Company Quick10K Filing
Quick10K
Mueller Water Products
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$10.01 158 $1,585
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-09-18 Regulation FD, Exhibits
8-K 2019-09-09 Regulation FD, Exhibits
8-K 2019-08-29 Regulation FD, Exhibits
8-K 2019-08-06 Regulation FD, Exhibits
8-K 2019-08-05 Earnings, Exhibits
8-K 2019-07-25 Other Events, Exhibits
8-K 2019-07-15 Officers, Exhibits
8-K 2019-05-07 Regulation FD, Exhibits
8-K 2019-05-07 Regulation FD, Exhibits
8-K 2019-05-06 Earnings, Exhibits
8-K 2019-02-05 Regulation FD, Exhibits
8-K 2019-02-04 Earnings, Exhibits
8-K 2019-01-23 Shareholder Vote
8-K 2019-01-23 Shareholder Vote
8-K 2018-12-04 Regulation FD, Exhibits
8-K 2018-12-03 M&A, Regulation FD, Exhibits
8-K 2018-11-07 Regulation FD, Exhibits
8-K 2018-11-06 Regulation FD, Exhibits
8-K 2018-11-05 Earnings, Exhibits
8-K 2018-11-05 Enter Agreement, Regulation FD, Exhibits
8-K 2018-09-20 Regulation FD, Exhibits
8-K 2018-09-04 Regulation FD, Exhibits
8-K 2018-08-07 Regulation FD, Exhibits
8-K 2018-08-06 Earnings, Exhibits
8-K 2018-06-12 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2018-05-08 Regulation FD, Exhibits
8-K 2018-02-21 Regulation FD, Exhibits
8-K 2018-02-02 Regulation FD, Exhibits
8-K 2018-02-01 Earnings, Exhibits
8-K 2018-01-24 Officers, Shareholder Vote, Other Events, Exhibits
8-K 2018-01-11 Officers, Exhibits
GNRC Generac Holdings 4,676
ROLL RBC Bearings 3,870
WFT Weatherford 3,564
GTLS Chart Industries 2,006
MINI Mobile Mini 1,392
OIS Oil States International 834
CIR Circor 671
NR Newpark Resources 574
UAMY United States Antimony 44
SOI Solaris Oilfield Infrastructure 0
MWA 2019-06-30
Part I
Item 1. Financial Statements
Note 1. Organization
Note 2. Acquisitions and Divestitures
Note 3. Revenue From Contracts with Customers
Note 4.Income Taxes
Note 5. Borrowing Arrangements
Note 6. Derivative Financial Instruments
Note 7. Retirement Plans
Note 8. Stock-Based Compensation Plans
Note 9. Supplemental Balance Sheet Information
Note 10. Segment Information
Note 11. Accumulated Other Comprehensive Loss
Note 12. Commitments and Contingencies
Note 13. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-3.1 exhibit31mwprevisedcod.htm
EX-31.1 exhibit311ceo302certif.htm
EX-31.2 exhibit312cfo302certif.htm
EX-32.1 exhibit321ceo906certif.htm
EX-32.2 exhibit322cfo906certif.htm

Mueller Water Products Earnings 2019-06-30

MWA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

                              QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
                       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-32892
MUELLER WATER PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
20-3547095
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
1200 Abernathy Road N.E
Suite 1200
Atlanta, GA 30328
(Address of principal executive offices)
(770) 206-4200
(Registrant’s telephone number, including area code)
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer                  Accelerated filer           
Non-accelerated filer                  Smaller reporting company      
Emerging growth company     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No
There were 157,355,301 shares of common stock of the registrant outstanding at July 31, 2019, which trade under the ticker symbol MWA on the New York Stock Exchange.
 




PART I
Item 1.
FINANCIAL STATEMENTS
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

 
June 30,
 
September 30,
 
2019
 
2018
 
(in millions, except share amounts)
Assets:
 
 
 
Cash and cash equivalents
$
140.7

 
$
347.1

Receivables, net
168.4

 
164.3

Inventories
197.2

 
156.6

Other current assets
34.5

 
17.5

Total current assets
540.8

 
685.5

Property, plant and equipment, net
191.0

 
150.9

Goodwill
87.9

 
12.1

Intangible assets
439.2

 
408.1

Other noncurrent assets
34.4

 
35.3

Total assets
$
1,293.3

 
$
1,291.9

 
 
 
 
Liabilities and equity:
 
 
 
Current portion of long-term debt
$
0.9

 
$
0.7

Accounts payable
70.1

 
90.0

Other current liabilities
100.9

 
76.4

Total current liabilities
171.9

 
167.1

Long-term debt
445.3

 
444.3

Deferred income taxes
83.4

 
79.2

Other noncurrent liabilities
25.7

 
36.5

Total liabilities
726.3

 
727.1

 
 
 
 
Commitments and contingencies (Note 12)
 
 
 
 
 
 
 
