Approximately 31% of our fiscal 20082009 net sales were to our ten largest distributors, and approximately 24%23% of our fiscal 20082009 net sales were to our three largest distributors: HDS IP Holding, LLC (“HD Supply”),
Index to Financial Statements
Ferguson Enterprises, Inc. and American Water Works Supply.Mainline Supply Company. In fiscal 2009, HD Supply accounted for 20%16% and 17%15% of net sales for Mueller Co. and U.S. Pipe, respectively. We do not have written contracts with any of our major distributors.
While our relationships with our ten largest distributors have been long-lasting, distributors in our industry have experienced consolidation in recentover the past five years. For example, The Home Depot, Inc. acquired National Waterworks Holdings, Inc. in 2005 and then acquired Hughes Supply, Inc. in March 2006. These acquired businesses along with the related business from The Home Depot, Inc. have been merged into one entity operating as HD Supply, which became an independent company in August 2007. As a result, two of our three historically largest distributors have been combined under common control. In addition, our distributors could be acquired by other distributors who buy products from our competitors. If consolidation among distributors continues, pricing pressure may result, which could lead to a decline in our sales and profitability. Further, our ability to retain our customers in the face of competition generally depends on a variety of factors, including the quality and price of our products and services and our ability to market our products effectively. The loss of any one of our top distributors in any market could reduce our levels of sales and profitability.
While many distributors are large national companies, they conduct business through local operations that vary in scope and effectiveness. We attempt to align our businesses with the most successful distributors in any market. For some of our products, we may have relationships with multiple distributors in a single market, or may use a national distributor’s team in one market and a different national distributor in another market.
Our industry is very competitive and some of our products are similar to those manufactured by our competitors.
The U.S. andnon-U.S. markets for water infrastructure, flow control and piping component system products are competitive. While there are only a few competitors for most of our product offerings, many of our competitors are well-established companies with strong brand recognition. Anvil’s products in particular compete on the basis of pricequality, availability and breadth of product and are sold in fragmented markets with low barriers to entry. Also, competition for ductile iron pipe sold by U.S. Pipe comes not only from ductile iron pipe produced by a concentrated number of manufacturers, but also from pipe composed of other materials, such as polyvinyl chloride (“PVC”), high-density polyethelyne (“HDPE”), concrete, fiberglass, reinforced plastic and steel.
Competition fromnon-U.S. companies could increase and could harm our sales, profitability and cash flows.
In addition to competition from U.S. companies, we face the threat of competition fromnon-U.S. companies. The intensity of competition fromnon-U.S. companies is affected by fluctuations in the value of the U.S. dollar against their local currencies, by the cost to ship competitive products into North America and by the availability of trade remedies. Competition may also increase as a result of U.S. competitors shifting their operations or otherwise reducing their expenses by utilizingnon-U.S. facilities or suppliers.
The 2007 Credit Agreement imposes significant restrictions on our operational flexibility.
The 2007 Credit Agreement, which was amended in June 2009, includes terms and financial covenants that may limit or delay our ability to carry out our business plans effectively. In particular, the 2007 Credit Agreement includes restrictions on investments that may prevent us from taking advantage of significant business opportunities or making investments in joint ventures and acquisitions that we have targeted for future growth. The 2007 Credit Agreement also contains limitations on capital expenditures that may preclude capital investment in our business, or delay those investments.
Index to Financial Statements
Interruption of normal operations at our key manufacturing facilities may impair our production capabilities.
Some of our key products, including fire hydrants, valves and ductile iron pipe, are manufactured at large manufacturing facilities. The operations at our major manufacturing facilities may be impaired by various operating risks, including, but not limited to:
catastrophic events such as fires, explosions, floods, earthquakes or other similar occurrences;
interruptions in raw materials or other manufacturing inputs; | ||
14
adverse government regulations;
equipment breakdowns or failures;
violations of our permit requirements or revocation of permits;
releases of pollutants and hazardous substances to air, soil, surface water or ground water;
shortages of equipment or spare parts; and
labor disputes.
The occurrence of any of these events could impair our cash flows and results of operations.
Our brass valve products contain lead, which may be replaced in the future.
Several states restrict the contentuse of lead in water infrastructure products offered for sale inproducts. In addition, California and other jurisdictions. Some of our subsidiaries previouslystate legislatures have entered into settlement agreements with these environmental advocacy groups to modifyrecently enacted laws which impose further restrictions on products or offer substitutes for saleused in California. California recently passed Assembly Bill No. 1953 that redefines, as of January 1, 2010, the term “lead free” to refer to a weighted average lead content of the wetted surface area of the pipes, fittingswater transmission and fixtures of not more than 0.25%. Mueller Co. intends to reduce shipments of brass products containing lead to customers in California in fiscal 2009.otherwise. Legislation to substantially restrict lead content in water infrastructure products also has been introduced in the U.S.U. S. Congress. Congress or state jurisdictionsother states may enact similar legislation to restrict the content of lead or other materials in water products. Althoughproducts that come into contact with water. Mueller Co. now produces no-lead brass products mostthat comply with these existing standards.
Future legislation could further restrict the permitted amount of Mueller Co.’s brass valvelead or other materials in products contain small amounts of lead.
We have limited experience operating as a stand-alone company.
We became a stand-alone publicly-tradedpublicly traded company as a result of Walter Industries,Energy, Inc (“Walter Industries”Energy”, formerly Walter Industries, Inc.) distributing our Series B common stock to theits shareholders of Walter Industries on December 14, 2006 (the “Spin-off”). Our operating as a stand-alone publicly-tradedpublicly traded company may place significant demands on our management, operational and technical resources. Our successful future performance will depend on our ability to function as a stand-alone publicly-tradedpublicly traded company, to finance our operations and to adapt our information systems to changes in our businesses. Some of the financial information included in this annual report for the periodperiods prior to the Spin-off may not reflect what the operating results would have been had we been a stand-alone publicly-tradedpublicly traded company.
We are subject to certain risks inherent in managing a decentralized organization.
We currently have three distinct business segments and operate under a decentralized organizational structure. The application of consistent accounting policies, internal controls, procedures and compliance programs across all of our operations may enhance efficiency and operating effectiveness and improve corporate information flows. We continue to communicate such policies, controls, procedures and programs and it could take time for such implementation to be complete. Further, we may need to modify existing compliance programs and processes to increase efficiency and operating effectiveness and improve corporate visibility into our decentralized operations and it could take time for any such modifications to be implemented across our operations. During the implementation periods, our decentralized operating approach could result in inconsistent management practices and procedures, which could adversely affect our businesses.
Index to Financial Statements
The financial and credit liquidity crisis may adversely affect our ability to borrow money or raise capital.
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A part of our growth strategy depends on expansion, which we expect to occur primarily through acquisitions of businesses that can be integrated successfully integrated into our existing businesses and that will provide us with complementary manufacturing capabilities, products, services, customers or end users. However, we may be unable to identify targets that will be suitable for acquisition. In addition, if we identify a suitable acquisition candidate, our ability to complete the acquisition will depend on a variety of factors, including our ability to finance the acquisition. Our ability to finance our acquisitions is subject to a number of factors, including the availability of adequate cash, cash flows from operations or acceptable financing terms and the terms of our debt instruments.amended 2007 Credit Agreement. In addition, there aremay be many challenges to integrating acquired companies and businesses ininto our Company, including eliminating redundant operations, facilities and systems, coordinating management and personnel, retaining key employees, managing different corporate cultures and achieving cost reductions and cross-selling opportunities. We may not be able to meet these challenges in the future.
Our goodwill and identifiable intangible assets are subject to possible impairment charges.
At September 30, 2008,2009, we had $871.5 million of goodwill and $789.8$663.6 million of identifiable intangible assets on our balance sheet. Goodwill and certainAll identifiable intangible assets are reviewed at least annually for possible impairment. Impairment may result from, among other things, deterioration in our performance, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the products and services sold by our businesses, and a variety of other factors. Any identified impairment must be expensed immediately as a charge to results of operations.
We have substantial debt and we may incur additional debt in the future.
At September 30, 2008,2009, our total debt was $1,095.5$740.2 million compared to total assets of $1,739.5 million and total stockholders’ equity of $436.3 million. The level of our debt could have important consequences, including:
making it more difficult for us to satisfy our obligations under our debt instruments;
limiting cash flow available for general corporate purposes, including capital expenditures and acquisitions, because a substantial portion of our cash flows from operations must be dedicated to servicing our debt;
limiting our ability to obtain additional debt financing in the future for working capital, capital expenditures or acquisitions;
limiting our flexibility to react to competitive and other changes in our industry and economic conditions generally; and
exposing us to risks inherent in interest rate fluctuations because a portion of our borrowings is at variable rates of interest, which could result in higher interest expense in the event of increases in interest rates.
We may not be able to generate sufficient cash to service all of our debt and may be forced to take other actions to satisfy our obligations under our debt, which may not be successful.
Our ability to payservice or to refinance our debt will depend upon our future operating performance, which will be affected by our ability to succeed in carrying out our business plans and by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control. Our businesses may not generate sufficient cash flows from operations or future borrowings may not be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We cannot assure that we will maintain a level of liquidity from operating activities sufficient to permit us to pay the principal and interest on our indebtedness.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce investments, dividends and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. However, we may not be able to accomplish these actions on
Index to Financial Statements
satisfactory terms, or at all. In addition, these actions, if accomplished, could affect the operation and growth of our businesses and may not permit us to meet our debt service obligations.
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Our senior credit facilities requireamended 2007 Credit Agreement requires the maintenance of specified financial ratios on a quarterly basis. In addition, our debt instruments require us to provide regular financial information to our lenders and bondholders. Such requirements generally may be satisfied by our timely filing with the Securities and Exchange Commission (“SEC”) of periodic reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).ratios. Our ability to satisfy those financial ratios or covenantsrequirements can be affected by events beyond our control, and there is a risk that we will not meet those tests. A breach of any of thesethe financial or other covenants could result in a default under our debt instruments.the amended 2007 Credit Agreement and Senior Subordinated Notes (together the “senior credit facilities”). If an event of default iswere not remedied after the delivery of notice of default and lapse of any relevant grace period, the holders of our debt would be able to declare it immediately due and payable. Upon the occurrence of an event of default under our senior credit facilities, the lenders could also terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure the indebtedness under our senior credit facilities.amended 2007 Credit Agreement. We have pledged substantially all of our assets (including our intellectual property), other than the assets of our foreign subsidiaries, as security under the senior credit facilities.amended 2007 Credit Agreement. If the lenders under our senior credit facilitiesamended 2007 Credit Agreement or holders of our outstanding notesSenior Subordinated Notes accelerate the repayment of borrowings, we may not have sufficient assets to repay our senior credit facilities and our other indebtedness, which could negatively impact the value of our common stock and our ability to operate as a going concern. Further, the covenants in our debt instruments couldsenior credit facilities limit our ability to engage in certain transactions.
Changes in our credit ratings and macroeconomic conditions may affect our borrowing costs, limit our financing options and reduce the flexibility of our financing in the future.
Our senior credit facilities are rated by Standard & Poor’s and Moody’s Investors Service and we are currently rated below-investment grade by both rating agencies. Any future borrowings will reflect the impact of these ratings, and additional reductions in our credit ratings could further increase our borrowing costs, subject us to more onerous terms and reduce our borrowing flexibility. Such limitations on our financing options may affect our ability to refinance existing debt or fund major acquisitions or capital-intensive internal initiatives.
In addition, deteriorating economic conditions, including a recession, market disruptions, tightened credit markets and significantly wider corporate borrowing spreads, may make it more difficult or costly for us to finance significant transactions or obtain replacement financing for our existing debt.
Our business may be harmed by work stoppages and other labor relations matters.
We are subject to a risk of work stoppages and other labor relations matters because a large portion of our hourly workforce is represented by collective bargaining agreements. At September 30, 2008,2009, approximately 72%75% of our hourly workforce was covered by these agreements. These employees are represented by locals from six different unions, including the Glass, Molders, Pottery, Plastics and Allied Workers International Union, which represents the largest number of our employees. Our labor agreements will be negotiated as they expire at various times through June 2012. Work stoppages for an extended period of time could impair our businesses. Labor costs are a significant element of the total costs involved in our manufacturing process, and an increase in the costs of labor could therefore harm our businesses. In addition, the freight companies that deliver our products to our customers generally use truck drivers represented by collective bargaining agreements, and our businesses could suffer if these truck drivers face work stoppages or support other work stoppages.
If the Employee Free Choice Act is adopted, it would be easier for our employees to obtain union representation and our businessesemployee related costs could suffer.increase
The Employee Free Choice Act of 2007: H.R. 800 (“EFCA”) was passed in the U.S. House of Representatives. This bill or a variation of it could be enacted in the future and could have an adverse impact on our businesses. The EFCA aims to amend the National Labor Relations Act, by making it easier for workers to obtain union representation and increasing the penalties employers may incur if they engage in
Index to Financial Statements
labor practices in violation of the National Labor Relations Act. The EFCA requires the National Labor Relations Board (“NLRB”) to review petitions filed by employees for the purpose of creating a labor organization and to certify a bargaining representative without directing an election if a majority of the bargaining unit employees have authorized designation of the representative. The EFCA also requires the parties to begin bargaining within 10 days of the receipt of the petition, or longer time if mutually agreed upon. In addition, if the union and employer cannot agree upon the terms of a first collective bargaining agreement within 90 days, which can be extended by mutual agreement, either party can request federal mediation, which could lead to binding arbitration if an agreement still cannot be reached after an additional 30 days which can be extended by mutual agreement. EFCA would also require the NLRB to seek a federal injunction against an employer whenever there is reasonable cause to believe that the employer has discharged or discriminated against an employee to encourage or discourage membership in the labor organization, threatened to discharge or otherwise discriminate against an employee in order to interfere with, restrain, or coerce employees in the exercise of guaranteed collective bargaining rights, or engaged in any other related unfair labor practice that significantly interferes with, restrains, or coerces employees in the exercise of such guaranteed rights. The EFCA adds additional remedies for such violations, including back pay plus liquidated damages and civil penalties to be determined by the NLRB not to exceed $20,000 per infraction.
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Some of our products, including ductile iron pipe, valves and fire hydrants are moderately seasonal, with lower sales in our first and second fiscal quarters when weather conditions throughout most of North America tend to be cold or wet resulting in lower levels of construction activity. This seasonality in demand has resulted in fluctuations in our sales and operating results. In order to satisfy demand during expected peak periods, we may incur costs associated with inventorybuild-up, and there can be no assurance that our projections as to future needs will be accurate. We have a backlog of orders for some products for which we have inadequate inventories, or which are made-to-order. Because many of our expenses are fixed, seasonal trends can cause reductions in our income from operations and profit margins and deterioration of our financial condition during periods ofaffected by lower production or sales activity.
We may be subject to product liability or warranty claims that could require us to make significant payments.
We are exposed to product liability, warranty, and other claims in the event that the use of our products results, or is alleged to result, in bodily injury or property damage. There is a risk that we will experience product liability or warranty losses in the future or that we will incur expenses to defend such claims. Such losses and expenses may be material. While we currently have product liability insurance, our product liability insurance coverage may not be adequate for any liabilities that may ultimately be incurred or the coverage may not continue to be available on terms acceptable to us. A successful claim brought against us in excess of our available insurance coverage could require us to make significant payments or a requirement to participate in a product recall may harm our reputation or profitability. Any such product claims can include costs to access and repair installed products, which can exceed our sales related to these products.
We rely on a predecessor to Tyco International Ltd. (“Tyco”) to indemnify us for certain liabilities and there is a risk that Tyco may become unable or fail to fulfill its obligations.
Under the terms of the acquisition agreement relating to the August 1999 sale by Tyco of the Mueller Co. and Anvil businesses to the prior owner of these businesses, we are indemnified by Tyco for all liabilities arising in connection with the operation of these businesses prior to their sale by Tyco, including with respect to products manufactured or sold prior to the closing of that transaction. The indemnity survives forever and is not subject to any dollar limits. In the past, Tyco has made substantial paymentsand/or assumed defense of claims
Index to Financial Statements
pursuant to this indemnification provision. However, we may be responsible for these liabilities in the event that Tyco ever becomes financially unable or fails to comply with, the terms of the indemnity. In addition, Tyco’s indemnity does not cover product liabilities to the extent caused by our products manufactured after that transaction. In June 2007, Tyco was separated into three separate publicly traded companies. Should the entity or entities that assumed Tyco’s obligations under the acquisition agreement eversuccessor become financially unable or fail to comply with the terms of the indemnity, we may be responsible for such obligations or liabilities. For more information about our potential product liabilities, see “Item 3. LEGAL PROCEEDINGS”.
New governmental regulation relating to carbon dioxide emissions may subject us to significant new costs and restrictions on our operations.
Certain of our manufacturing plants use significant amounts of electricity and natural gas and certain of our plants emit significant amounts of carbon dioxide. Federal and state courts and administrative agencies are considering the scope and scale of carbon dioxide emission regulation under various laws pertaining to the environment, energy use and development and greenhouse gas emissions. There are bills pending in Congress that would regulate carbon dioxide emissions through a cap-and-trade system under which emitters would be required to buy allowances to offset emissions of carbon dioxide. In addition, several states are considering various carbon dioxide registration and reduction programs. Carbon dioxide regulation could increase the price of the electricity we purchase, increase costs for our use of natural gas, potentially restrict access to or the use of natural gas or require us to purchase allowances to offset our own emissions. Federal, state and local governments may also pass laws mandating the use of alternative energy sources, such as wind and the sun, which may increase the cost of energy used in our operations. While future emission regulation appears likely, it is too early to predict how this regulation will affect our business, operations or financial results.
We are subject to environmental, health and safety laws and regulations that could subject us to liability for fines,clean-ups cleanups and other damages, require us to incur significant costs to modify our operations and increase our manufacturing costs.
We are subject to various laws and regulations relating to the protection of the environment and human health and safety and must incur capital and other expenditures to comply with these requirements. Failure to comply with any environmental, health or safety requirements could result in the assessment of damages, or imposition of penalties, suspension of production, a required upgrade or change to equipment or processes or a cessation of operations at one or more of our facilities. Because these laws are complex, constantly changing and may be applied retroactively, there is a risk that these requirements, in particular as they change in the future, may impair our businesses, profitability and results of operations.
In addition, we incurred costs to comply with the National Emissions Standards for Hazardous Air Pollutants issued by the Environmental Protection Agency (“EPA”) for iron and steel foundries and for our foundries’ painting operations issued by the Environmental Protection Agency (“EPA”).operations. See “Item 1. BUSINESS—Environmental Matters”. We may be required to
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U.S. Pipe segment has been identified as a potentially responsible party liable under federal environmental laws for a portion of the cleanup costs with regard to two sites, one in Alabama and one in California, and is currently subject to an administrative consent order requiring certain monitoring and cleanup with regard to a New Jersey facility. Such cleanup costs could be substantial and could have a negative effect on our profitability and cash flows in any given reporting period. For more information about our environmental compliance and potential environmental liabilities, see “Item 1. BUSINESS—Environmental Matters.”
Index to Financial Statements
Compliance with the securities laws and regulations is likely to make it more difficult and expensive for us to maintain directors and officers liability insurance and to attract and retain qualified members of our Board of Directors.
Our businesses depend upon our technology and know-how,expertise, which is largely developed internally. While we believe that none of our operating units is substantially dependent on any single patent, trademark, copyright or other form of intellectual property, we rely on a combination of patent protection, copyright and trademark laws, trade secrets protection, employee and third party confidentiality and nondisclosure agreements and technical measures to protect our intellectual property rights. There is a risk that the measures we take to protect our intellectual property rights may not be adequate toadequately deter infringement, misappropriation or independent third-party development of our technology or to prevent an unauthorized third party from obtaining or using information or intellectual property that we regard as proprietary or to keep others from using brand names similar to our own. The disclosure, misappropriation or infringement of our intellectual property could harm our competitive position. In addition, our actions to enforce our rights may result in substantial costs and diversion of management and other resources. We may also be subject to intellectual property infringement claims from time to time, which may result in our incurring additional expenses and diverting our resources to respond to these claims.
Our ability to sell our products could suffer if transportation for our products becomes unavailable or uneconomic for our customers.
Transportation costs are a critical factor in a customer’s purchasing decision. Increases in transportation costs could make our ductile iron pipe and other products less competitive with the same or alternative products from competitors.
We typically depend upon rail, barge and trucking systems to deliver our products to customers. While our customers typically arrange and pay for transportation from our factory to the point of use, disruption of these transportation services because of weather-related problems, strikes, lock-outs or other events could temporarily impair our ability to supply our products to our customers thereby resulting in lost sales and reduced profitability.
Our requiredexpenditures for postretirement benefit and pension contributions may increase.obligations are significant and could be materially higher than we have predicted if our underlying assumptions prove to be incorrect.
We provide a range of benefits to our employees and retired employees, including pensions and postretirement healthcare. We record annual amounts relating to these plans based on calculations specified by generally accepted accounting principles, which include various actuarial assumptions. At September 30, 2009, the assets invested in our defined benefit pension plans are invested in equity securities. A large majoritymarket value of equity securities have declined in value during the general timeframe of late September through the latter part of November 2008 in response to general economic turmoil and the credit crisis in particular. The level ofU.S. pension plan assets comparedwas approximately $270.0 million. The investment performance of our U.S. pension plans for the year ended September 30, 2009 was a gain of $0.2 million.
Based on the requirements of the Pension Protection Act, we contributed $23.7 million to our U.S. pension plan liabilities at various
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Compliance with the securities laws and regulations is likely to make it more difficult and expensive for us to maintain directors and officers liability insurance and to attract and retain qualified members of our Board of Directors.
We expect the Sarbanes-Oxley Act of 2002 and the rules and regulations subsequently implemented by the Securities and Exchange Commission and the Public Company Accounting Oversight Board to continue to impose compliance burdens and costs on us. Those rules and regulations may make it more difficult and
Index to Financial Statements
expensive for us to maintain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to maintain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our Board of Directors, particularly to serve on our audit committee, and executive officers.
We may have substantial additional liability for federal income tax allegedly owed by Walter Each member of a consolidated group for federal income tax purposes is severally liable for the federal income tax liability of each other member of the consolidated group for any year in which it is a member of the group at any time during such year. Each member of the Walter A dispute exists with regard to federal income taxes for fiscal years 1980 to 1994 and 1999 to 2001 allegedly owed by the Walter The tax allocation agreement between us and Walter Walter IndustriesEnergyIndustries.Energy.IndustriesEnergy consolidated group, which included us (including our subsidiaries) through December 14, 2006, is also jointly and severally liable for pension and benefit funding and termination liabilities of other group members, as well as certain benefit plan taxes. Accordingly, we could be liable under such provisions in the event any such liability is incurred, and not discharged, by any other member of the Walter IndustriesEnergy consolidated group for any period during which we were included in the Walter IndustriesEnergy consolidated group.IndustriesEnergy consolidated group, which included U.S. Pipe during these periods. According to Walter Industries’ quarterly reportEnergy’s Quarterly Report onForm 10-Q for the period ended September 30, 2008,2009, Walter Industries’Energy’s management estimates that the amount of tax claimed by the IRSInternal Revenue Service is approximately $34.0 million for issues currently in dispute in bankruptcy court for matters unrelated to us. This amount is subject to interest and penalties. In addition, the Internal Revenue Service has issued a Notice of Proposed Deficiency assessing additional tax of $82.2 million for the Walter IndustriesEnergy tax years ended May 31, 2000, December 31, 2000 and December 31, 2001. As a matter of law, we are jointly and severally liable for any final tax determination, which means that in the event Walter IndustriesEnergy is unable to pay any amounts owed, we would be liable. Walter IndustriesEnergy disclosed in the above mentionedForm 10-Q that they believe their filing positions have substantial merit and that they intend to defend vigorously any claims asserted.IndustriesEnergy allocates to us certain tax risks associated with the Spin-off.IndustriesEnergy effectively controlled all of our tax decisions for periods during which we were a member of the Walter IndustriesEnergy consolidated federal income tax group and certain combined, consolidated or unitary state and local income tax groups. Under the terms of the income tax allocation agreement between us and Walter Industries and usEnergy dated May 26, 2006, we generally compute our tax liability on a stand-alone basis, but Walter IndustriesEnergy has sole authority to respond to and conduct all tax proceedings (including tax audits) relating to our federal income and combined state returns, to file all such returns on behalf of us and to determine the amount of our liability to (or entitlement to payment from) Walter IndustriesEnergy for such periods. This arrangement may result in conflicts of interests between us and Walter Industries.Energy. In addition, the tax allocation agreement provides that if the Spin-off is determined not to be tax-free pursuant to Section 355 of the Internal Revenue Code of 1986, as amended, we generally will be responsible for any taxes incurred by Walter IndustriesEnergy or its shareholders if such taxes result from certain of our actions or omissions and for a percentage of any such taxes that are not a result of our actions or omissions or Walter Industries’Energy’s actions or omissions or taxes based upon our market value relative to Walter Industries’Energy’s market value. Additionally, to the extent that Walter IndustriesEnergy was unable to pay taxes, if any, attributable to the Spin-off and for which it is responsible under our tax allocation agreement, we could be liable for those taxes as a result of being a member of the Walter IndustriesEnergy consolidated group for the year in which the Spin-off occurred.
| Item 1B. | UNRESOLVED STAFF COMMENTS |
None.
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Index to Financial Statements
| Item 2. | PROPERTIES |
Our principal properties are listed below.
Location | Activity | Size (sq. ft.) | Owned or leased | |||||
Mueller Co.: | ||||||||
Albertville, AL | Manufacturing | 422,481 | Leased | |||||
Aurora, IL | Manufacturing | 146,880 | Owned | |||||
Decatur, IL | Manufacturing and selling, general and administration | 467,044 | Owned | |||||
Hammond, IN | Manufacturing | 51,160 | Owned | |||||
Cleveland, NC | Manufacturing | 190,000 | Owned | |||||
Bethlehem, PA | Manufacturing | 104,000 | Leased | |||||
Chattanooga, TN | Manufacturing | 525,000 | Owned | |||||
Cleveland, TN | Manufacturing | 40,000 | Owned | |||||
Murfreesboro, TN | Manufacturing | 11,400 | Owned | |||||
Murfreesboro, TN | Manufacturing | 12,000 | Leased | |||||
Brownsville, TX | Manufacturing | 50,000 | Leased | |||||
Calgary, Alberta | Distribution | 11,000 | Leased | |||||
Barrie, Ontario | Distribution | 50,000 | Leased | |||||
St. Jerome, Quebec | Manufacturing | 55,000 | Owned | |||||
Jingmen, China | Manufacturing | 154,377 | Owned | |||||
U.S. Pipe: | ||||||||
Bessemer, AL | Manufacturing | 962,000 | Owned | |||||
Birmingham, AL | Selling, general and administration | 66,000 | Owned | |||||
North Birmingham, AL | Manufacturing | 360,000 | Owned | |||||
Union City, CA | Manufacturing | 139,000 | Owned | |||||
Burlington, NJ | Distribution | 158,289 | Owned | |||||
Anvil: | ||||||||
Santa Fe Springs, CA | Distribution | 37,815 | Leased | |||||
University Park, IL | Distribution | 192,000 | Leased | |||||
Sparks, NV | Distribution | 124,500 | Leased | |||||
Portsmouth, NH | Selling, general and administration | 13,740 | Leased | |||||
Aurora, | Manufacturing | 39,650 | Leased | |||||
Columbia, PA | Manufacturing and distribution | 663,119 | Owned | |||||
Greencastle, PA | Manufacturing | 132,743 | Owned | |||||
Pottstown, PA | Manufacturing | 46,000 | Owned | |||||
Waynesboro, PA | Manufacturing | 72,836 | Owned | |||||
North Kingstown, RI | Manufacturing | 156,115 | Leased | |||||
Henderson, TN | Manufacturing | 167,700 | Owned | |||||
Grand Prairie, TX | Distribution | 218,400 | Leased | |||||
Houston, TX | Manufacturing | 57,600 | Owned | |||||
Houston, TX | Manufacturing | 46,934 | Owned | |||||
Longview, TX | Manufacturing | 114,000 | Owned | |||||
Simcoe, Ontario | 126,090 | Owned | ||||||
Montreal, Quebec | Distribution | 128,700 | Leased | |||||
Corporate | ||||||||
Atlanta, GA | Corporate headquarters | 24,728 | Leased | |||||
| * | Sold with divestiture of Picoma assets in November 2009. |
Index to Financial Statements
We consider our facilities to be well-maintained and believe we have sufficient capacity to meet our anticipated needs through fiscal 2009.2010. All of our U.S. facility leases and leasehold interests are encumbered by liens securing our obligations under our senior credit facilities.2007 Credit Agreement. Our leased properties have terms expiring at various dates through SeptemberOctober 2017.
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| Item 3. | LEGAL PROCEEDINGS |
We are involved in various legal proceedings that have arisen in the normal course of operations, including the proceedings summarized below. The effect of the outcome of these matters on our future results of operations cannot be predicted with certainty as any such effect depends on future results of operations and the amount and timing of the resolution of such matters. Other than the litigation described below, we do not believe that any of our outstanding litigation would have a material adverse effect on our businesses, operations or prospects.
Environmental.We are subject to a wide variety of laws and regulations concerning the protection of the environment, both with respect to the construction and operation of many of our plants and with respect to remediating environmental conditions that may exist at our own and other properties. We strive to maintain substantial compliancecomply with federal, state and local environmental laws and regulations. We accrue for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and reasonably estimable. These expenses were $4.3 million, $6.8 million $8.0 million and $2.3$8.0 million during fiscal 2009, 2008 2007 and 2006,2007, respectively. We capitalize environmental expenditures that increase the life or efficiency of property or that reduce or prevent environmental contamination. Capital expenditures for environmental requirements are anticipated to be approximately $3.2 million during fiscal 2009.2010. Capitalized environmental-related expenditures were $3.7 million, $2.9 million $16.2 million and $4.7$16.2 million during fiscal 2009, 2008 and 2007, and 2006, respectively.
In September 1987, we implemented an Administrative Consent Order (“ACO”) for our Burlington, New Jersey plant that was required under the New Jersey Environmental Cleanup Responsibility Act (now known as the Industrial Site Recovery Act). The ACO required soil and ground water cleanup, and we have completed, and have received final approval on, the soil cleanup required by the ACO. U.S. Pipe continues to pump and treat ground water at this site. Further remediation could be required. We expect any such remediation costs to be minimal. Long-term ground water monitoring is also required to verify natural attenuation. We do not know how long ground water monitoring will be also required, and do not believe monitoring or further cleanupremediation costs, if any, will have a material adverse effect on our financial condition or results of operations.
In June 2003, Solutia Inc. and Pharmacia Corporation (collectively “Solutia”) filed suit against U.S. Pipe and a number of co-defendant foundry-related companies in the U.S. District Court for the Northern District of Alabama for contribution and cost recovery allegedly incurred and to be incurred by Solutia in performing remediation of polychlorinated biphenyls (“PCBs”) and heavy metals in Anniston, Alabama, pursuant to a partial consent degree with the Environmental Protection Agency (“EPA”). U.S. Pipe and certain co-defendants subsequently reached a settlement with the EPA concerning their liability for certain contamination in and around Anniston, which was memorialized in an AOCAdministrative Order and Order on Consent (“AOC”) that became effective in January 2006. U.S. Pipe has reached a settlement agreement whereby Phelps Dodge Industries, Inc., a co-defendant and co-respondent on the AOC, has assumed U.S. Pipe’s obligation to perform the work required under the AOC.
U.S. Pipe and the other settling defendants contend that the legal effect of the Administrative Order and Order on Consent (“AOC”)AOC extinguishes Solutia’s claims and they filed a motion for summary judgment to that effect. Discovery in this matter was stayed while the motion for summary judgment was pending. The court recently issued a summary judgment order, holding that plaintiffs’ claims for contribution are barred by the AOC but giving plaintiffs the right to seek to recover cleanup costs they voluntarily incurred. The court granted a motion for immediate appeal to the Eleventh Circuit Court of Appeals, but the Eleventh Circuit Court of Appeals declined to take the appeal. We currently have no basis to form a view with respect to the probability or amount of liability in this matter.
Index to Financial Statements
U.S. Pipe and a number of co-defendant foundry-related companies were named in a putative civil class action case originally filed in April 2005 in the Circuit Court of Calhoun County, Alabama, and removed by defendants to the U.S. District Court for the Northern District of Alabama under the Class Action Fairness Act. The putative plaintiffs in the case filed an amended complaint with the U.S. District Court in December 2006. The amended complaint alleged state law tort claims (negligence, failure to warn, wantonness, nuisance, trespass and outrage) arising from the creation and disposal of “foundry sand” alleged to contain harmful levels of PCBs and other toxins, including arsenic, cadmium, chromium, lead and zinc. The plaintiffs originally sought damages for real and personal property and for other unspecified personal injury. OnIn June 4, 2007, a motion to dismiss was granted to U.S. Pipe and certain co-defendants as to the claims for
22
Environmental advocacy groups, relying on standards established by California’s Proposition 65, are seeking to eliminate or reduce the content of lead in water infrastructure products offered for sale in California and other jurisdictions. Some of our subsidiaries previously entered into settlement agreements with these environmental advocacy groups to modify products or offer substitutes for sale in California. California recently passed Assembly Bill No. 1953 that redefines, as of January 1, 2010, the term “lead free” to refer to a weighted average lead content of the wetted surface area of the pipes, fittings and fixtures of not more than 0.25%. Mueller Co. ceased shipments of brass products not complying with this standard to customers in California in fiscal 2009. Legislation to substantially restrict lead content in water infrastructure products also has been introduced in the U.S. Congress. Congress or state jurisdictionslegislatures may enact similar legislation to restrict the content of lead in water products.products, which could require us to incur additional costs to modify production. Although Mueller Co. now produces no-lead“lead free” brass products, most of Mueller Co.’s brass valve products contain small amounts of lead.
In March 2004, Anvil entered into a Consent Order with the Georgia Department of Natural Resources regarding alleged hazardous waste violations at Anvil’s former foundry facility in Statesboro, Georgia. Pursuant to the Consent Order, we agreed to pay a monetary fine of $50,000 and pay an additional $50,000 to fund a supplemental environmental project. We have also agreed to perform various investigatory and remedial actions at our former foundry and landfill. TheseThe total estimated costs have been accrued.
Although no assurancesassurance can be given that we will not be required in the future to make material expenditures relating to environmental laws or legally mandated site cleanup, we do not believe at this time that the compliance and cleanup costs, if any, associated with the current laws and sites for which we have cleanup liability or any other future sites will have a material adverse effect on our financial condition or results of operations.
Some of our subsidiaries have been named as defendants in asbestos-related lawsuits. We do not believe these lawsuits, either individually or in the former insurer agreedaggregate, are material to pay $1.6 million and $5.1 million, respectively, netour consolidated financial position or results of legal fees, to us for historical insurance claims we had previously expensed as incurred. Such claims had not previously been submitted to the insurance company for reimbursement. We released the insurer of both past and future claims.
In the acquisition agreement pursuant to which a predecessor to Tyco International Ltd. (“Tyco”) sold our Mueller Co. and Anvil businesses to the prior owners of these businesses in August 1999, Tyco agreed to indemnify usMueller Co., Anvil and ourtheir affiliates, among other things, for all “Excluded Liabilities.” Excluded Liabilities include, among other things, substantially all liabilities of Mueller Co., Anvil and their affiliates relating to the time prior to August 1999.1999, including environmental liabilities. The indemnity survives indefinitely and is not subject to any deductibles or caps. However, we may be responsible for these liabilities in the event that Tyco ever becomes financially unable to or otherwise fails to comply with the terms of the indemnity.indefinitely. In addition, Tyco’s indemnity does not cover liabilities to the extent caused by us or the operation of our businesses after August 1999, nor does it cover liabilities arising with respect to businesses or sites acquired
Index to Financial Statements
after August 1999. In June 2007, Tyco was separated into three separate publicly traded companies. Should the entity or entities that assumed Tyco’s obligations under the acquisition agreement eversuccessors become financially unable or fail to comply with the terms of the indemnity, we may be responsible for such obligations or liabilities.
Other Litigation.We are parties to a number of other lawsuits arising in the ordinary course of our businesses, including product liability cases for products manufactured by us or third parties. We provide for costs relating to these matters when a loss is probable and the amount is reasonably estimable. Administrative costs related to these matters are expensed as incurred. The effect of the outcome of these matters on our
23
| Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matters were submitted to a vote of security holders during the quarter ended September 30, 2008.
| Item 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our Series A common stock has been listed on the New York Stock Exchange under the trading symbol MWA since May 26, 2006. OurThe shares of Series A common stock had identical rights as shares of Series B common stock except that the Series A common stock has been listed onone vote per share and the New York Stock Exchange under the trading symbol MWA.B since December 14, 2006. Series B common stock had eight votes per share. On January 28, 2009, each share of Series B common stock was converted into one share of Series A common stock.
Covenants contained in certain of the debt instruments referred to in Note 78 of “Notes to Consolidated Financial Statements” may restrict the amount we can pay in cash dividends. Future dividends will be declared at the discretion of our Board of Directors and will depend on our future earnings, financial condition and other factors.
The range of high and low intraday sales prices of the Series A and Series Bour common stock and the dividends declared per share is presented below.
| Series A | Series B | Dividends | ||||||||||||||||||
| High | Low | High | Low | per share | ||||||||||||||||
| Year ended September 30, 2008: | ||||||||||||||||||||
| 4th quarter | $ | 12.71 | $ | 7.12 | $ | 11.71 | $ | 5.48 | $ | 0.0175 | ||||||||||
| 3rd quarter | 10.53 | 7.50 | 10.05 | 7.32 | 0.0175 | |||||||||||||||
| 2nd quarter | 9.60 | 6.64 | 10.12 | 7.50 | 0.0175 | |||||||||||||||
| 1st quarter | 14.18 | 8.98 | 11.98 | 8.35 | 0.0175 | |||||||||||||||
| Year ended September 30, 2007: | ||||||||||||||||||||
| 4th quarter | $ | 16.73 | $ | 11.77 | $ | 15.00 | $ | 10.47 | $ | 0.0175 | ||||||||||
| 3rd quarter | 19.35 | 13.56 | 15.99 | 13.25 | 0.0175 | |||||||||||||||
| 2nd quarter | 16.06 | 13.63 | 15.87 | 13.39 | 0.0175 | |||||||||||||||
| 1st quarter | 16.34 | 13.16 | 15.03 | 14.61 | 0.0175 | |||||||||||||||
| Series A | Series B | Dividends per share | |||||||||||||||
| High | Low | High | Low | ||||||||||||||
Year ended September 30, 2009: | |||||||||||||||||
4th quarter | $ | 5.81 | $ | 2.52 | $ | NA | $ | NA | $ | 0.0175 | |||||||
3rd quarter | 5.17 | 3.05 | NA | NA | 0.0175 | ||||||||||||
2nd quarter | 8.47 | 1.48 | 8.42 | * | 6.28 | * | 0.0175 | ||||||||||
1st quarter | 9.07 | 3.40 | 8.44 | 3.33 | 0.0175 | ||||||||||||
Year ended September 30, 2008: | |||||||||||||||||
4th quarter | $ | 12.71 | $ | 7.12 | $ | 11.71 | $ | 5.48 | $ | 0.0175 | |||||||
3rd quarter | 10.53 | 7.50 | 10.05 | 7.32 | 0.0175 | ||||||||||||
2nd quarter | 9.60 | 6.64 | 10.12 | 7.50 | 0.0175 | ||||||||||||
1st quarter | 14.18 | 8.98 | 11.98 | 8.35 | 0.0175 | ||||||||||||
| * | Through January 28, 2009. |
Index to Financial Statements
At September 30, 2008,2009, there were 23146 stockholders of record for our Series A common stock and 122 stockholders of record for our Series B common stock.
The information regarding our compensation plans under which equity securities are authorized for issuance is set forth in “Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCHOLDERSTOCKHOLDER MATTERS”.
We did not issue any unregistered securities during the year ended September 30, 2008.24
During the three months ended September 30, 2008,2009, we repurchased shares of our Series A common stock as presented below.
| Total number | Maximum | |||||||||||||||
| of shares | number of | |||||||||||||||
| purchased as | shares that may | |||||||||||||||
| Number of | Average | part of publicly | yet be purchased | |||||||||||||
| shares | price paid | announced plans | under the plans | |||||||||||||
| Period | purchased (1) | per share | or programs | or programs | ||||||||||||
| July 1-31, 2008 | 774 | $ | 9.10 | - | - | |||||||||||
| August 1-31, 2008 | - | - | - | - | ||||||||||||
| September 1-30, 2008 | - | - | - | - | ||||||||||||
Period | Number of shares purchased (1) | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs | |||||
July 1-31, 2009 | 848 | $ | 3.58 | - | - | ||||
August 1-31, 2009 | 904 | 3.94 | - | - | |||||
September 1-30, 2009 | - | - | - | - | |||||
(1) Consists of shares surrendered to the Company to pay the tax withholding obligations in connection with the vesting of restricted stock units issued to employees.
