WTS US Equity☆

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

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Overview

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We are a leading supplier of products and solutions that manage and conserve the flow of fluids and energy into, through and out of buildings in the commercial, industrial and residential markets in the Americas, Europe and Asia-Pacific, Middle East and Africa (“APMEA”). For 150 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 and solutions categories include:

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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).

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We believe that the factors relating to our future growth include continued product innovation that meets the needs of our customers and our end markets; our ability to continue to make selective acquisitions, both in our core markets as well as in complementary markets; regulatory requirements relating to the quality and conservation of water and the safe use of water; increased demand for clean water; and continued enforcement of plumbing and building codes. We have completed 14 acquisitions since 2013, including three in the last twelve months. Our acquisition strategy focuses on businesses that promote our key macro themes around safety and regulation, energy efficiency and water conservation. We target businesses that will provide us with one or more of the following: an entry into new markets and/or new geographies, improved channel access, unique and/or proprietary technologies, including smart and connected technologies, advanced production capabilities or complementary solution offerings.

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We believe that sustainability guides and permeates every aspect of our business, including our product development strategy and design, and how we structure our operations. Our innovation strategy is focused on differentiated products and solutions that will provide greater opportunity to distinguish ourselves in the marketplace, while at the same time creating innovative products and smart solutions to protect, control, and conserve critical resources, and help our customers with their sustainability efforts through the use of our products. 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.

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Over the past several years we have been building our smart and connected products 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 are focused on introducing products that connect our customers with smart systems, control systems for optimal performance, and conserve critical resources by increasing operability, efficiency and safety.

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

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Global economic indicators are mixed and show some signs of softer market conditions in 2024. Elevated interest rates may impact new construction. The European economy continues to show signs of weakening, China’s economy has decelerated, and geo-political risks have heightened. Despite these anticipated challenges, we continue to invest in our business, including new products, our smart and connected solutions and our growth and productivity initiatives. We remain focused on our customers’ needs and executing on our long-term strategy.

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Due to the above circumstances and as described generally in this Form 10-K, our results of operations for the year ended December 31, 2023 are not necessarily indicative of future results. Management cannot predict the full impact of the uncertainties discussed above. For further information regarding the impact on the Company, see Item 1A, “Risk Factors.”

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Financial Overview

Net sales for 2023 increased 3.9%, or $76.8 million, on a reported basis and 0.8%, or $16.3 million, on an organic basis, compared to 2022, primarily driven by incremental price across all of our operating segments, partially offset by lower volumes. The reported sales increase included acquired sales of 3.0%, or $58.6 million, with $33.4 million reported within the Americas segment and $25.2 million reported with APMEA, and the favorable impact of foreign exchange of 0.1%, or $1.9 million. The foreign exchange impact was primarily driven by the depreciation of the U.S. dollar against the euro, partially offset by the unfavorable impact of the appreciation of the U.S. dollar against the Canadian dollar and Chinese yuan. Operating income of $350.9 million increased by $35.9 million, or 11.4%, in 2023 compared to 2022. This increase was primarily driven by favorable price, product mix, productivity, and cost savings from prior restructuring actions, partially offset by inflation, lower volume and incremental investments.

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In discussing our results of operations, we refer to non-GAAP financial measures, including organic sales, organic selling, general and administrative expenses, and organic operating income, that excludes the impacts of acquisitions, divestitures and foreign exchange from year-over-year comparisons. Management believes reporting these non-GAAP financial measures provides useful information to investors, potential investors and others, because it allows for additional insight into underlying trends by providing growth on a consistent basis. We reconcile the change in these non-GAAP financial measures to our reported results below.

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Management’s discussion and analysis of our financial condition, results of operations and cash flows as of and for the year ended December 31, 2021 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, 2022.

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Acquisitions

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On March 31, 2023, we completed the acquisition of the primary business assets of Enware Australia Pty Ltd (“Enware”) in an all-cash transaction. Enware is based near Sydney, Australia, and has been a leading supplier for specialty plumbing and safety equipment used in the Australian institutional and commercial end markets since 1937. The acquisition of Enware aligns with our strategy to expand geographically into countries with mature and enforced plumbing codes. Enware is expected to enhance our product offering and channel access into the Australian marketplace. The acquisition of Enware was deemed not to be material.

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On October 23, 2023, we completed the acquisition of Bradley Corporation following its conversion into Bradley Company, LLC (“Bradley”) in a share purchase transaction. The aggregate net purchase price, including an estimated working capital adjustment, was approximately $301.2 million and is subject to a final post-closing working capital adjustment. We funded the transaction with $210 million of borrowings under our Credit Agreement with the remainder being funded by cash on hand. The net transaction value was approximately $266 million after deducting the estimated net present value of expected tax benefits of approximately $35 million. We accounted for the transaction as a business combination in the fourth quarter of 2023. Bradley’s annual revenues for 2023 were approximately $200 million, of which $33.4 million was included in our 2023 Consolidated Financial Statements. Please see Note 5 of the Notes to the Consolidated Financial Statements for additional information regarding operating results of Bradley.

