UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30,December 31, 2008
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-32892
MUELLER WATER PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 20-3547095 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1200 Abernathy Road N.E.
Suite 1200 Atlanta,
Atlanta, GA 30328
(Address of principal executive offices)
(770) 206-4200
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrantRegistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
| Large | x | Accelerated | ¨ | |||
| Non-accelerated | ¨ | Smaller reporting company | ¨ | |||
| (Do not check if a smaller reporting company) | ||||||
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
There were 115,417,048 shares of common stock of the registrant outstanding as of July 31, 2008, comprised of 29,572,128115,611,192 shares of Series A common stock and 85,844,920 shares of Series B common stock.the Registrant outstanding at February 6, 2009.
PART I -I. FINANCIAL INFORMATION
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| December 31, 2008 | September 30, 2008 | |||||||
| (in millions) | ||||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 151.8 | $ | 183.9 | ||||
Receivables, net | 209.5 | 298.2 | ||||||
Inventories | 483.6 | 459.4 | ||||||
Deferred income taxes | 48.7 | 48.2 | ||||||
Other current assets | 66.1 | 60.6 | ||||||
Total current assets | 959.7 | 1,050.3 | ||||||
Property, plant and equipment, net | 348.9 | 356.8 | ||||||
Goodwill | 470.7 | 871.5 | ||||||
Identifiable intangible assets, net | 782.5 | 789.8 | ||||||
Other noncurrent assets | 19.8 | 21.8 | ||||||
Total assets | $ | 2,581.6 | $ | 3,090.2 | ||||
Liabilities and stockholders’ equity: | ||||||||
Current portion of long-term debt | $ | 13.2 | $ | 9.7 | ||||
Accounts payable | 97.6 | 156.0 | ||||||
Other current liabilities | 96.6 | 129.0 | ||||||
Total current liabilities | 207.4 | 294.7 | ||||||
Long-term debt | 1,075.8 | 1,085.8 | ||||||
Deferred income taxes | 289.9 | 295.8 | ||||||
Other noncurrent liabilities | 100.3 | 85.0 | ||||||
Total liabilities | 1,673.4 | 1,761.3 | ||||||
Commitments and contingencies (Note 13) | ||||||||
Common stock: | ||||||||
Series A: 400,000,000 shares authorized, 29,693,126 shares and 29,528,763 shares outstanding at December 31, 2008 and September 30, 2008, respectively | 0.3 | 0.3 | ||||||
Series B: 200,000,000 shares authorized; 85,844,920 shares outstanding at December 31, 2008 and September 30, 2008 | 0.9 | 0.9 | ||||||
Additional paid-in capital | 1,430.4 | 1,428.9 | ||||||
Accumulated deficit | (481.6 | ) | (81.6 | ) | ||||
Accumulated other comprehensive loss | (41.8 | ) | (19.6 | ) | ||||
Total stockholders’ equity | 908.2 | 1,328.9 | ||||||
Total liabilities and stockholders’ equity | $ | 2,581.6 | $ | 3,090.2 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
1
(in millions, except share amounts)MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| June 30, 2008 | September 30, 2007 | |||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 141.9 | $ | 98.9 | ||||
Receivables, net | 321.8 | 302.1 | ||||||
Inventories | 440.3 | 453.5 | ||||||
Deferred income taxes | 40.0 | 29.2 | ||||||
Other current assets | 71.1 | 66.3 | ||||||
Total current assets | 1,015.1 | 950.0 | ||||||
Property, plant and equipment, net | 347.5 | 351.8 | ||||||
Identifiable intangible assets | 797.2 | 819.3 | ||||||
Goodwill | 871.1 | 870.6 | ||||||
Other noncurrent assets | 22.9 | 17.5 | ||||||
Total assets | $ | 3,053.8 | $ | 3,009.2 | ||||
Liabilities and stockholders’ equity: | ||||||||
Current portion of long-term debt | $ | 6.1 | $ | 6.2 | ||||
Accounts payable | 144.4 | 112.3 | ||||||
Other current liabilities | 93.1 | 121.8 | ||||||
Total current liabilities | 243.6 | 240.3 | ||||||
Long-term debt | 1,090.6 | 1,094.3 | ||||||
Deferred income taxes | 312.9 | 307.3 | ||||||
Other noncurrent liabilities | 74.2 | 56.3 | ||||||
Total liabilities | 1,721.3 | 1,698.2 | ||||||
Commitments and contingencies | ||||||||
Common stock: | ||||||||
Series A: 400,000,000 shares authorized; 29,517,406 shares issued at June 30, 2008 and 29,006,267 shares issued at September 30, 2007 | 0.3 | 0.2 | ||||||
Series B: 200,000,000 shares authorized and 85,844,920 shares issued at June 30, 2008 and September 30, 2007 | 0.9 | 0.9 | ||||||
Additional paid-in capital | 1,426.8 | 1,422.0 | ||||||
Accumulated deficit | (100.9 | ) | (124.8 | ) | ||||
Accumulated other comprehensive income | 5.4 | 12.7 | ||||||
Total stockholders’ equity | 1,332.5 | 1,311.0 | ||||||
Total liabilities and stockholders’ equity | $ | 3,053.8 | $ | 3,009.2 | ||||
| Three months ended December 31, | ||||||||
| 2008 | 2007 | |||||||
| (in millions, except per share amounts) | ||||||||
Net sales | $ | 367.7 | $ | 412.3 | ||||
Cost of sales | 292.7 | 317.9 | ||||||
Gross profit | 75.0 | 94.4 | ||||||
Operating expenses: | ||||||||
Selling, general and administrative | 62.3 | 61.8 | ||||||
Goodwill impairment | 400.0 | — | ||||||
Restructuring | (0.2 | ) | 16.2 | |||||
Total operating expenses | 462.1 | 78.0 | ||||||
Income (loss) from operations | (387.1 | ) | 16.4 | |||||
Interest expense, net | 17.3 | 19.2 | ||||||
Gain on repurchase of debt | (1.5 | ) | — | |||||
Loss before income taxes | (402.9 | ) | (2.8 | ) | ||||
Income tax benefit | (2.9 | ) | (1.2 | ) | ||||
Net loss | $ | (400.0 | ) | $ | (1.6 | ) | ||
Net loss per share - basic | $ | (3.47 | ) | $ | (0.01 | ) | ||
Weighted average shares outstanding | 115.4 | 114.9 | ||||||
Dividends declared per share | $ | 0.0175 | $ | 0.0175 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
2
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED DECEMBER 31, 2008
(UNAUDITED)
(in millions, except per share amounts)
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||
| 2008 | 2007 | 2008 | 2007 | ||||||||||
Net sales | $ | 528.5 | $ | 502.5 | $ | 1,362.4 | $ | 1,374.1 | |||||
Cost of sales | 405.1 | 383.0 | 1,045.8 | 1,029.1 | |||||||||
Gross profit | 123.4 | 119.5 | 316.6 | 345.0 | |||||||||
Operating expenses: | |||||||||||||
Selling, general and administrative | 69.6 | 62.1 | 200.7 | 185.7 | |||||||||
Restructuring | 0.2 | — | 17.9 | — | |||||||||
Total operating expenses | 69.8 | 62.1 | 218.6 | 185.7 | |||||||||
Income from operations | 53.6 | 57.4 | 98.0 | 159.3 | |||||||||
Interest expense, net | 17.5 | 23.3 | 54.8 | 64.8 | |||||||||
Loss on early extinguishment of debt | — | 36.4 | — | 36.4 | |||||||||
Income (loss) before income taxes | 36.1 | (2.3 | ) | 43.2 | 58.1 | ||||||||
Income tax expense (benefit) | 15.8 | (1.0 | ) | 18.8 | 24.5 | ||||||||
Net income (loss) | $ | 20.3 | $ | (1.3 | ) | $ | 24.4 | $ | 33.6 | ||||
Basic and diluted net income (loss) per share | $ | 0.18 | $ | (0.01 | ) | $ | 0.21 | $ | 0.29 | ||||
Weighted average shares outstanding: | |||||||||||||
Basic | 115.2 | 114.8 | 115.0 | 114.7 | |||||||||
Diluted | 115.8 | 115.3 | 115.4 | 115.1 | |||||||||
Dividends declared per share | $ | 0.0175 | $ | 0.0175 | $ | 0.0525 | $ | 0.0525 | |||||
| Common stock | Additional paid-in capital | Accumulated deficit | Accumulated other comprehensive loss | Total | |||||||||||||||
| (in millions) | |||||||||||||||||||
Balance at September 30, 2008 | $ | 1.2 | $ | 1,428.9 | $ | (81.6 | ) | $ | (19.6 | ) | $ | 1,328.9 | |||||||
Net loss | — | — | (400.0 | ) | — | (400.0 | ) | ||||||||||||
Dividends declared | — | (2.0 | ) | — | — | (2.0 | ) | ||||||||||||
Stock-based compensation | — | 3.3 | — | — | 3.3 | ||||||||||||||
Stock issued under stock compensation plans | — | 0.2 | — | — | 0.2 | ||||||||||||||
Net unrealized loss on derivatives | — | — | — | (11.0 | ) | (11.0 | ) | ||||||||||||
Foreign currency translation | — | — | — | (11.1 | ) | (11.1 | ) | ||||||||||||
Minimum pension liability | — | — | — | (0.1 | ) | (0.1 | ) | ||||||||||||
Balance at December 31, 2008 | $ | 1.2 | $ | 1,430.4 | $ | (481.6 | ) | $ | (41.8 | ) | $ | 908.2 | |||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY
NINE MONTHS ENDED JUNE 30, 2008CASH FLOWS
(UNAUDITED)
(in millions)
| Common stock | Additional paid-in capital | Accumulated deficit | Accumulated other comprehensive income | Total | |||||||||||||||
Balance at September 30, 2007 | $ | 1.1 | $ | 1,422.0 | $ | (124.8 | ) | $ | 12.7 | $ | 1,311.0 | ||||||||
Adjustment to adopt FASB Interpretation No. 48 | — | — | (0.5 | ) | — | (0.5 | ) | ||||||||||||
Balance at October 1, 2007 | 1.1 | 1,422.0 | (125.3 | ) | 12.7 | 1,310.5 | |||||||||||||
Net income | — | 24.4 | — | 24.4 | |||||||||||||||
Dividends declared | — | (6.0 | ) | — | — | (6.0 | ) | ||||||||||||
Stock-based compensation | — | 9.6 | — | — | 9.6 | ||||||||||||||
Stock issued under stock compensation plans | 0.1 | 1.2 | — | — | 1.3 | ||||||||||||||
Net unrealized loss on derivative instruments | — | — | — | (4.5 | ) | (4.5 | ) | ||||||||||||
Foreign currency translation adjustments | — | — | — | (0.7 | ) | (0.7 | ) | ||||||||||||
Minimum pension liability | — | — | — | (2.1 | ) | (2.1 | ) | ||||||||||||
Balance at June 30, 2008 | $ | 1.2 | $ | 1,426.8 | $ | (100.9 | ) | $ | 5.4 | $ | 1,332.5 | ||||||||
| Three months ended December 31, | ||||||||
| 2008 | 2007 | |||||||
| (in millions) | ||||||||
Operating activities: | ||||||||
Net loss | $ | (400.0 | ) | $ | (1.6 | ) | ||
Adjustments to reconcile loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation | 15.5 | 16.2 | ||||||
Amortization | 7.3 | 7.4 | ||||||
Asset impairments | 400.0 | 14.8 | ||||||
Gain on repurchase of debt | (1.5 | ) | — | |||||
Stock-based compensation | 3.3 | 2.7 | ||||||
Deferred income taxes (benefit) | 1.1 | (0.4 | ) | |||||
Gain on sales of property, plant, and equipment | (3.5 | ) | — | |||||
Other, net | 7.8 | (0.8 | ) | |||||
Changes in assets and liabilities: | ||||||||
Receivables | 84.2 | 65.0 | ||||||
Inventories | (34.6 | ) | (12.7 | ) | ||||
Other current assets | (9.9 | ) | (4.2 | ) | ||||
Accounts payable and other liabilities | (87.6 | ) | (30.5 | ) | ||||
Net cash provided by (used in) operating activities | (17.9 | ) | 55.9 | |||||
Investing activities: | ||||||||
Capital expenditures | (10.0 | ) | (16.8 | ) | ||||
Proceeds from sales of property, plant and equipment | 3.9 | 7.1 | ||||||