Common stock: 600,000,000 shares authorized; 157,310,111 and 157,332,121 shares outstanding at June 30, 2019 and September 30, 2018, respectively
1.6

 
1.6

Additional paid-in capital
1,416.9

 
1,444.5

Accumulated deficit
(826.4
)
 
(850.0
)
Accumulated other comprehensive loss
(27.1
)
 
(32.8
)
Total Company stockholders’ equity
565.0

 
563.3

Noncontrolling interest
2.0

 
1.5

Total equity
567.0

 
564.8

Total liabilities and equity
$
1,293.3

 
$
1,291.9



The accompanying notes are an integral part of the condensed consolidated financial statements.
1



MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
Three months ended
 
Nine months ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
 
(in millions, except per share amounts)
Net sales
$
274.3

 
$
250.2

 
$
701.1

 
$
661.7

Cost of sales
177.1

 
175.7

 
469.0

 
457.3

Gross profit
97.2

 
74.5

 
232.1

 
204.4

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative
47.5

 
41.3

 
134.2

 
123.8

Gain on sale of idle property

 

 

 
(9.0
)
Strategic reorganization and other charges
2.5

 
2.6

 
12.6

 
8.4

Total operating expenses
50.0

 
43.9

 
146.8

 
123.2

Operating income
47.2

 
30.6

 
85.3

 
81.2

Other expenses (income):
 
 
 
 
 
 
 
Pension costs (benefits) other than service
(0.1
)
 
0.2

 
0.8

 
0.7

Interest expense, net
4.2

 
5.3

 
15.6

 
15.7

Loss on early extinguishment of debt

 
6.2

 

 
6.2

Gain on settlement of interest rate swap contracts

 
(2.4
)
 

 
(2.4
)
Walter Energy Accrual
0.5

 

 
38.4

 

Net other expense
4.6

 
9.3

 
54.8

 
20.2

Income before income taxes
42.6

 
21.3

 
30.5

 
61.0

Income tax expense (benefit)
8.9

 
6.0

 
6.9

 
(19.6
)
Net income
$
33.7

 
$
15.3

 
$
23.6

 
$
80.6

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.21

 
$
0.10

 
$
0.15

 
$
0.51

Diluted
$
0.21

 
$
0.10

 
$
0.15

 
$
0.51

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
157.8

 
158.1

 
157.9

 
158.3

Diluted
158.8

 
159.2

 
158.9

 
159.5

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.05

 
$
0.05

 
$
0.15

 
$
0.14


The accompanying notes are an integral part of the condensed consolidated financial statements.
2


MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
Three months ended
 
Nine months ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
 
(in millions)
Net income
$
33.7

 
$
15.3

 
$
23.6

 
$
80.6

Other comprehensive income (loss):
 
 
 
 
 
 
 
Pension
0.5

 
0.8

 
3.2

 
2.4

Income tax effects
(0.1
)
 
(0.2
)
 
(0.9
)
 
(0.7
)
Foreign currency translation
0.3

 
(2.0
)
 
3.4

 
(2.3
)
Derivative fair value change

 
(1.6
)
 

 
2.4

Income tax effects

 
0.5

 

 
(0.9
)
 
0.7

 
(2.5
)
 
5.7

 
0.9

Comprehensive income
$
34.4

 
$
12.8

 
$
29.3

 
$
81.5


The accompanying notes are an integral part of the condensed consolidated financial statements.
3


MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY 
(UNAUDITED)
 
 
Three months ended
 
Nine months ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in millions)
Common stock
 
 
 
 
 
 
 
 
Balance, beginning of period
 
$
1.6

 
$
1.6

 
$
1.6

 
$
1.6

Change in common stock at par value
 

 

 

 

Balance, end of period
 
1.6

 
1.6

 
1.6

 
1.6

 
 
 
 
 
 
 
 
 
Additional paid-in-capital
 
 
 
 
 
 
 
 
Balance, beginning of period
 
1,433.2

 
1,467.7

 
1,444.5

 
1,494.2

Dividends declared
 
(7.9
)
 
(7.9
)
 
(23.7
)
 
(22.2
)
Stock repurchased under buyback program
 
(10.0
)
 

 
(10.0
)
 
(20.0
)
Shares retained for employee taxes
 

 

 
(1.4
)
 
(2.1
)
Stock-based compensation
 
1.1

 
0.8

 
3.4

 
4.3

Stock issued under stock compensation plan
 
0.5

 
0.5

 
4.1

 
6.9

Balance, end of period
 
1,416.9

 
1,461.1

 
1,416.9

 
1,461.1

 
 
 
 
 
 
 
 
 
Accumulated deficit
 
 
 
 
 
 
 
 
Balance, beginning of period
 
(860.1
)
 
(890.3
)
 
(850.0
)
 
(955.6
)
Net income
 
33.7

 
15.3

 
23.6

 
80.6

Balance, end of period
 
(826.4
)
 