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Bradley is based in Menomonee Falls, WI, and has been a trusted provider and manufacturer of commercial washroom and emergency safety products serving commercial (primarily institutional) and industrial end markets for over 100 years. Bradley offers a comprehensive product portfolio that includes plumbing fixtures, washroom accessories and emergency safety products to a diverse customer base. Bradley’s complementary portfolio will enable us to provide our customers with innovative water solutions, as it adds front-of-the-wall applications to our differentiated back-of-the-wall portfolio and we intend to leverage the combined strengths of our sales networks and channel relationships to facilitate cross selling and accelerate growth.The acquisition of Bradley aligns with our strategy to enhance our product offerings, drive growth and serve our customers.

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Recent Developments

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Effective January 1, 2024, we completed the acquisition of Josam Company following its conversion into Josam Industries, LLC (“Josam”) in a share purchase transaction funded with cash on hand. The aggregate net purchase price was approximately $98.7 million and is subject to a final post-closing working capital adjustment. The net transaction value was approximately $88.7 million after adjusting for the estimated net present value of expected tax benefits of approximately $10 million. Josam is based in Michigan City, Indiana, and is a leading provider and manufacturer of drainage and plumbing products, serving commercial, industrial, and multi-family end markets for over 100 years. Josam’s annualized sales are approximately $35 million. We will account for the transaction as a business combination in the first quarter of 2024.

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On February 7, 2024, the Board of Directors elected Rebecca J. Boll to serve as a member of the Board of Directors. Ms. Boll was appointed as a member of the Governance and Sustainability Committee and the Audit Committee.

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On February 7, 2024, we declared a quarterly dividend of thirty-six cents ($0.36) per share on each outstanding share of Class A common stock and Class B common stock payable on March 15, 2024 to stockholders of record on March 1, 2024.

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Results of Operations

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Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

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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, 2023 and December 31, 2022 were as follows:

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​ Year Ended ​ ​ ​ ​ % Change to

​ ​ December 31, 2023 ​ December 31, 2022 ​ ​ ​ ​ Consolidated

​ Net Sales % Sales Net Sales % Sales Change Net Sales

​ ​ (dollars in millions)

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The change in net sales was attributable to the following:

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change As a % ​ Change As a %

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ of Consolidated Net Sales ​ of Segment Net Sales

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ (dollars in millions)

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

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change As a %

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ of Prior Year Sales

​ Wholesale OEMs DIY Specialty Total Wholesale OEMs DIY ​ Specialty

​ (dollars in millions) ​

Europe ​ (1.4) ​ 5.2 ​ — ​ ​ — ​ 3.8 (0.4) 2.9 ​ — ​ — ​

APMEA ​ 4.8 ​ (0.3) ​ — ​ ​ — ​ 4.5 5.8 (3.8) — ​ — ​

Total ​ $ 50.4 ​ $ 1.7 ​ $ (1.9) ​ $ (33.9) ​ $ 16.3 ​ ​ ​ ​ ​ ​ ​ ​ ​

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Americas net sales increased $38.1 million, or 2.7%, in 2023 compared to 2022. The change in net sales was negatively impacted by $3.3 million, or 0.2%, of foreign currency translation, which was more than offset by $33.4 million, or 2.4%, of acquired sales related to the Bradley acquisition completed in the fourth quarter of 2023. Organic net sales increased $8.0 million, or 0.5%, primarily due to incremental price realization partially offset by lower volumes. The organic net sales increase was primarily in the wholesale channel due to growth across our core valve products, mostly offset by decreases in the specialty channel primarily due to volume declines in our gas connectors and marine instrumentation and decreases in products sold through the OEM channel into the residential end markets.

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Europe net sales increased $13.0 million, or 2.6%, in 2023 compared to 2022. The change in net sales was positively impacted by $9.2 million, or 1.8%, of foreign currency translation. Organic net sales increased $3.8 million, or 0.8%, primarily due to higher price realization, partially offset by lower volumes. The growth was driven from sales in our fluid solution products, including sales of our HVAC products within the OEM markets in Germany, offset partly by a decline in our drains products.

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APMEA net sales increased $25.7 million, or 28.4%, in 2023 compared to 2022. The change in net sales was negatively impacted by $4.0 million, or 4.5%, of foreign currency translation, which was more than offset by $25.2 million, or 27.9%, of acquired sales related to the Enware acquisition completed in the second quarter of 2023. Organic net sales increased $4.5 million, or 5.0%, due to higher prices realization and volumes, primarily from growth in the Middle East and Australia, partially offset by declines in China.

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The net increase in sales due to foreign exchange was mostly due to the favorable impact of the depreciation of the U.S. dollar against the euro, partially offset by the unfavorable impact of the appreciation of the U.S. dollar against the Canadian dollar and Chinese yuan in 2023. 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.