Index to Financial Statements
The following line Total return values were calculated based on cumulative total return assuming (i) the investment of $100 in our common stock, the Russell 2000 and the DJ Building Materials & Fixtures on the dates indicated and (ii) reinvestment of all dividends.graphs comparegraph compares the cumulative quarterly stock market performance of our Series A common stock and our Series B common stock with the Russell 2000 Stock Index (“Russell 2000”) and the Dow Jones U.S. Building Materials & Fixtures Index (“DJ Building Materials & Fixtures”). Our Series A common stock first traded on May 30, 2006 and our Series B common stock first traded on December 15,June 1, 2006.25
26
27
Index to Financial Statements
| Item 6. | SELECTED FINANCIAL DATA |
On October 3, 2005, Walter IndustriesEnergy, Inc. (“Walter Industries”Energy”, formerly Walter Industries, Inc.) acquired all outstanding shares of capital stock representing the Mueller Co. and Anvil businesses and contributed its U.S. Pipe business to form the Company as it currently exists. U.S. Pipe was deemed the acquirer of Mueller Co. and Anvil. Accordingly, U.S. Pipe’s historical financial information is used for the Company prior to October 3, 2005. The Company’s results of operations include Mueller Co. and Anvil beginning October 3, 2005. Net income (loss) per share was determined using 85.8 million shares outstanding for all periods prior to our initial public offering in June 2006. Effective September 30, 2005, the Company changed its fiscal year end to September 30. This change resulted in a nine month fiscal period in 2005. The nine months ended September 30, 2004 (unaudited) are shown for comparative purposes only. The selected financial and other data presented below should be read in conjunction with, and are qualified by reference to, “Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” and the consolidated financial statements and notes thereto included elsewhere in this annual report.
| Nine months ended | Year ended | |||||||||||||||||||||||||||
| Year ended September 30, | September 30, | Dec. 31, | ||||||||||||||||||||||||||
| 2008 | 2007 | 2006 | 2005 | 2005 | 2004 | 2004 | ||||||||||||||||||||||
| (in millions, except per share data) | ||||||||||||||||||||||||||||
| Statement of operations data: | ||||||||||||||||||||||||||||
| Net sales | $ | 1,859.3 | $ | 1,849.0 | $ | 1,933.4 | $ | 598.1 | $ | 456.9 | $ | 437.2 | $ | 578.4 | ||||||||||||||
| Cost of sales (a) | 1,420.3 | 1,385.8 | 1,525.7 | 530.7 | 402.2 | 402.9 | 531.4 | |||||||||||||||||||||
| Gross profit | 439.0 | 463.2 | 407.7 | 67.4 | 54.7 | 34.3 | 47.0 | |||||||||||||||||||||
| Selling, general and administrative expenses (b) | 274.6 | 253.2 | 250.1 | 46.4 | 31.3 | 30.7 | 45.9 | |||||||||||||||||||||
| Restructuring charges (c) | 18.3 | - | 28.6 | - | - | 0.1 | 0.1 | |||||||||||||||||||||
| Income from operations | 146.1 | 210.0 | 129.0 | 21.0 | 23.4 | 3.5 | 1.0 | |||||||||||||||||||||
| Interest expense, net | 72.4 | 86.8 | 107.4 | 0.4 | 0.3 | 0.4 | 0.5 | |||||||||||||||||||||
| Interest expense due to Walter Industries | - | - | - | 21.1 | 15.2 | 13.0 | 18.9 | |||||||||||||||||||||
| Loss on early extinguishment of debt | - | 36.5 | 8.5 | - | - | - | - | |||||||||||||||||||||
| Income (loss) before income taxes | 73.7 | 86.7 | 13.1 | (0.5 | ) | 7.9 | (9.9 | ) | (18.4 | ) | ||||||||||||||||||
| Income tax expense (benefit) | 31.7 | 38.5 | 8.0 | 3.9 | 2.8 | (3.9 | ) | (2.9 | ) | |||||||||||||||||||
| Net income (loss) | $ | 42.0 | $ | 48.2 | $ | 5.1 | $ | (4.4 | ) | $ | 5.1 | $ | (6.0 | ) | $ | (15.5 | ) | |||||||||||
| Basic and diluted net income (loss) per share | $ | 0.36 | $ | 0.42 | $ | 0.05 | $ | (0.05 | ) | $ | 0.06 | $ | (0.07 | ) | $ | (0.18 | ) | |||||||||||
| Other data: | ||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 93.1 | $ | 101.4 | $ | 96.9 | $ | 25.9 | $ | 19.4 | $ | 20.0 | $ | 26.5 | ||||||||||||||
| Capital expenditures | 88.1 | 88.3 | 71.1 | 24.4 | 16.5 | 12.4 | 20.4 | |||||||||||||||||||||
| Balance sheet data (at September 30): | ||||||||||||||||||||||||||||
| Cash and cash equivalents (d) | 183.9 | 98.9 | 81.4 | - | 0.1 | - | ||||||||||||||||||||||
| Working capital | 755.6 | 709.7 | 680.0 | 188.7 | 176.6 | 163.5 | ||||||||||||||||||||||
| Property, plant and equipment, net | 356.8 | 351.8 | 337.0 | 149.2 | 152.2 | 152.9 | ||||||||||||||||||||||
| Total assets | 3,090.2 | 3,009.2 | 2,989.9 | 514.7 | 491.6 | 473.5 | ||||||||||||||||||||||
| Amount due to Walter Industries | - | - | 3.6 | 443.6 | 435.4 | 422.8 | ||||||||||||||||||||||
| Total liabilities | 1,761.3 | 1,698.2 | 1,762.9 | 669.9 | 626.7 | 618.6 | ||||||||||||||||||||||
| Total equity (deficit) | 1,328.9 | 1,311.0 | 1,227.0 | (155.2 | ) | (135.1 | ) | (145.1 | ) | |||||||||||||||||||
| Fiscal year ended September 30, | |||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 (a) | |||||||||||||
| (in millions, except per share data) | |||||||||||||||||
Statement of operations data: | |||||||||||||||||
Net sales | $ | 1,427.9 | $ | 1,859.3 | $ | 1,849.0 | $ | 1,933.4 | $ | 456.9 | |||||||
Cost of sales (b) | 1,171.0 | 1,420.3 | 1,385.8 | 1,525.7 | 402.2 | ||||||||||||
Gross profit | 256.9 | 439.0 | 463.2 | 407.7 | 54.7 | ||||||||||||
Selling, general and administrative expenses (c) | 239.1 | 274.6 | 253.2 | 250.1 | 31.3 | ||||||||||||
Impairment charges (d) | 970.9 | - | - | - | - | ||||||||||||
Restructuring charges (e) | 47.8 | 18.3 | - | 28.6 | - | ||||||||||||
Income (loss) from operations | (1,000.9 | ) | 146.1 | 210.0 | 129.0 | 23.4 | |||||||||||
Interest expense, net | 78.3 | 72.4 | 86.8 | 107.4 | 15.5 | ||||||||||||
Loss on early extinguishment of debt | 5.3 | - | 36.5 | 8.5 | - | ||||||||||||
Gain on repurchase of debt | (1.5 | ) | - | - | - | - | |||||||||||
Income (loss) before income taxes | (1,083.0 | ) | 73.7 | 86.7 | 13.1 | 7.9 | |||||||||||
Income tax expense (benefit) | (86.3 | ) | 31.7 | 38.5 | 8.0 | 2.8 | |||||||||||
Net income (loss) | $ | (996.7 | ) | $ | 42.0 | $ | 48.2 | $ | 5.1 | $ | 5.1 | ||||||
Net income (loss) per share: | |||||||||||||||||
Basic and diluted | $ | (8.55 | ) | $ | 0.36 | $ | 0.42 | $ | 0.05 | $ | 0.06 | ||||||
Weighted average shares outstanding: | |||||||||||||||||
Basic (f) | 116.6 | 115.1 | 114.7 | 95.5 | 85.8 | ||||||||||||
Diluted (f) | 116.6 | 115.5 | 115.3 | 95.5 | 85.8 | ||||||||||||
Other data: | |||||||||||||||||
Depreciation and amortization | $ | 90.2 | $ | 93.1 | $ | 101.4 | $ | 96.9 | $ | 19.4 | |||||||
Capital expenditures | 39.7 | 88.1 | 88.3 | 71.1 | 16.5 | ||||||||||||
Cash dividends declared per share (g) | 0.07 | 0.07 | 0.07 | 5.32 | - | ||||||||||||
Balance sheet data (at September 30): | |||||||||||||||||
Cash and cash equivalents (h) | 61.5 | 183.9 | 98.9 | 81.4 | - | ||||||||||||
Working capital | 525.3 | 755.6 | 709.7 | 680.0 | 188.7 | ||||||||||||
Property, plant and equipment, net | 296.4 | 356.8 | 351.8 | 337.0 | 149.2 | ||||||||||||
Total assets | 1,739.5 | 3,090.2 | 3,009.2 | 2,989.9 | 514.7 | ||||||||||||
Total debt | 740.2 | 1,095.5 | 1,100.5 | 1,127.3 | - | ||||||||||||
Long-term obligations | 902.4 | 1,170.8 | 1,150.6 | 1,229.2 | 560.9 | ||||||||||||
Total liabilities | 1,303.2 | 1,761.3 | 1,698.2 | 1,762.9 | 669.9 | ||||||||||||
Total equity (deficit) | 436.3 | 1,328.9 | 1,311.0 | 1,227.0 | (155.2 | ) | |||||||||||
| (a) | Effective September 30, 2005, we changed our fiscal year end to September 30. This change resulted in a nine month fiscal year in 2005. |
Index to Financial Statements
| (b) | The year ended September 30, 2006 includes |
| (d) | In fiscal 2009, goodwill was determined to be fully impaired resulting in charges of $717.3 million for Mueller Co., $92.7 million for Anvil and $59.5 million for U.S. Pipe. Mueller Co.’s trademarks and trade names were determined to be partially impaired resulting in a charge of $101.4 million. |
| (e) | The year ended September 30, | |
| $9.3 million of primarily severance costs related to Company-wide workforce reductions in response to lower demand for our products. The year ended September 30, 2008 includes $18.3 million to cease manufacturing operations at U.S. Pipe’s Burlington, New Jersey facility. The year ended September 30, 2006 includes $28.6 million to close U.S. Pipe’s Chattanooga, Tennessee plant and transfer the valve and fire hydrant production of that plant to Mueller Co.’s Chattanooga, Tennessee and Albertville, Alabama plants. |
| (f) | The 85,844,920 shares of Series B common stock distributed to Walter Energy in December 2006 were deemed the only equity securities outstanding for the fiscal year ended September 30, 2005. |
| During the year ended September 30, 2006, the Company declared dividends of $456.5 million to its owner at that time, Walter Energy. The 85,844,920 shares of Series B common stock distributed to Walter Energy in December 2006 were deemed the only equity securities outstanding when these dividends were paid. |
| (h) | Prior to October 3, 2005, the Company’s cash and cash equivalents were transferred daily to Walter |
28
Index to Financial Statements
| Item 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto that appear elsewhere in this annual report. This report contains certain statements that may be deemed “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. All statements, other than statements of historical fact, that address activities, events or developments that the Company’s management intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by management in light of their experience and their perception of historical trends, current conditions and expected future developments. Actual results and the timing of events may differ significantly from those projected in such forward-looking statements due to a number of factors, including those set forth in the section entitled “RISK FACTORS” in Item 1A of Part I of this annual report.
On October 3, 2005, Walter References to a fiscal year refer to the 12 months ended September 30 of that calendar year. Business The Company is a leading North American manufacturer and marketer of a broad range of water infrastructure, flow control and piping component system products for use in water distribution networks and water treatment facilities. We manage our businesses and report operations through three business segments, based largely Mueller Co. Mueller Co. U.S. Pipe. U.S. Pipe Anvil. Anvil OverviewIndustriesEnergy, Inc. (“Walter Industries”Energy”, formerly Walter Industries, Inc.) acquired all outstanding shares of capital stock representing the Mueller Co. and Anvil businesses and contributed them to its U.S. Pipe business to form the Company as it currently exists. In December 2006, Walter IndustriesEnergy distributed to its shareholders all of its equity interests in the Company, consisting of all of the Company’s outstanding shares of Series B common stock.onupon the products that they sell and the customers that they serve: Mueller Co., U.S. Pipe and Anvil.producesmanufactures and sells, primarily through distributors, valves, fire hydrants and related products primarily to the water and wastewater infrastructure markets. Mueller Co.’s sales are driven principally by spending on water and wastewater infrastructure upgrade, repair and replacement and construction of new water and wastewater infrastructure. Effective January 1, 2006, U.S. Pipe transferred its valve and hydrant business to Mueller Co. Management estimates that a majority of Mueller Co.’s fiscal 2008 sales was for infrastructure upgrade, repair and replacement and the remainder for new infrastructure. A significant portion of Mueller Co.’s sales are made through its distributors. For most of Mueller Co.’s products, end-users choose the brand or establish product specifications. Management believes Mueller Co.’s reputation for quality, extensive distributor relationships, brand, installed base and coordinated marketing approach have helped Mueller Co. products to be “specified” as an approved product for use in most major metropolitan areas throughout the United States. Approximately 19%, 16% and 12% of Mueller Co.’s net sales were to Canadian customers in fiscal 2008, 2007 and 2006 respectively.producesmanufactures ductile iron pipe, restraint joints and related products and sells these products and fittings to water infrastructure and wastewater customers. U.S. Pipe products are sold primarily to waterworks distributors, contractors, municipalities, utilities and other governmental agencies. A substantial percentage of ductile iron pipe orders result from contracts that are bid by contractors or directly issued by municipalities or utilities. To support its customers’ inventory and delivery requirements, U.S. Pipe uses numerous storage depots throughout the country. Management estimates that a majority of U.S. Pipe’s fiscal 2008 sales were for new infrastructure, with the remainder for infrastructure upgrade, repair and replacement. U.S. Pipe acquired the assets of Fast Fabricators, Inc. (“Fast Fabricators”) in January 2007.produces ormanufactures and sources pipe, fittings, pipe hangers and pipe nipples and a variety of related products and sells these products, primarily through distributors, to a wide variety of end users, including non-residential construction contractors,29
Developments and Trends
The impact of Anvilthe overall weakness of the U.S. economy on our end markets continues to affect our operations adversely. Net sales have decreased significantly from fiscal 2008 levels. Our manufacturing
Index to Financial Statements
operations include significant fixed costs. As shipment volumes decline, these fixed costs represent a relatively higher percentage of total costs to manufacture our products and our profitability is reduced. Reduced profitability consumes our available capital, weakens our financial position and adversely affects compliance with the financial covenants contained in our credit agreements and indentures. See “Liquidity and Capital Resources” for a detailed description of these financial covenants.
We are driven principally by spending ondependent upon residential and municipal water infrastructure construction activities, which are seasonal due to the impact of cold weather conditions. Net sales and operating results have historically been lowest in the three month periods ending December 31 and March 31 when the northern United States and all of Canada generally experience weather that significantly restricts construction activity.
A significant portion of our net sales is directly related to residential construction, municipal water infrastructure and non-residential construction including commercial, industrial, institutionalactivity in the United States. Various external sources forecast annualized housing starts increase 12% to 40% in calendar 2010 compared to calendar 2009. We expect our related sales to lag any recovery in the residential construction market. In addition, we believe municipal water infrastructure spending could be influenced by an increase in demand in the second half of fiscal 2010 primarily driven by stimulus spending. We also expect non-residential construction to decrease in fiscal 2010 as a result of a slowdown in general economic activity. Independent forecasts of calendar 2010 non-residential construction activity indicate a decline of 16% compared to calendar 2009.
As a result, most of our manufacturing facilities are operating significantly below their optimal capacities. Since the end of fiscal 2008, we have reduced headcount, consolidated facilities, reduced operating days and energy projects. Approximately 71%, 72%reduced overall spending activities in response to lower demand for our products. During the third and 74%fourth quarters of Anvil’s net sales werefiscal 2009, however, we increased production at Mueller Co. and U.S. Pipe compared to customersthe second quarter due to a seasonal uptick in demand. We continually monitor our production activities in response to evolving business conditions and expect to take additional steps to improve inventory turns. Restructuring actions at U.S. Pipe’s North Birmingham facility resulted in lower fixed costs, reduced capacity and a $38.5 million non-cash restructuring charge, primarily for impairment of property, plant and equipment, during the year ended September 30, 2009.
In addition to reduced demand in water infrastructure markets, we believe our distributors have also reduced their inventory levels in response to current economic conditions. We expect our distributors to maintain lower inventory levels for the near future.
We test our goodwill and other noncurrent assets for possible impairment at least annually as of September 1 and more frequently in the event that certain conditions exist indicating impairment may have occurred. The testing is a two-step process. Step 1 compares the fair value of a reporting unit to its carrying value. We have identified each of our segments as a reporting unit. Step 2 is a more detailed analysis of the fair value of each reporting unit’s individual assets and liabilities and is performed if Step 1 indicates possible impairment. Our Step 1 testing as of September 1, 2008 did not indicate possible impairment. Subsequent to September 1, 2008, equity markets in the United States and our stock market capitalization in particular decreased significantly. We considered these decreases as such a condition to perform interim impairment testing. Our valuation for the Company was based on a combination of our estimate of our future cash flows and the market comparable valuations of similar companies. Our estimate of future cash flows extends a number of years into the future. These estimates are complex, subjective and uncertain and reflect our estimate of the business conditions in the future, over which we may have very little control. Choosing an appropriate discount rate to apply to these estimated cash flows is also complex and subjective. We use our estimated future cash flows as the best information of future cash flows available to our investors. We use the market comparable valuations as a reasonable method to value the risks investors perceive in companies like ours. We weight our cash flow estimates at least as heavily as the market comparable data. At December 31, 2008, our Step 1 testing indicated possible impairment so we proceeded to Step 2 testing.
Index to Financial Statements
At December 31, 2008, we reported estimated goodwill impairment charges of $59.5 million for U.S. Pipe, completely impairing its goodwill, and $340.5 million against Mueller Co.’s prior goodwill balance of $718.4 million, subject to additional fair value analysis. Any additional impairment charge was not expected to exceed $200 million. During the three months ended March 31, 2009, however, our common stock began trading at prices significantly lower than prior periods, especially beginning in February. Our lower market capitalization prompted us to perform a second interim impairment assessment at March 31, 2009. This testing led to the conclusion that all of our remaining goodwill was fully impaired. During the three months ended March 31, 2009, we recorded additional goodwill impairment charges of $376.8 million for Mueller Co. and $92.7 million for Anvil.
In conjunction with the testing of goodwill for impairment, we also compared the estimated fair values of our identified other intangible assets to their respective carrying values and determined that the carrying amount of trademarks and trade names at Mueller Co. had been impaired. At March 31, 2009, we recorded an impairment charge against these assets of $101.4 million. Mueller Co.’s trademarks and trade names have a remaining carrying value of $263.0 million at September 30, 2009.
A significant portion of our pension plan assets is invested in equity securities. The overall deterioration of U.S. and international equity markets in the latter part of 2008 and early 2009 caused the fair market value of these assets to decline. If equity markets continue to perform poorly, we will reduce our estimated long-term rate of return on these assets, which will cause pension expense to increase and require higher levels of Company contributions to these plans. We may also allocate more of the pension plan assets to fixed income investments. Fixed income investments generally provide a lower rate of return than equity investments. Therefore, we lowered our expected return on plan assets to 8.0%. This change was less than 1%. Changes in pension expense and contribution requirements may be spread over many years. Our estimated long-term rate of return on pension plan assets is based on historical data over many years, forward-looking information and the investment allocations of the pension plan assets. The total market value of our U.S. pension plan assets was $270.0 million and $270.9 million at September 30, 2009 and September 30, 2008, respectively. During the year ended September 30, 2009, the investment performance of these assets was a gain of $0.2 million. We currently estimate contributing approximately $23 million to $25 million to our U.S. pension plans during fiscal 2008,2010
We amended our 2007 Credit Agreement in June 2009. The amendment resulted in, among other things, increased covenant flexibility and 2006, respectively. Approximately 26%increased interest rates. We prepaid $125 million of borrowings under the 2007 Credit Agreement in June. As part of our ongoing efforts to reduce leverage, we prepaid an additional $50 million in August 2009 and $168 million in September 2009. Interest rate spreads are significantly higher under the amended 2007 Credit Agreement. At September 30, 2009, the applicable margin on outstanding borrowings under the amended 2007 Credit Agreement, as 550 basis points, which was 375 basis points higher than the applicable margin immediately prior to the date of the amendment.
On November 24, 2009, we signed an agreement to sell Anvil’s Mueller Flow Control (“MFC”) business for C$48.8 million, subject to post closing adjustments. This transaction is expected to be completed in January 2010. MFC is a wholesale distributor in Canada and primarily sells third party sourced products and products manufactured by Anvil, Mueller Co. and their subsidiaries directly to contractors and other end use customers. MFC’s fiscal 2009 net sales were approximately $107 million and operating results were not material. MFC had approximately $42 million of net assets at September 30, 2009 consisting principally of $19.3 million of receivables, $25.2 million of inventories, $4.7 million of property, plant and equipment, $3.5 million of identifiable intangible assets and $10.7 million of accounts payable and accrued liabilities. In connection with this agreement, Anvil will also enter into a supply agreement with the buyer requiring the buyer to Canadian customers during fiscal 2008, 2007 and 2006.
30/2 year period.
Index to Financial Statements
Year Ended September 30, 2009 Compared to Year Ended September 30, 2008
| Year ended September 30, 2009 | ||||||||||||||||||||
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
Net sales | $ | 547.1 | $ | 410.9 | $ | 469.9 | $ | - | $ | 1,427.9 | ||||||||||
Gross profit (loss) | $ | 134.3 | $ | (5.7 | ) | $ | 128.2 | $ | 0.1 | $ | 256.9 | |||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative | 84.2 | 35.6 | 84.9 | 34.4 | 239.1 | |||||||||||||||
Impairment | 818.7 | 59.5 | 92.7 | - | 970.9 | |||||||||||||||
Restructuring | 2.0 | 41.6 | 4.0 | 0.2 | 47.8 | |||||||||||||||
| 904.9 | 136.7 | 181.6 | 34.6 | 1,257.8 | ||||||||||||||||
Loss from operations | $ | (770.6 | ) | $ | (142.4 | ) | $ | (53.4 | ) | $ | (34.5 | ) | (1,000.9 | ) | ||||||
Interest expense, net | 78.3 | |||||||||||||||||||
Loss on early extinguishment of debt | 5.3 | |||||||||||||||||||
Gain on repurchase of debt | (1.5 | ) | ||||||||||||||||||
Loss before income taxes | (1,083.0 | ) | ||||||||||||||||||
Income tax benefit | (86.3 | ) | ||||||||||||||||||
Net loss | $ | (996.7 | ) | |||||||||||||||||
| Year ended September 30, 2008 | ||||||||||||||||||||
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
Net sales | $ | 718.1 | $ | 546.0 | $ | 595.2 | $ | - | $ | 1,859.3 | ||||||||||
Gross profit | $ | 218.4 | $ | 43.8 | $ | 176.2 | $ | 0.6 | $ | 439.0 | ||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative | 90.0 | 42.9 | 102.1 | 39.6 | 274.6 | |||||||||||||||
Restructuring | - | 18.3 | - | - | 18.3 | |||||||||||||||
| 90.0 | 61.2 | 102.1 | 39.6 | 292.9 | ||||||||||||||||
Income (loss) from operations | $ | 128.4 | $ | (17.4 | ) | $ | 74.1 | $ | (39.0 | ) | 146.1 | |||||||||
Interest expense, net | 72.4 | |||||||||||||||||||
Income before income taxes | 73.7 | |||||||||||||||||||
Income tax expense | 31.7 | |||||||||||||||||||
Net income | $ | 42.0 | ||||||||||||||||||
Index to Financial Statements
Consolidated Analysis
Net sales. Net sales for the year ended September 30, 2009 were $1,427.9 million compared to $1,859.3 million in the prior year. Net sales decreased primarily due to $485.7 million of lower shipment volumes and $30.2 million due to unfavorable changes in Canadian currency exchange rates partially offset by $84.5 million of higher prices.
Gross profit. Gross profit for the year ended September 30, 2009 was $256.9 million compared to $439.0 million in the prior year. Gross profit decreased $151.9 million due to lower shipment volumes, $106.7 million due to higher per-unit overhead costs due to lower production and $48.9 million due to higher raw material costs. These decreases were partially offset by higher sales prices and $45.2 million of manufacturing cost saving actions. Gross margin decreased to 18.0% for the year ended September 30, 2009 compared to 23.6% in the prior year. Gross margin decreased approximately 3 percentage points due to lower shipments of relatively high margin products and higher per-unit overhead costs at Mueller Co. and decreased approximately 3 percentage points primarily due to higher per-unit overhead costs at U.S. Pipe.
Selling, general and administrative expense. Selling, general and administrative expenses for the years ended September 30, 2009 and 2008 were $239.1 million and $274.6 million, respectively. Anvil recognized a $3.5 million gain from the sale of a building during the year ended September 30, 2009. We recognized bad debt expense of $3.9 million related to a specific customer and non-recurring professional fees of $1.2 million related to the conversion of Series B common stock into Series A common stock during the year ended September 30, 2009. Other decreases in selling, general and administrative expenses for the year ended September 30, 2009 compared to the prior year were due to lower shipment volumes and personnel related and other cost saving actions.
Impairment. During the year ended September 30, 2009, we recorded impairment charges of $970.9 million.
Restructuring. We suspended production throughout the Company for varying time periods during the year ended September 30, 2009 in response to reduced demand for our products, implemented temporary wage reductions, furloughs and reduced work weeks for certain employees and reduced headcount by approximately 17%. Restructuring charges recorded during the year ended September 30, 2009 totaled $47.8 million. Restructuring activities at U.S. Pipe’s North Birmingham facility resulted in lower fixed costs, reduced capacity and a $38.5 million non-cash restructuring charge, primarily for impairment of property, plant and equipment. Restructuring charges of $18.3 million during the year ended September 30, 2008 related to the closure of manufacturing operation in Burlington, New Jersey.
Interest Expense, Net. The components of interest expense, net for the years ended September 30, 2009 and 2008 are presented below.
| Year ended September 30, | ||||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
2007 Credit Agreement interest, including swap contracts | $ | 37.6 | $ | 40.7 | ||||
7 3/8% Senior Subordinated Notes interest | 31.0 | 31.3 | ||||||
Recognition of deferred expense on terminated interest rate swap contracts | 6.3 | - | ||||||
Deferred financing fee amortization | 2.2 | 1.7 | ||||||
Capitalized interest | - | (1.0 | ) | |||||
Other interest expense | 2.9 | 3.8 | ||||||
Interest income | (1.7 | ) | (4.1 | ) | ||||
| $ | 78.3 | $ | 72.4 | |||||
Index to Financial Statements
Loss on early extinguishment of debt. The loss on the early extinguishment of debt includes write-offs of $5.3 million of unamortized deferred finance fees in connection with the June 2009 amendment to our 2007 Credit Agreement and subsequent prepayments of amounts outstanding under the amended 2007 Credit Agreement during the year ended September 30, 2009.
Gain on repurchase of debt. In November 2008, we repurchased $5.0 million in principal of the 7 3/8% Senior Subordinated Notes resulting in a gain of $1.5 million.
Income tax benefit. The income tax benefit of $86.3 million during the year ended September 30, 2009 represented an effective income tax rate of 8.0%. There was very limited tax benefit associated with the goodwill impairment. Excluding goodwill impairment, the effective tax rate for the year ended September 30, 2009 would have been approximately 38% compared to the federal statutory rate of 35%. The effective tax rate for the year ended September 30, 2008 was approximately 43%.
Segment Analysis
Mueller Co.
Net sales for the year ended September 30, 2009 were $547.1 million compared to $718.1 million in the prior year. Lower shipment volumes of $196.1 million were partially offset by higher sales prices of $33.0 million. Lower shipment volumes occurred for iron gate valves, fire hydrants and brass service products.
Gross profit for the year ended September 30, 2009 was $134.3 million compared to $218.4 million in the prior year. Gross profit decreased $76.3 million due to lower shipment volumes, $44.5 million due to higher per-unit overhead costs due to lower production and $12.9 million due to higher raw material costs, partially offset by higher sales prices of $33.0 million and manufacturing cost saving actions of $21.5 million. Gross margin was 24.5% for the year ended September 30, 2009 compared to 30.4% in the prior year. Higher per-unit overhead costs reduced gross margin by approximately 5 percentage points and changes in product mix reduced gross margin by approximately 3 percentage points. Higher sales prices in excess of higher raw material costs increased gross margin by approximately 2 percentage points.
During the year ended September 30, 2009, we recorded impairment and restructuring charges of $820.7 million.
Excluding the impairment and restructuring charges, income from operations during the year ended September 30, 2009 was $50.1 million compared to $128.4 million in the prior year. This decline was primarily due to decreased gross profit.
U.S. Pipe
Net sales for the year ended September 30, 2009 were $410.9 million compared to $546.0 million in the prior year. Net sales decreased $149.8 million due to lower shipment volumes, but increased $14.7 million due to higher prices.
Gross loss for the year ended September 30, 2009 was $5.7 million compared to gross profit of $43.8 million in the prior year. Gross profit decreased $38.0 million due to lower shipment volumes, $30.7 million due to higher per-unit overhead costs due to lower production and $15.5 million due to higher raw material costs. These decreases were partially offset by $17.0 million of manufacturing cost saving actions and $14.7 million of higher sales prices. Gross margin was (1.4)% for the year ended September 30, 2009 compared to 8.0% in the prior year. Gross margin decreased approximately 6 percentage points due to changes in product mix and decreased approximately 3 percentage points due to higher per-unit overhead costs.
During the year ended September 30, 2009, we recorded impairment and restructuring charges of $101.1 million.
Index to Financial Statements
Excluding the impairment and restructuring charges, results from operations decreased $42.2 million during the year ended September 30, 2009 compared to the prior year. This decrease was due to $49.5 million of lower gross profit partially offset by $7.3 million of lower selling, general and administrative expenses. Selling, general and administrative expenses declined due to lower shipment volumes and cost saving actions.
Anvil
Net sales for the year ended September 30, 2009 were $469.9 million compared to $595.2 during the prior year. Net sales decreased $139.8 million due to lower shipment volumes and $22.3 million due to unfavorable changes in Canadian currency exchange rates. These factors were partially offset by $36.8 million of higher prices.
Gross profit for the year ended September 30, 2009 was $128.2 million compared to $176.2 million in the prior year. Gross profit decreased $37.6 million due to lower shipment volumes, $31.5 million due to higher per-unit overhead costs due to lower production and $20.5 million due to higher raw material costs. These decreases were partially offset by $36.8 million of higher sales prices and $6.7 million of manufacturing cost saving actions. Gross margin was 27.3% in the year ended September 30, 2009 compared to 29.6% in the prior year. Gross margin increased approximately 1 percentage point due to changes in product mix, increased approximately 1 percentage point due to higher sales prices exceeding higher raw material costs and decreased approximately 4 percentage points due to higher per-unit overhead costs.
During the year ended September 30, 2009, we recorded impairment and restructuring charges of $96.7 million.
Excluding the impairment and restructuring charges, income from operations for the year ended September 30, 2009 was $43.3 million compared to $74.1 million in the prior year. This decrease was due to $48.0 million of lower gross profit, partially offset by $17.2 million of lower selling, general and administrative expenses. Lower selling, general and administrative expenses were primarily due to a $3.5 million gain from the sale of a building during the year ended September 30, 2009, lower shipment volumes and cost saving actions.
Corporate
Corporate expenses were $34.4 million during the year ended September 30, 2009 compared to $39.6 million during the prior year. During the year ended September 30, 2009, $1.2 million of professional fees were expensed related to the conversion of the Series B common stock into Series A common stock. Corporate expenses otherwise decreased due to personnel and other related cost saving actions.
Index to Financial Statements
Year Ended September 30, 2008 Compared to Year Ended September 30, 2007
| Year ended September 30, 2008 | ||||||||||||||||||||
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Net sales | $ | 718.1 | $ | 546.0 | $ | 595.2 | $ | - | $ | 1,859.3 | ||||||||||
| Gross profit | $ | 218.4 | $ | 43.8 | $ | 176.2 | $ | 0.6 | $ | 439.0 | ||||||||||
| Operating expenses: | ||||||||||||||||||||
| Selling, general and administrative | 90.0 | 42.9 | 102.1 | 39.6 | 274.6 | |||||||||||||||
| Restructuring | - | 18.3 | - | - | 18.3 | |||||||||||||||
| 90.0 | 61.2 | 102.1 | 39.6 | 292.9 | ||||||||||||||||
| Income (loss) from operations | $ | 128.4 | $ | (17.4 | ) | $ | 74.1 | $ | (39.0 | ) | 146.1 | |||||||||
| Interest expense, net | 72.4 | |||||||||||||||||||
| Income before income taxes | 73.7 | |||||||||||||||||||
| Income tax expense | 31.7 | |||||||||||||||||||
| Net income | $ | 42.0 | ||||||||||||||||||
| Year ended September 30, 2007 | ||||||||||||||||||||
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Net sales | $ | 756.1 | $ | 537.1 | $ | 555.8 | $ | - | $ | 1,849.0 | ||||||||||
| Gross profit | $ | 235.8 | $ | 78.0 | $ | 149.6 | $ | (0.2 | ) | $ | 463.2 | |||||||||
| Operating expenses: | ||||||||||||||||||||
| Selling, general and administrative | 81.1 | 44.6 | 92.2 | 35.3 | 253.2 | |||||||||||||||
| Restructuring | - | - | - | - | - | |||||||||||||||
| 81.1 | 44.6 | 92.2 | 35.3 | 253.2 | ||||||||||||||||
| Income (loss) from operations | $ | 154.7 | $ | 33.4 | $ | 57.4 | $ | (35.5 | ) | 210.0 | ||||||||||
| Interest expense, net | 86.8 | |||||||||||||||||||
| Loss on early extinguishment of debt | 36.5 | |||||||||||||||||||
| Income before income taxes | 86.7 | |||||||||||||||||||
| Income tax expense | 38.5 | |||||||||||||||||||
| Net income | $ | 48.2 | ||||||||||||||||||
31
| Year ended September 30, 2008 | |||||||||||||||||
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | |||||||||||||
| (in millions) | |||||||||||||||||
Net sales | $ | 718.1 | $ | 546.0 | $ | 595.2 | $ | - | $ | 1,859.3 | |||||||
Gross profit | $ | 218.4 | $ | 43.8 | $ | 176.2 | $ | 0.6 | $ | 439.0 | |||||||
Operating expenses: | |||||||||||||||||
Selling, general and administrative | 90.0 | 42.9 | 102.1 | 39.6 | 274.6 | ||||||||||||
Restructuring | - | 18.3 | - | - | 18.3 | ||||||||||||
| 90.0 | 61.2 | 102.1 | 39.6 | 292.9 | |||||||||||||
Income (loss) from operations | $ | 128.4 | $ | (17.4 | ) | $ | 74.1 | $ | (39.0 | ) | 146.1 | ||||||
Interest expense, net | 72.4 | ||||||||||||||||
Income before income taxes | 73.7 | ||||||||||||||||
Income tax expense | 31.7 | ||||||||||||||||
Net income | $ | 42.0 | |||||||||||||||
| Year ended September 30, 2007 | |||||||||||||||||
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | |||||||||||||
| (in millions) | |||||||||||||||||
Net sales | $ | 756.1 | $ | 537.1 | $ | 555.8 | $ | - | $ | 1,849.0 | |||||||
Gross profit | $ | 235.8 | $ | 78.0 | $ | 149.6 | $ | (0.2 | ) | $ | 463.2 | ||||||
Operating expenses: | |||||||||||||||||
Selling, general and administrative | 81.1 | 44.6 | 92.2 | 35.3 | 253.2 | ||||||||||||
Restructuring | - | - | - | - | - | ||||||||||||
| 81.1 | 44.6 | 92.2 | 35.3 | 253.2 | |||||||||||||
Income (loss) from operations | $ | 154.7 | $ | 33.4 | $ | 57.4 | $ | (35.5 | ) | 210.0 | |||||||
Interest expense, net | 86.8 | ||||||||||||||||
Loss on early extinguishment of debt | 36.5 | ||||||||||||||||
Income before income taxes | 86.7 | ||||||||||||||||
Income tax expense | 38.5 | ||||||||||||||||
Net income | $ | 48.2 | |||||||||||||||
Net Sales.Sales. Net sales were $1,859.3 million for the year ended September 30, 2008, an increase of $10.3 million, or 0.6%, from $1,849.0 million during fiscal 2007. Net sales increased principally due to
Index to Financial Statements
approximately $82 million of higher pricing and approximately $21 million due to the favorable impact of Canadian foreign currency exchange rates that essentially offset approximately $104 million due to reduced volumes. SeveralWe implemented several price increases were implemented during fiscal 2008, affecting all of our principal products, in response to higher raw material and purchased component costs. As a whole, higher sales prices did not offset higher raw material and purchased component costs until the fourth quarter of fiscal 2008. Approximately 15% of our net sales during fiscal 2008 and fiscal 2007 were denominated in Canadian dollars. The Canadian dollar was stronger than the U.S. dollar during fiscal 2008 compared to fiscal 2007. Sales volumes were lower during fiscal 2008 compared to fiscal 2007 principally due to continued weakness in residential construction. Volume declines particularly affected our Mueller Co. and U.S. Pipe businesses.
Gross Profit.Profit. Gross profit was $439.0 million for the year ended September 30, 2008, a decrease of $24.2 million, or 5.2%, compared to $463.2 million during fiscal 2007. Gross margin was 23.6% for fiscal 2008 compared to 25.1% for fiscal 2007. Gross profit declined approximately $41 million due to lower volumes. Cost reductions of approximately $43 million more than offset approximately $35 million of higher per unit overhead costs due to reduced production volumes. Gross margin was diluted to the extent sales price increases were offset by increased costs for raw materials and purchased components.
Selling, General and Administrative Expenses.Expenses. Selling, general and administrative expenses were $274.6 million for the year ended September 30, 2008, an increase of $21.4 million, or 8.5%, compared to $253.2 million for fiscal 2007. These expenses as a percentage of net sales were 14.8% for fiscal 2008 compared to 13.7% for fiscal 2007. Mueller Co. expenses increased approximately $9 million, most of which was due to higher compensation and other employee-related expenses. Anvil expenses increased approximately $10 million due mostly to higher commissions and costs associated with a realignment of Canadian distribution operations.
Restructuring Charges.Charges. In November 2007, we announced our intention to close U.S. Pipe’s manufacturing operations in Burlington, New Jersey while retaining the facility as a full-service distribution facility for customers in the Northeast. In connection with this action, we also announced our intention to record restructuring charges of approximately $19.0 million. During fiscal 2008, we recorded $18.3 million of these restructuring charges, of which $14.8 million were asset impairment charges and $3.5 million were charges related to employee severance and other closure costs. We expect to record the remaining charges in early fiscal 2009.
Interest Expense, Net.Net. The components of interest expense, net for the years ended September 30, 2008 and 2007 are presented below.
| Year ended | ||||||||
| September 30, | ||||||||
| 2008 | 2007 | |||||||
| (in millions) | ||||||||
| Interest expense on debt obligations, including interest rate swap contracts | $ | 74.2 | $ | 86.4 | ||||
| Other, net | 2.3 | 3.6 | ||||||
| 76.5 | 90.0 | |||||||
| Interest income | (4.1 | ) | (3.2 | ) | ||||
| $ | 72.4 | $ | 86.8 | |||||
| Year ended September 30, | ||||||||
| 2008 | 2007 | |||||||
| (in millions) | ||||||||
2007 Credit Agreement interest, including swap contracts | $ | 40.7 | $ | 15.6 | ||||
7 3/8% Senior Subordinated Notes interest | 31.3 | 11.0 | ||||||
Prior credit agreements interest, including swap contracts | - | 58.8 | ||||||
Deferred financing fee amortization | 1.7 | 2.5 | ||||||
Capitalized interest | (1.0 | ) | (0.8 | ) | ||||
Other interest expense | 3.8 | 2.9 | ||||||
Interest income | (4.1 | ) | (3.2 | ) | ||||
| $ | 72.4 | $ | 86.8 | |||||
We benefited for the entirety of fiscal 2008 from our debt refinancing activities in May 2007. The debt structure following this refinancing hashad lower interest rates than the previous structure, and market interest rates were generally lower during fiscal 2008 than they were during fiscal 2007. Interest rates earned on invested cash
Index to Financial Statements
were also lower in fiscal 2008 than fiscal 2007, but the level of invested cash was higher during fiscal 2008 than fiscal 2007. Other netinterest expense includes interest on tax-related matters amortization of deferred financing fees and capitalized interest.
32
Income Tax Expense. Income tax expense was $31.7 million for the year ended September 30, 2008 compared to $38.5 million during fiscal 2007. The effective tax rates for fiscal 2008 and fiscal 2007 were 43.0% and 44.4%, respectively. The effective tax rates differ from the U.S. statutory rate of 35% primarily due to nondeductible interest, nondeductible compensation, manufacturing production deductions and state income taxes. In addition, fiscal 2007 included $1.1 million of state income tax expense related to periods prior to fiscal 2007 with respect to certain matters associated with the acquisition of Mueller Co. and Anvil.
Segment Analysis
Mueller Co.Net sales were $718.1 million for the year ended September 30, 2008, a decrease of $38.0 million, or 5.0%, compared to $756.1 million during fiscal 2007. This decline was primarily due to approximately $72 million of lower volumes partially offset by approximately $27 million of higher prices and approximately $7 million due to the favorable impact of Canadian foreign currency exchange rates. Lower volumes were principally due to continued weakness in residential construction. Higher prices resulted from efforts to offset higher raw material and purchased component costs.
Gross profit was $218.4 million for the year ended September 30, 2008, a decrease of $17.4 million, or 7.4%, compared to $235.8 million during fiscal 2007. Gross margin was 30.4% during fiscal 2008 compared to 31.2% during fiscal 2007. Gross profit declined approximately $28 million due to lower volumes, approximately $24 million due to higher raw material and purchased component costs and approximately $18 million due to higher per unit overhead costs, which were partially offset by sales price increases and net cost savings.
Income from operations was $128.4 million for the year ended September 30, 2008, a decrease of $26.3 million, or 17.0%, compared to $154.7 million during fiscal 2007. In addition to the decline in gross profit discussed above, selling, general and administrative expenses were $8.9 million higher in fiscal 2008 than fiscal 2007. Approximately $5 million of these costs were due to higher compensation and other employee-related expenses.
U.S. Pipe.Net sales were $546.0 million for the year ended September 30, 2008, an increase of $8.9 million, or 1.7%, compared to $537.1 million during fiscal 2007. Net sales increased primarily due to approximately $33 million of higher pricing, which was partially offset by approximately $35 million of lower volumes. Higher prices resulted from efforts to offset significantly higher scrap iron costs during fiscal 2008 compared to fiscal 2007.
Gross profit was $43.8 million for the year ended September 30, 2008, a decrease of $34.2 million, or 43.8%, compared to $78.0 million during fiscal 2007. Gross profit decreased approximately $18 million due to increased costs for raw materials in excess of realized sales price increases and decreased approximately $15 million due to lower volumes. Higher per unit overhead costs due to lower production volumes were offset by cost savings. Gross margin was 8.0% during fiscal 2008 compared to 14.5% during fiscal 2007. The decrease in gross margin was primarily attributable to increases in raw material costs exceeding sales price increases. Excluding these increases, gross margin for fiscal 2008 would have been 13.0%.
Loss from operations was $17.4 million for the year ended September 30, 2008, a decrease of $50.8 million, compared to income from operations of $33.4 million during fiscal 2007. In addition to the $34.2 million decline in gross profit discussed above, $18.3 million of restructuring charges were also recorded during fiscal 2008 related to ceasing manufacturing operations in Burlington, New Jersey.
Index to Financial Statements
Anvil.Net sales were $595.2 million for the year ended September 30, 2008, an increase of $39.4 million, or 7.1%, compared to $555.8 million during fiscal 2007. This increase was due primarily to approximately $22 million of higher sales prices and approximately $14 million due to the favorable impact of Canadian currency exchange rates. Higher prices resulted from efforts to offset higher raw material and purchased component costs. Approximately 26% of Anvil’s fiscal 2008 and fiscal 2007 net sales were denominated in Canadian dollars. The Canadian dollar was stronger than the U.S. dollar during fiscal 2008 compared to fiscal 2007.
33
during fiscal 2007. The increase in both gross profit and gross margin was primarily attributable to higher sales prices.
Income from operations was $74.1 million for the year ended September 30, 2008, an increase of $16.7 million, or 29.1%, compared to $57.4 million during fiscal 2007. This increase was attributable to increased gross profit of $26.6 million partially offset by $9.9 million of higher selling, general and administrative expenses. These expenses were 17.2% of net sales during fiscal 2008 compared to 16.6% of net sales during fiscal 2007. Higher selling, general and administrative expenses during fiscal 2008 were attributable to higher commissions and certain administrative costs associated with a realignment of Canadian distribution operations.
Corporate.Corporate general and administrative expenses were $39.6 million for the year ended September 30, 2008, an increase of $4.3 million, or 12.2%, compared to $35.3 million during fiscal 2007. The increase was due to approximately $2 million of additional compensation expense attributable to stock-based awards and higher overall costs associated with the Company establishing itself as a stand-alone publicly-traded company.
| Year ended September 30, 2007 | ||||||||||||||||||||
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Net sales | $ | 756.1 | $ | 537.1 | $ | 555.8 | $ | - | $ | 1,849.0 | ||||||||||
| Gross profit | $ | 235.8 | $ | 78.0 | $ | 149.6 | $ | (0.2 | ) | $ | 463.2 | |||||||||
| Operating expenses: | ||||||||||||||||||||
| Selling, general and administrative | 81.1 | 44.6 | 92.2 | 35.3 | 253.2 | |||||||||||||||
| Restructuring | - | - | - | - | - | |||||||||||||||
| 81.1 | 44.6 | 92.2 | 35.3 | 253.2 | ||||||||||||||||
| Income (loss) from operations | $ | 154.7 | $ | 33.4 | $ | 57.4 | $ | (35.5 | ) | 210.0 | ||||||||||
| Interest expense, net | 86.8 | |||||||||||||||||||
| Loss on early extinguishment of debt | 36.5 | |||||||||||||||||||
| Income before income taxes | 86.7 | |||||||||||||||||||
| Income tax expense | 38.5 | |||||||||||||||||||
| Net income | $ | 48.2 | ||||||||||||||||||
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| Year ended September 30, 2006 | ||||||||||||||||||||
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Net sales | $ | 804.1 | $ | 594.7 | $ | 534.6 | $ | - | $ | 1,933.4 | ||||||||||
| Gross profit | $ | 223.0 | $ | 62.5 | $ | 122.6 | $ | (0.4 | ) | $ | 407.7 | |||||||||
| Operating expenses: | ||||||||||||||||||||
| Selling, general and administrative | 78.3 | 50.9 | 90.8 | 30.1 | 250.1 | |||||||||||||||
| Restructuring | - | 28.6 | - | - | 28.6 | |||||||||||||||
| 78.3 | 79.5 | 90.8 | 30.1 | 278.7 | ||||||||||||||||
| Income (loss) from operations | $ | 144.7 | $ | (17.0 | ) | $ | 31.8 | $ | (30.5 | ) | 129.0 | |||||||||
| Interest expense, net | 107.4 | |||||||||||||||||||
| Loss on early extinguishment of debt | 8.5 | |||||||||||||||||||
| Income before income taxes | 13.1 | |||||||||||||||||||
| Income tax expense | 8.0 | |||||||||||||||||||
| Net income | $ | 5.1 | ||||||||||||||||||
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| Year ended | ||||||||
| September 30, | ||||||||
| 2007 | 2006 | |||||||
| (in millions) | ||||||||
| Interest expense on debt obligations | $ | 86.4 | $ | 109.5 | ||||
| Other, net | 3.6 | 5.7 | ||||||
| 90.0 | 115.2 | |||||||
| Interest income | (3.2 | ) | (7.8 | ) | ||||
| $ | 86.8 | $ | 107.4 | |||||
36
37
Cash and cash equivalents were $61.5 million at September 30, 2009 compared to $183.9 million at September 30, 2008 compared to $98.9 million at September 30, 2007.2008. Cash and cash equivalents increaseddecreased during fiscal 20082009 as a result of cash provided by operating activities of $182.0 million exceeding the cash used in investing activities and financing activities of $78.5$42.9 million and $18.1$209.3 million, respectively. Cash and cash equivalents decreased $0.4 million during fiscal 2008 due to changes in currency exchange rates. Other than commitments in the normal course of business, which are relatively minor, all ofrespectively, exceeding the cash and cash equivalentsprovided by operating activities of $130.5 million.