(875.0
)
 
(826.4
)
 
(875.0
)
 
 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss)
 
 
 
 
 
 
 
 
Balance, beginning of period
 
(27.8
)
 
(48.4
)
 
(32.8
)
 
(51.8
)
Other comprehensive income (loss)
 
0.7

 
(2.5
)
 
5.7

 
0.9

Balance, end of period
 
(27.1
)
 
(50.9
)
 
(27.1
)
 
(50.9
)
 
 
 
 
 
 
 
 
 
Non-controlling interest
 
 
 
 
 
 
 
 
Balance, beginning of period
 
1.9

 
1.2

 
1.5

 
1.1

Net income
 
0.1

 
0.1

 
0.5

 
0.2

Balance, end of period
 
2.0

 
1.3

 
2.0

 
1.3

 
 
 
 
 
 
 
 
 
Total stockholders' equity
 
$
567.0

 
$
538.1

 
$
567.0

 
$
538.1


The accompanying notes are an integral part of the condensed consolidated financial statements.
4


MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Nine months ended
 
June 30,
 
2019
 
2018
 
(in millions)
Operating activities:
 
 
 
Net income
$
23.6

 
$
80.6

Adjustments to reconcile income to net cash provided by operating activities:
 
 
 
Depreciation
19.1

 
15.3

Amortization
19.7

 
17.0

Loss on early extinguishment of debt

 
6.2

Stock-based compensation
3.4

 
4.3

Retirement plans
3.7

 
2.1

Deferred income taxes
(2.9
)
 
(39.7
)
Gain on sale of idle property

 
(9.0
)
Other, net
1.5

 
4.5

Changes in assets and liabilities:
 
 
 
Receivables
2.9

 
(0.6
)
Inventories
(23.3
)
 
(18.0
)
Other assets
(16.5
)
 
(3.5
)
Accounts payable
(25.5
)
 
(18.6
)
Walter Energy Accrual
38.4

 

Other current liabilities
(15.9
)
 
17.2

Long- term liabilities
(10.4
)
 
12.3

Net cash provided by operating activities
17.8

 
70.1

Investing activities:
 
 
 
Acquisition, net of cash received
(127.5
)
 

Capital expenditures
(52.9
)
 
(26.9
)
Proceeds from sales of assets

 
7.4

Net cash used in investing activities
(180.4
)
 
(19.5
)
Financing activities:
 
 
 
Dividends
(23.7
)
 
(22.2
)
Repayment of Krausz debt
(13.2
)
 

Employee taxes related to stock-based compensation
(1.4
)
 
(2.1
)
Repayment of debt

 
(486.3
)
Issuance of debt

 
450.0

Common stock issued
4.1

 
6.9

Debt issuance costs

 
(6.6
)
Stock repurchased under buyback program
(10.0
)
 
(20.0
)
Other
0.3

 
0.2

Net cash used in financing activities
(43.9
)
 
(80.1
)
Effect of currency exchange rate changes on cash
0.1

 
(0.7
)
Net change in cash and cash equivalents
(206.4
)
 
(30.2
)
Cash and cash equivalents at beginning of period
347.1

 
361.7

Cash and cash equivalents at end of period
$
140.7

 
$
331.5


The accompanying notes are an integral part of the condensed consolidated financial statements.
5


MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2019
Note 1.
Organization
Mueller Water Products, Inc., a Delaware corporation, together with its consolidated subsidiaries, operates in two business segments: Infrastructure and Technologies. Infrastructure manufactures valves for water and gas systems, including butterfly, iron gate, tapping, check, knife, plug and ball valves, as well as dry-barrel and wet-barrel fire hydrants and a broad line of pipe connection and repair products, such as clamps and couplings used to repair leaks. Technologies offers metering systems, leak detection, pipe condition assessment and other related products and services. The “Company,” “we,” “us” or “our” refer to Mueller Water Products, Inc. and its subsidiaries. With regard to the Company’s segments, “we,” “us” or “our” may also refer to the segment being discussed.
Infrastructure owns a 49% ownership interest in an industrial valve joint venture. Due to substantive control features in the operating agreement, all of the joint venture’s assets, liabilities and results of operations are included in our consolidated financial statements. The net income or loss attributable to noncontrolling interest is included in selling, general and administrative expenses. Noncontrolling interest is recorded at its carrying value, which approximates fair value.
Unless the context indicates otherwise, whenever we refer to a particular year, we mean our fiscal year ended or ending September 30 in that particular calendar year.
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which require us to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses and the disclosure of contingent assets and liabilities for the reporting periods. Actual results could differ from those estimates. All significant intercompany balances and transactions have been eliminated. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2018. In our opinion, all normal and recurring adjustments that we consider necessary for a fair financial statement presentation have been made. Certain reclassifications have been made to previously reported amounts to conform to the current presentation. The condensed consolidated balance sheet data at September 30, 2018 was derived from audited financial statements, but it does not include all disclosures required by GAAP.
On December 3, 2018, we completed our acquisition of Krausz Development Ltd. and subsidiaries (“Krausz”). We include the financial statements of Krausz in our consolidated financial statements on a one-month lag. Refer to Note 2 for additional disclosures related to the acquisition.
HR-1, commonly referred to as the Tax Cuts and Jobs Act, was enacted on December 22, 2017 and made significant revisions to federal income tax laws, including lowering the corporate income tax rate to 21%from 35%, effective January 1, 2018. The effects of these revisions are discussed in Note 4.
In 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance for the recognition of revenue and requiring additional financial statement disclosures.  On October 1, 2018, we adopted the new guidance related to revenue recognition from contracts with customers. The new guidance was adopted using the modified retrospective approach and no transition adjustment was required. See Note 3 for more information regarding our adoption of ASC 606 - Revenue from Contracts with Customers.
In 2016, FASB issued Accounting Standards Update 2016-02 Leases, which will require us to recognize lease assets and lease liabilities for those leases currently referred to as operating leases. We will adopt this guidance using the modified retrospective transition method beginning in the first quarter of fiscal 2020. While we are still evaluating the impact this standard will have on our consolidated financial statements and related disclosures, we have completed our initial scoping reviews and have made progress in our assessment phase as we continue to identify necessary changes to our business processes. We also have made progress in developing the policy elections we will make upon adoption and we are using new software to meet the reporting requirements of this standard. We do not believe the impact of this standard will be material to our consolidated financial statements as a whole.
On February 15, 2019, we experienced a mass shooting event at our Henry Pratt facility in Aurora, Illinois. The event resulted in the death of five employees and injuries to one employee and six law enforcement officials. For the quarter and nine months ended June 30, 2019, we have incurred $0.7 million and $4.9 million, respectively, in expenses related to this event, which are included in strategic reorganization and other charges. These amounts are net of anticipated insurance recoveries.

6



In 2017, we announced a strategic reorganization plan designed to accelerate our product innovation and revenue growth, through the adoption of a matrix management structure, where business teams have line and cross-functional responsibility for managing distinct product portfolios, and engineering, operations, sales and marketing and other functions are centralized to better align with business needs and generate greater efficiencies, which was largely completed in 2018. In October 2018, we announced the move of our Middleborough, Massachusetts research and development facility to Atlanta to consolidate our resources and accelerate product innovation through creation of a research and development center of excellence for software and electronics. Expenses incurred for these plans were primarily personnel-related and included in strategic reorganization and other charges in the Condensed Consolidated Statements of Operations.
Activity in accrued restructuring, reported as part of other current liabilities, is presented below.
 
Nine months ended
 
June 30,
 
2019
 
2018
 
(in millions)
Beginning balance
$
0.9

 
$
3.3

Expense accrued
5.5

 
4.4

Amounts paid
(4.6
)
 
(6.3
)
Ending balance
$
1.8

 
$
1.4


Note 2.
Acquisitions and Divestitures
Divestiture of Burlington plant
On December 4, 2017, we sold an idle property in Burlington, New Jersey that had previously been a plant in our former U.S. Pipe segment and recorded a gain of $9.0 million in our Corporate segment. We received $7.4 million in cash, recorded net current assets of $0.8 million and conveyed plant, property and equipment with a net carrying value of $0.4 million, and the buyer assumed related environmental liabilities with a carrying value of $1.2 million.
Acquisition of Krausz
On December 3, 2018, we completed our acquisition of Krausz, a manufacturer of pipe couplings, grips and clamps with operations in the United States and Israel, for $140.7 million, net of cash acquired, including the assumption and simultaneous repayment of certain debt of $13.2 million. The acquisition of Krausz was financed with cash on hand. The purchase agreement provides for customary final adjustments, including a net working capital adjustment, which we expect to occur in 2019. Annual sales for Krausz in calendar 2017 were approximately $43.0 million.
We have recognized the assets acquired and liabilities assumed at their estimated acquisition date fair values, with the excess of the purchase price over the estimated fair values of the identifiable net assets acquired recorded as goodwill. The accounting for the business combination is based on currently available information and is considered preliminary. We have retained a third party valuation specialist to assist in our estimate of the fair value of acquired intangible assets and we have not yet completed that estimate. In addition, we are still gathering information about property, plant, and equipment based on facts that existed as of the date of the acquisition, as well as deferred income tax liabilities related to long-lived assets. During the quarter, we reduced intangible assets by $5.3 million and deferred tax liabilities by $1.9 million, which resulted in an increase in goodwill of $3.4 million. The final accounting for the business combination may differ materially from that presented in these unaudited condensed consolidated financial statements.
The results of Krausz, including net sales of $23.0 million, are included within our Infrastructure segment in the period from acquisition through the quarter ended June 30, 2019.

