since February 2016. Mr. Reitmeier has served as
Executive Vice President & Chief Financial Officer of Lennox International Inc. since July 2012. Mr. Reitmeier had
served as Vice President of Finance for the LII Commercial business segment of Lennox International from 2007 to July
2012 and as Director of Internal Audit from 2005 to 2007. Lennox International is a leading global provider of climate
control solutions and designs, manufactures and markets a broad range of products for the heating, ventilation, air
conditioning and refrigeration markets. Before joining Lennox International, Mr. Reitmeier held financial leadership
roles at Cummins Inc. and PolyOne Corporation.

Item 1A. RISK FACTORS.

Industry Risk Factors

Economic cycles, particularly those involving reduced levels of commercial and residential starts and remodeling,
may have adverse effects on our revenues and operating results.

We have experienced and expect to continue to experience fluctuations in revenues and operating results due to
economic and business cycles. The businesses of most of our customers, particularly plumbing and heating wholesalers
and OEM manufacturers, are cyclical. Therefore, the level of our business activity has been cyclical, fluctuating with
economic cycles. An economic downturn may also affect the financial stability of our customers, which could affect
their ability to pay amounts owed to their vendors, including us. We also believe our level of business activity is
influenced by commercial and residential starts and renovation and remodeling, which are, in turn, heavily influenced by
interest rates, consumer debt levels, changes in disposable income, employment growth and consumer confidence. Credit
market conditions may prevent commercial and residential builders or developers from obtaining the necessary capital to
continue existing projects or to start new projects. This may result in the delay or cancellation of orders from our
customers or potential customers and may adversely affect our revenues and our ability to manage inventory levels,
collect customer receivables and maintain profitability. If economic conditions worsen in the future or if economic
recovery were to dissipate, our revenues and profits could decrease or trigger additional goodwill, indefinite-lived
intangible assets, or long-lived asset impairments and could have a material effect on our financial condition and results
of operations.

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

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

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

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

We face intense competition and, if we are not able to respond to competition in our markets, our revenues and
profits may decrease.

Competitive pressures in our markets could adversely affect our competitive position, leading to a possible loss of
market share or a decrease in prices, either of which could result in decreased revenues and profits. We encounter intense
competition in all areas of our business. Additionally, we believe our customers are attempting to reduce the number of
vendors from which they purchase in order to reduce the size and diversity of their inventories and their transaction
costs. To remain competitive, we will need to invest continually in manufacturing, product development, marketing,
customer service and support and our distribution networks. We may not have sufficient resources to continue to make
such investments and we may be unable to maintain our competitive position. In addition, we may have to reduce the
prices of some of our products to stay competitive, potentially resulting in a reduction in the profit margin for, and
inventory valuation of, these products. Some of our competitors are based in foreign countries and have cost structures
and prices in foreign currencies. Accordingly, currency fluctuations could cause our U.S. dollar costed products to be
less competitive than our competitors’ products costed in other currencies.

We are subject to risks associated with changing technology, manufacturing techniques, distribution channels and
business continuity, which could place us at a competitive disadvantage.

The successful implementation of our business strategy requires us to continually evolve our existing products and
introduce new products to meet customers’ needs in the industries we serve, as evidenced by our investments in our
smart and connected strategy. Many of our products are characterized by stringent performance and specification
requirements that mandate a high degree of manufacturing, engineering, and technological expertise. If we fail to meet
these requirements, or if our product offerings, including our smart and connected products, are not accepted by the
market, our business could be at risk. We believe that our customers rigorously evaluate their suppliers on the basis of a
number of factors, including product quality, price competitiveness, technical and manufacturing expertise, development
and product design capability, new product innovation, reliability and timeliness of delivery, operational flexibility,
customer service and overall management. Our success will depend on our ability to continue to meet customers’
changing specifications with respect to these criteria. We cannot ensure that we will be able to address technological
advances or introduce new products that may be necessary to remain competitive within our business. We cannot ensure
that we can adequately protect any of our technological developments to produce a sustainable competitive advantage.
Furthermore, we may be subject to business continuity risk in the event of an unexpected loss of a material facility or
operation. We cannot ensure that we adequately protect against such loss.

Economic and other risks associated with international sales and operations could adversely affect our business and
future operating results.

Since we sell and manufacture our products worldwide, our business is subject to risks associated with doing business
internationally. Our business and future operating results could be harmed by a variety of factors, including:

•

unexpected geo-political events in foreign countries in which we operate, which could adversely affect
manufacturing and our ability to fulfill customer orders;

•

our failure to comply with anti-corruption laws and regulations of the U.S. government and various
international jurisdictions, such as the U.S. Foreign Corrupt Practices Act and the United Kingdom’s
Bribery Act of 2010;

trade protection measures and import or export duties or licensing requirements, which could increase our
costs of doing business internationally;

potentially negative consequences from changes in tax laws, which could have an adverse impact on our
profits;

difficulty in staffing and managing widespread operations, which could reduce our productivity;

costs of compliance with differing labor regulations, especially in connection with restructuring our
overseas operations;

laws of some foreign countries, which may not protect our intellectual property rights to the same extent as
the laws of the U.S.;

unexpected changes in regulatory requirements, which may be costly and require time to implement; and

foreign exchange rate fluctuations, which could also materially affect our reported results. A portion of our
net sales and certain portions of our costs, assets and liabilities are denominated in currencies other than
U.S. dollars. Approximately 37% of our net sales during the years ended December 31, 2020 and 2019
were from sales outside of the U.S. compared to 38% for the year ended December 31, 2018. We cannot
predict whether currencies such as the euro, Canadian dollar, Chinese yuan, or other currencies in which
we transact will appreciate or depreciate against the U.S. dollar in future periods or whether future foreign
exchange rate fluctuations will have a positive or negative impact on our reported results.

Company Risk Factors

Changes in the costs of raw materials and purchased components, including imposition of or changes in tariff rates,
could reduce our profit margins. Reductions or interruptions in the supply of raw materials, components or finished
goods from international sources could adversely affect our ability to meet our customer delivery commitments.

Our products are made using various purchased components and raw materials, including primarily bronze, brass, cast
iron, stainless steel, steel and plastic. Substantially all of the raw materials we require to manufacture our products are
purchased from outside sources. The costs of raw materials and components may be subject to change due to, among
other things, interruptions in production by suppliers, changes in exchange rates, imposition of or changes in tariff rates,
and worldwide price and demand levels. We typically do not enter into long-term supply agreements. Our inability to
obtain supplies of raw materials and purchased components for our products at favorable costs could have a material
adverse effect on our business, financial condition or results of operations by decreasing our profit margins. Commodity
prices, particularly copper and stainless-steel prices, have experienced tremendous volatility over the past several years.
Should commodity costs or purchased component costs increase substantially, we may not be able to recover such costs,
through selling price increases to our customers or other product cost reductions, which would have a negative effect on
our financial results. If commodity costs or purchased component costs decline, we may experience pressure from
customers to reduce our selling prices. Additionally, we continue to purchase components and finished goods from
international sources. In limited cases, these components or finished goods are single-sourced. The availability of
components and finished goods from international sources could be adversely impacted by, among other things,
interruptions in production by suppliers including due to pandemics or other public health crises, suppliers’ allocations to
other purchasers and new laws, tariffs or regulations.

Our business and financial performance may be adversely affected by information technology and other business
disruptions.

Our business may be impacted by disruptions, including information technology attacks or failures, threats to physical
security, as well as damaging weather or other acts of nature. Our information technology risks relate to cyber security

attacks and disruptions caused by potential failures in the performance of our primary enterprise resource planning
(ERP) system. Cyber security attacks, in particular, are evolving and include, but are not limited to, malicious software,
attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in
systems, unauthorized release of confidential or otherwise protected information and corruption of data. Cyber security
may also be breached due to employee error, malfeasance, system errors or vulnerabilities, including vulnerabilities of
our customers, vendors, suppliers, and their products. In addition, we have designed products and services that connect
to and are part of the “Internet of Things” which may also be vulnerable to cyber security breaches. We attempt to
provide adequate security measures to safeguard our products from cyber security attacks, however the potential for a
breach remains. We have experienced cyber security attacks and may continue to experience them going forward,
potentially with more frequency. We also may experience unplanned system interruptions or outages of our primary ERP
system as it continues to age, which may affect our ability to support and maintain the system in an effective manner.
Any disruptions, delays or deficiencies related to our primary ERP system could lead to substantial business interruption,
including our ability to perform routine business transactions, which could have a material adverse effect on our
financial results.

Given the unpredictability of the timing, nature and scope of such disruptions, we could potentially be subject to
production downtimes, operational delays, other detrimental impacts on our operations or ability to provide products to
our customers, the compromising of confidential or otherwise protected information, misappropriation, destruction or
corruption of data, security breaches, other manipulation or improper use of our systems, networks or our products,
financial losses from remedial actions, loss of business or potential liability, and/or damage to our reputation, any of
which could have a material adverse effect on our competitive position, results of operations, cash flows or financial
condition.

Implementation of our acquisition strategy may not be successful, which could affect our ability to increase our
revenues or our profitability.

One of our strategies is to increase our revenues and profitability and expand our business through acquisitions that will
provide us with complementary products and increase market share for our existing product lines. We cannot be certain
that we will be able to identify, acquire or profitably manage additional companies or successfully integrate such
additional companies without substantial costs, delays or other problems. Also, companies acquired recently and in the
future may not achieve anticipated revenues, cost synergies, profitability or cash flows that justify our investment in
them. We have faced increasing competition for acquisition candidates, which has resulted in significant increases in the
purchase prices of many acquisition candidates. This competition, and the resulting purchase price increases, may limit
the number of acquisition opportunities available to us, possibly leading to a decrease in the rate of growth of our
revenues and profitability. In addition, acquisitions may involve a number of risks, including, but not limited to:

•

inadequate internal control over financial reporting and our ability to bring such controls into compliance
with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in a timely manner;

adverse short-term effects on our reported operating results;

diversion of management’s attention;

investigations of, or challenges to, acquisitions by competition authorities;

loss of key personnel at acquired companies;

unanticipated management or operational problems or legal liabilities; and

potential goodwill, indefinite-lived intangible assets, or long- lived asset impairment charges.

We are subject to risks related to product defects, which could result in product recalls and could subject us to
warranty claims in excess of our warranty provisions or which are greater than anticipated due to the
unenforceability of liability limitations.

We cannot be certain that our quality controls and procedures, including the testing of raw materials and safety testing of
selected finished products, will reveal latent defects in our products or the materials from which they are made, which

may not become apparent until after the products have been sold into the market. We also cannot be certain that our
suppliers will always eliminate latent defects in products we purchase from them. Accordingly, there is a risk that
product defects will occur, which could require a product recall. Product recalls can be expensive to implement and, if a
product recall occurs during the product’s warranty period, we may be required to replace the defective product. In
addition, a product recall may damage our relationship with our customers and we may lose market share with our
customers. Our insurance policies may not cover the costs of a product recall.

Our standard warranties contain limits on damages and exclusions of liability for consequential damages and for misuse,
improper installation, alteration, accident or mishandling while in the possession of someone other than us. We may
incur additional operating expenses if our warranty provision does not reflect the actual cost of resolving issues related
to defects in our products. If these additional expenses are significant, it could adversely affect our business, financial
condition and results of operations.

We face risks from product liability and other lawsuits, which may adversely affect our business.

We have been and expect to continue to be subject to various product liability claims or other lawsuits, including, among
others, that our products include inadequate or improper instructions for use or installation, inadequate warnings
concerning the effects of the failure of our products, alleged manufacturing or design defects, or allegations that our
products contain asbestos. If we do not have adequate insurance or contractual indemnification, damages from these
claims would have to be paid from our assets and could have a material adverse effect on our results of operations,
liquidity and financial condition. Like other manufacturers and distributors of products designed to control and regulate
fluids and gases, we face an inherent risk of exposure to product liability claims and other lawsuits in the event that the
use of our products results in personal injury, property damage or business interruption to our customers. We cannot be
certain that our products will be completely free from defect. In addition, in certain cases, we rely on third-party
manufacturers for our products or components of our products. We cannot be certain that our insurance coverage will
continue to be available to us at a reasonable cost, or, if available, will be adequate to cover any such liabilities. For
more information, see Item 1. “Business—Product Liability, Environmental and Other Litigation Matters” and Note 15
of the Notes to the Consolidated Financial Statements, both of which are incorporated herein by reference.

We face risks from costs for environmental compliance and/or to address potential liabilities under environmental
laws and regulations.

Our operations and facilities worldwide are subject to laws and regulations related to pollution and the protection of the
environment, health and safety, including, but not limited to those governing air emissions, discharges to water, the
generation, handling, storage, treatment and disposal of hazardous wastes and other materials, and the remediation of
contaminated sites. A failure by us to comply with applicable requirements or maintain the permits required for our
operations could result in civil or criminal fines, penalties, enforcement actions, third-party claims for property damage
and personal injury, requirements to clean up property or to pay for the costs of cleanup or regulatory or judicial orders
enjoining or curtailing operations or requiring corrective measures, including the installation of pollution control
equipment or remedial actions.

Certain environmental laws and regulations impose on present and former owners and operators of facilities and sites,
and on potentially responsible parties (“PRPs”) for sites to which such parties may have sent waste for disposal,
requirements to investigate and remediate contamination. Such liability can be imposed without regard to fault and,
under certain circumstances, may be joint and several, resulting in one PRP being held responsible for the entire
obligation. Liability may also include damages to natural resources. On occasion we are involved in such investigations
and/or cleanup, and also have been and could continue to be named as a PRP in environmental matters.

The discovery of additional contamination, including at acquired facilities, the imposition of more stringent
environmental, health and safety laws and regulations, including cleanup requirements, or the insolvency, or other
grounds for refusing to participate, of other responsible parties could require us to incur capital expenditures or operating
costs materially in excess of our accruals. Future investigations we undertake may lead to discoveries of contamination
that must be remediated, and decisions to close facilities may trigger remediation requirements that are not currently
applicable. We may also face liability for alleged personal injury or property damage due to exposure to hazardous
substances used or disposed of by us, contained within our current or former products, or present in the soil or
groundwater at our current or former facilities. We could incur significant costs in connection with such liabilities. See

Item 1. “Business—Product Liability, Environmental and Other Litigation Matters” and Note 15 of the Notes to the
Consolidated Financial Statements, both of which are incorporated herein by reference.

Our ability to achieve savings through our restructuring and business transformation activities may be adversely
affected by management’s ability to fully execute the plans as a result of local regulations, geo-political risk or other
factors within or beyond the control of management.

We have implemented a number of restructuring and business transformation activities, which include steps that we
believe are necessary to enhance the value and performance of the Company, including reducing operating costs and
increasing efficiencies throughout our manufacturing, sales and distribution footprint. Factors within or beyond the
control of management such as local labor regulations or legal or political intervention may change the total estimated
costs or the timing of when the savings will be achieved under the plans. Further, if we are not successful in completing
the restructuring or business transformation activities timely or if additional or unanticipated issues such as labor
disruptions, inability to retain key personnel during and after the transformation or higher exit costs arise, our expected
cost savings may not be met and our operating results could be negatively affected. In addition, our restructuring and
transformation activities may place substantial demands on our management, which could lead to diversion of
management’s attention from other business priorities and result in a reduced customer focus.

The requirements to evaluate goodwill, indefinite-lived intangible assets and long-lived assets for impairment may
result in a write-off of all or a portion of our recorded amounts, which would negatively affect our operating results
and financial condition.

As of December 31, 2020, our balance sheet included goodwill, indefinite-lived intangible assets, amortizable intangible
assets and property, plant and equipment of $602.4 million, $37.2 million, $104.6 million and $212.3 million,
respectively. In lieu of amortization, we are required to perform an annual impairment review of both goodwill and
indefinite-lived intangible assets. In 2020, 2019 and 2018, none of our goodwill reporting units or our indefinite lived
tradenames were impaired. We are also required to perform an impairment review of our long-lived assets if indicators
of impairment exist. In 2020, we recognized a pre-tax non-cash impairment charge of $1.4 million related to a long-lived
asset and a technology intangible asset in which market value expectations indicated the carrying amounts of these assets
were in excess of the fair value. In 2019 and 2018, none of our long-lived assets were impaired.

There can be no assurances that future goodwill, indefinite-lived intangible assets or other long-lived asset impairments
will not occur. We perform our annual test for indications of goodwill and indefinite-lived intangible assets impairment
in the fourth quarter of our fiscal year or sooner if indicators of impairment exist.

The loss or financial instability of major customers could have an adverse effect on our results of operations.

In 2020, our top ten customers accounted for approximately 23% of our total net sales with no one customer accounting
for more than 10% of our total net sales. Our customers generally are not obligated to purchase any minimum volume of
products from us and are able to terminate their relationships with us at any time. In addition, increases in the prices of
our products could result in a reduction in orders from our customers. A significant reduction in orders from, or change
in terms of contracts with, any significant customers could have a material adverse effect on our future results of
operations.

Certain indebtedness may limit our ability to pay dividends, incur additional debt and make acquisitions and other
investments.

Our revolving credit facility contains operational and financial covenants that restrict our ability to make distributions to
stockholders, incur additional debt and make acquisitions and other investments unless we satisfy certain financial tests
and comply with various financial ratios. If we do not maintain compliance with these covenants, our creditors could
declare a default under our revolving credit facility, and our indebtedness could be declared immediately due and
payable. Our ability to comply with the provisions of our indebtedness may be affected by changes in economic or
business conditions beyond our control. Further, one of our strategies is to increase our revenues and profitability and
expand our business through acquisitions. We may require capital in excess of our available cash and the unused portion
of our revolving credit facility to make large acquisitions, which we would generally obtain from access to the credit
markets. There can be no assurance that if a large acquisition is identified that we would have access to sufficient capital

to complete such acquisition. Should we require additional debt financing above our existing credit limit, we cannot be
assured such financing would be available to us or available to us on reasonable economic terms.

Our inability to attract and retain key personnel may adversely affect our business.

Our success depends on our ability to recruit, retain and develop highly-skilled management and key personnel.
Competition for these individuals in our industry is intense and we may not be able to successfully recruit, train or retain
qualified personnel, or to effectively implement successions to existing personnel. If we fail to retain and recruit the
necessary personnel or arrange for successors to key personnel, our business could materially suffer.

Investment Risk Factors

One of our stockholders can exercise substantial influence over our Company.

As of December 31, 2020, Timothy P. Horne beneficially owned 6,094,290 shares of Class B common stock. Our
Class B common stock entitles its holders to ten votes for each share, and our Class A common stock entitles its holders
to one vote per share. As of December 31, 2020, Timothy P. Horne beneficially owned approximately 18.2% of our
outstanding shares of Class A common stock (assuming conversion of all shares of Class B common stock beneficially
owned by Mr. Horne into Class A common stock) and approximately 99.2% of our outstanding shares of Class B
common stock, which represents approximately 68.5% of the total outstanding voting power. As long as Mr. Horne
controls shares representing at least a majority of the total voting power of our outstanding stock, Mr. Horne will be able
to unilaterally determine the outcome of most stockholder votes, and other stockholders will not be able to affect the
outcome of any such votes.

Conversion and subsequent sale of a significant number of shares of our Class B common stock could adversely
affect the market price of our Class A common stock.

As of December 31, 2020, there were outstanding 27,478,512 shares of our Class A common stock and 6,144,290 shares
of our Class B common stock. Shares of our Class B common stock may be converted into Class A common stock at any
time on a one for one basis. Under the terms of a registration rights agreement with respect to outstanding shares of our
Class B common stock, the holders of our Class B common stock have rights with respect to the registration of the
underlying Class A common stock. Under these registration rights, the holders of Class B common stock may require, on
up to two occasions that we register their shares for public resale. If we are eligible to use Form S-3 or a similar
short-form registration statement, the holders of Class B common stock may require that we register their shares for
public resale up to two times per year. If we elect to register any shares of Class A common stock for any public
offering, the holders of Class B common stock are entitled to include shares of Class A common stock into which such
shares of Class B common stock may be converted in such registration. However, we may reduce the number of shares
proposed to be registered in view of market conditions. We will pay all expenses in connection with any registration,
other than underwriting discounts and commissions. If all of the available registered shares are sold into the public
market the trading price of our Class A common stock could decline.

General Risk Factors

Changes in regulations or standards could adversely affect our business.

Our products and business are subject to a wide variety of statutory, regulatory and industry standards and requirements.
A significant change to regulatory requirements, whether federal, foreign, state or local, or to industry standards, could
substantially increase manufacturing costs, impact the size and timing of demand for our products, or put us at a
competitive disadvantage, any of which could harm our business and have a material adverse effect on our financial
condition, results of operations and cash flow.

Our operating results could be negatively affected by changes in tax rates, the adoption of new tax legislation, or
exposure to additional tax liabilities.

As a global company, we are subject to taxation in numerous countries, states and other jurisdictions. As a result, our
effective rate is derived from a combination of applicable tax rates in the various places that we operate. Our future
taxes could be affected by numerous factors, including changes in the mix of our profitability from country to country,

the results of examinations and audits of our tax filings, adjustments to our uncertain tax positions, changes in
accounting for income taxes and changes in tax laws.

In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination
is uncertain. Significant judgment is required in determining our global provision for income taxes, deferred tax assets
or liabilities, and in evaluating our tax positions. Although we believe our estimates are reasonable, our tax filings are
regularly under audit by tax authorities and the ultimate tax outcome may differ from the amounts recorded and may
materially affect our financial results in the period or periods for which such determination is made.

Item 1B. UNRESOLVED STAFF COMMENTS.

None.

Item 2. PROPERTIES.

We maintain 34 principal manufacturing, warehouse and distribution centers worldwide, including our corporate
headquarters located in North Andover, Massachusetts. Additionally, we maintain numerous sales offices and other
smaller manufacturing facilities and warehouses. The principal properties in each of our three geographic segments and
their location, principal use and ownership status are set forth below:

Americas:

Europe

Location
North Andover, MA
Burlington, ON, Canada
Export, PA
Franklin, NH
St. Pauls, NC
San Antonio, TX
Spindale, NC
Fort Worth, TX
Fort Myers, FL
Blauvelt, NY
Peoria, AZ
Sparks, NV
Vernon, BC, Canada
Woodland, CA
Groveport, OH

Location
Biassono, Italy
Hautvillers, France
Landau, Germany
Méry, France
Plovdiv, Bulgaria
Sorgues, France
Vildbjerg, Denmark
Virey-le-Grand, France
Rosières, France
Gardolo, Italy
Monastir, Tunisia
St. Neots, United Kingdom

Principal Use

Owned/Leased
Owned
Corporate Headquarters
Owned
Distribution Center
Owned
Manufacturing
Owned
Manufacturing/Distribution
Owned
Manufacturing
Owned
Warehouse/Distribution
Owned
Distribution Center
Leased
Manufacturing/Distribution
Manufacturing/Distribution Leased
Leased
Manufacturing/Distribution
Leased
Manufacturing/Distribution
Leased
Distribution Center
Leased
Manufacturing/Distribution
Leased
Manufacturing
Leased
Distribution Center

Principal Use
Manufacturing/Distribution
Manufacturing
Manufacturing/Distribution
Manufacturing
Manufacturing
Distribution Center
Manufacturing/Distribution
Manufacturing/Distribution
Manufacturing/Distribution
Manufacturing
Manufacturing
Distribution

Owned/Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Leased
Leased

Asia-Pacific, Middle East, and Africa:

Location
Ningbo, Beilun, China
Shanghai, China
Ningbo, Beilun District, China
Auckland, New Zealand
Dubai, United Arab Emirates
Perth, Australia
Melbourne, Australia

Principal Use

Manufacturing
APMEA Headquarters
Distribution Center
Manufacturing/Distribution
Distribution
Distribution
Distribution

Owned/Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased

Certain of our facilities are subject to capital lease arrangements and collateral assignments under loan agreements with
long-term lenders. In general, we believe that our properties, including machinery, tools and equipment, are in good
condition, well maintained and adequate and suitable for their intended uses.