Receivables, net were $216.3 million at September 30, 2008 can be considered available for general corporate purposes.
Inventories were $342.8 million at September 30, 2009 compared to $459.4 million at September 30, 2008 compared to $453.5 million at September 30, 2007. Raw material costs2008. Purchase prices of scrap iron and brass ingot were higher at the end ofsignificantly lower during fiscal 20082009 compared to fiscal 2007. Although inventory dollar balances were greater at the end of fiscal 2008, quantities were lower.2008. There was slightly over three months sales in inventory near the end of fiscal 2008 compared to approximately four months sales in inventory at the end of September 2007.fiscal 2009. Inventory turns near the end of fiscal 20082009 were generally at their highest level over the past several yearsyear as we began tighter management of ouremphasized better inventory levels in the latter part of fiscal 2007.
Property, plant and equipment, net werewas $296.4 million at September 30, 2009 compared to $356.8 million at September 30, 2008 compared to $351.8 million at September 30, 2007.2008. Capital expenditures were $88.1$39.7 million during fiscal 2008 compared to2009 with depreciation of $62.3 million (depreciation related to other current assets was $1.3 million) and asset impairment charges of $11.8$59.5 million. Other activity during fiscal 2008 included some minor disposals and currency translation adjustments. The majority of capital expenditures during fiscal 2008 were related to the construction of a new automated ductile iron pipe manufacturing operation in Bessemer, Alabama. Capital expenditures for fiscal 20092010 are expected to be between $50 million and $60$54 million.
There was no goodwill at September 30, 2009 compared to $871.5 million at September 30, 2008 compared to $871.12008. We deemed goodwill was impaired and wrote it off during the year ended September 30, 2009.
Identifiable intangible assets were $663.6 million at September 30, 2007. The change during fiscal 2008 resulted from the adoption of new income tax accounting rules on October 1, 2007. Goodwill is not amortized. It is reviewed at least annually for possible impairment. We concluded from our annual review at September 1, 2008 that the carrying amount of goodwill had not been impaired. We also concluded that no events occurred during fiscal 2008 requiring testing for possible impairment at any other date.
Index to Financial Statements
amortized over their estimated useful lives. Such amortization expense was $29.5$30.7 million during fiscal 20082009 and is expected to be a similar amount for each of the next five years. Indefinite-lived identifiable intangible assets, $404.5$300.3 million at September 30, 2008,2009, are not amortized, but tested at least annually for possible impairment. We concluded from an interim review during fiscal 2009 that the carrying amount of indefinite-lived identifiable intangible assets had been impaired by $101.4 million. We concluded from our annual review at September 1, 20082009 that the carrying amount of its indefinite-life identifiable intangible assetsno other impairments had not been impaired.occurred. We also concluded that no events occurred during fiscal 20082009 requiring testing for possible additional impairment at any other date.
Accounts payable and other current liabilities were $209.1 million at September 30, 2009 compared to $285.0 million at September 30, 2008 compared to $234.1 million at September 30, 2007.2008. Compared to quarterly spending activity, these amounts represented approximately 60 days of purchases at September 30, 2009 compared to approximately 56 days of purchases at September 30, 2008, compared to approximately 54 days of purchases at September 30, 2007, each of which is consistent with recent historical trends. Inventory purchases were significantly higher during the fourth quarter of fiscal 2008 compared to fiscal 2007. There is significant variability regarding the paymentPayment patterns for various purchases vary significantly, ranging from payroll which is paid very fastfrequently to incentive compensation and customer rebates that might only be paid once per year.
38
Deferred income taxes were net liabilities of $149.2 million at September 30, 2009 compared to net liabilities of $247.6 million at September 30, 2008 compared to net liabilities of $278.1 million at September 30, 2007.2008. Deferred tax liabilities related to property, plant and equipment, goodwill and identifiable intangible assets were $322.2$251.1 million and $332.7$322.2 million at September 30, 2009 and 2008, and 2007, respectively.
We had cash and cash equivalents of Cash flows from operating activities Collections from customers Disbursements, other than interest and income taxes Interest payments, net Income tax payments, net Cash provided by operating activities Collections of receivables were lower during the year ended September 30, 2009 compared to the prior year primarily due to lower year over year shipment volumes. Reduced disbursements, other than interest and income taxes, during the year ended September 30, 2009 reflect timing differences and lower volumes of material, labor and overhead purchased. Capital expenditures were $39.7 million We divested certain assets of Anvil’s non-core electrical fittings and A significant portion of the assets invested in our defined benefit pension plans is invested in equity securities. Equity markets generally have been very volatile during the period between September 30, 2008 and September 30, 2009. An analysis of the funded status of our U.S. pension plans will be performed as of January 1, 2010 for purposes of determining funding thresholds under provisions of the Pension Protection Act. If equity markets continue to perform poorly, we will lower our estimated rate of return on these assets, which will cause pension expense to increase and require higher levels of Company contributions to these plans. Changes in pension expense and contribution requirements may be spread over many years. Pension contributions were approximately $24.0 million during the year ended September 30, 2009 and we currently estimate contributing approximately $23 million to $25 million to our U.S. pension plans during fiscal We anticipate that our existing cash, cash equivalents and borrowing capacity combined with our expected operating cash flows will be sufficient to meet our anticipated operating expenses, capital expenditures, pension contributions and scheduled debt service obligations as they become due for at least the next twelve months. However, our ability to make scheduled payments of principal, 2007 Credit Agreement The amended 2007 Credit Agreement includes We pay a commitment fee on the unused portion of the revolving credit facility. This fee is payable quarterly in arrears and upon the maturity or termination of the revolving credit facility. The fee is subject to adjustment based on the consolidated senior secured first lien leverage ratio. The fee was The amended 2007 Credit Agreement is subject to mandatory All of our material direct and indirect U.S. $183.9$61.5 million at September 30, 2008 and $261.9$154.7 million of borrowingunused capacity under the revolving credit facility component of our amended 2007 Credit Agreement at September 30, 2009. The borrowing capacity of the revolving credit facility is subject to the financial covenants under the amended 2007 Credit Agreement. Ourgenerated $182.0are categorized below. Year ended
September 30, 2009 2008 (in millions) $ 1,496.7 $ 1,848.0 (1,279.1 ) (1,587.8 ) (74.8 ) (70.5 ) (12.3 ) (7.7 ) $ 130.5 $ 182.0 Index to Financial Statements
$155.1during the year ended September 30, 2009 compared to $88.1 million for fiscal 2008. In addition to these capital expenditures, Mueller Co. purchased data collection-related technology associated with its Hersey Meters products for $8.7 million.$107.6couplings business in November 2009. We received $12.8 million cash and certain assets of Seminole Tubular Company, which complement our existing mechanical pipe nipple business. We believe this transaction will generate cash and enhance our overall product offerings.2008, 2007 and 2006, respectively.of, to pay interest on or to refinance our debt and to satisfy our other debt obligations will depend upon our future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control.a Term Loan A, a Term Loan B and a revolving credit facility. The Term Loan A, $141.6 million owedBorrowings under the amended 2007 Credit Agreement bear interest at September 30, 2008, accrues interest ata floating rate equal to LIBOR plus a margin of upranging from 500 to 175600 basis points depending on our consolidated senior secured first lien leverage ratio, as defined in the 2007 Credit Agreement. Term Loan A had a balance of $66.5 million at September 30, 2009 and is payable $3.5approximately $2.0 million per quarter beginning September 2009 with the balance due May 2012. The Term Loan B $526.7had a balance of $252.0 million owed at September 30, 2008, accrues interest at LIBOR plus 175 basis points2009 and is payable $1.3approximately $0.8 million per quarter with the balance due May 2014. The revolving credit facility provides for borrowings of up to $300$200 million, including letters of credit, and terminates in May 2012. At September 30, 2008,2009, letters of credit outstanding under the revolving credit facility were $38.1$45.3 million. Borrowings under the revolving credit facility bear interest at LIBOR plus a margin of up to 175 basis points. The margin on Term Loan A borrowings andunder the revolving credit facilityamended 2007 Credit Agreement was 150550 basis points at September 30, 2008.0.375%62.5 basis points at September 30, 2008.prepaymentprepayments with excess cash flow, as defined in the amended 2007 Credit Agreement, and net cash proceeds from debt and equity issuances and from the sale or other disposition of any property or assets, subject to permitted reinvestments and other specified exceptions. All mandatory prepayment amounts are appliedIndex to
the prepayment of the term loans pro rata between the Term Loan A and the Term Loan B to reduce the remaining amortization payments of each term loan.restricted subsidiaries are guarantors of the amended 2007 Credit Agreement. Our obligations under the amended 2007 Credit Agreement are secured by:
a first priority perfected lien on substantially all of our existing and after-acquired personal property, a pledge of all of the stock or membership interest of all of our existing or future U.S. | ||
39
first-priority perfected liens on all of our material existing and after-acquired real property, subject to customary permitted liens described in the amended 2007 Credit Agreement; and
The amended 2007 Credit Agreement contains customary negative covenants and restrictions on our ability to engage in specified activities, and contains financial covenants requiring us to maintain a specified consolidated leverage ratio, decreasing over timeconsolidated senior secured first lien leverage ratio and anconsolidated interest charge coverage ratio on a quarterly basis.and limits our capital expenditures. Borrowings under the revolving credit facility are subject to significant conditions, including compliance with the financial ratios included in the amended 2007 Credit Agreement and the absence of any material adverse change.
Senior Subordinated Notes
We also owed $425.0$420.0 million of principal of 73/8% Senior Subordinated Notes (“Senior Notes”) at September 30, 2008.2009. Interest on the Senior Notes is payable semi-annually and the principal is due June 2017. We may redeem any portion of the of the Senior Notes after May 2012 at specified redemption prices, or prior to June 2010 we may redeem up to 35% of the Senior Notes at a redemption price of 107.375% of the principal amount, plus accrued and unpaid interest, with the net cash proceeds of certain equity offerings. Upon the occurrence of a change in control, we must offer to repurchase the Senior Notes at 101% of their principal amount, plus accrued and unpaid interest. The Senior Notes are secured by the guarantees of essentially all of our U.S. subsidiaries, but are subordinate to the borrowings under the amended 2007 Credit Agreement.
Financial Ratio Covenants
The consolidated leverage ratio compares consolidated funded indebtedness at any date of determination to consolidated EBITDA for the trailing four quarter period most recently reported, all as defined in the amended 2007 Credit Agreement. Consolidated funded indebtedness is defined generally as the sum of the outstanding principal amount of all obligations for borrowed money and capital leases. Consolidated EBITDA is defined generally as the sum of (a) consolidated net income as defined in the credit agreement plus (b) net interest expense for the period plus (c) income tax expense for the period plus (d) depreciation and amortization expenses for the period plus (e) cash restructuring expense up to a specified maximum amount plus (f) other non-cash expenses less other non-cash gains.
The consolidated interest charge coverage ratio compares consolidated EBITDA for the trailing four quarter period most recently reported to consolidated cash interest charges, all as defined in the amended 2007 Credit Agreement. Consolidated cash interest charges are defined generally as net interest expense during the period, excluding any prepayment or similar premiums paid in connection with any prepayment, repurchase or redemption of outstanding debt and the amortization of deferred financing fees.
The consolidated senior secured first lien leverage ratio compares consolidated senior secured first lien indebtedness at any date of determination to consolidated EBITDA for the trailing four quarter period most recently reported. Consolidated senior secured first lien indebtedness is defined generally as all consolidated funded indebtedness secured by a first priority lien on any asset or property.
Index to Financial Statements
The threshold ratios permitted under the amended 2007 Credit Agreement at September 30, 2008,2009 and for the subsequent four quarters and our actual ratios at September 30, 2009 are presented below.
| Maximum Consolidated Leverage Ratio | Minimum Consolidated Interest Coverage Charge Ratio | Maximum Consolidated Senior Secured First Lien Leverage Ratio | ||||
Actual ratios at September 30, 2009 | 6.03:1.00 | 1.76:1.00 | 2.60:1.00 | |||
Threshold ratios for fiscal quarters ending: | ||||||
September 30, 2009 | 8.75:1.00 | 1.25:1.00 | 5.00:1.00 | |||
December 31, 2009 | 9.50:1.00 | 1.25:1.00 | 5.25:1.00 | |||
March 31, 2010 | 9.25:1.00 | 1.25:1.00 | 5.25:1.00 | |||
June 30, 2010 | 7.75:1.00 | 1.45:1.00 | 4.50:1.00 | |||
September 30, 2010 | 7.25:1.00 | 1.55:1.00 | 4.00:1.00 | |||
We were in compliance with these financial covenants at September 30, 2009.
Our credit ratings issued by Moody’s and Standard & Poor’s were as follows. Any changes from the ratings at September 30, 2007 have been noted.
| September 30, 2009 | September 30, 2008 | ||||||||||
| Moody’s | Standard & Poor’s | ||||||||||
| Moody’s | Standard & Poor’s | ||||||||||
Corporate credit rating | B2 | B | B1 | BB- | |||||||
2007 Credit Agreement | B1 | BB- | |||||||||
| Ba3 | BB+ | ||||||||||
Notes | |||||||||||
| B- | B3 | B | |||||||||
Outlook | Stable | Stable | Stable | Stable | |||||||
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt or any derivative contracts other than those described in “Item 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK” or synthetic leases. Therefore, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if We use letters of credit and surety bonds in the ordinary course of business to ensure its performance of contractual obligations. At September 30, itwe had engaged in such relationships.2008,2009, we had $38.1$45.3 million of letters of credit and $18.9$26.1 million of surety bonds outstanding.40
Index to Financial Statements
Our contractual obligations at September 30, 20082009 are presented below.
| Less than | 1-3 | 4-5 | After | |||||||||||||||||
| 1 year | years | years | 5 years | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Long-term debt: | ||||||||||||||||||||
| Principal payments | $ | 9.7 | $ | 40.0 | $ | 120.5 | $ | 925.3 | $ | 1,095.5 | ||||||||||
| Interest (1) | 70.3 | 137.9 | 126.4 | 144.4 | 479.0 | |||||||||||||||
| Operating leases | 8.7 | 14.5 | 6.8 | 3.3 | 33.3 | |||||||||||||||
| Unconditional purchase obligations (2) | 4.7 | 0.5 | - | - | 5.2 | |||||||||||||||
| Other noncurrent liabilities (3) | 8.0 | - | - | - | 8.0 | |||||||||||||||
| $ | 101.4 | $ | 192.9 | $ | 253.7 | $ | 1,073.0 | $ | 1,621.0 | |||||||||||
| Less than 1 year | 1-3 years | 4-5 years | After 5 years | Total | |||||||||||
| (in millions) | |||||||||||||||
Long-term debt: | |||||||||||||||
Principal payments | $ | 11.7 | $ | 65.3 | $ | 243.2 | $ | 420.0 | $ | 740.2 | |||||
Interest (1) | 49.6 | 96.1 | 85.4 | 92.9 | 324.0 | ||||||||||
Operating leases | 10.6 | 16.6 | 7.9 | 9.9 | 45.0 | ||||||||||
Unconditional purchase obligations (2) | 8.4 | - | - | - | 8.4 | ||||||||||
Other noncurrent liabilities (3) | 23.2 | - | - | - | 23.2 | ||||||||||
| $ | 103.5 | $ | 178.0 | $ | 336.5 | $ | 522.7 | $ | 1,140.8 | ||||||
| (1) | Interest on the amended 2007 Credit | |
| (2) | Includes contractual obligations for purchases of raw materials and capital expenditures. | |
| (3) | Other noncurrent liabilities |
We experience changing price levels related to purchases of raw materials and purchased components. The average Our purchasedpurchase costs of scrap iron at U.S. Pipe and brass ingot at Mueller Co. in fiscal 20082009 were 42%43% and 11%37%, respectively, higherlower than in fiscal 2007.2008. We do not believe that changing prices for other goods had a material impact on our financial position or results of operations.business iswater infrastructure businesses are dependent upon the construction industry,activity, which is seasonal due to the impact of cold and wet weather conditions.conditions on construction. Net sales and operating income have historically been lowest in the three month periods ending December 31 and March 31 when the northern United States and all of Canada generally face weather conditions that restrict significant construction activity. Inventory levels tend to be highest in the three month periods ending March 31 and June 30 as we prepare for our peak selling periods. Receivables tend to be highest in the three month periods ending June 30 and September 30 as these are also the highest sales periods.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. These estimates are based upon experience and on various other assumptions that management believeswe believe to be reasonable under the circumstances. Actual results may differ from these estimates. We consider an accounting estimate to be critical if changes in the estimate that are reasonably likely to occur over time or the use of reasonably different estimates could have a material impact on our financial condition or results of operations. We consider the accounting topics presented below to include our critical accounting estimates.41
Index to Financial Statements
We recognize revenue when delivery of a product has occurred and there is persuasive evidence of a sales arrangement, sales prices are fixed and determinable and collectability from the customers is reasonably assured. Sales are recorded net of estimated cash discounts, returns and rebates.
Receivables
The estimated allowance for doubtful receivables is based upon judgments and estimates of expected losses and specific identification of problem accounts. Significantly weaker than anticipated industry or economic conditions could impact customers’ ability to pay such that actual losses may be greater than the amounts provided for in this allowance. The periodic evaluation of the adequacy of the allowance for doubtful receivables is based on an analysis of prior collection experience, specific customer creditworthiness and current economic trends within the industries served. In circumstances where a specific customer’s inability to meet its financial obligation is known to us (e.g., bankruptcy filings or substantial downgrading of credit ratings), we record a specific allowance to reduce the receivable to the amount we reasonably believe will be collected.
Inventories
We record inventories at the lower of cost using thefirst-in, first-out method or market value. Inventory cost includes an overhead component that can be affected by levels of production and actual costs incurred. We evaluate the need to record adjustments for impairment of inventory at least quarterly. This evaluation includes such factors as anticipated usage, inventory turnover, inventory levels and ultimate product sales value. Inventory that, in the judgment of management, is obsolete or in excess of our normal usage is written-down to its estimated market value, if less than its cost. Significant judgments must be made when establishing the reserve for obsolete and excess inventory.
Income Taxes
We recognize deferred tax liabilities and deferred tax assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax liabilities and assets are determined based on the differences between the financial statements and the tax basis of assets and liabilities, using enacted tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is provided to offset any net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. If we were to reduce our estimates of future taxable income, we could be required to record additional valuation allowances against our deferred tax assets. Our tax balances are based on our expectations of future operating performance, tax planning strategies, interpretation of the tax regulations currently enacted and rulings in numerous tax jurisdictions.
We only record tax benefits for positions that we believe are more likely than not of being sustained under audit examination based solely on the technical merits of the associated tax position. The amount of tax benefit recognized for any position that meets the more likely than not threshold is the largest amount of the tax benefit that we believe is greater than 50% likely of being realized.
Accounting for the Impairment of Long-Lived Assets Including Goodwill and Other Intangible Assets
We test long-lived assets, including goodwill and intangible assets that have an indefinite life, for impairment annually (or more frequently if events or circumstances indicate possible impairments)impairment). Finite-lived intangible assets are amortized over their respective estimated useful lives and reviewed if events or circumstances indicate possible impairment. We perform our annual impairment testing at September 1.
Index to Financial Statements
We test goodwill for possible impairment by first determining the fair value of the related reporting unit and comparing this value to the recorded net assets of the reporting unit, including goodwill. Fair value is determined using a combination of a discounted cash flow model and stock market comparable valuations for a peer group of companies. Significant judgments and estimates must be made when estimating
42
Litigation, Investigations and Claims
We are involved in litigation, investigations and claims arising out of the normal conduct of its business.our businesses. We estimate and accrue liabilities resulting from such matters based on a variety of factors, including outstanding legal claims and proposed settlements; assessments by internal counsel of pending or threatened litigation; and assessments of potential environmental liabilities and remediation costs. We believe we have adequately accrued for these potential liabilities; however, facts and circumstances may change and could cause the actual liability to exceed the estimates, or may require adjustments to the recorded liability balances in the future.
Workers Compensation, Defined Benefit Pension and Other Postretirement Benefits, Environmental and Other Long-term Liabilities
We are obligated for various liabilities that will ultimately be determined over what could be a very long future time period. We established the recorded liabilities for such items at September 30, 20082009 using estimates for when such amounts will be paid and what the amounts of such payments will be. These estimates are subject to change based on numerous factors, including among others, regulatory changes, technology changes, the investment performance of related assets, the lifespan of plan participants and other individuals and changes to plan designs.
Recently Issued Accounting StandardsThe items discussed below are not all-inclusive of standards requiredIndex to be adopted by us after September 30, 2008. Only such standards reasonably expected to have a material impact on our accounting or financial reporting are discussed below.In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157,Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. We do not believe the adoption of this standard, which became effective for us on October 1, 2008, will have a material impact on our consolidated financial statements.In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to elect to measure many financial instruments and certain other items at fair value. Since we have elected not to apply the fair value measurement option, we do not believe the adoption of this standard, which became effective for us on October 1, 2008, will have a material impact on our consolidated financial statements.
43
| Item 7A. |
We are exposed to various market risks, which are potential losses arising from adverse changes in market rates and prices, such as interest rates and foreign exchange fluctuations. We do not enter into derivatives or other financial instruments for trading or speculative purposes.
Our primary financial instruments are cash and cash equivalents. This includes cash in banks and highly rated, liquid money market investments. We believe that those instruments are not subject to material potential near-term losses in future earnings from reasonably possible near-term changes in market rates or prices.
Interest Rate Risk
At September 30, 2008,2009, we had fixed rate debt, including the effect of interest rate swap agreements, of $900.0$695.2 million and variable rate debt of $195.5$45.0 million. The pre-tax earnings and cash flow impact resulting from a 100 basis point increase in interest rates on variable rate debt, holding other variables constant, would be approximately $2.0$0.5 million per year.
We use interest rate swap contracts to hedge against cash-flow variability arising from changes in LIBOR rates in conjunction with itsour LIBOR-indexed variable rate borrowings. We also had a $100 million total notional amount forward-starting swap contracts that will replace existing swap contracts upon their expiration.begin on October 2010. These swap contracts were accounted for as effective cash flow hedges. We recorded an unrealized loss from our swap contracts, net of tax, of $5.9$4.5 million atduring the year ended September 30, 20082009 in accumulated other comprehensive income. Theseloss. During the year ended September 30, 2009, we prematurely settled certain interest rate swap contracts resulting in additional interest expense of $6.3 million. The outstanding swap contracts had a liability fair value of $11.6$18.8 million at September 30, 2008,2009, which was included in other noncurrent liabilities. Details regarding the outstanding swap contracts at September 30, 20082009 are presented below.
Hedged amount | Maturity date | Receive | Pay | ||||||
$50 million | |||||||||
| June 2010 | 3 month LIBOR | ||||||||
$100 million | October 2010 | 3 month LIBOR | |||||||
$50 million | |||||||||
| October 2011 | 3 month LIBOR | ||||||||
$100 million | 3 month LIBOR | ||||||||
$75 million | September 2012 | 3 month LIBOR | |||||||
* Denotes forward-starting interest rate swap contract.
We regularly evaluate the desirability of entering into additional interest rate swap contracts or other interest rate hedging instruments to protect against interest rate fluctuations on our variable rate debt.
Currency Risk
We maintain assets and operations in Canada and, to a much lesser extent, China and Europe. The functional currency for these operations is their local currency. The assets and liabilities ofnon-U.S. subsidiaries are translated into U.S. dollars at currency exchange rates in effect at the end of each period, with the effect of such translation reflected in other comprehensive income. Our stockholders’ equity will fluctuate
44
Index to Financial Statements
We also have receivables and payables denominated in currencies other than an entity’s functional currency. Changes in currency exchange rates between when these balances originate and when they are settled result in foreign exchange gains and losses.
We have entered into Canadian dollar forward exchange contracts to reduce itsour exposure to currency fluctuations from itsour Canadian dollar-denominated intercompany loans.loan. These contracts have a cumulative notional amount of C$28.0 million and a total liability fair value of $0.7 million at September 30, 2009. Gains and losses on these contracts are included in selling, general and administrative expenses. We recorded aThe net gain of $1.3 million in fiscal year 2008loss on foreign currency exchange contracts; this gaincontracts was offset by transaction losses on the intercompany loans themselves.
Raw Materials Risk
Our products are made using several basic raw materials, including scrap steel and iron, brass ingot, scrap steel, coke, sand, resin, steel pipe coke and various purchased components. Product margins and the level of profitability can fluctuate if we do not pass changes in raw material and purchased component costs to itsour customers.
The average purchase costs of scrap iron at U.S. Pipe and brass ingot at Mueller Co. were 42%43% and 11% higher37% lower in fiscal 2009 than in fiscal 2008, than in fiscal 2007, respectively. TheseWe expect these prices are expected to fluctuate based on marketplace demand. Mueller Co. and Anvil were generally able to pass increased costs of raw materials and purchased components to their customers during fiscal 2008. U.S. Pipe did not pass all of its increased raw material costs to its customers during fiscal 2008.
Commodities Risk
We use natural gas to fuel some of our ductile iron pipe foundries. NaturalWe generally purchase natural gas is generally purchased at prices fixed each month based on NYMEX market rates for specified volumes. We are exposed to price changes from month to month.
We use natural gas swap contracts to hedge against cash flow variability arising from changes in natural gas prices for our anticipated purchases of natural gas. These contracts fix our purchase price for a portion of our natural gas purchases at prices between $9.235$5.60 and $10.040$6.05 per MMBtu through September 2009.2010. All of the above swap contracts are accounted for as effective hedges and have ahedges. The total liability fair value of $1.2 milliongas swap contracts was immaterial at September 30, 2008, which is included in other noncurrent liabilities.2009. We recorded an unrealized lossgain from our swap contracts, net of tax, of $0.6$0.7 million atduring the year ended September 30, 20082009 in accumulated other comprehensive income.
45
| Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Our consolidated financial statements and supplementary data are filed as part of this annual report beginning onpage F-1 and incorporated by reference in this Item 8.
Index to financial statements | Reference | ||||
| F-1 | |||||
| F-4 | |||||
| F-5 | |||||
| F-6 | |||||
| F-7 | |||||
| F-8 | |||||
| Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None
Index to Financial Statements
| Item 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”(the “SEC”) and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) of the Exchange Act) as of the end of the period covered by this annual report. Based on this evaluation, those officers have concluded that our disclosure controls and procedures were effective at September 30, 2008.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting during the quarter ended September 30, 20082009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined inRule 13a-15(f) of the Exchange Act). Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
46
We assessed the effectiveness of our internal control over financial reporting at September 30, 2008.2009. In making this assessment, managementwe used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) inInternal Control-Integrated Framework. Management has concluded that, at September 30, 2008,2009, our internal control over financial reporting was effective.
Our assessment of the effectiveness of our internal control over financial reporting at September 30, 2008,2009, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included in this annual reportAnnual Report onForm 10-K.
47
Index to Financial Statements
| Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The name, age as ofat November 25, 200815, 2009 and position of each of our executive officers and directors are presented below.
Name | Age | Position | ||||
Gregory E. Hyland | ||||||
| 58 | Chairman of the Board of Directors, President and Chief Executive Officer | |||||
Robert Barker | 52 | Executive Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary | ||||
Robert D. Dunn | 52 | Senior Vice President, Human Resources | ||||
Thomas E. Fish | 55 | President, Anvil | ||||
Evan L. Hart | 44 | Senior Vice President and Chief Financial Officer | ||||
Robert P. Keefe | 55 | Senior Vice President and Chief Information Officer | ||||
Robert G. Leggett | Executive Vice President and Chief Operating Officer | |||||
Kevin G. McHugh | 51 | Vice President and Controller | ||||
Gregory S. Rogowski | ||||||
Raymond P. Torok | 63 | President, U.S. Pipe | ||||
Marietta Edmunds Zakas | 50 | Senior Vice President, Communications | ||||
Donald N. Boyce | 71 | Director | ||||
Howard L. Clark, | ||||||
| Jr. | 65 | Director | ||||
Jerry W. Kolb | 73 | Director | ||||
Joseph B. Leonard | 66 | Director | ||||
Mark J. O’Brien | 66 | Director | ||||
Bernard G. Rethore | 68 | Director | ||||
Neil A. Springer | 71 | Director | ||||
Lydia W. Thomas | 65 | Director | ||||
Michael T. Tokarz | ||||||
| 59 | Director | |||||
Gregory E. Hylandhas served as Chairman of the Board of Directors since October 2005 and as President and Chief Executive Officer since January 2006. Mr. Hyland served as Chairman, President and Chief Executive Officer of Walter Industries,Energy, Inc. (“Walter Industries“Energy”, formerly Walter Industries, Inc.) a homebuilding, financial services and natural resources company, from September 2005 to December 2006. Prior to that time, Mr. Hyland served as President, U.S. Fleet Management Solutions of Ryder System, Inc. (“Ryder“Ryder”), a transportation and logistics company, from June 2005 to September 2005. He served as Executive Vice President, U.S. Fleet Management Solutions of Ryder from October 2004 to June 2005. From December 2003 to September 2004, Mr. Hyland was not employed. He was President of the Industrial Products Segment for Textron, Inc., a multi-industry company, from February 2002 to August 2003 and Chairman and Chief Executive Officer of Textron Golf, Turf and Specialty Products from January 2001 to January 2002. From September 1997 to December 2000, Mr. Hyland served as President of the Engineered Products Group, Flow Control Division of Tyco International Ltd (“Tyco”), a diversified manufacturing conglomerate. Mr. Hyland earned Bachelor and Master of Business Administration degrees from the University of Pittsburgh,.
Robert Barkerhas served as our Executive Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer since November 2006. Previously, he was a partner with the law firm of Powell Goldstein LLP in Atlanta, Georgia since August 2001. Mr. Barker earned an A.B. in History and Political Science from Stanford University and earned a Juris Doctor from the University of Virginia School of Law.
Robert D. Dunnhas served as our Senior Vice President, Human Resources since November 2007. Previously, he served as Senior Vice President, Human Resources of Dean Foods Company (formerly Suiza Foods Corporation), a dairy processor and organic food manufacturer, since 1999. From 1979 to 1984, Mr. Dunn was an officer in the United States Army. Mr. Dunn earned a Bachelor of Science degree from Murray State University and a Master of Business Administration degree from Embry Riddle Aeronautical University.
48
Index to Financial Statements
Evan L. Harthas served as our Senior Vice President and Chief Financial Officer since July 2008, as our Controller from December 2007 to July 2008 and as Vice President of Financial Planning and Analysis from September 2006 to December 2007. Previously, Mr. Hart had been Vice President, Controller and Treasurer for Unisource Worldwide, Inc., a marketer and distributor of commercial printing & business imaging papers, packaging systems and facility supplies and equipment from 2002 to 2006. He served in such roles as Division Controller, Senior Manager of Financial Reporting and Internal Audit Supervisor with Georgia-Pacific Corporation from 1992 to 2002. Mr. Hart began his career with Price Waterhouse & Co. in Birmingham, Alabama and Atlanta, Georgia where he served audit clients in the manufacturing and health care industries. Mr. Hart earned a Bachelor of Science degree in Accounting and Economics from Birmingham-Southern College and is a certified public accountant.
Robert P. Keefehas served as our Senior Vice President and Chief Information Officer since March 2007. Previously, Mr. Keefe was Corporate Vice President and Chief Information Officer at Russell Corporation, an athletic apparel, footwear and equipment company, from August 2002 to August 2006. Prior to that, Mr. Keefe was Vice President and Chief Information Officer for ConAgra Refrigerated Foods, a processor and marketer of refrigerated food products, from 1996 to 2002. He also held progressively responsible systems positions with Kraft Foods Inc. and Wyeth Pharmaceuticals, a pharmaceutical and health care products company. Mr. Keefe is a director of the Society for Information Management, International (SIM), a non-profit trade organization. Mr. Keefe earned a Bachelor degree from the State University of New York at Oswego and a Master of Business Administration degree from Pace University.
Robert G. Leggetthas served as our Chief Operating Officer since September 2008. Mr. Leggett served from 2002 to 2008 as a Senior Vice President for Armstrong World Industries, a global leader in the design manufacture of floors, ceilings and cabinets, primarily leading the America’s Building Products business. From 2000 to 2002, Mr. Leggett was President and Chief Operating Officer for AIFOtec Inc., a fiber-optic start-up company. From 1999 to 2000, Mr. Leggett served as Vice President of the Fiber Optic Division of Tyco Electronics Corp. From 1981 to 1999, Mr. Leggett held various engineering and leadership positions at AMP Inc., a global leader of electrical devices and systems. Mr. Leggett earned a Bachelor of Science degree in mechanical engineering from the Pennsylvania State University.
Kevin G. McHughhas served as our Vice President and Controller since July 2008 and our Vice President, Financial Reporting from January 2008 to July 2008. Previously, he was Corporate Controller at Unisource Worldwide, Inc. from 2003 to 2007. He was Corporate Controller of Roper Industries, Inc., a provider of engineered products and solutions for global niche markets, including water, energy, radio frequency, research/medical and general industry applications from 1997 to 2002. Mr. McHugh earned a Bachelor of Business Administration degree from the University of Notre Dame and is a certified public accountant.
Dale B. SmithGregory S. Rogowskihas been President of our Mueller Co. segment since May 2009. Previously he was President and Chief Executive Officer of Mueller Co.Performance Fibers, Inc., a privately owned polyester industrial fibers business, since November 2007. From August 1999 to October 2007, he was Chief Executive Officer2004. Mr. Rogowski earned a Bachelor of Mueller Group. He was also Chief Operating OfficerScience degree from Virginia Polytechnic Institute and State University, a Master of Science degree from the Company from January 2006 to October 2007. Mr. Smith served as Executive Vice PresidentUniversity of Mueller Co. from June 1994 to August 1999, Executive Vice President of Finance for Tyco Europe from 1992 to 1994, Director of MergersAkron, and Acquisitions for Tyco from 1988 to 1992, Director of Mergers and Acquisitions for Grinnell Corp. from 1986 to 1988, Chief Financial Officer of Ludlow Corp. (a Tyco Company) from 1983 to 1986 and Corporate Controller for Grinnell Corp. from 1981 to 1983. From 1971 to 1981, Mr. Smith was employed by Price Waterhouse & Co. Mr. Smith earned an A.B. in Economics from Middlebury College and
49
Raymond P. Torokhas been President of our U.S. Pipe segment since July 2004. Previously he was interim President at Golden Casting Corporation, a foundry operation producing highly engineered precision castings from May 2003 to December 2003, and he was President and Chief Executive Officer of Cold Metal Products, a steel production company from October 1998 to February 2003. Mr. Torok earned a Bachelor degree from John Carroll University and a Master of Business Administration degree from Butler University.
Marietta Edmunds Zakashas been Senior Vice President, Strategic PlanningStrategy, Corporate Development and Investor Relations,Communications, since November 2006. Previously Ms. Zakas served in various positions at Russell Corporation, an athletic apparel, footwear and equipment company from September 2001 to August 2006, culminating in her role as Corporate Vice President, Chief of Staff, Business Development and Treasurer. Ms. Zakas served as Corporate Vice President, Director of Investor Relations, Corporate Secretary and Treasurer, as well as Executive Assistant to the Chairman and CEO for Equifax, Inc., a consumer and commercial credit reporting agency, from 1993 to 2000. Ms. Zakas earned a Bachelor degree from Randolph-Macon Woman’s College (now known as Randolph College), a Master of Business Administration degree from the Colgate-Darden Graduate School of Business Administration at the University of Virginia and a Juris Doctor from the University of Virginia School of Law.
Donald N. Boycehas been a member of our Board of Directors since April 2006. He was a director of Walter Industries,Energy, from August 1998 to April 2006. Mr. Boyce served as Chairman of the Board of Walter IndustriesEnergy from November 2000 to March 2002 and as Chairman of the Board, President and Chief Executive Officer of Walter IndustriesEnergy from August 2000 to November 2000. During this time, Walter IndustriesEnergy owned U.S. Pipe.
Index to Financial Statements
Mr. Boyce was Chairman of the Board of Directors of IDEX Corporation, a proprietary engineered industrial products manufacturing company, from April 1999 to March 2000, Chairman of the Board of Directors and Chief Executive Officer of IDEX Corporation from March 1998 to March 1999, and Chairman of the Board of Directors, President and Chief Executive Officer of IDEX Corporation from January 1988 to March 1998.
Howard L. Clark, Jr.has been a member of our Board of Directors since April 2006. He has been a director of Walter IndustriesEnergy since March 1995. Mr. Clark has been a Vice Chairman in the Investment Banking Division at Barclays Capital, an investment banking firm, since September 2008. He previously served as Vice Chairman of Lehman Brothers Inc., an investment banking firm, from February 1993 to September 2008 and, before that, as Chairman and Chief Executive Officer of Shearson Lehman Brothers Inc. Mr. Clark is also is a director of United Rentals, Inc., an equipment rental company, and White Mountains Insurance Group, Ltd., a financial services holding company.
Jerry W. Kolbhas been a member of our Board of Directors since April 2006. He has been a director of Walter IndustriesEnergy since June 2003. Mr. Kolb previously served as a Vice Chairman of Deloitte & Touche LLP, a registered public accounting firm, since 1986.
Joseph B. Leonardhas been a member of our Board of Directors since April 2006. He has beenwas a director of Walter Industries sinceEnergy from June 2005.2005 to April 2007 and he rejoined that board in February 2009. Mr. Leonard was Chairman of AirTran Holdings, Inc., from November 2007 to June 2008, Chairman and Chief Executive Officer of AirTran Holdings, Inc. from January 1999 to November 2007 and President of AirTran Holdings, Inc. from January 1999 to January 2001. Previously, Mr. Leonard served in various executive capacities for AlliedSignal, Inc., an aerospace, automotive and engineering company, and its aerospace division. Mr. Leonard previously served in various executive positions for Eastern Airlines, Inc. and prior to that he served maintenance and quality control positions for Northwest Airlines, Inc. and American Airlines. Mr. Leonard is a director of Air Canada, a full service airline company
Mark J. O’Brienhas been a member of our Board of Directors since April 2006. He has beenwas a director of Walter Industries sinceEnergy from June 2005.2005 to April 2009. Since March 2006, Mr. O’Brien has served as Chairman and Chief Executive Officer of Walter Industries’Investment Management Corp (formerly Walter Energy’s Homes and Finance Business.) Mr. O’Brien has served as President and Chief Executive Officer of Brier Patch Capital and Management, Inc., a real estate investment firm, since September 2004. Mr. O’Brien served in various executive capacities at Pulte Homes, Inc., a home building company, for 21 years, retiring as President and Chief Executive Officer in June 2003.
50
Neil A. Springerhas been a member of our Board of Directors since April 2006. He was a director of Walter IndustriesEnergy from August 2000 to April 2006. Mr. Springer has been managing director of Springer & Associates LLC, a board consulting and executive recruitment company, since 1994. Mr. Springer is also a director of IDEX Corporation.
Lydia W. Thomashas been a member of our Board of Directors since January 2008. She served as President and Chief Executive Officer of Mitretek Systems,Noblis, Inc., a public interest research and development company, from 1996 to September 2007. She was previously with The MITRE Corporation, Center for Environment, Resources and Space, serving as Senior Vice President and General Manager from 1992 to 1996, Vice President from 1989 to 1992 and Technical Director from 1982 to 1989. She is a director of Cabot Corporation.
Index to Financial Statements
Michael T. Tokarzhas been a member of our Board of Directors since April 2006. He has served as non-executive Chairman of the Board of Walter IndustriesEnergy since December 2006. In 2006, Mr. Tokarz established Tokarz Group Advisers, an investment advisory firm. Since February 2002, he has been a member of the Tokarz Group, LLC, a venture capital investment company. From January 1996 tountil February 2002, Mr. Tokarz was a member of the limited liability company that serves as the general partner of Kohlberg Kravis Roberts & Co. L.P., a private equity company. Mr. Tokarz also is a director of IDEX Corporation, a proprietary engineered industrial products manufacturing company, Conseco, Inc., an insurance provider, and MVC Capital, Inc., a registered investment company.
Additional Information
Except for the information disclosed above and below, the information required by this item will be contained in our definitive proxy statement issued in connection with the 20092010 annual meeting of stockholders filed with the Securities and Exchange Commission (“SEC”) within 120 days after September 30, 20082009 and is incorporated herein by reference.
Our website address iswww.muellerwaterproducts.com. You may obtain free electronic copies of our annual reports onForm 10-K, quarterly reports onForm 10-Q, current reports onForm 8-K, and all amendments to those reports from the investors section of our website. These reports are available on our website as soon as reasonably practicable after we electronically file them with the SEC. These reports should also be available through the SEC’s website atwww.sec.gov.
We have adopted a written code of conduct that applies to all directors, officers and employees, including a separate code that applies only to our principal executive officer and senior financial officers in accordance with Section 406 of the Sarbanes-Oxley Act of 2002 and the rules of the SEC promulgated thereunder. Our Code of Business Conduct and Ethics is available in the corporate governance section of our website. In the event that we make changes in, or provide waivers from, the provisions of this Code of Business Conduct and Ethics that the SEC requires us to disclose, we intend towill disclose these events on the corporate governance section of our website.
We have adopted corporate governance guidelines. The guidelines and the charters of our board committees are available in the corporate governance section of our website. Copies of the Code of Business Conduct and Ethics, corporate governance guidelines and board committee charters are also available in print upon written request to the Corporate Secretary, Mueller Water Products, Inc., 1200 Abernathy Road NE,N.E., Suite 1200, Atlanta, GA 30328.
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| Item 11. | EXECUTIVE COMPENSATION |
The information required by this item will be contained in our definitive proxy statement issued in connection with the 20092010 annual meeting of stockholders and is incorporated herein by reference.
| Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Except for the information set forth below and the information set forth in Part II, Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES, the information required by this item will be contained in our definitive proxy statement issued in connection with the 20092010 annual meeting of stockholders and is incorporated herein by reference.