7


The following is a summary of the preliminary estimated fair values of the net assets acquired (in millions):
Assets, net of cash:
 
 
  Receivables
 
$
6.9

  Inventories
 
17.0

  Other current assets
 
0.2

  Property, plant and equipment
 
8.4

Identified intangible assets:
 
 
  Patents
 
32.1

  Customer relationships
 
8.7

  Tradenames
 
4.6

  Favorable leasehold interests
 
2.3

  Goodwill
 
74.4

Liabilities:
 
 
  Accounts payable
 
(5.5
)
  Other current liabilities
 
(2.9
)
  Deferred income taxes
 
(5.5
)
Consideration paid
 
140.7

  Repayment of Krausz debt
 
(13.2
)
Consideration paid considered as net cash used in investing
 
$
127.5


The preliminary estimated goodwill above is attributable to the strategic opportunities and synergies that we expect to arise from the acquisition of Krausz and the value of its workforce. The goodwill is nondeductible for income tax purposes. The intangible assets of $47.7 million consist of indefinite-lived tradenames and patents, customer relationships and favorable leasehold interests with an estimated weighted average useful life of approximately 12 years.
Note 3.    Revenue from Contracts with Customers
We recognize revenue when control of promised products or services is transferred to our customers, in amounts that reflect the consideration to which we expect to be entitled in exchange for those products or services. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, the payment terms are identified, the contract has commercial substance and collectability of consideration is probable. We determine the appropriate revenue recognition for our contracts with customers by analyzing the type, terms and conditions of each contract or arrangement with a customer.
Disaggregation of Revenue
We disaggregate our revenues from contracts with customers by reportable segment (Note 10), and further by geographical region as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Geographical region represents the location of the customer.
Contract Asset and Liability Balances
The timing of revenue recognition, billings and cash collections results in customer receivables, advance payments and billings in excess of revenue recognized. Customer receivables include amounts billed and currently due from customers as well as unbilled amounts (contract assets). Amounts are billed in accordance with contractual terms and unbilled amounts arise when the timing of billing differs from the timing of revenue recognized. Customer receivables are recorded at face amounts less an allowance for doubtful accounts. We maintain an allowance for doubtful accounts for estimated losses as a result of customers’ inability to make required payments. We evaluate the aging of the customer receivable balances, the financial condition of our customers, historical trends and the time outstanding of specific balances to estimate the amount of customer receivables that may not be collected in the future and record the appropriate provision.
Advance payments and billings in excess of revenue are recognized and recorded as deferred revenue, the majority of which is classified as current based on the timing when we expect to recognize revenue. We include current deferred revenue as part of our accrued expenses. Deferred revenues represent contract liabilities and are recorded when customers remit contractual cash payments in advance of us satisfying performance obligations under contractual arrangements. Contract liabilities are reversed when the performance obligation is satisfied and revenue is recognized.

8


The table below represents the balances of our customer receivables and deferred revenues.
 
June 30,
 
September 30,
 
2019
 
2018
 
(in millions)
Billed receivables
$
164.9

 
$
165.3

Unbilled receivables
6.3

 
2.4

     Total customer receivables
$
171.2

 
$
167.7

 
 
 
 
Deferred revenues
$
3.7

 
$
3.3


Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. Our performance obligations are satisfied at a point in time as related to sales of equipment or over time as related to our software hosting and leak detection monitoring services. Performance obligations are supported by customer contracts, which provide frameworks for the nature of the distinct products or services. We allocate the transaction price of each contract to the performance obligations on the basis of standalone selling price and recognize revenue when, or as, control of the performance obligation transfers to the customers.
We have elected to use the practical expedient to not adjust the transaction price of a contract for the effects of a significant financing component if, at the inception of the contract, we expect that the period between when we transfer a product or service to a customer and when a customer remits payment will be one year or less.
Revenues from products and services transferred to customers at a point in time represented 99% of our revenues in the first nine months of fiscal year 2019. The revenues recognized at a point in time related to the sale of our products and was recognized when the obligations of the terms of our contract were satisfied, which generally occurs upon shipment, when control of the product transfers to the customer.
Revenues from products and services transferred to customers over time represented 1% of our revenues in the first nine months of fiscal year 2019.
We offer warranties to our customers in the form of assurance-type warranties, which provide assurance that the products provided will function as intended and comply with any agreed-upon specifications. These cannot be purchased separately. There was no change to our warranty accounting as a result of the implementation of the new revenue standard and we will continue to use our current cost accrual method in accordance with GAAP.
Costs to Obtain or Fulfill a Contract
We incur certain incremental costs to obtain a contract, which primarily relate to incremental sales commissions. Our commissions are paid based on shipment rather than on order and we reserve the right to claw back any commissions in case of product returns or lost collections. As the expected benefit associated with these incremental costs is one year or less based on the nature of the product sold and benefits received, we have applied a practical expedient and therefore do not capitalize the related costs and expense them as incurred, consistent with our previous accounting treatment.
Note 4.Income Taxes
On December 22, 2017, HR-1, commonly referred to as the Tax Cuts and Jobs Act (“Act”), was enacted, which made significant revisions to federal income tax laws, including lowering the corporate income tax rate to 21% from 35% effective January 1, 2018, overhauling the taxation of income earned outside the United States and eliminating or limiting certain deductions.
Our deferred tax assets and liabilities are recorded at the enacted tax rates in effect when we expect to recognize the related tax expenses or benefits. These rates vary slightly from year to year but historically had been approximately 39%. During the nine months ended June 30, 2018, we remeasured our deferred tax items at an average rate of approximately 25% and recorded an income tax benefit of $42.5 million.