Item 3. LEGAL PROCEEDINGS.

We are from time to time involved in various legal and administrative proceedings. See Item 1. “Business—Product
Liability, Environmental and Other Litigation Matters,” and Note 15 of the Notes to Consolidated Financial Statements,
both of which are incorporated herein by reference.

Item 4. MINE SAFETY DISCLOSURES.

Not applicable.

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND

ISSUER PURCHASES OF EQUITY SECURITIES.

Our Class A common stock is traded on the New York Stock Exchange under the trading symbol “WTS.”

There is no established public trading market for our Class B common stock, which is held by members of the Horne
family. The principal holders of such stock are subject to restrictions on transfer with respect to their shares. Each share
of our Class B common stock (10 votes per share) is convertible into one share of Class A common stock (1 vote per
share).

The number of record holders of our Class A common stock as of January 24, 2021 was 130. The number of record
holders of our Class B common stock as of January 24, 2021 was 11.

Aggregate common stock dividend payments in 2020 were $31.4 million, which consisted of $25.7 million and
$5.7 million for Class A shares and Class B shares, respectively. Aggregate common stock dividend payments in 2019
were $30.9 million, which consisted of $25.3 million and $5.6 million for Class A shares and Class B shares,
respectively. While we presently intend to continue to pay comparable cash dividends, the payment of future cash
dividends depends upon the Board of Directors’ assessment of our earnings, financial condition, capital requirements
and other factors.

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

The following table includes information with respect to shares of our Class A common stock withheld to satisfy
withholding tax obligations during the quarter ended December 31, 2020.

Period
September 28, 2020 – October 25, 2020
October 26, 2020 – November 22, 2020
November 23, 2020 - December 31, 2020
Total

(a) Total

Number of
Shares (or
Units)

Issuer Purchases of Equity Securities

(d) Maximum Number (or
Approximate Dollar
Value) of Shares (or

(b) Average Purchased as Part of Units) that May Yet Be
Purchased Under the
Plans or Programs

Price Paid per Publicly Announced
Purchased Share (or Unit) Plans or Programs
—
111.82
—
—
—
—
—
111.82

220 $
— $
— $
220 $

—
—
—
—

The following table includes information with respect to repurchases of our Class A common stock during the
three-month period ended December 31, 2020 under our stock repurchase program.

Period
September 28, 2020 – October 25, 2020
October 26, 2020 – November 22, 2020
November 23, 2020 - December 31, 2020
Total

Issuer Purchases of Equity Securities

(d) Maximum Number (or

(a) Total

Number of
Shares (or
Units)
Purchased(1)

(b) Average
Price Paid Purchased as Part of
per Share Publicly Announced
Plans or Programs
(or Unit)

Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs

11,694 $ 105.30
10,870 $ 114.70
14,290 $ 118.06
36,854 $ 112.86

11,694 $
10,870 $
14,290 $
36,854

116,348,992
115,108,262
113,421,532

(1) Since July 27, 2015, the Board of Directors has authorized two stock repurchase programs. The first program

approved the repurchase of up to $100 million and the second repurchase program up to $150 million of our Class A
common stock, to be purchased from time to time on the open market or in privately negotiated transactions. The
$100 million stock repurchase program was completely expended by August 2019. The $150 million stock
repurchase program has been reflected in the maximum dollar value of shares that may yet be purchased in column
(d) above. The timing and number of shares repurchased will be determined by the Company’s management based
on its evaluation of market conditions and other factors.

Performance Graph

Set forth below is a line graph comparing the cumulative total shareholder return on our Class A common stock for the
last five years with the cumulative return of companies on the Standard & Poor’s 500 Stock Index and the Russell 2000
Index. We chose the Russell 2000 Index because it represents companies with a market capitalization similar to that of

Watts Water. The graph assumes that the value of the investment in our Class A common stock and each index was $100
at December 31, 2015 and that all dividends were reinvested.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Watts Water Technologies, Inc., the S&P 500 Index
and the Russell 2000 Index

$300

$250

$200

$150

$100

$50

12/15

12/16

12/17

12/18

12/19

12/20

Watts Water Technologies, Inc.

S&P 500

Russell 2000

*$100 invested on 12/31/15 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.

Cumulative Total Return

Watts Water Technologies, Inc.
S & P 500
Russell 2000

12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20
258.58
100.00
203.04
100.00
186.36
100.00

132.83
111.96
121.31

156.52
136.40
139.08

134.42
130.42
123.76

209.95
171.49
155.35

The above Performance Graph and related information shall not be deemed “soliciting material” or to be

“filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent
that we specifically incorporate it by reference into such filing.

Item 6. SELECTED FINANCIAL DATA.

The selected financial data set forth below should be read in conjunction with our consolidated financial statements,
related Notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
included herein.

FIVE-YEAR FINANCIAL SUMMARY

(Amounts in millions, except per share and cash dividend information)

Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/16(5)

12/31/19(2)

12/31/18(3)

12/31/17(4)

12/31/20(1)

Statement of operations data:
Net sales
Net income
DILUTED EPS
Net income per share:
Cash dividends declared per common share
Balance sheet data (at year end):
Total assets
Long-term debt, net of current portion

$ 1,508.6 $ 1,600.5 $ 1,564.9 $ 1,456.7 $ 1,398.4
84.2

128.0

131.5

114.3

73.1

3.36
0.92 $

3.85
0.90 $

3.73
0.82 $

2.12
0.75 $

2.44
0.71

$ 1,738.2 $ 1,723.1 $ 1,653.7 $ 1,736.5 $ 1,763.2
511.3

474.6

323.4

204.2

198.2

(1) For the year ended December 31, 2020, net income included the following pre-tax costs: restructuring charges of
$9.9 million, other long-lived asset impairment charges of $1.4 million, acquisition related costs of $1.3 million,
footprint optimization costs of $1.1 million, and a loss on disposal of $0.6 million, partially offset by the elimination
of an earnout from a prior immaterial acquisition in our Americas segment of $1.5 million. Net income also
included a net tax charge of $9.7 million related to recently issued final tax regulations which reduced the
realizability of foreign tax credits, partially offset by benefits from changes in the Global Intangible Low Taxed
Income Tax rules under the High Tax exception. The net after-tax cost of these items was $17.7 million.

(2) For the year ended December 31, 2019, net income included the following pre-tax costs: restructuring charges of
$4.3 million, Corporate professional fees of $3.1 million, acquisition-related costs of $0.9 million, and footprint
optimization costs of $0.8 million. The net after-tax cost of these items was $7.6 million.

(3) For the year ended December 31, 2018, net income included pre-tax restructuring charges of $3.4 million, or $2.5

million net after-tax cost. Net income also included a tax benefit of $3.7 million related to the finalization of the
impact of the 2017 Tax Act.

(4) For the year ended December 31, 2017, net income included the following pre-tax costs: long-lived asset

impairment charges of $1.0 million, deployment costs related to the Americas and Europe transformation programs
of $2.9 million, restructuring charges of $6.8 million, and acquisition costs of $0.2 million. The net after-tax cost of
these items was $7.3 million. Net income also included a tax charge of $25.1 million related to the provisional
impact of the 2017 Tax Act.

(5) For the year ended December 31, 2016, net income included the following net pre-tax costs: long-lived asset

impairment charges of $0.5 million, acquisition costs of $2.0 million, purchase accounting adjustments of $2.0
million, restructuring charges of $4.7 million, deployment costs related to the Americas, APMEA, and Europe
transformation programs of $14.2 million, and debt issuance costs of $0.3 million. Net income also included a pre-
tax gain of $8.7 million related to the disposition of a subsidiary in China. The net after-tax cost of these items was
$6.2 million.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.

Overview

We are a leading supplier of products, solutions and systems that manage and conserve the flow of fluids and energy
into, through and out of buildings in the commercial and residential markets in the Americas, Europe and APMEA. For
over 140 years, we have designed and produced valve systems that safeguard and regulate water systems, energy
efficient heating and hydronic systems, drainage systems and water filtration technology that helps purify and conserve

water. We earn revenue and income almost exclusively from the sale of our products. Our principal product lines
include:

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

• Drainage & water re-use products—includes drainage products and engineered rain water harvesting

solutions for commercial, industrial, marine and residential applications.

• Water quality products—includes point-of-use and point-of-entry water filtration, conditioning and scale

prevention systems, monitoring and metering products for commercial, marine and residential applications.

Our business is reported in three geographic segments: Americas, Europe, and APMEA. We distribute our products
through four primary distribution channels: wholesale, original equipment manufacturers (OEMs), specialty, and do-it-
yourself (DIY).

We believe that the factors relating to our future growth include continued product innovation that meets the needs of
our customers and our end markets; our ability to make selective acquisitions, both in our core markets as well as in
complementary markets; regulatory requirements relating to the quality and conservation of water and the safe use of
water; increased demand for clean water; and continued enforcement of plumbing and building codes. We have
completed 12 acquisitions in the last decade. Our acquisition strategy focuses on businesses that promote our key macro
themes around safety & regulation, energy efficiency and water conservation. We target businesses that will provide us
with one or more of the following: an entry into new markets and/or new geographies, improved channel access, unique
and/or proprietary technologies, advanced production capabilities or complementary solution offerings.

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

The Internet of Things has allowed companies to transform components into smart and connected devices. Over the last
few years we have been building our smart and connected foundation by expanding our internal capabilities and making
strategic acquisitions. Our strategy is to deliver superior customer value through smart and connected products and
solutions. This strategy focuses on three dimensions: Connect, Control and Conserve. We intend to introduce products
that will connect our customers with smart systems, control systems for optimal performance, and conserve critical
resources by increasing operability, efficiency and safety.

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

COVID-19 Pandemic

The unprecedented global COVID-19 pandemic presents significant risks to our company and continues to cause
challenges and uncertainties in our ability to fully predict the impact on our business. Throughout the course of the
pandemic we have demonstrated the strength and resiliency of our strategy and the meaningful role we play in our

markets and channels and the value we bring to our customers. Our revenues for the year ended December 31, 2020
were adversely impacted as a result of COVID-19. Demand for our products decreased as compared to 2019 as the
pandemic continued and various governmental measures were imposed to combat the spread of the virus. Fourth quarter
net sales improved when compared to the third quarter of 2020, as did quarter-over-quarter order rates. The exact timing
and pace of the recovery remain uncertain and are impacted by different markets which are now experiencing a
resurgence of COVID-19 cases. Future sales expansion or contraction is dependent on the duration and severity of the
COVID-19 pandemic, including the time it takes for normal economic and operating conditions to resume, the easing of
the construction lending markets, improvements in overall investments and capital spending in building services
construction markets, additional governmental actions that may be taken, and numerous other uncertainties, including
the time to administer and inoculate a sufficient population with the recently approved vaccines or the introduction of
new therapeutic treatments.

We continue to be concerned about the far reaching impacts of the pandemic on our business, operations and financial
results and conditions, directly and indirectly, including, without limitation, impacts on the health of our employees,
manufacturing capabilities, supply chains, distribution networks, sales opportunities, customer and consumer behaviors,
and the overall economy. The scope and nature of these potential impacts are pervasive, and many impacts are beyond
our control and continue to evolve.

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

In response to the business impact of the COVID-19 pandemic, we undertook several cost management actions in order
to reduce costs, including merit deferrals, compensation reductions, furloughs, reduced discretionary spending, factory
overhead cost reductions, and reductions-in-force and other exit activities initiated in the second and third quarters of
2020. In addition to the cost actions noted above, we also implemented various measures to conserve cash and ensure its
availability. We entered into an Amended and Restated Credit Agreement on April 24, 2020, we temporarily suspended
our stock repurchase program during the second quarter, which was reinstated on June 29, 2020, maintained a flat
dividend rate, and deferred employer payroll tax payments as permitted under the Coronavirus Aid, Relief, and
Economic Security Act (“CARES Act”). We have also implemented additional procedures to manage risks related to our
working capital, specifically the collectability of our trade accounts receivable, by monitoring the financial stability,
credit rating, payment terms and credit limits of our credit customers.

Due to the above circumstances and as described generally in this Form 10-K, our results of operations for the year
ended December 31, 2020 are not necessarily indicative of future results. Management cannot predict the full impact of
the COVID-19 pandemic on our sales, supply chain, manufacturing and distribution or on economic conditions
generally, including the effects on customer spending. The extent of the effects of the COVID-19 pandemic on us remain
uncertain and will depend on future developments, and such effects could exist for an extended period of time even after
the pandemic ends. For further information regarding the impact of COVID-19 on us, see Item 1A, “Risk Factors.”

Financial Overview

Net sales for 2020 decreased 5.7%, or $91.9 million, on a reported basis and 6.8%, or $109.0 million, on an organic
basis, compared to 2019, primarily due to the impact of the COVID-19 pandemic across all of our operating segments.
The reported decline was partially offset by an increase in sales from favorable foreign exchange movements of 0.5%, or
$7.2 million, primarily driven by a stronger euro, and a net increase in acquired/divested sales of $9.9 million. Organic
sales is a non-GAAP financial measure that excludes the impacts of acquisitions, divestitures and foreign exchange from
year-over-year comparisons. Management believes reporting organic sales growth provides useful information to
investors, potential investors and others, because it allows for additional insight into underlying sales trends by providing
sales growth on a consistent basis. We reconcile the change in organic sales to our reported sales for each region within
our results below. Operating income of $181.1 million decreased by $16.0 million, or 8.1%, in 2020 compared to 2019.
This decrease was primarily driven by lower sales volume as a result of the COVID-19 pandemic, higher general
inflation, including tariffs, strategic investments and incremental restructuring costs, partially offset by benefits from

productivity initiatives, reduced long-term incentive costs, lower Corporate-related professional fees, and benefits from
cost reduction actions in response to the COVID-19 pandemic.

Despite the challenges presented by the COVID-19 pandemic in 2020, we continued to drive commercial and
operational excellence, invest in our business with increased capital expenditures and the acquisitions discussed in the
section below, and invest in product innovation, including our smart and connected products and solutions, as we strove
to meet the needs of our customers.

Management’s discussion and analysis of our financial condition, results of operations and cash flows as of and for the
year ended December 31, 2018 can be found in Item 7 of Part II, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2019.

Acquisitions

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

In the fourth quarter of 2020, we completed the acquisition of 100% of the shares of The Detection Group, Inc. (“TDG”)
in an all-cash transaction. TDG is based in Sunnyvale, California, and specializes in the design, marketing and
distribution of wireless leak detection systems for commercial buildings. The acquisition of TDG aligns with our smart
and connected strategy. The acquisition of TDG was deemed not to be material to our consolidated financial statements.

Recent Developments

On February 8, 2021, we declared a quarterly dividend of twenty-three cents ($0.23) per share on each outstanding share
of Class A common stock and Class B common stock payable on March 15, 2021 to stockholders of record on March 1,
2021.

Results of Operations

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Net Sales. Our business is reported in three geographic segments: Americas, Europe and APMEA. Our net sales in each
of these segments for the years ended December 31, 2020 and December 31, 2019 were as follows:

Year Ended
December 31, 2020

Year Ended
December 31, 2019

% Change to
Consolidated

Net Sales % Sales Net Sales % Sales Change Net Sales

(dollars in millions)

Americas
Europe
APMEA
Total

$ 1,025.7
424.9
58.0

67.7 % $ (58.4)
(26.1)
28.2
(7.4)
4.1
$ 1,508.6 100.0 % $ 1,600.5 100.0 % $ (91.9)

68.0 % $ 1,084.1
451.0
28.2
65.4
3.8

(3.6)%
(1.6)
(0.5)
(5.7)%

The change in net sales was attributable to the following:

Americas Europe APMEA Total

Americas

Europe APMEA Total Americas Europe APMEA

Change As a %
of Consolidated Net Sales

Change As a %
of Segment Net Sales

Organic
Foreign exchange
Acquired/divested,
net
Total

(64.4) $ (33.9) $ (10.7) $ (109.0)
7.2
(0.6)

7.8

—

(dollars in millions)

(4.0) %
—

(2.1)%
0.5

(0.7)% (6.8)%

—

0.5

(5.9) %
(0.1)

(7.5)%
1.7

(17.3)%
—

6.6

—

(58.4) $ (26.1) $

3.3
9.9
(7.4) $ (91.9)

0.4
(3.6) %

—
(1.6)%

0.2
(0.5)% (5.7)%

0.6

0.6
(5.4) %

—
(5.8)%

5.9
(11.4)%

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

Wholesale OEMs DIY

Specialty Total

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

(dollars in millions)

Americas
Europe
APMEA
Total

$ (34.9) $ (6.6) $ 6.2 $ (29.1) $ (64.4)
(33.9)
(0.2)
(10.7)
—
$ (77.3) $ (9.4) $ 6.0 $ (28.3) $ (109.0)

(31.0)
(11.4)

(2.7)
(0.1)

—
0.8

(5.7)% (7.9)% 9.7 % (8.9)%
(10.2)
(19.4)

(1.9)
(7.4)

—
61.0

(7.5)
—

Organic net sales in the Americas decreased due to a decline in volume in the majority of our product lines primarily
from the impact of the COVID-19 pandemic. This decrease was partially offset by higher volume within our DIY
channel as many DIY customers worked on residential projects during the pandemic.

Organic net sales in Europe decreased primarily due to lost volume related to the COVID-19 pandemic within all major
regions and across all of our product lines, partially offset by selected price increases.

Organic net sales in APMEA decreased primarily due to a decline in volume related to the COVID-19 pandemic in all
regions.

The net increase in sales due to foreign exchange was primarily due to the appreciation of the euro, partially offset by the
depreciation of the Canadian dollar against the U.S. dollar in 2020 as compared to 2019. We cannot predict whether
foreign currencies will appreciate or depreciate against the U.S. dollar in future periods or whether future foreign
exchange rate fluctuations will have a positive or negative impact on our net sales.

The change in net sales due to acquired/divested relates to three immaterial acquisitions, one in the APMEA segment in
the third quarter of 2020, one in the Americas segment in the fourth quarter of 2020, and one in the Americas segment in
the third quarter of 2019, partially offset by an immaterial divestiture in our APMEA segment during the third quarter of
2020.

Gross Profit. Gross profit and gross profit as a percent of net sales (gross margin) for 2020 and 2019 were as follows:

Gross profit
Gross margin

Year Ended
December 31,

2020

2019

(dollars in millions)
$
625.4
41.5 %

677.5

42.3 %

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

Selling, General and Administrative Expenses. Selling, general and administrative, or SG&A, expenses decreased
$43.7 million, or 9.2%, in 2020 compared to 2019. The decrease in SG&A expenses was attributable to the following:

Organic
Foreign exchange
Acquired/divested, net
Total

(in millions) % Change
(10.2)%
$
0.7
0.3
(9.2)%

(48.8)
1.4
3.7
(43.7)

The organic decrease was related to cost reduction actions in response to the COVID-19 pandemic of $31.4 million,
decreased variable costs due to sales volume declines of $9.5 million, restructuring savings of $10.1 million, decreased
stock compensation expense of $4.2 million primarily due to adjustments to expected attainment levels of performance
goals related to our performance stock units, and reduction in Corporate-related professional fees of $3.1 million. These
decreases were partially offset by strategic investments of $8.8 million, including investments in research and
development for new products, commercial excellence, and technology and information systems as well as general
inflation of $5.4 million compared to 2019. The increase in foreign exchange was mainly due to the appreciation of the
euro against the U.S. dollar. The acquired/divested, net SG&A costs are related to three immaterial acquisitions, partially
offset by SG&A costs related to an immaterial divestiture, as previously mentioned. Total SG&A expenses, as a
percentage of net sales, were 28.7% in 2020 compared to 29.7% in 2019.

Restructuring. In 2020, we recorded a net charge of $9.9 million compared to a net charge of $4.3 million in 2019. The
charge for 2020 was primarily for severance benefits due to reductions in force programs initiated in the second and third
quarters of 2020 in response to economic challenges related to the COVID-19 pandemic. For a more detailed description
of our current restructuring plans, see Note 3 of Notes to Consolidated Financial Statements in this Annual Report Form
10-K.

Other long-lived asset impairment charges. In 2020, we recorded impairment charges of $1.4 million in our Americas
segment, primarily relating to $1.0 million for a long-lived asset impairment charge and $0.4 million related to a
technology intangible asset in which market value expectations indicated the carrying amounts of these assets were in
excess of the fair value.

Loss on disposition. In 2020, we recorded a pre-tax loss on disposition of $0.6 million in our APMEA segment related
to an immaterial divestiture.

Operating Income (Loss). Operating income (loss) by geographic segment for 2020 and 2019 was as follows:

Year Ended December 31,

2020

2019

Change

% Change to
Consolidated
Operating
Income

Americas
Europe
APMEA
Corporate
Total

(dollars in millions)
$ 166.3 $ 187.4 $ (21.1)
0.3
(3.4)
8.2
$ 181.1 $ 197.1 $ (16.0)

50.2
3.5
(38.9)

49.9
6.9
(47.1)

(10.7)%
0.2
(1.7)
4.1
(8.1)%

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

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

Change As a % of
Consolidated Operating Income

Change As a % of
Segment Operating Income

Organic
Foreign exchange
Acquired/divested,
net
Loss on
disposition
Restructuring,
impairment
charges
Total

(14.1) $ (3.8) $

—

1.1

(1.2) $
0.2

8.3 $ (10.8)
1.3

—

(7.2)%
—

(1.9)%
0.6

(0.6)%
0.1

4.2 % (5.5)%

—

0.7

(7.5)%
—

(7.6)%
2.2

(17.4)%
2.9

17.6 %
—

0.5

—

0.6

(0.6)

—

1.1

0.3

—

(0.6)

—

0.3

(0.3)

—

0.6

0.3

—

(0.3)

—

8.7

(8.7)

—

(7.5)
(21.1) $

3.0
0.3 $

(2.4)
(3.4) $

(7.0)
(0.1)
8.2 $ (16.0)

(3.8)
(10.7)%

1.5
0.2 %

(1.2)
(1.7)%

(3.6)

(0.1)
4.1 % (8.1)%

(4.0)
(11.2)%

6.0
0.6 %

(34.8)
(49.3)%

(0.2)
17.4 %

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

Interest Expense. Interest expense decreased $0.8 million, or 5.7%, in 2020 as compared to 2019 primarily due to a
decline in interest rates and a reduction in the principal balance of debt outstanding. Refer to Note 11 of Notes to
Consolidated Financial Statements in this Annual Report on Form10-K for further details.

Other expense, (income) net Other expense (income) decreased $1.5 million to an expense balance of $1.0 million
compared to 2019. The decrease was primarily due to higher net foreign currency transaction losses.

Income Taxes. Our effective income tax rate increased to 31.6% in 2020, from 28.5% in 2019. The tax rate increased
primarily from an increase to the valuation allowance as a result of recently issued final tax regulations which reduced
the realizability of foreign tax credits.

Net Income. Net income for 2020 was $114.3 million, or $3.36 per common share on a diluted basis, compared to
$131.5 million, or $3.85 per common share on a diluted basis, for 2019. Results for 2020 include an after-tax charge of
$7.4 million, or $0.22 per common share, for restructuring; $9.7 million, or $0.28 per common share, for changes in tax
regulations; $1.0 million, or $0.03 per common share, for other long-lived asset impairment charges; $1.0 million, or
$0.03 per common share, for acquisition related costs; $0.8 million, or $0.02 per common share, for footprint
optimization; partially offset by a $1.5 million benefit, or $0.04 per share for the elimination of an earnout from a prior
immaterial acquisition in our Americas segment, and $0.7 million, or $0.02 per common share of a net gain on disposal.

Results for 2019 include an after-tax charge of $3.1 million, or $0.09 per common share, for Corporate professional fees;
$3.2 million, or $0.09 per common share, for restructuring charges; $0.7 million, or $0.02 per common share, for
acquisition related costs; and $0.6 million, or $0.02 per common share for footprint optimization.