Net cash used in investing activities | (6.1 | ) | (9.7 | ) | ||||
Financing activities: | ||||||||
Decrease in outstanding checks | (0.3 | ) | (5.4 | ) | ||||
Debt paid and repurchased | (4.9 | ) | (1.4 | ) | ||||
Common stock issued | 0.2 | 0.5 | ||||||
Dividends paid | (2.0 | ) | (2.0 | ) | ||||
Net cash used in financing activities | (7.0 | ) | (8.3 | ) | ||||
Effect of currency exchange rate changes on cash | (1.1 | ) | 0.1 | |||||
Net change in cash and cash equivalents | (32.1 | ) | 38.0 | |||||
Cash and cash equivalents at beginning of period | 183.9 | 98.9 | ||||||
Cash and cash equivalents at end of period | $ | 151.8 | $ | 136.9 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
| Nine months ended June 30, | ||||||||
| 2008 | 2007 | |||||||
Operating activities: | ||||||||
Net income | $ | 24.4 | $ | 33.6 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 47.2 | 53.4 | ||||||
Amortization | 22.1 | 21.9 | ||||||
Restructuring | 14.8 | — | ||||||
Stock-based compensation | 9.6 | 8.0 | ||||||
Accretion on debt | — | 7.1 | ||||||
Deferred income taxes | 5.0 | (23.2 | ) | |||||
Write-off of deferred financing fees | — | 11.1 | ||||||
Write-off of premium on notes | — | (22.8 | ) | |||||
Other, net | 1.9 | 8.3 | ||||||
Changes in assets and liabilities: | ||||||||
Receivables | (31.0 | ) | 20.6 | |||||
Inventories | 2.6 | (22.0 | ) | |||||
Other current assets and other noncurrent assets | 10.8 | 1.0 | ||||||
Accounts payable, other current liabilities and other noncurrent liabilities | (1.5 | ) | (34.1 | ) | ||||
Net cash provided by operating activities | 105.9 | 62.9 | ||||||
Investing activities: | ||||||||
Capital expenditures | (60.8 | ) | (66.1 | ) | ||||
Acquisitions of businesses, net of cash acquired | — | (26.2 | ) | |||||
Proceeds from sales of property, plant and equipment | 7.4 | — | ||||||
Net cash used in investing activities | (53.4 | ) | (92.3 | ) | ||||
Financing activities: | ||||||||
Decrease in outstanding checks | (0.9 | ) | (8.8 | ) | ||||
Proceeds from debt borrowings | — | 1,140.0 | ||||||
Payments of debt | (3.8 | ) | (1,109.6 | ) | ||||
Payment of deferred financing fees | — | (10.8 | ) | |||||
Proceeds from issuance of common stock | 1.3 | — | ||||||
Dividends to stockholders | (6.0 | ) | (6.0 | ) | ||||
Net cash provided by (used in) financing activities | (9.4 | ) | 4.8 | |||||
Effect of currency exchange rate changes on cash | (0.1 | ) | 0.2 | |||||
Net change in cash and cash equivalents | 43.0 | (24.4 | ) | |||||
Cash and cash equivalents at beginning of period | 98.9 | 81.4 | ||||||
Cash and cash equivalents at end of period | $ | 141.9 | $ | 57.0 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
Note 1. Organization and Basis of Presentation
Mueller Water Products, Inc., a Delaware corporation, completed an initial public offering oftogether with its Series A common stock (NYSE: MWA) on June 1, 2006. In this report, the “Company” refers to Mueller Water Products, Inc. and itsconsolidated subsidiaries except where the context makes clear that the reference is only to Mueller Water Products, Inc. On December 14, 2006, Walter Industries, Inc. (“Walter Industries”) distributed all of the Company’s outstanding Series B common stock (NYSE: MWA.B) to Walter Industries’ stockholders (the “Spin-off”).
The Company operates in three business segments: Mueller Co., U.S. Pipe and Anvil. Mueller Co. manufactures and sells fire hydrants, valves and valvesrelated products used in residential water and gas systems. U.S. Pipe manufactures and sells a broad line of ductile iron pipe, restrained joint products, fittings and relatedother products. Anvil manufactures and sells a variety of pipe fittings, couplings, pipe hangers, pipe nipples and related products. The “Company,” “we,” “us” or “our” refer to Mueller Water Products, Inc. and subsidiaries or their management. With regard to the Company’s segments, “we,” “us” or “our” may also refer to the segment being discussed or its management.
Fast Fabricators,On October 3, 2005, Walter Industries, Inc. (“Fast Fabricators”Walter Industries”) 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. We completed an initial public offering of our Series A common stock (NYSE: MWA) on June 1, 2006, and on December 14, 2006, Walter Industries distributed all of our then-outstanding Series B common stock (NYSE: MWA.B) to the shareholders of Walter Industries (the “Spin-off”). On January 28, 2009, our stockholders approved the conversion of each share of Series B common stock into one share of Series A common stock. The conversion occurred on January 28, 2009 and the Series B common stock was acquired in January 2007 and is included in the Company’s resultsretired as of operations beginning with January 2007. Fast Fabricators is reported as part of U.S. Pipe.that date.
The accompanying condensedOur consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which require managementus to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses.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. In theour opinion, of management, all normal and recurring adjustments that are consideredwe consider necessary for a fair financial statement presentation have been made. The condensed consolidated balance sheet data at September 30, 20072008 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. Certain reclassifications were made to previously reported amounts to be consistent with the current presentation.
Note 2. Related Party TransactionsGoodwill Impairment
The Company purchases foundry coke from Sloss Industries, Inc., which was an affiliate until the Spin-off. Purchases from Sloss Industries, Inc. were $4.5 million forAs a result of a deterioration of U.S. equity markets during the three months ended December 31, 2006. Sloss Industries, Inc. also provides other services2008, we performed a preliminary assessment of goodwill at December 31, 2008 and concluded that the carrying values of our U.S. Pipe and Mueller Co. segments exceeded their estimated fair values. Accordingly, we estimated a goodwill impairment charge of $59.5 million applicable to U.S. Pipe, completely impairing its goodwill, and we estimated a goodwill impairment charge of $340.5 million applicable to Mueller Co.’s prior goodwill balance of $718.4 million. We have not completed all of the necessary detailed fair value estimates. Any revision to the Company, including the delivery of electrical power to one of the Company’s facilities, rail car switching and the leasing of a distribution facility. Charges for such services were $0.3 million forestimated impairment charge will be recorded during the three months ended Decemberending March 31, 2006.2009, and we do not expect such revision to exceed an additional $200 million.
During the three months ended December 31, 2006, the Company charged $2.6 million to selling, general and administrative expenses pursuant to its relationship with Walter Industries. These expenses included allocations of costs incurred by Walter Industries on behalf of the Company, including stock-based compensation expense attributed to Walter Industries equity instruments held by Company employees. Subsequent to the Spin-off, allocations of expenses from Walter Industries to the Company ceased and all such equity instruments held by Company employees were cancelled.
5
Note 3. Restructuring Activities
In November 2007, the Companywe announced itsour intention to closecease U.S. Pipe’s ductile iron pipe manufacturing operations in Burlington, New Jersey, eliminating approximately 180 jobs. These manufacturing operations ceased nearduring the end of Januaryquarter ended 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, the Company expects to incurwe recorded total restructuring charges of approximately $19$18.1 million. These total estimatedDuring the three months ended December 31, 2008, we reversed $0.2 million of employee-related restructuring charges. During the three months ended December 31, 2007, we recorded charges consist of approximately $15$16.2 million, consisting of $14.8 million of asset impairment chargesimpairments and $4$1.4 million of employee-related and other charges. We do not expect any future charges related to the closure of manufacturing operations in Burlington to be significant.
Note 4. Income Taxes
On October 1, 2007, we adopted the provisions of Financial Accounting Standards Board Interpretation No. 48,Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,Accounting for Income Taxes (“FIN 48”). As a result of the adoption of FIN 48, we recorded a net increase of $1.0 million in the liability for unrecognized income tax benefits, a $0.5 million increase in the accumulated deficit and an increase of $0.5 million to goodwill during the three months ended December 31, 2007. Subsequent to December 31, 2007, we recorded additional effects of the adoption of FIN 48, which resulted in a total increase of $0.6 million in the accumulated deficit and a total increase of $0.4 million to goodwill.
At December 31, 2008 and September 30, 2008, the gross liabilities for unrecognized income tax benefits, were $20.2 million and $22.3 million, respectively. The decrease in gross unrecognized tax benefits was primarily related to the effective resolution of certain state tax matters. If recognized, the gross liability for unrecognized tax benefits would decrease income tax provision and goodwill by $9.0 million and $11.2 million, respectively, at December 31, 2008.
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 December 31, 2008 and 2007, we had approximately $2.7 million and $2.0 million, respectively, of accrued interest related to uncertain tax positions. During the three months ended December 31, 2008, we reversed $0.3 million of such accrued interest, and ninewe accrued $0.3 million of such interest during the three months ended June 30, 2008, the Company recorded charges of $0.2 millionDecember 31, 2007.
Tax years dating back to 1999 generally remain open to examination by various U.S. and $17.9 million, respectively. Total restructuring charges recorded to date consist of $14.8 million of asset impairment charges and $3.1 million of employee-related and other charges.foreign taxing authorities.