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Gross Profit. Gross profit and gross profit as a percent of net sales (gross margin) for 2023 and 2022 were as follows:

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​ ​ Year Ended

​ ​ (dollars in millions)

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Gross profit and gross margin increased primarily from higher prices, favorable product mix and productivity, partially offset by inflation and lower volume.

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Selling, General and Administrative Expenses. Selling, general and administrative, or SG&A, expenses increased $55.8 million, or 10.2%, in 2023 compared to 2022. The increase in SG&A expenses was attributable to the following:

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​ (in millions) % Change

Foreign exchange ​ 0.6 0.1 ​

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The organic increase was primarily due to an increase in net investments of $17.9 million, including in our smart and connected and other strategic initiatives, general inflation of $13.7 million, acquisition-related costs of $7.1 million, higher travel and marketing costs of $5.2 million and a net increase in short-term and long-term compensation accruals of $6.0 million, compared to 2022. These increases were partially offset by $6.6 million from productivity initiatives, $4.8 million of restructuring savings and $4.1 million reduction in freight costs. The increase in foreign exchange was mainly due to the depreciation of the U.S. dollar against the euro, partially offset by the appreciation of the U.S. dollar against the Canadian dollar and Chinese yuan. The acquired SG&A costs related to the Bradley acquisition in the Americas segment in the fourth quarter of 2023 and the Enware acquisition in the APMEA segment in the second quarter of 2023. Total SG&A expenses, as a percentage of sales, were 29.4% in 2023 compared to 27.8% in 2022.

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Restructuring.In 2023, we recorded a net restructuring charge of $5.5 million, which primarily related to immaterial cost reduction actions in all regions primarily related to severance and other exit costs. In 2022, we recorded a net restructuring charge of $10.6 million, which related to a 2021 French restructuring program as well as other actions related to the decommissioning of machinery at one of our facilities in the Americas and cost reduction actions in Europe and the Americas. 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.

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Operating Income (Loss). Operating income (loss) by geographic segment for 2023 and 2022 was as follows:

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % Change to

​ Year Ended ​ ​ Consolidated

​ December 31, ​ December 31, ​ ​ Operating ​

​ (dollars in millions) ​ ​ ​

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

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change As a % of ​ Change As a % of

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ (dollars in millions)

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Operating income increased $35.9 million, or 11.4%, in 2023 compared to 2022. Operating income was positively impacted by $2.2 million, or 0.7%, of acquired sales and the foreign currency translation impact was flat compared to 2022. The increase in organic operating income of $28.7 million, or 9.0%, was due to higher price, favorable product mix, productivity, and savings from prior restructuring actions. These increases were partially offset by inflation, lower volume, incremental investments and acquisition-related costs.

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Interest Income.Interest income increased $6.6 million in 2023 as compared to 2022 primarily due to higher interest rates earned on our cash and cash equivalents.

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Interest Expense.Interest expense increased $1.2 million, or 17.1%, in 2023 as compared to 2022 primarily due to higher principal balance of debt outstanding due to the acquisition of Bradley during 2023 and an increase in interest rates. Refer to Note 12 of Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for further details.

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Other Expense (Income), Net. Other expense (income) decreased $0.6 million compared to 2022. The decrease was primarily due to $1.0 million of reduced expense as a result of the increase in deferred compensation plan assets. Refer to Note 17 Financial Instruments of Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for further details.

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Income Taxes.Our effective income tax rate increased to 24.9% in 2023, from 18.2% in 2022. The increase is primarily due to the $16.1 million tax benefit in 2022 related to the modification of the structure of our Mexican supply chain operations and the additional foreign withholding taxes associated with the repatriation of funds in 2023.

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Net Income.Net income for 2023 was $262.1 million, or $7.82 per common share on a diluted basis, compared to $251.5 million, or $7.48 per common share on a diluted basis, for 2022. Results for 2023 include after-tax charges of $8.3 million, or $0.25 per common share, for acquisition-related costs, $5.3 million, or $0.16 per common share, primarily for an income tax adjustment related to repatriation of foreign funds and $4.1 million, or $0.12 per common share, for restructuring; partially offset by an after-tax benefit of $2.5 million, or $0.08 per common share, for an adjustment to contingent consideration.

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Results for 2022 include an after-tax benefit of $18.2 million, or $0.54 per common share, primarily for an income tax benefit related to the modification of the structure of our Mexican supply chain operations and $1.4 million, or $0.04 per common share, for an after-tax gain on sale of asset; partially offset by an after-tax charge of $7.9 million, or $0.23 per common share, for restructuring.

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Liquidity and Capital Resources

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2023 and 2022 Cash Flows

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We generated $310.8 million of net cash from operating activities in 2023 as compared to $224.0 million in 2022. The increase in cash generated was primarily due to higher net income and reduced working capital investments, partially offset by increased payments related to income taxes and customer incentives.