Liquidity and Capital Resources

2020 Cash Flows

We generated $228.8 million of net cash from operating activities in 2020 as compared to $194.0 million in 2019. The
increase in cash generated was primarily driven by favorable changes in working capital, including reductions to
accounts receivable that more than offset lower net income.

We used $54.8 million of net cash for investing activities in 2020 compared to $71.8 million used in 2019. We spent
$27.5 million less on acquisitions and $14.6 million more for capital expenditures in 2020 compared to 2019. We
received $2.2 million in cash proceeds from the sale of property, plant and equipment and received $2.0 million in
proceeds from the disposal of a business in 2020. We anticipate investing between $35 million to $40 million in capital
equipment in 2021 to improve our manufacturing capabilities and investment in our commercial and operational
excellence initiatives.

We used $181.9 million of net cash from financing activities in 2020 primarily due to long-term debt repayments of
$517.5 million, dividend payments of $31.4 million, tax withholding payments on vested stock awards of $7.8 million
and payments of $28.9 million to repurchase approximately 332,000 shares of Class A common stock. Debt repayments
include the termination of the term loan facility under the Prior Credit Agreement, payments made under both the
Revolving Credit Facility and the Prior Revolving Credit Facility, and payment of $75 million to retire notes issued
under the 2010 Note Purchase Agreement. These payments were partially offset by proceeds from drawdowns on both
our Prior and current Revolving Credit Facilities totaling $407.5 million.

In February 2016, we entered into the Credit Agreement (the “Prior Credit Agreement”) among the Company, certain
subsidiaries of the Company who become borrowers under the Prior Credit Agreement, JPMorgan Chase Bank, N.A., as
Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the other lenders referred to therein. The Prior
Credit Agreement provided for a $500 million, five-year, senior unsecured revolving credit facility (the “Prior Revolving
Credit Facility”) with a sublimit of up to $100 million in letters of credit. The Prior Credit Agreement also provided for a
$300 million, five-year, term loan facility (the “Term Loan Facility”) available to us in a single draw, of which the entire
$300 million had been drawn in February 2016.

On April 24, 2020, we entered into an Amended and Restated Credit Agreement (the "New Credit Agreement") among
the Company, certain subsidiaries of the Company who become borrowers thereunder, JPMorgan Chase Bank, N.A., as
Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the other lenders referred to therein. The New
Credit Agreement amended and restated the Prior Credit Agreement in its entirety while increasing the amount of
revolving credit available from $500 million to $800 million, and extending the maturity by one additional year to
February 2022. This senior unsecured revolving credit facility (the "Revolving Credit Facility") also includes sublimits
of $100 million for letters of credit and $15 million for swing line loans. As of December 31, 2020, we had drawn down
$200.0 million on this line of credit and had $16.2 million in letters of credit outstanding, which resulted in $583.8
million of unused and available credit under the Revolving Credit Facility. The term loan facility under the Prior Credit
Agreement was terminated and paid off effective April 24, 2020, with funds from the Revolving Credit Facility.
Borrowings outstanding under the Revolving Credit Facility bear interest at a fluctuating rate per annum equal to an
applicable percentage defined as (i) in the case of Eurocurrency rate loans, the adjusted British Bankers Association
LIBOR rate (which at all times will not be less than 1.00%) plus an applicable percentage, ranging from 1.50% to
2.10%, determined by reference to our consolidated leverage ratio, or (ii) in the case of alternate base rate loans and
swing line loans, interest (which at all times will not be less than 2.00%) at the greatest of (a) the Prime Rate in effect on
such day, (b) the FRBNY Rate in effect on such day plus 0.5% and (c) the adjusted LIBOR rate plus 1.0% for a one
month interest period in dollars. In addition to paying interest under the New Credit Agreement, we are also required to
pay certain fees in connection with the Revolving Credit Facility, including, but not limited to, an unused facility fee and
letter of credit fees. The New Credit Agreement matures on February 12, 2022, subject to extension under certain
circumstances and subject to the terms of the New Credit Agreement. We may repay loans outstanding under the New
Credit Agreement from time to time without premium or penalty, other than customary breakage costs, if any, and
subject to the terms of the New Credit Agreement.

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

We have historically financed our operating and capital needs primarily through cash flows generated by our operations.
We expect to continue funding future operating requirements principally through our cash flows from operations, in
addition to existing cash resources. We believe that our existing funds, when combined with cash generated from
operations and our ability to access additional financing resources, if needed, are sufficient to satisfy our operating,
working capital, strategic investments, capital expenditure and debt service requirements for the foreseeable future. In
addition, we may choose to opportunistically return cash to shareholders and pursue other business initiatives, including
acquisition activities. We may, from time to time, also seek additional funding through a combination of equity and debt
financings should we identify a significant new opportunity.

As of December 31, 2020, we held $218.9 million in cash and cash equivalents. Of this amount, $175.6 million was held
by foreign subsidiaries. Our U.S. operations typically generate sufficient cash flows to meet our domestic obligations.
However, if we did have to borrow to fund some or all of our expected cash outlays, we can do so at reasonable interest

rates by utilizing the undrawn borrowings under our Revolving Credit Facility. We believe that our financial resources
allow us to manage the anticipated impacts of the COVID-19 pandemic on our business operations for the foreseeable
future, which include reductions in revenues and potential delays in payments from customers. We anticipate the
impacts of COVID-19 will continue to evolve rapidly, and, as a result, we will continue to evaluate our financial position
as additional information becomes available, particularly relating to COVID-19. Subsequent to recording the Toll Tax as
part of the Tax Cuts and Jobs Act of 2017, our intent is to permanently reinvest undistributed earnings of foreign
subsidiaries, and we do not have any current plans to repatriate post-Toll Tax foreign earnings generated subsequent to
December 31, 2017, to fund operations in the United States. However, if amounts held by foreign subsidiaries were
needed to fund operations in the United States, we could be required to accrue and pay taxes to repatriate these funds.
Such charges may include potential state income taxes and other tax charges.

Covenant compliance

Under the New Credit Agreement, we are required to satisfy and maintain specified financial ratios and other financial
condition tests as of December 31, 2020. The financial ratios include a consolidated interest coverage ratio based on
consolidated earnings before income taxes, interest expense, depreciation, and amortization (Consolidated EBITDA) to
consolidated interest expense, as defined in the New Credit Agreement. The New Credit Agreement defines
Consolidated EBITDA to exclude unusual or non-recurring charges and gains. We are also required to maintain a
consolidated leverage ratio of consolidated funded debt to Consolidated EBITDA. Consolidated funded debt, as defined
in the New Credit Agreement, includes all long and short-term debt, capital lease obligations and any trade letters of
credit that are outstanding, less cash and cash equivalents on the balance sheet.

As of December 31, 2020, our actual financial ratios calculated in accordance with the New Credit Agreement compared
to the required levels under the New Credit Agreement were as follows:

Interest Charge Coverage Ratio

Leverage Ratio

Actual Ratio Required Level

19.1 to 1.00

Minimum level
3.50 to 1.00

Maximum level

0.00 to 1.00

3.25 to 1.00

As of December 31, 2020, we were in compliance with all covenants related to the New Credit Agreement.

In addition to financial ratios, the New Credit Agreement contains affirmative and negative covenants that include
limitations on disposition or sale of assets, prohibitions on assuming or incurring any liens on assets with limited
exceptions and limitations on making investments other than those permitted by the agreement.

Working capital (defined as current assets less current liabilities) as of December 31, 2020 was $396.7 million compared
to $315.6 million as of December 31, 2019. The ratio of current assets to current liabilities was 2.3 to 1 as of
December 31, 2020 compared to 1.8 to 1 as of December 31, 2019. The increase in working capital is primarily related
to a decrease in the current portion of long-term debt due to the payment of the senior note and the current portion of the
term loan facility under the Prior Credit Agreement in 2020. The senior note, which is described further in Note 11 of
Notes to the Consolidated Financial Statements in this Annual Report 10-K, was paid in June 2020.

Non-GAAP Financial Measures

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

Organic net sales growth is a non-GAAP measure of net sales growth that excludes the impacts of acquisitions,
divestitures and foreign exchange from period-over-period comparisons. A reconciliation to the most closely related U.S.
GAAP measure, net sales, has been included in our discussion within “Results of Operations” above. Organic net sales
should be considered in addition to, and not as a replacement for or as a superior measure to net sales. Management

believes reporting organic sales growth provides useful information to investors, potential investors and others, by
facilitating easier comparisons of our revenue performance with prior and future periods.

Adjusted operating income, adjusted operating margins, adjusted net income, and adjusted earnings per share are non-
GAAP measures that exclude certain expenses incurred and benefits recognized in the periods presented that relate
primarily to our global restructuring programs, other long-lived asset impairment charges, professional fees, acquisition
related costs, footprint optimization costs, an earnout adjustment, loss on disposal, and the related income tax impacts on
these items and other tax adjustments. Management believes reporting these financial measures provides useful
information to investors, potential investors and others, by facilitating easier comparisons of our performance with prior
and future periods.

A reconciliation of U.S. GAAP results to these adjusted non-GAAP measures is provided below (dollars in millions,
except per share amounts):

Net sales

1,508.6

1,600.5

Year Ended

December 31,
2020

December 31,
2019

Operating income - as reported
Operating margin %

Adjustments for special items:
Acquisitions / divesture costs / adjustments:
- Other long-lived asset impairment charge
- Acquisition related costs
- Loss on disposal
- Earnout adjustment
Total acquisitions / divesture costs / adjustments

Restructuring
Footprint optimization
Professional fees

Total adjustments for special items

Operating income - as adjusted
Adjusted operating margin %

Net income - as reported

Adjustments for special items - tax effected:
Acquisitions / divesture costs / adjustments:
- Other long-lived asset impairment charge
- Acquisition related costs
- Net gain on disposal
- Earnout adjustment
Total acquisitions / divesture costs / adjustments

Restructuring
Footprint optimization
Professional fees
Tax adjustments

Total adjustments for special items - tax effected:

Net income as adjusted

Diluted earnings per share - as reported
Adjustments for special items
Diluted earnings per share - as adjusted

181.1
12.0%

197.1
12.3%

1.4
1.3
0.6
(1.5)
1.8

9.9
1.1
—

12.8

193.9 $
12.9%

114.3 $

1.0
1.0
(0.7)
(1.5)
(0.2)

7.4
0.8
—
9.7

17.7

—
0.9
—
—
0.9

4.3
0.8
3.1

9.1

206.2
12.9%

131.5

—
0.7
—
—
0.7

3.2
0.6
3.1
—

7.6

132.0 $

139.1

3.36
0.52
3.88

3.85
0.22
4.07

Free cash flow is a non-GAAP measure that does not represent cash generated from operating activities in accordance
with U.S. GAAP. Therefore, it should not be considered an alternative to net cash provided by operating activities as an
indication of our performance. The cash conversion rate of free cash flow to net income is also a measure of our
performance in cash flow generation. We believe free cash flow to be an appropriate supplemental measure of our

operating performance because it provides investors with a measure of our ability to generate cash, repay debt, pay
dividends, repurchase stock and fund acquisitions.

A reconciliation of net cash provided by operating activities to free cash flow and calculation of our cash conversion rate
is provided below:

Year Ended

December 31,

2020

December 31,
2019

Net cash provided by operating activities
Less: additions to property, plant, and equipment
Plus: proceeds from the sale of property, plant, and equipment
Free cash flow
$
Net income —as reported
$
Cash conversion rate of free cash flow to net income

(in millions)

228.8 $
(43.8)
2.2
187.2 $
114.3 $
163.8 %

194.0
(29.2)
0.1
164.9
131.5
125.4 %

Our free cash flow improved in 2020 when compared to 2019 primarily driven by favorable changes in working capital,
including reductions in accounts receivable which more than offset lower net income and higher capital expenditures.

Our net (cash) debt to capitalization ratio, a non-GAAP financial measure used by management, at December 31, 2020
was (2)% for 2020 compared to 8.4% in 2019. The decrease was driven by a decrease in net debt outstanding at
December 31, 2020 of $110.2 million, primarily due to the payments of the senior note and the current portion of the
term loan facility under the Prior Credit Agreement in 2020. Management believes the net (cash) debt to capitalization
ratio is an appropriate supplemental measure because it helps investors understand our ability to meet our financing
needs and serves as a basis to evaluate our financial structure. Our computation may not be comparable to other
companies that may define their net (cash) debt to capitalization ratios differently.

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

December 31, December 31,

2020

2019

Current portion of long‑term debt
Plus: long-term debt, net of current portion
Less: cash and cash equivalents
Net (cash) debt

A reconciliation of capitalization is provided below:

(in millions)
— $

198.2
(218.9)
(20.7) $

105.0
204.2
(219.7)
89.5

Net (cash) debt
Total stockholders’ equity
Capitalization
Net (cash) debt to capitalization ratio

December 31,
2020

December 31,
2019

(in millions)

(20.7)
1,069.8
$ 1,049.1

89.5
978.0
$ 1,067.5

(2.0)%

8.4 %

Contractual Obligations

Our contractual obligations as of December 31, 2020 are presented in the following table:

Payments Due by Period

Less than

Contractual Obligations

Total

1 year 1‑3 years 4‑5 years

More than
5 years

Long-term debt obligations, including
current maturities(a)
Operating lease obligations (c)
Finance lease obligations(a)
Pension contributions
Interest
2017 Tax Act Toll Tax payable
Other(b)
Total

(in millions)

— $ 200.0 $

— $

$ 200.0 $
66.9
4.9
11.7
5.2
18.7
47.0

10.5
1.7
0.5
4.5
—
39.1

16.9
2.2
0.9
0.7
3.5
4.3

12.2
1.0
1.1
—
15.2
0.8

$ 354.4 $ 56.3 $ 228.5 $ 30.3 $

—
27.3
—
9.2
—
—
2.8
39.3

(a) as recognized in the consolidated balance sheet.

(b) the majority relates to commodity and capital commitments at December 31, 2020.

We maintain letters of credit that guarantee our performance or payment to third parties in accordance with specified
terms and conditions. Amounts outstanding were approximately $16.2 million as of December 31, 2020 and $25.8
million as of December 31, 2019. Our letters of credit are primarily associated with insurance coverage and, to a lesser
extent, foreign purchases and generally expire within one year of issuance. These instruments may exist or expire
without being drawn down; therefore, they do not necessarily represent future cash flow obligations and are not included
in the table above.

Off-Balance Sheet Arrangements

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

Application of Critical Accounting Policies and Key Estimates

The preparation of our consolidated financial statements in accordance with U.S. GAAP requires management to make
judgments, assumptions and estimates that affect the amounts reported. A critical accounting estimate is an assumption
about highly uncertain matters and could have a material effect on the consolidated financial statements if another, also
reasonable, amount were used, or, a change in the estimate is reasonably likely from period to period. We base our
assumptions on historical experience and on other estimates that we believe are reasonable under the circumstances.
Actual results could differ significantly from these estimates. There were no significant changes in our accounting
policies or significant changes in our accounting estimates during 2020.

We periodically discuss the development, selection and disclosure of the estimates with our Audit Committee.
Management believes the following critical accounting policies reflect our more significant estimates and assumptions.

Revenue recognition

We recognize revenue under the core principle to depict the transfer of control to our customers in an amount reflecting
the consideration to which we expect to be entitled. In order to achieve that core principle, we apply the following five-
step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract,
(3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and
(5) recognize revenue when a performance obligation is satisfied. Our revenue for product sales is recognized on a point
in

time model, at the point control transfers to the customer, which is generally when products are shipped from the
Company’s manufacturing or distribution facilities or when delivered to the customer’s named location. Sales tax, value-
added tax, or other taxes collected concurrent with revenue producing activities are excluded from revenue. Freight costs
billed to customers for shipping and handling activities are included in revenue with the related cost included in selling,
general and administrative expenses. See Note 4 of Notes to Consolidated Financial Statements in this Annual Report on
Form 10-K for further disclosures and detail regarding revenue recognition.

Inventory valuation

Inventories are stated at the lower of cost or net realizable value with costs determined primarily on a first-in first-out
basis. We utilize both specific product identification and historical product demand as the basis for determining our
excess or obsolete inventory reserve. We identify all inventories that exceed a range of one to three years in sales. This is
determined by comparing the current inventory balance against unit sales for the trailing twelve months. New products
added to inventory within the past twelve months are excluded from this analysis. A portion of our products contain
recoverable materials, therefore the excess and obsolete reserve is established net of any recoverable amounts. Changes
in market conditions, lower-than- expected customer demand or changes in technology or features could result in
additional obsolete inventory that is not saleable and could require additional inventory reserve provisions.

In certain countries, additional inventory reserves are maintained for potential shrinkage experienced in the
manufacturing process. The reserve is established based on the prior year’s inventory losses adjusted for any change in
the gross inventory balance.

Goodwill and other intangibles

We have made numerous acquisitions over the years and have recognized a significant amount of goodwill. Goodwill is
tested for impairment annually or more frequently if an event or circumstance indicates that an impairment loss may
have been incurred. Application of the goodwill impairment test requires judgment, including the identification of
reporting units, assignment of assets and liabilities to reporting units, and determination of the fair value of each
reporting unit when a quantitative analysis is performed. We estimate the fair value of our reporting units using an
income approach based on the present value of estimated future cash flows, and when appropriate, guideline public
company and guideline transaction market approaches.

Accounting guidance allows us to assess goodwill for impairment utilizing either qualitative or quantitative analyses. We
have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a
determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after
assessing the totality of events and circumstances, we determine it is more likely than not that the fair value of a
reporting unit is greater than its carrying amount, then performing the quantitative impairment test is unnecessary.

We first identify those reporting units that we believe could pass a qualitative assessment to determine whether further
impairment testing is necessary. For each reporting unit identified, our qualitative analysis includes:

1) A review of the most recent fair value calculation to identify the extent of the cushion between fair value

and carrying amount, to determine if a substantial cushion existed.

2) A review of events and circumstances that have occurred since the most recent fair value calculation to

determine if those events or circumstances would have affected our previous fair value assessment. Items
identified and reviewed include macroeconomic conditions, industry and market changes, cost factor
changes, events that affect the reporting unit, and financial performance against expectations and the
reporting unit’s performance relative to peers.

We then compile this information and make our assessment of whether it is more likely than not that the fair value of the
reporting unit is less than its carrying amount. If we determine it is not more likely than not, then no further quantitative
analysis is required.

In 2020, we had seven reporting units. One of these reporting units, Water Quality, had no goodwill. We performed a
qualitative analysis for each of the six remaining reporting units, which include Blücher, US Drains, Fluid Solutions-
Europe, Fluid Solutions-Americas, Heating and Hot Water Solutions (“HHWS”) and APMEA.

As of our October 25, 2020 testing date, we had $590.8 million of goodwill on our balance sheet. As a result of our
qualitative analyses, we determined that the fair values of the six reporting units noted above were more likely than not
greater than the carrying amounts. In 2020, we did not need to proceed beyond the qualitative analysis, and no goodwill
impairments were recorded.

Intangible assets such as trademarks and trade names are generally recorded in connection with a business acquisition.
Values assigned to intangible assets are typically determined by an independent valuation firm based on our estimates
and judgments regarding expectations of the success and life cycle of products and technology acquired. Accounting
guidance allows us to perform a qualitative impairment assessment of indefinite-lived intangible assets consistent with
the goodwill guidance noted previously. For our 2020 impairment assessment, which occurred as of October 25, 2020,
we performed a qualitative assessment for certain tradenames where the fair value significantly exceeded the carrying
value in the previous quantitative assessment performed, had sales growth in 2020 or sales declined primarily due to the
impact of the COVID-19 pandemic, sales growth is expected in the tradename in 2021, and no other indicators of
impairment were present. For the remaining tradenames in 2020, the Company performed a quantitative assessment.
The methodology we employed for the quantitative assessments was the relief from royalty method, a subset of the
income approach. During 2020, 2019, and 2018, no impairment was recognized on our indefinite-lived intangible assets.

Product liability

Because of retention requirements associated with our insurance policies, we are generally self-insured for potential
product liability claims. We are subject to a variety of potential liabilities in connection with product liability cases, and
for our most significant volume of liability matters, we maintain a high self-insured retention limit within our product
liability and general liability coverage, which we believe to be generally in accordance with industry practices. We
maintain excess liability insurance to minimize our risks related to claims in excess of our primary insurance policies.
The product liability accrual is established after considering any applicable insurance coverage.

For our product liability cases in the U.S., we establish a product liability accrual, which includes legal costs associated
with accrued claims. For our most significant volume of liability matters, we utilize third-party actuarial valuations
which incorporate historical trend factors and our specific claims experience derived from loss reports provided by
third-party claims administrators to establish our product liability accrual. For the remainder of our product liability
accrual, where we do not utilize third-party actuarial valuations, we maintain insurance and calculate potential product
liability accruals which includes legal costs associated with the accrued claims on a case by case basis. Changes in the
nature of product liability claims, legal costs, or the actual settlement amounts could affect the adequacy of the estimates
and require changes to the accrual. Because the liability is an estimate, the ultimate liability may be more or less than
reported. Any material change in the aforementioned factors could have an adverse impact on our operating results for
any particular period depending, in part, upon the operating results for such period.

Legal contingencies

We are a defendant in numerous legal matters including those involving environmental issues and product liability as
discussed in more detail in Part I, Item 1. “Business—Product Liability, Environmental and Other Litigation Matters”
and Note 15 of Notes to Consolidated Financial Statements in this Annual Report on Form 10-K. As required by GAAP,
we determine whether an estimated loss from a loss contingency should be accrued by assessing whether a loss is
deemed probable and the loss amount can be reasonably estimated. When it is possible to estimate reasonably possible
loss or range of loss above the amount accrued, that estimate is aggregated and disclosed. Estimates of potential
outcomes of these contingencies are often developed in consultation with outside counsel. While this assessment is based
upon all available information, litigation is inherently uncertain and the actual liability to fully resolve litigation cannot
be predicted with any assurance of accuracy. In the event of an unfavorable outcome in one or more legal matters, the
ultimate liability may be in excess of amounts currently accrued, if any, and may be material to our operating results or
cash flows for a particular quarterly or annual period. However, based on information currently known to us,
management believes that the ultimate outcome of all legal contingencies, as they are resolved over time, is not likely to
have a material adverse effect on our financial condition, though the outcome could be material to our operating results
for any particular period depending, in part, upon the operating results for such period.

Income taxes

We are subject to income taxes in the U.S. (federal and state) and foreign jurisdictions. Significant judgment is required
in evaluating our uncertain tax positions and determining our provision for income taxes.

We estimate and use our expected annual effective income tax rates to accrue income taxes. Effective tax rates are
determined based on budgeted earnings before taxes, including our best estimate of permanent items that will affect the
effective rate for the year. Management periodically reviews these rates with outside tax advisors and changes are made
if material variances from expectations are identified.

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 basis 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.

A valuation allowance is provided to offset any net deferred tax assets if, based upon the available evidence, it is more
likely than not that some or all of the deferred tax assets will not be realized. We consider estimated future taxable
income and future reversals of the deferred tax liabilities in assessing the need for a valuation allowance.

The 2017 Tax Act was enacted on December 22, 2017 and introduced significant changes to U.S. income tax law.
Effective in 2018, the 2017 Tax Act reduced the U.S. statutory tax rate from 35% to 21% and created new taxes on
certain foreign-sourced earnings and certain related-party payments, which are referred to as the global intangible low-
taxed income tax and the base erosion tax, respectively. In addition, in 2017 we were subject to the Toll Tax, a one-time
transition tax on accumulated foreign subsidiary earnings not previously subject to U.S. income tax. Accounting for the
income tax effects of the 2017 Tax Act at December 31, 2017 required significant judgments and estimates in the
interpretation and calculations of the provisions of the 2017 Tax Act.