6
Activity in accrued restructuring, a component of other current liabilities, for the three months and nine months ended June 30, 2008 is presented below (in millions).
| Period ended June 30, 2008 | ||||||||
| Three months | Nine months | |||||||
Beginning balance | $ | 1.6 | $ | 0.9 | ||||
Burlington activity: | ||||||||
Accruals | 0.2 | 3.1 | ||||||
Payments | (0.4 | ) | (2.0 | ) | ||||
Other payments | — | (0.6 | ) | |||||
Ending balance | $ | 1.4 | $ | 1.4 | ||||
Note 4. Stock-Based Compensation Plans
During the three months and nine months ended June 30, 2008, the Company granted restricted stock units and stock options under its Mueller Water Products, Inc. Amended and Restated 2006 Stock Incentive Plan and instruments under its Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan as presented below (in millions, except per instrument amounts).
| Number of instruments | Weighted average fair value per instrument | Total compensation | ||||||
Three months ended December 31, 2007: | ||||||||
Restricted stock units | 0.4 | $ | 10.66 | $ | 4.5 | |||
Non-qualified stock options | 0.9 | 3.84 | 3.6 | |||||
Employee stock purchase plan instruments | 0.1 | 3.11 | 0.1 | |||||
Three months ended March 31, 2008: | ||||||||
Restricted stock units | 0.1 | 7.98 | 0.3 | |||||
Non-qualified stock options | 0.1 | 2.89 | 0.3 | |||||
Employee stock purchase plan instruments | 0.0 | 2.59 | 0.2 | |||||
Three months ended June 30, 2008: | ||||||||
Restricted stock units | 0.1 | 8.08 | 0.9 | |||||
Non-qualified stock options | 0.0 | 3.20 | 0.0 | |||||
Employee stock purchase plan instruments | 0.1 | 2.43 | 0.1 | |||||
| 1.8 | $ | 10.0 | ||||||
7
The President of Mueller Co. died in June 2008. As a result, certain stock awards vested automatically in accordance with their terms, certain stock awards were forfeited and the terms of other stock awards were modified to accelerate vesting. The net effect of these actions was the recognition of $0.2 million of compensation expense during the three months ended June 30, 2008.
At June 30, 2008, there was approximately $15.2 million of unrecognized compensation expense related to non-vested stock-based compensation arrangements granted under these plans. The Company expensed $3.2 million and $2.8 million related to its stock-based compensation arrangements for the three months ended June 30, 2008 and 2007, respectively, and expensed $9.6 million and $8.0 million related to its stock-based compensation arrangements for the nine months ended June 30, 2008 and 2007, respectively.
Note 5. Borrowing Arrangements
The components of our long-term debt are presented below (in millions).below.
| December 31, 2008 | September 30, 2008 | |||||||||||||||
| June 30, 2008 | September 30, 2007 | (in millions) | ||||||||||||||
2007 Credit Agreement: | ||||||||||||||||
Term A Loan | $ | 141.6 | $ | 141.6 | ||||||||||||
Term B Loan | 528.1 | 532.1 | ||||||||||||||
Term Loan A | $ | 141.6 | $ | 141.6 | ||||||||||||
Term Loan B | 525.4 | 526.7 | ||||||||||||||
7 3/8% Senior Subordinated Notes | 425.0 | 425.0 | 420.0 | 425.0 | ||||||||||||
Other | 2.0 | 1.8 | 2.0 | 2.2 | ||||||||||||
| 1,096.7 | 1,100.5 | 1,089.0 | 1,095.5 | |||||||||||||
Less current portion | (6.1 | ) | (6.2 | ) | (13.2 | ) | (9.7 | ) | ||||||||
| $ | 1,090.6 | $ | 1,094.3 | |||||||||||||
| $ | 1,075.8 | $ | 1,085.8 | |||||||||||||
2007 Credit Agreement— On May 24, 2007, the Company entered into aOur credit agreement (the “2007 Credit Agreement”) consistingconsists of a $300 million senior secured revolving credit facility (the “Revolver”), a $150 million term loan (the “Term A Loan”(“Term Loan A”) and a $565 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 was compliantWe believe we were in compliance with theseall applicable debt covenants at June 30, 2008 and expects to remain in compliance for the foreseeable future.December 31, 2008. Substantially all of the Company’sour real and personal property has been pledged as collateral under the 2007 Credit Agreement.
The Revolver terminates in May 2012 and bears interest at a floating rate equal to LIBOR plus a margin ranging from 1.0% to 1.75% depending on the Company’sour leverage ratio as defined in the 2007 Credit Agreement. The CompanyFor any unused portion of the Revolver, we also payspay a commitment fee, which ranges from 0.2% to 0.5% (0.375% at June 30, 2008) depending on the Company’sour leverage ratio for any unused portion ofas defined in the Revolver.2007 Credit Agreement. There were no outstanding borrowings under the Revolver at June 30,December 31, 2008 or September 30, 2007.2008.
The 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% at June 30,December 31, 2008) depending on the Company’sour leverage ratio as defined in the 2007 Credit Agreement. The principal balance at December 31, 2008 is scheduled to be repaid in quarterly payments of $3.5 million commencing September 2009 with the remaining balance paid at maturity. At December 31, 2008, the weighted-average effective interest rate was 4.5%, including the margin and the effects of interest rate swap contracts. Since Term Loan A is not traded and has different terms and cash flows than Term Loan B, it is not practicable to calculate a meaningful fair value of Term Loan A.
The Term Loan B Loan matures in May 2014 and bears interest at a floating rate equal to LIBOR plus a margin of 1.75%. The principal balance is being repaid in quarterly payments of approximately $1.3 million with the remaining balance paid at maturity. At December 31, 2008, the weighted-average effective interest rate was 6.0%, including the margin and the effects of interest rate swap contracts. Based on information provided by an external source, management estimateswe estimate the fair value of the Term Loan B Loan was $502.1$357.9 million at June 30,December 31, 2008.
7 3/8% Senior Subordinated Notes— The 7 3/8% Senior Subordinated Notes (the “Notes”) mature in June 2017 and bear interest at 7.375%, paid semi-annually.— On May 24, 2007,
During the Company completedthree months ended December 31, 2008, we acquired $5.0 million in principal of the Notes in the open market for $3.4 million in cash. Net of writing off related deferred financing fees of $0.1 million, this resulted in a private placementgain on repurchase of $425.0 million principal face amountdebt of 7 3/8% senior subordinated notes maturing June 1, 2017. The Company then exchanged these notes for notes registered with the Securities and Exchange Commission with substantially identical terms on October 1, 2007 (the “Senior Notes”).$1.5 million. Based on quoted market prices, the Senior Notes had a fair value of $367.6$285.6 million at June 30,December 31, 2008.
87
The indenture securing the Senior Notes 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 was compliantWe believe we were in compliance with theseall applicable debt covenants at June 30, 2008 and expects to remain in compliance for the foreseeable future.December 31, 2008. Substantially all of the Company’s U.S.our United States subsidiaries guarantee the Senior Notes.
Note 6. Derivative Financial Instruments
Interest Rate Swap Contracts— The CompanyWe used interest rate swap contracts with a cumulative total notional amount of $475$425 million in force at June 30,December 31, 2008 to hedge against cash flow variability arising from changes in LIBOR in conjunction with itsour LIBOR-indexed variable rate borrowings. The CompanyWe also hashad $200 million cumulative total notional amount of forward-starting swap contracts that will replace existing swap contracts upon their expiration. TheseAll of these swap contracts were accounted for as effective hedges. During the three months and nine months ended June 30,December 31, 2008, the Companywe recorded an unrealized after-tax gainloss from these swap contracts of $5.1$10.5 million, and an after-tax loss of $5.0 million, respectively, which werewas reported as componentsa component of accumulated other comprehensive income.loss. These interest rate swap contracts had a liability fair value of $9.9$28.8 million at June 30,December 31, 2008, which was included in other noncurrent liabilities. There was no ineffectiveness related to these swap contracts for the three months or nine months ended June 30, 2008.
Forward Foreign Currency Exchange Contracts — The Company usedWe entered into Canadian dollar forward exchange contracts to reduce exposure to currency fluctuations from Canadian-denominated intercompany loans. These contracts were not accounted for as hedges, andinstruments had a cumulative notional amount of $27.2$21.9 million at June 30,December 31, 2008. Gains and losses on these contractsinstruments were included in selling, general and administrative expenses. During the three months and nine months ended June 30,December 31, 2008, the Companywe recorded a lossnet losses of $0.3$1.1 million and a gain of $1.2 million, respectively, related to such contracts.
Natural Gas Swap Contracts —The CompanyWe used natural gas swap contracts with a cumulative total notional amount of 112,000approximately 734,000 MMBtu of natural gas at June 30,December 31, 2008 to hedge against cash flow variability arising from changes in natural gas prices in conjunction with itsour anticipated purchases of natural gas. These swap contracts were accounted for as effective hedges. These swap contracts had an asset fair valuehedges, though we did record $0.3 million in hedge ineffectiveness as a component of $0.6 million at June 30, 2008. Duringcost of sales during the three months and nine months ended June 30, 2008, the Company recorded unrealized after-tax gains from these swap contracts of $0.1 million and $0.5 million, respectively, which were reported as components of accumulated other comprehensive income. Hedge ineffectiveness related to these swap contacts was immaterial for the three months and nine months ended June 30,December 31, 2008.
In July and August 2008, the Company entered into These natural gas swap contracts covering 719,000 MMBtuhad a liability fair value of natural gas between August$2.2 million at December 31, 2008, and September 2009.which was included in other current liabilities.
On October 1, 2008, we adopted Statement of Financial Accounting Standards No. 157Fair Value Measurements (“FAS 157”). As a result, the fair values of our derivative instruments reported at December 31, 2008 include the impact of our credit ratings. These contracts havevalues were calculated using market-observable inputs, referred to as Level 2 in FAS 157. The adoption of FAS 157 had no effect on our consolidated results of operations or consolidated cash flows and the effect of fixing the Company’s purchase price per MMBtu for a portion of its natural gas purchases during that timeframe, and will be accounted for as effective hedges.on our consolidated balance sheet was immaterial.