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We used $343.1 million of net cash for investing activities in 2023 compared to $22.9 million used in 2022. We spent $313.4 million more cash for the acquisitions in our Americas and APMEA segments and $1.6 million more cash for net capital expenditures in 2023 compared to 2022.

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We generated $69.0 million of net cash from financing activities in 2023 primarily due to proceeds from drawdowns of $240.0 million offset by long-term debt repayments on our line of credit totaling $90.0 million, and partially offset by tax withholding payments on vested stock awards of $15.8 million, dividend payments of $46.5 million and payments of $16.0 million to repurchase 91,622 shares of Class A common stock. In 2022, we used $121.7 million of net cash from financing activities primarily due to long-term debt repayments of $80.0 million, dividend payments of $39.5 million, tax withholding payments on vested stock awards of $13.3 million and payments of $69.4 million to repurchase 493,733 shares of Class A common stock. These payments were partially offset by proceeds from drawdowns on our line of credit totaling $85.0 million.

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On March 30, 2021, we and certain of our subsidiaries entered into the Second Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent , as amended by Amendment no. 1 dated August 2, 2022, Amendment no. 2 dated December 12, 2023 and as may be further amended, restated, amended and restated, modified or supplemented from time to time (the “Credit Agreement”). The Credit Agreement establishes senior unsecured revolving credit facility of $800 million from February 12, 2022 to March 30, 2026 (the “Revolving Credit Facility”). The maturity date of the Revolving Credit Facility is March 30, 2026 subject to extension under certain circumstances and subject to the terms of the Credit Agreement. The Credit Agreement provides for our maximum consolidated leverage ratio of 3.50 to 1.00 (or 4.00 to 1.00 during temporary step-ups following certain acquisitions) and the minimum consolidated interest ratio of 3.50 to 1.00.

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The Revolving Credit Facility also includes sub-limits of $100 million for letters of credit and $15 million for swing line loans. As of December 31, 2023, we had drawn down $300.0 million on this line of credit and had $12.5 million in letters of credit outstanding, which resulted in $487.5 million of unused and available credit under the Revolving Credit Facility as of such date. 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 Term Benchmark loans, the Term Benchmark rate plus an applicable percentage, ranging from 1.075% to 1.325%, or (ii) in the case of alternate base rate loans and swing line loans, interest (which at all times will not be less than 1.00%) at the greatest of (a) the Prime Rate in effect on such day, (b) the FRBNY Rate in effect on such day plus 0.50% and (c) the Term Benchmark rate plus 1.00% for a one month interest period, in each case, determined by reference to our consolidated leverage ratio. For the borrowings denominated in dollars, there is fixed 10 basis point adjustment if the reference rate is Term SOFR. The weighted average interest rate on debt outstanding under the Revolving Credit Facility as of December 31, 2023 was 6.53%. The weighted average interest rate on debt outstanding inclusive of the interest rate swaps discussed in Note 12 of the Notes to Consolidated Financial Statements and interest rates under the Revolving Credit Facility as of December 31, 2023 was 4.89%. In addition to paying interest under the 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. We may repay loans outstanding under the Credit Agreement from time to time without premium or penalty, other than customary breakage costs, if any, and subject to the terms of the Credit Agreement. As of December 31, 2023, we were in compliance with all covenants related to the Credit Agreement.

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As of December 31, 2023, we held $350.1 million in cash and cash equivalents. Of this amount, $171.7 million was held by foreign subsidiaries.In the fourth quarter of 2023, we determined we would make a one-time repatriation of foreign earnings to assist in funding recent acquisitions. In 2023 we repatriated approximately $117.9 million of both previously taxed foreign earnings and the fourth quarter one-time repatriation of foreign earnings, using the majority of that cash to reduce our outstanding debt and to fund acquisitions. 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. Subsequent to recording the Toll Tax as part of the Tax Cuts and Jobs Act of 2017, our intent, other than with respect to the one-time repatriation of foreign earnings in 2023, has been to permanently reinvest undistributed earnings of foreign subsidiaries, and we do not have any current plans to repatriate additional post-Toll Tax foreign earnings to fund operations in the United States. However, if amounts held by foreign subsidiaries were needed to fund operations in the United States, we could be required to accrue and pay taxes to repatriate these funds. Such charges may include potential state income taxes and other tax charges.

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Covenant Compliance

Under the Credit Agreement, we are required to satisfy and maintain specified financial ratios and other financial condition tests as of December 31, 2023. The financial ratios include a consolidated interest coverage ratio based on

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consolidated earnings before income taxes, interest expense, depreciation, and amortization (Consolidated EBITDA) to consolidated interest expense, as defined in the Credit Agreement. The 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 Credit Agreement, includes all long and short-term debt, finance lease obligations and any trade letters of credit that are outstanding, less cash and cash equivalents on the balance sheet.

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As of December 31, 2023, our actual financial ratios calculated in accordance with the Credit Agreement compared to the required levels under the Credit Agreement were as follows:

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​ ​ ​ ​ ​

​ Actual Ratio Required Level

​ ​ ​ Minimum level

​ ​ ​ Maximum level

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As of December 31, 2023, we were in compliance with all covenants related to the Credit Agreement.