The Act also imposed a one-time transition tax on the undistributed, previously-untaxed, post-1986 foreign “earnings and profits” (as defined by the IRS) of certain U.S.-owned corporations. Determination of our transition tax liability required us to calculate foreign earnings and profits going back to 1992 and then to assess our historical overall foreign loss position and the applicability of certain foreign tax credits. For the quarter ended March 31, 2018, we recorded a provisional transaction tax of $7.5 million for the one-time deemed repatriation tax on accumulated foreign earnings of our foreign subsidiaries. Upon further analyses of the Act and Notices and regulations issued and proposed by the U.S. Department of the Treasury and the IRS, we finalized our calculations of the transition tax liability during the quarter ended December 31, 2018. As a result, we reduced our initial provision by $0.6 million, which is included as a component of income tax expense in that quarter. At June 30, 2019, the remaining balance of our transition obligation is $6.4 million, which will be paid over the next seven years, as provided in the Act.
The reconciliation between the U.S. federal statutory income tax rate and the effective tax rate is presented below.
 
Three months ended
 
Nine months ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
U.S. federal statutory income tax rate
21.0
 %
 
24.5
 %
 
21.0
 %
 
24.5
 %
Adjustments to reconcile to the effective tax rate:
 
 
 
 
 
 
 
State income taxes, net of federal benefit
4.5

 
4.8

 
5.6

 
4.5

Excess tax (benefits) related to stock compensation
(0.3
)
 
(0.2
)
 
(1.4
)
 
(1.2
)
Domestic production activities deduction

 
(1.7
)
 

 
(1.6
)
Tax credits
(1.2
)
 
(1.1
)
 
(2.7
)
 
(1.0
)
Global Intangible Low-taxed Income
0.6

 

 
1.2

 

Reversal of uncertain tax positions
(5.2
)
 

 
(7.2
)
 

Other
1.9

 
1.9

 
3.6

 
0.2

 
21.3
 %
 
28.2
 %
 
20.0
 %
 
25.4
 %
Walter Energy Accrual
(0.4
)
 

 
4.6

 

Transition tax

 

 
(1.9
)
 
12.3

Remeasurement of deferred tax items

 

 

 
(69.8
)
Effective income tax rate
20.9
 %
 
28.2
 %
 
22.7
 %
 
(32.1
)%

At June 30, 2019 and September 30, 2018, the gross liabilities for unrecognized income tax benefits were $1.2 million and $3.3 million, respectively.
Note 5.
Borrowing Arrangements
The components of our long-term debt are presented below.
 
June 30,
 
September 30,
 
2019
 
2018
 
(in millions)
5.5% Senior Notes
$
450.0

 
$
450.0

ABL Agreement

 

Other
2.2

 
1.6

 
452.2


451.6

Less deferred financing costs
6.0

 
6.6

Less current portion
0.9

 
0.7

Long-term debt
$
445.3

 
$
444.3


5.5% Senior Unsecured Notes. On June 12, 2018, we privately issued $450.0 million of 5.5% Senior Unsecured Notes (“Notes”), which mature in 2026 and bear interest at 5.5%. We capitalized $6.6 million of financing costs, which are being amortized over the term of the Notes using the effective interest method. Proceeds from the Notes along with other cash, were used to repay our Term Loan. Substantially all of our U.S. subsidiaries guarantee the Notes, which are subordinate to borrowings under the ABL. Based on quoted market prices, the outstanding Notes had a fair value of $465.8 million at June 30, 2019.