9
Note 7. Defined Benefit Pension Plans and Other Postretirement BenefitRetirement Plans
The components of net periodic benefit cost (benefit) for defined benefit pension plans and other postretirement benefit plans are presented below (in millions).were as follows.
| Defined benefit pension plans | ||||||||||||||||
| Three months ended June 30, | Nine months ended June 30, | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
Service cost | $ | 1.1 | $ | 1.6 | $ | 3.8 | $ | 4.8 | ||||||||
Interest cost | 5.3 | 5.1 | 15.9 | 15.3 | ||||||||||||
Expected return on plan assets | (6.7 | ) | (5.9 | ) | (20.4 | ) | (17.7 | ) | ||||||||
Amortization of prior service cost | 0.2 | 0.1 | 0.6 | 0.3 | ||||||||||||
Amortization of net loss | 0.2 | 0.5 | 0.5 | 1.5 | ||||||||||||
Loss due to settlement or curtailment | — | — | 1.4 | — | ||||||||||||
Other | — | — | 0.1 | — | ||||||||||||
Net periodic cost | $ | 0.1 | $ | 1.4 | $ | 1.9 | $ | 4.2 | ||||||||
| Other postretirement benefit plans | ||||||||||||||||
| Three months ended June 30, | Nine months ended June 30, | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
Service cost | $ | — | $ | 0.1 | $ | 0.1 | $ | 0.3 | ||||||||
Interest cost | — | 0.3 | 0.4 | 0.9 | ||||||||||||
Amortization of prior service credit | (0.9 | ) | (0.6 | ) | (2.3 | ) | (1.8 | ) | ||||||||
Amortization of net gain | (0.3 | ) | (0.4 | ) | (0.8 | ) | (1.2 | ) | ||||||||
Gain due to settlement or curtailment | — | — | (0.8 | ) | — | |||||||||||
Net periodic benefit | $ | (1.2 | ) | $ | (0.6 | ) | $ | (3.4 | ) | $ | (1.8 | ) | ||||
During the three months ended March 31, 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 analysis resulted in a decrease in the funded status of the plan of $7.7 million and an after-tax decrease in accumulated other comprehensive income of $4.6 million. The Company recorded pension plan curtailment expense of $1.2 million, partially offset by an other postretirement benefit plan curtailment gain of $0.8 million, which were included in restructuring charges for the nine months ended June 30, 2008.
| Three months ended December 31, | ||||||||||||||||
| Pension plans | Other plans | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| (in millions) | ||||||||||||||||
Components of net periodic benefit cost: | ||||||||||||||||
Service cost | $ | 1.0 | $ | 1.6 | $ | 0.1 | $ | 0.1 | ||||||||
Interest cost | 5.8 | 5.3 | 0.1 | 0.3 | ||||||||||||
Expected return on plan assets | (5.4 | ) | (6.9 | ) | — | — | ||||||||||
Amortization of prior service cost (gain) | 0.2 | 0.2 | (0.8 | ) | (0.6 | ) | ||||||||||
Amortization of net loss (gain) | 0.8 | 0.1 | (0.4 | ) | (0.3 | ) | ||||||||||
Net periodic benefit cost (gain) | $ | 2.4 | $ | 0.3 | $ | (1.0 | ) | $ | (0.5 | ) | ||||||
During the three months ended December 31, 2007, the Companywe amended the Mueller Water Products, Inc. Flexible Benefits Plan, 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 for the plan by $8.8 million and resulted in an after-tax increasedecrease in accumulated other comprehensive incomeloss of $5.4
8
$5.4 million. The CompanyWe also amended the Mueller Co. Retirement Plan for Employees at Selected Locations for employees at itsour 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 decreaseincrease in accumulated other comprehensive incomeloss of $1.5 million.
The amortization of unrecognized prior year service cost and of actuarial net losses, net of tax, isare recorded as a component of accumulated other comprehensive income.loss. During the ninethree months ended June 30,December 31, 2008 the Companyand 2007, we recorded a decreaseincreases to accumulated other comprehensive incomeloss of $1.3$0.1 million and $0.3 million, respectively, for this amortization.
The Company’s fiscalDuring the three months ended December 31, 2008, minimum requiredwe made $3.2 million of contributions to its defined benefit pension plans are $9.2 million. Through June 30, 2008, the Company contributed $5.6 million to itsour defined benefit pension plans. In July 2008, the Company fulfilled its remaining minimum contribution requirements of $3.6 million. In addition, management anticipates the CompanyWe estimate total pension plan contributions during our fiscal year ending September 30, 2009 will contribute approximately $1.6be $25 million to its$35 million. We also expect to contribute $0.7 million to our other postretirement benefit plans in fiscal 2008.2009.
10
Note 8. Supplementary Balance Sheet InformationStock-based Compensation Plans
The components of inventories, property, plantDuring the three months ended December 31, 2008, we granted instruments under our Mueller Water Products, Inc. Amended and equipmentRestated 2006 Stock Incentive Plan Mueller Water Products, Inc. and other current liabilities are presented below (in millions).2006 Employee Stock Purchase Plan as follows.
| June 30, 2008 | September 30, 2007 | |||||||
Inventories: | ||||||||
Purchased materials and manufactured parts | $ | 66.9 | $ | 67.4 | ||||
Work in process | 106.0 | 116.7 | ||||||
Finished goods | 267.4 | 269.4 | ||||||
| $ | 440.3 | $ | 453.5 | |||||
Property, plant and equipment, net: | ||||||||
Land | $ | 23.1 | $ | 28.6 | ||||
Buildings | 92.6 | 91.3 | ||||||
Machinery and equipment | 569.9 | 556.3 | ||||||
Construction in progress | 63.4 | 35.7 | ||||||
Other | 5.7 | 5.4 | ||||||
| 754.7 | 717.3 | |||||||
Accumulated depreciation | (407.2 | ) | (365.5 | ) | ||||
| $ | 347.5 | $ | 351.8 | |||||
Other current liabilities: | ||||||||
Payroll and benefits | $ | 37.4 | $ | 43.5 | ||||
Cash discounts and rebates | 16.7 | 22.6 | ||||||
Interest | 6.6 | 15.5 | ||||||
Workers compensation | 6.8 | 6.5 | ||||||
Taxes other than income taxes | 8.9 | 6.4 | ||||||
Warranty claims | 5.7 | 3.7 | ||||||
Income taxes | — | 10.3 | ||||||
Restructuring | 1.4 | 0.9 | ||||||
Severance | 1.8 | 1.1 | ||||||
Other | 7.8 | 11.3 | ||||||
| $ | 93.1 | $ | 121.8 | |||||
| Number of instruments | Weighted average fair value per instrument | Total compensation | ||||||
| (in millions except per instrument amounts) | ||||||||
Restricted stock units | 0.7 | $ | 5.49 | $ | 4.0 | |||
Non-qualified stock options | 1.3 | 2.02 | 2.7 | |||||
Employee stock purchase plan instruments | 0.1 | 2.79 | 0.2 | |||||
| 2.1 | $ | 6.9 | ||||||
11
Note 9. Income Taxes
The Company provides for income taxes during interim financial reporting periods based on the estimated annual effective tax rateWe recorded stock-based compensation expense of $3.3 million and $2.7 million for the fiscal year. The effective income tax rates were 43.5% and 42.2% for the ninethree months ended June 30,December 31, 2008 and 2007, respectively. The increase in the effective tax rate is due primarily to discrete adjustmentsAt December 31, 2008, there was approximately $15.4 million of unrecognized compensation expense related to the liabilitystock awards.
We recorded net losses for uncertain tax positions discussed below.
On October 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48,Accounting for Uncertainty in Income Taxes(“FIN 48”). As a result of the adoption of FIN 48, the Company recorded a net increase of $1.0 million in the liability for unrecognized income tax benefits, a $0.5 million increase in the accumulated deficit and an increase of $0.5 million to goodwill. At June 30, 2008, the liability for unrecognized income tax benefits was $19.2 million. If recognized, the liability for unrecognized tax benefits would decrease income tax provision and goodwill by $6.3 million and $12.9 million, respectively. The Company’s liability for unrecognized income tax benefits has increased by $8.2 million since the initial adoption of FIN 48, which reflects balance sheet reclassifications of $9.9 million and discrete items recorded of $2.0 million related to prior year tax positions, partially offset by payments of $3.7 million.
The Company recognizes 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 June 30, 2008, the Company had approximately $3.2 million of accrued interest related to uncertain tax positions, of which $0.4 million and $1.0 million were accrued during the three months ended December 31, 2008 and nine2007 and the effect of including normally dilutive securities in the earnings per share calculation would have been antidilutive. Accordingly, all stock-based compensation instruments were excluded from the calculation of net loss per share for the three months ended June 30,December 31, 2008 respectively.
The Company is in the process of filing certain prior year state income tax returns and expects to settle certain state tax audits within the next 12 months. Management believes it is reasonably possible that these filings and audit settlements will reduce the liability for uncertain tax benefits by $3.0 million to $9.0 million.
Tax years dating back to 1999 generally remain open to examination by various U.S. and foreign taxing authorities.
Note 10. Comprehensive Income2007.
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||||
| 2008 | 2007 | 2008 | 2007 | ||||||||||||
| (in millions) | |||||||||||||||
Net income (loss) | $ | 20.3 | $ | (1.3 | ) | $ | 24.4 | $ | 33.6 | ||||||
Adjustments, net of tax: | |||||||||||||||
Net unrealized gain (loss) on derivative instruments | 5.2 | 2.1 | (4.5 | ) | 1.3 | ||||||||||
Foreign currency translation adjustments | 1.0 | 4.7 | (0.7 | ) | 3.5 | ||||||||||
Minimum pension liability | (0.6 | ) | — | (2.1 | ) | — | |||||||||
Comprehensive income | $ | 25.9 | $ | 5.5 | $ | 17.1 | $ | 38.4 | |||||||
129
Note 9. Supplemental Balance Sheet Information
Selected supplemental balance sheet information is presented below.
| December 31, 2008 | September 30, 2008 | |||||||
| (in millions) | ||||||||
Inventories: | ||||||||
Purchased materials and manufactured parts | $ | 74.1 | $ | 64.9 | ||||
Work in process | 127.4 | 117.7 | ||||||
Finished goods | 282.1 | 276.8 | ||||||
| $ | 483.6 | $ | 459.4 | |||||
Property, plant and equipment, net: | ||||||||
Land | $ | 25.3 | $ | 25.7 | ||||
Buildings | 96.0 | 97.4 | ||||||
Machinery and equipment | 627.3 | 623.0 | ||||||
Construction in progress | 23.8 | 23.9 | ||||||
Other | 6.1 | 6.1 | ||||||
| 778.5 | 776.1 | |||||||
Accumulated depreciation | (429.6 | ) | (419.3 | ) | ||||
| $ | 348.9 | $ | 356.8 | |||||
Other current liabilities: | ||||||||
Compensation and benefits | $ | 33.8 | $ | 49.6 | ||||
Cash discounts and rebates | 21.7 | 21.3 | ||||||
Taxes other than income taxes | 15.2 | 19.0 | ||||||
Interest | 6.5 | 14.2 | ||||||
Warranty | 6.5 | 6.5 | ||||||
Severance | 2.0 | 1.4 | ||||||
Restructuring | 0.3 | 0.9 | ||||||
Income taxes | 0.2 | 6.2 | ||||||
Environmental | 0.5 | 0.5 | ||||||
Other | 9.9 | 9.4 | ||||||
| $ | 96.6 | $ | 129.0 | |||||
10
Note 10. Comprehensive Loss
Comprehensive loss is presented below.
| Three months ended December 31, | ||||||||
| 2008 | 2007 | |||||||
| (in millions) | ||||||||
Net loss | $ | (400.0 | ) | $ | (1.6 | ) | ||
Adjustments, net of tax: | ||||||||
Net unrealized loss on derivative instruments | (11.0 | ) | (3.9 | ) | ||||
Foreign currency translation | (11.1 | ) | 1.3 | |||||
Minimum pension liability | (0.1 | ) | 3.6 | |||||
Comprehensive loss | $ | (422.2 | ) | $ | (0.6 | ) | ||
Accumulated other comprehensive loss is presented below. | ||||||||
| December 31, 2008 | September 30, 2008 | |||||||
| (in millions) | ||||||||
Net unrealized loss on derivatives | $ | (18.6 | ) | $ | (7.6 | ) | ||
Foreign currency translation | (3.7 | ) | 7.4 | |||||
Minimum pension liability | (19.5 | ) | (19.4 | ) | ||||
Accumulated other comprehensive loss | $ | (41.8 | ) | $ | (19.6 | ) | ||
Note 11. Noncash Investing and Financing Activities
During the three months ended December 31, 2007, we amended a retiree medical coverage plan within U.S. Pipe and a defined benefit pension plan within Mueller Co. These amendments had the following impact on our condensed consolidated balance sheet at December 31, 2007 (in millions).
