Company Quick10K Filing
Quick10K
Mueller Water Products
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$9.15 158 $1,450
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 2019-05-07 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
K Kellogg 19,680
CBOE CBOE 11,580
COWN Cowen 472
CLBS Caladrius Biosciences 30
CHEK Check-Cap 20
FBR Fibria Celulose 0
NPS Northern Power Systems 0
LTRE Learning Tree 0
AMIH American International Holdings 0
CRGS Curaegis Technologies 0
MWA 2019-03-31
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-31.1 exhibit311ceo302certif.htm
EX-31.2 exhibit312cfo302certif.htm
EX-32.1 exhibit321ceo906certif.htm
EX-32.2 exhibit322cfo906certif.htm

Mueller Water Products Earnings 2019-03-31

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
x                              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
o                       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 x No o
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 x No o
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     x             Accelerated filer         o  
Non-accelerated filer      o            Smaller reporting company     o 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
There were 158,362,740 shares of common stock of the registrant outstanding at April 30, 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)

 
March 31,
 
September 30,
 
2019
 
2018
 
(in millions, except share amounts)
Assets:
 
 
 
Cash and cash equivalents
$
134.3

 
$
347.1

Receivables, net
167.3

 
164.3

Inventories
205.9

 
156.6

Other current assets
27.6

 
17.5

Total current assets
535.1

 
685.5

Property, plant and equipment, net
176.0

 
150.9

Goodwill
84.5

 
12.1

Intangible assets
450.3

 
408.1

Other noncurrent assets
34.3

 
35.3

Total assets
$
1,280.2

 
$
1,291.9

 
 
 
 
Liabilities and equity:
 
 
 
Current portion of long-term debt
$
0.8

 
$
0.7

Accounts payable
69.1

 
90.0

Other current liabilities
104.4

 
76.4

Total current liabilities
174.3

 
167.1

Long-term debt
444.9

 
444.3

Deferred income taxes
84.3

 
79.2

Other noncurrent liabilities
27.9

 
36.5

Total liabilities
731.4

 
727.1

 
 
 
 
Commitments and contingencies (Note 12)
 
 
 
 
 
 
 
Common stock: 600,000,000 shares authorized; 158,249,164 and 157,332,121 shares outstanding at March 31, 2019 and September 30, 2018, respectively
1.6

 
1.6

Additional paid-in capital
1,433.2

 
1,444.5

Accumulated deficit
(860.1
)
 
(850.0
)
Accumulated other comprehensive loss
(27.8
)
 
(32.8
)
Total Company stockholders’ equity
546.9

 
563.3

Noncontrolling interest
1.9

 
1.5

Total equity
548.8

 
564.8

Total liabilities and equity
$
1,280.2

 
$
1,291.9



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



MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
Three months ended
 
Six months ended
 
March 31,
 
March 31,
 
2019
 
2018
 
2019
 
2018
 
(in millions, except per share amounts)
Net sales
$
234.0

 
$
233.2

 
$
426.8

 
$
411.5

Cost of sales
159.2

 
158.7

 
291.9

 
281.6

Gross profit
74.8

 
74.5

 
134.9

 
129.9

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative
45.7

 
42.7

 
86.7

 
82.5

Gain on sale of idle property

 

 

 
(9.0
)
Strategic reorganization and other charges
6.9

 
1.9

 
10.1

 
5.8

Total operating expenses
52.6

 
44.6

 
96.8

 
79.3

Operating income
22.2

 
29.9

 
38.1

 
50.6

Other expenses (income):
 
 
 
 
 
 
 
Pension costs other than service
1.0

 
0.3

 
0.9

 
0.5

Interest expense, net
5.9

 
5.2

 
11.4

 
10.4

Walter Energy Accrual
0.5

 

 
37.9

 

Total other expenses
7.4

 
5.5

 
50.2

 
10.9

Income (loss) before income taxes
14.8

 
24.4

 
(12.1
)
 
39.7

Income tax expense (benefit)
3.9

 
14.2

 
(2.0
)
 
(25.6
)
Net income (loss)
$
10.9

 
$
10.2

 
$
(10.1
)
 
$
65.3

 
 
 
 
 
 
 
 
Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.07

 
$
0.06

 
$
(0.06
)
 
$
0.41

Diluted
$
0.07

 
$
0.06

 
$
(0.06
)
 