Index to Financial Statements
Securities Authorized for Issuance under Equity Compensation Plans
We have two compensation plans under which our equity securities are authorized for issuance. The 2006 Employee Stock Purchase Plan was approved by our sole stockholder in May 2006 and the 2006 Stock Incentive Plan was approved by our sole stockholder in May 2006 and amended by our stockholders in January 2008.2008 and January 2009. The following table sets forth certain information relating to these equity compensation plans which relate only to Series A common stock, at September 30, 2008.
| Number of | ||||||||||||
| securities to be | Weighted | |||||||||||
| issued upon | average | Number of | ||||||||||
| exercise of | exercise price of | securities | ||||||||||
| outstanding | outstanding | remaining | ||||||||||
| options, | options, | available | ||||||||||
| warrants | warrants | for future | ||||||||||
| and rights | and rights | issuance | ||||||||||
| Equity compensation plans approved by stockholders: | ||||||||||||
| Mueller Water Products, Inc. | ||||||||||||
| 2006 Stock Incentive Plan | 3,946,709 | (1) | $ | 12.37 | 3,593,927 | (2) | ||||||
| Mueller Water Products, Inc. | ||||||||||||
| 2006 Employee Stock Purchase Plan | 60,115 | (3) | 5.95 | 3,588,128 | (4) | |||||||
| Total | 4,006,824 | 7,182,055 | ||||||||||
| Equity compensation plans not approved by stockholders | - | - | - | |||||||||
| Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance | ||||||
Equity compensation plans approved by stockholders: | ||||||||
Mueller Water Products, Inc. | 5,118,487 | (1) | $ 9.49 | 9,350,947 | (2) | |||
Mueller Water Products, Inc. | 96,864 | (3) | 3.75 | 3,248,688 | (4) | |||
Total | 5,215,351 | 12,599,635 | ||||||
Equity compensation plans not approved by stockholders | - | - | - | |||||
| (1) | Consists of shares to be issued upon exercise of outstanding options granted under the Mueller Water Products, Inc. 2006 Stock Incentive Plan. Excludes phantom shares issuable to non-employee directors pursuant to the Mueller Water Products, Inc. Directors’ Deferred Fee Plan. | |
| (2) | The number of shares available for future issuance under the Mueller Water Products, Inc. 2006 Stock Incentive Plan is equal to | |
| (3) | Consists of shares issued on October 31, | |
| (4) | The number of shares available for future issuance under the Mueller Water Products, Inc. 2006 Stock Purchase Plan is equal to 4,000,000 shares authorized for issuance under the plan less the cumulative number of shares issued under the plan through October 31, |
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| Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this item will be contained in our definitive proxy statement issued in connection with the 20092010 annual meeting of stockholders and is incorporated herein by reference.
| Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this item will be contained in our definitive proxy statement issued in connection with the 20092010 annual meeting of stockholders and is incorporated herein by reference.
Index to Financial Statements
| Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| (a) | Financial Statements |
Index to financial statements | Page number | |||
| ||||
| Reports of Independent Registered Public Accounting Firms | F-1 | |||
Consolidated Balance Sheets at September 30, | 2008 | F-4 | ||
Consolidated Statements of Operations for the years ended September 30, 2009, 2008 | 2007 | F-5 | ||
| 2007 | F-6 | |||
Consolidated Statements of Cash Flows for the years ended September 30, 2009, 2008 | 2007 | F-7 | ||
| F-8 | ||||
| (b) | |
| Financial Statement Schedules |
Except for Schedule II, Valuation and Qualifying Accounts, the schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. The information required by Schedule II is included in the notes to the consolidated financial statements.
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Index to Financial Statements
| (c) | |
| Exhibits |
| Exhibit | ||||
No. | Document | |||
| 2 | .1 | Agreement and Plan of Merger dated as of June 17, 2005 among Mueller Water Products, Inc., Walter Industries, Inc., JW MergerCo, Inc. and DLJ Merchant Banking II, Inc., as stockholders’ representative. Incorporated by reference to Exhibit 2.1 to Mueller Water ProductsForm 8-K(File no. 333-116590) filed on June 21, 2005. | ||
| 2 | .1.1 | Letter Agreement dated as of February 23, 2006 between Walter Industries, Inc. and Mueller Water Products, Inc. Incorporated by reference to Exhibit 10.1 to Mueller Water Products, Inc.Form 8-K (Fileno. 333-131521) filed February 27, 2006. | ||
| 2 | .2 | Agreement and Plan of Merger, dated as of January 31, 2006, by and among Mueller Holding Company, Inc., Mueller Water Products, LLC and Mueller Water Products Co-Issuer, Inc. Incorporated by reference to Exhibit 2.1 Mueller Water ProductsForm 8-K (Fileno. 333-116590) filed on February 3, 2006. | ||
| 3 | .1 | Restated Certificate of Incorporation of Mueller Water Products, Inc. Incorporated by reference to Exhibit 3.1 to Mueller Water Products, Inc.Form 8-K (Fileno. 001-32892) filed on May 30, 2006. | ||
| 3 | .1.1 | Certificate of Merger, dated February 2, 2006, of Mueller Water Products, LLC and Mueller Water Products Co-Issuer, Inc. with and into Mueller Holding Company, Inc. Incorporated by reference to Exhibit 3.1.2 to Mueller Water Products Inc.Form 8-K (Fileno. 333-116590) filed on February 3, 2006. | ||
| 3 | .2 | Amended and Restated Bylaws of Mueller Water Products, Inc. Incorporated by reference to Exhibit 3.1 to Mueller Water Products, Inc.Form 8-K (Fileno. 001-32892) filed on August 22, 2008. | ||
| 4 | .1 | Indenture, dated as of April 29, 2004, between Mueller Holdings (N.A.), Inc. and Law Debenture Trust Company of New York for the 14.75% Senior Discount Notes due 2014. Incorporated by reference to Exhibit 4.1 to Mueller Water Products, LLC Registration Statement onForm S-1(File no. 333-116590) filed on June 17, 2004. | ||
| 4 | .1.1 | Supplemental Indenture, dated as of October 3, 2005, by and among Mueller Water Products, LLC, Mueller Water Products Co-Issuer, Inc. and Law Debenture Trust Company of New York. Incorporated by reference to Exhibit 4.1 to Mueller Water Products, Inc.Form 10-Q(File no. 333-131521) filed on February 22, 2006. | ||
| 4 | .1.2 | Second Supplemental Indenture, dated as of February 2, 2006, between, by and among Mueller Holding Company, Inc., Mueller Water Products, LLC, Mueller Water Products Co-Issuer, Inc. and Law Debenture Trust Company of New York. Incorporated by reference to Exhibit 10.1 to Mueller Water Products, Inc.Form 8-K (Fileno. 333-116590) filed on February 3, 2006. | ||
| 4 | .1.3 | Third Supplemental Indenture, dated as of May 14, 2007, to the Indenture dated as of April 29, 2004 among Mueller Water Products, Inc. and Law Debenture Trust Company of New York, as trustee. Incorporated by reference to Exhibit 4.1.3 to Mueller Water ProductsForm 8-K (Fileno. 001-32892) filed on May 17, 2007. | ||
| 4 | .2 | Indenture, dated as of April 23, 2004, among Mueller Group, Inc., the Guarantors party thereto and Law Debenture Trust Company of New York for the 10% Senior Subordinated Notes due 2012. Incorporated by reference to Exhibit 4.3 to Mueller Water Products, LLC Registration Statement onForm S-1 (Fileno. 333-116590) filed on June 17, 2004. | ||
| 4 | .2.1 | Supplemental Indenture, dated as of October 3, 2005, among Mueller Group Co-Issuer, Inc., Mueller Group, LLC, the certain guarantors defined therein and Law Debenture Trust Company of New York for the 10% Senior Subordinated Notes due 2012. Incorporated by reference to Exhibit 10.6 to Mueller Water Products, LLC Registration Statement onForm S-1 (Fileno. 333-116590) filed on February 3, 2006. | ||
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| Exhibit | ||||
No. | Document | |||
| 4 | .2.2 | Second Supplemental Indenture, dated as of May 14, 2007, to the Indenture dated as of April 23, 2004, among Mueller Group, LLC (formerly Mueller Group, Inc.) and Mueller Group Co-Issuer, Inc., the guarantors listed on the signature pages thereto and Law Debenture Trust Company of New York, as trustee. Incorporated by reference to Exhibit 4.7 to Mueller Water ProductsForm 8-K (Fileno. 001-32892) filed on May 17, 2007. | ||
| 4 | .3 | Indenture dated as of May 24, 2007 among Mueller Water Products, Inc., the guarantors named on the signature pages thereto and The Bank of New York (including form of global notes). Incorporated by reference to Exhibit 4.6 to Mueller Water Products Inc.Form 8-K(File no. 001-32892) filed on May 30, 2007. | ||
| 10 | .1 | Amended and Restated Credit Agreement among Mueller Water Products, Inc., as Borrower, Mueller Group, LLC, as prior borrower, Bank of America, N.A., as Administrative Agent, Swing Line Lender, and an L/C Issuer, JPMorgan Chase Bank, N.A., as Syndication Agent, and an L/C Issuer and the lenders named on the signature pages thereto. Incorporated by reference to Exhibit 10.17 to Mueller Water Products Inc.Form 8-K (Fileno. 001-32892) filed on May 30, 2007. | ||
| 10 | .1.1 | Amendment No. 1 to Amended and Restated Credit Agreement, dated as of June 21, 2007, among Mueller Water Products, Inc., Bank of America, N.A., and each of the guarantors named on the signature pages thereto. Incorporated by reference to Exhibit 10.20 to Mueller Water Products Inc.Form 10-Q (Fileno. 001-32892) for the quarter ended June 30, 2007. | ||
| 10 | .2 | Corporate Agreement by and between Walter Industries, Inc. and Mueller Water Products, Inc. Incorporated by reference to Exhibit 10.1 to Mueller Water Products, Inc.Form 8-K(File no. 001-32892) filed on May 30, 2006. | ||
| 10 | .3 | Income Tax Allocation Agreement by and among Walter Industries, Inc., the Walter Affiliates (as defined therein), Mueller Water Products, Inc. and the Mueller Affiliates (as defined therein). Incorporated by reference to Exhibit 10.2 to Mueller Water Products, Inc.Form 8-K(File no. 001-32892) filed on May 30, 2006. | ||
| 10 | .4 | Transition Services Agreement by and between Walter Industries, Inc. and Mueller Water Products, Inc. Incorporated by reference to Exhibit 10.3 to Mueller Water Products, Inc.8-K(File no. 001-32892) filed on May 30, 2006. | ||
| 10 | .5** | Mueller Water Products, Inc. Amended and Restated 2006 Stock Incentive Plan. | ||
| 10 | .6 | Mueller Water Products, Inc. Form of Notice of Stock Option Grant. Incorporated by reference to Exhibit 10.5.2 to Mueller Water Products, Inc.Form 10-Q for the quarter ended December 31, 2007 (Fileno. 001-32892) filed on February 11, 2008. | ||
| 10 | .7 | Mueller Water Products, Inc. Form of Restricted Stock Unit Award Agreement. Incorporated by reference to Exhibit 10.5.3 to Mueller Water Products, Inc.Form 10-Q for the quarter ended December 31, 2007 (Fileno. 001-32892) filed on February 11, 2008. | ||
| 10 | .8 | Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan, as amended September 27, 2006. Incorporated by reference to Exhibit 10.5 to Mueller Water Products, Inc.Form 10-K(File no. 001-32892) filed on December 21, 2006. | ||
| 10 | .9 | Mueller Water Products, Inc. Directors’ Deferred Fee Plan. Incorporated by reference to Exhibit 10.7 to Mueller Water Products, Inc.8-K (Fileno. 001-32892) filed on May 30, 2006. | ||
| 10 | .10 | Form of Mueller Water Products, Inc. Director Indemnification Agreement. Incorporated by reference to Exhibit 99.2 to Mueller Water Products, Inc.8-K (Fileno. 001-32892) filed on October 31, 2008. | ||
| 10 | .11 | Executive Incentive Plan of Mueller Water Products, Inc. Incorporated by reference to Exhibit 10.6 to Mueller Water Products, Inc.8-K (Fileno. 001-32892) filed on May 30, 2006. | ||
| 10 | .12 | Mueller Water Products, Inc. Executive Deferred Compensation Plan. Incorporated by reference to Exhibit 99.3 to Mueller Water Products, Inc.8-K (Fileno. 001-32892) filed on October 31, 2008. | ||
| 10 | .13 | Employment Agreement, dated September 15, 2008 between Mueller Water Products, Inc. and Gregory E. Hyland. Incorporated by reference to Exhibit 99.1 to Mueller Water Products, Inc.Form 8-K (Fileno. 001-32892) filed on October 6, 2008. | ||
55
| Exhibit | ||||
No. | Document | |||
| 10 | .13.1 | Amendment, dated as of March 2, 2006, to Executive Employment Agreement dated September 9, 2005 between Walter Industries, Inc. and Gregory E. Hyland. Incorporated by reference to Exhibit 10.1 to Mueller Water Products, Inc.Form 8-K (Fileno. 333-131521) filed on March 3, 2006. | ||
| 10 | .13.2 | Mueller Water Products, Inc. Supplemental Defined Contribution Plan, effective April 1, 2007. Incorporated by reference to Exhibit 10.01 to Mueller Water Products, Inc.Form 8-K(File no. 001-32892) filed on March 27, 2007. | ||
| 10 | .14 | Executive Employment Agreement, dated January 23, 2006, between Mueller Holding Company, Inc. and Dale B. Smith. Incorporated by reference to Exhibit 10.2 to Mueller Water Products, LLCForm 8-K (Fileno. 333-116590) filed on January 27, 2006. | ||
| 10 | .14.1 | Amendment dated as of November 1, 2007 to Employment Agreement with Dale B. Smith dated January 23, 2006. Incorporated by reference to Exhibit 99.2 to Mueller Water Products, Inc.Form 8-K (Fileno. 001-32892) filed on November 2, 2007. | ||
| 10 | .14.2 | Amendment No. 2 dated as of October 1, 2008 to Employment Agreement with Dale B. Smith dated January 23, 2006. Incorporated by reference to Exhibit 99.1 to Mueller Water Products, Inc.Form 8-K (Fileno. 001-32892) filed on October 31, 2008. | ||
| 10 | .15 | Employment Agreement, dated as of September 15, 2008, between Mueller Water Products, Inc. and Robert Leggett. Incorporated by reference to Exhibit 99.1 to Mueller Water Products, Inc.Form 8-K (Fileno. 001-32892) filed on September 30, 2008. | ||
| 10 | .16 | Executive Employment Agreement, dated as of July 16, 2008, between Mueller Water Products, Inc. and Evan L. Hart. Incorporated by reference to Exhibit 10.18 to Mueller Water Products, Inc.Form 10-Q for the quarter ended June 30, 2008 (File001-32892) filed on August 11, 2008. | ||
| 10 | .17 | Employment Agreement, dated as of July 31, 2006, between Mueller Water Products, Inc. and Thomas E. Fish. Incorporated by reference to Exhibit 10.2 to Mueller Water Products, Inc.Form 8-K (Fileno. 001-32892) filed on August 3, 2006. | ||
| 10 | .17.1 | Mueller Water Products, Inc. Special Bonus, Incentive Award and Termination Protection Program. Incorporated by reference to Exhibit 10.18 to Mueller Water Products, Inc.Form 8-K(File no. 001-32892) filed on December 14, 2007. | ||
| 10 | .18 | Employment Agreement, dated September 15, 2008, between Mueller Water Products, Inc and Raymond P. Torok. Incorporated by reference to Exhibit 99.2 to Mueller Water Products, Inc.Form 8-K (Fileno. 001-32892 filed on October 6, 2008. | ||
| 10 | .19 | Joint Litigation Agreement dated December 14, 2006 between Walter Industries, Inc. and Mueller Water Products, Inc. Incorporated by reference to Exhibit 10.3 to Mueller Water Products, Inc.Form 8-K (Fileno. 001-32892) filed on December 19, 2006. | ||
| 10 | .20 | Form of ExecutiveChange-in-Control Severance Agreement. Incorporated by reference to Exhibit 99.3 to Mueller Water Products, Inc.Form 8-K (Fileno. 001-32892) filed on October 6, 2008. | ||
| 12 | .1** | Computation of Ratio of Earnings to Fixed Charges. | ||
| 14 | .1** | Code of Business Conduct and Ethics for Mueller Water Products, Inc. | ||
| 21 | .1** | Subsidiaries of Mueller Water Products, Inc. | ||
| 23 | .1** | Consent of Ernst & Young LLP. | ||
| 23 | .2** | Consent of PricewaterhouseCoopers LLP. | ||
| 31 | .1** | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 31 | .2** | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32 | .1** | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 32 | .2** | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
Exhibit no. | Document | |
| 2.1 | Agreement and Plan of Merger dated as of June 17, 2005 among Mueller Water Products, Inc., Walter Industries, Inc., JW MergerCo, Inc. and DLJ Merchant Banking II, Inc., as stockholders’ representative. Incorporated by reference to Exhibit 2.1 to Mueller Water Products, Inc. Form 8-K (File no. 333-116590) filed on June 21, 2005. | |
| 2.1.1 | Letter Agreement dated as of February 23, 2006 between Walter Industries, Inc. and Mueller Water Products, Inc. Incorporated by reference to Exhibit 10.1 to Mueller Water Products, Inc. Form 8-K (File no. 333-131521) filed February 27, 2006. | |
| 2.2 | Agreement and Plan of Merger, dated as of January 31, 2006, by and among Mueller Holding Company, Inc., Mueller Water Products, LLC and Mueller Water Products Co-Issuer, Inc. Incorporated by reference to Exhibit 2.1 Mueller Water Products, Inc. Form 8-K (File no. 333-116590) filed on February 3, 2006. | |
| 3.1 | Second Restated Certificate of Incorporation of Mueller Water Products, Inc. Incorporated by reference to Exhibit 3.4 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on January 29, 2009. | |
| 3.1.1 | Certificate of Merger, dated February 2, 2006, of Mueller Water Products, LLC and Mueller Water Products Co-Issuer, Inc. with and into Mueller Holding Company, Inc. Incorporated by reference to Exhibit 3.1.2 to Mueller Water Products, Inc. Form 8-K (File no. 333-116590) filed on February 3, 2006. | |
| 3.2 | Amended and Restated Bylaws of Mueller Water Products, Inc. Incorporated by reference to Exhibit 3.1 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on August 22, 2008. | |
| 4.1 | Indenture, dated as of April 29, 2004, between Mueller Holdings (N.A.), Inc. and Law Debenture Trust Company of New York for the 14.75% Senior Discount Notes due 2014. Incorporated by reference to Exhibit 4.1 to Mueller Water Products, LLC Registration Statement on Form S-1 (File no. 333-116590) filed on June 17, 2004. | |
| 4.1.1 | Supplemental Indenture, dated as of October 3, 2005, by and among Mueller Water Products, LLC, Mueller Water Products Co-Issuer, Inc. and Law Debenture Trust Company of New York. Incorporated by reference to Exhibit 4.1 to Mueller Water Products, Inc. Form 10-Q (File no. 333-131521) filed on February 22, 2006. | |
| 4.1.2 | Second Supplemental Indenture, dated as of February 2, 2006, between, by and among Mueller Holding Company, Inc., Mueller Water Products, LLC, Mueller Water Products Co-Issuer, Inc. and Law Debenture Trust Company of New York. Incorporated by reference to Exhibit 10.1 to Mueller Water Products, Inc. Form 8-K (File no. 333-116590) filed on February 3, 2006. | |
| 4.1.3 | Third Supplemental Indenture, dated as of May 14, 2007, to the Indenture dated as of April 29, 2004 among Mueller Water Products, Inc. and Law Debenture Trust Company of New York, as trustee. Incorporated by reference to Exhibit 4.1.3 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on May 17, 2007. | |
| 4.2 | Indenture dated as of May 24, 2007 among Mueller Water Products, Inc., the guarantors named on the signature pages thereto and The Bank of New York (including form of global notes). Incorporated by reference to Exhibit 4.6 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on May 30, 2007. | |
Index to Financial Statements
| 10.1 | Amended and Restated Credit Agreement among Mueller Water Products, Inc., as Borrower, Mueller Group, LLC, as prior borrower, Bank of America, N.A., as Administrative Agent, Swing Line Lender, and an L/C Issuer, JPMorgan Chase Bank, N.A., as Syndication Agent, and an L/C Issuer and the lenders named on the signature pages thereto. Incorporated by reference to Exhibit 10.17 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on May 30, 2007. | |
| 10.1.1 | Amendment No. 1 to Amended and Restated Credit Agreement, dated as of June 21, 2007, among Mueller Water Products, Inc., Bank of America, N.A., and each of the guarantors named on the signature pages thereto. Incorporated by reference to Exhibit 10.20 to Mueller Water Products, Inc. Form 10-Q (File no. 001-32892) for the quarter ended June 30, 2007. | |
| 10.1.2 | Amendment No. 2 to Amended and Restated Credit Agreement, dated as of June 18, 2009, among Mueller Water Products, Inc., Bank of America, N.A., and each of the guarantors named on the signature pages thereto. Incorporated by reference to Exhibit 10.1.2 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on June 18, 2009. | |
| 10.2 | Income Tax Allocation Agreement by and among Walter Industries, Inc., the Walter Affiliates (as defined therein), Mueller Water Products, Inc. and the Mueller Affiliates (as defined therein). Incorporated by reference to Exhibit 10.2 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on May 30, 2006. | |
| 10.3** | Mueller Water Products, Inc. Amended and Restated 2006 Stock Incentive Plan. | |
| 10.4 | Mueller Water Products, Inc. Form of Notice of Stock Option Grant. Incorporated by reference to Exhibit 10.5.2 to Mueller Water Products, Inc. Form 10-Q for the quarter ended December 31, 2007 (File no. 001-32892) filed on February 11, 2008. | |
| 10.5 | Mueller Water Products, Inc. Form of Restricted Stock Unit Award Agreement. Incorporated by reference to Exhibit 10.5.3 to Mueller Water Products, Inc. Form 10-Q for the quarter ended December 31, 2007 (File no. 001-32892) filed on February 11, 2008. | |
| 10.6 | Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan, as amended September 27, 2006. Incorporated by reference to Exhibit 10.5 to Mueller Water Products, Inc. Form 10-K (File no. 001-32892) filed on December 21, 2006. | |
| 10.7 | Mueller Water Products, Inc. Directors’ Deferred Fee Plan. Incorporated by reference to Exhibit 10.7 to Mueller Water Products, Inc. 8-K (File no. 001-32892) filed on May 30, 2006. | |
| 10.8 | Form of Mueller Water Products, Inc. Director Indemnification Agreement. Incorporated by reference to Exhibit 99.2 to Mueller Water Products, Inc. 8-K (File no. 001-32892) filed on October 31, 2008. | |
| 10.9 | Executive Incentive Plan of Mueller Water Products, Inc. Incorporated by reference to Exhibit 10.6 to Mueller Water Products, Inc. 8-K (File no. 001-32892) filed on May 30, 2006. | |
| 10.10 | Mueller Water Products, Inc. Executive Deferred Compensation Plan. Incorporated by reference to Exhibit 99.3 to Mueller Water Products, Inc. 8-K (File no. 001-32892) filed on October 31, 2008. | |
| 10.11 | Employment Agreement, dated September 15, 2008 between Mueller Water Products, Inc. and Gregory E. Hyland. Incorporated by reference to Exhibit 99.1 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on October 6, 2008. | |
| 10.11.1 | Amendment, dated as of March 2, 2006, to Executive Employment Agreement dated September 9, 2005 between Walter Industries, Inc. and Gregory E. Hyland. Incorporated by reference to Exhibit 10.1 to Mueller Water Products, Inc. Form 8-K (File no. 333-131521) filed on March 3, 2006. | |
| 10.11.2 | Amended and Restated Mueller Water Products, Inc. Supplemental Defined Contribution Plan, effective as of January 1, 2009. Incorporated by reference to Exhibit 10.13.2 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on February 9, 2009. | |
Index to Financial Statements
| 10.12 | Executive Employment Agreement, dated January 23, 2006, between Mueller Holding Company, Inc. and Dale B. Smith. Incorporated by reference to Exhibit 10.2 to Mueller Water Products, LLC Form 8-K (File no. 333-116590) filed on January 27, 2006. | |
| 10.12.1 | Amendment dated as of November 1, 2007 to Employment Agreement with Dale B. Smith dated January 23, 2006. Incorporated by reference to Exhibit 99.2 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on November 2, 2007. | |
| 10.12.2 | Amendment No. 2 dated as of October 1, 2008 to Employment Agreement with Dale B. Smith dated January 23, 2006. Incorporated by reference to Exhibit 99.1 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on October 31, 2008. | |
| 10.13 | Employment Agreement, dated as of September 15, 2008, between Mueller Water Products, Inc. and Robert Leggett. Incorporated by reference to Exhibit 99.1 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on September 30, 2008. | |
| 10.14 | Executive Employment Agreement, dated as of July 16, 2008, between Mueller Water Products, Inc. and Evan L. Hart. Incorporated by reference to Exhibit 10.18 to Mueller Water Products, Inc. Form 10-Q for the quarter ended June 30, 2008 (File 001-32892) filed on August 11, 2008. | |
| 10.15 | Employment Agreement, dated as of July 31, 2006, between Mueller Water Products, Inc. and Thomas E. Fish. Incorporated by reference to Exhibit 10.2 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on August 3, 2006. | |
| 10.15.1 | Mueller Water Products, Inc. Special Bonus, Incentive Award and Termination Protection Program. Incorporated by reference to Exhibit 10.18 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on December 14, 2007. | |
| 10.16 | Employment Agreement, dated September 15, 2008, between Mueller Water Products, Inc and Raymond P. Torok. Incorporated by reference to Exhibit 99.2 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892 filed on October 6, 2008. | |
| 10.17 | Joint Litigation Agreement dated December 14, 2006 between Walter Industries, Inc. and Mueller Water Products, Inc. Incorporated by reference to Exhibit 10.3 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on December 19, 2006. | |
| 10.18 | Form of Executive Change-in-Control Severance Agreement. Incorporated by reference to Exhibit 99.3 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on October 6, 2008. | |
| 10.19 | Form of Amendment to Executive Employment Agreement. Incorporated by reference to Exhibit 99.1 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on February 6, 2009. | |
| 12.1** | Computation of Ratio of Earnings to Fixed Charges. | |
| 14.1 | Code of Business Conduct and Ethics for Mueller Water Products, Inc. Incorporated by reference to Exhibit 14.1 to Mueller Water Products, Inc. Form 10-K (File no. 001-32892) for the year ended September 30, 2008. | |
| 21.1** | Subsidiaries of Mueller Water Products, Inc. | |
| 23.1** | Consent of Ernst & Young LLP. | |
| 23.2** | Consent of PricewaterhouseCoopers LLP. | |
| 31.1** | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2** | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1** | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2** | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| ** | Filed with this report |
56
Index to Financial Statements
SIGNATURES
Date: November 25, 2008
| By: | /s/ Gregory E. Hyland | ||
| Name: Gregory E. Hyland | |||
Title:Chairman, President and Chief Executive Officer | |||
Pursuant to the requirements of the Securities Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||||
/s/ Gregory E. Hyland Gregory E. Hyland | Chairman of the Board of Directors, President and Chief Executive Officer (principal executive officer) | November | ||||
/s/ Evan L. Hart Evan L. Hart | Senior Vice President and Chief Financial Officer | November | ||||
/s/ Kevin G. McHugh Kevin G. McHugh | ||||||
Vice President and Controller (principal accounting officer) | November | |||||
/s/ Donald N. Boyce Donald N. Boyce | Director | November | ||||
/s/ Howard L. Clark Howard L. Clark | Director | November | ||||
/s/ Jerry W. Kolb Jerry W. Kolb | Director | November | ||||
/s/ Joseph B. Leonard Joseph B. Leonard | Director | November | ||||
/s/ Mark J. O’Brien Mark J. O’Brien | Director | November | ||||
/s/ Bernard G. Rethore Bernard G. Rethore | Director | November | ||||
/s/ Neil A. Springer Neil A. Springer | Director | November | ||||
/s/ Lydia W. Thomas Lydia W. Thomas | Director | November | ||||
/s/ Michael T. Tokarz Michael T. Tokarz | Director | November | ||||
57
Index to Financial Statements
The Board of Directors and Stockholders of Mueller Water Products, Inc.
We have audited the accompanying consolidated balance sheetsheets of Mueller Water Products, Inc. and subsidiaries as of September 30, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the year then ended.two years in the period ended September 30, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit providesaudits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mueller Water Products, Inc. and subsidiaries as ofat September 30, 2009 and 2008, and the consolidated results of their operations and their cash flows for each of the year thentwo years in the period ended September 30, 2009, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Mueller Water Products, Inc.’s internal control over financial reporting as of September 30, 2008,2009, based on criteria established inInternal Control — Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 25, 200824, 2009 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Atlanta, Georgia
November 25, 2008
F-124, 2009
Index to Financial Statements
The Board of Directors and Stockholders of Mueller Water Products, Inc.
We have audited Mueller Water Products, Inc.’s internal control over financial reporting as of September 30, 2008,2009, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Mueller Water Products, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assumed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Mueller Water Products, Inc. maintained, in all material respects, effective internal control over financial reporting as of September 30, 2008,2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetsheets of Mueller Water Products, Inc. as of September 30, 2009 and 2008 and the related consolidated statements of operations, stockholders’ equity and cash flows for the period ended September 30, 2008 of Mueller Water Products, Inc. and our report dated November 25, 2008 expressed an unqualified opinion thereon.
F-2
/s/ Ernst & Young LLP
Atlanta, Georgia
November 24, 2009
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of
Mueller Water Products, Inc.
In our opinion, the consolidated statement of operations, of stockholders’ equity and of cash flows for the year ended September 30, 2007 present fairly, in all material respects, the financial positionresults of operations and cash flows of Mueller Water Products, Inc. and its subsidiaries at September 30, 2007, andfor the results of their operations and their cash flows for each of the two years in the periodyear ended September 30, 2007, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1011 to the consolidated financial statements, the Company changed the manner in which it accounts for defined benefit pension and other postretirement benefit plans as of September 30, 2007.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
November 28, 2007
F-3
Index to Financial Statements
CONSOLIDATED BALANCE SHEETS
| September 30, | ||||||||
| 2008 | 2007 | |||||||
| (in millions) | ||||||||
| Assets: | ||||||||
| Cash and cash equivalents | $ | 183.9 | $ | 98.9 | ||||
| Receivables, net | 298.2 | 302.1 | ||||||
| Inventories | 459.4 | 453.5 | ||||||
| Deferred income taxes | 48.2 | 29.2 | ||||||
| Other current assets | 60.6 | 66.3 | ||||||
| Total current assets | 1,050.3 | 950.0 | ||||||
| Property, plant and equipment, net | 356.8 | 351.8 | ||||||
| Goodwill | 871.5 | 871.1 | ||||||
| Identifiable intangible assets | 789.8 | 819.3 | ||||||
| Other noncurrent assets | 21.8 | 17.0 | ||||||
| Total assets | $ | 3,090.2 | $ | 3,009.2 | ||||
| Liabilities and stockholders’ equity: | ||||||||
| Current portion of long-term debt | $ | 9.7 | $ | 6.2 | ||||
| Accounts payable | 156.0 | 112.3 | ||||||
| Other current liabilities | 129.0 | 121.8 | ||||||
| Total current liabilities | 294.7 | 240.3 | ||||||
| Long-term debt | 1,085.8 | 1,094.3 | ||||||
| Deferred income taxes | 295.8 | 307.3 | ||||||
| Other noncurrent liabilities | 85.0 | 56.3 | ||||||
| Total liabilities | 1,761.3 | 1,698.2 | ||||||
| Commitments and contingencies (Note 19) | ||||||||
| Common stock: | ||||||||
| Series A: 400,000,000 shares authorized, 29,528,763 shares and 29,006,267 shares outstanding at September 30, 2008 and 2007, respectively | 0.3 | 0.2 | ||||||
| Series B: 200,000,000 shares authorized; 85,844,920 shares outstanding at September 30, 2008 and 2007 | 0.9 | 0.9 | ||||||
| Additional paid-in capital | 1,428.9 | 1,422.0 | ||||||
| Accumulated deficit | (81.6 | ) | (124.8 | ) | ||||
| Accumulated other comprehensive income (loss) | (19.6 | ) | 12.7 | |||||
| Total stockholders’ equity | 1,328.9 | 1,311.0 | ||||||
| Total liabilities and stockholders’ equity | $ | 3,090.2 | $ | 3,009.2 | ||||
| September 30, | ||||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 61.5 | $ | 183.9 | ||||
Receivables, net | 216.3 | 298.2 | ||||||
Inventories | 342.8 | 459.4 | ||||||
Deferred income taxes | 30.8 | 48.2 | ||||||
Assets held for sale | 13.9 | - | ||||||
Other current assets | 80.8 | 60.6 | ||||||
Total current assets | 746.1 | 1,050.3 | ||||||
Property, plant and equipment, net | 296.4 | 356.8 | ||||||
Goodwill | - | 871.5 | ||||||
Identifiable intangible assets | 663.6 | 789.8 | ||||||
Other noncurrent assets | 33.4 | 21.8 | ||||||
Total noncurrent assets | 993.4 | 2,039.9 | ||||||
Total assets | $ | 1,739.5 | $ | 3,090.2 | ||||
Liabilities and stockholders’ equity: | ||||||||
Current portion of long-term debt | $ | 11.7 | $ | 9.7 | ||||
Accounts payable | 111.7 | 156.0 | ||||||
Other current liabilities | 97.4 | 129.0 | ||||||
Total current liabilities | 220.8 | 294.7 | ||||||
Long-term debt | 728.5 | 1,085.8 | ||||||
Deferred income taxes | 180.0 | 295.8 | ||||||
Other noncurrent liabilities | 173.9 | 85.0 | ||||||
Total liabilities | 1,303.2 | 1,761.3 | ||||||
Commitments and contingencies (Note 20) | ||||||||
Common stock: | ||||||||
Series A: 600,000,000 shares authorized, 153,790,887 shares outstanding at September 30, 2009; 400,000,000 shares authorized and 29,528,763 shares outstanding at September 30, 2008 | 1.5 | 0.3 | ||||||
Series B: 200,000,000 shares authorized and 85,844,920 shares outstanding at September 30, 2008 | - | 0.9 | ||||||
Additional paid-in capital | 1,599.0 | 1,428.9 | ||||||
Accumulated deficit | (1,078.3 | ) | (81.6 | ) | ||||
Accumulated other comprehensive loss | (85.9 | ) | (19.6 | ) | ||||
Total stockholders’ equity | 436.3 | 1,328.9 | ||||||
Total liabilities and stockholders’ equity | $ | 1,739.5 | $ | 3,090.2 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
F-4
Index to Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (in millions, except per share amounts) | ||||||||||||
| Net sales | $ | 1,859.3 | $ | 1,849.0 | $ | 1,933.4 | ||||||
| Cost of sales | 1,420.3 | 1,385.8 | 1,525.7 | |||||||||
| Gross profit | 439.0 | 463.2 | 407.7 | |||||||||
| Operating expenses: | ||||||||||||
| Selling, general and administrative | 274.6 | 253.2 | 250.1 | |||||||||
| Restructuring | 18.3 | - | 28.6 | |||||||||
| Total operating expenses | 292.9 | 253.2 | 278.7 | |||||||||
| Income from operations | 146.1 | 210.0 | 129.0 | |||||||||
| Interest expense, net | 72.4 | 86.8 | 107.4 | |||||||||
| Loss on early extinguishment of debt | - | 36.5 | 8.5 | |||||||||
| Income before taxes | 73.7 | 86.7 | 13.1 | |||||||||
| Income taxes | 31.7 | 38.5 | 8.0 | |||||||||
| Net income | $ | 42.0 | $ | 48.2 | $ | 5.1 | ||||||
| Basic and diluted net income per share | $ | 0.36 | $ | 0.42 | $ | 0.05 | ||||||
| Weighted average shares outstanding: | ||||||||||||
| Basic | 115.1 | 114.7 | 95.5 | |||||||||
| Diluted | 115.5 | 115.3 | 95.5 | |||||||||
| Dividends declared per share | $ | 0.07 | $ | 0.07 | $ | * | ||||||
| Year ended September 30, | ||||||||||
| 2009 | 2008 | 2007 | ||||||||
| (in millions, except per share amounts) | ||||||||||
Net sales | $ | 1,427.9 | $ | 1,859.3 | $ | 1,849.0 | ||||
Cost of sales | 1,171.0 | 1,420.3 | 1,385.8 | |||||||
Gross profit | 256.9 | 439.0 | 463.2 | |||||||
Operating expenses: | ||||||||||
Selling, general and administrative | 239.1 | 274.6 | 253.2 | |||||||
Impairment | 970.9 | - | - | |||||||
Restructuring | 47.8 | 18.3 | - | |||||||
Total operating expenses | 1,257.8 | 292.9 | 253.2 | |||||||
Income (loss) from operations | (1,000.9 | ) | 146.1 | 210.0 | ||||||
Interest expense, net | 78.3 | 72.4 | 86.8 | |||||||
Loss on early extinguishment of debt | 5.3 | - | 36.5 | |||||||
Gain on repurchase of debt | (1.5 | ) | - | - | ||||||
Income (loss) before income taxes | (1,083.0 | ) | 73.7 | 86.7 | ||||||
Income tax expense (benefit) | (86.3 | ) | 31.7 | 38.5 | ||||||
Net income (loss) | $ | (996.7 | ) | $ | 42.0 | $ | 48.2 | |||
Basic and diluted net income (loss) per share | $ | (8.55 | ) | $ | 0.36 | $ | 0.42 | |||
Weighted average shares outstanding: | ||||||||||
Basic | 116.6 | 115.1 | 114.7 | |||||||
Diluted | 116.6 | 115.5 | 115.3 | |||||||
Dividends declared per share | $ | 0.07 | $ | 0.07 | $ | 0.07 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
F-5
Index to Financial Statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Accumulated | ||||||||||||||||||||
| Additional | other | |||||||||||||||||||
| Common | paid-in | Accumulated | comprehensive | |||||||||||||||||
| stock | capital | deficit | income (loss) | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Balance at September 30, 2005 | $ | - | $ | 68.3 | $ | (178.1 | ) | $ | (45.4 | ) | $ | (155.2 | ) | |||||||
| Net income | - | - | 5.1 | - | 5.1 | |||||||||||||||
| Walter Industries, Inc. investment in subsidiary | - | 932.1 | - | - | 932.1 | |||||||||||||||
| Dividends to Walter Industries, Inc. | - | (456.5 | ) | - | - | (456.5 | ) | |||||||||||||
| Forgiveness of payable to Walter Industries, Inc. | - | 443.6 | - | - | 443.6 | |||||||||||||||
| Sale of common stock in initial public offering | 1.1 | 427.8 | - | - | 428.9 | |||||||||||||||
| Stock-based compensation | - | 2.2 | - | - | 2.2 | |||||||||||||||
| Net unrealized gain on derivatives | - | - | - | 1.0 | 1.0 | |||||||||||||||
| Foreign currency translation | - | - | - | 1.8 | 1.8 | |||||||||||||||
| Minimum pension liability | - | - | - | 24.0 | 24.0 | |||||||||||||||
| Balance at September 30, 2006 | 1.1 | 1,417.5 | (173.0 | ) | (18.6 | ) | 1,227.0 | |||||||||||||
| Net income | - | - | 48.2 | - | 48.2 | |||||||||||||||
| Dividends declared | - | (8.0 | ) | - | - | (8.0 | ) | |||||||||||||
| Stock-based compensation | - | 10.7 | - | - | 10.7 | |||||||||||||||
| Stock issued under stock compensation plans | - | 1.8 | - | - | 1.8 | |||||||||||||||
| Net unrealized loss on derivatives | - | - | - | (2.1 | ) | (2.1 | ) | |||||||||||||
| Foreign currency translation | - | - | - | 8.2 | 8.2 | |||||||||||||||
| Minimum pension liability | - | - | - | 10.0 | 10.0 | |||||||||||||||
| Adjustment to initially apply SFAS No. 158, net of tax | - | - | - | 15.2 | 15.2 | |||||||||||||||
| Balance at September 30, 2007 | 1.1 | 1,422.0 | (124.8 | ) | 12.7 | 1,311.0 | ||||||||||||||
| Adjustment to adopt FASB Interpretation No. 48 | - | - | 0.6 | - | 0.6 | |||||||||||||||
| Balance at October 1, 2007 | 1.1 | 1,422.0 | (124.2 | ) | 12.7 | 1,311.6 | ||||||||||||||
| Net income | - | - | 42.0 | - | 42.0 | |||||||||||||||
| Effect of changing pension plans’ and other postretirement benefit plans’ measurement dates pursuant to SFAS No. 158, net of tax | - | - | 0.6 | - | 0.6 | |||||||||||||||
| Dividends declared | - | (8.1 | ) | - | - | (8.1 | ) | |||||||||||||
| Stock-based compensation | - | 13.2 | - | - | 13.2 | |||||||||||||||
| Stock issued under stock compensation plans | 0.1 | 1.8 | - | - | 1.9 | |||||||||||||||
| Net unrealized loss on derivatives | - | - | - | (6.5 | ) | (6.5 | ) | |||||||||||||
| Foreign currency translation | - | - | - | (2.7 | ) | (2.7 | ) | |||||||||||||
| Minimum pension liability | - | - | - | (23.1 | ) | (23.1 | ) | |||||||||||||
| Balance at September 30, 2008 | $ | 1.2 | $ | 1,428.9 | $ | (81.6 | ) | $ | (19.6 | ) | $ | 1,328.9 | ||||||||
| Common stock | Additional paid-in capital | Accumu- lated deficit | Accumulated other comprehensive income (loss) | Total | |||||||||||||||
| (in millions) | |||||||||||||||||||
Balance at September 30, 2006 | $ | 1.1 | $ | 1,417.5 | $ | (173.0 | ) | $ | (18.6 | ) | $ | 1,227.0 | |||||||
Net income | - | - | 48.2 | - | 48.2 | ||||||||||||||
Dividends declared | - | (8.0 | ) | - | - | (8.0 | ) | ||||||||||||
Stock-based compensation | - | 10.7 | - | - | 10.7 | ||||||||||||||
Stock issued under stock compensation plans | - | 1.8 | - | - | 1.8 | ||||||||||||||
Net unrealized loss on derivatives | - | - | - | (2.1 | ) | (2.1 | ) | ||||||||||||
Foreign currency translation | - | - | - | 8.2 | 8.2 | ||||||||||||||
Minimum pension liability | - | - | - | 10.0 | 10.0 | ||||||||||||||
Adjustment to recognize the funded status of pension and other postretirement plans | - | - | - | 15.2 | 15.2 | ||||||||||||||
Balance at September 30, 2007 | 1.1 | 1,422.0 | (124.8 | ) | 12.7 | 1,311.0 | |||||||||||||
Adjustment related to uncertain income tax positions | - | - | 0.6 | - | 0.6 | ||||||||||||||
Balance at October 1, 2007 | 1.1 | 1,422.0 | (124.2 | ) | 12.7 | 1,311.6 | |||||||||||||
Net income | - | - | 42.0 | - | 42.0 | ||||||||||||||
Effect of changing pension plans’ and other postretirement benefit plans’ measurement dates to September 30 | - | - | 0.6 | - | 0.6 | ||||||||||||||
Dividends declared | - | (8.1 | ) | - | - | (8.1 | ) | ||||||||||||
Stock-based compensation | - | 13.2 | - | - | 13.2 | ||||||||||||||
Stock issued under stock compensation plans | 0.1 | 1.8 | - | - | 1.9 | ||||||||||||||
Net unrealized loss on derivatives | - | - | - | (6.5 | ) | (6.5 | ) | ||||||||||||
Foreign currency translation | - | - | - | (2.7 | ) | (2.7 | ) | ||||||||||||
Minimum pension liability | - | - | - | (23.1 | ) | (23.1 | ) | ||||||||||||
Balance at September 30, 2008 | 1.2 | 1,428.9 | (81.6 | ) | (19.6 | ) | 1,328.9 | ||||||||||||
Net loss | - | - | (996.7 | ) | - | (996.7 | ) | ||||||||||||
Sale of common stock in public offering | 0.3 | 165.7 | - | - | 166.0 | ||||||||||||||
Dividends declared | - | (8.1 | ) | - | - | (8.1 | ) | ||||||||||||
Stock-based compensation | - | 11.6 | - | - | 11.6 | ||||||||||||||
Stock issued under stock compensation plans | - | 0.9 | - | - | 0.9 | ||||||||||||||
Net unrealized loss on derivatives | - | - | - | (3.8 | ) | (3.8 | ) | ||||||||||||
Foreign currency translation | - | - | - | (3.4 | ) | (3.4 | ) | ||||||||||||
Minimum pension liability | - | - | - | (59.1 | ) | (59.1 | ) | ||||||||||||
Balance at September 30, 2009 | $ | 1.5 | $ | 1,599.0 | $ | (1,078.3 | ) | $ | (85.9 | ) | $ | 436.3 | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-6
Index to Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (in millions) | ||||||||||||
| Operating activities: | ||||||||||||
| Net income | $ | 42.0 | $ | 48.2 | $ | 5.1 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation | 63.6 | 72.3 | 68.8 | |||||||||
| Amortization | 29.5 | 29.1 | 28.1 | |||||||||
| Provision for doubtful receivables | 3.7 | 0.8 | 1.8 | |||||||||
| Write-off of premium on notes | - | (22.8 | ) | (14.3 | ) | |||||||
| Write-off of deferred financing fees | - | 11.1 | 4.1 | |||||||||
| Stock-based compensation expense | 13.2 | 10.7 | 3.1 | |||||||||
| Accretion on debt | - | 7.1 | 12.9 | |||||||||
| Deferred income taxes (benefit) | (4.2 | ) | 29.6 | (9.5 | ) | |||||||
| Amortization of deferred financing fees | 1.7 | 2.5 | 3.1 | |||||||||
| Loss (gain) on disposal of property, plant and equipment | (0.9 | ) | 2.6 | 2.1 | ||||||||
| Asset impairments | 14.8 | - | 21.5 | |||||||||
| Other, net | 1.2 | (5.5 | ) | (3.2 | ) | |||||||
| Changes in assets and liabilities, net of acquisitions: | ||||||||||||
| Receivables | (11.3 | ) | 28.1 | (27.0 | ) | |||||||
| Inventories | (18.2 | ) | 15.0 | 70.4 | ||||||||
| Other assets | 11.4 | (0.4 | ) | (1.3 | ) | |||||||
| Accounts payable and other liabilities | 35.5 | (73.3 | ) | (58.1 | ) | |||||||
| Net cash provided by operating activities | 182.0 | 155.1 | 107.6 | |||||||||
| Investing activities: | ||||||||||||
| Capital expenditures | (88.1 | ) | (88.3 | ) | (71.1 | ) | ||||||
| Proceeds from sale of property, plant and equipment | 9.6 | 0.8 | 3.6 | |||||||||
| Acquisitions of businesses, net of cash acquired | - | (26.2 | ) | (15.6 | ) | |||||||
| Increase in amounts due Walter Industries, Inc. | - | - | 1.7 | |||||||||
| Net cash used in investing activities | (78.5 | ) | (113.7 | ) | (81.4 | ) | ||||||
| Financing activities: | ||||||||||||
| Increase (decrease) in outstanding checks | (6.9 | ) | 3.1 | 10.0 | ||||||||
| Debt borrowings | - | 1,140.0 | 1,105.9 | |||||||||
| Debt payments | (5.0 | ) | (1,151.1 | ) | (1,087.8 | ) | ||||||
| Common stock issuance | 1.9 | 1.8 | 428.9 | |||||||||
| Deferred financing fee payments | - | (11.4 | ) | (21.6 | ) | |||||||
| Dividend payments | (8.1 | ) | (8.0 | ) | (456.5 | ) | ||||||
| Contribution from Walter Industries, Inc. | - | - | 76.3 | |||||||||
| Net cash provided by (used in) financing activities | (18.1 | ) | (25.6 | ) | 55.2 | |||||||
| Effect of currency exchange rate changes on cash | (0.4 | ) | 1.7 | - | ||||||||
| Net change in cash and cash equivalents | 85.0 | 17.5 | 81.4 | |||||||||
| Cash and cash equivalents at beginning of year | 98.9 | 81.4 | - | |||||||||
| Cash and cash equivalents at end of year | $ | 183.9 | $ | 98.9 | $ | 81.4 | ||||||
| Year ended September 30, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
Operating activities: | ||||||||||||
Net income (loss) | $ | (996.7 | ) | $ | 42.0 | $ | 48.2 | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
Depreciation | 59.5 | 63.6 | 72.3 | |||||||||
Amortization | 30.7 | 29.5 | 29.1 | |||||||||
Provision for doubtful receivables | 6.4 | 3.7 | 0.8 | |||||||||
Write-off of premium on notes | - | - | (22.8 | ) | ||||||||
Write-off of deferred financing fees | 5.3 | - | 11.1 | |||||||||
Impairments and non-cash restructuring | 1,009.4 | 14.8 | - | |||||||||
Stock-based compensation expense | 11.6 | 13.2 | 10.7 | |||||||||
Accretion on debt | - | - | 7.1 | |||||||||
Gain on repurchase of debt | (1.5 | ) | - | - | ||||||||
Deferred income taxes | (57.8 | ) | (4.2 | ) | 29.6 | |||||||
Other, net | 5.2 | 2.0 | (0.4 | ) | ||||||||
Changes in assets and liabilities, net of acquisitions: | ||||||||||||
Receivables | 68.8 | (11.3 | ) | 28.1 | ||||||||
Inventories | 109.8 | (18.2 | ) | 15.0 | ||||||||
Other current assets and other noncurrent assets | (32.9 | ) | 11.4 | (0.4 | ) | |||||||
Accounts payable and other liabilities | (87.3 | ) | 35.5 | (73.3 | ) | |||||||
Net cash provided by operating activities | 130.5 | 182.0 | 155.1 | |||||||||
Investing activities: | ||||||||||||
Capital expenditures | (39.7 | ) | (88.1 | ) | (88.3 | ) | ||||||
Acquisition of technology | (8.7 | ) | - | - | ||||||||
Proceeds from sale of property, plant and equipment | 5.5 | 9.6 | 0.8 | |||||||||
Acquisitions of businesses, net of cash acquired | - | - | (26.2 | ) | ||||||||
Net cash used in investing activities | (42.9 | ) | (78.5 | ) | (113.7 | ) | ||||||
Financing activities: | ||||||||||||
Increase (decrease) in outstanding checks | (4.3 | ) | (6.9 | ) | 3.1 | |||||||
Debt borrowings | 539.4 | - | 1,140.0 | |||||||||
Debt paid or repurchased | (893.1 | ) | (5.0 | ) | (1,151.1 | ) | ||||||
Common stock issued | 166.9 | 1.9 | 1.8 | |||||||||
Payment of deferred financing fees | (10.1 | ) | - | (11.4 | ) | |||||||
Dividends paid | (8.1 | ) | (8.1 | ) | (8.0 | ) | ||||||
Net cash used in financing activities | (209.3 | ) | (18.1 | ) | (25.6 | ) | ||||||
Effect of currency exchange rate changes on cash | (0.7 | ) | (0.4 | ) | 1.7 | |||||||
Net change in cash and cash equivalents | (122.4 | ) | 85.0 | 17.5 | ||||||||
Cash and cash equivalents at beginning of year | 183.9 | 98.9 | 81.4 | |||||||||
Cash and cash equivalents at end of year | $ | 61.5 | $ | 183.9 | $ | 98.9 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-7
Index to Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
| Note 1. | Organization |
Mueller Water Products, Inc., a Delaware corporation, together with its consolidated subsidiaries, (the “Company”) operates in three business segments: Mueller Co., U.S. Pipe and Anvil. Mueller Co. manufactures and sells fire hydrants, valves and related products used in residentialfor water and gas systems.systems, including butterfly, iron gate, tapping, check, plug and ball valves, as well as dry-barrel and wet-barrel fire hydrants and a full range of metering products for the water infrastructure industry. U.S. Pipe manufactures and sells a broad line of ductile iron pipe, restrainedrestraint joint products, fittings and other ductile iron products. Anvil manufacturesproduces and sellssources a broad range of products including a variety of pipe fittings, couplings, pipe hangers, pipe nipples and related pipe products.