Decrease in noncurrent pension assets | $ | (2.3 | ) | |
Decrease in noncurrent pension liabilities | 6.2 | |||
Increase in accumulated other comprehensive income | (3.9 | ) | ||
| $ | — | |||
On October 1, 2007, we adopted FIN 48, which had the following impact, including reclassifications, on our condensed consolidated balance sheet at December 31, 2007 (in millions).
Increase in goodwill | $ | 0.5 | ||
Increase in noncurrent taxes receivable | 4.7 | |||
Decrease in current taxes payable | 6.7 | |||
Increase in noncurrent taxes payable | (12.4 | ) | ||
Increase in accumulated deficit | 0.5 | |||
| $ | — | |||
11
Note 12. Segment Information
Segment assets consist primarily of receivables, inventories, property, plant and equipment, goodwill and identifiable intangible assets. Summarized financial information for the Company’sour segments is presented below (in millions).as follows.
| Three months ended December 31, | ||||||||||||||||||||||||
| Three months ended June 30, | Nine months ended June 30, | 2008 | 2007 | |||||||||||||||||||||
| 2008 | 2007 | 2008 | 2007 | (in millions) | ||||||||||||||||||||
Net sales, excluding intersegment sales: | ||||||||||||||||||||||||
Mueller Co. | $ | 203.0 | $ | 203.1 | $ | 533.5 | $ | 561.1 | $ | 119.6 | $ | 161.6 | ||||||||||||
U.S. Pipe | 167.7 | 153.3 | 392.6 | 399.4 | 115.7 | 110.7 | ||||||||||||||||||
Anvil | 157.8 | 146.1 | 436.3 | 413.6 | 132.4 | 140.0 | ||||||||||||||||||
| $ | 528.5 | $ | 502.5 | $ | 1,362.4 | $ | 1,374.1 | $ | 367.7 | $ | 412.3 | |||||||||||||
Intersegment sales: | ||||||||||||||||||||||||
Mueller Co. | $ | 6.4 | $ | 5.0 | $ | 15.8 | $ | 14.4 | $ | 4.3 | $ | 4.6 | ||||||||||||
U.S. Pipe | 0.7 | 1.2 | 1.9 | 5.8 | 0.3 | 0.4 | ||||||||||||||||||
Anvil | 0.1 | 0.1 | 0.5 | 0.5 | 0.2 | 0.2 | ||||||||||||||||||
| $ | 7.2 | $ | 6.3 | $ | 18.2 | $ | 20.7 | |||||||||||||||||
| $ | 4.8 | $ | 5.2 | |||||||||||||||||||||
Income (loss) from operations: | ||||||||||||||||||||||||
Income (loss) from operations*: | ||||||||||||||||||||||||
Mueller Co. | $ | 40.4 | $ | 41.5 | $ | 92.6 | $ | 120.0 | $ | (332.0 | ) | $ | 24.8 | |||||||||||
U.S. Pipe | 2.9 | 8.9 | (15.2 | ) | 22.9 | (65.8 | ) | (15.3 | ) | |||||||||||||||
Anvil | 21.9 | 17.4 | 50.7 | 44.0 | 21.3 | 15.9 | ||||||||||||||||||
Corporate | (11.6 | ) | (10.4 | ) | (30.1 | ) | (27.6 | ) | (10.6 | ) | (9.0 | ) | ||||||||||||
| $ | 53.6 | $ | 57.4 | $ | 98.0 | $ | 159.3 | $ | (387.1 | ) | $ | 16.4 | ||||||||||||
Depreciation: | ||||||||||||||||||||||||
Mueller Co. | $ | 6.0 | $ | 6.9 | $ | 18.4 | $ | 20.1 | $ | 6.1 | $ | 6.3 | ||||||||||||
U.S. Pipe | 5.2 | 6.1 | 16.0 | 17.5 | 5.9 | 5.7 | ||||||||||||||||||
Anvil | 4.1 | 4.9 | 12.4 | 14.8 | 3.3 | 4.1 | ||||||||||||||||||
Corporate | 0.1 | 0.5 | 0.4 | 1.0 | 0.2 | 0.1 | ||||||||||||||||||
| $ | 15.4 | $ | 18.4 | $ | 47.2 | $ | 53.4 | |||||||||||||||||
| $ | 15.5 | $ | 16.2 | |||||||||||||||||||||
Amortization: | ||||||||||||||||||||||||
Amortization of identifiable intangible assets: | ||||||||||||||||||||||||
Mueller Co. | $ | 6.3 | $ | 6.3 | $ | 18.8 | $ | 18.8 | $ | 6.2 | $ | 6.3 | ||||||||||||
U.S. Pipe | 0.2 | 0.2 | 0.7 | 0.5 | 0.2 | 0.2 | ||||||||||||||||||
Anvil | 0.9 | 0.9 | 2.6 | 2.6 | 0.9 | 0.9 | ||||||||||||||||||
| $ | 7.4 | $ | 7.4 | $ | 22.1 | $ | 21.9 | $ | 7.3 | $ | 7.4 | |||||||||||||
Capital expenditures: | ||||||||||||||||||||||||
Mueller Co. | $ | 5.0 | $ | 4.3 | $ | 13.8 | $ | 16.7 | $ | 3.3 | $ | 4.4 | ||||||||||||
U.S. Pipe | 15.3 | 14.3 | 38.3 | 34.2 | 3.4 | 9.1 | ||||||||||||||||||
Anvil | 3.0 | 3.4 | 8.5 | 12.2 | 3.2 | 3.3 | ||||||||||||||||||
Corporate | 0.2 | 1.6 | 0.2 | 3.0 | 0.1 | — | ||||||||||||||||||
| $ | 23.5 | $ | 23.6 | $ | 60.8 | $ | 66.1 | |||||||||||||||||
| $ | 10.0 | $ | 16.8 | |||||||||||||||||||||
U.S. Pipe income (loss) from operations during the three months and nine months ended June 30, 2008 included restructuring charges of $0.2 million and $17.9 million, respectively.
| * | Income (loss) from operations during the three months ended December 31, 2008 includes goodwill impairment of $340.5 million for Mueller Co. and $59.5 million for U.S. Pipe. |
1312
Note 12. Commitments and Contingencies
Income Tax Litigation — A dispute exists with regard to federal income taxes for fiscal years 1980 through 1994 and 1999 through 2001 allegedly owed by the Walter Industries consolidated group, which included U.S. Pipe during these periods. According to Walter Industries’ Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008, Walter Industries management estimates that the amount of tax presently claimed by the Internal Revenue Service is approximately $34.0 million for issues currently in dispute in bankruptcy court for matters unrelated to the Company. 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 in the event Walter Industries is unable to pay any amounts owed, the Company would be liable. Walter Industries disclosed in the above mentioned Form 10-Q that they believe their filing positions have substantial merit and that they intend to defend vigorously any claims asserted.
Environmental Matters— The Company is 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 its plants and with respect to remediating environmental conditions that may exist at its own and other properties. The Company believes that it is in substantial compliance with federal, state and local environmental laws and regulations. The Company accrues for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and reasonably estimable.
In September 1987, the Company implemented an Administrative Consent Order (ACO) for its 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 has completed, and has received final approval on, the soil cleanup required by the ACO. U.S. Pipe is continuing to address ground water issues at this site. Further remediation could be required. These remediation costs are expected to be minimal. Long-term ground water monitoring will be required to verify natural attenuation. Management does not know how long ground water monitoring will be required and does not believe monitoring or further cleanup costs, if any, will have a material adverse effect on the 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 EPA concerning their liability for certain 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, 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 been 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 clean up costs they voluntarily incurred. The court granted a motion for immediate appeal to the Eleventh Circuit Court of Appeals. Management currently has no basis to form a view with respect to the probability or amount of liability if its motion for summary judgment is unsuccessful.
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
14
personal property and for other unspecified personal injury. On June 4, 2007, a Motion to Dismiss 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 10th 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. Management believes that numerous procedural and substantive defenses are available. At present, management has no reasonable basis to form a view with respect to the probability of liability in this matter.
In the acquisition agreement pursuant to which the predecessor to, among others, Tyco International Ltd. (“Tyco”) sold the Company’s Mueller Co. and Anvil segments to the prior owners of these businesses in August 1999, Tyco agreed to indemnify the Company and its affiliates, among other things, for all “Excluded Liabilities”. Excluded Liabilities include, among other things, substantially all liabilities relating to prior to August 1999. The 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. In addition, Tyco’s indemnity does not cover liabilities to the extent caused by the Company or the operation of its business after August 1999, nor does it cover liabilities arising with respect to businesses or sites acquired after August 1999.
Some of the Company’s subsidiaries have been named as defendants in asbestos-related lawsuits. Management does not believe these lawsuits, either individually or in the aggregate, are material to the Company’s consolidated financial position or results of operations.
Other Litigation —The Company and its subsidiaries are parties to a number of other lawsuits arising in the ordinary course of their businesses, including product liability cases for products manufactured by the Company and third parties. Costs are provided for these matters when a loss is probable and the amount is reasonably estimable. The effect of the outcome of these matters on the Company’s 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 believes that the final outcome of such other litigation is not likely to have a materially adverse effect on the Company’s consolidated financial position or results of operations.
Defense costs for all litigation matters are expensed as incurred.
Note 13. Subsequent EventsCommitments and Contingencies
On July 31, 2008,We are involved in various legal proceedings that have arisen in the Company declarednormal 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 dividendmaterial adverse effect on our businesses, operations or prospects.
Environmental.We are subject to a wide variety of $0.0175 per sharelaws 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 and other properties. We believe that we are in substantial compliance 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.
In September 1987, we implemented an Administrative Consent Order (“ACO”) for our 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 we have completed, and have received final approval on, the Company’s Series Asoil cleanup required by the ACO. We are continuing to address 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. We do not know how long ground water monitoring will be required and Series B common stock, payabledo not believe monitoring or further cleanup costs, if any, will have a material adverse effect on August 20, 2008 to stockholdersour consolidated financial condition or results of record at the close of business on August 8, 2008.operations.
In JulyJune 2003, Solutia Inc. and August 2008, the Company entered into natural gas swap contracts covering 719,000 MMBtu of natural gas between August 2008 and September 2009. These contracts have the effect of fixing the Company’s purchase price per MMBtu for a portion of its natural gas purchases during that timeframe, and will be accounted for as effective hedges.
