Company Quick10K Filing
Mueller Water Products
Price10.90 EPS0
Shares159 P/E27
MCap1,733 P/FCF19
Net Debt275 EBIT82
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-05
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10-K 2019-09-30 Filed 2019-11-20
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8-K 2018-01-11

MWA 10Q Quarterly Report

Part I
Item 1. Financial Statements
Note 1.Organization
Note 2. Business Combinations
Note 3. Revenue From Contracts with Customers
Note 4. Leases
Note 5. Income Taxes
Note 6. Borrowing Arrangements
Note 7. Derivative Financial Instruments
Note 8. Retirement Plans
Note 9. Stock - Based Compensation Plans
Note 10. Supplemental Balance Sheet Information
Note 11. Segment Information
Note 12. Accumulated Other Comprehensive Loss
Note 13. Commitments and Contingencies
Note 14. 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 2020-03-31

Balance SheetIncome StatementCash Flow
Assets, Equity
Rev, G Profit, Net Income
Ops, Inv, Fin


Washington, D.C. 20549

For the quarterly period ended March 31, 2020
Commission File Number 001-32892
(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 157,761,771 shares of $0.01 par value common stock of the registrant outstanding at April 30, 2020, which trade under the ticker symbol MWA on the New York Stock Exchange.

 March 31,September 30,
 (in millions, except share amounts)
Cash and cash equivalents$111.3  $176.7  
Receivables, net180.6  172.8  
Inventories204.1  191.4  
Other current assets22.9  26.0  
Total current assets518.9  566.9  
Property, plant and equipment, net239.0  217.1  
Goodwill97.7  95.7  
Intangible assets420.7  433.7  
Other noncurrent assets51.9  23.9  
Total assets$1,328.2  $1,337.3  
Liabilities and equity:
Current portion of long-term debt$1.1  $0.9  
Accounts payable
65.7  84.6  
Other current liabilities67.4  93.0  
Total current liabilities134.2  178.5  
Long-term debt446.2  445.4  
Deferred income taxes89.6  87.9  
Other noncurrent liabilities51.7  33.2  
Total liabilities721.7  745.0  
Commitments and contingencies (Note 13.)
Common stock: 600,000,000 shares authorized; 157,707,895 and 157,462,140 shares outstanding at March 31, 2020 and September 30, 2019, respectively1.6  1.6  
Additional paid-in capital1,390.1  1,410.7  
Accumulated deficit(752.1) (786.2) 
Accumulated other comprehensive loss(33.1) (36.0) 
Total Company stockholders’ equity606.5  590.1  
Noncontrolling interest  2.2  
Total equity606.5  592.3  
Total liabilities and equity$1,328.2  $1,337.3  

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

 Three months endedSix months ended
March 31,March 31,
(in millions, except per share amounts)
Net sales$257.7  $234.0  $470.3  $426.8  
Cost of sales171.7  159.2  311.7  291.9  
Gross profit86.0  74.8  158.6  134.9  
Operating expenses:
Selling, general and administrative49.3  45.7  99.2  86.7  
Strategic reorganization and other charges0.9  6.9  3.3  10.1  
Total operating expenses50.2  52.6  102.5  96.8  
Operating income35.8  22.2  56.1  38.1  
Other expenses (income):
Pension costs (benefits) other than service(0.8) 1.0  (1.5) 0.9  
Interest expense, net6.0  5.9  13.4  11.4  
Walter Energy Accrual  0.5  0.2  37.9  
Net other expense5.2  7.4  12.1  50.2  
Income (loss) before income taxes30.6  14.8  44.0  (12.1) 
Income tax expense (benefit)6.8  3.9  9.9  (2.0) 
Net income (loss)$23.8  $10.9  $34.1  $(10.1) 
Net income (loss) per share:
Basic$0.15  $0.07  $0.22  $(0.06) 
Diluted$0.15  $0.07  $0.21  $(0.06) 
Weighted average shares outstanding:
Basic157.9  158.2  157.8  157.9  
Diluted158.7  159.2  158.7  157.9  
Dividends declared per share$0.0525  $0.0500  $0.1050  $0.1000  