10


ABL Agreement. At June 30, 2019, our asset based lending agreement (“ABL Agreement”) consisted of a revolving credit facility for up to $175 million of revolving credit borrowings, swing line loans and letters of credit. The ABL Agreement permits us to increase the size of the credit facility by an additional $150 million in certain circumstances subject to adequate borrowing base availability. We may borrow up to $25 million through swing line loans and we are permitted to issue up to $60 million of letters of credit.
Borrowings under the ABL Agreement bear interest at a floating rate equal to LIBOR, plus a margin ranging from 125 to 150 basis points, or a base rate, as defined in the ABL Agreement, plus a margin ranging from 25 to 50 basis points. At June 30, 2019, the applicable rate was LIBOR plus 125 basis points.
The ABL Agreement terminates on July 13, 2021. We pay a commitment fee for any unused borrowing capacity under the ABL Agreement of 25 basis points per annum. Our obligations under the ABL Agreement are secured by a first-priority perfected lien on all of our U.S. receivables and inventories, certain cash and other supporting obligations. Borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $17.5 million and 10% of the Loan Cap as defined in the ABL Agreement. Excess availability based on June 30, 2019 data, as reduced by outstanding letters of credit and accrued fees and expenses of $16.4 million, was $136.4 million.
Capitalized Interest. We record capitalized interest when doing so may have a significant impact on our financial statements. During the three and nine-month periods ended June 30, 2019, we capitalized $1.2 million in interest.
Note 6.
Derivative Financial Instruments
In connection with the acquisition of Singer Valve in 2017, we loaned funds to one of our Canadian subsidiaries. Although this intercompany loan has no direct effect on our consolidated financial statements, it creates exposure to currency risk for the Canadian subsidiary. To reduce this exposure, we entered into a U.S. dollar-Canadian dollar swap contract with the Canadian subsidiary and an offsetting Canadian dollar-U.S. dollar swap with a domestic bank. We have not designated these swaps as hedges and the changes in their fair values are included in earnings, where they offset the currency gains and losses associated with the intercompany loan. The values of our currency swap contracts were liabilities of $0.6 million and $0.9 million as of June 30, 2019 and September 30, 2018, respectively, and are included in other noncurrent liabilities in our Condensed Consolidated Balance Sheets.
Note 7.
Retirement Plans
The components of net periodic benefit cost for our pension plans are presented below.
 
Three months ended
 
Nine months ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
 
(in millions)
Service cost
$
0.4

 
$
0.5

 
$
1.2

 
$
1.4

Pension costs (benefits) other than service:
 
 
 
 
 
 
 
Interest cost
3.5

 
3.5

 
10.5

 
10.7

Expected return on plan assets
(4.1
)
 
(4.1
)
 
(12.2
)
 
(12.4
)
Amortization of actuarial net loss
0.5

 
0.8

 
1.5

 
2.4

Curtailment/special settlement loss (gain)

 

 
1.0

 

Pension costs (benefits) other than service
(0.1
)
 
0.2

 
0.8

 
0.7

Net periodic benefit cost
$
0.3

 
$
0.7

 
$
2.0

 
$
2.1


The amortization of actuarial losses, net of tax, is recorded as a component of other comprehensive loss.
During the quarter ended March 31, 2019, we settled our obligations to our Canadian pension plan participants through a combination of lump-sum payments and purchases of annuities. We made a contribution to the plans of $1.0 million, which is included in pension costs other than service, to fund these settlements.
Also during the quarter ended March 31, 2019, we recorded an estimated settlement liability for exiting a multi-employer pension plan at one of our manufacturing locations, which resulted in an expense of $1.1 million that we included in strategic reorganization and other charges. During the quarter ended June 30, 2019, we paid this amount and have settled the liability to the multi-employer pension plan.

11


Note 8.
Stock-based Compensation Plans
We have granted various forms of stock-based compensation, including stock options, restricted stock units and performance-based restricted stock units (“PRSUs”) under our Amended and Restated 2006 Mueller Water Products, Inc. Stock Incentive Plan (the “2006 Stock Plan”).
A PRSU award represents a target number of units that may be paid out at the end of a multi-year award cycle consisting of a series of annual performance periods coinciding with our fiscal years. After we establish the financial performance targets related to PRSUs for a given performance period, typically during the first quarter of that fiscal year, we consider that portion of a PRSU award to be granted. Thus, each award consists of a grant in the year of award and grants in the designated following years. Settlements, in our common shares, will range from zero to two times the number of PRSUs granted, depending on our financial performance against the targets.
We awarded 332,875 stock-settled PRSUs in the nine months ended June 30, 2019 that are scheduled to settle in 3 years.
We issued 181,065 shares and 146,061 shares of common stock during the nine months ended June 30, 2019 and 2018, respectively, to settle PRSUs.
In addition to the PRSU activity, zero and 259,107 restricted stock units vested during the three and nine months ended June 30, 2019, respectively.
We have granted cash-settled Phantom Plan instruments under the Mueller Water Products, Inc. Phantom Plan (“Phantom Plan”). At June 30, 2019, the outstanding Phantom Plan instruments had a fair value of $9.82 per instrument and our liability for Phantom Plan instruments was $1.3 million.
We granted stock-based compensation awards under the 2006 Stock Plan, the Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan and the Phantom Plan during the nine months ended June 30, 2019 as follows.
 