$
0.41

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
158.2

 
158.3

 
157.9

 
158.4

Diluted
159.2

 
159.4

 
157.9

 
159.6

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.05

 
$
0.05

 
$
0.10

 
$
0.09


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
 
Six months ended
 
March 31,
 
March 31,
 
2019
 
2018
 
2019
 
2018
 
(in millions)
Net income (loss)
$
10.9

 
$
10.2

 
$
(10.1
)
 
$
65.3

Other comprehensive income (loss):
 
 
 
 
 
 
 
Pension
2.2

 
0.8

 
2.7

 
1.6

Income tax effects
(0.7
)
 
(0.2
)
 
(0.8
)
 
(0.5
)
Foreign currency translation
4.3

 
(0.4
)
 
3.1

 
(0.3
)
Derivative fair value change

 
2.4

 

 
4.0

Income tax effects

 
(0.8
)
 

 
(1.4
)
 
5.8

 
1.8

 
5.0

 
3.4

Comprehensive income (loss)
$
16.7

 
$
12.0

 
$
(5.1
)
 
$
68.7


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
 
Six months ended
 
 
March 31,
 
March 31,
 
 
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
 
1,440.2

 
1,482.4

 
1,444.5

 
1,494.2

Dividends declared
 
(7.9
)
 
(8.0
)
 
(15.8
)
 
(14.3
)
Stock repurchased under buyback program
 

 
(10.0
)
 

 
(20.0
)
Shares retained for employee taxes
 
(0.2
)
 
(0.3
)
 
(1.4
)
 
(2.1
)
Stock-based compensation
 
0.6

 
1.5

 
2.3

 
3.5

Stock issued under stock compensation plan
 
0.5

 
2.1

 
3.6

 
6.4

Balance, end of period
 
1,433.2

 
1,467.7

 
1,433.2

 
1,467.7

 
 
 
 
 
 
 
 
 
Accumulated deficit
 
 
 
 
 
 
 
 
Balance, beginning of period
 
(871.0
)
 
(900.5
)
 
(850.0
)
 
(955.6
)
Net income (loss)
 
10.9

 
10.2

 
(10.1
)
 
65.3

Balance, end of period
 
(860.1
)
 
(890.3
)
 
(860.1
)
 
(890.3
)
 
 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss)
 
 
 
 
 
 
 
 
Balance, beginning of period
 
(33.6
)
 
(50.2
)
 
(32.8
)
 
(51.8
)
Other comprehensive income (loss)
 
5.8

 
1.8

 
5.0

 
3.4

Balance, end of period
 
(27.8
)
 
(48.4
)
 
(27.8
)
 
(48.4
)
 
 
 
 
 
 
 
 
 
Non-controlling interest
 
 
 
 
 
 
 
 
Balance, beginning of period
 
1.7

 
1.0

 
1.5

 
1.1

Net income (loss)
 
0.2

 
0.2

 
0.4

 
0.1

Balance, end of period
 
1.9

 
1.2

 
1.9

 
1.2

 
 
 
 
 
 
 
 
 
Total stockholders' equity
 
$
548.8

 
$
531.8

 
$
548.8

 
$
531.8

 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
 
$
0.05

 
$
0.05

 
$
0.10

 
$
0.09



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)
 
Six months ended
 
March 31,
 
2019
 
2018
 
(in millions)
Operating activities:
 
 
 
Net income (loss)
$
(10.1
)
 
$
65.3

Adjustments to reconcile income to net cash provided by (used in) operating activities:
 
 
 
Depreciation
12.6

 
10.1

Amortization
12.9

 
11.4

Stock-based compensation
2.3

 
3.5

Retirement plans
3.2

 
1.5

Deferred income taxes
(3.8
)
 
(38.6
)
Gain on sale of idle property

 
(9.0
)
Other, net
1.7

 
2.1

Changes in assets and liabilities:
 
 
 
Receivables
3.7

 
(6.8
)
Inventories
(32.2
)
 
(17.5
)
Other assets
(10.1
)
 
(2.0
)
Walter Energy Accrual
37.9

 

Other liabilities
(47.2
)
 
(18.4
)
Net cash provided by (used in) operating activities
(29.1
)
 
1.6

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

Capital expenditures
(30.5
)
 
(14.4
)
Proceeds from sales of assets

 
7.4

Net cash used in investing activities
(158.0
)
 