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

 Three months endedSix months ended
March 31,March 31,
 (in millions)
Net income (loss)$23.8  $10.9  $34.1  $(10.1) 
Other comprehensive income (loss):
Pension0.7  2.2  1.5  2.7  
Income tax effects(0.2) (0.7) (0.4) (0.8) 
Foreign currency translation(1.6) 4.3  1.8  3.1  
(1.1) 5.8  2.9  5.0  
Comprehensive income (loss)$22.7  $16.7  $37.0  $(5.1) 

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

Three months endedSix months ended
March 31,March 31,
(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 period1.6  1.6  1.6  1.6  
Additional paid-in capital
Balance, beginning of period1,401.3  1,440.2  1,410.7  1,444.5  
Dividends declared(8.3) (7.9) (16.6) (15.8) 
Shares repurchased under buyback program(5.0)   (5.0)   
Buyout of noncontrolling interest    (3.2)   
Shares retained for employee taxes  (0.2) (0.7) (1.4) 
Stock-based compensation1.3  0.6  2.7  2.3  
Stock issued under stock compensation plan0.8  0.5  2.2  3.6  
Balance, end of period1,390.1  1,433.2  1,390.1  1,433.2  
Accumulated deficit
Balance, beginning of period(775.9) (871.0) (786.2) (850.0) 
Net income (loss)23.8  10.9  34.1  (10.1) 
Balance, end of period(752.1) (860.1) (752.1) (860.1) 
Accumulated other comprehensive income (loss)
Balance, beginning of period(32.0) (33.6) (36.0) (32.8) 
Other comprehensive income (loss)(1.1) 5.8  2.9  5.0  
Balance, end of period(33.1) (27.8) (33.1) (27.8) 
Noncontrolling interest
Balance, beginning of period  1.7  2.2  1.5  
Acquisition of joint venture partner’s interest    (2.2)   
Net income  0.2    0.4  
Balance, end of period  1.9    1.9  
Total stockholders' equity$606.5  $548.8  $606.5  $548.8  

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

 Six months ended
March 31,
 (in millions)
Operating activities:
Net income (loss)$34.1  $(10.1) 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation14.4  12.6  
Amortization13.9  12.9  
Stock-based compensation2.7  2.3  
Retirement plans1.4  3.2  
Deferred income taxes0.9  (3.8) 
Other, net2.2  1.7  
Changes in assets and liabilities:
Receivables(8.2) 3.7  
Inventories(13.4) (32.2) 
Other assets5.7  (10.1) 
Accounts payable(18.8) (26.5) 
Walter Energy Accrual(22.0) 37.9  
Other current liabilities(9.9) (11.9) 
Long-term liabilities(6.0) (8.8) 
Net cash (used in) operating activities
(3.0) (29.1) 
Investing activities:
Business acquisitions, net of cash received  (127.5) 
Capital expenditures(37.3) (30.5) 
Proceeds from sales of assets0.1    
Net cash used in investing activities
(37.2) (158.0) 
Financing activities:
Dividends(16.6) (15.8) 
Repayment of Krausz debt  (13.2) 
Acquisition of joint venture partner’s interest(5.2)   
Employee taxes related to stock-based compensation(0.7) (1.4) 
Common stock issued2.2  3.6  
Common stock repurchased under buyback program(5.0)   
Other0.5  0.1  
Net cash used in financing activities
(24.8) (26.7) 
Effect of currency exchange rate changes on cash(0.4) 1.0  
Net change in cash and cash equivalents(65.4) (212.8) 
Cash and cash equivalents at beginning of period176.7  347.1  
Cash and cash equivalents at end of period$111.3  $134.3  