We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the Toll
Tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax
assets and liabilities. Due to the timing of the enactment and the complexity involved in applying the provisions of the
2017 Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our financial statements
for the year ended December 31, 2017. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118,
Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allowed us to record provisional
amounts during a measurement period not to extend beyond one year of the enactment date. December 22, 2018 marked
the end of the measurement period for purposes of SAB 118. As such, we completed the analysis based on legislative
updates relating to the Act currently available, which resulted in an additional tax benefit of $3.7 million in the fourth
quarter of 2018 and a final total tax charge of $21.4 million related to implementation of the 2017 Tax Act.

New Accounting Standards

A discussion of recent accounting pronouncements is included in Note 2 of the Notes to Consolidated Financial
Statements in this Annual Report on Form 10-K.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We use derivative financial instruments primarily to reduce exposure to adverse fluctuations in foreign exchange rates,
interest rates and costs of certain raw materials used in the manufacturing process. We do not enter into derivative
financial instruments for trading purposes. As a matter of policy, all derivative positions are used to reduce risk by
hedging underlying economic exposure. The derivatives we use are instruments with liquid markets. See Note 16 of
Notes to the Consolidated Financial Statements for further details.

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

Our non-U.S. subsidiaries transact most business, including certain intercompany transactions, in foreign currencies.
Such transactions are principally purchases or sales of materials and are denominated in European currencies or the U.S.
or Canadian dollar. We use foreign currency forward exchange contracts from time to time to manage the risk related to
intercompany loans, intercompany purchases and intercompany sales that occur during the course of a year, and certain
open foreign currency denominated commitments to sell products to third parties. We have entered into forward
exchange contracts that settle quarterly and which hedge up to 85% of the forecasted intercompany purchases between
one of our Canadian subsidiaries and our U.S. operating subsidiaries for the next twelve months. We also entered into
forward exchange contracts which hedge up to 60% of the forecasted intercompany sales transactions between one of
our Chinese subsidiaries and one of our U.S. operating subsidiaries for the next twelve months. We record the effective
portion of the designated foreign currency hedge contracts in other comprehensive income until inventory turns and is
sold to a third-party. Once the third-party transaction associated with the hedged forecasted transaction occurs, the
effective portion of any related gain or loss on the designated foreign currency hedge will be reclassified into cost of
goods sold within earnings. The fair value of our designated foreign hedge contracts outstanding as of December 31,
2020 was a liability balance of $0.1 million.

Under the Prior Credit Agreement, we could choose either an Adjusted LIBOR or Alternative Base Rate (“ABR”).
Accordingly, our earnings and cash flows were exposed to interest rate risk from changes in Adjusted LIBOR. In order
to manage our exposure to changes in cash flows attributable to fluctuations in LIBOR-indexed interest payments related
to our floating rate debt, we entered into two interest rate swaps. For each interest rate swap, we receive the three-month
USD-LIBOR subject to a 0% floor, and pay a fixed rate of 1.31375% on a notional amount of $225.0 million. Prior to
executing the New Credit Agreement, the effective portion of the fair value of the interest rate swaps was recorded to
other comprehensive income. As a result of entering the New Credit Agreement, interest rate swaps were no longer
effective in offsetting changes in the cash flow of the hedged item as the critical terms of the New Credit Agreement do
not match to the hedged item. We subsequently began recognizing the mark-to-market fair value adjustments on a
monthly basis in the consolidated statement of operations and continued to do so through the expiration date of the
swaps, which was February 12, 2021. The balance outstanding on our Revolving Credit Facility as of December 31,
2020 was below the notional amount of the interest rate swaps. Therefore, the balance of the previously effective portion
of the fair value of the interest rate swaps recorded in other comprehensive income was reclassified into earnings within
interest expense as of December 31, 2020. Information about our long-term debt including principal amounts and
related interest rates appears in Note 11 of Notes to the Consolidated Financial Statements, and information on our
interest rate swaps appears in Note 16 of the Notes to the Consolidated Financial Statements.

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

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements listed in section (a) (1) of “Part IV, Item 15. Exhibits, Financial Statement Schedules” of this
Annual Report are incorporated herein by reference.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL

DISCLOSURE.

None.

Item 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, or Exchange Act, as of the end
of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure

controls and procedures. In designing and evaluating our disclosure controls and procedures, we recognize that any
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving
the desired control objectives, and our management necessarily applies its judgment in evaluating and implementing
possible controls and procedures. The effectiveness of our disclosure controls and procedures is also necessarily limited
by the staff and other resources available to us and the geographic diversity of our operations. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered
by this report, our disclosure controls and procedures were effective, in that they provided reasonable assurance that
information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s
rules and forms and in that such controls are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s
internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. The Company’s internal control over financial reporting includes those policies and procedures
that:

(i)

(ii)

(iii)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the Company are being made only in accordance with authorizations of management and directors of the
Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

Management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2020. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control—Integrated Framework (2013).

Based on this assessment, management has concluded that our internal control over financial reporting was effective as
of December 31, 2020.

The independent registered public accounting firm that audited the Company’s consolidated financial statements
included elsewhere in this Annual Report on Form 10-K has also audited the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2020, as stated in this Annual Report on Form 10-K under the
heading, “Report of Independent Registered Public Accounting Firm.”

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended
December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting. We will continue to review and document our disclosure controls and procedures, including our
internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness
and to ensure that our systems evolve with our business.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Watts Water Technologies, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Watts Water Technologies, Inc. and subsidiaries’ (the Company) internal control over financial
reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related
consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years
in the three-year period ended December 31, 2020, and the related notes and financial statement Schedule II – Valuation
and Qualifying Accounts (collectively, the consolidated financial statements), and our report dated February 18, 2021
expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.

/s/ KPMG LLP

Boston, Massachusetts
February 18, 2021

Item 9B. OTHER INFORMATION.

None.

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Information with respect to the executive officers of the Company is set forth in Part I, Item 1 of this Report under the
caption “Information about Our Executive Officers and Directors” and is incorporated herein by reference. The
information provided under the captions “Information as to Nominees for Director,” “Corporate Governance” and
“Delinquent Section 16(a) Reports” in our definitive Proxy Statement for our 2021 Annual Meeting of Stockholders to
be held on May 12, 2021 is incorporated herein by reference.

We have adopted a Code of Business Conduct applicable to all officers, employees and Board members. The Code of
Business Conduct is posted in the Investors section of our website, www.wattswater.com. We will provide you with a
print copy of our Code of Business Conduct free of charge on written request to our Corporate Secretary, Watts Water
Technologies, Inc., 815 Chestnut Street, North Andover, MA 01845. Any amendments to, or waivers of, the Code of
Business Conduct which apply to our Chief Executive Officer, Chief Financial Officer, Corporate Controller or any
person performing similar functions will be disclosed on our website promptly following the date of such amendment or
waiver.

Item 11. EXECUTIVE COMPENSATION.

The information provided under the captions “Director Compensation,” “Corporate Governance,” “Compensation
Discussion and Analysis,” “Executive Compensation,” “Compensation Committee Interlocks and Insider Participation,”
and “Compensation Committee Report” in our definitive Proxy Statement for our 2021 Annual Meeting of Stockholders
to be held on May 12, 2021 is incorporated herein by reference.

The “Compensation Committee Report” contained in our Proxy Statement shall not be deemed “soliciting material” or
“filed” with the Securities and Exchange Commission or otherwise subject to the liabilities of Section 18 of the
Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filings under the Securities Act
of 1933 or the Exchange Act, except to the extent we specifically request that such information be treated as soliciting
material or specifically incorporate such information by reference into a document filed under the Securities Act or
Exchange Act.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS.

The information appearing under the caption “Principal Stockholders” in our definitive Proxy Statement for our 2021
Annual Meeting of Stockholders to be held on May 12, 2021 is incorporated herein by reference.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information as of December 31, 2020, about the shares of Class A common stock that may
be issued upon the exercise of stock options, settlement of performance stock awards and vesting of deferred stock
awards issued under the Company’s Second Amended and Restated 2004 Stock Incentive Plan, and the settlement of
restricted stock units granted under our Management Stock Purchase Plan as well as the number of shares remaining for
future issuance under our Second Amended and Restated 2004 Stock Incentive Plan and Management Stock Purchase
Plan.

Equity Compensation Plan Information

Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)

Weighted‑average exercise
price of outstanding options,
warrants and rights
(b)

Number of securities remaining
available for future issuance
under equity compensation
plan (excluding securities
reflected in column (a))
(c)

438,616 (1) $

None
438,616 (1) $

—

None
—

1,814,259 (2)

None
1,814,259 (2)

Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total

(1) Represents 5,196 outstanding options, 207,714 performance stock awards and 131,142 deferred stock awards under

the Second Amended and Restated 2004 Stock Incentive Plan, and 94,564 outstanding restricted stock units under
the Management Stock Purchase Plan.

(2) Includes 1,083,096 shares available for future issuance under the Second Amended and Restated 2004 Stock
Incentive Plan, and 731,163 shares available for future issuance under the Management Stock Purchase Plan.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information provided under the captions “Corporate Governance” and “Certain Relationships and Related
Transactions” in our definitive Proxy Statement for our 2021 Annual Meeting of Stockholders to be held on May 12,
2021 is incorporated herein by reference.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information provided under the caption “Ratification of Independent Registered Public Accounting Firm” in our
definitive Proxy Statement for our 2021 Annual Meeting of Stockholders to be held on May 12, 2021 is incorporated
herein by reference.

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(a)(1) Financial Statements

PART IV

The following financial statements are included in a separate section of this Report commencing on the page numbers
specified below:

Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31,

2020, 2019 and 2018

Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019

and 2018

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements

(a)(2) Schedules

Schedule II—Valuation and Qualifying Accounts for the years ended December 31, 2020, 2019

and 2018

46
48

49
50

51
52
53

All other required schedules for which provision is made in the applicable accounting regulations of the Securities and
Exchange Commission are included in the Notes to the Consolidated Financial Statements.

(a)(3) Exhibits

The exhibits listed in the Exhibit Index immediately preceding the signature page hereto are filed as part of this Annual
Report on Form 10-K.

Item 16. FORM 10-K SUMMARY.

None.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Watts Water Technologies, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Watts Water Technologies, Inc. and subsidiaries (the
Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income,
stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the
related notes and financial statement Schedule II – Valuation and Qualifying Accounts (collectively, the consolidated
financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted
accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission”, and our report dated February 18, 2021 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting
leases as of January 1, 2019 due to the adoption of Accounting Standards Update (ASU) 2016-02, Leases, ASU 2018-01,
Land Easement Practical Expedient for Transition to Topic 842, ASU 2018-10, Codification Improvements to Topic
842, and ASU 2018-11, Targeted Improvements.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used

and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates
to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way
our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it
relates.

Evaluation of assumptions underlying the product liability accrual

As discussed in Notes 10 and 15 to the consolidated financial statements, the Company’s product liability accrual as
of December 31, 2020 was $22.1 million. The product liability accrual represents the actuarially determined
estimated future costs of product liability claims from products on a disaggregated basis based on historical loss
trend factors and the Company’s specific claims experience. The Company’s estimated future costs include
assumptions regarding the frequency and severity of reported and incurred but not reported claims.

We identified the evaluation of assumptions that were used in the actuarial methods to estimate the product liability
accrual as a critical audit matter. Specialized skills and knowledge were needed to evaluate the Company’s
assumptions regarding the severity of reported claims, the frequency and severity of incurred but not reported
claims, and the impact of those assumptions on the actuarial methods. In addition, a high degree of auditor judgment
was required to evaluate these assumptions.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the
design and tested the operating effectiveness of certain internal controls related to assumptions that were used in the
actuarial methods to estimate the product liability accrual. This included controls over the development of the
above assumptions used to estimate the cost of reported and incurred but not reported claims. We tested claims data
that formed the basis for the estimate by selecting certain claims and comparing them to relevant underlying claim
information, including documentation of claim payments. We involved an actuarial professional with specialized
skills and knowledge, who assisted in:



assessing the actuarial methods used by the Company to calculate the product liability accrual for
consistency with generally accepted actuarial standards

 performing an independent calculation of the product liability accrual utilizing the Company’s claims

experience.

We compared the output of the actuarial calculations to the amounts recorded by the Company.

/s/ KPMG LLP

We have served as the Company’s auditor since 1997.

Boston, Massachusetts
February 18, 2021

Watts Water Technologies, Inc. and Subsidiaries

Consolidated Statements of Operations

(Amounts in millions, except per share information)

Year Ended December 31,
2019

2020

2018

Net sales
Cost of goods sold

GROSS PROFIT

Selling, general and administrative expenses
Restructuring
Other long-lived asset impairment charge
Loss on disposition

OPERATING INCOME

Other (income) expense:

Interest income
Interest expense
Other expense (income), net

Total other expense
INCOME BEFORE INCOME TAXES
Provision for income taxes
NET INCOME
Basic EPS

NET INCOME PER SHARE
Weighted average number of shares
Diluted EPS

NET INCOME PER SHARE
Weighted average number of shares
Dividends declared per share

$ 1,508.6 $ 1,600.5 $ 1,564.9
908.4
656.5
464.7
3.4
—
—
188.4

923.0
677.5
476.1
4.3
—
—
197.1

883.2
625.4
432.4
9.9
1.4
0.6
181.1

(0.2)
13.3
1.0
14.1
167.0
52.7
114.3 $

(0.4)
14.1
(0.5)
13.2
183.9
52.4
131.5 $

(0.8)
16.3
(1.7)
13.8
174.6
46.6
128.0

3.37 $
33.9

3.86 $
34.1

3.73
34.3

3.36 $
34.0
0.92 $

3.85 $
34.2
0.90 $

3.73
34.3
0.82

The accompanying notes are an integral part of these consolidated financial statements.

Watts Water Technologies, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Amounts in millions)

Net income
Other comprehensive income (loss) net of tax:
Foreign currency translation adjustments
Cash flow hedges
Other comprehensive income (loss)
Comprehensive income

Year Ended December 31,
2019

2020

2018

114.3 $

131.5 $

128.0

31.4
(0.6)
30.8
145.1 $

(5.0)
(4.7)
(9.7)
121.8 $

(23.7)
1.7
(22.0)
106.0

The accompanying notes are an integral part of these consolidated financial statements.

Watts Water Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets

(Amounts in millions, except share information)

December 31, December 31,

2020

2019

ASSETS
CURRENT ASSETS:

Cash and cash equivalents
Trade accounts receivable, less reserve allowances of $11.1 million at December 31, 2020
and $14.3 million at December 31, 2019
Inventories, net
Prepaid expenses and other current assets

218.9 $

219.7

197.6
263.6
29.4
709.5

608.6
(396.3)
212.3

219.8
270.1
25.3
734.9

557.9
(357.9)
200.0

602.4
141.8
4.4
67.8

581.1
151.4
2.7
53.0
$ 1,738.2 $ 1,723.1

110.1 $
137.4
65.3
—
312.8
198.2
51.1
106.3

123.3
133.4
57.6
105.0
419.3
204.2
38.6
83.0

—

2.8

0.6
606.3
560.1
(100.0)
1,069.8

0.6
591.5
513.9
(130.8)
978.0
$ 1,738.2 $ 1,723.1

Total Current Assets

PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost
Accumulated depreciation
Property, plant and equipment, net

OTHER ASSETS:

Goodwill
Intangible assets, net
Deferred income taxes
Other, net
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:

Accounts payable
Accrued expenses and other liabilities
Accrued compensation and benefits
Current portion of long-term debt

Total Current Liabilities

LONG-TERM DEBT, NET OF CURRENT PORTION
DEFERRED INCOME TAXES
OTHER NONCURRENT LIABILITIES
STOCKHOLDERS’ EQUITY:

Preferred Stock, $0.10 par value; 5,000,000 shares authorized; no shares issued or
outstanding
Class A common stock, $0.10 par value; 120,000,000 shares authorized; 1 vote per share;
issued and outstanding, 27,478,512 shares at December 31, 2020 and 27,586,416 shares
at December 31, 2019
Class B common stock, $0.10 par value; 25,000,000 shares authorized; 10 votes per
share; issued and outstanding, 6,144,290 shares at December 31, 2020 and 6,279,290
shares at December 31, 2019
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss

Total Stockholders’ Equity

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

The accompanying notes are an integral part of these consolidated financial statements.

Balance at December 31, 2017
Reporting Comprehensive
Income change in accounting
principle (ASU 2018-02)
Net income
Other comprehensive loss
Comprehensive income
Shares of Class B common stock
converted to Class A common
stock
Shares of Class A common stock
issued upon the exercise of stock
options
Stock-based compensation
Stock repurchase
Issuance of net shares of
restricted Class A common stock
Net change in restricted stock
units
Common stock dividends
Balance at December 31, 2018

Net income
Other comprehensive loss
Comprehensive income
Shares of Class B common stock
converted to Class A common
stock
Shares of Class A common stock
issued upon the exercise of stock
options
Stock-based compensation
Stock repurchase
Net change in restricted stock
units
Common stock dividends
Balance at December 31, 2019

Net income
Other comprehensive income
Comprehensive income
Shares of Class B
common stock converted to
Class A common stock
Shares of Class A
common stock issued upon the
exercise of stock options
Stock-based compensation
Stock repurchase
Net change in restricted stock
units
Common stock dividends
Balance at December 31, 2020

Watts Water Technologies, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

(Amounts in millions, except share information)

Class B
Common Stock

Additional

Accumulated
Other

Total

Paid-In Retained Comprehensive Stockholders’

Amount Shares

Amount Capital Earnings

Loss

Equity

27,724,192 $

2.8

6,379,290 $

0.6

551.8 $ 372.9 $

(99.1) $

829.0

Class A
Common Stock
Shares

—
—
—

(0.7)
128.0
—

—
—
(22.0)

50,000

—

(50,000)

—

45,939
—
(340,106)

115,120

51,320
—

27,646,465 $

—
—

—
—
—

—

—
—
2.8
—
—

—
—
—

—

—
—

6,329,290 $

—
—

—
—
—

—

2.5
13.8
—

—
—
(26.0)

—

(3.1)

—
—
0.6 $
—
—

0.2
—

(2.1)
(28.3)

568.3 $ 440.7 $

—
—

131.5
—

—
—
(121.1) $
—
(9.7)

50,000

—

(50,000)

—

38,288
—
(227,620)

79,283
—

27,586,416 $

—
—

—
—
—

—
—
2.8
—
—

—
—
—

—
—

6,279,290 $

—
—

—
—
—

—
—
0.6 $
—
—

2.1
17.8
—

3.3
—

—
—
(19.5)

(7.4)
(31.4)

591.5 $ 513.9 $

—
—

114.3
—

135,000

—

(135,000)

—

4,666
—
(331,531)

83,961
—

27,478,512 $

—
—
—

—
—
2.8

—
—
—

—
—

6,144,290 $

—
—
—

—
—
0.6 $

0.4
12.7
—

1.7
—

—
—
(28.9)

(7.8)
(31.4)

606.3 $ 560.1 $

The accompanying notes are an integral part of these consolidated financial statements.

(0.7)
128.0
(22.0)
106.0

—

2.5
13.8
(26.0)

(3.1)

(1.9)
(28.3)
891.3
131.5
(9.7)
121.8

—

2.1
17.8
(19.5)

(4.1)
(31.4)
978.0
114.3
30.8
145.1

—

0.4
12.7
(28.9)

—

—
—
—

—

—
—
—

—
—
(130.8) $
—
30.8
—

—

—
—
—

—
—
(100.0)

(6.1)
(31.4)
1,069.8

Watts Water Technologies, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Amounts in millions)

Year Ended December 31,
2019

2020

2018

OPERATING ACTIVITIES

Net income
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation
Amortization of intangibles
Loss on disposal and impairment of property, plant and equipment and other
Stock-based compensation
Deferred income tax
Changes in operating assets and liabilities, net of effects from business acquisitions
and divestitures:

Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable, accrued expenses and other liabilities

Net cash provided by operating activities

INVESTING ACTIVITIES

Additions to property, plant and equipment
Proceeds from the sale of property, plant and equipment
Proceeds from the sale of business, and other
Purchase of intangible assets
Business acquisitions, net of cash acquired

Net cash used in investing activities

FINANCING ACTIVITIES

Proceeds from long-term borrowings
Payments of long-term debt
Payments for withholding taxes on vested awards
Payments for finance leases and other
Payments on contractual call option
Proceeds from share transactions under employee stock plans
Debt issuance costs
Payments to repurchase common stock
Dividends

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of year
CASH AND CASH EQUIVALENTS AT END OF YEAR
NON CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of businesses:
Fair value of assets acquired
Cash paid, net of cash acquired
Liabilities assumed
Issuance of stock under management stock purchase plan
CASH PAID FOR:

Interest
Income taxes

114.3

131.5

128.0

31.3
15.2
4.0
12.7
7.0

32.2
18.7
0.7
(7.3)
228.8

(43.8)
2.2
2.0
—
(15.2)
(54.8)

407.5
(517.5)
(7.8)
(2.1)
—
0.5
(2.2)
(28.9)
(31.4)
(181.9)
7.1
(0.8)
219.7
218.9

20.4
15.2
5.2
0.6

12.2
45.6

$
$

31.0
15.6
0.8
17.8
1.3

(15.0)
17.0
(1.6)
(4.4)
194.0

(29.2)
0.1
—
—
(42.7)
(71.8)

82.0
(127.0)
(7.4)
(1.6)
(2.8)
2.1
—
(19.5)
(31.4)
(105.6)
(1.0)
15.6
204.1
219.7

43.3
42.7
0.6
1.8

17.1
50.8

$
$

28.9
19.6
0.2
13.8
(15.3)

6.0
(34.5)
0.6
22.1
169.4

(35.9)
2.2
0.2
(0.7)
(1.7)
(35.9)

50.0
(194.5)
(6.6)
—
—
2.5
—
(26.0)
(28.3)
(202.9)
(6.7)
(76.1)
280.2
204.1

4.1
1.7
2.4
1.9

19.1
55.3

$
$

The accompanying notes are an integral part of these consolidated financial statements.

Watts Water Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(1) Description of Business

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

COVID-19

In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United
States declared the COVID-19 outbreak a national emergency. The unprecedented and widespread impact of COVID-19
continues to affect the countries and markets in which the Company operates, and new and evolving government actions
to address the COVID-19 pandemic continue to occur on a regular basis. For the year ended December 31, 2020,
temporary closures, lockdowns and other restrictions mandated by various governmental authorities intended to combat
the COVID-19 pandemic negatively impacted the Company’s revenue at varying levels within each of the Company’s
business segments. The Company’s operating response, cost management and capital preservation actions are discussed
within Item. 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

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

Due to the risks and uncertainties resulting from the COVID-19 pandemic, the full extent of the impact on the
Company’s business remains difficult to predict as the pandemic and response to the pandemic continue to evolve. The
Company intends to continue to assess the evolving impact of the COVID-19 pandemic and expects to continue to make
adjustments to its responses to address the situation as it develops.

(2) Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its majority and wholly-owned
subsidiaries. Upon consolidation, all intercompany accounts and transactions are eliminated.

Cash Equivalents

Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase and
consist primarily of money market funds, for which the carrying amount is a reasonable estimate of fair value.

Allowance for Credit Losses

The allowance for credit losses is established to represent the Company’s best estimate of the net realizable value of the
outstanding amount of receivables that it will be unable to collect. The Company developed financial asset pools that
consist of business or legal entities with similar risk and economic characteristics, including types of products and
customers, trade receivable characteristics, and history of credit losses on trade receivables. The development of the
Company’s allowance for credit losses varies by asset pool but in general is based on a review of past due amounts,
historical write-off experience, aging trends affecting specific accounts, changes in customer payment terms, general
operational factors affecting all accounts and as applicable current economic conditions and reasonable and supportable
forecasted economic conditions that affect collectability. In addition, factors are developed in certain regions utilizing
historical trends of sales and returns and allowances and cash discount activities to derive a reserve for returns and
allowances and cash discounts. The Company also monitors the creditworthiness of the Company’s largest customers
and periodically reviews customer credit limits to reduce risk. The Company’s allowance for credit losses as of
December 31, 2020 included an adjustment for the estimated impact of the COVID-19 pandemic on future collectability
that was not material to our financial statements. If circumstances relating to specific customers change or unanticipated
changes occur in the general business environment, the Company’s estimates of the recoverability of receivables could
be further adjusted.