(7.0
)
Financing activities:
 
 
 
Dividends
(15.8
)
 
(14.3
)
Repayment of Krausz debt
(13.2
)
 

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

 
(2.4
)
Common stock issued
3.6

 
6.4

Stock repurchased under buyback program

 
(20.0
)
Other
0.1

 
(0.1
)
Net cash used in financing activities
(26.7
)
 
(32.5
)
Effect of currency exchange rate changes on cash
1.0

 
0.1

Net change in cash and cash equivalents
(212.8
)
 
(37.8
)
Cash and cash equivalents at beginning of period
347.1

 
361.7

Cash and cash equivalents at end of period
$
134.3

 
$
323.9


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 SIX MONTHS ENDED MARCH 31, 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. Beginning in the quarter ended March 31, 2019, our statements of operations and of cash flows included the results of Krausz’s operations. 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 May 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.
During 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 ended March 31, 2019, we have incurred $4.3 million in expenses related to this event, which are included in strategic reorganization and other charges.

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 essentially completed in 2018. In October 2018, we announced the move of our Middleborough, Massachusetts 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. Costs and expenses in the six months ended March 31, 2019 and 2018 for these plans, included in strategic reorganization and other charges, were primarily personnel-related.
Activity in accrued restructuring, reported as part of other current liabilities, is presented below.
 
Six months ended
 
March 31,
 
2019
 
2018
 
(in millions)
Beginning balance
$
0.9

 
$
3.3

Expense accrued
3.4

 
3.6

Payments
(2.6
)
 
(3.9
)
Ending balance
$
1.7

 
$
3.0


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 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.
The acquisition of Krausz was financed with cash on hand. The results of Krausz, including net sales of $10.5 million, are included within our Infrastructure segment in the quarter ended March 31, 2019.
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. We recorded intangible assets of $53 million based on a preliminary valuation. In addition, we are gathering information about income taxes and deferred income tax assets and liabilities, accounts receivables, inventories, property, plant, and equipment, other current assets and current liabilities based on facts that existed as of the date of the acquisition. The final accounting for the business combination may differ materially from that presented in these unaudited condensed consolidated financial statements.

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

  Intangible assets
 
53.0

  Goodwill
 
71.0

Liabilities(1):
 
 
  Accounts payable
 
(5.5
)
  Other current liabilities
 
(2.9
)
  Deferred income taxes
 
(7.4
)
Consideration paid
 
$
140.7

 
 
 
(1) Excludes certain debt assumed and immediately repaid of $13.2 million.
 
 

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 workforce of the acquired businesses. The goodwill is nondeductible for income tax purposes. The intangible assets of $53.0 million consists of an estimated $42.0 million of finite-lived patents, customer relationship intangibles, and favorable leasehold interests, with an estimated weighted average useful life of approximately 12 years, and indefinite-lived tradename intangibles with an estimated value of $11.0 million.
Note 3.    Revenue from Contracts with Customers
We recognize revenue, in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those products or providing those services, when control of the promised products or services is transferred to our customers. 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 revenue from contracts with customers by reporting unit, which are the same as our reportable segments (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 includes 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.
 
March 31,
 
September 30,
 
2019
 
2018
 
(in millions)
Billed receivables
$
164.6

 
$
165.3

Unbilled receivables
5.5

 
2.4

     Total customer receivables
$
170.1

 
$
167.7

 
 
 
 
Deferred revenue
$
4.0

 
$
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 for 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.
Revenue from products and services transferred to customers at a point in time represented 99% of our revenue in the first six months of fiscal year 2019. The revenue 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.
Revenue from products and services transferred to customers over time represented 1% of our revenue in the first six months of fiscal year 2019.
We offer warranties to our customers in the form of assurance-type warranties, which provide assurance that the related product provided will function as intended and comply with any agreed-upon specifications. These cannot be purchased separately. There is 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 will not capitalize the related costs and will continue to 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%. With the legislation changing enacted rates taking place in the quarter ended December 31, 2017, 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, non-previously taxed, 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, for the quarter ended December 31, 2018 we finalized our calculations of the transition tax liability, which reduced our initial provision by $0.6 million, and is included as a component of income tax expense in the quarter. As of March 31, 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
 