15
Note 14. Noncash Investing and Financing Activities and Supplemental Cash Flow Information
During the nine months ended June 30, 2008, the Company amended a retiree medical coverage plan withinPharmacia Corporation (collectively “Solutia”) filed suit against U.S. Pipe and a defined benefit pension plan withinnumber 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 EPA concerning their liability for certain 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 been 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 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.
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. In June 2007, a Motion to Dismiss 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 10th 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
13
dismiss the third amended complaint. In September 2008, the court issued an order on the motion, dismissing the claims for trespass and permitting the plaintiffs to move forward with their claims of nuisance, wantonness and negligence. Management believes that numerous procedural and substantive defenses are available. At present, we 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 International Ltd. (“Tyco”) sold our Mueller Co. See Note 7. Effective October 1, 2007,and Anvil businesses to the prior owners of these businesses in August 1999, Tyco agreed to indemnify the Company adoptedand its affiliates, among other things, for all “Excluded Liabilities”. Excluded Liabilities include, among other things, substantially all liabilities relating to prior to August 1999. The indemnity survives indefinitely and is not subject to any deductibles or caps. However, we may be responsible for these liabilities in the provisionsevent that Tyco ever becomes financially unable to or otherwise fails to comply with, the terms of FIN 48. See Note 9.the indemnity. In Januaryaddition, Tyco’s indemnity does not cover liabilities to the extent caused by us or the operation of our business 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 assume Tyco’s obligations under the acquisition agreement ever become financially unable or fail to comply with the terms of the indemnity, we may be responsible for such obligations or liabilities.
Some of our subsidiaries have been named as defendants in asbestos-related lawsuits. We do not believe these lawsuits, either individually or in the aggregate, are material to our consolidated financial position or results of operations.
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 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 believes that the final outcome of such other litigation is not likely to have a materially adverse effect on our consolidated financial statements.
Walter Industries-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 Industries consolidated group, which included the Company acquiredthrough 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 assetsevent any such liability is incurred, and not discharged, by any other member of Fast Fabricatorsthe Walter Industries consolidated group for total considerationany period during which we were included in the Walter Industries consolidated group.
A dispute exists with regard to federal income taxes for fiscal years 1980 through 1994 allegedly owed by the Walter Industries consolidated group, which included U.S. Pipe during these periods. According to Walter Industries’ quarterly report on Form 10-Q for the period ended September 30, 2008, Walter Industries’ management estimates that the amount of $23.0tax claimed by the Internal Revenue Service is approximately $34.0 million for issues currently in cash, net of cash acquired.dispute in bankruptcy court for matters unrelated to us. This purchase price wasamount is subject to adjustmentinterest and penalties. In addition, the Internal Revenue Service has issued a Notice of Proposed Deficiency assessing additional tax of $82.2 million for an earnout provision based on calendar 2007 results, nonethe 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 was earned. As partmeans that in the event Walter Industries is unable to pay any amounts owed, we would be liable. Walter Industries disclosed in the above mentioned Form 10-Q that it believes its filing positions have substantial merit and that it intends to defend vigorously any claims asserted.
Walter Industries effectively controlled all of our tax decisions for periods during which we were a member of the January 2004 acquisitionWalter Industries consolidated federal income tax group and certain combined, consolidated or unitary state and local income tax groups. Under the terms of Star Pipe, Inc., during the nine months ended June 30, 2007 the Company made a $3.7 million earnout payment.
The impacts these transactions had on the Company’s condensed consolidated balance sheets are presented below (in millions).income tax allocation agreement between us and Walter Industries dated May 26, 2006, we generally compute
| Nine months ended June 30, | ||||||||
| 2008 | 2007 | |||||||
Employee benefit plan amendments and Burlington curtailment: | ||||||||
Decrease in other noncurrent assets | $ | (2.3 | ) | $ | — | |||
Increase in other noncurrent liabilities | 1.6 | — | ||||||
Decrease in accumulated other comprehensive income | 0.7 | — | ||||||
| $ | — | $ | — | |||||
Adoption of FIN 48: | ||||||||
Increase in goodwill | $ | 0.5 | $ | — | ||||
Increase in other noncurrent assets | 8.6 | — | ||||||
Decrease in other current liabilities | 4.3 | — | ||||||
Decrease in deferred income taxes | 4.4 | |||||||
Increase in other noncurrent liabilities | (18.3 | ) | — | |||||
Increase in accumulated deficit | 0.5 | — | ||||||
| $ | — | $ | — | |||||
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 | ) | |||||
| $ | — | $ | — | |||||
Cash paid, net of cash received (in millions): | ||||||||
Interest | $ | 61.3 | $ | 64.1 | ||||
Income taxes | $ | 2.9 | $ | 44.6 | ||||
1614
our tax liability on a stand-alone basis, but Walter Industries 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 and to determine the amount of our liability to (or entitlement to payment from) Walter Industries for such periods. This arrangement may result in conflicts between Walter Industries and 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, we generally will be responsible for any taxes incurred by Walter Industries 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’ actions or omissions or taxes based upon our market value relative to Walter Industries’ market value. Additionally, to the extent that Walter Industries was unable to pay taxes, if any, attributable to the Spin-off and for which it is responsible under the tax allocation agreement, we could be liable for those taxes as a result of being a member of the Walter Industries consolidated group for the year in which the Spin-off occurred.
Other.In our opinion, accruals associated with contingencies incurred in the normal course of business are sufficient. Resolution of existing known contingencies is not expected to affect our financial position or results of operations significantly.
Note 14. Subsequent Events
On January 28, 2009, we declared a dividend of $0.0175 per share on our Series A and Series B common stock, payable on February 20, 2009 to stockholders of record at the close of business on February 10, 2009.
Also on January 28, 2009, our stockholders approved the conversion of each share of Series B common stock into one share of Series A common stock. The conversion occurred on January 28, 2009 and the Series B common stock was retired as of that date.
15
Note 15. Consolidating Guarantor and Non-Guarantor Financial Information
The following information is included as a result of the guarantee by certain of the Company’sour wholly-owned U.S. subsidiaries, both direct and indirect, (the “Guarantor Companies”) of the Senior Notes. None of the Company’sour other subsidiaries guarantee the Senior Notes. Each of the guarantees is joint and several and full and unconditional. The Guarantor Companies at December 31, 2008 are listed below.as follows.
Name | State of incorporation
| |
| Anvil 1, LLC | Delaware | |
Anvil 2, LLC | Delaware | |
Anvilstar, LLC | Delaware | |
Anvil International, LP | Delaware | |
Fast Fabricators, LLC | Delaware | |
Henry Pratt Company, LLC | Delaware | |
Henry Pratt International, LLC | Delaware | |
Hersey Meters Co., LLC | Delaware | |
Hunt Industries, LLC | Delaware | |
Hydro Gate, LLC | Delaware | |
James Jones Company, LLC | Delaware | |
J.B. Smith Mfg. Co., LLC | Delaware | |
MCO 1, LLC | Alabama | |
MCO 2, LLC | Alabama | |
Milliken Valve, LLC | Delaware | |
Mueller Co. Ltd. | Alabama | |
Mueller Financial Services, LLC | Delaware | |
Mueller Group, LLC | Delaware | |
Mueller International, Inc. | Delaware | |
Mueller International, L.L.C. | Delaware | |
Mueller International Finance, Inc. | Delaware | |
Mueller International Finance, L.L.C. | Delaware | |
Mueller Service California, Inc. | Delaware | |
Mueller Service Co., LLC | Delaware | |
United States Pipe and Foundry Company, LLC | Alabama | |
16
Mueller Water Products, Inc.
Consolidating Balance Sheet
December 31, 2008
| Issuer | Guarantor companies | Non- guarantor companies | Eliminations | Total | ||||||||||||||
| (in millions) | ||||||||||||||||||
Assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 149.7 | $ | (5.0 | ) | $ | 7.1 | $ | — | $ | 151.8 | |||||||
Receivables, net | — | 185.5 | 24.0 | — | 209.5 | |||||||||||||
Inventories | — | 422.2 | 61.4 | — | 483.6 | |||||||||||||
Deferred income taxes | 48.7 | — | — | — | 48.7 | |||||||||||||
Other current assets | 25.1 | 38.7 | 2.3 | — | 66.1 | |||||||||||||
Total current assets | 223.5 | 641.4 | 94.8 | — | 959.7 | |||||||||||||