Concentration of Credit

The Company sells products to a diversified customer base and, therefore, has no significant concentrations of credit
risk. In 2020, 2019 and 2018, no customer accounted for 10% or more of the Company’s total sales or accounts
receivable.

Inventories

Inventories are stated at the lower of cost or market, using the first-in, first-out method. Market value is determined by
replacement cost or net realizable value. The Company utilizes both specific product identification and historical product
demand as the basis for determining its excess or obsolete inventory reserve. The Company identifies all inventories that
exceed a range of one to three years in sales. This is determined by comparing the current inventory balance against unit
sales for the trailing twelve months. New products added to inventory within the past twelve months are excluded from
this analysis. A portion of the Company’s products contain recoverable materials, therefore the excess and obsolete
reserve is established net of any recoverable amounts. Changes in market conditions, lower-than-expected customer
demand or changes in technology or features could result in additional obsolete inventory that is not saleable and could
require additional inventory reserve provisions.

Goodwill and Other Intangible Assets

Goodwill is recorded when the consideration paid for acquisitions exceeds the fair value of net tangible and intangible
assets acquired. Goodwill and other intangible assets with indefinite useful lives are not amortized, but rather are tested
for impairment at least annually or more frequently if events or circumstances indicate that it is “more likely than not”
that they might be impaired, such as from a change in business conditions. The Company performs its annual goodwill
and indefinite-lived intangible assets impairment assessment in the fourth quarter of each year.

Long-Lived Assets

Intangible assets with estimable lives and other long-lived assets are reviewed for indicators of impairment at least
quarterly or more frequently if events or changes in circumstances indicate that the carrying amount of an asset or asset
group may not be recoverable.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is provided on a straight-line basis over the estimated
useful lives of the assets, which range from 10 to 40 years for buildings and improvements and 3 to 15 years for
machinery and equipment. Leasehold improvements are depreciated over the lesser of the economic useful life of the
asset or the remaining lease term.

Leases

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

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

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

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

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

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

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

o Variable lease payments that depend on an index or rate initially measured using the index or rate at

the commencement date;

o Amounts expected to be payable under a Company-provided residual value guarantee; and
o The exercise price of a Company option to purchase the underlying asset if the Company is reasonably

certain to exercise that option.

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

For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the
lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance
of lease incentives received. Lease expense for operating leases is recognized on a straight-line basis over the reasonably

assured lease term based on the total lease payments and is included in cost of goods sold or within selling, general and
administrative expenses in the consolidated statements of operations, based on the primary use of the ROU asset.

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

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

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

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

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.

The Company recognizes tax benefits when the item in question meets the more–likely–than-not (greater than 50%
likelihood of being sustained upon examination by the taxing authorities) threshold.

Foreign Currency Translation

The functional currency for most of the Company’s foreign subsidiaries is their local currency. For non-U.S. subsidiaries
that transact in a functional currency other than the U.S. dollar, assets and liabilities are translated at current rates of
exchange at the balance sheet date. Income and expense items are translated at the average foreign currency exchange
rates for the period. Adjustments resulting from the translation of the financial statements of foreign operations into
U.S. dollars are excluded from the determination of net income and are recorded in accumulated other comprehensive
income, a separate component of equity. Transaction gains and losses are included in other (income) expense, net in the
consolidated statements of operations. For subsidiaries where the functional currency of the assets and liabilities differs
from the local currency, non-monetary assets and liabilities are translated at the rate of exchange in effect on the date
assets were acquired while monetary assets and liabilities are translated at current rates of exchange as of the balance
sheet date. Income and expense items are translated at the average foreign currency rates for the period. Translation
adjustments for these subsidiaries are included in other (income) expense, net in the consolidated statements of
operations.

Stock-Based Compensation

The Company records compensation expense in the financial statements for share-based awards based on the grant date
fair value of those awards for restricted stock awards and deferred stock awards. Stock-based compensation expense for
restricted stock awards and deferred stock awards is recognized over the requisite service periods of the awards on a
straight-line basis, which is generally commensurate with the vesting term. The performance stock units offered by the
Company to employees are amortized to expense over the vesting period, and based on the Company’s performance
relative to the performance goals, may be adjusted. Changes to the estimated shares expected to vest will result in
adjustments to the related share-based compensation expense that will be recorded in the period of change. The
Company accounts for forfeitures as they occur, rather than estimate expected forfeitures over the vesting period of the
respective grant. The Company does not reclassify the benefits associated with tax deductions in excess of recognized
compensation cost from operating activities to financing activities in the Consolidated Statement of Cash Flows.

Financial Instruments

In the normal course of business, the Company manages risks associated with commodity prices, foreign exchange rates
and interest rates through a variety of strategies, including the use of hedging transactions, executed in accordance with
the Company’s policies. The Company’s hedging transactions include, but are not limited to, the use of various
derivative financial and commodity instruments. As a matter of policy, the Company does not use derivative instruments
unless there is an underlying exposure. Any change in value of the derivative instruments would be substantially offset
by an opposite change in the value of the underlying hedged items. The Company does not use derivative instruments for
trading or speculative purposes.

Derivative instruments may be designated and accounted for as either a hedge of a recognized asset or liability (fair
value hedge) or a hedge of a forecasted transaction (cash flow hedge). For a fair value hedge, both the effective and
ineffective portions of the change in fair value of the derivative instrument, along with an adjustment to the carrying
amount of the hedged item for fair value changes attributable to the hedged risk, are recognized in earnings. For a cash
flow hedge, changes in the fair value of the derivative instrument that are highly effective are deferred in accumulated
other comprehensive income or loss until the underlying hedged item is recognized in earnings. The Company had two
interest rate swaps as of December 31, 2020. Prior to executing the Amended and Restated Credit Agreement (the “New
Credit Agreement”) on April 24, 2020, the effective portion of the fair value of these interest rate swaps was recorded to
other comprehensive income. As a result of entering the New Credit Agreement the critical terms of the New Credit
Agreement no longer matched the hedged item and therefore, these two interest rate swaps no longer qualified for cash
flow hedge accounting. The Company subsequently began recognizing the mark-to-market fair value adjustments on a
monthly basis into earnings within interest expense. Also, the balance outstanding on the Company’s Revolving Credit
Facility as of December 31, 2020 was below the notional amount of the interest rate swaps. Therefore, as of
December 31, 2020, the balance of the previously effective portion of the fair value of the interest rate swaps recorded in
other comprehensive income was reclassified into earnings within interest expense. These two interest rate swaps were
effective cash flow hedges as of December 31, 2019. The Company also has foreign exchange hedges designated as cash
flow hedges as of December 31, 2020 and 2019. Refer to Note 16 for further details.

If a fair value or cash flow hedge were to cease to qualify for hedge accounting or be terminated, it would continue to be
carried on the balance sheet at fair value until settled, but hedge accounting would be discontinued prospectively. If a
forecasted transaction were no longer probable of occurring, amounts previously deferred in accumulated other
comprehensive income would be recognized immediately in earnings. On occasion, the Company may enter into a
derivative instrument that does not qualify for hedge accounting because it is entered into to offset changes in the fair
value of an underlying transaction which is required to be recognized in earnings (natural hedge). These instruments are
reflected in the Consolidated Balance Sheets at fair value with changes in fair value recognized in earnings.

Portions of the Company’s outstanding debt are exposed to interest rate risks. The Company monitors its interest rate
exposures on an ongoing basis to maximize the overall effectiveness of its interest rates.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market

participants on the measurement date. An entity is required to maximize the use of observable inputs, where available,
and minimize the use of unobservable inputs when measuring fair value.

The Company has certain financial assets and liabilities that are measured at fair value on a recurring basis and certain
nonfinancial assets and liabilities that may be measured at fair value on a nonrecurring basis. The fair value disclosures
of these assets and liabilities are based on a three-level hierarchy, which is defined as follows:

Level 1 Quoted prices in active markets for identical assets or liabilities that the entity has the

ability to access at the measurement date.

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or

liabilities, quoted prices in markets that are not active or other inputs that are observable
or can be corroborated by observable market data for substantially the full term of the
assets or liabilities.

Level 3 Unobservable inputs that are supported by little or no market activity and that are

significant to the fair value of the assets or liabilities.

Assets and liabilities subject to this hierarchy are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair
value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Refer to Note
16 for further details.

Shipping and Handling

Shipping and handling costs included in selling, general and administrative expense amounted to $55.0 million, $57.6
million and $56.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Research and Development

Research and development costs included in selling, general, and administrative expense amounted to $42.2 million,
$39.6 million and $34.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Revenue Recognition

The Company recognizes revenue under the core principle to depict the transfer of control to the Company’s customers
in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core
principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify
the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the
performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
The Company’s revenue for product sales is recognized on a point in time model, at the point control transfers to the
customer, which is generally when products are shipped from the Company’s manufacturing or distribution facilities or
when delivered to the customer’s named location. Sales tax, value-added tax, or other taxes collected concurrent with
revenue producing activities are excluded from revenue. Freight costs billed to customers for shipping and handling
activities are included in revenue with the related cost included in selling, general and administrative expenses. See Note
4 for further disclosures and detail regarding revenue recognition.

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. The worldwide spread of COVID-19 has created significant uncertainty in the
global economy. There have been no comparable recent events that provide guidance as to the effect COVID-19 as a
global pandemic may have, and, as a result, the ultimate impact of COVID-19 and the extent to which COVID-19
continues to impact the Company’s business, results of operations and financial condition will depend on future

developments, which are highly uncertain and difficult to predict. The use of estimates in specific accounting policies is
described further below as appropriate. Actual results could differ from those estimates.

Recently Adopted Accounting Standards

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15, “Intangibles-Goodwill and
Other-Internal-Use Software (Subtopic 350-40)-Customer’s Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement that is a Service Contract.” ASU 2018-15 aligns the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software. This guidance requires an entity in a hosting
arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation
costs to capitalize as an asset related to the service contract and which costs to expense. This standard is effective for
fiscal years beginning after December 15, 2019, including interim periods within that reporting period. The Company
adopted this standard in the first quarter of 2020, and it did not have a material impact on the Company’s financial
statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820)-Disclosure Framework-
Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modifies the disclosure
requirements on fair value measurements under Topic 820. This standard is effective for fiscal years beginning after
December 15, 2019, including interim periods within that reporting period. The Company adopted this standard in the
first quarter of 2020, and it did not have a material impact on the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326).” ASU 2016-13
replaces the incurred loss impairment methodology under previous United States Generally Accepted Accounting
Principles (“GAAP”) with a methodology that reflects expected credit losses and requires the use of a forward-looking
expected credit loss model for accounts receivable, loans, and other financial instruments. The financial assets for which
this standard is applicable on the Company’s balance sheet are accounts receivable and contract assets. The standard
requires the Company to pool financial assets based on similar risk and economic characteristics and estimate expected
credit losses over the contractual life of the asset. This standard is effective for reporting periods beginning after
December 15, 2019. The standard requires a modified retrospective approach through a cumulative-effect adjustment to
retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company
adopted this standard in the first quarter of 2020, and it did not have a material impact on the Company’s financial
statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 requires a lessee to recognize in
the statement of financial position a liability to make lease payments and an ROU asset representing the right to use the
underlying asset for the lease term for both finance and operating leases with a term longer than twelve months. Topic
842 was subsequently amended by ASU 2018-01, “Land Easement Practical Expedient for Transition to Topic 842,”
ASU 2018-10, “Codification Improvements to Topic 842, Leases,” and ASU 2018-11 “Targeted Improvements.” ASU
2016-02 was effective for financial statements issued for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. Under ASC 842, leases are classified as finance or operating, with the
classification determining the pattern and classification of expense recognition in the income statement.

A modified retrospective transition approach was required, applying the new standard to all leases existing at the date of
initial application. The Company could choose to use either 1) the effective date of the standard or 2) the beginning of
the earliest comparable period presented in the financial statements as the date of initial application. The Company
adopted the new standard on January 1, 2019 and used the effective date of the standard as the date of the Company’s
initial application. Under this approach, the financial information and the disclosures required under the new standard
are not provided for dates and periods before January 1, 2019. The Company designed the necessary changes to its
existing processes and configured all system requirements that were necessary to implement this new standard.

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

As a result of adopting ASC 842, the Company recorded operating ROU assets of $33.6 million and operating lease
liabilities of $33.9 million as of January 1, 2019 on the consolidated balance sheet. The difference between the ROU
assets and lease liabilities related to the impact of eliminating deferred and prepaid lease payments recognized under the
previous lease accounting standard. The Company’s adoption of ASC 842 did not result in a change to the Company’s
recognition of its existing finance leases as of January 1, 2019. The adoption of the new lease accounting standard did
not have a material impact on either the consolidated statement of operations or the consolidated statement of cash flows.
However, ASU 2016-02 has significantly affected the Company’s disclosures about noncash activities related to leases.
See Note 5 to the consolidated financial statements.

Accounting Standards Updates

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting." The amendments provide optional guidance for a limited time to ease
the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and
exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate
reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference
LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are
effective immediately and may be applied prospectively to contract modifications made and hedging relationships
entered into or evaluated on or before December 31, 2022. The Company is currently evaluating its contracts and the
optional expedients provided by the new standard.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes.” This ASU simplifies the accounting for income taxes by clarifying and amending existing guidance
related to the recognition of franchise tax, the evaluation of a step up in the tax basis of goodwill, and the effects of
enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. The effective date
for adoption of this ASU is the calendar year beginning January 1, 2021 with early adoption permitted. The Company is
currently evaluating the impact of this guidance on the Company’s financial statements, and does not expect the
adoption of this guidance to have a material impact on the Company’s financial statements.

(3) Restructuring and Other Charges, Net

The Company’s Board of Directors approves all major restructuring programs that may involve the discontinuance of
significant product lines or the shutdown of significant facilities. From time to time, the Company takes additional
restructuring actions, including involuntary terminations that are not part of a major program. The Company accounts for
these costs in the period that the liability is incurred. These costs are included in restructuring charges in the Company’s
consolidated statements of operations.

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

2020

Year Ended December 31,
2019
(in millions)

2018

Restructuring costs:
Other Actions

9.9 $

4.3 $

3.4

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

2020

Year Ended December 31,
2019
(in millions)

2018

Americas
Europe
APMEA
Corporate
Total

6.1 $
1.3
2.4
0.1
9.9 $

— $

4.3
—
—

4.3 $

—
3.4
—
—
3.4

Other Actions

The Company periodically initiates other actions which are not part of a major program. Total “Other Actions” pre-tax
restructuring expense was $9.9 million, $4.3 million and $3.4 million for the years ended December 31, 2020, 2019 and
2018, respectively. Included in “Other Actions” for the year ended December 31, 2020 were actions taken in the
Americas, Europe and APMEA segments and Corporate primarily in response to the COVID-19 pandemic. Also
included in “Other Actions” for the years ended 2019 and 2018 were European restructuring activities that were initiated
in 2018 and extended through 2019, as discussed below. “Other Actions” also include certain minor initiatives for
which the Company incurred restructuring expenses or adjusted prior restructuring reserves in the years ended
December 31, 2020, 2019 and 2018.

2020 Other Actions

In the second quarter of 2020, management initiated certain restructuring actions with respect to the Company’s
Americas and APMEA segments as well as at Corporate, and in the third quarter of 2020 initiated additional
restructuring actions within the Company’s Europe and Americas segments. These actions were primarily in response to
the economic challenges related to the COVID-19 pandemic. The restructuring actions included costs mainly for
severance benefits due to reductions in force, as well as costs relating to asset write-offs, facility exit and other exit costs.
The total pre-tax charge for the 2020 restructuring initiatives is expected to be approximately $10.7 million, of which
$10.3 million has been incurred through December 31, 2020. Through December 31, 2020, the Company paid
approximately $5.0 million of severance benefits and other related costs. As of December 31, 2020, the restructuring
reserve associated with these actions was approximately $4.6 million and primarily related to severance benefits. The
remaining expected costs relate to asset write off, facility exit and other exit costs and are expected to be completed in
the first half of 2021.

The following table summarizes total expected, incurred and remaining pre-tax restructuring costs for the 2020
restructuring actions:

Costs incurred — 2020
Remaining costs to be incurred
Total expected restructuring costs

2018 Other Actions

Asset

Facility
exit

Severance write-downs and other Total

8.8 $
—
8.8 $

(in millions)
0.9 $
0.2
1.1 $

0.6 $ 10.3
0.2
0.4
0.8 $ 10.7

In the third quarter of 2018, management initiated restructuring actions primarily associated with the European
headquarters as well as cost savings initiatives at certain European manufacturing facilities. These actions included
reductions in force and other related costs. Total pre-tax charges for the program were reduced through the twelve
months ended December 31, 2020 by approximately $0.3 million due primarily to decreased severance costs. This
resulted in total program restructuring charges of approximately $8.0 million, which have been fully incurred. The pre-
tax charges for the year ended December 31, 2019 and 2018 were approximately $4.3 million and $4.0 million,
respectively and primarily included severance benefits. The restructuring reserve associated with these actions as of
December 31, 2020 was approximately $0.5 million, and primarily relates to severance benefits.

2017 Other Actions

In the fourth quarter of 2017, management initiated certain restructuring actions related to reductions in force within the
Company’s Europe segment. The restructuring activities primarily included severance benefits. The total pre-tax
charges associated with the Europe restructuring activities were initially expected to be approximately $4.1 million with
costs being fully incurred in 2017. The company reduced its total pre-tax charges for the program to approximately $3.4
million as of September 30, 2018, primarily related to reduced severance costs. As of December 31, 2019, these actions
had been completed and no amounts were reserved associated with these actions.

(4) Revenue Recognition

The Company is a leading supplier of products that manage and conserve the flow of fluids and energy into, through and
out of buildings in the commercial and residential markets. For over 140 years, the Company has designed and produced
valve systems that safeguard and regulate water systems, energy efficient heating and hydronic systems, drainage
systems and water filtration technology that helps purify and conserve water.

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

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

• Drainage & water re-use products—includes drainage products and engineered rain water harvesting solutions

for commercial, industrial, marine and residential applications.

• Water quality products—includes point-of-use and point-of-entry water filtration, conditioning and scale

prevention systems for commercial, marine and residential applications.

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

Distribution Channel
Wholesale
OEM
Specialty
DIY

Total

Principal Product Line
Residential & Commercial Flow Control
HVAC and Gas Products
Drainage and Water Re-use Products
Water Quality Products

Total

Distribution Channel
Wholesale
OEM
Specialty
DIY

Total

Year ended December 31, 2020
(in millions)

Americas

Europe

APMEA

Consolidated

580.3 $

75.9
288.5
81.0
1,025.7 $

279.0
143.3
—
2.6
424.9

52.8 $

3.1
2.1
—
58.0 $

912.1
222.3
290.6
83.6
1,508.6

Year ended December 31, 2020
(in millions)

Americas

Europe

APMEA

Consolidated

584.6 $
263.9
75.8
101.4
1,025.7 $

157.8
184.0
79.4
3.7
424.9

44.1 $
11.7
1.1
1.1

58.0 $

786.5
459.6
156.3
106.2
1,508.6

Year ended December 31, 2019
(in millions)

Americas

Europe

APMEA

Consolidated

609.5 $

83.5
326.8
64.3
1,084.1 $

305.0
143.2
—
2.8
451.0

59.2 $

1.9
4.3
—
65.4 $

973.7
228.6
331.1
67.1
1,600.5

Year ended December 31, 2019
(in millions)

Principal Product Line
Residential & Commercial Flow Control
HVAC and Gas Products
Drainage and Water Re-use Products
Water Quality Products

Total

Americas

Europe

APMEA

Consolidated

610.5 $
294.6
80.2
98.8
1,084.1 $

171.3
188.2
88.8
2.7
451.0

45.7 $
15.2
3.4
1.1

65.4 $

827.5
498.0
172.4
102.6
1,600.5

The Company generally considers customer purchase orders, which in some cases are governed by master sales
agreements, to represent the contract with a customer. The Company’s contracts with customers are generally for
products only and typically do not include other performance obligations such as professional services, extended
warranties, or other material rights. In situations where sales are to a distributor, the Company has concluded that its
contracts are with the distributor as the Company holds a contract bearing enforceable rights and obligations only with
the distributor. As part of its consideration of the contract, the Company evaluates certain factors including the
customer’s ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products,
each of which is distinct, to be the identified performance obligation. In determining the transaction price, the Company
evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company
expects to be entitled. As the Company’s standard payment terms are less than one year, the Company has elected not to
assess whether a contract has a significant financing component. The Company allocates the transaction price to each
distinct product based on its relative standalone selling price. The product price as specified on the purchase order is
considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer
in similar circumstances. Revenue is recognized when control of the product is transferred to the customer (i.e., when the
Company’s performance obligation is satisfied), which typically occurs at shipment from the Company’s manufacturing
site or distribution center, or delivery to the customer’s named location. In certain circumstances, revenue from
shipments to retail customers is recognized only when the product is consumed by the customer, as based on the terms of
the arrangement, transfer of control is not satisfied until that point in time. In determining whether control has
transferred, the Company considers if there is a present right to payment, physical possession and legal title, along with
risks and rewards of ownership having transferred to the customer. In certain circumstances, the Company manufactures
customized product without alternative use for its customers. However, as these arrangements do not entitle the
Company to a right to payment of cost plus a profit for work completed, the Company has concluded that control
transfers at the point in time and not over time.

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

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

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

in arrears are recognized as receivables. The opening and closing balances of the Company’s contract assets and contract
liabilities are as follows:

Balance - January 1, 2020
Change in period
Balance - March 29, 2020
Change in period
Balance - June 28, 2020
Change in period
Balance - September 27, 2020
Change in period
Balance - December 31, 2020

Balance - January 1, 2019
Change in period
Balance - March 31, 2019
Change in period
Balance - June 30, 2019
Change in period
Balance - September 29, 2019
Change in period
Balance - December 31, 2019

Contract
Assets

Contract
Liabilities - Current

Contract
Liabilities - Noncurrent

(in millions)

0.4
(0.1)
0.3
—
0.3
(0.3)
—
—
—

1.0
(0.7)
0.3
(0.2)
0.1
—
0.1
0.3
0.4

11.5 $
0.2
11.7 $
—
11.7 $
1.1
12.8 $
0.7
13.5 $

11.3 $

0.1

11.4 $

0.7

12.1 $
(0.3)
11.8 $
(0.3)
11.5 $

2.9
(0.1)
2.8
(0.1)
2.7
—
2.7
(0.2)
2.5

2.7
—
2.7
0.1
2.8
0.2
3.0
(0.1)
2.9

The amount of revenue recognized that was included in the opening contract liability balance was $9.9 million and $11.8
million for the years ended December 31, 2020 and 2019, respectively. This revenue consists primarily of revenue
recognized for shipments of product which had been prepaid as well as the amortization of extended warranty and
service policy revenue. The Company did not recognize any material revenue from obligations satisfied in prior periods.
There were no impairment losses related to Contract Assets for the years ended December 31, 2020 and 2019.