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In addition to financial ratios, the 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.

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Working capital (defined as current assets less current liabilities) as of December 31, 2023 was $655.2 million compared to $571.9 million as of December 31, 2022. The ratio of current assets to current liabilities was 2.6 to 1 as of December 31, 2023 compared to 2.5 to 1 as of December 31, 2022. The increase in working capital is primarily related to the increase in cash and cash equivalents as a result of increased cash from operating activities.

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Material Cash Requirements

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We expect existing cash and cash equivalents and cash flows from operations and financing activities to be sufficient to meet our cash needs during 2024 and thereafter for the foreseeable future.

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We anticipate investing between $55 million to $65 million in capital expenditures during 2024 to improve our manufacturing capabilities and invest in technology and other commercial and operational excellence initiatives.

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We intend to continue to repurchase shares of Class A common stock consistent with prior years. The repurchases are executed from time to time on the open market or in privately negotiated transactions. The timing and number of shares repurchased will be determined based on our evaluation of market conditions and other factors, see Note 13 of Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

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While we presently intend to continue to pay comparable quarterly cash dividends on both Class A and B common stock, the payment of future cash dividends depends upon our Board of Directors’ assessment of our earnings, financial condition, capital requirements and other factors.

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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 $12.5 million as of December 31, 2023 and $12.1 million as of December 31, 2022. 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.

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Our contractual obligations as of December 31, 2023 are presented in the following table:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Next Beyond

Contractual Obligations ​ Total ​ 12 Months ​ 12 Months

​ ​ (in millions)

Operating lease obligations(b) ​ 64.1 ​ 11.8 ​ 52.3

Finance lease obligations(c) ​ 2.6 ​ 1.3 ​ 1.3

Pension contributions(d) ​ 9.2 ​ 0.5 ​ 8.7

2017 Tax Act Toll Tax payable(f) ​ ​ 15.3 ​ ​ 6.8 ​ ​ 8.5

Capital expenditures(g) ​ ​ 6.1 ​ ​ 6.1 ​ ​ —

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(a) Relates to drawdowns on the line of credit under the Credit Agreement as recognized in the consolidated balance sheet. See Note 12 of Notes to the Consolidated Financial Statements in this Annual Report for further disclosures.

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(b) Relates to the lease liabilities recognized for right-of-use assets of operating leases with a lease term longer than twelve months. See Note 9 of Notes to the Consolidated Financial Statements in this Annual Report for further disclosures.

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(c) Relates to the lease liabilities recognized for right-of-use assets of financing leases with a lease term longer than twelve months. See Note 9 of Notes to the Consolidated Financial Statements in this Annual Report for further disclosures.

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(d) Relates to estimated future obligations for the Europe pension plans. See Note 15 of Notes to the Consolidated Financial Statements in this Annual Report for further disclosures.

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(e) Represents the current estimate of future interest payments due on the current drawdown on the line of credit under the Credit Agreement referenced above at (a).

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(f) Relates to the 2017 Tax Act one time transition tax on accumulated foreign subsidiary earnings not previously subject to U.S. income tax which was payable over a number of years.

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(g) Relates to capital expenditure obligations included in the anticipated capital expenditure investment totals of $55 million to $65 million discussed above.

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(h) Primarily includes the $98.7 million of a preliminary net purchase price related to the definitive agreement we entered into on December 11, 2023 to acquire Josam, $49.7 million of commodity commitments and $19.4 million relates to cost obligations for an Information Technology investment program.

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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.

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Non-GAAP Financial Measures

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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.

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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.

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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.

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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, acquisition-related costs, contingent consideration adjustment, gain on sale of asset, 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.

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

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​ Year Ended

​ ​ December 31, ​ December 31,

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

Operating income - as reported ​ ​ 350.9 ​ ​ 315.0

Operating margin % ​ ​ 17.1% ​ ​ 15.9%

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Adjustments for special items: ​ ​ ​ ​

Restructuring ​ ​ 5.5 ​ ​ 10.6

Acquisition-related costs ​ ​ 11.3 ​ ​ —

Contingent consideration adjustment ​ ​ (2.5) ​ ​ —

Gain on sale of asset ​ ​ — ​ ​ (1.8)

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Total adjustments for special items ​ $ 14.3 ​ $ 8.8

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Operating income - as adjusted ​ $ 365.2 ​ $ 323.8

Adjusted operating margin % ​ ​ 17.8% ​ ​ 16.4%

​ ​ ​ ​ ​ ​ ​

Net income - as reported ​ $ 262.1 ​ $ 251.5

​ ​ ​ ​ ​ ​ ​

Adjustments for special items - tax effected: ​ ​ ​ ​ ​ ​

Restructuring ​ ​ 4.1 ​ ​ 7.9

Acquisition-related costs ​ ​ 8.3 ​ ​ —

Contingent consideration adjustment ​ ​ (2.5) ​ ​ —

Gain on sale of asset ​ ​ — ​ ​ (1.4)