Property, plant and equipment | 2.5 | 331.2 | 15.2 | — | 348.9 | |||||||||||||
Goodwill | — | 470.7 | — | — | 470.7 | |||||||||||||
Identifiable intangible assets, net | — | 782.5 | — | — | 782.5 | |||||||||||||
Other noncurrent assets | 17.8 | 0.5 | 1.5 | — | 19.8 | |||||||||||||
Investment in subsidiaries | 511.9 | 31.4 | — | (543.3 | ) | — | ||||||||||||
Total assets | $ | 755.7 | $ | 2,257.7 | $ | 111.5 | $ | (543.3 | ) | $ | 2,581.6 | |||||||
Liabilities and equity: | ||||||||||||||||||
Current portion of debt | $ | 12.4 | $ | 0.8 | $ | — | $ | — | $ | 13.2 | ||||||||
Accounts payable | 7.9 | 79.5 | 10.2 | — | 97.6 | |||||||||||||
Other current liabilities | 23.4 | 69.0 | 4.2 | — | 96.6 | |||||||||||||
Total current liabilities | 43.7 | 149.3 | 14.4 | — | 207.4 | |||||||||||||
Intercompany accounts | (1,598.3 | ) | 1,533.0 | 65.3 | — | — | ||||||||||||
Long-term debt | 1,074.8 | 1.0 | — | — | 1,075.8 | |||||||||||||
Deferred income taxes | 287.5 | 2.1 | 0.3 | — | 289.9 | |||||||||||||
Other noncurrent liabilities | 39.8 | 60.4 | 0.1 | — | 100.3 | |||||||||||||
Total liabilities | (152.5 | ) | 1,745.8 | 80.1 | — | 1,673.4 | ||||||||||||
Equity | 908.2 | 511.9 | 31.4 | (543.3 | ) | 908.2 | ||||||||||||
Total liabilities and equity | $ | 755.7 | $ | 2,257.7 | $ | 111.5 | $ | (543.3 | ) | $ | 2,581.6 | |||||||
17
Mueller Water Products, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
JuneSeptember 30, 2008
(in millions)
| Issuer | Guarantor companies | Non- guarantor companies | Eliminations | Total | ||||||||||||||||||||||||||||||||
| Issuer | Guarantor companies | Non- guarantor companies | Consolidating eliminations | Consolidated | (in millions) | |||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 140.1 | $ | (4.5 | ) | $ | 6.3 | $ | — | $ | 141.9 | $ | 179.1 | $ | (4.6 | ) | $ | 9.4 | $ | — | $ | 183.9 | ||||||||||||||
Receivables, net | 0.2 | 277.4 | 44.2 | — | 321.8 | — | 256.5 | 41.7 | — | 298.2 | ||||||||||||||||||||||||||
Inventories | — | 376.4 | 63.9 | — | 440.3 | — | 392.1 | 67.3 | — | 459.4 | ||||||||||||||||||||||||||
Deferred income taxes | 40.0 | — | — | — | 40.0 | 48.2 | — | — | — | 48.2 | ||||||||||||||||||||||||||
Other current assets | 12.9 | 55.6 | 2.6 | — | 71.1 | 20.5 | 37.6 | 2.5 | — | 60.6 | ||||||||||||||||||||||||||
Total current assets | 193.2 | 704.9 | 117.0 | — | 1,015.1 | 247.8 | 681.6 | 120.9 | — | 1,050.3 | ||||||||||||||||||||||||||
Property, plant and equipment, net | 2.5 | 328.9 | 16.1 | — | 347.5 | |||||||||||||||||||||||||||||||
Property, plant and equipment | 2.6 | 338.0 | 16.2 | — | 356.8 | |||||||||||||||||||||||||||||||
Goodwill | — | 871.5 | — | — | 871.5 | |||||||||||||||||||||||||||||||
Identifiable intangible assets, net | — | 797.2 | — | — | 797.2 | — | 789.8 | — | — | 789.8 | ||||||||||||||||||||||||||
Goodwill | — | 871.1 | — | — | 871.1 | |||||||||||||||||||||||||||||||
Other noncurrent assets | 14.9 | 5.9 | 2.1 | — | 22.9 | 18.3 | 1.7 | 1.8 | — | 21.8 | ||||||||||||||||||||||||||
Investment in subsidiaries | 867.3 | 19.9 | — | (887.2 | ) | — | 901.4 | 18.5 | — | (919.9 | ) | — | ||||||||||||||||||||||||
Total assets | $ | 1,077.9 | $ | 2,727.9 | $ | 135.2 | $ | (887.2 | ) | $ | 3,053.8 | $ | 1,170.1 | $ | 2,701.1 | $ | 138.9 | $ | (919.9 | ) | $ | 3,090.2 | ||||||||||||||
Liabilities and stockholders’ equity: | ||||||||||||||||||||||||||||||||||||
Current portion of long-term debt | $ | 5.3 | $ | 0.8 | $ | — | $ | — | $ | 6.1 | ||||||||||||||||||||||||||
Liabilities and equity: | ||||||||||||||||||||||||||||||||||||
Current portion of debt | $ | 8.9 | $ | 0.8 | $ | — | $ | — | $ | 9.7 | ||||||||||||||||||||||||||
Accounts payable | 14.3 | 114.6 | 15.5 | — | 144.4 | 8.3 | 132.8 | 14.9 | — | 156.0 | ||||||||||||||||||||||||||
Other current liabilities | 19.5 | 72.5 | 1.1 | — | 93.1 | 39.5 | 82.2 | 7.3 | — | 129.0 | ||||||||||||||||||||||||||
Total current liabilities | 39.1 | 187.9 | 16.6 | — | 243.6 | 56.7 | 215.8 | 22.2 | — | 294.7 | ||||||||||||||||||||||||||
Intercompany accounts | (1,691.1 | ) | 1,592.4 | 98.7 | — | — | (1,616.8 | ) | 1,519.0 | 97.8 | — | — | ||||||||||||||||||||||||
Long-term debt | 1,089.5 | 1.1 | — | — | 1,090.6 | 1,084.7 | 1.1 | — | — | 1,085.8 | ||||||||||||||||||||||||||
Deferred income taxes | 297.6 | 15.3 | — | — | 312.9 | 292.9 | 2.6 | 0.3 | — | 295.8 | ||||||||||||||||||||||||||
Other noncurrent liabilities | 10.3 | 63.9 | — | — | 74.2 | 23.7 | 61.2 | 0.1 | — | 85.0 | ||||||||||||||||||||||||||
Total liabilities | (254.6 | ) | 1,860.6 | 115.3 | — | 1,721.3 | (158.8 | ) | 1,799.7 | 120.4 | — | 1,761.3 | ||||||||||||||||||||||||
Equity | 1,328.9 | 901.4 | 18.5 | (919.9 | ) | 1,328.9 | ||||||||||||||||||||||||||||||
Stockholders’ equity | 1,332.5 | 867.3 | 19.9 | (887.2 | ) | 1,332.5 | ||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,077.9 | $ | 2,727.9 | $ | 135.2 | $ | (887.2 | ) | $ | 3,053.8 | |||||||||||||||||||||||||
Total liabilities and equity | $ | 1,170.1 | $ | 2,701.1 | $ | 138.9 | $ | (919.9 | ) | $ | 3,090.2 | |||||||||||||||||||||||||
18
Mueller Water Products, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
Three Months Ended June 30,December 31, 2008
(in millions)
| Issuer | Guarantor companies | Non- guarantor companies | Consolidating eliminations | Consolidated | ||||||||||||||
Net sales | $ | — | $ | 438.2 | $ | 90.3 | $ | — | $ | 528.5 | ||||||||
Cost of sales | — | 329.1 | 76.0 | — | 405.1 | |||||||||||||
Gross profit | — | 109.1 | 14.3 | — | 123.4 | |||||||||||||
Operating expenses: | ||||||||||||||||||
Selling, general and administrative | 11.1 | 49.4 | 9.1 | — | 69.6 | |||||||||||||
Restructuring | — | 0.2 | — | — | 0.2 | |||||||||||||
Total operating expenses | 11.1 | 49.6 | 9.1 | — | 69.8 | |||||||||||||
Income (loss) from operations | (11.1 | ) | 59.5 | 5.2 | — | 53.6 | ||||||||||||
Interest expense (income), net | 17.7 | 0.2 | (0.4 | ) | — | 17.5 | ||||||||||||
Income (loss) before income taxes | (28.8 | ) | 59.3 | 5.6 | — | 36.1 | ||||||||||||
Income tax expense (benefit) | (13.6 | ) | 27.0 | 2.4 | — | 15.8 | ||||||||||||
Equity in income of subsidiaries | 35.5 | 3.2 | — | (38.7 | ) | — | ||||||||||||
Net income | $ | 20.3 | $ | 35.5 | $ | 3.2 | $ | (38.7 | ) | $ | 20.3 | |||||||
Mueller Water Products, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
Nine Months Ended June 30, 2008
(in millions)
| Issuer | Guarantor companies | Non- guarantor companies | Eliminations | Total | ||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||
| Issuer | Guarantor companies | Non- guarantor companies | Consolidating eliminations | Consolidated | ||||||||||||||||||||||||||||||||
Net sales | $ | — | $ | 1,144.2 | $ | 218.2 | $ | — | $ | 1,362.4 | $ | — | $ | 308.1 | $ | 59.6 | $ | — | $ | 367.7 | ||||||||||||||||
Cost of sales | — | 857.7 | 188.1 | — | 1,045.8 | — | 241.0 | 51.7 | — | 292.7 | ||||||||||||||||||||||||||
Gross profit | — | 286.5 | 30.1 | — | 316.6 | — | 67.1 | 7.9 | — | 75.0 | ||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||
Selling, general and administrative | 29.3 | 144.9 | 26.5 | — | 200.7 | 10.2 | 46.8 | 5.3 | — | 62.3 | ||||||||||||||||||||||||||
Goodwill impairment | — | 400.0 | — | — | 400.0 | |||||||||||||||||||||||||||||||
Restructuring | — | 17.9 | — | — | 17.9 | — | (0.2 | ) | — | — | (0.2 | ) | ||||||||||||||||||||||||
Total operating expenses | 29.3 | 162.8 | 26.5 | — | 218.6 | 10.2 | 446.6 | 5.3 | — | 462.1 | ||||||||||||||||||||||||||
Income (loss) from operations | (29.3 | ) | 123.7 | 3.6 | — | 98.0 | ||||||||||||||||||||||||||||||
Interest expense (income), net | 55.1 | 0.1 | (0.4 | ) | — | 54.8 | ||||||||||||||||||||||||||||||
Operating income (loss) | (10.2 | ) | (379.5 | ) | 2.6 | — | (387.1 | ) | ||||||||||||||||||||||||||||
Interest expense, net | 17.3 | — | — | — | 17.3 | |||||||||||||||||||||||||||||||
Gain on repurchase of debt | (1.5 | ) | — | — | — | (1.5 | ) | |||||||||||||||||||||||||||||
Income (loss) before income taxes | (84.4 | ) | 123.6 | 4.0 | — | 43.2 | (26.0 | ) | (379.5 | ) | 2.6 | — | (402.9 | ) | ||||||||||||||||||||||
Income tax expense (benefit) | (36.7 | ) | 53.8 | 1.7 | — | 18.8 | (11.4 | ) | 7.4 | 1.1 | — | (2.9 | ) | |||||||||||||||||||||||
Equity in income of subsidiaries | 72.1 | 2.3 | — | (74.4 | ) | — | ||||||||||||||||||||||||||||||
Equity in income (loss) of subsidiaries | (385.4 | ) | 1.5 | — | 383.9 | — | ||||||||||||||||||||||||||||||
Net income | $ | 24.4 | $ | 72.1 | $ | 2.3 | $ | (74.4 | ) | $ | 24.4 | |||||||||||||||||||||||||
Net income (loss) | $ | (400.0 | ) | $ | (385.4 | ) | $ | 1.5 | $ | 383.9 | $ | (400.0 | ) | |||||||||||||||||||||||
19
Mueller Water Products, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
Three Months Ended December 31, 2007
| Issuer | Guarantor companies | Non- guarantor companies | Eliminations | Total | ||||||||||||||
| (in millions) | ||||||||||||||||||
Net sales | $ | — | $ | 345.1 | $ | 67.2 | $ | — | $ | 412.3 | ||||||||
Cost of sales | — | 259.5 | 58.4 | — | 317.9 | |||||||||||||
Gross profit | — | 85.6 | 8.8 | — | 94.4 | |||||||||||||
Operating expenses: | ||||||||||||||||||
Selling, general and administrative | 9.1 | 44.5 | 8.2 | — | 61.8 | |||||||||||||
Restructuring | — | 16.2 | — | — | 16.2 | |||||||||||||
Total operating expenses | 9.1 | 60.7 | 8.2 | — | 78.0 | |||||||||||||
Operating income (loss) | (9.1 | ) | 24.9 | 0.6 | — | 16.4 | ||||||||||||
Interest expense, net | 19.2 | — | — | — | 19.2 | |||||||||||||
Income (loss) before income taxes | (28.3 | ) | 24.9 | 0.6 | — | (2.8 | ) | |||||||||||
Income tax expense (benefit) | (11.7 | ) | 10.3 | 0.2 | — | (1.2 | ) | |||||||||||
Equity in income of subsidiaries | 15.0 | 0.4 | — | (15.4 | ) | — | ||||||||||||
Net income (loss) | $ | (1.6 | ) | $ | 15.0 | $ | 0.4 | $ | (15.4 | ) | $ | (1.6 | ) | |||||
20
Mueller Water Products, Inc.