 
Number granted
 
Weighted average grant date fair value per instrument
 
Total grant date fair value
(in millions)
Quarter ended December 31, 2018:
 
 
 
 
 
 
Restricted stock units
 
147,409

 
$
10.53

 
$
1.6

Employee stock purchase plan instruments
 
45,464

 
2.30

 
0.1

Phantom Plan awards
 
168,380

 
10.53

 
1.8

PRSUs: 2019 award
 
110,595

 
10.53

 
1.2

2018 award
 
49,236

 
10.53

 
0.5

2017 award
 
31,229

 
10.53

 
0.3

 
 
 
 
 
 
 
Quarter ended March 31, 2019:
 
 
 
 
 
 
Restricted stock units
 
76,919

 
9.35

 
0.7

Employee stock purchase plan instruments
 
43,139

 
2.50

 
0.1

 
 
 
 
 
 
 
Quarter ended June 30, 2019:
 
 
 
 
 
 
Restricted stock units
 
4,854

 
9.27

 

Employee stock purchase plan instruments
 
42,890

 
1.88

 
0.1

 
 
 
 
 
 
$
6.4


Operating income included stock-based compensation expense of $1.4 million and $1.2 million during the three months ended June 30, 2019 and 2018, respectively, and $4.2 million and $5.3 million during the nine months ended June 30, 2019 and 2018, respectively. At June 30, 2019, there was approximately $7.7 million of unrecognized compensation expense related to stock-based compensation arrangements and there were 264,936 PRSUs that have been awarded for the 2020 and 2021 performance periods for which performance goals have not been set.
We excluded 202,245 and 213,599 of stock-based compensation instruments from the calculations of diluted earnings per share for the quarters ended June 30, 2019 and 2018, respectively, and 167,775 and 245,033 for the nine months ended June 30, 2019 and 2018, respectively, since their inclusion would have been antidilutive.
Note 9.
Supplemental Balance Sheet Information
Selected supplemental balance sheet information is presented below.
 
June 30,
 
September 30,
 
2019
 
2018
 
(in millions)
Inventories:
 
 
 
Purchased components and raw material
$
98.4

 
$
81.6

Work in process
45.9

 
37.8

Finished goods
52.9

 
37.2

 
$
197.2

 
$
156.6

 
 
 
 
Other current assets:
 
 
 
Maintenance and repair tooling
$
4.0

 
$
3.5

Income taxes
10.7

 
1.6

Other
19.8

 
12.4

 
$
34.5

 
$
17.5

 
 
 
 
Property, plant and equipment:
 
 
 
Land
$
5.5

 
$
5.4

Buildings
59.7

 
55.9

Machinery and equipment
338.3

 
311.4

Construction in progress
54.6

 
22.2

 
458.1

 
394.9

Accumulated depreciation
(267.1
)
 
(244.0
)
 
$
191.0

 
$
150.9

Other current liabilities:
 
 
 
Compensation and benefits
$
27.5

 
$
31.7

Customer rebates
8.1

 
9.7

Taxes other than income taxes
3.8

 
3.3

Warranty
7.1

 
6.0

Income taxes
0.2

 
7.6

Environmental
1.2

 
1.2

Interest
1.2

 
8.0

Restructuring
1.8

 
0.9

Walter Energy Accrual
38.4

 

Other
11.6

 
8.0

 
$
100.9

 
$
76.4



12


Note 10.
Segment Information
Summarized financial information for our segments is presented below.
 
Three months ended
 
Nine months ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
 
(in millions)
Net sales, excluding intercompany:
 
 
 
 
 
 
 
Infrastructure
$
250.2

 
$
224.1

 
$
636.3

 
$
595.3

Technologies
24.1

 
26.1

 
64.8

 
66.4

 
$
274.3

 
$
250.2

 
$
701.1

 
$
661.7

Operating income (loss):
 
 
 
 
 
 
 
Infrastructure
$
60.6

 
$
57.0

 
$
131.6

 
$
130.0

Technologies
(2.2
)
 
(16.1
)
 
(9.5
)
 
(24.7
)
Corporate
(11.2
)
 
(10.3
)
 
(36.8
)
 
(24.1
)
 
$
47.2

 
$
30.6

 
$
85.3

 
$
81.2

Depreciation and amortization:
 
 
 
 
 
 
 
Infrastructure
$
11.3

 
$
9.2

 
$
32.8

 
$
27.7

Technologies
2.0

 
1.5

 
5.9

 
4.4

Corporate

 
0.1

 
0.1

 
0.2

 
$
13.3

 
$
10.8

 
$
38.8

 
$
32.3

Strategic reorganization and other charges:
 
 
 
 
 
 
 
Infrastructure
$

 
$

 
$
1.1

 
$
0.1

Technologies

 

 

 
0.1

Corporate
2.5

 
2.6

 
11.5

 
8.2

 
$
2.5

 
$
2.6

 
$
12.6

 
$
8.4

Capital expenditures:
 
 
 
 
 
 
 
Infrastructure
$
18.9

 
$
10.7

 
$
46.7

 
$
21.8

Technologies
1.8

 
2.0

 
4.5

 
5.0

Corporate
1.7

 
(0.2
)
 
1.7

 
0.1

 
$
22.4