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

(5) Leases

The Company adopted ASC 842 effective January 1, 2019. The Company has a variety of categories of lease
arrangements, including real estate, automobiles, manufacturing equipment, facility equipment, office equipment and
certain service arrangements that are dependent on an identified asset. The Company’s real estate leases, which consist
primarily of manufacturing facilities, office space and warehouses, represent approximately 90% of the Company’s
operating lease liabilities and generally have a lease term between 2 and 15 years. The remaining leases primarily consist
of automobiles, machinery and equipment used in the manufacturing processes (e.g., forklifts and pallets), general office
equipment and certain service arrangements, each with various lease terms. The Company’s automobile leases typically
have terms ranging from 3 to 5 years. The Company’s remaining population of leases have terms ranging from 2 to 15
years. Certain lease arrangements may contain renewal terms ranging from 1 to 5 years. The majority of the Company’s
real estate, automobile, and equipment leases consist of fixed and variable lease payments. For the Company’s real estate
leases, variable payments include those for common area maintenance, property taxes, and insurance. For automobile
leases, variable payments primarily include maintenance, taxes, and insurance. For equipment leases, variable payments
include maintenance and payments based on usage. The Company has elected to account for lease and non-lease
components as a single component for all leases. Therefore, all fixed costs within a lease arrangement are included in the

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

Some of the Company’s lease agreements include Company options to either extend and/or early terminate the lease, the
costs of which are included in the Company’s lease liability to the extent that such options are reasonably certain of
being exercised. Renewal options are generally not included in the lease term for the Company’s existing leases because
the Company is not reasonably certain to exercise these renewal options. The Company does not generally enter into
leases involving the construction or design of the underlying asset, and nearly all of the assets the Company leases are
not specialized in nature. The Company’s leases generally do not include termination options for either party to the lease
or restrictive financial or other covenants. The Company’s lease agreements generally do not include residual value
guarantees.

Right-of-use asset amounts reported in the consolidated balance sheet by asset category as of December 31, 2020 and
2019 were as follows:

Operating Leases (1)
Real Estate
Automobile
Machinery and equipment

Total operating lease ROU Asset

Finance Leases (2)
Real Estate
Automobile
Machinery and equipment

Less: Accumulated depreciation

Finance Leases, net

December 31, 2020 December 31, 2019

(in millions)

48.1 $
3.2
1.3
52.6 $

15.8 $
0.1
7.8
(10.8)
12.9 $

33.1
3.0
3.0
39.1

14.4
—
4.8
(8.5)
10.7

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

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

The maturity of the Company’s operating and finance lease liabilities as of December 31, 2020 was as follows:

2021
2022
2023
2024
2025
Thereafter
Total undiscounted minimum lease payments
Less imputed interest
Total lease liabilities
Included in the consolidated balance sheet
Current lease liabilities (included in other current liabilities)
Non-Current lease liabilities (included in other non-current liabilities)
Total lease liabilities

December 31, 2020

Operating Leases Finance Leases

(in millions)

10.5 $
9.2
7.7
6.3
5.9
27.3
66.9 $
10.9
56.0 $

9.0
47.0
56.0 $

1.7
1.3
0.9
0.7
0.3
—
4.9
0.3
4.6

1.7
2.9
4.6

The total lease cost consisted of the following amounts:

Operating lease cost
Amortization of finance lease right-of-use assets
Interest on finance lease liabilities
Short-term lease cost
Sublease (income)
Variable lease cost
Total lease cost

Year Ended
December 31, 2020
(in millions)

Year Ended
December 31, 2019
(in millions)

12.1 $
1.5
0.2
0.1
(0.2)
2.6
16.3 $

11.9
1.2
0.2
—
—
3.1
16.4

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

Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Total cash paid for amounts included in the measurement of lease liabilities
Finance lease liabilities arising from obtaining right-of-use assets
Operating lease liabilities arising from obtaining right-of-use assets

December 31, 2020 December 31, 2019

(in millions)

11.8 $
0.2
2.1
14.1
2.1
24.7

11.4
0.2
1.7
13.3
1.4
19.8

The following summarizes additional information related to operating and finance leases:

Weighted-average remaining lease term - finance leases
Weighted-average remaining lease term - operating leases
Weighted-average discount rate - finance leases
Weighted-average discount rate - operating leases

(6) Goodwill & Intangibles

Goodwill

December 31, 2020 December 31, 2019
2.8 years
9.1 years
3.8 %
3.7 %

3.4 years
9.0 years
3.5 %
3.6 %

The Company performs its annual goodwill impairment testing for each reporting unit as of fiscal October month end or
earlier if there is a triggering event or circumstance that indicates an impairment loss may have occurred. As of the
October 25, 2020 testing date, the Company had $590.8 million of goodwill on its balance sheet. In 2020, the Company
had seven reporting units. One of these reporting units, Water Quality, had no goodwill. The Company performed a
qualitative analysis for each of the six remaining reporting units, which include Blücher, US Drains, Fluid Solutions-
Europe, Fluid Solutions-Americas, Heating and Hot Water Solutions (“HHWS”) and APMEA. As a result of the
qualitative analyses, the Company determined that the fair values of the reporting units were more likely than not greater
than the carrying amounts. In 2020 and 2019, the Company did not need to proceed beyond the qualitative analysis, and
no goodwill impairments were recorded.

In addition to the annual impairment test performed as of October 25, 2020, and as a result of the impact of the COVID-
19 global pandemic, the Company continued to review the guidance outlined in ASC 350 to determine if there was an
event or change in circumstance to indicate it was more likely than not that an impairment loss had been incurred during
the twelve months ended December 31, 2020. The Company concluded a triggering event had not occurred as of
December 31, 2020 and it was not “more likely than not” that the Company’s reporting units might be impaired.

Additionally, the Company noted the HHWS reporting unit had a goodwill balance of $218.9 million as of December 31,
2020, which holds the greatest amount of goodwill and the least amount of excess of fair value over carrying value based
on the most recent quantitative assessment. While the Company concluded that a triggering event did not occur during
the year ended December 31, 2020 and performed a qualitative analysis for its annual impairment test, the impact of a

prolonged COVID-19 pandemic could impact the results of operations due to changes to assumptions utilized in the
determination of the estimated fair values of the HHWS reporting unit that may be significant enough to trigger an
impairment determination.

The Company completed two acquisitions during the year ended December 31, 2020 which were not considered material
to its consolidated financial statements. In the third quarter of 2020, the Company completed an acquisition within the
APMEA segment resulting in $3.9 million of goodwill. Additionally, in the fourth quarter of 2020, the Company
completed an acquisition within the Americas segment resulting in $5.5 million of goodwill. The changes in the carrying
amount of goodwill by geographic segment were as follows:

Gross Balance
Foreign

Acquired
Balance During Currency
January 1,
the
2020

Period and Other

December 31, 2020

Accumulated Impairment Losses

Net Goodwill

Balance

Impairment

Balance

Translation December 31, January 1, Loss During December 31, December 31,

the Period

2020

Americas $ 476.8
Europe
241.4
APMEA
30.0
Total
$ 748.2

5.5 $
—
3.9
9.4 $

0.2 $
10.7
1.0
11.9 $

2020

2020
(in millions)
482.5 $ (24.5)
(129.7)
252.1
(12.9)
34.9
769.5 $ (167.1)

— $
—
—
— $

(24.5) $

(129.7)
(12.9)
(167.1) $

458.0
122.4
22.0
602.4

Gross Balance
Foreign

Acquired
Balance During Currency
January 1,
the
2019

Period and Other

December 31, 2019

Accumulated Impairment Losses

Net Goodwill

Balance

Impairment

Balance

Translation December 31, January 1, Loss During December 31, December 31,

the Period

2019

Americas $ 438.1 $ 38.3 $
243.7
Europe
APMEA
30.1
Total

$ 711.9 $ 38.3 $

—
—

0.4 $
(2.3)
(0.1)
(2.0) $

2019

2019
(in millions)
476.8 $ (24.5) $
241.4
30.0
748.2 $ (167.1) $

(129.7)
(12.9)

— $
—
—
— $

(24.5) $

(129.7)
(12.9)
(167.1) $

452.3
111.7
17.1
581.1

Long-Lived Assets

Indefinite-lived intangibles are tested for impairment at least annually or more frequently if events or circumstances,
such as a change in business conditions, indicate that it is “more likely than not” that an intangible asset might be
impaired. The Company performs its annual indefinite-lived intangibles impairment assessment in the fourth quarter of
each year. In 2020 and 2019, the Company performed a qualitative assessment for certain tradenames where the fair
value significantly exceeded the carrying value in the most recent quantitative assessment, and no other indicators of
impairment were present. For the remaining tradenames in 2020 and 2019, the Company performed a quantitative
assessment. For the 2018 impairment assessments, the Company performed quantitative assessments for all
indefinite-lived intangible assets. The methodology employed for quantitative assessments was the relief from royalty
method, a subset of the income approach. Based on the results of the assessments, the Company did not recognize an
impairment on any indefinite-lived intangibles in 2020, 2019 or 2018.

Intangible assets with estimable lives and other long-lived assets are reviewed for impairment at least quarterly or more
frequently if 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 is measured by a
comparison of the carrying amount of an asset or asset group to future net undiscounted pre-tax 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 pre-tax 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 using the market and guideline public companies for the related businesses and does not allocate
interest charges to the asset or asset group being measured. Judgment is required to estimate future operating cash flows.
In 2020, the Company recognized a $1.0 million impairment charge for a long-lived asset and $0.4 million impairment
charge for an amortizable technology asset, both within the Americas segment, as changes in market expectations

indicated the carrying amount of these assets were no longer recoverable. In 2019 and 2018, there were no indications of
the carrying amounts of intangible assets with estimable lives not being recoverable.

Intangible assets include the following:

Patents
Customer relationships
Technology
Trade names
Other

Total amortizable
intangibles

Indefinite-lived intangible
assets

December 31, 2020

December 31, 2019

Gross

Net

Gross

Net

Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount

$ 16.1 $
236.2
58.0
27.0
4.3

(16.0) $

(165.8)
(36.4)
(15.1)
(3.7)

(in millions)
0.1 $ 16.1 $
70.4
21.6
11.9
0.6

232.8
56.9
26.0
4.3

(15.9) $

(156.3)
(31.6)
(13.1)
(3.6)

0.2
76.5
25.3
12.9
0.7

341.6

(237.0)

104.6

336.1

(220.5)

115.6

37.2
$ 378.8 $

—

37.2
(237.0) $ 141.8 $ 371.9 $

35.8

—

35.8
(220.5) $ 151.4

Aggregate amortization expense for amortized intangible assets for 2020, 2019 and 2018 was $15.2 million, $15.6
million and $19.6 million, respectively. Additionally, future amortization expense on amortizable intangible assets is
expected to be $13.5 million for 2021, $12.1 million for 2022, $11.9 million for 2023, $11.7 million for 2024 and $10.2
million for 2025. Amortization expense is provided 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 8.4 years. Patents,
customer relationships, technology, trade names and other amortizable intangibles have weighted-average remaining
lives of 0.5 years, 8.8 years, 5.0 years, 11.9 years and 16.5 years, respectively. Indefinite-lived intangible assets include
trade names and trademarks.

(7) Inventories, net

Inventories consist of the following:

Raw materials
Work-in-process
Finished goods

December 31,

2020

2019

(in millions)

79.6 $
16.1
167.9

83.4
15.5
171.2
$ 263.6 $ 270.1

Raw materials, work-in-process and finished goods are net of valuation reserves of $37.3 million and $27.9 million as of
December 31, 2020 and 2019, respectively. Finished goods of $16.3 million and $16.7 million as of December 31, 2020
and 2019, respectively, were consigned.

(8) Property, Plant and Equipment

Property, plant and equipment consist of the following:

Land
Buildings and improvements
Machinery and equipment
Construction in progress
Property, plant and equipment, at cost
Accumulated depreciation
Property, plant, and equipment, net

(9) Income Taxes

December 31,

2020

2019

(in millions)

13.2 $

13.9
175.8
354.7
13.5
557.9
(357.9)
$ 212.3 $ 200.0

194.3
386.6
14.5
608.6
(396.3)

The significant components of the Company’s deferred income tax liabilities and assets are as follows:

December 31,

2020

2019

(in millions)

22.5 $
31.7
23.6
4.2
11.0
2.9
95.9

18.8
32.1
21.0
3.9
10.3
4.9
91.0

7.8
6.1
11.2
4.9
34.4
7.5
1.0
9.0
9.4
91.3
(42.1)
49.2

7.8
6.3
10.4
5.4
32.7
6.4
—
5.2
9.5
83.7
(28.6)
55.1
$ (46.7) $ (35.9)

Year Ended December 31,

2020

2019

2018

(in millions)

$ 96.8 $ 119.9 $ 103.2
71.4
$ 167.0 $ 183.9 $ 174.6

64.0

70.2

Deferred income tax liabilities:

Excess tax over book depreciation
Intangibles
Goodwill
Foreign earnings
Operating lease ROU assets
Other

Total deferred tax liabilities

Deferred income tax assets:

Accrued expenses
Product liability
Operating lease liabilities
Stock based compensation
Foreign tax credits
Net operating loss carry forward
Capital loss carry forward
Inventory reserves
Other

Total deferred tax assets

Less: valuation allowance
Net deferred tax assets
Net deferred tax liabilities

The provision for income taxes is based on the following pre-tax income:

Domestic
Foreign

The provision for income taxes consists of the following:

Year Ended December 31,

2020

2019

2018

(in millions)

Current tax expense:

Federal
Foreign
State

Deferred tax expense (benefit):

Federal
Foreign
State

Deferred tax remeasurement of the 2017 Tax Act

$ 13.4 $ 18.7 $ 24.7
29.0
7.7
61.4

25.5
6.4
50.6

25.3
6.9
45.6

14.8
(6.7)
(1.0)
7.1
—

(3.2)
(7.7)
(1.9)
(12.8)
(2.0)
$ 52.7 $ 52.4 $ 46.6

2.5
(2.1)
1.4
1.8
—

The 2017 Tax Cuts and Jobs Act (“2017 Tax Act”) was enacted on December 22, 2017 and resulted in significant
changes to the U.S. corporate income tax system. These changes included lowering the U.S. Corporate income tax rate
from 35% to 21% and the elimination or reduction of certain domestic deductions and credits. The 2017 Tax Act also
transitioned international taxation from a worldwide system to a modified territorial system creating new taxes on certain
foreign-sourced earnings and certain related party payments, which are referred to as the Global Intangible Low-taxed
Income Tax (“GILTI”) and the Annual Anti-Base Erosion Tax, respectively. The 2017 Tax Act also imposed a one-time
mandatory deemed repatriation tax (“Toll Tax”) on foreign subsidiaries’ previously untaxed accumulated foreign
earnings.

Changes in tax rates and tax laws are accounted for in the period of enactment. Therefore, the Company recorded a
provisional tax expense of $25.1 million related to the 2017 Tax Act, as of December 31, 2017. During the year ended
December 31, 2018, the Company finalized the impact of the 2017 Tax Act and recorded a benefit of $3.7 million,
reducing the net impact to $21.4 million. Included in the 2018 adjustment was a $10.6 million benefit related to the
determination of our foreign tax credits and partial release of a related valuation allowance, partially offset by additional
Toll Tax of $10.2 million.

In 2020, final tax regulations were released with respect to the GILTI tax regime. These regulations permit an exclusion
from GILTI for items of foreign income subject to a high effective tax rate, referred to as the GILTI High Tax Exclusion
(“HTE”). Under the new regulations, the Company was allowed to review its GILTI income for the 2018 and 2019 tax
years. The Company elected the exclusion for both the 2018 and 2019 tax years resulting in a total tax benefit of $2.1
million which was recorded in 2020.

Toll Tax

The 2017 Tax Act imposed a one-time Toll Tax which required the Company to pay U.S. income taxes on accumulated
foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and
cash equivalents and 8% on the remaining earnings. For the year ended December 31, 2017, the Company recorded a
provisional amount of $23.3 million related to the Toll Tax. As of December 31, 2018, the Company recorded tax
expense based on final guidance on the 2017 Tax Act of $10.2 million, which resulted in a total Toll Tax charge of $33.5
million which is being paid over eight years beginning in 2018 and will not accrue interest.

Deferred Tax Remeasurement

As the Company’s deferred tax liabilities exceeded the balance of the Company’s deferred tax assets, for the year ended
December 31, 2017, the Company recorded a provisional amount of tax benefit of $12 million, and as of December 31,
2018, the Company recorded a final tax benefit of $2 million, for a net $14 million benefit, reflecting the decrease in the
U.S. Corporate income tax rate.

Tax on Foreign Earnings

As a result of the 2017 Tax Act, the Company can repatriate its cumulative undistributed foreign earnings through that
date back to the U.S. with minimal U.S. income tax consequences other than the one-time Toll Tax. The Company
recorded a provisional amount of deferred tax expense of $14.6 million, and as of December 31, 2018, the Company
recorded a final tax benefit of $2 million, for a net deferred tax expense of $12.6 million for the future repatriation of
foreign earnings.

Actual income taxes reported are different than what would have been computed by applying the federal statutory tax
rate to income before income taxes. The reasons for these differences are as follows:

Year Ended December 31,

2020

2019

2018

(in millions)

Computed expected federal income expense
State income taxes, net of federal tax benefit
Foreign tax rate differential
Impact of the 2017 Tax Act
Valuation allowance
GILTI HTE
Unrecognized tax benefits, net
Other, net

$ 35.0 $ 38.6 $ 36.6
5.3
2.7
(3.7)
—
—
3.2
2.5
$ 52.7 $ 52.4 $ 46.6

4.6
2.7
—
12.9
(2.1)
(0.3)
(0.1)

6.3
4.2
—
—
—
0.7
2.6

At December 31, 2020, the Company had foreign and domestic net operating loss carry forwards of $27.2 million and
$3.8 million, respectively, for income tax purposes before considering valuation allowances; $27.2 million of the losses
can be carried forward indefinitely, $2.5 million of the domestic losses expire between 2035 and 2040 and $1.3 million
can be carried forward indefinitely. The net operating losses consist of $27.2 million related to Austrian operations and
$3.8 million related to United States operations.

At December 31, 2020, a new U.S. capital loss carry forward of $1.0 million before considering valuation allowances
was generated and will expire in 2025.

At December 31, 2020 and December 31, 2019, the Company had foreign tax credit carry forwards of $34.4 million and
$32.7 million, respectively, for income tax purposes before considering valuation allowances. The foreign tax credit
carryforwards expire between 2027 and 2030.

At December 31, 2020 and December 31, 2019, the Company had valuation allowances of $42.1 million and $28.6
million, respectively. At December 31, 2020, $34.4 million related to foreign tax credits, $6.7 million related to
Austrian net operating losses, and $1.0 million related to the domestic capital loss carry forward. At December 31, 2019,
$22.3 million related to foreign tax credits and $6.3 million related to Austrian and Korean net operating losses. The
$12.1 million increase from December 31, 2019 to December 31, 2020 in the valuation allowance related to foreign tax
credits was due to recently issued final tax regulations which changed certain requirements for determining foreign
source income and the realizability of the foreign tax credits. Management believes that the ability of the Company to
use such foreign tax credits and losses within the applicable carry forward period does not rise to the level of the more
likely than not threshold. The Company does not have a valuation allowance on other deferred tax assets, as
management believes that it is more likely than not that the Company will recover the net deferred tax assets.
Management believes it is more likely than not that the future reversals of the deferred tax liabilities, together with
forecasted income, will be sufficient to fully recover the deferred tax assets.

After December 31, 2017, the Company considered all of its foreign earnings to be permanently reinvested outside of the
U.S. and has no plans to repatriate these foreign earnings to the U.S.

Unrecognized Tax Benefits

As of December 31, 2020, the Company had gross unrecognized tax benefits of approximately $11.7 million,
approximately $5.1 million of which, if recognized, would affect the effective tax rate. The difference between the

amount of unrecognized tax benefits and the amount that would affect the effective tax rate consists of allowable
correlative adjustments that are available for certain jurisdictions.

A reconciliation of the beginning and ending amount of unrecognized tax is as follows:

Balance at January 1, 2020
Increases related to prior year tax positions
Decreases due to lapse in statutes
Currency movement
Balance at December 31, 2020

(in millions)
9.3
$
1.8
(0.2)
0.8
11.7

The Company estimates that it is reasonably possible that the balance of unrecognized tax benefits as of December 31,
2020 may decrease by $3.1 million to $5.6 million in the next twelve months, as a result of lapses in statutes of
limitations and settlements and $2.3 million to $2.9 million of which, if recognized, would affect the effective tax rate.

In February 2018, the United States Internal Revenue Service concluded an audit of the Company’s 2016 and 2015 tax
years. There were no material adjustments as a result of the audit. The Company conducts business in a variety of
locations throughout the world resulting in tax filings in numerous domestic and foreign jurisdictions. The Company is
subject to tax examinations regularly as part of the normal course of business. The Company’s major jurisdictions are the
U.S., France, Germany, Italy and Canada. The statute of limitations in the U.S. is subject to tax examination for 2017
and later; France, Germany, Italy and Canada are subject to tax examination for 2016 and later. All other jurisdictions,
with few exceptions, are no longer subject to tax examinations in state, local or international jurisdictions for tax years
before 2013.

The Company accounts for interest and penalties related to uncertain tax positions as a component of income tax
expense.

(10) Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following:

December 31,

2020

2019

(in millions)

Commissions and sales incentives payable
Product liability
Other
Income taxes payable

(11) Financing Arrangements

The Company’s debt consists of the following:

Line of Credit due February 2022
5.05% notes due June 2020
Term Loan due February 2021
Line of Credit due February 2021
Total debt outstanding
Less debt issuance costs (deduction from debt liability)
Less current maturities
Total long-term debt

44.6 $
22.1
62.8
7.9

43.7
22.2
58.7
8.8
$ 137.4 $ 133.4

December 31,

2020

2019

(in millions)

$ 200.0
—
—
—
200.0
(1.8)
—

—
75.0
225.0
10.0
310.0
(0.8)
(105.0)
$ 198.2 $ 204.2

Principal payments during each of the next two years are due as follows (in millions): 2021—$0; and 2022—$200.0.

In February 2016, the Company entered into a Credit Agreement (the “Prior Credit Agreement”) among the Company,
certain subsidiaries of the Company who become borrowers under the Prior Credit Agreement, JPMorgan Chase Bank,
N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the other lenders referred to therein.
The Prior Credit Agreement provided for a $500 million, five-year, senior unsecured revolving credit facility (the “Prior
Revolving Credit Facility”) with a sublimit of up to $100 million in letters of credit. The Prior Credit Agreement also
provided for a $300 million, five-year, term loan facility (the “Term Loan Facility”) available to the Company in a single
draw, of which the entire $300 million had been drawn in February 2016.

On April 24, 2020, the Company entered into an Amended and Restated Credit Agreement (the "New Credit
Agreement") among the Company, certain subsidiaries of the Company who become borrowers thereunder, JPMorgan
Chase Bank, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, and the other lenders
referred to therein. The New Credit Agreement amends and restates the Prior Credit Agreement in its entirety while
increasing the amount of revolving credit available from $500 million to $800 million, and extending the maturity by
one additional year to February 2022. This senior unsecured revolving credit facility (the "Revolving Credit Facility")
also includes sublimits of $100 million for letters of credit and $15 million for swing line loans. As of December 31,
2020, the Company had drawn down $200.0 million on this line of credit and had $16.2 million in letters of credit
outstanding, which resulted in $583.8 million of unused and available credit under the Revolving Credit Facility. The
term loan facility under the Prior Credit Agreement was terminated and paid off effective April 24, 2020, with funds
from the Revolving Credit Facility. Borrowings outstanding under the Revolving Credit Facility bear interest at a
fluctuating rate per annum equal to an applicable percentage defined as (i) in the case of Eurocurrency rate loans, the
adjusted British Bankers Association LIBOR rate (which at all times will not be less than 1.00%) plus an applicable
percentage, ranging from 1.50% to 2.10%, determined by reference to the Company's consolidated leverage ratio, or
(ii) in the case of alternate base rate loans and swing line loans, interest (which at all times will not be less than 2.00%)
at the greatest of (a) the Prime Rate in effect on such day, (b) the FRBNY Rate in effect on such day plus 0.5% and
(c) the adjusted LIBOR rate plus 1.0% for a one month interest period in dollars. The interest rate as of December 31,
2020 on the Revolving Credit Facility was 2.5%. As of December 31, 2020, the Company was in compliance with all
covenants related to the New Credit Agreement.