Discrete tax items ​ ​ 5.3 ​ ​ (18.2)

​ ​ ​ ​ ​ ​ ​

Total adjustments for special items - tax effected: ​ $ 15.2 ​ $ (11.7)

​ ​ ​ ​ ​ ​ ​

Net income as adjusted ​ $ 277.3 ​ $ 239.8

​ ​ ​ ​ ​ ​ ​

Diluted earnings per share - as reported ​ $ 7.82 ​ $ 7.48

Acquisition-related costs ​ 0.25 ​ —

Contingent consideration adjustment ​ (0.08) ​ —

Gain on sale of asset ​ — ​ (0.04)

Discrete tax items ​ 0.16 ​ (0.54)

Diluted earnings per share - as adjusted ​ $ 8.27 ​ $ 7.13

​

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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 and cash flow conversion rate 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, ​ December 31, ​

​ ​ (in millions)

Net cash provided by operating activities ​ $ 310.8 ​ $ 224.0 ​

Less: additions to property, plant, and equipment ​ (29.7) ​ (28.1) ​

Plus: proceeds from the sale of property, plant, and equipment ​ — ​ 5.2 ​

Net income —as reported ​ $ 262.1 ​ $ 251.5 ​

Cash conversion rate of free cash flow to net income ​ 107.2 % 80.0 %

​

Our free cash flow increased in 2023 when compared to 2022 primarily driven by higher net income and reduced working capital investment, partially offset by increased payments related to income taxes and customer incentives.

​

Our net debt to capitalization ratio, a non-GAAP financial measure used by management, at December 31, 2023 was (3.5)% for 2023 compared to (14.3)% in 2022. The change was driven by an increase in net debt balance due to increase in debt outstanding of $150.7 million, partially offset by an increase in cash and cash equivalents of $39.3, and higher net income contributing to an increase in stockholders’ equity at December 31, 2023 compared to December 31, 2022. Management believes the net 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 debt to capitalization ratios differently.

​

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

​

​ ​ ​ ​ ​ ​ ​

​ ​ December 31, ​ December 31,

​ ​ (in millions)

Current portion of long‐term debt $ — ​ $ —

Plus: long-term debt, net of current portion ​ 298.3 ​ 147.6

Less: cash and cash equivalents ​ (350.1) ​ (310.8)

​

A reconciliation of capitalization is provided below:

​

​ ​ ​ ​ ​ ​ ​ ​

​ ​ December 31, ​ December 31, ​

​ ​ (in millions)

Net debt to capitalization ratio ​ (3.5) % (14.3) %

​

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

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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 2023.

​

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 recognize revenue in a manner that depicts 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. When determining the transaction price of each contract, we consider contractual consideration payable by the customer and assess variable consideration that may affect the total transaction price. Variable consideration, consisting of early payment discounts, rebates and other sources of price variability, are included in the estimated transaction price based on both customer-specific information as well as historical experience. We regularly review our estimates of variable consideration on the transaction price and recognize changes in estimates on a cumulative catch-up basis as if the most current estimate of the transaction price adjusted for variable consideration had been known as of the inception of the contract.

​

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 evaluate the need to record adjustments for excess or obsolete inventory at least quarterly.We utilize both specific product identification and historical product demand as the basis for estimating our excess or obsolete inventory reserve. We identify all inventories that exceed a range of one to three years in sales to calculate inventory on hand that exceeds estimated demand. 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 estimated recoverable amounts based on historical experience. Changes in market conditions, lower-than- expected customer demand or changes in technology or features could result in additional excess or 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.

​

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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:

​

​

​

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 2023, we had eight reporting units. Bradley was acquired in the fourth quarter of 2023, after the goodwill testing date (October 22, 2023), however it was considered a separate reporting unit for the year end 2023. One of the eight reporting units, Water Quality, had no goodwill. We performed a qualitative analysis for each of the six 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 22, 2023 testing date, we had $589.6 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 2023, we did not need to proceed beyond the qualitative analysis, and no goodwill impairments were recorded. Changes in macroeconomic, industry or market conditions, or our inability to achieve projected results that were used to complete the qualitative analyses could result in the reporting unit fair value not exceeding the carrying amounts and could lead to impairment.

​

Intangible assets such as trademarks and trade names are generally recorded in connection with a business acquisition and we have recorded certain trademarks and trade names as indefinite-lived intangible assets. 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 2023 impairment assessment, which occurred as of October 22, 2023, we performed a qualitative assessment for certain trademarks and tradenames where the fair value significantly exceeded the carrying value in the previous quantitative assessment performed. Each had sales growth in 2023, sales growth is expected in 2024, and no other indicators of impairment were present. For the remaining tradenames in 2023, we performed a quantitative assessment. The methodology we employed for the quantitative assessments was the relief from royalty method, a subset of the income approach. As a result of our qualitative and quantitative analyses, we determined that the fair values of the indefinite-lived intangibles assets were more likely than not greater than the carrying amounts. As a result of the quantitative analyses, we determined that fair value exceeded carrying value for each indefinite-lived intangible asset. During 2023, 2022, and 2021, no impairment was recognized on our indefinite-lived intangible assets. Changes in macroeconomic, industry or market conditions, or our inability to achieve projected results that were used to complete the qualitative and quantitative analyses could result in the trademark’s or trade name’s fair value not exceeding its carrying amount and could lead to impairment.