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

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 smart-enabled 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..
In July 2014, Infrastructure acquired a 49% ownership interest in an industrial valve joint venture for $1.7 million. Due to substantive control features in the operating agreement, all of the joint venture’s assets, liabilities and results of operations were included in our consolidated financial statements. We included an adjustment for the income attributable to the noncontrolling interest in selling, general and administrative expenses. Infrastructure acquired the remaining 51% interest in the business in October 2019.
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.
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, 2019. In our opinion, all normal and recurring adjustments that we consider necessary for a fair financial statement presentation have been made. The condensed consolidated balance sheet data at September 30, 2019 was derived from audited financial statements, but it does not include all disclosures required by GAAP.
In preparing these financial statements in conformity with GAAP, we have considered and, where appropriate, reflected the effects of the COVID-19 pandemic on our operations. As of March 31, 2020, such impacts did not result in the impairment of the carrying value of our assets. COVID-19 continues to cause significant disruptions to the U.S. and global economies. While we do not believe these disruptions had a material effect on our financial position or operations through March 31, 2020, there is no assurance that the pandemic will not have a material effect on our future financial position, results of operations, cash flows, or liquidity.
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.
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 using the modified retrospective approach and no transition adjustment was required. See Note 3. for more information regarding our adoption of this guidance.
In 2016, FASB issued new guidance for the recognition of lease assets and lease liabilities for those leases currently referred to as operating leases and requiring additional financial statement disclosures. On October 1, 2019, we adopted the new guidance related to leases using the modified retrospective transition method. See Note 4. for more information regarding our adoption of this guidance.

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. In November 2019, we announced the planned move of our manufacturing facility in Hammond, Indiana to our new facility in Kimball, Tennessee. Expenses incurred for these moves were primarily personnel-related and are 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.
Six months ended
March 31,
(in millions)
Beginning balance$1.7  $0.9  
Expense accrued1.6  3.4  
Amounts paid(2.7) (2.6) 
Ending balance$0.6  $1.7  

Note 2.  Business Combinations
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.
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 following is a summary of the fair values of the net assets acquired (in millions):
Assets, net of cash:
Other current assets0.2  
Property, plant and equipment8.1  
Other noncurrent assets1.7  
Identified intangible assets:
  Customer relationships8.7  
  Favorable leasehold interests2.3  
Accounts payable(5.5) 
Other current liabilities(2.9) 
Deferred income taxes(11.2) 
Other noncurrent liabilities(1.7) 
Fair value of assets acquired, net of liabilities assumed140.7  
Repayment of Krausz debt(13.2) 
Consideration paid to seller$127.5  
The 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 amortizable intangible assets acquired have a 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 11.) 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.
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.
The table below represents the balances of our customer receivables and deferred revenues.
March 31,September 30,
(in millions)
Billed receivables$178.8  $171.0  
Unbilled receivables5.0  4.5  
Total customer receivables$183.8  $175.5  
Deferred revenues$4.1  $4.7  
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 six months ended March 31, 2020 and 2019 respectively. The revenues recognized at a point in time related to the sale of our products 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 six months ended March 31, 2020 and 2019 respectively.