Six months ended
 
March 31,
 
March 31,
 
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

 
4.4

 
1.8

 
4.4

Excess tax expense (benefits) related to stock compensation
0.3

 
(1.1
)
 
2.5

 
(1.7
)
Domestic production activities deduction

 
(1.6
)
 

 
(1.6
)
Tax credits
(1.3
)
 
(0.9
)
 
2.6

 
(0.9
)
Global Intangible Low-taxed Income
0.5

 

 
(1.1
)
 

Other
1.4

 
2.2

 
(1.9
)
 
(0.8
)
 
26.4
 %
 
27.5
 %
 
24.9
 %
 
23.9
 %
Walter Energy Accrual

 

 
(12.9
)
 

Transition tax

 
30.7

 
4.7

 
18.9

Remeasurement of deferred tax items

 

 

 
(107.3
)
Effective income tax rate
26.4
 %
 
58.2
 %
 
16.8
 %
 
(64.5
)%

At March 31, 2019 and September 30, 2018, the gross liabilities for unrecognized income tax benefits were $3.5 million and $3.3 million, respectively.
Note 5.
Borrowing Arrangements
The components of our long-term debt are presented below.
 
March 31,
 
September 30,
 
2019
 
2018
 
(in millions)
5.5% Senior Notes
$
450.0

 
$
450.0

ABL Agreement

 

Other
1.9

 
1.6

 
451.9


451.6

Less deferred financing costs
6.2

 
6.6

Less current portion
0.8

 
0.7

Long-term debt
$
444.9

 
$
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 $457.9 million at March 31, 2019.

10


ABL Agreement. At March 31, 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 March 31, 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 March 31, 2019 data, as reduced by outstanding letters of credit and accrued fees and expenses of $16.3 million, was $142.8 million.
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 $0.4 million and $0.9 million as of March 31, 2019 and September 30, 2018, respectively, and are included in other noncurrent liabilities in our Consolidated Balance Sheets.
Note 7.
Retirement Plans
The components of net periodic benefit cost for our pension plans are presented below.
 
Three months ended
 
Six months ended
 
March 31,
 
March 31,
 
2019
 
2018
 
2019
 
2018
 
(in millions)
Service cost
$
0.4

 
$
0.4

 
$
0.8

 
$
0.9

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

 
3.6

 
7.0

 
7.2

Expected return on plan assets
(4.0
)
 
(4.1
)
 
(8.1
)
 
(8.3
)
Amortization of actuarial net loss
0.5

 
0.8

 
1.0

 
1.6

Curtailment/special settlement loss (gain)
1.0

 

 
1.0

 

Pension costs (benefits) other than service
1.0

 
0.3

 
0.9

 
0.5

Net periodic benefit cost
$
1.4

 
$
0.7

 
$
1.7

 
$
1.4


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.

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 six months ended March 31, 2019, which are scheduled to settle in 3 years.
We issued 181,065 shares and 146,061 shares of common stock during the six months ended March 31, 2019 and 2018, respectively, to settle PRSUs.
In addition to the PRSU activity, 115,298 and 259,107 restricted stock units vested during the three and six months ended March 31, 2019, respectively.
We have granted cash-settled Phantom Plan instruments under the Mueller Water Products, Inc. Phantom Plan (“Phantom Plan”). At March 31, 2019, the outstanding Phantom Plan instruments had a fair value of $10.04 per instrument and our liability for Phantom Plan instruments was $1.0 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 six months ended March 31, 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

 
 
 
 
 
 
$
6.3


Operating income included stock-based compensation expense of $1.0 million and $1.6 million during the three months ended March 31, 2019 and 2018, respectively, and $2.7 million and $4.0 million during the six months ended March 31, 2019 and 2018, respectively. At March 31, 2019, there was approximately $8.5 million of unrecognized compensation expense related to stock-based compensation arrangements, and there were 279,024 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 289,860 of stock-based compensation instruments from the calculations of diluted earnings per share for the quarters ended March 31, 2019 and 2018, respectively, and 1,077,983 and 278,697 for the six months ended March 31, 2019 and 2018, respectively, since their inclusion would have been antidilutive.

12


Note 9.
Supplemental Balance Sheet Information
Selected supplemental balance sheet information is presented below.
 