In addition to paying interest under the New Credit Agreement, the Company is also required to pay certain fees in
connection with the Revolving Credit Facility, including, but not limited to, an unused facility fee and letter of credit
fees. The New Credit Agreement matures on February 12, 2022, subject to extension under certain circumstances and
subject to the terms of the New Credit Agreement. The Company may repay loans outstanding under the New Credit
Agreement from time to time without premium or penalty, other than customary breakage costs, if any, and subject to
the terms of the New Credit Agreement.

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

As a result of entering the New Credit Agreement, interest rate swaps as referred to in Note 16 of the Notes to the
Consolidated Financial Statements were no longer effective in offsetting changes in the cash flow of the hedged item as
the critical terms of the New Credit Agreement do not match to the hedged item. The Company subsequently began
recognizing the mark-to-market fair value adjustments on a monthly basis in the consolidated statement of operations
and continued to do so through the expiration date of the swaps, which was February 12, 2021. Also, the balance
outstanding on the Company’s Revolving Credit Facility as of December 31, 2020 was below the notional amount of the
interest rate swaps. Therefore, as of December 31, 2020, the balance of the previously effective portion of the fair value
of the interest rate swaps recorded in other comprehensive income was reclassified into earnings within interest expense.

The Company maintains letters of credit that guarantee its performance or payment to third parties in accordance with
specified terms and conditions. Amounts outstanding were $16.2 million as of December 31, 2020 and $25.8 million as
of December 31, 2019. The Company’s letters of credit are primarily associated with insurance coverage. The
Company’s letters of credit generally expire within one year of issuance. These instruments may exist or expire without
being drawn down. Therefore, they do not necessarily represent future cash flow obligations.

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

(12) Earnings per Share and Stock Repurchase Program

The Class A common stock and Class B common stock have equal dividend and liquidation rights. Each share of the
Company’s Class A common stock is entitled to one vote on all matters submitted to stockholders and each share of
Class B common stock is entitled to ten votes on all such matters. Shares of Class B common stock are convertible into
shares of Class A common stock on a one-to-one basis at the option of the holder. As of December 31, 2020, the
Company had reserved a total of 2,252,875 shares of Class A common stock for issuance under its stock-based
compensation plans and 6,144,290 shares for conversion of Class B common stock to Class A common stock.

Basic net income per common share is calculated by dividing net income by the weighted average number of common
shares outstanding. The calculation of diluted net income per share assumes the conversion of all dilutive securities.

Net income and the number of shares used to compute net income per share, basic and assuming full dilution, are
reconciled below:

2020

Year Ended December 31,
2019

2018

Per
Share
Income Shares Amount Income Shares Amount Income Shares Amount

Per
Share

Net

Basic EPS
Dilutive securities,
principally common
stock options
Diluted EPS

$ 114.3

—
$ 114.3

(Amounts in millions, except per share information)

33.9 $ 3.37 $ 131.5

34.1 $ 3.86 $ 128.0

34.3 $ 3.73

—
(0.01)
0.1
34.0 $ 3.36 $ 131.5

0.1

(0.01)

—
34.2 $ 3.85 $ 128.0

—

—
34.3 $ 3.73

Since July 27, 2015, the Company’s Board of Directors has authorized two stock repurchase programs. The first
program approved the repurchase of up to $100 million and the second repurchase program up to $150 million of the
Company’s Class A common stock, to be purchased from time to time on the open market or in privately negotiated
transactions. For both stock repurchase programs, the Company has entered into a Rule 10b5-1 plan, which permits
shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws.
The repurchase program may be suspended or discontinued at any time, subject to the terms of the Rule 10b5-1 plans the
Company entered into with respect to the repurchase program. The Company temporarily suspended the stock
repurchase program for a portion of the second quarter of 2020 as a measure to conserve cash in response to the business
impact of the COVID-19 pandemic. The repurchase program was reinstated effective June 29, 2020 pursuant to the
terms of a new 10b5-1 plan entered into as of June 12, 2020. The $100 million stock repurchase program was completely
expended by August 2019. As of December 31, 2020, there was approximately $113.4 million remaining authorized for
share repurchases under the $150 million program.

The following table summarizes the cost and the number of shares of Class A common stock repurchased under the two
repurchase programs for the years ended December 31, 2020 and 2019:

Year Ended December 31,

2020

2019

Number of shares Cost of shares Number of shares Cost of shares
repurchased

repurchased

Stock repurchase programs:

$100 million
$150 million

Total

(amounts in millions, except share amount)

—
331,531
331,531 $

—
28.9
28.9

146,304
81,316
227,620 $

11.8
7.7
19.5

(13) Stock-Based Compensation

As of December 31, 2020, the Company maintains one stock incentive plan, the Second Amended and Restated 2004
Stock Incentive Plan (the “2004 Stock Incentive Plan”). At December 31, 2020, 1,083,096 shares of Class A common
stock were authorized for future grants of new equity awards under this plan. The Company currently grants shares of
deferred stock awards to key employees and stock awards to non-employee members of the Company’s Board of
Directors under the 2004 Stock Incentive Plan. The Company also previously granted shares of restricted stock to key
employees. Stock awards to non-employee members of the Company’s Board of Directors vest immediately.
Employees’ restricted stock awards and deferred stock awards typically vest over a three-year period at the rate of
one-third per year. The restricted stock awards are outstanding upon grant whereas the deferred stock awards are
outstanding upon vesting. The restricted stock awards and deferred stock awards are amortized to expense on a straight-
line basis over the vesting period.

The Company also grants performance stock units to key employees under the 2004 Stock Incentive Plan. Performance
stock units cliff vest at the end of a performance period set by the Compensation Committee of the Board of Directors at
the time of grant, which is currently three years. Upon vesting, the number of shares of the Company’s Class A common
stock awarded to each performance stock unit recipient will be determined based on the Company’s performance relative
to certain performance goals set at the time the performance stock units were granted. The recipient of a performance
stock unit award may earn from zero shares to twice the number of target shares awarded to such recipient. The
performance stock units are amortized to expense over the vesting period, and based on the Company’s performance
relative to the performance goals, may be adjusted. Changes to the estimated shares expected to vest will result in
adjustments to the related share-based compensation expense that will be recorded in the period of change. If the
performance goals are not met, no awards are earned and previously recognized compensation expense is reversed. The
Company granted performance stock units in 2020, 2019, and 2018. The performance goals for the performance stock
units are based on the compound annual growth rate of the Company’s revenue over the three-year performance period
and the Company’s return on invested capital (“ROIC”) for the third year of the performance period.

Beginning in 2019, the Company included “retirement vesting” provisions in the agreements for its deferred stock
awards and performance stock units. These provisions provide that an employee who retires from the Company after
attaining age 55 and 10 years of service and who meets certain other requirements, including non-competition and non-
solicitation requirements, would be allowed to continue to vest in his or her deferred stock awards for the duration of the
vesting periods and would be entitled to receive a pro rata portion of his or her performance stock units based on the
period of service elapsed during the performance period.

Beginning in 2015, the Company stopped granting stock options as part of its annual equity awards to employees.
Previously under the 2004 Stock Incentive Plan, key employees were granted nonqualified stock options to purchase the
Company’s Class A common stock. Minimal options remain outstanding, all of which are vested and expire ten years
from the date of grant. Options granted under the plan may have exercise prices of not less than 100% of the fair market
value of the Class A common stock on the date of grant. The Company’s practice was to grant all options at fair market
value on the grant date. Upon exercise of options, the Company issues shares of Class A common stock.

The Company also has a Management Stock Purchase Plan that allows for the granting of restricted stock units (RSUs)
to key employees. On an annual basis, key employees may elect to receive a portion of their annual incentive
compensation in RSUs instead of cash. Participating employees may use up to 50% of their annual incentive bonus to
purchase RSUs for a purchase price equal to 80% of the fair market value of the Company’s Class A common stock as
of the date of grant. RSUs vest either annually over a three-year period from the grant date or upon the third anniversary
of the grant date. Receipt of the shares underlying RSUs is deferred for a minimum of three years, or such greater
number of years as is chosen by the employee, from the date of grant. An aggregate of 2,000,000 shares of Class A
common stock may be issued under the Management Stock Purchase Plan. At December 31, 2020, 731,163 shares of
Class A common stock were authorized for future grants under the Company’s Management Stock Purchase Plan.

2004 Stock Incentive Plan

The following is a summary of unvested restricted stock and deferred stock awards activity and related information:

2018
Weighted
Average
Grant Date
Shares Fair Value Shares Fair Value Shares Fair Value

Year Ended December 31,
2019
Weighted
Average
Grant Date

2020
Weighted
Average
Grant Date

Unvested at beginning of year
Granted
Vested
Cancelled/Forfeitures
Unvested at end of year

(Shares in thousands)
216 $ 71.28

217 $ 57.31
196 $ 76.56
80.52
75.77
96
92
59.52
74.84 (102)
(100)
(14)
66.24
75.73
(22)
196 $ 76.56 216 $ 71.28
166 $ 77.97

78.54 153
68.83 (126)
(28)
56.97

The total fair value of shares vested during 2020, 2019 and 2018 was $8.1 million, $8.4 million and $10.2 million,
respectively. At December 31, 2020, total unrecognized compensation cost related to unvested restricted stock and
deferred stock awards was approximately $6.9 million with a total weighted average remaining term of 1.48 years. For
2020, 2019 and 2018, the Company recognized compensation costs of $7.7 million, $8.5 million and $7.6 million,
respectively.

The aggregate intrinsic value of restricted stock and deferred shares granted and outstanding approximated $20.3 million
representing the total pre-tax intrinsic value based on the Company’s closing Class A common stock price of $121.70 as
of December 31, 2020.

The following is a summary of unvested performance stock award activity and related information:

2020

2018
Weighted
Average
Grant Date
Shares Fair Value Shares Fair Value Shares Fair Value

Year Ended December 31,
2019
Weighted
Average
Grant Date

Weighted
Average
Grant Date

Unvested at beginning of year
Granted
Vested
Cancelled/Forfeitures
Unvested at end of year

238 $ 73.84
70.65
94
60.45
(97)
(27)
78.59
208 $ 78.06

(Shares in thousands)
249 $ 66.15
77.58
88
55.27
(82)
(17)
71.50
238 $ 73.84

273 $ 58.23
81.51
96
58.96
(80)
(40)
63.43
249 $ 66.15

The total fair value of shares vested during 2020, 2019 and 2018 was $10.0 million, $6.3 million and $5.8 million,
respectively. At December 31, 2020, total unrecognized compensation cost related to unvested performance stock
awards was approximately $5.5 million with a total weighted average remaining term of 1.49 years. For 2020, 2019 and
2018, the Company recognized compensation costs of $4.3 million, $8.5 million and $5.2 million, respectively.

The aggregate intrinsic value of performance shares granted and outstanding approximated $25.3 million representing
the total pre-tax intrinsic value based on the Company’s closing Class A common stock price of $121.70 as of
December 31, 2020.

The following is a summary of stock option activity and related information:

Year Ended December 31,

2020

Weighted Weighted
Average Average
Intrinsic
Exercise

2019
Weighted
Average
Exercise

2018
Weighted
Average
Exercise

Options Price

Value

Options Price

(Options in thousands)

10 $ 53.65
—
—
(5)
55.03
5 $ 52.40 $ 69.30
5 $ 52.40 $ 69.30

49 $ 55.25
57.47
(1)
(38)
55.63
10 $ 53.65
10 $ 53.65

95 $ 54.91
—
—
(46)
54.55
49 $ 55.25
49 $ 55.25

Outstanding at beginning of year
Cancelled/Forfeitures
Exercised
Outstanding at end of year
Exercisable at end of year

For 2020, 2019 and 2018, the Company did not recognize any compensation costs for options. As of December 31,
2020, there was no unrecognized compensation cost related to unvested options. As of December 31, 2020, the aggregate
intrinsic value of exercisable options was approximately $0.4 million, representing the total pre-tax intrinsic value, based
on the Company’s closing Class A common stock price of $121.70 as of December 31, 2020, which would have been
received by the option holders had all option holders exercised their options as of that date. The total intrinsic value of
options exercised for 2020, 2019 and 2018 was approximately $0.3 million, $1.3 million and $1.2 million, respectively.

The following table summarizes information about options outstanding at December 31, 2020:

Options Outstanding

Options Exercisable

Range of Exercise Prices

$37.41-$54.76
$57.47–$57.47

Number
Outstanding

Weighted Average
Remaining Contractual

Life (years)

Weighted Average
Exercise
Price

Number
Exercisable

Weighted Average
Exercise
Price

3
2
5

(Options in thousands)
49.53
57.47
52.40

2.29 $
3.58
2.76 $

3 $
2
5 $

49.53
57.47
52.40

Management Stock Purchase Plan

Total unrecognized compensation cost related to unvested RSUs was approximately $0.8 million at December 31, 2020
with a total weighted average remaining term of 1.39 years. The Company recognized compensation cost of $0.7
million for 2020, $0.8 million for 2019, and $1.0 million in 2018. Dividends declared for RSUs, that are paid to
individuals but remain unpaid and accrued at December 31, 2020 totaled approximately $0.1 million.

A summary of the Company’s RSU activity and related information is shown in the following table:

Year Ended December 31,

2020

Weighted Weighted
Average Average
Intrinsic
Purchase

RSUs Price

Value

RSUs

2019
Weighted
Average
Purchase
Price

2018
Weighted
Average
Purchase

RSUs Price

Outstanding at beginning of year
Granted
Settled
Cancelled/Forfeitures
Outstanding at end of year
Vested at end of year

(RSU’s in thousands)

110 $ 57.91
69.76
28
49.76
(40)
(3)
65.69
95 $ 64.54 $
32 $ 61.89 $

57.16
59.81

37
(79)
(2)

154 $ 45.02
63.77
35.63
56.25
$ 110 $ 57.91
35 $ 52.67
$

174 $ 39.68
61.84
36
37.34
(46)
(10)
48.82
154 $ 45.02
66 $ 38.17

As of December 31, 2020, the aggregate intrinsic values of outstanding and vested RSUs were approximately $5.4
million and $1.9 million, respectively, representing the total pre-tax intrinsic value, based on the Company’s closing
Class A common stock price of $121.70 as of December 31, 2020, which would have been received by the RSUs holders
had all RSUs settled as of that date. The total intrinsic value of RSUs settled for 2020, 2019 and 2018 was approximately

$2.3 million, $3.5 million and $1.8 million, respectively. Upon settlement of RSUs, the Company issues shares of
Class A common stock.

The following table summarizes information about RSUs outstanding at December 31, 2020:

Range of Purchase Prices

$35.41-$49.92
$61.84-$69.76

RSUs Outstanding

Number
Outstanding

Weighted Average
Purchase
Price
(RSUs in thousands)

Number
Vested

RSUs Vested
Weighted Average
Purchase
Price

1 $
94
95 $

40.69
64.80
64.54

1 $
31
32 $

40.69
62.56
61.89

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

Expected life (years)
Expected stock price volatility
Expected dividend yield
Risk-free interest rate

2020

3.0
24.6 %
1.1 %
0.6 %

2019
3.0
23.3 %
1.1 %
2.5 %

The risk-free interest rate is based upon the U.S. Treasury yield curve at the time of grant for the respective expected life
of the RSUs. The expected life (estimated period of time outstanding) of RSUs and volatility were calculated using
historical data. The expected dividend yield of stock is the Company’s best estimate of the expected future dividend
yield.

The above assumptions were used to determine the weighted average grant-date fair value of RSUs granted of $22.36,
$22.16 and $21.80 during 2020, 2019 and 2018, respectively.

At December 31, 2020, the Company had total unrecognized compensation costs related to unvested stock-based
compensation arrangements of approximately $13.2 million and a total weighted average remaining term of 1.48 years.
For 2020, 2019 and 2018, the Company recognized compensation costs related to stock-based programs of $12.7
million, $17.8 million, and $13.8 million, respectively. For 2020, 2019 and 2018, stock compensation expense of $0.9
million was recorded in cost of goods sold and $11.8 million, $16.9 million and $12.9 million, respectively, was
recorded in selling, general and administrative expenses. For 2020, 2019 and 2018, the Company recorded $2.1 million,
$3.1 million and $2.8 million, respectively, of tax benefit for its other stock-based plans. For 2020, 2019 and 2018, the
recognition of total stock-based compensation expense impacted both basic and diluted net income per common share by
$0.30, $0.42 and $0.32, respectively.

(14) Employee Benefit Plans

The Company’s domestic employees are eligible to participate in the Company’s 401(k) savings plan. Since January 1,
2012, the Company has provided a base contribution of 2% of an employee’s salary, regardless of whether the employee
participates in the plan. Further, the Company matches the contribution of up to 100% of the first 4% of an employee’s
contribution. The Company’s match contributions for the years ended December 31, 2020, 2019 and 2018, were $6.7
million, $6.8 million and $6.1 million, respectively. Charges for Europe pension plans approximated $3.4 million, $3.6
million and $3.9 million for the years ended December 31, 2020, 2019 and 2018, respectively. These costs relate to plans
administered by certain European subsidiaries, with benefits calculated according to government requirements and paid
out to employees upon retirement or change of employment.

(15) Contingencies and Environmental Remediation

Accrual and Disclosure Policy

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

The Company reviews its lawsuits and other legal proceedings on an ongoing basis and follows appropriate accounting
guidance when making accrual and disclosure decisions. The Company establishes accruals for matters when the
Company assesses that it is probable that a loss has been incurred and the amount of the loss can be reasonably
estimated. The Company 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 that the amount of the loss can be reasonably estimated. The Company’s
assessment of whether a loss is probable is based on its assessment of the ultimate outcome of the matter following all
appeals.

Under the FASB-issued ASC 450 “Contingencies”, an event is “reasonably possible” if “the chance of the future event
or events occurring is more than remote but less than likely” and an event is “remote” if “the chance of the future event
or events occurring is slight”. Thus, references to the upper end of the range of reasonably possible loss for cases in
which the Company is able to estimate a range of reasonably possible loss mean the upper end of the range of loss for
cases for which the Company believes the risk of loss is more than slight.

There may continue to be exposure to loss in excess of any amount accrued. When it is possible to estimate the
reasonably possible loss or range of loss above the amount accrued for the matters disclosed, that estimate is aggregated
and disclosed. The Company records legal costs associated with its legal contingencies as incurred, except for legal costs
associated with product liability claims which are included in the actuarial estimates used in determining the product
liability accrual.

As of December 31, 2020, the Company estimates that the aggregate amount of reasonably possible loss in excess of the
amount accrued for its legal contingencies is approximately $6.2 million pre-tax. With respect to the estimate of
reasonably possible loss, management has estimated the reasonably possible loss based on (i) the amount of money
damages claimed, where applicable, (ii) the allegations and factual developments to date, (iii) available defenses based
on the allegations, and/or (iv) other potentially liable parties. This estimate is based upon currently available information
and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. The matters
underlying the estimate will change from time to time, and actual results may vary significantly from the current
estimate. In the event of an unfavorable outcome in one or more of the matters, the ultimate liability may be in excess of
amounts currently accrued, if any, and may be material to the Company’s operating results or cash flows for a particular
quarterly or annual period. However, based on information currently known to it, management believes that the ultimate
outcome of all matters, as they are resolved over time, is not likely to have a material adverse effect on the financial
condition of the Company, though the outcome could be material to the Company’s operating results for any particular
period depending, in part, upon the operating results for such period.

Product Liability

The Company is subject to a variety of potential liabilities in connection with product liability cases. For our most
significant volume of liability matters, the Company maintains a high self-insured retention limit within its product
liability and general liability coverage, which the Company believes to be generally in accordance with industry
practices. For product liability cases in the U.S., management establishes its product liability accrual, which includes
legal costs associated with accrued claims. For its most significant volume of liability matters, the Company utilizes
third-party actuarial valuations which incorporate historical trend factors and the Company’s specific claims experience
derived from loss reports provided by third-party claims administrators. The product liability accrual is established after
considering any applicable insurance coverage. Changes in the nature of product liability claims or the actual settlement
amounts could affect the adequacy of the estimates and require changes to the provisions. Because the liability is an
estimate, the ultimate liability may be more or less than reported.

Environmental Remediation

The Company has been named as a potentially responsible party with respect to a limited number of identified
contaminated sites. The levels of contamination vary significantly from site to site as do the related levels of remediation
efforts. Environmental liabilities are recorded based on the most probable cost, if known, or on the 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 clean-up required, technologies
available, number and financial condition of other contributors to remediation and the time period over which
remediation may occur. The Company recognizes changes in estimates as new remediation requirements are defined or
as new information becomes available.

Chemetco, Inc. Superfund Site, Hartford, Illinois

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

Asbestos Litigation

The Company is defending approximately 400 lawsuits in different jurisdictions, alleging injury or death as a result of
exposure to asbestos. The complaints in these cases typically name a large number of defendants and do not identify any
particular Company products as a source of asbestos exposure. To date, discovery has failed to yield evidence of
substantial exposure to any Company products and no judgments have been entered against the Company.

Other Litigation

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

(16) Financial Instruments

Fair Value

The carrying amounts of cash and cash equivalents, trade receivables and trade payable approximate fair value because
of the short maturity of these financial instruments. The fair value of the Company’s variable rate debt under the
Revolving Credit Facility approximates its carrying value.

Financial Instruments

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including deferred
compensation plan assets and related liabilities, redeemable financial instruments, and derivatives. The fair values of
these certain financial assets and liabilities were determined using the following inputs at December 31, 2020 and
December 31, 2019:

Fair Value Measurement at December 31, 2020 Using:

Quoted Prices in Active Significant Other
Markets for Identical

Significant

Unobservable

Observable
Inputs
(Level 2)

Inputs
(Level 3)

Total

Assets
(Level 1)

Assets
Plan asset for deferred
compensation(1)
Total assets
Liabilities
Interest rate swaps(3)
Plan liability for deferred
compensation(2)
Designated foreign currency
hedges (3)
Contingent consideration(4)
Total liabilities

(in millions)

$
$

2.5 $
2.5 $

— $
— $

0.6 $

— $

0.6 $

2.5 $

$
$
$

0.1 $
3.2 $
6.4 $

2.5 $

— $
— $
2.5 $

0.1 $
— $
0.7 $

—
—

—

—
3.2
3.2

Fair Value Measurements at December 31, 2019 Using:

Quoted Prices in Active Significant Other
Markets for Identical
Assets
(Level 1)

Observable
Inputs
(Level 2)

Total

Significant

Unobservable

Assets
Plan asset for deferred
compensation(1)
Interest rate swaps (1)
Total assets
Liabilities
Plan liability for deferred
compensation(2)
Designated foreign currency
hedge(3)
Total liabilities

(in millions)

$
$
$

2.5 $
1.2 $
3.7 $

2.5 $
— $
2.5 $

— $
1.2 $
1.2 $

2.5 $

— $

$
$

0.2 $
2.7 $

— $
2.5 $

0.2 $
0.2 $

Inputs
(Level 3)

—
—
—

—

—
—

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

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

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

(4) Included on the Company’s consolidated balance sheet in other noncurrent liabilities and relates to contingent

consideration as part of the acquisition of Australian Valve Group Pty Ltd (“AVG”).

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, 2019 to
December 31, 2020.

Balance

December 31,

Total realized and unrealized
(gains) losses included in:

Balance

Net earnings Comprehensive December 31,

2019

Settlements Purchases adjustments

income

2020

(in millions)

Contingent consideration

—

— $

2.8

— $

0.4 $

3.2

In connection with the immaterial acquisition of AVG completed during the third quarter of 2020, a contingent liability
of $2.8 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
future performance metrics 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 the liability to a
maximum contingent consideration of $4.7 million. The liability as of December 31, 2020 was $3.2 million.