On October 3, 2005, Walter Industries,Energy, Inc. (“Walter Industries”Energy”, formerly Walter Industries, Inc.) acquired all outstanding shares of a predecessor company comprising the current Mueller Co. and Anvil businesses (the “Mueller Acquisition”) and contributed them to its U.S. Pipe business to form the Company as it currently exists. The acquired businesses are included in the Consolidated Results of Operations beginning October 3, 2005. The CompanyWe completed an initial public offering of itsour Series A common stock (NYSE: MWA) on June 1, 2006 and, on December 14, 2006, Walter Industries, Inc. (“Walter Industries”)Energy distributed all of the Company’s outstandingour then-outstanding Series B common stock (NYSE: MWA.B) to theits shareholders of Walter Industries (the “Spin-off”).
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which require managementus 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. Certain reclassifications have been made to previously reported amounts to conform to the current yearperiod presentation.
| Note 2. | Summary of Significant Accounting Policies |
Revenue Recognition—The Company recognizes revenueRevenue is recognized when delivery of products has occurred or services have been rendered and there is persuasive evidence of a sales arrangement, selling prices are fixed or determinable and collectibility from the customer is reasonably assured. Revenue is recorded net of estimated cash discounts, returns and rebates.
Shipping and Handling—Costs to ship products to customers are included in cost of sales in the accompanying Consolidated Statements of Operations.sales. Amounts billed to customers, if any, to cover shipping and handling costs are included in net sales.
Stock-based Compensation—The Company records compensationCompensation expense for stock-based awards granted to employees and directors is based on the fair value at the grant dates. The Company records stock-basedStock-based compensation expense asis a component of selling, general and administrative expense.
Cash and Cash Equivalents—The Company considers allAll highly liquid investments with original maturities of 90 days or less when purchased to beare classified as cash equivalents. Outstanding checks are netted against cash when there is a sufficient balance of cash available in the Company’s accounts at the bank to cover the outstanding checks and the right of offset exists. Where there is no right of offset against cash balances, outstanding checks are included in accounts payable. At September 30, 20082009 and 2007,2008, checks issued but not yet presented to the banks for payment (i.e., the net dollar value of bank checks outstanding) were $6.2$1.9 million and $13.1$6.2 million, respectively, and were included in accounts payable.
F-8
Index to Financial Statements
The estimated allowance for doubtful receivables is based upon judgments and estimates of expected losses and specific identification of problem accounts. Significantly weaker than anticipated industry or economic conditions could impact customers’ ability to pay such that actual losses may be greater than the amounts provided for in this allowance. The periodic evaluation of the adequacy of the allowance for doubtful receivables is based on an analysis of prior collection experience, specific customer creditworthiness and current economic trends within the industries served. In circumstances where we know of a specific customer’s inability to meet its financial obligation is known to the Companyobligations (e.g., bankruptcy filings or substantial downgrading of credit ratings), the Company recordswe record a specific allowance to reduce the receivable to the amount management reasonably believes will be collected.
The following table summarizes information concerning the Company’sour allowance for doubtful receivables.
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (in millions) | ||||||||||||
| Balance at beginning of year | $ | 4.9 | $ | 4.8 | $ | 0.9 | ||||||
| Balance of acquired businesses | - | - | 5.0 | |||||||||
| Provision charged to expense | 3.7 | 0.8 | 1.8 | |||||||||
| Balances written off, net of recoveries | (1.9 | ) | (0.7 | ) | (2.9 | ) | ||||||
| Balance at end of year | $ | 6.7 | $ | 4.9 | $ | 4.8 | ||||||
| Year ended September 30, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
Balance at beginning of year | $ | 6.7 | $ | 4.9 | $ | 4.8 | ||||||
Provision charged to expense | 6.4 | 3.7 | 0.8 | |||||||||
Balances written off, net of recoveries | (8.4 | ) | (1.9 | ) | (0.7 | ) | ||||||
Balance at end of year | $ | 4.7 | $ | 6.7 | $ | 4.9 | ||||||
Inventories—Inventories are recorded at the lower of cost(first-in, (first-in, first-out method) or market value. Additionally, the Company evaluates itswe evaluate our inventory in terms of excess and obsolete exposures. This evaluation includes such factors as anticipated usage, inventory turnover, inventory levels and ultimate product sales value. Inventory cost includes an overhead component that is affected by levels of production and actual costs incurred. Management periodically evaluates the effects of production levels and costs capitalized as part of inventory.
The following table summarizes information concerning the Company’sour reserves for excess and obsolete inventories and to reduce inventory balances to the lower of cost or market.
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (in millions) | ||||||||||||
| Balance at beginning of year | $ | 32.3 | $ | 29.0 | $ | 4.3 | ||||||
| Balance of acquired businesses | - | - | 22.8 | |||||||||
| Provision charged to expense | 3.3 | 9.4 | 16.1 | |||||||||
| Amounts written off | (3.4 | ) | (10.1 | ) | (14.7 | ) | ||||||
| Other adjustments | (0.2 | ) | 4.0 | 0.5 | ||||||||
| Balance at end of year | $ | 32.0 | $ | 32.3 | $ | 29.0 | ||||||
| Year ended September 30, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
Balance at beginning of year | 27.6 | $ | 28.1 | $ | 29.0 | |||||||
Provision charged to expense | 5.3 | 3.3 | 9.4 | |||||||||
Amounts written off | (4.7 | ) | (3.4 | ) | (10.1 | ) | ||||||
Other adjustments | (0.7 | ) | (0.4 | ) | (0.2 | ) | ||||||
Balance at end of year | $ | 27.5 | $ | 27.6 | $ | 28.1 | ||||||
Prepaid Expenses—Prepaid expenses include maintenance supplies and tooling inventory costs. Costs for perishable tools and maintenance items are expensed when put into service. Costs for more durable items are amortized over their estimated useful lives, ranging from 3 to 10 years.
Property, plant and equipment—Property, plant and equipment is recorded at cost, less accumulated depreciation and amortization. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are 10 to 20 years for land improvements, 10 to 40 years for buildings
Index to Financial Statements
and 3 to 15 years for machinery and equipment. Leasehold improvements are amortized using the
F-9
Interest costs associated with large asset construction projects.projects are capitalized. Capitalized interest is treated as a component of the related asset’s cost and depreciated accordingly.
Direct internal and external costs to implement computer systems and software are capitalized as incurred. Capitalized costs are depreciated over the estimated useful life of the system or software, generally 3 to 5 years, beginning when site installation or module development is complete and ready for use.
Liabilities are recognized at fair value for asset retirement obligations related to plant and landfill closures in the period in which they are incurred and the carrying amounts of the related long-lived assets are correspondingly increased. Over time, the liabilities are accreted to their estimated future values. At September 30, 20082009 and 2007,2008, asset retirement obligations were $3.1 million and $3.0 million, and $4.0 million, respectively.
Accounting for the Impairment of Long-Lived Assets—Management tests long-lived assets, including goodwill and intangible assets that have an indefinite life, for impairment annually (or more frequently if events or circumstances indicate possible impairments). Finite-lived intangible assets are amortized over their respective estimated useful lives and reviewed if events or circumstances indicate possible impairment. We perform our annual impairment testing at September 1.
Management tests goodwill for possible impairment by first determining the fair value of the related reporting unit and comparing this value to the recorded net assets of the reporting unit, including goodwill. Fair value is determined using a combination of a discounted cash flow model and stock market comparable valuations for a peer group of companies. Significant judgments and estimates must be made when estimating future cash flows, determining the appropriate discount rate and identifying appropriate stock market comparable companies. Management concludedAt December 31, 2008, we reported estimated goodwill impairment charges of $59.5 million for U.S. Pipe, completely impairing its goodwill, and $340.5 million against Mueller Co.’s prior goodwill balance of $718.4 million, subject to additional fair value analysis. At that time, any additional impairment charge was not expected to exceed $200 million. During the Company’s goodwill had not been impairedthree months ended March 31, 2009, our common stock began trading at September 1, 2008.
In conjunction with the testing of goodwill for impairment, we also compared the estimated fair values of our identified other intangible assets to their respective carrying values and determined by management. The fairthat the carrying amount of trade names at Mueller Co. had been impaired. At March 31, 2009, we recorded an impairment charge against these assets of $101.4 million. In performing this analysis, we relied upon both Level 2 data, most notably market interest rates and operating margins of peer companies, and Level 3 data, including our projections of Mueller Co. net sales and operating margins. Mueller Co.’s trade names have a remaining carrying value of an entity can be greater than its market capitalization for various reasons, one of which is the concept of a control premium. Substantial value may arise from the ability to take advantages of synergies and other benefits that flow from control over another entity. Management also believes the general downturn in U.S. equity markets resulting from the recent credit and liquidity crisis, which management believes has also affected the Company’s stock market valuation, is not representative of any fundamental change in the Company’s businesses. Management cannot predict with any reasonable degree of confidence when the effects of these recent economic events will subside or when the price of the Company’s common stock will be more representative of what management believes to be the Company’s fair value. Changes in management’s assumptions underlying its estimates of fair value, which will be a function of the Company’s future financial performance and changes in economic conditions, could result in a future impairment charge.
Workers Compensation—The Company’sOur exposure to workers compensation claims is generally limited to $1 million per incident. Liabilities, including those related to claims incurred but not reported, are recorded principally using annual valuations based on discounted future expected payments and using historical data or combined with insurance industry data when historical data is limited. The Company isWe are indemnified by a predecessor to Tyco International Ltd. (“Tyco”) for all Mueller Co. and Anvil workers compensation liabilities related to incidents
Index to Financial Statements
that occurred prior to August 16, 1999. See Note 19.20. On an undiscounted basis, workers compensation liabilities were $25.4$27.2 million and $25.2$25.4 million at September 30, 20082009 and 2007,2008, respectively. On a discounted basis, workers compensation liabilities were $22.2$23.7 million and $21.8$22.2 million at September 30, 2009 and 2008, and 2007, respectively.
We apply a discount rate at a risk-free interest rate, generally a U.S. Treasury bill rate, for each policy year.period. The rate used is one with a duration that corresponds to the weighted average expected payout period for each policy year.period. Once a discount rate is applied to a policy year,period, it remains the discount
F-10
Warranty Costs—The Company accruesWe accrue for warranty expenses that can include customer costs of repairand/or replacement, including labor, materials, equipment, freight and reasonable overhead costs. The Company accruesWe accrue for the estimated cost of product warranties at the time of sale if such costs are determined to be reasonably estimable at that time. Warranty cost estimates are revised throughout applicable warranty periods as better information regarding warranty costs becomes available.
Activity in accrued warranty, reported as part of other current liabilities, is presented below.
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (in millions) | ||||||||||||
| Balance at beginning of year | $ | 3.7 | $ | 2.7 | $ | 4.7 | ||||||
| Balance at acquired businesses | - | - | 1.6 | |||||||||
| Warranty expense | 8.2 | 6.3 | 3.1 | |||||||||
| Warranty payments | (5.4 | ) | (5.3 | ) | (6.7 | ) | ||||||
| Balance at end of year | $ | 6.5 | $ | 3.7 | $ | 2.7 | ||||||
| Year ended September 30, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
Balance at beginning of year | $ | 6.5 | $ | 3.7 | $ | 2.7 | ||||||
Warranty expense | 4.7 | 8.2 | 6.3 | |||||||||
Warranty payments/settlements | (7.2 | ) | (5.4 | ) | (5.3 | ) | ||||||
Balance at end of year | $ | 4.0 | $ | 6.5 | $ | 3.7 | ||||||
Deferred Financing Fees—Costs of debt financing are charged to expense over the life of the related financing agreements, which range from 5 to 10 years. Remaining costs and the future period over which they would be charged to expense are reassessed when amendments to the related financing agreements or prepayments occur.
Derivative Instruments and Hedging Activities—Changes in the fair value of derivative instruments that are accounted for as effective hedges are recorded to accumulated other comprehensive incomeloss and changes in the fair value of derivative instruments that are not accounted for as effective hedges are recorded to operating results as incurred.
We use interest rate swap agreements,contracts, natural gas swap contracts and foreign currency forward contracts to hedge against certain risks. The interest rate and natural gas contracts are accounted for as effective cash flow hedges.
Income Taxes—Deferred tax liabilities and deferred tax assets are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Such liabilities and assets are determined based on the differences between the financial statement basis and the tax basis of assets and liabilities, using tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
We only recordsrecord tax benefits for positions that management believeswe believe are more likely than not of being sustained under audit examination based solely on the technical merits of the associated tax position. The amount of tax benefit recognized for
Index to Financial Statements
any position that meets the more likely than not threshold is the largest amount of the tax benefit that we believe is greater than 50% likely of being realized. The Company includesWe include any related interest as interest expense net and any penalties are recorded as income taxselling, general and administrative expense.
Environmental Expenditures—The Company capitalizesWe capitalize environmental expenditures that increase the life or efficiency of property or that reduce or prevent environmental contamination. The Company accruesWe accrue for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and reasonably estimable. The Company isWe are indemnified by Tyco for allcertain environmental liabilities that existed at August 16, 1999. See Note 19.
Research and Development—Research and development costs are expensed as incurred.
Advertising—Advertising costs are expensed as incurred.
F-11
Related Party Transactions—The Company purchasesWe purchase foundry coke from Sloss Industries, Inc. (“Sloss”), which was anour affiliate of the Company untilprior to the Spin-off. Purchases from Sloss were $4.5 million during the portion of the year ended September 30, 2007 through the date of the Spin-off and were $21.2 million for the year ended September 30, 2006.
Sloss also provided us other services to the Company, including the delivery of electrical power to one of the Company’sour facilities, rail car switching and the leasing of a distribution facility. Income from operations includes expenses of $0.3 million for the portion of the year ended September 30, 2007 through the date of the Spin-off and $1.9Spin-off.
Walter Energy allocated $0.5 million for the year ended September 30, 2006 related to these other services provided by Sloss.
Certain of the Company’sour employees had beenwere granted Walter IndustriesEnergy restricted stock units and stock options under Walter Industries’Energy’s share-based compensation plans. The CompanyWe had $0.6 million and $0.8 million in expenses related to this stock-based compensation allocated from Walter IndustriesEnergy for the yearsyear ended September 30, 2007 and 2006, respectively.2007. In connection with the Spin-off, Walter IndustriesEnergy cancelled these instruments and the Companywe replaced them with restricted stock units and options to acquire shares of the Company’sour Series A common stock under a predecessor plan to the Mueller Water Products, Inc. Amended and Restated 2006 Stock Incentive Plan.
| Note 3. | Acquisitions |
On January 4, 2007, the Companywe acquired the net assets of Fast Fabricators, Inc. (“Fast Fabricators”), a ductile iron pipe fabricator based in Connecticut, for $23.0 million in cash, net of cash acquired. See Note 18 for the allocation of the purchase price. The purchase price was subject to an earnout adjustment based on calendar 2007 operating results. None of the earnout amount was earned. The acquisition of Fast Fabricators included identifiable intangible assets acquired representedof customer relationships, which are amortized over a12-year life, and a trade name and trademark, which has anhave indefinite life.
Index to Financial Statements
As part of the January 2004 acquisition of Star Pipe, Inc. (“Star”), the purchase price was subject to an earnout adjustment based on a target gross profit amount. During the year ended September 30, 2007, $3.7 million was paid as the final payment for the earnout adjustment.
F-12
| Estimated fair values | ||||||||
| of net assets acquired | ||||||||
| Fast | ||||||||
| Fabricators | Star | |||||||
| (in millions) | ||||||||
| Current assets | $ | 10.5 | $ | - | ||||
| Property, plant and equipment | 1.8 | - | ||||||
| Goodwill | 0.5 | 3.7 | ||||||
| Identifiable intangible assets | 13.1 | - | ||||||
| Current liabilities | (2.9 | ) | - | |||||
| Net assets acquired | $ | 23.0 | $ | 3.7 | ||||
| Estimated fair values of | ||||||||||||
| net assets acquired | ||||||||||||
| Mueller | ||||||||||||
| CCNE | Hunt | Acquisition | ||||||||||
| (in millions) | ||||||||||||
| Current assets | $ | 2.1 | $ | 0.2 | $ | 550.6 | ||||||
| Property, plant and equipment | - | - | 214.2 | |||||||||
| Goodwill | - | 6.8 | 802.1 | |||||||||
| Identifiable intangible assets | 6.7 | - | 856.9 | |||||||||
| Other assets | - | - | 350.7 | |||||||||
| Current liabilities | - | (0.2 | ) | - | ||||||||
| Debt | - | - | (1,572.7 | ) | ||||||||
| Deferred tax liabilities | - | - | (268.3 | ) | ||||||||
| Net assets acquired | $ | 8.8 | $ | 6.8 | $ | 933.5 | ||||||
F-13
| Note 4. | Goodwill and Identifiable Intangible Assets |
Goodwill activity is presented below.
| Year ended September 30, | ||||||||
| 2008 | 2007 | |||||||
| (in millions) | ||||||||
| Balance at beginning of year | $ | 871.1 | $ | 866.0 | ||||
| Acquisition of Fast Fabricators | - | 0.5 | ||||||
| Earnout payment from acquisition of Star Pipe | - | 3.7 | ||||||
| Reversal of restructuring accruals | - | (1.2 | ) | |||||
| Adoption of FIN 48 | 0.4 | - | ||||||
| Other tax adjustments | - | 2.1 | ||||||
| Balance at end of year | $ | 871.5 | $ | 871.1 | ||||
F-14
| Year ended September 30, | |||||||
| 2009 | 2008 | ||||||
| (in millions) | |||||||
Balance at beginning of year | $ | 871.5 | $ | 871.1 | |||
Impairment | (869.5 | ) | - | ||||
Income tax related adjustment | (2.0 | ) | 0.4 | ||||
Balance at end of year | $ | - | $ | 871.5 | |||
| September 30, | ||||||||
| 2008 | 2007 | |||||||
| (in millions) | ||||||||
| Cost: | ||||||||
| Finite lived intangible assets: | ||||||||
| Technology | $ | 63.0 | $ | 63.0 | ||||
| Customer relationships | 409.2 | 409.2 | ||||||
| Indefinite-lived intangible assets: | ||||||||
| Trade names and trademarks | 404.5 | 404.5 | ||||||
| 876.7 | 876.7 | |||||||
| Accumulated amortization: | ||||||||
| Technology | 20.9 | 13.8 | ||||||
| Customer relationships | 66.0 | 43.6 | ||||||
| 86.9 | 57.4 | |||||||
| Net book value | $ | 789.8 | $ | 819.3 | ||||
| September 30, | ||||||
| 2009 | 2008 | |||||
| (in millions) | ||||||
Cost: | ||||||
Finite lived intangible assets: | ||||||
Technology | $ | 71.7 | $ | 63.0 | ||
Customer relationships | 409.2 | 409.2 | ||||
Indefinite-lived intangible assets: | ||||||
Trade names and trademarks | 300.3 | 404.5 | ||||
| 781.2 | 876.7 | |||||
Accumulated amortization: | ||||||
Technology | 29.3 | 20.9 | ||||
Customer relationships | 88.3 | 66.0 | ||||
| 117.6 | 86.9 | |||||
Net book value | $ | 663.6 | $ | 789.8 | ||
At September 30, 2008,2009, the remaining weighted-average amortization period for the finite-lived intangible assets was 17.217.0 years. Amortization expense related to finite-lived intangible assets was $30.7 million, $29.5 million $29.1 million and $28.1$29.1 million for the years ended September 30, 2009, 2008 2007 and 2006,2007, respectively. Amortization expense for each of the next five years ending September 30 is scheduled to be $29.6 million in 2009, $29.6$31.3 million in 2010, $29.3$31.1 million in 2011, $28.1$29.8 million in 2012, and $28.1$29.9 million in 2013.
| Note 5. | Assets Held for Sale |
We divested certain assets of Anvil’s non-core electrical fittings and couplings business in November 2009. We received $12.8 million cash and certain assets of Seminole Tubular Company, which complement our
Index to Financial Statements
existing mechanical pipe nipple business. We believe this transaction will generate cash and enhance our overall product offerings.
Assets held for sale are presented below.
| 2009 | |||
| (in millions) | |||
Receivables, net | $ | 5.2 | |
Inventories | 4.7 | ||
Property, plant and equipment, net | 2.7 | ||
Identifiable intangible assets | 1.3 | ||
| $ | 13.9 | ||
| Note | Restructuring Activities |
Activity in accrued restructuring is presented below.
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (in millions) | ||||||||||||
| Balance at beginning of year | $ | 0.9 | $ | 3.1 | $ | - | ||||||
| Additions charged against operations | 18.3 | - | 28.6 | |||||||||
| Additions (reductions) charged to goodwill | - | (0.6 | ) | 9.0 | ||||||||
| Reductions credited against operations | (0.3 | ) | - | - | ||||||||
| Reductions credited against assets | (14.8 | ) | - | (21.5 | ) | |||||||
| Payments | (3.2 | ) | (1.6 | ) | (13.0 | ) | ||||||
| Balance at end of year | $ | 0.9 | $ | 0.9 | $ | 3.1 | ||||||
| Year ended September 30, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
Balance at beginning of year | $ | 0.9 | $ | 0.9 | $ | 3.1 | ||||||
Provisions charged against operations | 47.8 | 18.3 | - | |||||||||
Reductions credited against operations | - | (0.3 | ) | (0.6 | ) | |||||||
Reductions credited against assets | (38.5 | ) | (14.8 | ) | - | |||||||
Payments | (6.8 | ) | (3.2 | ) | (1.6 | ) | ||||||
Balance at end of year | $ | 3.4 | $ | 0.9 | $ | 0.9 | ||||||
We have experienced significant declines in the demand for our products since September 30, 2008, resulting in most of our manufacturing facilities operating significantly below their optimal capacities. We have responded by reducing headcount, reducing operating hours and reducing overall spending activities. During the year ended September 30, 2009, we suspended production throughout the Company for varying time periods; consolidated facilities; implemented temporary wage reductions, furloughs and reduced work weeks for certain employees; and reduced headcount by approximately 700 people. Restructuring charges to be paid in cash, mostly severance related to headcount reductions, during the year ended September 30, 2009 were $9.3 million of which $3.4 million had yet to be paid at September 30, 2009. At U.S. Pipe’s North Birmingham facility, restructuring activities resulted in lower fixed costs, reduced capacity and a $38.5 million non-cash restructuring charge, primarily for impairment of property, plant and equipment. These assets were written down to estimated scrap value.
In November 2007, the Companywe announced its intentour intention to cease U.S. Pipe’s ductile iron pipe manufacturing operations in Burlington, New Jersey, eliminating approximately 180 jobs. These manufacturing operations ceased during the yearthree months ended September 30,March 31, 2008. ThisWe continue to use this facility continues to be used as a full-service distribution center for customers in the Northeast. In connection with this action, we recorded total restructuring charges of approximately $19 million are expected, consisting$18.3 million. We do not expect any future charges related to the closure of approximately $15 million of asset impairment charges and approximately $4 million of employee-related and other charges. The $18.3 millionmanufacturing operations in restructuring charges recorded during the year ended September 30, 2008 consisted of $14.8 million of asset impairment charges and $3.5 million of employee-related and other charges, $2.8 million of which was paid during the year ended September 30, 2008. Future related restructuring charges are not expectedBurlington to be material.
F-15significant.
| Note | Income Taxes |
The components of income (loss) before taxes are presented below.
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (in millions) | ||||||||||||
| U.S. | $ | 68.7 | $ | 83.4 | $ | 6.8 | ||||||
| Non-U.S. | 5.0 | 3.3 | 6.3 | |||||||||
| Income before taxes | $ | 73.7 | $ | 86.7 | $ | 13.1 | ||||||
F-16
| Year ended September 30, | |||||||||||
| 2009 | 2008 | 2007 | |||||||||
| (in millions) | |||||||||||
U.S. | $ | (1,082.3 | ) | $ | 68.7 | $ | 83.4 | ||||
Non-U.S. | (0.7 | ) | 5.0 | 3.3 | |||||||
Income (loss) before taxes | $ | (1,083.0 | ) | $ | 73.7 | $ | 86.7 | ||||
| Income tax expense (benefit) is presented below. | |||||||||||
| Year ended September 30, | |||||||||||
| 2009 | 2008 | 2007 | |||||||||
| (in millions) | |||||||||||
Current: | |||||||||||
U.S.: | |||||||||||
Federal | $ | (27.3 | ) | $ | 25.3 | $ | 5.5 | ||||
State and local | (0.8 | ) | 4.8 | 2.2 | |||||||
Non-U.S. | (0.4 | ) | 5.8 | 1.2 | |||||||
| (28.5 | ) | 35.9 | 8.9 | ||||||||
Deferred: | |||||||||||
U.S.: | |||||||||||
Federal | (42.3 | ) | (4.4 | ) | 24.7 | ||||||
State and local | (15.7 | ) | 2.6 | 4.9 | |||||||
Non-U.S. | 0.2 | (2.4 | ) | - | |||||||
| (57.8 | ) | (4.2 | ) | 29.6 | |||||||
Income tax expense (benefit) | $ | (86.3 | ) | $ | 31.7 | $ | 38.5 | ||||
Index to Financial Statements
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (in millions) | ||||||||||||
| Current: | ||||||||||||
| U.S.: | ||||||||||||
| Federal | $ | 25.3 | $ | 5.5 | $ | 23.6 | ||||||
| State and local | 4.8 | 2.2 | 7.0 | |||||||||
| Non-U.S. | 5.8 | 1.2 | 2.3 | |||||||||
| 35.9 | 8.9 | 32.9 | ||||||||||
| Deferred: | ||||||||||||
| U.S.: | ||||||||||||
| Federal | (4.4 | ) | 24.7 | (19.0 | ) | |||||||
| State and local | 2.6 | 4.9 | (5.7 | ) | ||||||||
| Non-U.S. | (2.4 | ) | - | (0.2 | ) | |||||||
| (4.2 | ) | 29.6 | (24.9 | ) | ||||||||
| Income taxes | $ | 31.7 | $ | 38.5 | $ | 8.0 | ||||||
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| U.S. federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
| Adjustments to reconcile to the effective tax rate: | ||||||||||||
| State income taxes, net of federal benefit | 6.5 | 5.3 | 6.4 | |||||||||
| Nondeductible interest | - | 1.6 | 20.3 | |||||||||
| Nondeductible compensation | 2.0 | 3.1 | - | |||||||||
| U.S. manufacturing deduction | (2.3 | ) | (0.6 | ) | (7.8 | ) | ||||||
| Foreign income taxes | 1.6 | 0.4 | 2.5 | |||||||||
| Other nondeductible expenses | 1.0 | - | 4.3 | |||||||||
| Other | (0.8 | ) | (0.4 | ) | 0.4 | |||||||
| Effective tax rate | 43.0 | % | 44.4 | % | 61.1 | % | ||||||
F-17
| Year ended September 30, | |||||||||
| 2009 | 2008 | 2007 | |||||||
U.S. federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | |||
Adjustments to reconcile to the effective tax rate: | |||||||||
Nondeductible goodwill impairment | (27.7 | ) | - | - | |||||
State income taxes, net of federal benefit | 0.9 | 6.5 | 5.3 | ||||||
Nondeductible interest | - | - | 1.6 | ||||||
Nondeductible compensation | (0.1 | ) | 2.0 | 3.1 | |||||
U.S. manufacturing deduction | - | (2.3 | ) | (0.6 | ) | ||||
Foreign income taxes | - | 1.6 | 0.4 | ||||||
Other nondeductible expenses | - | 1.0 | - | ||||||
Other | (0.1 | ) | (0.8 | ) | (0.4 | ) | |||
Effective tax rate | 8.0 | % | 43.0 | % | 44.4 | % | |||
| September 30, | ||||||||
| 2008 | 2007 | |||||||
| (in millions) | ||||||||
| Deferred income tax assets: | ||||||||
| Allowances for losses on receivables | $ | 3.7 | $ | 1.8 | ||||
| Inventories | 16.0 | 18.1 | ||||||
| Accrued expenses | 24.6 | 23.8 | ||||||
| Pension and other postretirement benefits | 16.3 | 10.9 | ||||||
| Stock compensation | 8.7 | - | ||||||
| All other | 10.1 | - | ||||||
| 79.4 | 54.6 | |||||||
| Valuation allowance | (4.3 | ) | - | |||||
| Total deferred income tax assets | 75.1 | 54.6 | ||||||
| Deferred income tax liabilities: | ||||||||
| Identifiable intangible assets | (282.0 | ) | (288.6 | ) | ||||
| Property, plant and equipment | (40.2 | ) | (44.1 | ) | ||||
| Other | (0.5 | ) | - | |||||
| Total deferred income tax liabilities | (322.7 | ) | (332.7 | ) | ||||
| Net deferred income tax liabilities | $ | (247.6 | ) | $ | (278.1 | ) | ||
| September 30, | ||||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
Deferred income tax assets: | ||||||||
Allowances for losses on receivables | $ | 1.8 | $ | 3.7 | ||||
Inventories | 13.9 | 16.0 | ||||||
Accrued expenses | 23.4 | 24.6 | ||||||
Pension and other postretirement benefits | 44.9 | 16.3 | ||||||
Stock compensation | 6.1 | 8.7 | ||||||
State net operating losses | 6.9 | 3.3 | ||||||
All other | 6.3 | 6.8 | ||||||
| 103.3 | 79.4 | |||||||
Valuation allowance | (1.3 | ) | (4.3 | ) | ||||
Total deferred income tax assets | 102.0 | 75.1 | ||||||
Deferred income tax liabilities: | ||||||||
Identifiable intangible assets | (228.6 | ) | (282.0 | ) | ||||
Property, plant and equipment | (22.5 | ) | (40.2 | ) | ||||
Other | (0.1 | ) | (0.5 | ) | ||||
Total deferred income tax liabilities | (251.2 | ) | (322.7 | ) | ||||
Net deferred income tax liabilities | $ | (149.2 | ) | $ | (247.6 | ) | ||
A valuation allowance has beenis provided on deferred tax assets at September 30, 20082009 since management believes it is more likely than not that a portion of the Company’sour deferred tax asset associated with the Mueller Water Products, Inc. Amended and Restated 2006 Stock Incentive Planassets will not be realized due primarily to a limitation on deductibility of executive compensation provided in Internal Revenue Code Section 162(m). Management has estimated that $4.3 million of the stock compensation deferred tax asset will be subject to this limitation based on projected executive compensation subject to the annual limitation and the restricted stock unit vesting schedule. Management believes that it will be able to recover all other deferred tax assets through taxable earnings from operations.
Index to Financial Statements
Activity in the valuation allowance for deferred tax assets is described below.
| September 30, | ||||||||
| 2008 | 2007 | |||||||
| (in millions) | ||||||||
| Balance at beginning of year | $ | - | $ | - | ||||
| Additions | 4.3 | - | ||||||
| Deductions | - | - | ||||||
| Balance at end of year | $ | 4.3 | $ | - | ||||
| September 30, | |||||||
| 2009 | 2008 | ||||||
| (in millions) | |||||||
Balance at beginning of year | $ | 4.3 | $ | - | |||
Additions | 0.4 | 4.3 | |||||
Deductions applicable to restricted shares vested | (3.4 | ) | - | ||||
Balance at end of year | $ | 1.3 | $ | 4.3 | |||
We were included in the consolidated federal income tax return withreturns of Walter IndustriesEnergy and its subsidiaries.subsidiaries through December 15, 2006. The income tax provision for the year ended September 30, 2007 has been presented as if the Companywe filed on a stand alonestand-alone basis for the period included in the Walter Industries returns. For the year ended September 30, 2008, the Company will file a consolidated U.S. corporate income tax return, combined or unitary state income tax returns where required, and separate company income tax returns in Canada, China and most U.S. states.
We have state net operating loss carryforwards of approximately $81.7$148.5 million expiring beginning 2010. These loss carryforwards are subject to limitations in certain jurisdictions under Section 382 of the Internal Revenue Code. State net operating loss carryforwards of $73.3$148.1 million expire after 2012,2011, and management believes that allthese net operating loss carryforwards will be utilized before they expire.
The cumulative amount of undistributed earnings of foreign subsidiaries for which United States income taxes have not been provided was approximately $103.5$95.0 million at September 30, 2008.2009. It is not currently practical to
F-18
On October 1, 2007, the Companywe adopted the provisions FIN 48.a new accounting standard related to uncertain income tax positions. As a result, the Companywe recorded a net increase of $1.0 million in the liability for unrecognized income tax benefits, a $0.6 million increase in the accumulated deficit and an increase of $0.4 million to goodwill.
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is presented below.
| September 30, | ||||
| 2008 | ||||
| (in millions) | ||||
| Balance at October 1, 2007 | $ | 22.3 | ||
| Increases related to prior year positions | 3.4 | |||
| Decreases related to prior year positions | (0.1 | ) | ||
| Increases related to current year positions | 0.7 | |||
| Payments | (4.0 | ) | ||
| Balance at end of year | $ | 22.3 | ||
| Year ended September 30, | ||||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
Balance at beginning of year | $ | 22.3 | $ | 22.3 | ||||
Increases related to prior year positions | 1.4 | 3.4 | ||||||
Decreases related to prior year positions | (1.3 | ) | (0.1 | ) | ||||
Increases related to current year positions | 0.3 | 0.7 | ||||||
Payments, settlements | (4.6 | ) | (4.0 | ) | ||||
Adjustment to reduce intangible assets and goodwill | (1.9 | ) | - | |||||
Balance at end of year | $ | 16.2 | $ | 22.3 | ||||
After September 30, 2009, all unrecognized tax benefits at September 20, 3008 includes $9.3 million of gross unrecognized tax benefit that,would, if recognized, would impact the effective tax rate.
We expect to settle certain state and foreign tax audits within the next 12 months. Management believesmonths and believe it is reasonably possible that these filings and audit settlements will reduce the gross unrecognized tax benefits by approximately $10.0$3 million within the next 12 months.
Index to Financial Statements
We recognize interest related to uncertain tax positions as interest expense and would recognize any penalties that may be incurred as a component of selling, general and administrative expenses. At September 30, 2008, the Company2009, we had approximately $3.2$2.7 million of accrued interest related to unrecognized tax benefits, of which $1.4 million was accrued during the year ended September 30, 2008.
Mueller Co. and Anvil are currentlywere under audit by the Internal Revenue Service for tax years ended September 30, 2005 and October 3, 2005. At September 30, 2009, we effectively settled those issues for $1.8 million and paid the tax to Walter Energy in accordance with our tax sharing agreement. Federal income tax returns for Mueller Co. and Anvil are closed for years prior to 2005. U.S. Pipe is not currently under audit by the Internal Revenue Service, but remains subject to statute extension agreements that may be applicable to Walter Industries.
Our state income tax returns are generally closed for years prior to 2005, except for those states in which prior year returns are currently being filed. Those state returns remain open for years back to 2003. The Company’s2005. Our Canadian income tax returns are generally closed for years prior to 2003.
F-19
| Note | Borrowing Arrangements |
In June 2009, we amended the 2007 Credit Agreement, our primary credit facility. Among other things, the amendment resulted in restated and new covenants and higher interest rates. We repaid $100.0 million of borrowings under the agreement in connection with the amendment, and we subsequently prepaid another $243.0 million. All prepayments were made on a pro-rata basis between Term Loan A and Term Loan B. We incurred a loss on early extinguishment of debt of $5.3 million in connection with this amendment and subsequent prepayments. See Note 10.
The components of our long-term debt are presented below.
| September 30, | ||||||||
| 2008 | 2007 | |||||||
| (in millions) | ||||||||
| 2007 Credit Agreement: | ||||||||
| Term Loan A | $ | 141.6 | $ | 141.6 | ||||
| Term Loan B | 526.7 | 532.1 | ||||||
73/8% Senior Subordinated Notes | 425.0 | 425.0 | ||||||
| Other | 2.2 | 1.8 | ||||||
| 1,095.5 | 1,100.5 | |||||||
| Less current portion | (9.7 | ) | (6.2 | ) | ||||
| Long-term debt | $ | 1,085.8 | $ | 1,094.3 | ||||
| September 30, | ||||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
2007 Credit Agreement: | ||||||||
Term Loan A | $ | 66.5 | $ | 141.6 | ||||
Term Loan B | 252.0 | 526.7 | ||||||
7 3/8% Senior Subordinated Notes | 420.0 | 425.0 | ||||||
Other | 1.7 | 2.2 | ||||||
| 740.2 | 1,095.5 | |||||||
Less current portion | (11.7 | ) | (9.7 | ) | ||||
Long-term debt | $ | 728.5 | $ | 1,085.8 | ||||
2007 Credit Agreement—On May 24, 2007, the Company entered into a. At September 30, 2009, our amended credit agreement (the “2007 Credit Agreement”) consistingconsisted of a $300$200 million senior secured revolving credit facility (the “Revolver”), a $150$66.5 million term loan (the “Term A Loan”(“Term Loan A”) and a $565$252.0 million term loan (the “Term B Loan”(“Term Loan B”). The 2007 Credit Agreement contains customary covenants and events of default, including covenants that limit the Company’sour ability to incur debt, pay dividends and make investments. Management believes the Company is compliant with these covenants at September 30, 2008 and expects to remain in compliance for the foreseeable future. Substantially all of the Company’sour real and personal property has been pledged as collateral under the 2007 Credit Agreement.