March 31,
 
September 30,
 
2019
 
2018
 
(in millions)
Inventories:
 
 
 
Purchased components and raw material
$
97.7

 
$
81.6

Work in process
46.7

 
37.8

Finished goods
61.5

 
37.2

 
$
205.9

 
$
156.6

 
 
 
 
Other current assets:
 
 
 
Maintenance and repair tooling
$
3.9

 
$
3.5

Income taxes
8.7

 
1.6

Other
15.0

 
12.4

 
$
27.6

 
$
17.5

 
 
 
 
Property, plant and equipment:
 
 
 
Land
$
5.4

 
$
5.4

Buildings
59.4

 
55.9

Machinery and equipment
330.8

 
311.4

Construction in progress
41.1

 
22.2

 
436.7

 
394.9

Accumulated depreciation
(260.7
)
 
(244.0
)
 
$
176.0

 
$
150.9

Other current liabilities:
 
 
 
Compensation and benefits
$
23.3

 
$
31.7

Customer rebates
4.5

 
9.7

Taxes other than income taxes
4.1

 
3.3

Warranty
7.9

 
6.0

Income taxes
0.8

 
7.6

Environmental
1.2

 
1.2

Interest
7.9

 
8.0

Restructuring
1.7

 
0.9

Walter Energy Accrual
37.9

 

Other
15.1

 
8.0

 
$
104.4

 
$
76.4



13


Note 10.
Segment Information
Summarized financial information for our segments is presented below.
 
Three months ended
 
Six months ended
 
March 31,
 
March 31,
 
2019
 
2018
 
2019
 
2018
 
(in millions)
Net sales, excluding intercompany:
 
 
 
 
 
 
 
Infrastructure
$
214.1

 
$
211.1

 
$
386.1

 
$
371.2

Technologies
19.9

 
22.1

 
40.7

 
40.3

 
$
234.0

 
$
233.2

 
$
426.8

 
$
411.5

Operating income (loss):
 
 
 
 
 
 
 
Infrastructure
$
40.1

 
$
44.9

 
$
71.0

 
$
73.0

Technologies
(3.6
)
 
(3.9
)
 
(7.3
)
 
(8.6
)
Corporate
(14.3
)
 
(11.1
)
 
(25.6
)
 
(13.8
)
 
$
22.2

 
$
29.9

 
$
38.1

 
$
50.6

Depreciation and amortization:
 
 
 
 
 
 
 
Infrastructure
$
11.4

 
$
9.4

 
$
21.5

 
$
18.5

Technologies
1.9

 
1.5

 
3.9

 
2.9

Corporate
0.1

 

 
0.1

 
0.1

 
$
13.4

 
$
10.9

 
$
25.5

 
$
21.5

Strategic reorganization and other charges:
 
 
 
 
 
 
 
Infrastructure
$
1.1

 
$
0.1

 
$
1.1

 
$
0.1

Technologies

 

 

 
0.1

Corporate
5.8

 
1.8

 
9.0

 
5.6

 
$
6.9

 
$
1.9

 
$
10.1

 
$
5.8

Capital expenditures:
 
 
 
 
 
 
 
Infrastructure
$
13.0

 
$
4.8

 
$
27.8

 
$
11.1

Technologies
1.6

 
1.5

 
2.7

 
3.0

Corporate

 
0.1

 

 
0.3

 
$
14.6

 
$
6.4

 
$
30.5

 
$
14.4

Infrastructure disaggregated net revenues:
 
 
 
 
 
 
 
Central
$
55.0

 
$
54.2

 
$
95.3

 
93.8

Northeast
44.9

 
28.9

 
82.8

 
66.8

Southeast
41.2

 
53.7

 
75.9

 
82.6

West
50.6

 
54.3

 
95.3

 
94.1

United States
191.7

 
191.1

 
349.3

 
337.3

Canada
15.2

 
16.9

 
25.1

 
27.5

Other international locations
7.2

 
3.1

 
11.7

 
6.4

 
$
214.1

 
$
211.1

 
$
386.1

 
$
371.2

Technologies disaggregated net revenues:
 
 
 
 
 
 
 
Central
7.4

 
4.1

 
13.9

 
7.6

Northeast
3.4

 
5.4

 
6.8

 
9.4

Southeast
7.0

 
8.1

 
13.8

 
15.6

West
$
1.5

 
$
3.4

 
$
4.2

 
$
5.3

United States
19.3

 
21.0

 
38.7

 
37.9

Canada