​

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

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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 estimated 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 including, but not limited to, claim frequency and loss severity, and our specific claims experience derived from loss reports provided by third-party claims administrators to establish our product liability accrual. The product liability accrual represents the estimated ultimate losses for all reported and incurred but not reported claims. 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 and volume 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 legal matters 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 16 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.

​

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 throughout the interim periods. 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, future reversals of the deferred tax liabilities, and tax planning strategies, in assessing the need for a valuation allowance. Changes in the relevant facts, including the accuracy of our estimated future taxable income, can significantly impact the judgment or need for valuation allowances. In the event we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

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​

As of December 31, 2021, we released $22.1 million of our valuation allowance on foreign tax credits related to the additional foreign source income resulting from our restructured Mexican manufacturing supply chain operations. As of December 31, 2023 we increased our valuation allowance on foreign tax credits by $4.0 million related to the additional foreign tax credits generated by our fourth quarter one-time repatriation of foreign earnings. See Note 10 of Notes to the Consolidated Financial Statements in this Annual Report for further disclosures.

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 17 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, the Chinese yuan 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 which hedge approximately 80% 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 is reclassified into cost of goods sold within earnings. The fair value of our designated foreign hedge contracts outstanding as of December 31, 2023 was a liability of $0.2 million.

Under the Credit Agreement, our earnings and cash flows are exposed to fluctuations in interest payments related to our floating rate debt. In order to manage our exposure, we entered into an interest rate swap on March 30, 2021. Under the interest rate swap agreement, we received the one-month USD-LIBOR subject to a 0.00% floor and paid a fixed rate of 1.02975% on a notional amount of $100.0 million. On August 2, 2022, we amended the interest rate swap to replace LIBOR as a reference rate for borrowings with Term SOFR. Under the amended interest rate swap agreement, we receive the one-month Term SOFR subject to a -0.1% floor and pay a fixed rate of 0.942% on a notional amount of $100.0 million. We entered into an additional interest rate swap on October 23, 2023, as part of the acquisition of Bradley. Under the interest rate swap agreement, we receive the one-month Term SOFR subject to a -0.1% floor and pay a fixed rate of 4.844% on a notional amount of $100.0 million. Both swaps mature on March 30, 2026. Information about our long-term debt facility and related interest rates appears in Note 17 of 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.

​

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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:

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, 2023. 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, 2023.

​

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On October 23, 2023, the Company completed the acquisition of Bradley, in a share purchase transaction. The consolidated financial statements of the Company include the results of Bradley, including total assets of $333.8 million and total revenues of $33.4 million, but management’s assessment of internal control over financial reporting as of December 31, 2023 does not include an assessment of the internal control over financial reporting of Bradley.

​

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, 2023, 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 was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We are currently in the process of integrating the Bradley operations, control processes and information systems into our systems and control environment. We believe that we have taken the necessary steps to monitor and maintain appropriate internal controls over financial reporting during this integration. 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.

​

Item 9B. OTHER INFORMATION.

(b) During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K .

​

Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not applicable.

​

​

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 2024 Annual Meeting of Stockholders to be held on May 22, 2024 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 that are required to be disclosed by SEC or New York Stock Exchange rules 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 2024 Annual Meeting of Stockholders to be held on May 22, 2024 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

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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 2024 Annual Meeting of Stockholders to be held on May 22, 2024 is incorporated herein by reference.

​

Securities Authorized for Issuance Under Equity Compensation Plans

​

The following table provides information as of December 31, 2023, 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 Third 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 Third Amended and Restated 2004 Stock Incentive Plan and Management Stock Purchase Plan.

​

​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Equity Compensation Plan Information

​ ​ ​ ​ Number of securities remaining

​ ​ Number of securities to be ​ ​ ​ ​ available for future issuance

​ ​ warrants and rights ​ warrants and rights ​ reflected in column (a))

Plan Category ​ (a) ​ (b) ​ (c)

Equity compensation plans not approved by security holders None ​ None ​ None ​

​

​

​

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

​

The information provided under the captions “Corporate Governance” in our definitive Proxy Statement for our 2024 Annual Meeting of Stockholders to be held on May 22, 2024 is incorporated herein by reference.

​

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

​

The information provided under the caption “Ratification of Appointment of Independent Registered Public Accounting Firm” in our definitive Proxy Statement for our 2024 Annual Meeting of Stockholders to be held on May 22, 2024 is incorporated herein by reference.