Borrowings under the 2007 Credit Agreement bear interest at a floating rate equal to LIBOR plus a margin ranging from 1.0%500 to 1.75%600 basis points depending on the Company’sour consolidated senior secured first lien leverage ratio, as defined in the 2007 Credit Agreement. For any unused portion of the Revolver, the Company also pays a commitment fee ranging from 0.2% to 0.5% (0.375% atAt September 30, 2008), depending on2009, the Company’s leverage ratio as definedapplicable margin was 550 basis points.
The Revolver terminates in the 2007 Credit Agreement. ThereMay 2012 and there were no outstanding borrowings under the Revolver at September 30, 2008 or 2007.
Index to Financial Statements
ranges from 50 to 75 basis points depending on our consolidated senior secured first lien leverage ratio. At September 30, 2009, the applicable fee was 62.5 basis points. The borrowing capacity under the Revolver is subject to the financial covenants and is reduced by outstanding letters of credit, which totaled $45.3 million at September 30, 2009.
Term Loan A Loan matures in May 2012 and bears interest at a floating rate equal to LIBOR plus a margin ranging from 1.0% to 1.75% (1.5%2012. The principal balance at September 30, 2008) depending on the Company’s leverage ratio. The principal balance is scheduled to be repaid with quarterly payments of $3.5 million commencing September 2009 with the remaining balance paid at maturity. At September 30, 2008, the weighted-average effective interest rate was 4.86%, including the margin and the effects of interest rate swap contracts. Since the Term A Loan is not traded and has different terms and cash flows than the Term B Loan, management concludes it is not practicable to calculate a meaningful fair value of the Term A Loan.
Term Loan B matures in May 2014. The principal balance is being repaid in quarterly payments of approximately $0.8 million with the remaining balance paid at maturity. At September 30, 2009, the weighted-average effective interest rate was 10.4%, including the margin and the effects of interest rate swap contracts. Based on information provided by an external source, we estimate the fair value of the outstanding borrowings for Term Loan B was $248.2 million at September 30, 2009.
73/8% Senior Subordinated Notes. The 7 3/8% Senior Subordinated Notes — On May 24, 2007, the Company completed a private placement of $425.0 million principal face amount of senior subordinated notes maturing (the “Notes”) mature in June 1, 2017. On October 1, 2007, the Company exchanged these notes for notes registered with the Securities2017 and Exchange Commission with substantially identical terms (the “Senior Notes”). The Senior Notes bear interest at 7.375%, paid semi-annually. Based on quoted market prices, the Senioroutstanding Notes had a fair market value of $335.7$366.4 million at September 30, 2008.
During the year ended September 30, 2009, we acquired $5.0 million in principal of the Notes in the open market for $3.4 million in cash. This resulted in a gain on repurchase of debt of $1.5 million after writing off related deferred financing fees of $0.1 million.
The indenture securing the Senior Notes contains customary covenants and events of default, including covenants that limit the Company’s ability to incur debt, pay dividends and make investments. Management believes the Company iswas compliant with these covenants at September 30, 20082009 and expects to remain in compliance for the foreseeable future. Substantially all of the Company’s United States subsidiaries guarantee the Senior Notes.
Future maturities of outstanding borrowings at September 30, 20082009 for each of the years ending September 30 are $9.7$11.7 million during 2009, $20.1for 2010, $11.6 million during 2010, $19.9for 2011, $53.7 million during 2011, $115.2for 2012, $3.1 million during 2012, $5.3for 2013, $240.1 million during 2013for 2014 and $925.3$420.0 million after 2013.
F-20
| Note | Derivative Financial Instruments |
We are exposed to certain risks relating to itsour ongoing business operations that it manageswe manage to some extent using derivative instruments. These are derivative instruments are interest rate risk, commodity price risk and foreign exchange risk and commodity price risk. The Company entersWe enter into interest rate swap contracts to manage interest rate risk associated with the Company’sour variable-rate borrowings. The Company entersWe enter into natural gas swap contracts to manage the price risk associated with future purchases of natural gas used in the Company’sour manufacturing processes. The Company entersWe enter into foreign currency forward exchange contracts to manage foreign currency exchange risk associated with the Company’sour Canadian-dollar denominated intercompany loans.
We have designated itsour interest rate swap contracts and natural gas swap contracts as cash flow hedges of itsour future interest payments and purchases of natural gas, respectively. As a result, the effective portion of the gain or loss on these contracts is reported as a component of other comprehensive incomeloss and reclassified into earnings in the same periods during which the hedged transactions affect earnings. Gains and losses on those contracts representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.
Our interest rate swap contracts result in payments of interest at fixed rates ranging from 3.0%3.4% to 5.1%,5.0% and expire at various dates from October 2008 tothrough September 2012. The Company’sOur outstanding interest rate swap contracts at September 30,
Index to Financial Statements
2009 and 2008 and 2007 are presented below.
| Hedged loan principal | ||||||||
| September 30, | ||||||||
| Rate benchmark | 2008 | 2007 | ||||||
| (in millions) | ||||||||
90-day LIBOR | $ | 475.0 | $ | 325.0 | ||||
During the year ended September 30, 2009, we prematurely settled certain interest rate swap contracts resulting in additional interest expense of $6.3 million. Our outstanding interest rate swap contracts at September 30, 2009 and September 30, 2008 are presented below.
| Hedged loan principal September 30, | ||||||
Rate benchmark | 2009 | 2008 | ||||
| (in millions) | ||||||
90-day LIBOR | $ | 275.0 | $ | 475.0 | ||
The effects of the Company’sour interest rate swap contracts on the consolidated statements of operations are presented below.
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (in millions) | ||||||||||||
| Gain (loss) recognized in other comprehensive income | $ | (14.0 | ) | $ | (1.2 | ) | $ | 1.6 | ||||
| Gain (loss) reclassified from accumulated other comprehensive income into income | (4.1 | ) | 2.2 | 0.4 | ||||||||
| Ineffectiveness gain (loss) recognized in income | - | - | 0.9 | |||||||||
| Year ended September 30, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
Gain (loss) recognized in other comprehensive loss | $ | (4.5 | ) | $ | (14.0 | ) | $ | (1.2 | ) | |||
Gain (loss) reclassified from accumulated other comprehensive loss into income | (17.1 | ) | (4.1 | ) | 2.2 | |||||||
Our natural gas swap contracts result in fixed natural gas purchase prices ranging from $9.235$5.60 per MMBtu to $10.040$6.05 per MMBtu through September 2009. The Company’s2010. Our outstanding natural gas swap contracts at September 30, 20082009 and 2007September 30, 2008 are presented below.
| Hedged MMBtu | ||||||||
| September 30, | ||||||||
| Commodity index | 2008 | 2007 | ||||||
| NYMEX natural gas | 669,000 | 476,000 | ||||||
| Hedged MMBtu September 30, | ||||
Commodity index | 2009 | 2008 | ||
NYMEX natural gas | 434,000 | 669,000 | ||
The effects of the Company’s natural gas swap contracts on the consolidated statements of operations are presented below.
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (in millions) | ||||||||||||
| Loss recognized in other comprehensive income | $ | (1.8 | ) | $ | (0.2 | ) | $ | - | ||||
| Gain (loss) reclassified from accumulated other comprehensive income into income | 0.9 | - | - | |||||||||
| Ineffectiveness loss recognized in income | (0.1 | ) | - | - | ||||||||
F-21
| Year ended September 30, | |||||||||||
| 2009 | 2008 | 2007 | |||||||||
| (in millions) | |||||||||||
Gain (loss) recognized in other comprehensive loss | $ | 0.7 | $ | (1.8 | ) | $ | (0.2 | ) | |||
Gain (loss) reclassified from accumulated other comprehensive income into income | 3.6 | 0.9 | - | ||||||||
Ineffectiveness gain (loss) recognized in income | 0.4 | (0.1 | ) | - | |||||||
Index to Financial Statements
| Hedged loan principal | ||||||||
| September 30, | ||||||||
| Currency | 2008 | 2007 | ||||||
| (in millions) | ||||||||
| Canadian dollar | $ | 27.6 | $ | 34.2 | ||||
| Hedged Canadian dollars September 30, | ||||
Rate benchmark | 2009 | 2008 | ||
| (in millions) | ||||
Canadian dollar | 28.0 | 28.0 | ||
Gains and net losses of $3.2 million and $1.3 million for the years ended September 30, 2007 and 2006, respectively, in connection with theseon our foreign currency forward contracts which are included in selling, general, and administrative expenses where they offset the transaction losses and gains recorded in connection with the intercompany loans.
| Year ended September 30, | ||||||||||
| 2009 | 2008 | 2007 | ||||||||
| (in millions) | ||||||||||
Gain (loss) recognized in income | $ | - | $ | 1.3 | $ | (3.2 | ) | |||
Our derivative contracts were recorded at fair value using publicly observable data such as market interest rates, and market natural gas prices. The fair values of the Company’sour derivative contracts are presented below (in millions).
| September 30, 2008 | September 30, 2007 | |||||||||||
| Fair | Fair | |||||||||||
| Balance sheet location | value | Balance sheet location | value | |||||||||
| Asset derivatives: | ||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||
| Foreign currency forwards | Other noncurrent assets | $ | 1.2 | $ | - | |||||||
| Liability derivatives: | ||||||||||||
| Derivatives designated as hedging instruments: | ||||||||||||
| Interest rate swaps | Other noncurrent liabilities | $ | 11.6 | Other noncurrent liabilities | $ | 1.7 | ||||||
| Natural gas swaps | Other noncurrent liabilities | 1.2 | Other noncurrent liabilities | 0.2 | ||||||||
| 12.8 | 1.9 | |||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||
| Foreign currency forwards | - | Other noncurrent liabilities | 4.0 | |||||||||
| $ | 12.8 | $ | 5.9 | |||||||||
| September 30, 2009 | September 30, 2008 | |||||||||
| Balance sheet location | Fair value | Balance sheet location | Fair value | |||||||
Asset derivatives: | ||||||||||
Derivatives not designated as hedging instruments: | ||||||||||
Foreign currency forwards | Other noncurrent assets | $ | - | Other noncurent assets | $ | 1.2 | ||||
Liability derivatives: | ||||||||||
Derivatives designated as hedging instruments: | ||||||||||
Interest rate swaps | Other noncurrent liabilities | $ | 18.8 | Other noncurrent liabilities | $ | 11.6 | ||||
Natural gas swaps | Other noncurrent liabilities | - | Other noncurrent liabilities | 1.2 | ||||||
| 18.8 | 12.8 | |||||||||
Derivatives not designated as hedging instruments: | ||||||||||
Foreign currency forward | Other noncurrent liabilities | 0.7 | Other noncurrent liabilities | - | ||||||
| $ | 19.5 | $ | 12.8 | |||||||
| Note | Deferred Financing Fees |
In connection with itsthe amendment of the 2007 Credit Agreement discussed in Note 8 and subsequent debt refinancing in May 2007, the Companyprepayments, we wrote off $11.1 million ofunamortized deferred financing fees related to a previous credit agreement and capitalized additional financing fees of $11.5$5.3 million related to the 2007 Credit Agreement and capitalized the senior subordinated notes that becameincremental costs of the Senior Notes. The amortizationamendment of deferred$10.1 million. Deferred financing fees is chargedof
Index to interest expense over the terms of the related debt agreements. AtFinancial Statements
$13.2 million at September 30, 2008, unamortized deferred financing fees were $10.7 million, and2009 are scheduled to be amortizedamortize as follows: $3.4 million related to the Revolver amortize on a straight-line basis; $0.8 million related to the Term A Loan amortize using the effective-interest rate method; $3.2 million related to the Term B Loan amortize using the effective-interest rate method; and $5.8 million related to the Notes amortize using the effective-interest rate method. All such amortization is over the next five years ending September 30 as follows: $1.7 million during 2009, $1.7 million during 2010, $1.7 million during 2011, $1.4 million during 2012 and $1.0 million during 2013.
F-22
| Note | Retirement Plans |
We have various pension and profit sharing plans covering substantially all employees (the “Plans”“Pension Plans”). The Company funds itsWe fund our retirement and employee benefit plans in accordance with the requirements of the Pension Plans and, where applicable, in amounts sufficient to satisfy the minimum funding requirements of applicable law. The Pension Plans provide benefits based on years of service and compensation or at stated amounts for each year of service.
We also providesprovide certain postretirement benefits other than pensions, primarily healthcare, to eligible retirees. The Company’sOur postretirement benefit plans are funded as benefits are paid.
During the three monthsyear ended March 31,September 30, 2009, shutdowns at manufacturing operations at U.S. Pipe and Anvil resulted in a postretirement benefit curtailment gain of $1.1 million and a pension curtailment expense of $0.4 million, respectively. The curtailment expense at Anvil of $0.3 million was included in restructuring charges for the year ended September 30, 2009.
During the year ended September 30, 2008, the Company’s actuary revised its analysis to account for the shutdown of manufacturing operations at U.S. Pipe’s Burlington facility. The revised analysisfacility resulted in a decrease in the funded status of the plan of $7.7 million and an after-tax decrease in accumulated other comprehensive incomeloss of $4.6 million. The CompanyWe recorded pension plan curtailment expense of $1.2 million partially offset byand an other postretirement benefit plan curtailment gain of $0.8 million, which were included in restructuring charges for the year ended September 30, 2008.
During the three months ended December 31, 2007, the Companywe amended a retiree medical coverage plan for U.S. Pipe employees to eliminate the payment of benefits beyond age 65. This amendment decreased the Company’sour liability to the plan by $8.8 million and resulted in an after-tax increase in accumulated other comprehensive income of $5.4 million. The CompanyWe also amended another plan for Mueller Co. employees at its Decatur, Illinois facility. This amendment provided additional employee benefits and, as a result, the Companywe recorded a decrease in the funded status of the plan of $2.4 million and an after-tax decrease in accumulated other comprehensive incomeloss of $1.5 million.
For the yearyears ended September 30, 2009 and 2008, the measurement date for all Pension Plans and other postretirement plans was September 30. For yearsthe year ended September 30, 2007, and 2006, the measurement date for the U.S. Pipe pension plans and all other non-pension postretirement benefit plans was June 30, and the measurement date for all other pension plans was September 30. The CompanyFor the year ended September 30, 2008, we recorded an adjustment to retained earnings of $0.6 million to account for the change in measurement date pursuant the adoption of FASB No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans(“SFAS 158”).
Information for pension plans with accumulated benefit obligations in excess of plan assets is presented below.
| September 30, | ||||||||
| 2008 | 2007 | |||||||
| (in millions) | ||||||||
| Projected benefit obligations | $ | 307.0 | $ | 239.8 | ||||
| Accumulated benefit obligations | 300.1 | 223.7 | ||||||
| Fair value of plan assets | 271.9 | 212.0 | ||||||
| September 30, | ||||||
| 2009 | 2008 | |||||
| (in millions) | ||||||
Projected benefit obligations | $ | 390.3 | $ | 307.0 | ||
Accumulated benefit obligations | 382.0 | 300.1 | ||||
Fair value of plan assets | 276.1 | 271.9 | ||||
Index to Financial Statements
Information for pension plans with accumulated benefit obligations less than plan assets is presented below.
| September 30, | ||||||||
| 2008 | 2007 | |||||||
| (in millions) | ||||||||
| Projected benefit obligations | $ | 10.9 | $ | 110.9 | ||||
| Accumulated benefit obligations | 9.6 | 109.8 | ||||||
| Fair value of plan assets | 12.7 | 116.0 | ||||||
F-23
| September 30, | ||||||
| 2009 | 2008 | |||||
| (in millions) | ||||||
Projected benefit obligations | $ | 5.4 | $ | 10.9 | ||
Accumulated benefit obligations | 5.4 | 9.6 | ||||
Fair value of plan assets | 7.0 | 12.7 | ||||
Index to Financial Statements
| Year ended September 30, | ||||||||||||||||
| Pension plans | Other plans | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| (in millions) | ||||||||||||||||
| Projected benefit obligations: | ||||||||||||||||
| Beginning of year | $ | 350.7 | $ | 349.5 | $ | 20.4 | $ | 22.3 | ||||||||
| Service cost | 5.5 | 6.1 | 0.4 | 0.5 | ||||||||||||
| Interest cost | 24.9 | 20.7 | 1.0 | 1.3 | ||||||||||||
| Amendments | 2.6 | 1.0 | (8.8 | ) | - | |||||||||||
| Actuarial gain | (32.8 | ) | (7.2 | ) | (3.4 | ) | (1.7 | ) | ||||||||
| Benefits paid | (26.1 | ) | (20.7 | ) | (1.6 | ) | (2.0 | ) | ||||||||
| Employee contributions | 0.1 | 0.1 | - | - | ||||||||||||
| Currency translation | (0.5 | ) | 1.7 | - | - | |||||||||||
| Settlement payments | (2.4 | ) | - | - | - | |||||||||||
| Special termination benefits | 0.8 | - | - | - | ||||||||||||
| Curtailment gain | (4.9 | ) | (0.5 | ) | - | - | ||||||||||
| End of year | $ | 317.9 | $ | 350.7 | $ | 8.0 | $ | 20.4 | ||||||||
| Accumulated benefit obligations at end of year | $ | 309.7 | $ | 333.5 | $ | 8.0 | $ | 20.4 | ||||||||
| Plan assets: | ||||||||||||||||
| Beginning of year | $ | 328.0 | $ | 289.6 | $ | - | $ | - | ||||||||
| Actual return on plan assets | (50.2 | ) | 44.5 | - | - | |||||||||||
| Employer contributions | 35.9 | 12.8 | 1.6 | 2.0 | ||||||||||||
| Employee contributions | 0.1 | 0.1 | - | - | ||||||||||||
| Currency translation | (0.6 | ) | 1.9 | - | - | |||||||||||
| Benefits paid | (26.1 | ) | (20.7 | ) | (1.6 | ) | (2.0 | ) | ||||||||
| Settlement payments | (2.4 | ) | - | - | - | |||||||||||
| Other | (0.1 | ) | (0.2 | ) | - | - | ||||||||||
| End of year | $ | 284.6 | $ | 328.0 | $ | - | $ | - | ||||||||
| Accrued benefit cost at end of year: | ||||||||||||||||
| Unfunded status | $ | (33.3 | ) | $ | (22.7 | ) | $ | (8.0 | ) | $ | (20.4 | ) | ||||
| Contributions after measurement date | - | 15.6 | - | - | ||||||||||||
| $ | (33.3 | ) | $ | (7.1 | ) | $ | (8.0 | ) | $ | (20.4 | ) | |||||
| Recognized on balance sheet: | ||||||||||||||||
| Other noncurrent assets | $ | 2.0 | $ | 4.8 | $ | - | $ | - | ||||||||
| Other current liabilities | - | - | (0.7 | ) | (2.1 | ) | ||||||||||
| Other noncurrent liabilities | (35.3 | ) | (11.9 | ) | (7.3 | ) | (18.3 | ) | ||||||||
| $ | (33.3 | ) | $ | (7.1 | ) | $ | (8.0 | ) | $ | (20.4 | ) | |||||
| Recognized in accumulated other comprehensive income before taxes: | ||||||||||||||||
| Prior year service cost (credit) | $ | 4.3 | $ | 3.0 | $ | (12.8 | ) | $ | (8.8 | ) | ||||||
| Net actuarial loss (gain) | 51.2 | 8.2 | (15.5 | ) | (13.4 | ) | ||||||||||
| $ | 55.5 | $ | 11.2 | $ | (28.3 | ) | $ | (22.2 | ) | |||||||
F-24
| Year ended September 30, | ||||||||||||||||
| Pension Plans | Other plans | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
| (in millions) | ||||||||||||||||
Projected benefit obligations: | ||||||||||||||||
Beginning of year | $ | 317.9 | $ | 350.7 | $ | 8.0 | $ | 20.4 | ||||||||
Service cost | 3.8 | 5.5 | 0.2 | 0.4 | ||||||||||||
Interest cost | 23.1 | 24.9 | 0.6 | 1.0 | ||||||||||||
Amendments | - | 2.6 | - | (8.8 | ) | |||||||||||
Actuarial loss (gain) | 78.1 | (32.8 | ) | (1.4 | ) | (3.4 | ) | |||||||||
Benefits paid | (25.7 | ) | (26.1 | ) | (0.4 | ) | (1.6 | ) | ||||||||
Employee contributions | - | 0.1 | - | - | ||||||||||||
Currency translation | (0.5 | ) | (0.5 | ) | - | - | ||||||||||
Settlement payments | - | (2.4 | ) | - | - | |||||||||||
Special termination benefits | - | 0.8 | - | - | ||||||||||||
Decrease in obligation due to curtailment | (1.0 | ) | (4.9 | ) | (0.1 | ) | - | |||||||||
End of year | $ | 395.7 | $ | 317.9 | $ | 6.9 | $ | 8.0 | ||||||||
Accumulated benefit obligations at end of year | $ | 387.4 | $ | 309.7 | $ | 6.9 | $ | 8.0 | ||||||||
Plan assets: | ||||||||||||||||
Beginning of year | $ | 284.6 | $ | 328.0 | $ | - | $ | - | ||||||||
Actual return on plan assets | 0.9 | (50.2 | ) | - | - | |||||||||||
Employer contributions | 24.0 | 35.9 | 0.4 | 1.6 | ||||||||||||
Employee contributions | - | 0.1 | - | - | ||||||||||||
Currency translation | (0.6 | ) | (0.6 | ) | - | - | ||||||||||
Benefits paid | (25.7 | ) | (26.1 | ) | (0.4 | ) | (1.6 | ) | ||||||||
Settlement payments | (0.1 | ) | (2.4 | ) | - | - | ||||||||||
Other | - | (0.1 | ) | - | - | |||||||||||
End of year | $ | 283.1 | $ | 284.6 | $ | - | $ | - | ||||||||
Accrued benefit cost at end of year: | ||||||||||||||||
Unfunded status | $ | (112.6 | ) | $ | (33.3 | ) | $ | (6.9 | ) | $ | (8.0 | ) | ||||
Recognized on balance sheet: | ||||||||||||||||
Other noncurrent assets | $ | 1.6 | $ | 2.0 | $ | - | $ | - | ||||||||
Other current liabilities | - | - | (0.7 | ) | (0.7 | ) | ||||||||||
Other noncurrent liabilities | (114.2 | ) | (35.3 | ) | (6.2 | ) | (7.3 | ) | ||||||||
| $ | (112.6 | ) | $ | (33.3 | ) | $ | (6.9 | ) | $ | (8.0 | ) | |||||
| Recognized in accumulated other comprehensive income before taxes: | ||||||||||||||||
Prior year service cost (credit) | $ | 2.9 | $ | 4.3 | $ | (8.5 | ) | $ | (12.8 | ) | ||||||
Net actuarial loss (gain) | 145.7 | 51.2 | (15.3 | ) | (15.5 | ) | ||||||||||
| $ | 148.6 | $ | 55.5 | $ | (23.8 | ) | $ | (28.3 | ) | |||||||
Index to Financial Statements
| Year ended September 30, | ||||||||||||||||||||||||
| Pension plans | Other benefit plans | |||||||||||||||||||||||
| 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
| Service cost (gain) | $ | 4.9 | $ | 6.1 | $ | 8.1 | $ | 0.4 | $ | (0.5 | ) | $ | (0.7 | ) | ||||||||||
| Interest cost (gain) | 21.3 | 20.6 | 20.3 | 0.8 | (1.3 | ) | (1.4 | ) | ||||||||||||||||
| Expected return on plan assets | (27.2 | ) | (23.8 | ) | (20.5 | ) | - | - | - | |||||||||||||||
| Amortization of prior service cost (gain) | 0.8 | 0.3 | 0.3 | (3.2 | ) | 2.5 | 2.5 | |||||||||||||||||
| Amortization of net loss (gain) | 0.7 | 2.1 | 3.9 | (1.0 | ) | 1.6 | 0.9 | |||||||||||||||||
| Curtailment/special settlement loss (gain) | 1.4 | (0.3 | ) | 5.0 | (0.8 | ) | - | 1.7 | ||||||||||||||||
| Other | 0.1 | 0.2 | 0.2 | - | - | - | ||||||||||||||||||
| Net periodic benefit cost (gain) | $ | 2.0 | $ | 5.2 | $ | 17.3 | $ | (3.8 | ) | $ | 2.3 | $ | 3.0 | |||||||||||
| Year ended September 30, | ||||||||||||||||||||||||
| Pension Plans | Other Benefit Plans | |||||||||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
Service cost (gain) | $ | 3.8 | $ | 4.9 | $ | 6.1 | $ | 0.2 | $ | 0.4 | $ | (0.5 | ) | |||||||||||
Interest cost (gain) | 23.1 | 21.3 | 20.6 | 0.6 | 0.8 | (1.3 | ) | |||||||||||||||||
Expected return on plan assets | (21.6 | ) | (27.2 | ) | (23.8 | ) | - | - | - | |||||||||||||||
Amortization of prior service cost (gain) | 0.8 | 0.8 | 0.3 | (3.3 | ) | (3.2 | ) | 2.5 | ||||||||||||||||
Amortization of net loss (gain) | 3.3 | 0.7 | 2.1 | (1.6 | ) | (1.0 | ) | 1.6 | ||||||||||||||||
Curtailment / special settlement loss (gain) | 0.4 | 1.4 | (0.3 | ) | (1.1 | ) | (0.8 | ) | �� | - | ||||||||||||||
Other | 0.1 | 0.1 | 0.2 | - | - | - | ||||||||||||||||||
Net periodic benefit cost (gain) | $ | 9.9 | $ | 2.0 | $ | 5.2 | $ | (5.2 | ) | $ | (3.8 | ) | $ | 2.3 | ||||||||||
Pension and other postretirement benefits activity in accumulated other comprehensive income,loss, before taxes in the year ended September 30, 2008,2009, is presented below.
| Pension | Other | |||||||
| plans | benefit plans | |||||||
| (in millions) | ||||||||
| Balance at beginning of year | $ | 11.2 | $ | (22.2 | ) | |||
| Amounts reclassified as amortization of net periodic cost: | ||||||||
| Gain or loss amortization | (0.7 | ) | (3.2 | ) | ||||
| Prior year service cost amortization | (0.8 | ) | (1.0 | ) | ||||
| Losses during the year | 37.6 | (2.7 | ) | |||||
| Curtailment/special settlement loss | (0.5 | ) | 0.8 | |||||
| Change in prior service cost during the year | (0.4 | ) | - | |||||
| Effect of currency exchange on amounts included in accumulated other comprehensive income | 14.0 | - | ||||||
| Change in projected benefit obligation due to plan amendments | (2.7 | ) | - | |||||
| Change in projected benefit obligation due to Burlington shutdown | (2.2 | ) | - | |||||
| Balance at end of year | $ | 55.5 | $ | (28.3 | ) | |||
| Pension benefits | Other post- retirement benefits | |||||||
| (in millions) | ||||||||
Balance at beginning of year | $ | 55.5 | $ | (28.3 | ) | |||
Amounts reclassified as amortization of net periodic cost: | ||||||||
Gain (loss) amortization | (4.3 | ) | 1.6 | |||||
Prior year service gain (loss) amortization and curtailment | (1.3 | ) | 4.4 | |||||
Loss (gain) during the year | 98.7 | (1.4 | ) | |||||
Balance at end of year | $ | 148.6 | $ | (23.7 | ) | |||
The components of accumulated other comprehensive incomeloss related to pension and other postretirement benefits that management expects to be reclassified into income in the year ending September 30, 20092010 are presented below.
| Other | ||||||||
| Pension | postretirement | |||||||
| benefits | benefits | |||||||
| (in millions) | ||||||||
| Amounts expected to be amortized out of accumulated other comprehensive income into net periodic benefit cost in fiscal 2009: | ||||||||
| Amortization of unrecognized prior year service cost | $ 0.8 | $ (3.3 | ) | |||||
| Amortization of unrecognized gain/loss | 3.3 | (1.6 | ) | |||||
| $ 4.1 | $ (4.9 | ) | ||||||
| Pension benefits | Other post- retirement benefits | ||||||
| (in millions) | |||||||
Amounts expected to be amortized out of accumulated other comprehensive loss into net periodic benefit cost in fiscal 2010: | |||||||
Amortization of unrecognized prior year service cost | $ | 0.7 | $ | (3.0 | ) | ||
Amortization of unrecognized gain/loss | 9.7 | (1.1 | ) | ||||
| $ | 10.4 | $ | (4.1 | ) | |||
Index to Financial Statements
The discount rates were selected using a “yield curve” approach, which management believes to approximate the construction of a hypothetical boardbond portfolio that matches the Pension Plans’ cash flows. The discount rates are the equivalent rates that produce the same present value as discounting the projected plan cash flows at anticipated market rates for each future payment date. These anticipated market rates are based on yields for high quality fixed income investments. The Company relies on the Pension Plans’ investment advisors to assist in the usedevelopment of the discount rate model.
F-25
Management’s expected returns on plan assets and assumed healthcare cost trend rates were determined with the assistance of the Plans’plans’ investment consultants.
F-26
| Plan measurement date | |||||||||||||||||||||||||
| Pension plans | Other plans | ||||||||||||||||||||||||
| 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||
| U.S. Pipe pension plans: | |||||||||||||||||||||||||
| Weighted average used to determine benefit obligations: | |||||||||||||||||||||||||
| Discount rate | 7.60 | % | 6.25 | % | 6.25 | % | |||||||||||||||||||
| Rate of compensation increases | 3.50 | % | 3.50 | % | 3.50 | % | |||||||||||||||||||
| Weighted average used to determine net periodic cost: | |||||||||||||||||||||||||
| Discount rate | 6.25 | % | 6.25 | % | 5.00 | % | |||||||||||||||||||
| Expected return on plan assets | 8.90 | % | 8.90 | % | 8.90 | % | |||||||||||||||||||
| Rate of compensation increases | 3.50 | % | 3.50 | % | 3.50 | % | |||||||||||||||||||
| Mueller Co. and Anvil pension plans: | |||||||||||||||||||||||||
| Weighted average used to determine benefit obligations: | |||||||||||||||||||||||||
| Discount rate | 7.49 | % | 6.27 | % | 5.69 | % | |||||||||||||||||||
| Rate of compensation increases | 3.50 | % | 3.50 | % | 3.50 | % | |||||||||||||||||||
| Weighted average used to determine net periodic cost: | |||||||||||||||||||||||||
| Discount rate | 6.27 | % | 5.68 | % | 5.22 | % | |||||||||||||||||||
| Expected return on plan assets | 8.55 | % | 8.55 | % | 7.66 | % | |||||||||||||||||||
| Rate of compensation increases | 3.50 | % | 3.50 | % | 3.50 | % | |||||||||||||||||||
| Other plans: | |||||||||||||||||||||||||
| Weighted average used to determine benefit obligations: | |||||||||||||||||||||||||
| Discount rate | 7.60 | % | 6.25 | % | 6.25 | % | |||||||||||||||||||
| Weighted average used to determine net periodic cost: | |||||||||||||||||||||||||
| Discount rate | 6.25 | % | 6.25 | % | 5.00 | % | |||||||||||||||||||
| Assumed healthcare cost trend rates: | |||||||||||||||||||||||||
| Next year – pre-65 | 9.90 | % | 9.00 | % | 10.00 | % | |||||||||||||||||||
| Next year – post-65 | N/A | 11.00 | % | 12.00 | % | ||||||||||||||||||||
| Ultimate trend rate – pre-65 | 5.50 | % | 5.00 | % | 5.00 | % | |||||||||||||||||||
| Ultimate trend rate – post-65 | N/A | 7.00 | % | 7.00 | % | ||||||||||||||||||||
| Year ultimate trend rate achieved | 2015 | 2015 | 2014 | ||||||||||||||||||||||
F-27
| Plan measurement date | ||||||||||||||||||
| Pension plans | Other plans | |||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||
| (in millions) | ||||||||||||||||||
U.S. Pipe pension plans: | ||||||||||||||||||
Weighted average used to determine benefit obligations: | ||||||||||||||||||
Discount rate | 5.45 | % | 7.60 | % | 6.25 | % | ||||||||||||
Rate of compensation increases | 3.50 | % | 3.50 | % | 3.50 | % | ||||||||||||
Weighted average used to determine net periodic cost: | ||||||||||||||||||
Discount rate | 7.60 | % | 6.25 | % | 6.25 | % | ||||||||||||
Expected return on plan assets | 8.25 | % | 8.90 | % | 8.90 | % | ||||||||||||
Rate of compensation increases | 3.50 | % | 3.50 | % | 3.50 | % | ||||||||||||
Mueller Co. and Anvil pension plans: | ||||||||||||||||||
Weighted average used to determine benefit obligations: | ||||||||||||||||||
Discount rate | 5.45 | % | 7.49 | % | 6.27 | % | ||||||||||||
Rate of compensation increases | 3.50 | % | 3.50 | % | 3.50 | % | ||||||||||||
Weighted average used to determine net periodic cost: | ||||||||||||||||||
Discount rate | 7.43 | % | 6.27 | % | 5.68 | % | ||||||||||||
Expected return on plan assets | 7.88 | % | 8.55 | % | 8.55 | % | ||||||||||||
Rate of compensation increases | 3.50 | % | 3.50 | % | 3.50 | % | ||||||||||||
Other plans: | ||||||||||||||||||
Weighted average used to determine benefit obligations: | ||||||||||||||||||
Discount rate | 5.45 | % | 7.60 | % | 6.25 | % | ||||||||||||
Weighted average used to determine net periodic cost: | ||||||||||||||||||
Discount rate | 7.60 | % | 6.25 | % | 6.25 | % | ||||||||||||
Assumed healthcare cost trend rates: | ||||||||||||||||||
Next year – pre-65 | 8.90 | % | 9.90 | % | 9.00 | % | ||||||||||||
Next year – post-65 | N/A | N/A | 11.00 | % | ||||||||||||||
Ultimate trend rate – pre-65 | 4.90 | % | 5.50 | % | 5.00 | % | ||||||||||||
Ultimate trend rate – post-65 | N/A | N/A | 7.00 | % | ||||||||||||||
Year ultimate trend rate achieved | 2016 | 2015 | 2015 | |||||||||||||||
Index to Financial Statements
| 1 Percentage | 1 Percentage | |||||||
| point increase | point decrease | |||||||
| U.S. Pipe pension plans: | ||||||||
| Discount rate: | ||||||||
| Effect on pension service and interest cost components | $ | 0.1 | $ | (0.2 | ) | |||
| Effect on pension benefit obligations | (19.5 | ) | 23.2 | |||||
| Effect on current year pension expense | (1.3 | ) | 1.5 | |||||
| Expected return on plan assets: | ||||||||
| Effect on current year pension expense | (1.6 | ) | 1.6 | |||||
| Rate of compensation increase: | ||||||||
| Effect on pension service and interest cost components | 0.3 | (0.3 | ) | |||||
| Effect on pension benefit obligations | 2.3 | (2.1 | ) | |||||
| Effect on current year pension expense | 0.4 | (0.4 | ) | |||||
| Mueller Co. and Anvil pension plans: | ||||||||
| Discount rate: | ||||||||
| Effect on pension service and interest cost components | (0.1 | ) | (0.2 | ) | ||||
| Effect on pension benefit obligations | (9.5 | ) | 11.5 | |||||
| Effect on current year pension expense | (1.0 | ) | 0.9 | |||||
| Expected return on plan assets: | ||||||||
| Effect on current year pension expense | 1.2 | (1.2 | ) | |||||
| Rate of compensation increase: | ||||||||
| Effect on pension service and interest cost components | - | - | ||||||
| Effect on pension benefit obligations | 0.2 | (0.2 | ) | |||||
| Effect on current year pension expense | - | - | ||||||
| Other plans: | ||||||||
| Health care cost trend: | ||||||||
| Effect on total of service and interest cost components | 0.1 | (0.1 | ) | |||||
| Effect on postretirement benefit obligations | 0.2 | (0.2 | ) | |||||
| Discount rate: | ||||||||
| Effect on postretirement service and interest cost components | - | - | ||||||
| Effect on postretirement benefit obligations | (0.6 | ) | 0.7 | |||||
| Effect on current year postretirement benefits expense | (0.1 | ) | 0.1 | |||||
F-28
| 1 Percentage point increase | 1 Percentage point decrease | |||||||
| (in millions) | ||||||||
Pension plans: | ||||||||
Discount rate: | ||||||||
Effect on pension service and interest cost components | $ | 0.5 | $ | (0.8 | ) | |||
Effect on pension benefit obligations | (40.8 | ) | 49.4 | |||||
Effect on current year pension expense | (2.7 | ) | 3.2 | |||||
Expected return on plan assets: | ||||||||
Effect on current year pension expense | (2.8 | ) | 2.8 | |||||
Rate of compensation increase: | ||||||||
Effect on pension service and interest cost components | 0.3 | (0.3 | ) | |||||
Effect on pension benefit obligations | 2.7 | (2.5 | ) | |||||
Effect on current year pension expense | 0.5 | (0.5 | ) | |||||
Other plans: | ||||||||
Health care cost trend: | ||||||||
Effect on total of service and interest cost components | - | - | ||||||
Effect on postretirement benefit obligations | 0.2 | (0.2 | ) | |||||
Discount rate: | ||||||||
Effect on postretirement service and interest cost components | - | - | ||||||
Effect on postretirement benefit obligations | (0.5 | ) | 0.6 | |||||
Effect on current year postretirement benefits expense | (0.1 | ) | 0.1 | |||||
| Actual asset allocation | ||||||||||||||||||||||||
| Strategic | Tactical | June 30, | ||||||||||||||||||||||
| allocation | range | 2008 | 2007 | 2007 | 2006 | |||||||||||||||||||
| Equity investments: | ||||||||||||||||||||||||
| Large capitalization stocks | 45% | 40-50% | ||||||||||||||||||||||
| Mid capitalization stocks | 10% | 8-12% | ||||||||||||||||||||||
| Small capitalization stocks | 0% | 0% | ||||||||||||||||||||||
| International stocks | 15% | 12-18% | ||||||||||||||||||||||
| 70% | 65-70% | 61% | 68% | 72% | 56% | |||||||||||||||||||
| Fixed income investments | 30% | 25-35% | 35% | 27% | 28% | 23% | ||||||||||||||||||
| Cash | 0% | 0-2% | 4% | 5% | 0% | 21% | ||||||||||||||||||
| 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||||
| Strategic asset allocations | Tactical range | Actual asset allocations | |||||||||||||
| September 30, | June 30, 2007 | ||||||||||||||
| 2009 | 2008 | 2007 | |||||||||||||
Equity investments: | |||||||||||||||
Large capitalization stocks | 45% | 40-50% | |||||||||||||
Mid capitalization stocks | 10% | 8-12% | |||||||||||||
Small capitalization stocks | 0% | 0% | |||||||||||||
International stocks | 15% | 12-18% | |||||||||||||
| 70% | 65-75% | 69% | 61 | % | 68 | % | 72 | % | |||||||
Fixed income investments | 30% | 25-35% | 26% | 35 | % | 27 | % | 28 | % | ||||||
Cash | 0% | 0-5% | 5% | 4 | % | 5 | % | 0 | % | ||||||
| 100% | 100% | 100 | % | 100 | % | 100 | % | ||||||||
These ranges are targets and deviations may occur from time to time due to market fluctuations. Portfolio assets are typically rebalanced to the allocation targets at least annually.
We currently estimate contributing approximately $23 million to $25 million to our U.S. pension plan funding requirement forplans during the year ending September 30, 2009 is $7.3 million, which the Company expects to fully fund. The Company2010. We also expectsexpect to contribute $0.7approximately $1 million to itsour other
Index to Financial Statements
postretirement benefit plans forduring the year ending September 30, 2009.2010. The estimated benefit payments, which reflect expected future service, as appropriate, are presented below.
| Other | ||||||||
| postretirement | ||||||||
| benefits | ||||||||
| before | ||||||||
| Pension | Medicare | |||||||
| benefits | subsidy | |||||||
| (in millions) | ||||||||
| 2009 | $ 23.5 | $ 0.7 | ||||||
| 2010 | 23.8 | 0.8 | ||||||
| 2011 | 24.1 | 0.8 | ||||||
| 2012 | 24.6 | 0.9 | ||||||
| 2013 | 25.0 | 0.9 | ||||||
Years2014-2018 | 133.3 | 5.0 | ||||||
| Pension benefits | Other post- retirement benefits before Medicare subsidy | |||||
| (in millions) | ||||||
Year(s) ending September 30, | ||||||
2010 | $ | 24.8 | $ | 0.8 | ||
2011 | 24.4 | 0.6 | ||||
2012 | 24.8 | 0.6 | ||||
2013 | 25.1 | 0.6 | ||||
2014 | 25.5 | 0.5 | ||||
2015-2019 | 135.0 | 2.8 | ||||
Of the total pension plan obligations at September 30, 2008, 96% relate2009, 97% relates to plans for participants in the United States.
Defined Contribution Retirement Plan —Plan—Certain U.S. employees participate in defined contribution 401(k) plans. The Company makesWe make matching contributions as a function of employee contributions. Matching contributions were $4.4 million, $7.6 million $6.3 million and $5.8$6.3 million during the years ended September 30, 2009, 2008 and 2007, and 2006, respectively.
F-29
| Note | Capital Stock |
On June 1, 2006, the Company completed an initial public offeringJanuary 28, 2009, each share of 28,750,000 sharesSeries B common stock was converted into one share of its Series A common stock at $16.00 per share. The gross proceeds of $460.0 million were partially offset by $27.6 million in underwriter fees and $3.5 million of other costs associated with the initial public offering. The remaining proceeds were used to pay down the Company’s then-existing debt.stock. Holders of Series A common stock are entitled to one vote per share.
Holders of Series A common stock and Series B common stock otherwise havehad identical ownership rights.
We completed a follow-on public offering of 37,122,000 shares of our Series A common stock at $4.75 per share on September 23, 2009. Net proceeds from this offering were $166.0 million.
Index to Financial Statements
Series A common stock and Series B common stock share activity is presented below.
| Series A | Series B | |||||||
| Shares outstanding at September 30, 2005 | - | - | ||||||
| Shares exchanged for prior equity ownership interests | - | 85,844,920 | ||||||
| Shares sold in initial public offering | 28,750,000 | - | ||||||
| Shares outstanding at September 30, 2006 | 28,750,000 | 85,844,920 | ||||||
| Exercise of stock options | 50,799 | - | ||||||
| Exercise of employee stock purchase plan instruments | 141,465 | |||||||
| Vesting of restricted stock units, net of shares withheld | 64,003 | - | ||||||
| Shares outstanding at September 30, 2007 | 29,006,267 | 85,844,920 | ||||||
| Exercise of stock options | 12,470 | - | ||||||
| Exercise of employee stock purchase plan instruments | 210,292 | |||||||
| Vesting of restricted stock units, net of shares withheld | 299,734 | - | ||||||
| Shares outstanding at September 30, 2008 | 29,528,763 | 85,944,920 | ||||||
| Series A | Series B | ||||
Shares outstanding at September 30, 2006 | 28,750,000 | 85,844,920 | |||
Exercise of stock options | 50,799 | - | |||
Exercise of employee stock purchase plan instruments | 141,465 | - | |||
Vesting of restricted stock units, net of shares withheld | 64,003 | - | |||
Shares outstanding at September 30, 2007 | 29,006,267 | 85,844,920 | |||
Exercise of stock options | 12,470 | - | |||
Exercise of employee stock purchase plan instruments | 210,292 | - | |||
Vesting of restricted stock units, net of shares withheld | 299,734 | - | |||
Shares outstanding at September 30, 2008 | 29,528,763 | 85,844,920 | |||
Conversion of Series B common stock into Series A common stock | 85,844,920 | (85,844,920 | ) | ||
Exercise of employee stock purchase plan instruments | 302,691 | - | |||
Vesting of restricted stock units, net of shares withheld | 992,513 | - | |||
Sale of common stock in public offering | 37,122,000 | - | |||
Shares outstanding at September 30, 2009 | 153,790,887 | - | |||
| Note | Stock-based Compensation Plans |
The Mueller Water Products, Inc. Amended and Restated 2006 Stock Incentive Plan (the “2006 Plan”) authorizes an aggregate of 8.016 million shares of the Company’sour Series A common stock that may be granted through the issuance of stock-based awards. Any awards cancelled are available for reissuance. Generally, all of the Company’sour employees and members of theour Board of Directors are eligible to participate in the 2006 Plan.