The Company uses financial instruments from time to time to enhance its ability to manage risk, including foreign
currency and commodity pricing exposures, which exist as part of its ongoing business operations. The use of derivatives
exposes the Company to counterparty credit risk for nonperformance and to market risk related to changes in currency
exchange rates and commodity prices. The Company manages its exposure to counterparty credit risk through
diversification of counterparties. The Company’s counterparties in derivative transactions are substantial commercial
banks with significant experience using such derivative instruments. The impact of market risk on the fair value and cash
flows of the Company’s derivative instruments is monitored and the Company restricts the use of derivative financial
instruments to hedging activities. The Company does not enter into contracts for trading purposes nor does the Company
enter into any contracts for speculative purposes. The use of derivative instruments is approved by senior management
under written guidelines.

Interest Rate Swaps

On February 12, 2016, the Company entered into a Credit Agreement (the “Prior Credit Agreement”) pursuant to which
it received a funding commitment under a Term Loan of $300 million, and a Revolving Commitment (“Revolver”) of
$500 million. For each facility, the Company could choose either an Adjusted LIBOR or Alternative Base Rate
(“ABR”). Accordingly, the Company’s earnings and cash flows were exposed to interest rate risk from changes in
Adjusted LIBOR. In order to manage the Company’s exposure to changes in cash flows attributable to fluctuations in
LIBOR-indexed interest payments related to the Company’s floating rate debt, the Company entered into two interest
rate swaps. For each interest rate swap, the Company received the three-month USD-LIBOR subject to a 0% floor, and
paid a fixed rate of 1.31375% on a notional amount of $225.0 million. The swaps were expected to mature on the same
date as the Prior Credit Agreement on February 12, 2021, and were designated as cash flow hedges. On April 24, 2020,
the Company entered into a New Credit Agreement. The New Credit Agreement amends and restates the Prior Credit
Agreement in its entirety while increasing the amount of revolving credit available from $500 million to $800 million,
and extending the maturity by one additional year to February 2022. As part of the New Credit Agreement, the LIBOR
rate is subject to a 1% floor as opposed to a 0% floor in the Prior Credit Agreement. The change in the LIBOR floor in
the New Credit Agreement caused the interest rate swaps to no longer be considered highly effective in offsetting
changes in the cash flow of the hedged item, as critical terms of the New Credit Agreement no longer match the hedged
item. As a result, the cash flow hedges no longer qualified for hedge accounting as of the date of execution of the New
Credit Agreement. The Company subsequently began recognizing the mark-to-market fair value adjustments on a
monthly basis in the consolidated statement of operations and continued to do so through the expiration date of the
swaps, which was February 12, 2021. The balance outstanding on the Company’s Revolving Credit Facility as of
December 31, 2020 was below the notional amount of the interest rate swaps. Therefore, the balance of the previously
effective portion of the fair value of the interest rate swaps recorded in other comprehensive income of $1.5 million was

reclassified into earnings within interest expense as of December 31, 2020. For the year ended December 31, 2019, a
loss of $3.9 million was recorded in Accumulated Other Comprehensive Loss to recognize the effective portion of the
fair value of the interest rate swaps that qualified as a cash flow hedge.

Designated Foreign Currency Hedges

The Company’s foreign subsidiaries transact most business, including certain intercompany transactions, in foreign
currencies. Such transactions are principally purchases or sales of materials. The Company has exposure to a number of
foreign currencies, including the Canadian dollar, the euro, and the Chinese yuan. The Company uses a layering
methodology, whereby at the end of each quarter, the Company enters into forward exchange contracts hedging
Canadian dollar to U.S. dollar, which hedge up to 85% of the forecasted intercompany purchase transactions between
one of the Company’s Canadian subsidiaries and the Company’s U.S. operating subsidiaries for the next twelve months.
The Company uses a similar layering methodology when entering into forward exchange contracts hedging U.S. dollar
to the Chinese yuan, which hedge up to 60% of the forecasted intercompany sales transactions between one of the
Company’s Chinese subsidiaries and one of the Company’s U.S. operating subsidiaries for the next twelve months. As
of December 31, 2020, all designated foreign exchange hedge contracts were cash flow hedges under ASC
815, Derivatives and Hedging ("ASC 815"). The Company records the effective portion of the designated foreign
currency hedge contracts in other comprehensive income until inventory turns and is sold to a third-party. Once the
third-party transaction associated with the hedged forecasted transaction occurs, the effective portion of any related gain
or loss on the designated foreign currency hedge are reclassified into earnings within cost of goods sold. In the event the
notional amount of the derivatives exceeds the forecasted intercompany purchases for a given month, the excess hedge
position will be attributed to the following month’s forecasted purchases. However, if the following month’s forecasted
purchases cannot absorb the excess hedge position from the current month, the effective portion of the hedge recorded in
other comprehensive income will be reclassified to earnings.

The notional amounts outstanding as of December 31, 2020 for the Canadian dollar to U.S. dollar contracts and the U.S.
dollar to the Chinese yuan contracts were $14.3 million and $5.0 million, respectively. The combined fair value of the
Company’s designated foreign currency hedge contracts outstanding as of December 31, 2020 was a liability balance of
$0.1 million. As of December 31, 2020, the amount expected to be reclassified into cost of goods sold from other
comprehensive income in the next twelve months for both programs is a loss of $0.1 million.

(17) Segment Information

The Company operates in three geographic segments: Americas, Europe, and APMEA. Each of these segments sells
similar products and has separate financial results that are reviewed by the Company’s chief operating decision-maker.
Each segment earns revenue and income almost exclusively from the sale of the Company’s products. The Company
sells its products into various end markets around the world with sales by region based upon location of the entity
recording the sale. See Note 4 for further detail on the product lines sold into by region. All intercompany sales
transactions have been eliminated. The accounting policies for each segment are the same as those described in Note 2 of
the Notes to Consolidated Financial Statements.

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

2020

Year Ended December 31,
2019
(in millions)

2018

Net sales

Americas
Europe
APMEA

Consolidated net sales

Operating income

Americas
Europe
APMEA

Subtotal reportable segments

Corporate(*)

Consolidated operating income
Interest income
Interest expense
Other expense (income), net

Income before income taxes
Capital expenditures

Americas
Europe
APMEA

Consolidated capital expenditures

Depreciation and amortization

Americas
Europe
APMEA

Consolidated depreciation and amortization

Identifiable assets (at end of year)

Americas
Europe
APMEA

Consolidated identifiable assets

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

Americas
Europe
APMEA

Consolidated property, plant and equipment, net

$ 1,025.7 $ 1,084.1 $ 1,032.1
467.0
65.8
$ 1,508.6 $ 1,600.5 $ 1,564.9

424.9
58.0

451.0
65.4

166.3 $
50.2
3.5
220.0
(38.9)
181.1
(0.2)
13.3
1.0
167.0 $

31.2 $
11.4
1.2
43.8 $

29.7 $
14.3
2.5
46.5 $

187.4 $
49.9
6.9
244.2
(47.1)
197.1
(0.4)
14.1
(0.5)
183.9 $

18.3 $
10.3
0.6
29.2 $

29.3 $
14.6
2.7
46.6 $

171.1
49.8
7.2
228.1
(39.7)
188.4
(0.8)
16.3
(1.7)
174.6

21.5
12.7
1.7
35.9

29.1
16.7
2.7
48.5

$ 1,075.1 $ 1,102.9 $ 1,028.1
510.2
115.4
$ 1,738.2 $ 1,723.1 $ 1,653.7

537.2
125.9

515.2
105.0

122.9 $
83.8
5.6
212.3 $

116.7 $
77.5
5.8
200.0 $

115.0
80.0
6.9
201.9

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

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

U.S. net sales
U.S. property, plant and equipment, net (at end of year)

$ 956.5 $ 1,014.0 $ 964.2
$ 118.9 $ 112.6 $ 111.0

2020

December 31,
2019
(in millions)

2018

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

Intersegment Sales

Americas
Europe
APMEA

Intersegment sales

(18) Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of the following:

2020

December 31,
2019
(in millions)

2018

8.7 $
18.9
71.4
99.0 $

12.7
12.1 $
14.2
15.2
67.7
88.4
95.0 $ 115.3

Accumulated

Foreign
Currency
Translation Hedges (1)
(in millions)

Cash Flow Comprehensive

Other

Balance December 31, 2019
Change in period
Balance March 29, 2020
Change in period
Balance June 28, 2020
Change in period
Balance September 27, 2020
Change in period
Balance December 31, 2020

Balance December 31, 2018
Change in period
Balance March 31, 2019
Change in period
Balance June 30, 2019
Change in period
Balance September 29, 2019
Change in period
Balance December 31, 2019

$ (131.3) $

(16.5)

$ (147.8) $

10.0

$ (137.8) $

14.3

$ (123.5) $

23.6
(99.9) $

$ (126.3) $

(4.6)

$ (130.9) $

3.5

$ (127.4) $

(15.8)

$ (143.2) $

11.9

$ (131.3) $

0.5 $
(0.9)
(0.4) $
(0.3)
(0.7) $
0.1
(0.6) $
0.5
(0.1) $

5.2 $
(1.3)
3.9 $
(2.4)
1.5 $
(0.5)
1.0 $
(0.5)
0.5 $

Loss

(130.8)
(17.4)
(148.2)
9.7
(138.5)
14.4
(124.1)
24.1
(100.0)

(121.1)
(5.9)
(127.0)
1.1
(125.9)
(16.3)
(142.2)
11.4
(130.8)

(1) Cash flow hedges include interest rate swaps and designated foreign currency hedges. See Note 16 for further details.

(19) Quarterly Financial Information (unaudited)

Year ended December 31, 2020
Net sales
Gross profit
Net income
Per common share:
Basic

Net income

Diluted

Net income

Dividends declared per common share
Year ended December 31, 2019
Net sales
Gross profit
Net income
Per common share:
Basic

Net income

Diluted

Net income

Dividends declared per common share

First

Second

Fourth
Quarter Quarter Quarter Quarter
(in millions, except per share information)

Third

$ 382.6 $ 338.7 $ 383.9 $ 403.4
169.2
29.2

158.5
32.9

134.9
20.2

162.8
32.0

0.94

0.60

0.97

0.86

0.94
0.23

0.59
0.23

0.97
0.23

0.86
0.23

$ 388.7 $ 416.8 $ 394.7 $ 400.3
170.1
31.8

168.6
32.3

174.6
36.4

164.2
31.0

0.91

1.06

0.95

0.94

0.91
0.21

1.06
0.23

0.94
0.23

0.93
0.23

Note: Four quarters may not sum to full year due to rounding.

(20) Subsequent Events

On February 8, 2021, the Company declared a quarterly dividend of twenty-three cents ($0.23) per share on each
outstanding share of Class A common stock and Class B common stock payable on March 15, 2021 to stockholders of
record on March 1, 2021.

Watts Water Technologies, Inc. and Subsidiaries
Schedule II—Valuation and Qualifying Accounts
(Amounts in millions)

Balance At Additions
Beginning of Charged To Exchange/Acquisitions

Foreign

Period

Expense

Impact

Balance At

End of
Deductions Period

Year Ended December 31, 2018
Accounts Receivable Reserve Allowances
Reserve for excess and obsolete inventories
Year Ended December 31, 2019
Accounts Receivable Reserve Allowances
Reserve for excess and obsolete inventories
Year Ended December 31, 2020
$
Accounts Receivable Reserve Allowances
Reserve for excess and obsolete inventories $

$
$

14.3 $
25.4 $

15.0 $
24.4 $

3.3
7.7

2.2
6.6

14.3 $
25.0 $

1.1
13.3

(0.2)
(0.7)

—
(0.1)

0.9
1.4

(2.4) $
(8.0) $

15.0
24.4

(2.9) $
(5.9) $

14.3
25.0

(5.2) $
(6.3) $

11.1
33.4

Exhibit No.

Description

EXHIBIT INDEX

3.1 Restated Certificate of Incorporation, as amended. Incorporated by reference to the Registrant’s

Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 (File No. 001- 11499).

3.2 Amended and Restated By-Laws. Incorporated by reference to the Registrant’s Current Report on

Form 8-K dated July 27, 2015 (File No. 001-11499).
4† Description of the Registrant’s Class A Common Stock.
9.1

The Amended and Restated George B. Horne Voting Trust Agreement—1997 dated as of

September 14, 1999. Incorporated by reference to the Registrant’s Annual Report on Form 10-K for
year ended June 30, 1999 (File No. 001-11499).

10.1*

Supplemental Compensation Agreement effective as of September 1, 1996 between the Registrant and
Timothy P. Horne. Incorporated by reference to the Registrant’s Annual Report on Form 10-K for
year ended June 30, 1996 (File No. 001-11499).

10.2* Amendment No. 1, dated July 25, 2000, to Supplemental Compensation Agreement effective as of

September 1, 1996 between the Registrant and Timothy P. Horne. Incorporated by reference to the
Registrant’s Quarterly Report on Form 10-Q for quarter ended September 30, 2000 (File
No. 001- 11499).

10.3* Amendment No. 2, dated October 23, 2002, to Supplemental Compensation Agreement effective as of
September 1, 1996 between the Registrant and Timothy P. Horne. Incorporated by reference to the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 (File
No. 001- 11499).

10.4* Amendment No. 3, dated August 18, 2015, to Supplemental Compensation Agreement effective as of
September 1, 1996 between the Registrant and Timothy P. Horne. Incorporated by reference to the
Registrant’s Current Report on Form 8-K dated August 18, 2015 (File No. 001- 11499).

10.5 Amended and Restated Stock Restriction Agreement dated October 30, 1991. Incorporated by

reference to the Registrant’s Current Report on Form 8-K dated November 14, 1991 (File
No. 001-11499).

10.6 Amendment, dated August 26, 1997, to Amended and Restated Stock Restriction Agreement dated

October 30, 1991. Incorporated by reference to the Registrant’s Annual Report on Form 10-K for
year ended June 30, 1997 (File No. 001-11499).

10.7 Registration Rights Agreement dated July 25, 1986. Incorporated by reference to the Registrant’s
Form S-1 (No. 33-6515) as part of the Second Amendment to such Form S-1 dated August 21,
1986.

10.8*†

Form of Indemnification Agreement between the Registrant and certain directors and officers of the

Registrant.

10.9* Watts Water Technologies, Inc. Executive Officer Incentive Bonus Plan. Incorporated by reference to

the Registrant’s Current Report on Form 8-K dated February 6, 2019 (File No. 001-11499).

10.10* Non-Employee Director Compensation Arrangements. Incorporated by reference to the Registrant’s

Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 001-11499).

10.11* Watts Water Technologies, Inc. Management Stock Purchase Plan Amended and Restated as of

November 4, 2019. Incorporated by reference to the Registrant’s Annual Report on Form 10-K for
the year ended December 31, 2019 (File No. 001 11499).

10.12* Watts Water Technologies, Inc. Second Amended and Restated 2004 Stock Incentive Plan.

Incorporated by reference to the Registrant’s Current Report on Form 8-K dated May 15, 2013 (File
No. 001-11499).

10.13*

Form of Non-Qualified Stock Option Agreement under the Watts Water Technologies, Inc. Second
Amended and Restated 2004 Stock Incentive Plan. Incorporated by reference to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (File No. 001- 11499).

10.14*

Form of Restricted Stock Award Agreement for Employees under the Watts Water Technologies, Inc.

Second Amended and Restated 2004 Stock Incentive Plan. Incorporated by reference to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2018 (File
No. 001-11499).

Exhibit No.

Description

10.15*

Form of Deferred Stock Award Agreement under the Watts Water Technologies, Inc. Second

Amended and Restated 2004 Stock Incentive Plan. Incorporated by reference to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 (File No. 001-11499).

10.16*

Form of 2018 Performance Stock Unit Award Agreement under the Watts Water Technologies, Inc.

Second Amended and Restated 2004 Stock Incentive Plan. Incorporated by reference to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 1, 2018 (File
No. 001-11499).

10.17*

Form of 2019 Performance Stock Unit Award Agreement under the Watts Water Technologies, Inc.

Second Amended and Restated 2004 Stock Incentive Plan. Incorporated by reference to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 (File
No. 001-11499)

10.18*

Form of 2020 Performance Stock Unit Award Agreement under the Watts Water Technologies, Inc.

Second Amended and Restated 2004 Stock Incentive Plan. Incorporated by reference to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2020 (File
No. 001-11499)

10.19*

Form of 2014 Non-Qualified Stock Option Agreement under the Watts Water Technologies, Inc.
Second Amended and Restated 2004 Stock Incentive Plan. Incorporated by reference to the
Registrant’s Quarterly Report on Form 10-Q for quarter ended June 29, 2014 (File No. 001- 11499).

10.20* Watts Water Technologies, Inc. Executive Severance Plan, as amended and restated as of February 8,
2018. Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended July 1, 2018 (File No. 001-11499).

10.21 Credit Agreement, dated as of February 12, 2016, among the Registrant, certain subsidiaries of the

Registrant as Borrowers, JPMorgan Chase Bank N.A., as Administrative Agent, Swing Line Lender
and L/C Issuer and the other lenders referred to therein. Incorporated by reference to the
Registrant’s Current Report on Form 8-K dated February 9, 2016 (File No. 001-11499).

10.22 Guaranty, dated as of February 12, 2016, by the Registrant and the Subsidiaries of the Registrant set

forth therein, in favor of JPMorgan Chase Bank N.A. and other lenders referred to therein.
Incorporated by reference to the Registrant’s Current Report on Form 8-K dated February 9, 2016
(File No. 001-11499).

10.23 Amended and Restated Credit Agreement, dated as of April 24, 2020, by and among the Registrant,

the Subsidiary Borrowers party thereto, the Lenders party thereto, JP Morgan Chase Bank, N.A., as
Administrative Agent, Bank of America N.A., Keybank National Association, Wells Fargo Bank,
National Association, and T.D. Bank, N.A., as Co-Syndication Agents, and PNC Bank, National
Association and U.S. Bank National Association, as Co-Documentation Agents. Incorporated by
reference to the Registrant’s Current Report on Form 8-K dated April 24, 2020 (File
No. 001-11499).

10.24 Amended and Restated Guaranty, dated as of April 24, 2020, by the Registrant and the Subsidiaries of
the Registrant set forth therein, in favor of JPMorgan Chase Bank N.A. and other lenders referred to
therein. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated April 24,
2020 (File No. 001 11499).

10.25 Note Purchase Agreement, dated as of June 18, 2010, between the Registrant and Purchasers named in
Schedule A thereto relating to the Registrants $75,000,000 5.05% Senior Notes due June 18, 2020.
Incorporated by reference to the Registrant’s Current Report on Form 8-K dated June 18, 2010 (File
No. 001-11499).

10.26

Form of 5.05% Senior Note due June 18, 2020. Incorporated by reference to the Registrant’s Current

Report on Form 8-K dated June 18, 2010 (File No. 001-11499).

10.27

Form of Subsidiary Guaranty in connection with the Registrant’s 5.05% Senior Notes due June 18,
2020, including the form of Joinder to Subsidiary Guaranty. Incorporated by reference to the
Registrant’s Current Report on Form 8-K dated June 18, 2010 (File No. 001-11499).

Subsidiaries

21†
23† Consent of KPMG LLP, Independent Registered Public Accounting Firm

31.1† Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the

Securities Exchange Act of 1934, as amended

Exhibit No.

Description

31.2† Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the

Securities Exchange Act of 1934, as amended

32.1†† Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350
32.2†† Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350

101.INS†
101.SCH†
101.CAL†
101.DEF†
101.LAB†
101.PRE†

Inline XBRL Instance Document.
Inline XBRL Taxonomy Extension Schema Document.
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
Inline XBRL Taxonomy Extension Definition Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document.
Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Management contract or compensatory plan or arrangement.

†

Filed herewith.

††

Furnished herewith.

Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting
Language): (i) Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018,
(ii) Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2020, 2019 and 2018,
(iii) Consolidated Balance Sheets at December 31, 2020 and December 31, 2019, (iv) Consolidated Statements of
Stockholders’ Equity for the Years Ended December 31, 2020, 2019 and 2018, (v) Consolidated Statements of Cash
Flows for the Years Ended December 31, 2020, 2019 and 2018, and (vi) Notes to Consolidated Financial Statements.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has

duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

WATTS WATER TECHNOLOGIES, INC.

By:

/s/ ROBERT J. PAGANO, JR.
Robert J. Pagano, Jr.
Chief Executive Officer and President

DATED: February 18, 2021

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the

following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ ROBERT J. PAGANO, JR.
Robert J. Pagano, Jr.

Chief Executive Officer, President and Director
(Principal Executive Officer)

/s/ SHASHANK PATEL
Shashank Patel

Chief Financial Officer
(Principal Financial Officer)

/s/ VIRGINIA A. HALLORAN
Virginia A. Halloran

Chief Accounting Officer
(Principal Accounting Officer)

/s/ CHRISTOPHER L. CONWAY
Christopher L. Conway

Director

/s/ MICHAEL J. DUBOSE
Michael J. Dubose

Director

February 18, 2021

February 13, 2021

February 10, 2021

February 14, 2021

February 11, 2021

February 12, 2021

Director

/s/ DAVID A. DUNBAR
David A. Dunbar

/s/ LOUISE K. GOESER
Louise K. Goeser

/s/ JES MUNK HANSEN
Jes Munk Hansen

/s/ W. CRAIG KISSEL
W. Craig Kissel

/s/ JOSEPH T. NOONAN
Joseph T. Noonan

/s/ MERILEE RAINES
Merilee Raines

/s/ JOSEPH W. REITMEIER
Joseph W. Reitmeier

Chairperson of the Board and Director

February 10, 2021

February 15, 2021

February 11, 2021

Director

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP "AS REPORTED" TO THE "ADJUSTED" NON-GAAP
EXCLUDING THE EFFECT OF ADJUSTMENTS FOR SPECIAL ITEMS
(Amounts in millions, except per share information)
(Unaudited)

Net sales

Operating income - as reported

Operating margin %

Adjustments for special items:

Long-lived asset impairment charges
Restructuring
Loss (Gain) on disposition
Professional Fees / transformation
Acquisition related costs
Footprint optimization
Earnout adjustment
Long-term obligation settlements / other debt related costs

Total adjustments for special items

Operating income - as adjusted

Adjusted operating margin %

Net income - as reported

Adjustments for special items - tax effected:

Total Adjustments for special items - tax effected

Net income - as adjusted

Diluted earnings per share - as reported

Adjustments for special items

Diluted earnings per share - as adjusted

CONSOLIDATED RESULTS

December 31,
2020

December 31,
2019

1,508.6

181.1
12.0%

1,600.5

197.1
12.3%

1.4
9.9
0.6
-
1.3
1.1
(1.5)
-

12.8

193.9
12.9%

114.3

1.0
7.4
(0.7)
-
1.0
0.8
(1.5)
-
9.7
-

17.7

132.0

3.36
0.52
3.88

-
4.3
-
3.1
0.9
0.8
-
-

9.1

206.2
12.9%

131.5

3.2
-
3.1
0.7
0.6
-
-
-
-

7.6

139.1

3.85
0.22
4.07

Year Ended
December 31,
2018

1,564.9

188.4
12.0%

-
3.4
-
-
-
-
-
-

3.4

191.8
12.3%

128.0

2.5
-
-
-
-
-
-
1.5
(3.7)

0.3

128.3

3.73
0.01
3.74

December 31,
2017

December 31,
2016

1,456.7

162.3
11.1%

1.0
6.8
-
2.9
0.2
-
-
-

10.9

173.2
11.9%

73.1

0.6
4.7
-
1.9
0.1
-
-
-
(1.6)
25.1

30.8

103.9

2.12
0.90
3.02

1,398.4

145.0
10.4%

0.5
4.7
(8.7)
14.2
4.0
-
-
0.3

15.0

160.0
11.4%

84.2

0.4
3.2
(8.3)
8.8
1.5
-
-
0.6
2.0
-

8.2

92.4

2.44
0.23
2.67

Jes Munk Hansen
Director

W. Craig Kissel
Chairperson of the Board
and Director

Joseph T. Noonan
Director

Executive Offices
815 Chestnut Street
North Andover, MA 01845-6098
Tel: (978) 688-1811

3/12/21 4:29 PM

60542_CVR.indd 1