​

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PART IV

​

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

​

(a)(1) Financial Statements

​

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

​

Consolidated Balance Sheets as of December 31, 2023 and 2022 56

Notes to Consolidated Financial Statements 59

​

(a)(2) Schedules

​

​

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.

​

​

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Report of Independent Registered Public Accounting Firm

​

To the Stockholders and Board of Directors

Watts Water Technologies, Inc.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Watts Water Technologies, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, 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, 2023, and the related notes and financial statement Schedule II - Valuation and Qualifying Accounts (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired Bradley Corporation during 2023, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, Bradley Corporation’s internal control over financial reporting associated with total assets of $333.8 million and total revenues of $33.4 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2023. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Bradley Corporation.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, 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 consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

​

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Our audits of the consolidated financial statements 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. 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 audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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.

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.

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 a 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 a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Product liability accrual

As discussed in Notes 11 and 16 to the consolidated financial statements, the Company’s product liability accrual as of December 31, 2023 was $21.7 million. The Company is generally self-insured for potential product liability claims. For its most significant volume of liability matters, the Company uses third-party actuarial valuations, which incorporate historical trend factors and its specific claims experience derived from loss reports provided by third-party claims administrators, to establish its product liability accrual.

We identified the evaluation of the product liability accrual as a critical audit matter. A high degree of auditor judgment and actuarial professionals with specialized skills and knowledge were required to (1) assess the actuarial methods used, and (2) evaluate the estimated ultimate losses on claims that are based on application of loss development factors to historical claims experience.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of internal controls related to the product liability accrual, which included controls over the review of the actuarial valuations and selection of estimated ultimate losses, as well as completeness and accuracy of claims data used in the actuarial valuations. We tested current year claims data used to estimate the product liability accrual 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:

● evaluating the weighting of actuarial methods used to derive ultimate losses.

/s/ KPMG LLP

​

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

Boston, Massachusetts

February 21, 2024

​

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Watts Water Technologies, Inc. and Subsidiaries

​

Consolidated Statements of Operations

​

(Amounts in millions, except per share information)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Selling, general and administrative expenses ​ 604.5 ​ ​ 550.5 ​ ​ 508.2

Gain on sale of asset ​ ​ — ​ ​ (1.8) ​ ​ —

Other (income) expense: ​ ​ ​ ​ ​ ​ ​ ​ ​

Interest income ​ (7.2) ​ ​ (0.6) ​ ​ —

Interest expense ​ 8.2 ​ ​ 7.0 ​ ​ 6.3

Other expense (income), net ​ 0.4 ​ ​ 1.0 ​ ​ (0.8)

Total other expense ​ 1.4 ​ 7.4 ​ 5.5

Provision for income taxes ​ 87.4 ​ ​ 56.1 ​ ​ 68.4

Basic EPS ​ ​ ​ ​ ​ ​ ​ ​ ​

NET INCOME PER SHARE ​ $ 7.85 ​ $ 7.51 ​ $ 4.90

Weighted average number of shares ​ 33.4 ​ 33.5 ​ 33.8

Diluted EPS ​ ​ ​ ​ ​ ​ ​ ​ ​

NET INCOME PER SHARE ​ $ 7.82 ​ $ 7.48 ​ $ 4.88

Weighted average number of shares ​ 33.5 ​ 33.6 ​ 33.9

Dividends declared per share ​ $ 1.38 ​ $ 1.16 ​ $ 1.01

​

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

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Watts Water Technologies, Inc. and Subsidiaries

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Consolidated Statements of Comprehensive Income

​

(Amounts in millions)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Other comprehensive income (loss) net of tax: ​ ​ ​ ​ ​ ​ ​ ​ ​

Foreign currency translation adjustments ​ 9.7 ​ (29.1) ​ (28.0)

Cash flow hedges ​ ​ (3.9) ​ ​ 6.5 ​ ​ 0.7

Defined benefit pension plan, net of tax: ​ ​ ​ ​ ​ ​ ​ ​ ​

Actuarial gain, net of tax provision of $0.2 million in 2023 ​ ​ 0.7 ​ ​ — ​ ​ —

Other comprehensive income (loss) ​ 6.5 ​ (22.6) ​ (27.3)

​

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

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Watts Water Technologies, Inc. and Subsidiaries

​

Consolidated Balance Sheets

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(Amounts in millions, except share information)

​

​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

ASSETS ​ ​ ​ ​ ​

CURRENT ASSETS: ​ ​ ​ ​ ​ ​

Cash and cash equivalents ​ $ 350.1 ​ $ 310.8

Inventories, net: ​ ​ ​ ​ ​ ​

Work in process ​ ​ 20.2 ​ ​ 21.0

Prepaid expenses and other current assets ​ 51.8 ​ 30.4

PROPERTY, PLANT AND EQUIPMENT ​ ​ ​ ​

Property, plant and equipment, at cost ​ ​ 677.2 ​ ​ 595.6