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 continue to use our current cost accrual method.
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 orders and shipments 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. Leases
We adopted the new leasing standard utilizing the modified retrospective approach on October 1, 2019. Adoption of the new standard resulted in an increase to total assets and liabilities due to the recording of lease right-of-use assets (“ROU”) and lease liabilities related to our operating lease portfolio.
We elected the package of three practical expedients for transition, which include the carry forward of our leases without reassessing whether any contracts are leases or contain leases, lease classification and initial direct costs and applying hindsight when determining the lease term and when assessing impairment of right-of-use assets at the adoption date. This allows us to update our assessments according to new information and changes in facts and circumstances that have occurred since lease inception.
Presentation of Leases
The Company leases certain office, warehouse, manufacturing, distribution, and research and development facilities and equipment under operating leases.
Our leases have remaining lease terms of 1 year to 14 years. The terms and conditions of our leases may include options to extend or terminate the lease which are considered and included in the lease term when these options are reasonably certain of exercise.
We determine if a contract is (or contains) a lease at inception by evaluating whether the contract conveys the right to control the use of an identified asset. For all classes of leased assets, we have elected the practical expedient to account for any non-lease components in the contract together with the related lease component in the same unit of account.
ROU assets and lease liabilities are recognized in our condensed consolidated balance sheets at the commencement date based on the present value of remaining lease payments over the lease term. Additionally, ROU assets include any lease payments made at or before the commencement date, as well as any initial direct costs incurred, and are reduced by any lease incentives received. As most of our operating leases do not provide an implicit rate, we apply our incremental borrowing rate to determine the present value of remaining lease payments. Our incremental borrowing rate is determined based on information available at the commencement date of the lease.
Operating leases are included in other noncurrent assets, other current liabilities and noncurrent liabilities in our condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, current portion of long-term debt and long-term debt in our condensed consolidated balance sheets.
For all classes of leased assets, we have applied an accounting policy election to exclude short-term leases from recognition in our condensed consolidated balance sheets. A short-term lease has a lease term of 12 months or less at the commencement date and does not include a purchase option that is reasonably certain of exercise. We recognize short-term lease expense in our condensed consolidated income statements on a straight-line basis over the lease term.
Our short-term lease expense for the three and six months ended March 31, 2020 and short-term lease commitments at March 31, 2020 are immaterial.
We have certain lease contracts with terms and conditions that provide for variability in the payment amount based on changes in facts or circumstances occurring after the commencement date. These variable lease payments are recognized in our condensed consolidated income statements as the obligation is incurred.

At March 31, 2020, we had no material, legally-binding minimum lease payments for operating leases signed but not yet commenced. We did not have material subleases, leases that imposed significant restrictions or covenants, material related party leases or sale-leaseback arrangements.
The components of lease cost are presented below.
Three months endedSix months ended
March 31, 2020March 31, 2020
(in millions)
Operating lease cost$1.6  3.2  
Finance lease cost0.3  0.6  
Total lease expense$1.9  $3.8  
Supplemental cash flow information related to leases for the six months ended March 31, 2020 is presented below, in millions.
Operating cash flows used in operating leases$2.9  
Financing cash flows used in finance leases$0.7  
Supplemental information describing where lease-related assets and liabilities are reflected in the Condensed Consolidated Balance Sheet at March 31, 2020 is presented below, in millions.
Right of use assets:
Operating leasesOther noncurrent assets$26.7  
Finance leasesPlant, property and equipment2.5  
Total right of use assets $29.2  
Lease liabilities:
Operating leases - currentOther current liabilities$4.4  
Operating leases - noncurrentOther noncurrent liabilities24.0  
Finance leases - currentCurrent portion of long-term debt1.1  
Finance leases - noncurrentLong-term debt1.5  
Total lease liabilities$31.0  
Supplemental information related to lease terms and discount rates at March 31, 2020 is presented below.
Weighted-average remaining lease term (years):
Operating leases8.15
Finance leases2.68
Weighted-average interest rate:
Operating leases5.71 %
Finance leases5.23 %

Total lease liabilities at March 31, 2020 have scheduled maturities as follows:
Operating LeasesFinance Leases
(in millions)
2020$3.6  $0.8  
20215.3  1.1  
20224.5  0.7  
20234.0  0.4  
Total lease payments37.3  2.9  
Less: imputed interest8.9  0.3  
Present value of lease liabilities$28.4  $2.6  

Note 5. Income Taxes
The reconciliation between the U.S. federal statutory income tax rate and the effective tax rate is presented below.
 Three months endedSix months ended
March 31,March 31,
U.S. federal statutory income tax rate21.0 %21.0 %21.0 %21.0 %
Adjustments to reconcile to the effective tax rate:
State income taxes, net of federal benefit4.5  4.5  4.5  1.8  
Excess tax (benefits) related to stock compensation(0.5) 0.3  (0.8) 2.5  
Tax credits(1.5) (1.3) (1.4) 2.6  
Global Intangible Low-taxed Income(0.2) 0.5    (1.1) 
Foreign income taxes(0.5)   (0.6)   
Valuation allowances(0.6)   (0.6)   
Other  1.4  0.4  (1.9) 
22.2 %26.4 %22.5