An award granted under the 2006 Plan becomes exercisable at such times and in such installments as set by the Compensation and Human Resources Committee of the Board of Directors, but no award will be exercisable after the tenth anniversary of the date on which it is granted. Stock option exercise prices generally equal the closing stock price on the grant date.
Outstanding stock options generally vest on each anniversary date of the original grant on a pro rata basis based on the total number of years until all awards are vested, generally three years. Outstanding restricted stock units generally vest either on each anniversary date of the original grant on a pro rata basis based on the total number of years until all awards are vested, generally three years, or cliff vest after either three years or seven years from the grant date. Awards that cliff vest after seven years generally provide for an acceleration of vesting if certain stock price performance targets are met.
Certain of the Company’sour employees held Walter IndustriesEnergy restricted stock units or stock options when the Spin-off occurred. After the Spin-off, Walter IndustriesEnergy cancelled these outstanding awards and the Company
F-30
Index to Financial Statements
Stock option activity under the 2006 Plan is summarized below.
| Weighted | Weighted | |||||||||||||||
| average | average | Aggregate | ||||||||||||||
| exercise | remaining | intrinsic | ||||||||||||||
| price | contractual | value | ||||||||||||||
| Shares | per share | term (years) | (millions) | |||||||||||||
| Outstanding at September 30, 2005 | - | $ | - | |||||||||||||
| Granted | 112,694 | 16.11 | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Cancelled | - | - | ||||||||||||||
| Outstanding at September 30, 2006 | 112,694 | 16.11 | 9.7 | $ | - | |||||||||||
| Granted | 946,975 | 14.15 | ||||||||||||||
| Exercised | (50,799 | ) | 5.81 | 0.5 | ||||||||||||
| Cancelled | (12,610 | ) | 15.22 | |||||||||||||
| Outstanding at September 30, 2007 | 996,260 | 14.78 | 8.6 | 0.7 | ||||||||||||
| Granted | 1,147,419 | 10.39 | ||||||||||||||
| Exercised | (12,470 | ) | 3.65 | 0.1 | ||||||||||||
| Cancelled | (180,424 | ) | 13.72 | |||||||||||||
| Outstanding at September 30, 2008 | 1,950,785 | $ | 12.37 | 8.5 | $ | 0.4 | ||||||||||
| Vested at or expected to vest after September 30, 2008 | 1,930,252 | $ | 12.25 | 8.3 | $ | 0.4 | ||||||||||
| Exercisable at September 30, 2008 | 658,793 | $ | 14.09 | 7.5 | $ | 0.3 | ||||||||||
| Shares | Weighted average exercise price per share | Weighted average remaining contractual term (years) | Aggregate intrinsic value (millions) | ||||||||
Outstanding at September 30, 2006 | 112,694 | $ | 16.11 | 9.7 | $ | - | |||||
Granted | 946,975 | 14.15 | |||||||||
Exercised | (50,799 | ) | 5.81 | 0.5 | |||||||
Cancelled | (12,610 | ) | 15.22 | ||||||||
Outstanding at September 30, 2007 | 996,260 | 14.78 | 8.6 | 0.7 | |||||||
Granted | 1,147,419 | 10.39 | |||||||||
Exercised | (12,470 | ) | 3.65 | 0.1 | |||||||
Cancelled | (180,424 | ) | 13.72 | ||||||||
Outstanding at September 30, 2008 | 1,950,785 | 12.37 | 8.5 | 0.4 | |||||||
Granted | 1,542,284 | 5.60 | |||||||||
Cancelled | (89,073 | ) | 9.99 | ||||||||
Outstanding at September 30, 2009 | 3,403,996 | $ | 9.36 | 8.3 | $ | 0.2 | |||||
Vested or expected to vest after | |||||||||||
September 30, 2009 | 3,343,615 | $ | 9.34 | 8.2 | $ | 0.2 | |||||
Exercisable at September 30, 2009 | 1,151,704 | $ | 13.25 | 7.1 | $ | 0.1 | |||||
Index to Financial Statements
The exercise prices for stock options outstanding at September 30, 20082009 range from $2.05 to $20.56.
F-31
| Weighted | Weighted | |||||||||||||||
| average | average | Aggregate | ||||||||||||||
| grant date | remaining | intrinsic | ||||||||||||||
| fair value | contractual | value | ||||||||||||||
| Shares | per share | term (years) | (millions) | |||||||||||||
| Outstanding at September 30, 2005 | - | $ | - | |||||||||||||
| Granted | 1,165,116 | 16.02 | ||||||||||||||
| Vested | - | - | ||||||||||||||
| Cancelled | - | - | ||||||||||||||
| Outstanding at September 30, 2006 | 1,165,116 | 16.02 | 2.8 | $ | 17.0 | |||||||||||
| Granted | 909,275 | 15.04 | ||||||||||||||
| Vested | (84,230 | ) | 14.95 | 1.2 | ||||||||||||
| Cancelled | (93,593 | ) | 15.85 | |||||||||||||
| Outstanding at September 30, 2007 | 1,896,568 | 15.61 | 2.9 | 23.5 | ||||||||||||
| Granted | 645,271 | 10.43 | ||||||||||||||
| Vested | (311,865 | ) | 14.86 | 2.7 | ||||||||||||
| Cancelled | (234,050 | ) | 15.00 | |||||||||||||
| Outstanding at September 30, 2008 | 1,995,924 | $ | 14.12 | 2.0 | $ | 17.9 | ||||||||||
| Expected to vest after September 30, 2008 | 1,968,946 | $ | 13.74 | 2.0 | $ | 17.7 | ||||||||||
| Shares | Weighted average grant date fair value per share | Weighted average remaining contractual term (years) | Aggregate intrinsic value (millions) | ||||||||
Outstanding at September 30, 2006 | 1,165,116 | $ | 16.02 | 2.8 | $ | 17.0 | |||||
Granted | 909,275 | 15.04 | |||||||||
Vested | (84,230 | ) | 14.95 | 1.2 | |||||||
Cancelled | (93,593 | ) | 15.85 | ||||||||
Outstanding at September 30, 2007 | 1,896,568 | 15.61 | 2.9 | 23.5 | |||||||
Granted | 645,271 | 10.43 | |||||||||
Vested | (311,865 | ) | 14.86 | 2.7 | |||||||
Cancelled | (234,050 | ) | 15.00 | ||||||||
Outstanding at September 30, 2008 | 1,995,924 | 14.12 | 2.0 | 17.9 | |||||||
Granted | 834,794 | 6.10 | |||||||||
Vested | (1,071,202 | ) | 15.07 | ||||||||
Cancelled | (45,025 | ) | 10.08 | ||||||||
Outstanding at September 30, 2009 | 1,714,491 | $ | 9.73 | 2.3 | $ | 9.4 | |||||
Expected to vest after September 30, 2009 | 1,682,172 | $ | 9.71 | 2.3 | $ | 9.2 | |||||
Compensation expense attributed to stock awards is based on the fair value of the awards on the date granted. Compensation expense is recognized between the grant date and the vesting date on a straight-line basis for each individual award share granted with cliff-vesting provisions, and on an accelerated basis for each individual award granted with ratable vesting provisions. Fair values of stock option awards are determined using a Black-Scholes model. The weighted average grant-date fair values of stock options granted and the weighted average assumptions used to determine these fair values are indicated below.
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| Grant-date fair value | $ 3 | .76 | $ 3 | .60 | $ 6 | .54 | ||||||
| Risk-free interest rate | 3 | .54% | 4 | .54% | 4 | .97% | ||||||
| Dividend yield | 0 | .48% | 0 | .43% | 0 | .44% | ||||||
| Expected life (years) | 6 | .00 | 5 | .44 | 6 | .38 | ||||||
| Expected annual volatility | 0 | .3231 | 0 | .3267 | 0 | .3228 | ||||||
| Year ended September 30, | |||||||||
| 2009 | 2008 | 2007 | |||||||
Grant-date fair value | $ | 2.07 | $ | 3.76 | $ | 3.60 | |||
Risk-free interest rate | 2.21% | 3.54% | 4.54% | ||||||
Dividend yield | 0.74% | 0.48% | 0.43% | ||||||
Expected life (years) | 6.00 | 6.00 | 5.44 | ||||||
Expected annual volatility | 0.3786 | 0.3231 | 0.3267 | ||||||
The risk-free interest rate is based on the U.S. Treasury zero-coupon yield in effect at the grant date with a term equal to the expected life. The expected dividend yield is based on the Company’sour estimated annual dividend and stock price history at the grant date. The expected term represents the period of time the awards are expected to be outstanding. Expected volatility was calculated using data from comparable companies because the Company haswe have limited historical price information for itsour own shares going back only to itsour initial public offering.
Index to Financial Statements
The number of instruments expected to vest is less than the number outstanding because management expects some instruments will be forfeited by employees prior to vesting. Grants to Company officers and members of theour Board of the Directors are expected to vest fully. GrantsWe expect grants to others are expected to be forfeited at an annual ratesrate of 2.0% for stock options and 4.0% for restricted stock units.
The Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan (the “ESPP”) authorizes the sale of up to 4.04 million shares of the Company’sour Series A common stock to employees. Employees may designate up to the lesser of $25,000 or 20% of their annual compensation for the purchase of stock. An employee’s purchase during any three-month offering period is limited to 1,000 shares of Series A common stock. Any excess payroll withholdings are returned to the employee. The price for shares purchased
F-32
Compensation expense under the ESPP is equal to the sum of (1) 15% of the fair value of Series A common stock on the first day of the offering period and (2) the fair value of 85% of a Series A common stock call option at the first day of the offering period and 15% of a Series A common stock put option at the first day of the offering period. Fair values of these call and put options were determined using a Black-Scholes model. The weighted average weighted average grant-date fair values of ESPP instruments granted and the assumptions used to determine these fair values are indicated below.
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| Grant-date fair value | $ 2 | .73 | $ 3 | .25 | $ 4 | .20 | ||||||
| Risk-free interest rate | 1 | .96% | 5 | .05% | 5 | .20% | ||||||
| Dividend yield | 0 | .58% | 0 | .43% | 0 | .43% | ||||||
| Expected life (months) | 3 | .00 | 3 | .00 | 3 | .00 | ||||||
| Expected annual volatility | 0 | .6875 | 0 | .4640 | 0 | .6033 | ||||||
| Year ended September 30, | |||||||||
| 2009 | 2008 | 2007 | |||||||
Grant-date fair value | $ | 2.38 | $ | 2.73 | $ | 3.25 | |||
Risk-free interest rate | 0.34% | 1.96% | 5.05% | ||||||
Dividend yield | 0.98% | 0.58% | 0.43% | ||||||
Expected life (months) | 3.00 | 3.00 | 3.00 | ||||||
Expected annual volatility | 1.4774 | 0.6875 | 0.4640 | ||||||
The risk-free interest rate is based on the U.S. Treasury zero-coupon yield on the first day of the offering period with a term equal to the expected life. The expected dividend yield is based on the Company’sour estimated annual dividend and stock price history at the grant date. The expected term of the instruments represents the period of time they are expected to be outstanding. The expected volatility is deemed to be equal to the historical volatility over a three month period ending on the date of grant.
Under the ESPP, employees purchased 339,440 shares, 226,304 shares and 154,420 shares and 31,235 shares of the Company’sour Series A common stock during the years ended September 30, 2009, 2008 2007 and 2006,2007, respectively. At September 30, 2008, 3,588,1282009, 3,248,688 shares arewere available for issuance under the ESPP.
We recorded stock-based compensation expense of $11.6 million, $13.2 million $11.0 million and $3.1$11.0 million during the years ended September 30, 2009, 2008 2007 and 2006,2007, respectively. This includes allocations of stock-based compensation expense from Walter IndustriesEnergy of $0.6 million and $0.8 million for the yearsyear ended September 30, 2007 and 2006, respectively.
At September 30, 2008,2009, there was approximately $13.7$8.0 million of unrecognized compensation expense related to stock awards not yet vested. ThisWe expect to recognized this expense is expected to be recognized over a weighted average life of approximately 1.251.90 years.
Index to Financial Statements
The effect of stock-based compensation on theour financial performance of the Company is presented below.
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (in millions, except per share data) | ||||||||||||
| Decrease in income from operations | $ | 13.2 | $ | 11.0 | $ | 3.1 | ||||||
| Decrease in net income | 7.5 | 6.1 | 1.2 | |||||||||
| Decrease in basic and diluted net income per share | 0.07 | 0.05 | 0.01 | |||||||||
F-33
| Year ended September 30, | |||||||||
| 2009 | 2008 | 2007 | |||||||
| (in millions, except per share data) | |||||||||
Decrease in income from operations | $ | 11.6 | $ | 13.2 | $ | 11.0 | |||
Decrease in net income | 7.2 | 7.5 | 6.1 | ||||||
Decrease in basic and diluted net income per share | 0.06 | 0.07 | 0.05 | ||||||
Index to Financial Statements
| Note | Supplemental Balance Sheet Information |
Selected supplemental balance sheet information is presented below.
| September 30, | ||||||||
| 2008 | 2007 | |||||||
| (in millions) | ||||||||
| Inventories: | ||||||||
| Purchased materials and manufactured parts | $ | 64.9 | $ | 67.4 | ||||
| Work in process | 117.7 | 116.7 | ||||||
| Finished goods | 276.8 | 269.4 | ||||||
| $ | 459.4 | $ | 453.5 | |||||
| Property, plant and equipment: | ||||||||
| Land | $ | 25.7 | $ | 28.6 | ||||
| Buildings | 97.4 | 91.3 | ||||||
| Machinery and equipment | 623.0 | 556.3 | ||||||
| Construction in progress | 23.9 | 35.7 | ||||||
| Other | 6.1 | 5.4 | ||||||
| 776.1 | 717.3 | |||||||
| Accumulated depreciation | (419.3 | ) | (365.5 | ) | ||||
| $ | 356.8 | $ | 351.8 | |||||
| Other current liabilities: | ||||||||
| Cash discounts and rebates | $ | 21.3 | $ | 22.6 | ||||
| Payroll and bonus | 20.1 | 19.9 | ||||||
| Taxes other than income taxes | 19.0 | 16.7 | ||||||
| Interest | 14.2 | 15.5 | ||||||
| Vacation and holidays | 11.8 | 12.1 | ||||||
| Workers compensation | 7.1 | 6.5 | ||||||
| Warranty | 6.5 | 3.7 | ||||||
| Income taxes | 6.2 | - | ||||||
| Sales commissions | 4.6 | 4.3 | ||||||
| Medical and other employee welfare plans | 4.5 | 5.4 | ||||||
| Payroll withholdings | 1.5 | 1.6 | ||||||
| Severance | 1.4 | 1.1 | ||||||
| Restructuring | 0.9 | 0.9 | ||||||
| Environmental | 0.5 | 0.6 | ||||||
| Other | 9.4 | 10.9 | ||||||
| $ | 129.0 | $ | 121.8 | |||||
F-34
| September 30, | ||||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
Inventories: | ||||||||
Purchased materials and manufactured parts | $ | 56.7 | $ | 64.9 | ||||
Work in process | 83.8 | 117.7 | ||||||
Finished goods | 202.3 | 276.8 | ||||||
| $ | 342.8 | $ | 459.4 | |||||
Other current assets: | ||||||||
Income taxes | $ | 42.0 | $ | 19.0 | ||||
Maintenance and repair tooling | 31.3 | 35.3 | ||||||
Other | 7.5 | 6.3 | ||||||
| $ | 80.8 | $ | 60.6 | |||||
Property, plant and equipment: | ||||||||
Land | $ | 24.9 | $ | 25.8 | ||||
Buildings | 97.9 | 98.9 | ||||||
Machinery and equipment | 633.8 | 627.5 | ||||||
Construction in progress | 17.2 | 23.9 | ||||||
| 773.8 | 776.1 | |||||||
Accumulated depreciation | (477.4 | ) | (419.3 | ) | ||||
| $ | 296.4 | $ | 356.8 | |||||
Other current liabilities: | ||||||||
Compensation and benefits | $ | 40.5 | $ | 49.6 | ||||
Cash discounts and rebates | 14.2 | 21.3 | ||||||
Taxes other than income taxes | 10.1 | 19.0 | ||||||
Interest | 14.7 | 14.2 | ||||||
Warranty | 4.0 | 6.5 | ||||||
Severance | 0.2 | 1.4 | ||||||
Restructuring | 3.4 | 0.9 | ||||||
Income taxes | 0.3 | 6.2 | ||||||
Environmental | 0.5 | 0.5 | ||||||
Other | 9.5 | 9.4 | ||||||
| $ | 97.4 | $ | 129.0 | |||||
Index to Financial Statements
| Note | Supplemental Income Statement Information |
Selected supplemental income statement information is presented below.
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (in millions) | ||||||||||||
| Included in selling, general and administrative: | ||||||||||||
| Research and development | $ | 5.7 | $ | 4.6 | $ | 5.7 | ||||||
| Advertising | 7.3 | 6.9 | 4.4 | |||||||||
| Interest expense, net: | ||||||||||||
| Debt obligations | 74.2 | 86.4 | 109.5 | |||||||||
| Financing fees | 1.7 | 2.5 | 5.6 | |||||||||
| Income taxes issues | 1.4 | 1.9 | - | |||||||||
| Capitalized interest | (1.0 | ) | (0.8 | ) | - | |||||||
| Other | 0.2 | - | 0.1 | |||||||||
| Interest expense | 76.5 | 90.0 | 115.2 | |||||||||
| Interest income - Walter Industries | - | - | (1.8 | ) | ||||||||
| Interest income - other | (4.1 | ) | (3.2 | ) | (6.0 | ) | ||||||
| Interest expense, net | $ | 72.4 | $ | 86.8 | $ | 107.4 | ||||||
| Year ended September 30, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
Included in selling, general and administrative: | ||||||||||||
Research and development | $ | 6.9 | $ | 5.7 | $ | 4.6 | ||||||
Advertising | 5.1 | 7.3 | 6.9 | |||||||||
Interest expense, net: | ||||||||||||
2007 Credit Agreement interest, including swap contracts | $ | 37.6 | $ | 40.7 | $ | 15.6 | ||||||
7 3/8 Senior Subordinated Notes interest | 31.0 | 31.3 | 11.0 | |||||||||
Recognition of deferred expense on terminated interest swap contracts | 6.3 | - | - | |||||||||
Prior credit agreements interest, including swap contracts | - | - | 58.8 | |||||||||
Deferred financing fee amortization | 2.2 | 1.7 | 2.5 | |||||||||
Capitalized interest | - | (1.0 | ) | (0.8 | ) | |||||||
Other interest expense | 2.9 | 3.8 | 2.9 | |||||||||
Interest income | (1.7 | ) | (4.1 | ) | (3.2 | ) | ||||||
Interest expense, net | $ | 78.3 | $ | 72.4 | $ | 86.8 | ||||||
| Note | Comprehensive Income (Loss) |
Comprehensive income (loss) is presented below.
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (in millions) | ||||||||||||
| Net income | $ | 42.0 | $ | 48.2 | $ | 5.1 | ||||||
| Adjustments, tax: | ||||||||||||
| Net unrealized gain (loss) on derivative instruments net of taxes of $4.3 million, $1.4 million and $0.6 million respectively | (6.5 | ) | (2.1 | ) | 1.0 | |||||||
| Foreign currency translation | (2.7 | ) | 8.2 | 1.8 | ||||||||
| Minimum pension liability net of taxes of $14.9 million, $6.5 million and $15.5 million, respectively | (23.1 | ) | 10.0 | 24.0 | ||||||||
| Comprehensive income | $ | 9.7 | $ | 64.3 | $ | 31.9 | ||||||
| Year ended September 30, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
Net income (loss) | $ | (996.7 | ) | $ | 42.0 | $ | 48.2 | |||||
Adjustments: | ||||||||||||
Net unrealized loss on derivative instruments | (6.2 | ) | (10.8 | ) | (3.5 | ) | ||||||
Less tax effect | 2.4 | 4.3 | 1.4 | |||||||||
| (3.8 | ) | (6.5 | ) | (2.1 | ) | |||||||
Foreign currency translation | (3.4 | ) | (2.7 | ) | 8.2 | |||||||
Minimum pension liability | (97.7 | ) | (38.0 | ) | 16.5 | |||||||
Less tax effect | 38.6 | 14.9 | (6.5 | ) | ||||||||
| (59.1 | ) | (23.1 | ) | 10.0 | ||||||||
Comprehensive income (loss) | $ | (1,063.0 | ) | $ | 9.7 | $ | 64.3 | |||||
Index to Financial Statements
Accumulated other comprehensive incomeloss is presented below.
| September 30, | ||||||||
| 2008 | 2007 | |||||||
| (in millions) | ||||||||
| Net unrealized loss on derivatives | $ | (7.6 | ) | $ | (1.1 | ) | ||
| Foreign currency translation | 7.4 | 10.1 | ||||||
| Minimum pension liability | (19.4 | ) | 3.7 | |||||
| Accumulated other comprehensive income | $ | (19.6 | ) | $ | 12.7 | |||
F-35
| September 30, | ||||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
Net unrealized loss on derivatives | $ | (11.4 | ) | $ | (7.6 | ) | ||
Foreign currency translation | 4.0 | 7.4 | ||||||
Minimum pension liability | (78.5 | ) | (19.4 | ) | ||||
Accumulated other comprehensive loss | $ | (85.9 | ) | $ | (19.6 | ) | ||
| Note | Net Income (Loss) Per Share |
Net income (loss) per share information is presented below.
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (in millions, except per share amounts) | ||||||||||||
| Net income | $ | 42.0 | $ | 48.2 | $ | 5.1 | ||||||
| Weighted average common shares outstanding | 115.1 | 114.7 | 95.5 | |||||||||
| Effect of dilutive stock options and restricted stock units | 0.4 | 0.6 | - | |||||||||
| 115.5 | 115.3 | 95.5 | ||||||||||
| Net income per share (basic and diluted) | $ | 0.36 | $ | 0.42 | $ | 0.05 | ||||||
| Year ended September 30, | ||||||||||
| 2009 | 2008 | 2007 | ||||||||
| (in millions, except per share amounts) | ||||||||||
Net income (loss) | $ | (996.7 | ) | $ | 42.0 | $ | 48.2 | |||
Weighted average common shares outstanding | 116.6 | 115.1 | 114.7 | |||||||
Effect of dilutive stock options and restricted stock units | - | 0.4 | 0.6 | |||||||
| 116.6 | 115.5 | 115.3 | ||||||||
Net income (loss) per share (basic and diluted) | $ | (8.55 | ) | $ | 0.36 | $ | 0.42 | |||
We recorded a net loss for the year ended September 30, 2009. Because the effect of including normally dilutive securities in the earnings per share calculation would have been antidilutive, all stock-based compensation instruments were excluded from the calculation of diluted net loss per share for the year ended September 30, 2009. The effect of dilutive stock options and restricted stock units is determined using the treasury stock method. The weighted average number of shares outstanding during the year ended September 30, 2006 includes the number of shares of Series B common stock issued to Walter Industries immediately prior to the Company’s initial public offering as if they had been outstanding during the entire year. During the years ended September 30, 2008 and 2007, 1.8 million and 1.0 million respectively, of outstanding stock options, and 0.3 million and an immaterial number, respectively, of restricted stock units were excluded from the determination of the weighted average outstanding shares since their inclusion would have been antidilutive. Outstanding shares of Series A common stock and Series B common stock are combined in this determination since their ownership rights with regard to distributions are identical.
| Note | Supplemental Cash Flow Information |
During the year ended September 30, 2008, the Companywe amended a retiree medical coverage plan and a defined benefit pension plan, as well as recorded noncash activity adopting theby changing our pension plans’ and other postretirement benefit plans’ measurement date provisions of SFAS 158. Seedates to September 30 (see Note 10.11). Effective October 1, 2007, the Company adopted the provisions of FIN 48. Seewe recorded an adjustment related to uncertain income tax positions (see Note 6.7). In the year ended September 30, 2007, we recognized the Company adopted certain provisionsfunded status of SFAS 158 (see Note 10),pension and other postretirement plans, acquired the assets of Fast Fabricators and made an earnout payment as part of the January 2004 acquisition of Star Pipe, Inc. (see Note 3). In the year ended September 30, 2006, Walter Industries contributed Mueller Co. and Anvil
Index to the Company. See Note 1.
The impactsimpact of these transactions had on the Company’sour consolidated balance sheets areis presented below.
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (in millions) | ||||||||||||
| Employee benefit plan amendments and Burlington curtailment: | ||||||||||||
| Increase in current assets | $ | 3.1 | $ | - | $ | - | ||||||
| Decrease in other noncurrent assets | (2.3 | ) | - | - | ||||||||
| Increase in other noncurrent liabilities | (1.5 | ) | - | - | ||||||||
| Decrease in accumulated other comprehensive income | 0.7 | - | - | |||||||||
| $ | - | $ | - | $ | - | |||||||
| SFAS 158: | ||||||||||||
| Increase (decrease) in other noncurrent assets | $ | (5.3 | ) | $ | 2.5 | $ | - | |||||
| Decrease (increase) in other current liabilities | 1.2 | (1.8 | ) | - | ||||||||
| Decrease (increase) in other noncurrent liabilities | (15.9 | ) | 14.5 | - | ||||||||
| Decrease in retained earnings | (0.6 | ) | - | - | ||||||||
| Decrease (increase) in accumulated other comprehensive income | 20.6 | (15.2 | ) | - | ||||||||
| $ | - | $ | - | $ | - | |||||||
F-36
| Year ended September 30, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
Effects of accounting standards related to pension and other postretirement | ||||||||||||
Increase in current assets | $ | - | $ | 3.1 | $ | - | ||||||
Decrease in other noncurrent assets | - | (2.3 | ) | - | ||||||||
Increase in other current liabilities | (0.1 | ) | - | - | ||||||||
Increase in other noncurrent liabilities | (58.7 | ) | (1.5 | ) | - | |||||||
Decrease in accumulated other comprehensive income | 58.8 | 0.7 | - | |||||||||
| $ | - | $ | - | $ | - | |||||||
| Recognize funded status and change in measurement dates of pension and other postretirement plans: | ||||||||||||
Increase (decrease) in other noncurrent assets | $ | - | $ | (5.3 | ) | $ | 2.5 | |||||
Decrease (increase) in other current liabilities | - | 1.2 | (1.8 | ) | ||||||||
Decrease (increase) in other noncurrent liabilities | - | (15.9 | ) | 14.5 | ||||||||
Decrease in retained earnings | - | (0.6 | ) | - | ||||||||
Decrease (increase) in accumulated other comprehensive income | - | 20.6 | (15.2 | ) | ||||||||
| $ | - | $ | - | $ | - | |||||||
| Year ended September 30, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
Effect of accounting standard related to uncertain income tax positions: | ||||||||||||
Increase in current assets | $ | 1.0 | $ | - | $ | - | ||||||
Increase (decrease) in goodwill | (2.0 | ) | 0.4 | - | ||||||||
Decrease in identifiable intangible assets | (1.5 | ) | - | - | ||||||||
Increase in other noncurrent assets | - | 8.7 | - | |||||||||
Decrease in other current liabilities | 2.5 | 4.3 | - | |||||||||
Decrease in deferred income taxes | - | 3.7 | - | |||||||||
Increase in other noncurrent liabilities | - | (16.5 | ) | - | ||||||||
Increase in accumulated deficit | - | (0.6 | ) | - | ||||||||
| $ | - | $ | - | $ | - | |||||||
Acquisition of Fast Fabricators: | ||||||||||||
Increase in current assets | $ | - | $ | - | $ | 10.5 | ||||||
Increase in identifiable intangible assets | - | - | 13.1 | |||||||||
Increase in goodwill | - | - | 0.5 | |||||||||
Increase in property, plant and equipment | - | - | 1.8 | |||||||||
Increase in current liabilities | - | - | (2.9 | ) | ||||||||
Purchase price paid, net of cash acquired | - | - | (23.0 | ) | ||||||||
| $ | - | $ | - | $ | - | |||||||
Acquisition of Star: | ||||||||||||
Increase in goodwill | $ | - | $ | - | $ | 3.7 | ||||||
Purchase price paid, net of cash acquired | - | - | (3.7 | ) | ||||||||
| $ | - | $ | - | $ | - | |||||||
Cash paid, net of cash received: | ||||||||||||
Interest | $ | 74.8 | $ | 70.5 | $ | 69.4 | ||||||
Income taxes | 12.3 | 7.7 | 45.0 | |||||||||
| Year ended September 30, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (in millions) | ||||||||||||
| Adoption of FIN 48: | ||||||||||||
| Increase in goodwill | $ | 0.4 | $ | - | $ | - | ||||||
| Increase in other noncurrent assets | 8.7 | - | - | |||||||||
| Decrease in other current liabilities | 4.3 | - | - | |||||||||
| Decrease in deferred income taxes | 3.7 | - | - | |||||||||
| Increase in other noncurrent liabilities | (16.5 | ) | - | - | ||||||||
| Increase in accumulated deficit | (0.6 | ) | - | - | ||||||||
| $ | - | $ | - | $ | - | |||||||
| Acquisition of Fast Fabricators: | ||||||||||||
| Increase in current assets | $ | - | $ | 10.5 | $ | - | ||||||
| Increase in identifiable intangible assets | - | 13.1 | - | |||||||||
| Increase in goodwill | - | 0.5 | - | |||||||||
| Increase in property, plant and equipment | - | 1.8 | - | |||||||||
| Increase in current liabilities | - | (2.9 | ) | - | ||||||||
| Purchase price paid, net of cash acquired | - | (23.0 | ) | $ | - | |||||||
| $ | - | $ | - | $ | - | |||||||
| Acquisition of Star Pipe, Inc.: | ||||||||||||
| Increase in goodwill | $ | - | $ | 3.7 | $ | - | ||||||
| Purchase price paid, net of cash acquired | - | (3.7 | ) | - | ||||||||
| $ | - | $ | - | $ | - | |||||||
| Contribution of Mueller Co. and Anvil: | ||||||||||||
| Net assets of Mueller Co. and Anvil | $ | - | $ | - | $ | 856.6 | ||||||
| Equity in Mueller Co. and Anvil | - | - | (856.6 | ) | ||||||||
| $ | - | $ | - | $ | - | |||||||
| Cash paid, net of cash received: | ||||||||||||
| Interest | $ | 70.5 | $ | 69.4 | $ | 116.7 | ||||||
| Income taxes | 7.7 | 45.0 | 49.2 | |||||||||
Index to Financial Statements
| Note | Segment Information |
Our operations consist of three business segments: Mueller Co., U.S. Pipe and Anvil. These segments are organized based on products they sell and customers they serve and are consistent with how the segments are managed, how resources are allocated and how information is used by the chief operating decision maker. Mueller Co. manufactures valves for residential water and gas systems including butterly,butterfly, iron gate, tapping, check, plug and ball valves,dry-barrell dry-barrel andwet-barrel fire hydrants, meters and related products and services. U.S. Pipe manufactures a broad line of ductile iron pipe, restraint joint products, fittings and other ductile cast iron products. Through Fast Fabricators, U.S. Pipe manufactures a broad line of fabricated pipe, coated pipe and lined pipe products. Anvil manufactures and sources a broad range of products includeincluding a variety of fittings, couplings, hangers, nipples, valves and related pipe products.
Intersegment sales and transfers are made at established intersegment selling prices generally intended to cover costs. The determination of segment earnings does not reflect allocations of certain corporate expenses not directly attributable to segment operations and intersegment eliminations, which are designated as Corporate. Interest and income taxes are not allocated to business segments. Corporate expenses include those costs incurred by the Company’sour corporate function, such as finance, treasury, risk management, human resources, legal, tax and other administrative functions. Therefore, segment earnings are not reflective of their results on a stand-alone basis. Corporate assets include cash, deferredincome tax assets and deferred financing fees.
F-37
Index to Financial Statements
Summarized financial information for the Company’sour segments is presented below.
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Net sales, excluding intercompany: | ||||||||||||||||||||
| Year ended September 30, 2008 | $ | 718.1 | $ | 546.0 | $ | 595.2 | $ | - | $ | 1,859.3 | ||||||||||
| Year ended September 30, 2007 | 756.1 | 537.1 | 555.8 | - | 1,849.0 | |||||||||||||||
| Year ended September 30, 2006 | 804.1 | 594.7 | 534.6 | - | 1,933.4 | |||||||||||||||
| Intercompany sales: | ||||||||||||||||||||
| Year ended September 30, 2008 | $ | 21.8 | $ | 2.8 | $ | 0.7 | $ | - | $ | 25.3 | ||||||||||
| Year ended September 30, 2007 | 18.9 | 6.4 | 0.8 | - | 26.1 | |||||||||||||||
| Year ended September 30, 2006 | 17.1 | 3.8 | 0.6 | - | 21.5 | |||||||||||||||
| Income (loss) from operations: | ||||||||||||||||||||
| Year ended September 30, 2008 | $ | 128.4 | $ | (17.4 | ) | $ | 74.1 | $ | (39.0 | ) | $ | 146.1 | ||||||||
| Year ended September 30, 2007 | 154.7 | 33.4 | 57.4 | (35.5 | ) | 210.0 | ||||||||||||||
| Year ended September 30, 2006 | 144.7 | (17.0 | ) | 31.8 | (30.5 | ) | 129.0 | |||||||||||||
| Depreciation and amortization: | ||||||||||||||||||||
| Year ended September 30, 2008 | $ | 50.1 | $ | 22.7 | $ | 19.7 | $ | 0.6 | $ | 93.1 | ||||||||||
| Year ended September 30, 2007 | 51.8 | 24.0 | 23.8 | 1.8 | 101.4 | |||||||||||||||
| Year ended September 30, 2006 | 50.5 | 22.7 | 23.4 | 0.3 | 96.9 | |||||||||||||||
| Capital expenditures: | ||||||||||||||||||||
| Year ended September 30, 2008 | $ | 17.9 | $ | 58.5 | $ | 11.5 | $ | 0.2 | $ | 88.1 | ||||||||||
| Year ended September 30, 2007 | 21.7 | 47.5 | 15.0 | 4.1 | 88.3 | |||||||||||||||
| Year ended September 30, 2006 | 32.2 | 22.8 | 16.1 | - | 71.1 | |||||||||||||||
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Total assets: | ||||||||||||||||||||
| September 30, 2008 | $ | 1,841.1 | $ | 471.9 | $ | 517.0 | $ | 260.2 | $ | 3,090.2 | ||||||||||
| September 30, 2007 | 1,874.9 | 420.8 | 524.7 | 188.8 | 3,009.2 | |||||||||||||||
| Goodwill: | ||||||||||||||||||||
| September 30, 2008 | $ | 719.2 | $ | 59.5 | $ | 92.8 | $ | - | $ | 871.5 | ||||||||||
| September 30, 2007 | 718.8 | 59.5 | 92.8 | - | 871.1 | |||||||||||||||
| Identifiable intangible assets: | ||||||||||||||||||||
| September 30, 2008 | $ | 697.3 | $ | 11.4 | $ | 81.1 | $ | - | $ | 789.8 | ||||||||||
| September 30, 2007 | 722.3 | 12.4 | 84.6 | - | 819.3 | |||||||||||||||
F-38
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
Net sales, excluding intercompany: | ||||||||||||||||||||
Year ended September 30, 2009 | $ | 547.1 | $ | 410.9 | $ | 469.9 | $ | - | $ | 1,427.9 | ||||||||||
Year ended September 30, 2008 | 718.1 | 546.0 | 595.2 | - | 1,859.3 | |||||||||||||||
Year ended September 30, 2007 | 756.1 | 537.1 | 555.8 | - | 1,849.0 | |||||||||||||||
Intercompany sales: | ||||||||||||||||||||
Year ended September 30, 2009 | $ | 18.6 | $ | 2.2 | $ | 0.5 | $ | - | $ | 21.3 | ||||||||||
Year ended September 30, 2008 | 21.8 | 2.8 | 0.7 | - | 25.3 | |||||||||||||||
Year ended September 30, 2007 | 18.9 | 6.4 | 0.8 | - | 26.1 | |||||||||||||||
Income (loss) from operations: | ||||||||||||||||||||
Year ended September 30, 2009 | $ | (770.6 | ) | $ | (142.4 | ) | $ | (53.4 | ) | $ | (34.5 | ) | $ | (1,000.9 | ) | |||||
Year ended September 30, 2008 | 128.4 | (17.4 | ) | 74.1 | (39.0 | ) | 146.1 | |||||||||||||
Year ended September 30, 2007 | 154.7 | 33.4 | 57.4 | (35.5 | ) | 210.0 | ||||||||||||||
Depreciation and amortization: | ||||||||||||||||||||
Year ended September 30, 2009 | $ | 50.9 | $ | 21.1 | $ | 17.6 | $ | 0.6 | $ | 90.2 | ||||||||||
Year ended September 30, 2008 | 50.1 | 22.7 | 19.7 | 0.6 | 93.1 | |||||||||||||||
Year ended September 30, 2007 | 51.8 | 24.0 | 23.8 | 1.8 | 101.4 | |||||||||||||||
Restructuring and impairment: | ||||||||||||||||||||
Year ended September 30, 2009 | $ | 820.7 | $ | 101.1 | $ | 96.7 | $ | 0.2 | $ | 1,018.7 | ||||||||||
Year ended September 30, 2008 | - | 18.3 | - | - | 18.3 | |||||||||||||||
Year ended September 30, 2007 | - | - | - | - | - | |||||||||||||||
Capital expenditures: | ||||||||||||||||||||
Year ended September 30, 2009 | $ | 16.2 | $ | 11.2 | $ | 11.9 | $ | 0.4 | $ | 39.7 | ||||||||||
Year ended September 30, 2008 | 17.9 | 58.5 | 11.5 | 0.2 | 88.1 | |||||||||||||||
Year ended September 30, 2007 | 21.7 | 47.5 | 15.0 | 4.1 | 88.3 | |||||||||||||||
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
Total assets: | ||||||||||||||||||||
September 30, 2009 | $ | 945.8 | $ | 287.9 | $ | 368.6 | $ | 137.2 | $ | 1,739.5 | ||||||||||
September 30, 2008 | 1,841.1 | 471.9 | 517.0 | 260.2 | 3,090.2 | |||||||||||||||
Goodwill: | ||||||||||||||||||||
September 30, 2009 | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
September 30, 2008 | 719.2 | 59.5 | 92.8 | - | 871.5 | |||||||||||||||
Identifiable intangible assets, net: | ||||||||||||||||||||
September 30, 2009 | $ | 578.2 | $ | 10.4 | $ | 75.0 | $ | - | $ | 663.6 | ||||||||||
September 30, 2008 | 697.3 | 11.4 | 81.1 | - | 789.8 | |||||||||||||||
Index to Financial Statements
| United States | Canada | Other | Total | |||||||||||||
| (in millions) | ||||||||||||||||
| Net sales: | ||||||||||||||||
| Year ended September 30, 2008 | $ | 1,543.8 | $ | 292.3 | $ | 23.2 | $ | 1,859.3 | ||||||||
| Year ended September 30, 2007 | 1,560.4 | 265.4 | 23.2 | 1,849.0 | ||||||||||||
| Year ended September 30, 2006 | 1,693.8 | 231.4 | 8.2 | 1,933.4 | ||||||||||||
| Property, plant and equipment, net: | ||||||||||||||||
| September 30, 2008 | $ | 340.6 | $ | 13.7 | $ | 2.5 | $ | 356.8 | ||||||||
| September 30, 2007 | 335.5 | 14.5 | 1.8 | 351.8 | ||||||||||||
| United States | Canada | Other | Total | |||||||||
| (in millions) | ||||||||||||
Net sales: | ||||||||||||
Year ended September 30, 2009 | $ | 1,184.1 | $ | 215.8 | $ | 28.0 | $ | 1,427.9 | ||||
Year ended September 30, 2008 | 1,543.8 | 292.3 | 23.2 | 1,859.3 | ||||||||
Year ended September 30, 2007 | 1,560.4 | 265.4 | 23.2 | 1,849.0 | ||||||||
Property, plant and equipment, net: | ||||||||||||
September 30, 2009 | $ | 280.9 | $ | 12.0 | $ | 3.5 | $ | 296.4 | ||||
September 30, 2008 | 340.6 | 13.7 | 2.5 | 356.8 | ||||||||
Sales to two distributorsHDS IP Holding, LLC (“HD Supply”) comprised approximately 22%12%, 27%15% and 30%19% of the Company’sour total net sales during the years ended September 30, 2009, 2008, 2007 and 2006,2007, respectively. In the year ended September 30, 2008, the Company’s largest distributor2009, HD Supply accounted for 20%16%, 17%15% and 4%3% of net sales for Mueller Co., U.S. Pipe and Anvil, respectively. Receivables from these two distributorsHD Supply totaled $60.3$33.1 million and $67.4$41.7 million at September 30, 2009 and 2008, and 2007, respectively.
| Note | Commitments and Contingencies |
We are involved in various legal proceedings that have arisen in the normal course of operations, including the proceedings summarized below. We provide for costs relating to these matters when a loss is probable and the amount is reasonably estimable. Administrative costs related to these matters are expensed as incurred. The effect of the outcome of these matters on the Company’sour future results of operations cannot be predicted with certainty as any such effect depends on future results of operations and the amount and timing of the resolution of such matters. Other than the litigation described below, management doeswe do not believe that any of the Company’sour outstanding litigation would have a material adverse effect on the Company’sour businesses, operations or prospects.
Environmental. The Company isWe are subject to a wide variety of laws and regulations concerning the protection of the environment, both with respect to the construction and operation of many of itsour plants and with respect to remediating environmental conditions that may exist at its ownour and other properties. Management believes that the Company is in substantial complianceWe strive to comply with federal, state and local environmental laws and regulations. The Company accruesWe accrue for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and reasonably estimable.
In September 1987, the Companywe implemented an Administrative Consent Order (“ACO”) for itsour Burlington plant that was required under the New Jersey Environmental Cleanup Responsibility Act (now known as the Industrial Site Recovery Act). The ACO required soil and ground water cleanup, and the Company haswe have completed, and hashave received final approval on, the soil cleanup required by the ACO. U.S. Pipe is continuingcontinues to addresspump and treat ground water issues at this site. Further remediation could be required. These remediation costs are expected to be minimal. Long-term ground water monitoring is also required to verify natural attenuation. Management doesWe do not know how long ground water monitoring will be required and doesdo not believe monitoring or further cleanupremediation costs if any, will have a material adverse effect on theour consolidated financial condition or results of operations of the Company.
In June 2003, Solutia Inc. and Pharmacia Corporation (collectively “Solutia”) filed suit against U.S. Pipe and a number of co-defendant foundry-related companies in the U.S. District Court for the Northern District of Alabama for contribution and cost recovery allegedly incurred and to be incurred by Solutia in performing remediation of polychlorinated biphenyls (“PCBs”) and heavy metals in Anniston, Alabama, pursuant to a partial consent decree with the United States Environmental Protection Agency (“EPA”). U.S. Pipe and certain co-defendants subsequently reached a settlement with the EPA concerning their liability for certain
Index to Financial Statements
contamination in and around Anniston, which was memorialized in an Administrative Agreement and Order on Consent (“AOC”) that became effective in January 2006. U.S. Pipe has reached a settlement agreement whereby Phelps Dodge Industries, Inc., a co-defendant and co-respondent on the AOC, has assumed U.S. Pipe’s obligation to perform the work required under the AOC.
U.S. Pipe and the other settling defendants contend that the legal effect of the AOC extinguishes Solutia’s claims and they filed a motion for summary judgment to that effect. Discovery in this matter has beenwas stayed while
F-39
U.S. Pipe and a number of co-defendant foundry-related companies were named in a putative civil class action case originally filed in April 2005 in the Circuit Court of Calhoun County, Alabama, and removed by defendants to the U.S. District Court for the Northern District of Alabama under the Class Action Fairness Act. The putative plaintiffs in the case filed an amended complaint with the U.S. District Court in December 2006. The amended complaint alleged state law tort claims (negligence, failure to warn, wantonness, nuisance, trespass and outrage) arising from creation and disposal of “foundry sand” alleged to contain harmful levels of PCBs and other toxins, including arsenic, cadmium, chromium, lead and zinc. The plaintiffs originally sought damages for real and personal property and for other unspecified personal injury. OnIn June 4, 2007, a Motionmotion to Dismissdismiss was granted to U.S. Pipe and certain co-defendants as to the claims for negligence, failure to warn, nuisance, trespass and outrage. The remainder of the complaint was dismissed with leave to file an amended complaint. On July 6, 2007, plaintiffs filed a second amended complaint, which dismissed prior claims relating to U.S. Pipe’s former facility located at 2101 West 10th10th Street in Anniston, Alabama and no longer alleges personal injury claims. Plaintiffs filed a third amended complaint on July 27, 2007. U.S. Pipe and the other defendants have moved to dismiss the third amended complaint. OnIn September 24, 2008, the court issued an order on the motion, dismissing the claims for trespasswantonness and permitting the plaintiffs to move forward with their claims of nuisance, wantonnesstrespass and negligence. Management believes that numerous procedural and substantive defenses are available. At present, management hasWe currently have no reasonable basis to form a view with respect to the probability or amount of liability in this matter.
In the acquisition agreement pursuant to which a predecessor to Tyco sold the Company’sour Mueller Co. and Anvil businesses to the prior owners of these businesses in August 1999, Tyco agreed to indemnify the CompanyMueller Co., Anvil and itstheir affiliates, among other things, for all “Excluded Liabilities”. Excluded Liabilities include, among other things, substantially all liabilities of Mueller Co., Anvil and their affiliates relating to prior to August 1999. TheThis indemnity survives indefinitely and is not subject to any deductibles or caps. However, the Company may be responsible for these liabilities in the event that Tyco ever becomes financially unable to or otherwise fails to comply with, the terms of the indemnity.indefinitely. In addition, Tyco’s indemnity does not cover liabilities to the extent caused by the Companyus or the operation of its businessour businesses after August 1999, nor does it cover liabilities arising with respect to businesses or sites acquired after August 1999. In June 2007, Tyco was separated into three separate, publicly traded companies. Should the entity or entities that assumed Tyco’s obligations under the acquisition agreement eversuccessors become financially unable or fail to comply with the terms of the indemnity, the Companywe may be responsible for such obligations or liabilities.
Some of the Company’sour subsidiaries have been named as defendants in asbestos-related lawsuits. Management doesWe do not believe these lawsuits, either individually or in the aggregate, are material to the Company’sour consolidated financial position or results of operations.
Other Litigation. The Company and its subsidiariesWe are parties to a number of other lawsuits arising in the ordinary course of theirour businesses, including product liability cases for products manufactured by the Companyus and by third parties. We provide for costs relating to these matters when a loss is probable and the amount is reasonably estimable. Administrative costs related to these matters are expensed as incurred. The effect of the outcome of these matters on our future results of operations cannot be predicted with certainty as any such effect depends on future results of operations and the amount and timing of the resolution of such matters. While the results of litigation cannot be predicted with certainty, management believeswe believe that the final outcome of such other litigation is not likely to have a materiallymaterial adverse effect on the Company’sour consolidated financial statements.
Index to Financial Statements
Walter Industries-relatedEnergy-related Income Taxes. Each member of a consolidated group for federal income tax purposes is severally liable for the federal income tax liability of each other member of the consolidated group for any year in which it is a member of the group at any time during such year. Each member of the Walter IndustriesEnergy consolidated group, which included the Company through December 14, 2006, is also jointly and severally liable for pension and benefit funding and termination liabilities of other group members, as well as
F-40
A dispute exists with regard to federal income taxes for fiscal years 1980 through 1994 and 1999 through 2001 allegedly owed by the Walter IndustriesEnergy consolidated group, which included U.S. Pipe during these periods. According to Walter Industries’ quarterly reportEnergy’s Quarterly Report onForm 10-Q for the periodquarter ended September 30, 2008,2009, Walter Industries’Energy’s management estimatesestimated that the amount of tax claimed by the IRS isInternal Revenue Service was approximately $34.0 million for issues currently in dispute in bankruptcy court for matters unrelated to the Company.us. This amount is subject to interest and penalties. In addition, the Internal Revenue Service has issued a Notice of Proposed Deficiency assessing additional tax of $82.2 million for the fiscal years ended May 31, 2000, December 31, 2000 and December 31, 2001. As a matter of law, the Company is jointly and severally liable for any final tax determination, which means that in the event Walter IndustriesEnergy is unable to pay any amounts owed, the Companywe would be liable. Walter IndustriesEnergy disclosed in the above mentionedForm 10-Q that it believes its filing positions have substantial merit and that it intends to defend vigorously any claims asserted.
Walter IndustriesEnergy effectively controlled all of the Company’sour tax decisions for periods during which the Company waswe were a member of the Walter IndustriesEnergy consolidated federal income tax group and certain combined, consolidated or unitary state and local income tax groups. Under the terms of the income tax allocation agreement between the Companyus and Walter IndustriesEnergy dated May 26, 2006, the Companywe generally computes itscompute our tax liability on a stand-alone basis, but Walter IndustriesEnergy has sole authority to respond to and conduct all tax proceedings (including tax audits) relating to our federal income and combined state returns, to file all such returns on our behalf of the Company and to determine the amount of the Company’sour liability to (or entitlement to payment from) Walter IndustriesEnergy for such previous periods. This arrangement may result in conflicts of interests between the CompanyWalter Energy and Walter Industries.us. The Spin-off was intended to qualify as a tax-free spin-off under Section 355 of the Internal Revenue Code of 1986, as amended. In addition, the tax allocation agreement provides that if the Spin-off is determined not to be tax-free pursuant to Section 355 of the Internal Revenue Code of 1986, as amended, the Companywe generally will be responsible for any taxes incurred by Walter IndustriesEnergy or its shareholders if such taxes result from certain of the Company’sour actions or omissions and for a percentage of any such taxes that are not a result of the Company’sour actions or omissions or Walter Industries’Energy’s actions or omissions or taxes based upon the Company’sour market value relative to Walter Industries’Energy’s market value. Additionally, to the extent that Walter IndustriesEnergy was unable to pay taxes, if any, attributable to the Spin-off and for which it is responsible under the tax allocation agreement, the Companywe could be liable for those taxes as a result of being a member of the Walter IndustriesEnergy consolidated group for the year in which the Spin-off occurred.
In accordance with the income tax allocation agreement, Walter Energy used certain tax assets of a predecessor to the Company in its calendar 2006 tax return for which payment to us is required. The income tax allocation agreement only requires Walter Energy to make the payment upon realization of the tax benefit by receiving a refund or otherwise offsetting taxes due. Walter Energy currently owes us $10.9 million that is payable pending completion of an Internal Revenue Service audit of Walter Energy’s 2006 tax year and the related refund of tax from that year. We do not expect payment during the year ending September 30, 2010.
Spin-off occurred.
Index to Financial Statements
Other.In theour opinion, of management, accruals associated with contingencies incurred in the normal course of business are sufficient. Resolution of existing known contingencies is not expected to affect the Company’sour financial position or results of operations significantly.
| Note | New Accounting Pronouncements |
The Financial Accounting Standards Board recently issued a new codification of accounting standards that superseded all existing non-SEC accounting and reporting standards (“GAAP”). This new codification was not intended to change the application of GAAP, but it changes the way accounting and reporting guidance is organized and presented. We began using this new codification in preparing our September 2006, the FASB issued FAS No. 157,Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. Management does not believe the adoption of this standard, which became effective October 1, 2008, will have a material impact on the Company’s consolidated30, 2009 financial statements.
F-41
| Note | Subsequent Events |
We have evaluated these financial statements for subsequent events through the filing of these financial statements with the Securities and Exchange Commission on November 24, 2009.
On October 30, 2008, the Company28, 2009, we declared a dividend of $0.0175 per share on the Company’s Series A and Series B common stock, payable on November 20, 20082009 to stockholders of record at the close of business on November 10, 2008.
We divested certain assets of Anvil’s non-core electrical fittings and couplings business in November 2009. We received $12.8 million cash and certain assets of Seminole Tubular Company, which complement our existing mechanical pipe nipple business. We believe this transaction will generate cash and enhance our overall product offerings.
On November 24, 2009, we signed an agreement to sell Anvil’s Mueller Flow Control (“MFC”) business for C$48.8 million, subject to post closing adjustments. This transaction is expected to be completed in January 2010. MFC is a wholesale distributor in Canada and primarily sells third party sourced products and products manufactured by Anvil, Mueller Co. and their subsidiaries directly to contractors and other end use customers. MFC’s fiscal 2009 net sales were approximately $107 million and operating results were not material. MFC had approximately $42 million of net assets at September 30, 2009 consisting principally of $19.3 million of receivables, $25.2 million of inventories, $4.7 million of property, plant and equipment, $3.5 million of identifiable intangible assets and $10.7 million of accounts payable and accrued liabilities. In connection with this agreement, Anvil will also enter into a supply agreement with the buyer requiring the buyer to purchase products from Anvil over a 3 1/2 year period.
| Note | Quarterly Consolidated Financial Information (Unaudited) |
| Quarter ended | ||||||||||||||||
| December 31 | March 31 | June 30 | September 30 | |||||||||||||
| (in millions, except per share amounts) | ||||||||||||||||
| Year ended September 30, 2008: | ||||||||||||||||
| Net sales | $ | 412.3 | $ | 421.6 | $ | 528.5 | $ | 496.9 | ||||||||
| Gross profit | 94.4 | 98.8 | 123.4 | 122.4 | ||||||||||||
| Income from operations | 16.4 | 28.0 | 53.6 | 48.1 | ||||||||||||
| Net income (loss) | (1.6 | ) | 5.7 | 20.3 | 17.6 | |||||||||||
| Net income (loss) per share: | ||||||||||||||||
| Basic and diluted (1) | (0.01 | ) | 0.05 | 0.18 | 0.15 | |||||||||||
| Year ended September 30, 2007: | ||||||||||||||||
| Net sales | $ | 411.9 | $ | 459.7 | $ | 502.5 | $ | 474.9 | ||||||||
| Gross profit | 107.7 | 117.8 | 119.5 | 118.2 | ||||||||||||
| Income from operations | 49.0 | 52.9 | 57.4 | 50.7 | ||||||||||||
| Net income (loss) | 17.0 | 17.9 | (1.3 | ) | 14.6 | |||||||||||
| Net income (loss) per share: | ||||||||||||||||
| Basic and diluted (1) | 0.15 | 0.16 | (0.01 | ) | 0.13 | |||||||||||
| Quarter ended | ||||||||||||||||
| September 30 | June 30 | March 31 | December 31 | |||||||||||||
| (in millions, except per share amounts) | ||||||||||||||||
Year ended September 30, 2009: | ||||||||||||||||
Net sales | $ | 374.8 | $ | 363.2 | $ | 322.2 | $ | 367.7 | ||||||||
Gross profit | 69.2 | 57.8 | 54.9 | 75.0 | ||||||||||||
Income (loss) from operations | 12.9 | (8.5 | ) | (618.2 | ) | (387.1 | ) | |||||||||
Net loss | (10.9 | ) | (19.0 | ) | (566.8 | ) | (400.0 | ) | ||||||||
Net loss per share: | ||||||||||||||||
Basic and diluted (1) | (0.09 | ) | (0.16 | ) | (4.90 | ) | (3.47 | ) | ||||||||
Year ended September 30, 2008: | ||||||||||||||||
Net sales | $ | 496.9 | $ | 528.5 | $ | 421.6 | $ | 412.3 | ||||||||
Gross profit | 122.4 | 123.4 | 98.8 | 94.4 | ||||||||||||
Income from operations | 48.1 | 53.6 | 28.0 | 16.4 | ||||||||||||
Net income (loss) | 17.6 | 20.3 | 5.7 | (1.6 | ) | |||||||||||
Net income (loss) per share: | ||||||||||||||||
Basic and diluted (1) | 0.15 | 0.18 | 0.05 | (0.01 | ) | |||||||||||
| (1) | The sum of quarterly earnings per share amounts is different from annual amounts due to rounding. |
F-42
Index to Financial Statements
| Note | Consolidating Guarantor and Non-Guarantor Financial Information |
The following information is included as a result of the guarantee by certain of the Company’s wholly-owned U.S. subsidiaries (“Guarantor Companies”) of the Senior Notes. None of the Company’s other subsidiaries guarantee the Senior Notes. Each of the guarantees is joint and several and full and unconditional. Guarantor Companies are listed below.
Name | ||
State of | ||
incorporation | ||
or organization | ||
Anvil 1, LLC | Delaware | |
Anvil 2, LLC | Delaware | |
Anvil International, | Delaware | |
AnvilStar, LLC | Delaware | |
Fast Fabricators, LLC | Delaware | |
Henry Pratt Company, LLC | Delaware | |
Henry Pratt | Delaware | |
Hersey Meters Co., LLC | Delaware | |
Hunt Industries, LLC | Delaware | |
Hydro Gate, LLC | Delaware | |
J.B. Smith Mfg. Co., LLC | Delaware | |
James Jones Company, LLC | Delaware | |
MCO 1, LLC | Alabama | |
MCO 2, LLC | Alabama | |
Milliken Valve, LLC | Delaware | |
Mueller Co. Ltd. | Alabama | |
Mueller Financial Services, LLC | ||
| Delaware | ||
Mueller | ||
| Delaware | ||
Mueller Group | Delaware | |
Mueller | Delaware | |
Mueller International, | Delaware | |
Mueller International | Delaware | |
Mueller International Finance, | Delaware | |
Mueller | Delaware | |
Mueller Service | Delaware | |
Mueller | Delaware | |
United States Pipe and Foundry Company, LLC | Alabama | |
U.S. Pipe Valve & Hydrant, LLC | Delaware | |
F-43
Index to Financial Statements
Consolidating Balance Sheet
September 30, 20082009
| Non- | ||||||||||||||||||||
| Guarantor | guarantor | |||||||||||||||||||
| Issuer | companies | companies | Eliminations | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 179.1 | $ | (4.6 | ) | $ | 9.4 | $ | - | $ | 183.9 | |||||||||
| Receivables, net | - | 256.5 | 41.7 | - | 298.2 | |||||||||||||||
| Inventories | - | 392.1 | 67.3 | - | 459.4 | |||||||||||||||
| Deferred income taxes | 48.2 | - | - | - | 48.2 | |||||||||||||||
| Other current assets | 20.5 | 37.6 | 2.5 | - | 60.6 | |||||||||||||||
| Total current assets | 247.8 | 681.6 | 120.9 | - | 1,050.3 | |||||||||||||||
| Property, plant and equipment | 2.6 | 338.0 | 16.2 | - | 356.8 | |||||||||||||||
| Goodwill | - | 871.5 | - | - | 871.5 | |||||||||||||||
| Identifiable intangible assets | - | 789.8 | - | - | 789.8 | |||||||||||||||
| Other noncurrent assets | 18.3 | 1.7 | 1.8 | - | 21.8 | |||||||||||||||
| Investment in subsidiaries | 901.4 | 18.5 | - | (919.9 | ) | - | ||||||||||||||
| Total assets | $ | 1,170.1 | $ | 2,701.1 | $ | 138.9 | $ | (919.9 | ) | $ | 3,090.2 | |||||||||
| Liabilities and equity: | ||||||||||||||||||||
| Current portion of debt | $ | 8.9 | $ | 0.8 | $ | - | $ | - | $ | 9.7 | ||||||||||
| Accounts payable | 8.3 | 132.8 | 14.9 | - | 156.0 | |||||||||||||||
| Other current liabilities | 39.5 | 82.2 | 7.3 | - | 129.0 | |||||||||||||||
| Total current liabilities | 56.7 | 215.8 | 22.2 | - | 294.7 | |||||||||||||||
| Intercompany accounts | (1,616.8 | ) | 1,519.0 | 97.8 | - | - | ||||||||||||||
| Long-term debt | 1,084.7 | 1.1 | - | - | 1,085.8 | |||||||||||||||
| Deferred income taxes | 292.9 | 2.6 | 0.3 | - | 295.8 | |||||||||||||||
| Other noncurrent liabilities | 23.7 | 61.2 | 0.1 | - | 85.0 | |||||||||||||||
| Total liabilities | (158.8 | ) | 1,799.7 | 120.4 | - | 1,761.3 | ||||||||||||||
| Equity | 1,328.9 | 901.4 | 18.5 | (919.9 | ) | 1,328.9 | ||||||||||||||
| Total liabilities and equity | $ | 1,170.1 | $ | 2,701.1 | $ | 138.9 | $ | (919.9 | ) | $ | 3,090.2 | |||||||||
F-44
| Issuer | Guarantor companies | Non- guarantor companies | Eliminations | Total | |||||||||||||
| (in millions) | |||||||||||||||||
Assets: | |||||||||||||||||
Cash and cash equivalents | $ | 41.7 | $ | (0.2 | ) | $ | 20.0 | $ | - | $ | 61.5 | ||||||
Receivables, net | - | 183.1 | 33.2 | - | 216.3 | ||||||||||||
Inventories | - | 295.7 | 47.1 | - | 342.8 | ||||||||||||
Deferred income taxes | 30.4 | - | 0.4 | - | 30.8 | ||||||||||||
Assets held for sale | - | 13.9 | - | - | 13.9 | ||||||||||||
Other current assets | 44.7 | 33.9 | 2.2 | - | 80.8 | ||||||||||||
Total current assets | 116.8 | 526.4 | 102.9 | - | 746.1 | ||||||||||||
Property, plant and equipment | 2.4 | 278.5 | 15.5 | - | 296.4 | ||||||||||||
Goodwill | - | - | - | - | - | ||||||||||||
Identifiable intangible assets | - | 663.6 | - | - | 663.6 | ||||||||||||
Other noncurrent assets | 25.3 | 6.2 | 1.9 | - | 33.4 | ||||||||||||
Investment in subsidiaries | (90.6 | ) | 21.7 | - | 68.9 | - | |||||||||||
Total noncurrent assets | (62.9 | ) | 970.0 | 17.4 | 68.9 | 993.4 | |||||||||||
Total assets | $ | 53.9 | $ | 1,496.4 | $ | 120.3 | $ | 68.9 | $ | 1,739.5 | |||||||
Liabilities and equity: | |||||||||||||||||
Current portion of debt | $ | 11.1 | $ | 0.6 | $ | - | $ | - | $ | 11.7 | |||||||
Accounts payable | 4.7 | 95.2 | 11.8 | - | 111.7 | ||||||||||||
Other current liabilities | 29.5 | 62.3 | 5.6 | - | 97.4 | ||||||||||||
Total current liabilities | 45.3 | 158.1 | 17.4 | - | 220.8 | ||||||||||||
Intercompany accounts | (1,367.5 | ) | 1,287.3 | 80.2 | - | - | |||||||||||
Long-term debt | 727.7 | 0.8 | - | - | 728.5 | ||||||||||||
Deferred income taxes | 179.4 | - | 0.6 | - | 180.0 | ||||||||||||
Other noncurrent liabilities | 32.7 | 140.8 | 0.4 | - | 173.9 | ||||||||||||
Total liabilities | (382.4 | ) | 1,587.0 | 98.6 | - | 1,303.2 | |||||||||||
Equity | 436.3 | (90.6 | ) | 21.7 | 68.9 | 436.3 | |||||||||||
Total liabilities and equity | $ | 53.9 | $ | 1,496.4 | $ | 120.3 | $ | 68.9 | $ | 1,739.5 | |||||||
Index to Financial Statements
Consolidating Balance Sheet
September 30, 20072008
| Non- | ||||||||||||||||||||
| Guarantor | guarantor | |||||||||||||||||||
| Issuer | companies | companies | Eliminations | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 90.2 | $ | (8.6 | ) | $ | 17.3 | $ | - | $ | 98.9 | |||||||||
| Receivables, net | 11.9 | 249.1 | 41.1 | - | 302.1 | |||||||||||||||
| Inventories | - | 390.3 | 63.2 | - | 453.5 | |||||||||||||||
| Deferred income taxes | 29.2 | - | - | - | 29.2 | |||||||||||||||
| Other current assets | 34.3 | 29.8 | 2.2 | - | 66.3 | |||||||||||||||
| Total current assets | 165.6 | 660.6 | 123.8 | - | 950.0 | |||||||||||||||
| Property, plant and equipment | 4.5 | 331.1 | 16.2 | - | 351.8 | |||||||||||||||
| Goodwill | 2.0 | 869.1 | - | - | 871.1 | |||||||||||||||
| Identifiable intangible assets | - | 819.3 | - | - | 819.3 | |||||||||||||||
| Other noncurrent assets | 34.6 | (14.6 | ) | (3.0 | ) | - | 17.0 | |||||||||||||
| Investment in subsidiaries | 743.5 | 18.5 | - | (762.0 | ) | - | ||||||||||||||
| Total assets | $ | 950.2 | $ | 2,684.0 | $ | 137.0 | $ | (762.0 | ) | $ | 3,009.2 | |||||||||
| Liabilities and equity: | ||||||||||||||||||||
| Current portion of debt | $ | 6.2 | $ | - | $ | - | $ | - | $ | 6.2 | ||||||||||
| Accounts payable | 14.8 | 85.2 | 12.3 | - | 112.3 | |||||||||||||||
| Other current liabilities | 16.0 | 106.6 | (0.8 | ) | - | 121.8 | ||||||||||||||
| Total current liabilities | 37.0 | 191.8 | 11.5 | - | 240.3 | |||||||||||||||
| Intercompany accounts | (1,829.1 | ) | 1,720.8 | 108.3 | - | - | ||||||||||||||
| Long-term debt | 1,094.3 | - | - | - | 1,094.3 | |||||||||||||||
| Deferred income taxes | 307.3 | - | - | - | 307.3 | |||||||||||||||
| Other noncurrent liabilities | 29.7 | 27.9 | (1.3 | ) | - | 56.3 | ||||||||||||||
| Total liabilities | (360.8 | ) | 1,940.5 | 118.5 | - | 1,698.2 | ||||||||||||||
| Equity | 1,311.0 | 743.5 | 18.5 | (762.0 | ) | 1,311.0 | ||||||||||||||
| Total liabilities and equity | $ | 950.2 | $ | 2,684.0 | $ | 137.0 | $ | (762.0 | ) | $ | 3,009.2 | |||||||||
F-45
| Issuer | Guarantor companies | Non- guarantor companies | Eliminations | Total | ||||||||||||||
| (in millions) | ||||||||||||||||||
Assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 179.1 | $ | (4.6 | ) | $ | 9.4 | $ | - | $ | 183.9 | |||||||
Receivables, net | - | 256.5 | 41.7 | - | 298.2 | |||||||||||||
Inventories | - | 392.1 | 67.3 | - | 459.4 | |||||||||||||
Deferred income taxes | 47.9 | - | 0.3 | - | 48.2 | |||||||||||||
Other current assets | 20.5 | 37.6 | 2.5 | - | 60.6 | |||||||||||||
Total current assets | 247.5 | 681.6 | 121.2 | - | 1,050.3 | |||||||||||||
Property, plant and equipment | 2.6 | 338.0 | 16.2 | - | 356.8 | |||||||||||||
Goodwill | - | 871.5 | - | - | 871.5 | |||||||||||||
Identifiable intangible assets | - | 789.8 | - | - | 789.8 | |||||||||||||
Other noncurrent assets | 18.3 | 1.7 | 1.8 | - | 21.8 | |||||||||||||
Investment in subsidiaries | 901.4 | 18.5 | - | (919.9 | ) | - | ||||||||||||
Total assets | $ | 1,169.8 | $ | 2,701.1 | $ | 139.2 | $ | (919.9 | ) | $ | 3,090.2 | |||||||
Liabilities and equity: | ||||||||||||||||||
Current portion of debt | $ | 8.9 | $ | 0.8 | $ | - | $ | - | $ | 9.7 | ||||||||
Accounts payable | 8.3 | 132.8 | 14.9 | - | 156.0 | |||||||||||||
Other current liabilities | 39.5 | 82.2 | 7.3 | - | 129.0 | |||||||||||||
Total current liabilities | 56.7 | 215.8 | 22.2 | - | 294.7 | |||||||||||||
Intercompany accounts | (1,619.7 | ) | 1,521.6 | 98.1 | - | - | ||||||||||||
Long-term debt | 1,084.7 | 1.1 | - | - | 1,085.8 | |||||||||||||
Deferred income taxes | 295.5 | - | 0.3 | - | 295.8 | |||||||||||||
Other noncurrent liabilities | 23.7 | 61.2 | 0.1 | - | 85.0 | |||||||||||||
Total liabilities | (159.1 | ) | 1,799.7 | 120.7 | - | 1,761.3 | ||||||||||||
Equity | 1,328.9 | 901.4 | 18.5 | (919.9 | ) | 1,328.9 | ||||||||||||
Total liabilities and equity | $ | 1,169.8 | $ | 2,701.1 | $ | 139.2 | $ | (919.9 | ) | $ | 3,090.2 | |||||||
Index to Financial Statements
Consolidating Statement of Operations
Year Ended September 30, 20082009
| Non- | ||||||||||||||||||||
| Guarantor | guarantor | |||||||||||||||||||
| Issuer | companies | companies | Eliminations | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Net sales | $ | - | $ | 1,555.7 | $ | 303.6 | $ | - | $ | 1,859.3 | ||||||||||
| Cost of sales | - | 1,160.2 | 260.1 | - | 1,420.3 | |||||||||||||||
| Gross profit | - | 395.5 | 43.5 | - | 439.0 | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Selling, general and administrative | 37.7 | 200.7 | 36.2 | - | 274.6 | |||||||||||||||
| Restructuring | - | 18.3 | - | - | 18.3 | |||||||||||||||
| Operating income (loss) | (37.7 | ) | 176.5 | 7.3 | - | 146.1 | ||||||||||||||
| Interest expense, net | 72.5 | 0.3 | (0.4 | ) | - | 72.4 | ||||||||||||||
| Loss on early extinguishment of debt | - | - | - | - | - | |||||||||||||||
| Income (loss) before income taxes | (110.2 | ) | 176.2 | 7.7 | - | 73.7 | ||||||||||||||
| Income tax expense (benefit) | (47.4 | ) | 75.8 | 3.3 | - | 31.7 | ||||||||||||||
| Equity in income of subsidiaries | 104.8 | 4.4 | - | (109.2 | ) | - | ||||||||||||||
| Net income | $ | 42.0 | $ | 104.8 | $ | 4.4 | $ | (109.2 | ) | $ | 42.0 | |||||||||
F-46
| Issuer | Guarantor companies | Non- guarantor companies | Eliminations | Total | ||||||||||||||
| (in millions) | ||||||||||||||||||
Net sales | $ | - | $ | 1,190.2 | $ | 237.7 | $ | - | $ | 1,427.9 | ||||||||
Cost of sales | - | 963.0 | 208.0 | 1,171.0 | ||||||||||||||
Gross profit | - | 227.2 | 29.7 | - | 256.9 | |||||||||||||
Operating expenses: | ||||||||||||||||||
Selling, general and administrative | 33.7 | 179.6 | 25.8 | - | 239.1 | |||||||||||||
Impairment | - | 970.9 | - | - | 970.9 | |||||||||||||
Restructuring | 0.2 | 44.9 | 2.7 | - | 47.8 | |||||||||||||
Total operating expenses | 33.9 | 1,195.4 | 28.5 | 1,257.8 | ||||||||||||||
Income (loss) from operations | (33.9 | ) | (968.2 | ) | 1.2 | - | (1,000.9 | ) | ||||||||||
Interest expense (income), net | 78.4 | (0.1 | ) | - | - | 78.3 | ||||||||||||
Loss on early extinguishment of debt | 5.3 | - | - | - | 5.3 | |||||||||||||
Gain on repurchase of debt | (1.5 | ) | - | - | - | (1.5 | ) | |||||||||||
Income (loss) before income taxes | (116.1 | ) | (968.1 | ) | 1.2 | - | (1,083.0 | ) | ||||||||||
Income tax expense (benefit) | (39.6 | ) | (47.1 | ) | 0.4 | - | (86.3 | ) | ||||||||||
Equity in income (loss) of subsidiaries | (920.2 | ) | 0.8 | - | 919.4 | - | ||||||||||||
Net income (loss) | $ | (996.7 | ) | $ | (920.2 | ) | $ | 0.8 | $ | 919.4 | $ | (996.7 | ) | |||||
Index to Financial Statements
Consolidating Statement of Operations
Year Ended September 30, 20072008
| Non- | ||||||||||||||||||||
| Guarantor | guarantor | |||||||||||||||||||
| Issuer | companies | companies | Eliminations | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Net sales | $ | - | $ | 1,564.0 | $ | 285.0 | $ | - | $ | 1,849.0 | ||||||||||
| Cost of sales | - | 1,135.5 | 250.3 | - | 1,385.8 | |||||||||||||||
| Gross profit | - | 428.5 | 34.7 | - | 463.2 | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Selling, general and administrative | 33.6 | 190.6 | 29.0 | - | 253.2 | |||||||||||||||
| Restructuring | - | - | - | - | - | |||||||||||||||
| Operating income (loss) | (33.6 | ) | 237.9 | 5.7 | - | 210.0 | ||||||||||||||
| Interest expense, net | 87.2 | (0.2 | ) | (0.2 | ) | - | 86.8 | |||||||||||||
| Loss on early extinguishment of debt | 36.5 | - | - | - | 36.5 | |||||||||||||||
| Income (loss) before income taxes | (157.3 | ) | 238.1 | 5.9 | - | 86.7 | ||||||||||||||
| Income tax expense (benefit) | (69.8 | ) | 105.7 | 2.6 | - | 38.5 | ||||||||||||||
| Equity in income of subsidiaries | 135.7 | 3.3 | - | (139.0 | ) | - | ||||||||||||||
| Net income | $ | 48.2 | $ | 135.7 | $ | 3.3 | $ | (139.0 | ) | $ | 48.2 | |||||||||
F-47
| Issuer | Guarantor companies | Non- guarantor companies | Eliminations | Total | ||||||||||||||
| (in millions) | ||||||||||||||||||
Net sales | $ | - | $ | 1,555.7 | $ | 303.6 | $ | - | $ | 1,859.3 | ||||||||
Cost of sales | - | 1,160.2 | 260.1 | - | 1,420.3 | |||||||||||||
Gross profit | - | 395.5 | 43.5 | - | 439.0 | |||||||||||||
Operating expenses: | ||||||||||||||||||
Selling, general and administrative | 37.7 | 200.7 | 36.2 | - | 274.6 | |||||||||||||
Restructuring | - | 18.3 | - | - | 18.3 | |||||||||||||
Total operating expenses | 37.7 | 219.0 | 36.2 | 292.9 | ||||||||||||||
Operating income (loss) | (37.7 | ) | 176.5 | 7.3 | - | 146.1 | ||||||||||||
Interest expense (income), net | 72.5 | 0.3 | (0.4 | ) | - | 72.4 | ||||||||||||
Loss on early extinguishment of debt | - | - | - | - | - | |||||||||||||
Income (loss) before income taxes | (110.2 | ) | 176.2 | 7.7 | - | 73.7 | ||||||||||||
Income tax expense (benefit) | (47.4 | ) | 75.8 | 3.3 | - | 31.7 | ||||||||||||
Equity in income of subsidiaries | 104.8 | 4.4 | - | (109.2 | ) | - | ||||||||||||
Net income | $ | 42.0 | $ | 104.8 | $ | 4.4 | $ | (109.2 | ) | $ | 42.0 | |||||||
Index to Financial Statements
Consolidating Statement of Cash Flows
Operations
Year Ended September 30, 20082007
| Non- | ||||||||||||||||||||
| Guarantor | guarantor | |||||||||||||||||||
| Issuer | companies | companies | Eliminations | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Operating activities: | ||||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | 101.3 | $ | 85.3 | $ | (4.6 | ) | $ | - | $ | 182.0 | |||||||||
| Investing activities: | ||||||||||||||||||||
| Capital expenditures | (0.2 | ) | (85.0 | ) | (2.9 | ) | - | (88.1 | ) | |||||||||||
| Proceeds from sale of property, plant and equipment | - | 9.6 | - | - | 9.6 | |||||||||||||||
| Net cash used in investing activities | (0.2 | ) | (75.4 | ) | (2.9 | ) | - | (78.5 | ) | |||||||||||
| Financing activities: | ||||||||||||||||||||
| Decrease in outstanding checks | - | (6.9 | ) | - | - | (6.9 | ) | |||||||||||||
| Debt payments | (5.0 | ) | - | - | - | (5.0 | ) | |||||||||||||
| Common stock issuance | 1.9 | - | - | - | 1.9 | |||||||||||||||
| Dividend payments | (8.1 | ) | - | - | - | (8.1 | ) | |||||||||||||
| Net cash used in financing activities | (11.2 | ) | (6.9 | ) | - | - | (18.1 | ) | ||||||||||||
| Effect of currency exchange rate changes on cash | - | - | (0.4 | ) | - | (0.4 | ) | |||||||||||||
| Net change in cash and cash equivalents | 89.9 | 3.0 | (7.9 | ) | - | 85.0 | ||||||||||||||
| Cash and cash equivalents at beginning of year | 90.2 | (8.6 | ) | 17.3 | - | 98.9 | ||||||||||||||
| Cash and cash equivalents at end of year | $ | 180.1 | $ | (5.6 | ) | $ | 9.4 | $ | - | $ | 183.9 | |||||||||
F-48
| Issuer | Guarantor companies | Non- guarantor companies | Eliminations | Total | |||||||||||||||
| (in millions) | |||||||||||||||||||
Net sales | $ | - | $ | 1,564.0 | $ | 285.0 | $ | - | $ | 1,849.0 | |||||||||
Cost of sales | - | 1,135.5 | 250.3 | - | 1,385.8 | ||||||||||||||
Gross profit | - | 428.5 | 34.7 | - | 463.2 | ||||||||||||||
Operating expenses: | |||||||||||||||||||
Selling, general and administrative | 33.6 | 190.6 | 29.0 | - | 253.2 | ||||||||||||||
Restructuring | - | - | - | - | - | ||||||||||||||
Total operating expenses | 33.6 | 190.6 | 29.0 | - | 253.2 | ||||||||||||||
Operating income (loss) | (33.6 | ) | 237.9 | 5.7 | - | 210.0 | |||||||||||||
Interest expense (income), net | 87.2 | (0.2 | ) | (0.2 | ) | - | 86.8 | ||||||||||||
Loss on early extinguishment of debt | 36.5 | - | - | - | 36.5 | ||||||||||||||
Income (loss) before income taxes | (157.3 | ) | 238.1 | 5.9 | - | 86.7 | |||||||||||||
Income tax expense (benefit) | (69.8 | ) | 105.7 | 2.6 | - | 38.5 | |||||||||||||
Equity in income of subsidiaries | 135.7 | 3.3 | - | (139.0 | ) | - | |||||||||||||
Net income | $ | 48.2 | $ | 135.7 | $ | 3.3 | $ | (139.0 | ) | $ | 48.2 | ||||||||
Index to Financial Statements
Consolidating Statement of Cash Flows
Year Ended September 30, 2009
| Issuer | Guarantor companies | Non- guarantor companies | Eliminations | Total | |||||||||||||||
| (in millions) | |||||||||||||||||||
Operating activities: | |||||||||||||||||||
Net cash provided by operating activities | $ | 68.0 | $ | 51.6 | $ | 10.9 | $ | - | $ | 130.5 | |||||||||
Investing activities: | |||||||||||||||||||
Capital expenditures | (0.4 | ) | (35.8 | ) | (3.5 | ) | - | (39.7 | ) | ||||||||||
Acquisition of technology | - | (8.7 | ) | - | - | (8.7 | ) | ||||||||||||
Proceeds from sales of property, plant and equipment | - | 1.6 | 3.9 | - | 5.5 | ||||||||||||||
Net cash provided by (used in) investing activities | (0.4 | ) | (42.9 | ) | 0.4 | - | (42.9 | ) | |||||||||||
Financing activities: | |||||||||||||||||||
Decrease in outstanding checks | - | (4.3 | ) | - | - | (4.3 | ) | ||||||||||||
Debt borrowings | 539.4 | - | - | - | 539.4 | ||||||||||||||
Debt paid and repurchased | (893.1 | ) | - | - | - | (893.1 | ) | ||||||||||||
Payment of deferred financing fees | (10.1 | ) | - | - | - | (10.1 | ) | ||||||||||||
Common stock issued | 166.9 | - | - | - | 166.9 | ||||||||||||||
Dividends paid | (8.1 | ) | - | - | - | (8.1 | ) | ||||||||||||
Net cash provided by (used in) financing activities | (205.0 | ) | (4.3 | ) | - | - | (209.3 | ) | |||||||||||
Effect of currency exchange rate changes on cash | - | - | (0.7 | ) | - | (0.7 | ) | ||||||||||||
Net change in cash and cash equivalents | (137.4 | ) | 4.4 | 10.6 | - | (122.4 | ) | ||||||||||||
Cash and cash equivalents at beginning of period | 179.1 | (4.6 | ) | 9.4 | - | 183.9 | |||||||||||||
Cash and cash equivalents at end of period | $ | 41.7 | $ | (0.2 | ) | $ | 20.0 | $ | - | $ | 61.5 | ||||||||
Index to Financial Statements
Mueller Water Products, Inc. and Subsidiaries
Consolidating Statement of Cash Flows
Year Ended September 30, 2008
| Issuer | Guarantor companies | Non- guarantor companies | Eliminations | Total | |||||||||||||||
| (in millions) | |||||||||||||||||||
Operating activities: | |||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 100.3 | $ | 86.3 | $ | (4.6 | ) | $ | - | $ | 182.0 | ||||||||
Investing activities: | |||||||||||||||||||
Capital expenditures | (0.2 | ) | (85.0 | ) | (2.9 | ) | - | (88.1 | ) | ||||||||||
Proceeds from sale of property, plant and equipment | - | 9.6 | - | - | 9.6 | ||||||||||||||
Net cash used in investing activities | (0.2 | ) | (75.4 | ) | (2.9 | ) | - | (78.5 | ) | ||||||||||
Financing activities: | |||||||||||||||||||
Decrease in outstanding checks | - | (6.9 | ) | - | - | (6.9 | ) | ||||||||||||
Debt payments | (5.0 | ) | - | - | - | (5.0 | ) | ||||||||||||
Common stock issuance | 1.9 | - | - | - | 1.9 | ||||||||||||||
Dividend payments | (8.1 | ) | - | - | - | (8.1 | ) | ||||||||||||
Net cash used in financing activities | (11.2 | ) | (6.9 | ) | - | - | (18.1 | ) | |||||||||||
Effect of currency exchange rate changes on cash | - | - | (0.4 | ) | - | (0.4 | ) | ||||||||||||
Net change in cash and cash equivalents | 88.9 | 4.0 | (7.9 | ) | - | 85.0 | |||||||||||||
Cash and cash equivalents at beginning of year | 90.2 | (8.6 | ) | 17.3 | - | 98.9 | |||||||||||||
Cash and cash equivalents at end of year | $ | 179.1 | $ | (4.6 | ) | $ | 9.4 | $ | - | $ | 183.9 | ||||||||
Index to Financial Statements
Mueller Water Products, Inc. and Subsidiaries
Consolidating Statement of Cash Flows
Year Ended September 30, 2007
| Non- | ||||||||||||||||||||
| Guarantor | guarantor | |||||||||||||||||||
| Issuer | companies | companies | Eliminations | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Operating activities: | ||||||||||||||||||||
| Net cash provided by operating activities | $ | 40.6 | $ | 106.4 | $ | 8.1 | $ | - | $ | 155.1 | ||||||||||
| Investing activities: | ||||||||||||||||||||
| Capital expenditures | (4.1 | ) | (81.6 | ) | (2.6 | ) | - | (88.3 | ) | |||||||||||
| Proceeds from sale of property, plant and equipment | - | 0.8 | - | - | 0.8 | |||||||||||||||
| Acquisition of businesses, net of cash acquired | - | (26.2 | ) | - | - | (26.2 | ) | |||||||||||||
| Net cash used in investing activities | (4.1 | ) | (107.0 | ) | (2.6 | ) | - | (113.7 | ) | |||||||||||
| Financing activities: | ||||||||||||||||||||
| Increase in outstanding checks | - | 3.1 | - | - | 3.1 | |||||||||||||||
| Debt borrowings | 1,140.0 | - | - | - | 1,140.0 | |||||||||||||||
| Debt payments | (1,151.1 | ) | - | - | - | (1,151.1 | ) | |||||||||||||
| Common stock issuance | 1.8 | - | - | - | 1.8 | |||||||||||||||
| Deferred financing fee payments | (11.4 | ) | - | - | - | (11.4 | ) | |||||||||||||
| Dividend payments | (8.0 | ) | - | - | - | (8.0 | ) | |||||||||||||
| Net cash provided by (used in) financing activities | (28.7 | ) | 3.1 | - | - | (25.6 | ) | |||||||||||||
| Effect of currency exchange rate changes on cash | - | - | 1.7 | - | 1.7 | |||||||||||||||
| Net change in cash and cash equivalents | 7.8 | 2.5 | 7.2 | - | 17.5 | |||||||||||||||
| Cash and cash equivalents at beginning of year | 82.4 | (11.1 | ) | 10.1 | - | 81.4 | ||||||||||||||
| Cash and cash equivalents at end of year | $ | 90.2 | $ | (8.6 | ) | $ | 17.3 | $ | - | $ | 98.9 | |||||||||
F-49
| Issuer | Guarantor companies | Non- guarantor companies | Eliminations | Total | |||||||||||||||
| (in millions) | |||||||||||||||||||
Operating activities: | |||||||||||||||||||
Net cash provided by operating activities | $ | 40.6 | $ | 106.4 | $ | 8.1 | $ | - | $ | 155.1 | |||||||||
Investing activities: | |||||||||||||||||||
Capital expenditures | (4.1 | ) | (81.6 | ) | (2.6 | ) | - | (88.3 | ) | ||||||||||
Proceeds from sale of property, plant and equipment | - | 0.8 | - | - | 0.8 | ||||||||||||||
Acquisition of businesses, net of cash acquired | - | (26.2 | ) | - | - | (26.2 | ) | ||||||||||||
Net cash used in investing activities | (4.1 | ) | (107.0 | ) | (2.6 | ) | - | (113.7 | ) | ||||||||||
Financing activities: | |||||||||||||||||||
Increase in outstanding checks | - | 3.1 | - | - | 3.1 | ||||||||||||||
Debt borrowings | 1,140.0 | - | - | - | 1,140.0 | ||||||||||||||
Debt payments | (1,151.1 | ) | - | - | - | (1,151.1 | ) | ||||||||||||
Common stock issuance | 1.8 | - | - | - | 1.8 | ||||||||||||||
Deferred financing fee payments | (11.4 | ) | - | - | - | (11.4 | ) | ||||||||||||
Dividend payments | (8.0 | ) | - | - | - | (8.0 | ) | ||||||||||||
Net cash provided by (used in) financing activities | (28.7 | ) | 3.1 | - | - | (25.6 | ) | ||||||||||||
Effect of currency exchange rate changes on cash | - | - | 1.7 | - | 1.7 | ||||||||||||||
Net change in cash and cash equivalents | 7.8 | 2.5 | 7.2 | - | 17.5 | ||||||||||||||
Cash and cash equivalents at beginning of year | 82.4 | (11.1 | ) | 10.1 | - | 81.4 | |||||||||||||
Cash and cash equivalents at end of year | $ | 90.2 | $ | (8.6 | ) | $ | 17.3 | $ | - | $ | 98.9 | ||||||||
F-52