Consolidating Statement of Cash Flows
Nine Months Ended June 30,Three months ended December 31, 2008
| Issuer | Guarantor companies | Non- guarantor companies | Eliminations | Total | |||||||||||||||
| (in millions) | |||||||||||||||||||
Operating activities: | |||||||||||||||||||
Net cash provided by (used in) operating activities | $ | (22.6 | ) | $ | 8.0 | $ | (3.3 | ) | $ | — | $ | (17.9 | ) | ||||||
Investing activities: | |||||||||||||||||||
Capital expenditures | (0.1 | ) | (8.1 | ) | (1.8 | ) | — | (10.0 | ) | ||||||||||
Proceeds from sales of property, plant and equipment | — | — | 3.9 | — | 3.9 | ||||||||||||||
Net cash provided by (used in) investing activities | (0.1 | ) | (8.1 | ) | 2.1 | — | (6.1 | ) | |||||||||||
Financing activities: | |||||||||||||||||||
Decrease in outstanding checks | — | (0.3 | ) | — | — | (0.3 | ) | ||||||||||||
Debt paid and repurchased | (4.9 | ) | — | — | — | (4.9 | ) | ||||||||||||
Common stock issued | 0.2 | — | — | — | 0.2 | ||||||||||||||
Dividends paid | (2.0 | ) | — | — | — | (2.0 | ) | ||||||||||||
Net cash used in financing activities | (6.7 | ) | (0.3 | ) | — | — | (7.0 | ) | |||||||||||
Effect of currency exchange rate changes on cash | — | — | (1.1 | ) | — | (1.1 | ) | ||||||||||||
Net change in cash and cash equivalents | (29.4 | ) | (0.4 | ) | (2.3 | ) | — | (32.1 | ) | ||||||||||
Cash and cash equivalents at beginning of period | 179.1 | (4.6 | ) | 9.4 | — | 183.9 | |||||||||||||
Cash and cash equivalents at end of period | $ | 149.7 | $ | (5.0 | ) | $ | 7.1 | $ | — | $ | 151.8 | ||||||||
21
(in millions)Mueller Water Products, Inc.
Consolidating Statement of Cash Flows
Three months ended December 31, 2007
| Issuer | Guarantor companies | Non- guarantor companies | Eliminations | Total | ||||||||||||||||||||||||||||||||||
| Issuer | Guarantor companies | Non- guarantor companies | Consolidating eliminations | Consolidated | (in millions) | |||||||||||||||||||||||||||||||||
Operating activities: | ||||||||||||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 58.6 | $ | 55.9 | $ | (8.6 | ) | $ | — | $ | 105.9 | $ | 39.8 | $ | 19.6 | $ | (3.5 | ) | $ | — | $ | 55.9 | ||||||||||||||||
Investing activities: | ||||||||||||||||||||||||||||||||||||||
Capital expenditures | (0.2 | ) | (58.3 | ) | (2.3 | ) | — | (60.8 | ) | — | (16.0 | ) | (0.8 | ) | — | (16.8 | ) | |||||||||||||||||||||
Proceeds from sales of property, plant and equipment | — | 7.4 | — | — | 7.4 | |||||||||||||||||||||||||||||||||
Proceeds from sale of property, plant and equipment | — | 7.1 | — | — | 7.1 | |||||||||||||||||||||||||||||||||
Net cash used in investing activities | (0.2 | ) | (50.9 | ) | (2.3 | ) | — | (53.4 | ) | — | (8.9 | ) | (0.8 | ) | — | (9.7 | ) | |||||||||||||||||||||
Financing activities: | ||||||||||||||||||||||||||||||||||||||
Decrease in outstanding checks | — | (0.9 | ) | — | — | (0.9 | ) | — | (5.4 | ) | — | — | (5.4 | ) | ||||||||||||||||||||||||
Payments of debt | (3.8 | ) | — | — | — | (3.8 | ) | |||||||||||||||||||||||||||||||
Proceeds from issuance of common stock | 1.3 | — | — | — | 1.3 | |||||||||||||||||||||||||||||||||
Dividends to stockholders | (6.0 | ) | — | — | — | (6.0 | ) | |||||||||||||||||||||||||||||||
Debt paid | (1.4 | ) | — | — | — | (1.4 | ) | |||||||||||||||||||||||||||||||
Common stock issued | 0.5 | — | — | — | 0.5 | |||||||||||||||||||||||||||||||||
Dividends paid | (2.0 | ) | — | — | — | (2.0 | ) | |||||||||||||||||||||||||||||||
Net cash used in financing activities | (8.5 | ) | (0.9 | ) | — | — | (9.4 | ) | (2.9 | ) | (5.4 | ) | — | — | (8.3 | ) | ||||||||||||||||||||||
Effect of currency exchange rate changes on cash | — | — | (0.1 | ) | — | (0.1 | ) | — | — | 0.1 | — | 0.1 | ||||||||||||||||||||||||||
Net change in cash and cash equivalents | 49.9 | 4.1 | (11.0 | ) | — | 43.0 | 36.9 | 5.3 | (4.2 | ) | — | 38.0 | ||||||||||||||||||||||||||
Cash and cash equivalents at beginning of period | 90.2 | (8.6 | ) | 17.3 | — | 98.9 | 90.2 | (8.6 | ) | 17.3 | — | 98.9 | ||||||||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 140.1 | $ | (4.5 | ) | $ | 6.3 | $ | — | $ | 141.9 | $ | 127.1 | $ | (3.3 | ) | $ | 13.1 | $ | — | $ | 136.9 | ||||||||||||||||
2022
The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto that appear in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 20072008 and with the condensed consolidated financial statements that appear elsewhere in this 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 (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). 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, expected future developments and other factors they believe to be appropriate. The forward-looking statements included in this report are also subject to a number of material risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting our operations, markets, products, services and prices.prices, Such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements. 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 the Annual Report on Form 10-K and this Quarterly Report on Form 10-Q.
Mueller Water Products, Inc., a Delaware corporation, completed an initial public offering oftogether with its Series A common stock (NYSE: MWA) on June 1, 2006. In this report, the “Company” refers to Mueller Water Products, Inc. and itsconsolidated subsidiaries except where the context makes clear that the reference is only to Mueller Water Products, Inc. On December 14, 2006, Walter Industries, Inc. (“Walter Industries”) distributed all of the Company’s outstanding Series B common stock (NYSE: MWA.B) to Walter Industries’ stockholders (the “Spin-off”).
The Company operates in three business segments: Mueller Co., U.S. Pipe and Anvil. Mueller Co. manufactures and sells fire hydrants and various valves and related products used in residential water and gas systems. U.S. Pipe manufactures and sells a broad line of ductile iron pressure pipe, restrained joint products, fittings and relatedother products. Anvil manufactures and sells a variety of pipe fittings, couplings, pipe hangers, pipe nipples and related products.
Fast Fabricators, Inc. (“Fast Fabricators”) was acquired in January 2007 and is included in Management believes the Company’s results of operations beginning with January 2007. Fast Fabricators is reported as part of U.S. Pipe.segments have leading North American positions in their principal product line(s).
The “Company,” “we,” “us” or “our” refers to Mueller Water Products, Inc and subsidiaries or their management. With regard to the Company’s segments, “we,” “us” or “our” may also refer to the segment being discussed or its management.
Except as otherwise noted, all financial and operating data has been presented on a fiscal year and fiscal quarter basis. The Company’sOur fiscal year ends on September 30, and itsour fiscal quarters end on December 31, March 31 and June 30.
Business Developments and Trends
A significant portion of the Company’sour net sales isare directly related to residential construction, municipal water infrastructure residential construction and commercialnon-residential construction activity in the United States. Residential construction activity has declined substantially since the end of 2006. HousingVarious external sources forecast annualized housing starts were down approximately 30% for the three months ended June 30, 2008will drop 20% to 36% in 2009 compared to the prior year period. The Company’s management expects the downturn inyear. We expect residential construction to continue. Further, management expectsremain at historically low levels for the near term. In addition, we expect municipal water infrastructure spending to increase over time in order to address aging systems, but not to offset the current decline in residential construction activity.
In November 2007, the Company announced its intention to close U.S. Pipe’s manufacturing operations in Burlington, New Jersey, eliminating approximately 180 jobs. These manufacturing operations ceased near the end of January 2008. This facility continues to be used as a full-service distribution center for customersdecrease in the Northeast. In connection with closing the manufacturing operations, the Company expects to incur total restructuring charges of approximately $19 million. These total estimated charges consist of approximately $15 million of asset impairment charges and $4 million of employee-related and other charges. During the three months and nine months ended June 30, 2008, the Company recorded charges of $0.2 million and $17.9 million, respectively. Total restructuring charges recorded to date consisted of $14.8 million of asset impairment charges and $3.1 million of employee-related and other charges. Management expects the Company will realize annualized savings of $15 million to $17 millionnear term as a result of this action. Excluding the restructuring charges, management expectsrelatively recent uncertainties related to realize approximately $9 million(a) credit market availability, (b) the proposed federal economic stimulus bill and (c) the municipalities’ individual fiscal condition. We also expect non-residential construction to decrease as a result of net savingsa slowdown in general economic activity.
U.S. Pipe’s new operation in Bessemer, Alabama, along with operations across all our operating segments, are operating significantly below their optimal capacities. Since the end of fiscal 2008.2008, we have reduced headcount, reduced operating hours and reduced overall spending activities in response to lower demand for our products. We continually monitor our production activities in response to evolving business conditions and will take additional steps deemed appropriate to best manage our available resources.
2123
Construction of U.S. Pipe’s automated iron pipe manufacturing facility is ahead of schedule. Production is expected to begin during the quarter ending September 30, 2008. However, the Company does not expect to realize the full benefits of this new facility until the second half of fiscal 2009.
The Company has experienced significantly higherOur costs to purchase its principalfor raw materials and purchased components. The average costs ofcomponents, principally scrap iron and brass ingot, have been especially volatile since the beginning of fiscal 2008. During fiscal 2008 and high gradepeaking during the fourth quarter of the fiscal year, the cost of scrap iron components of Mueller Co. products, increased 11% and 48%, respectively, for the three months ended June 30, 2008purchased by U.S. Pipe more than doubled compared to year-ago prices. Since the prior year period. The averagepeak toward the end of fiscal 2008, these scrap prices have decreased significantly and are comparable at December 31, 2008 to year-ago prices. Our intent has been to pass along higher raw material and purchased component costs to our customers through higher sales prices. There are also timing differences between when we purchase raw materials and when we sell the related finished goods to our customers. Therefore, since we use the first-in, first-out method for determining cost of low grade scrap iron, a componentsales, the cost of U.S. Pipe products, increased 102% for the three months ended June 30, 2008 compared to the prior year period.
The Company has implemented or announced a numberfinished goods flowing through cost of sales price increases across all of its businesses since January 2008 in an effort to cover rising raw material costs. In certain market conditions, the full amount of announced sales price increases may not be realized. There is generally a periodrepresentative of time between the date sales price changes are announced and the date they become effectivecurrent costs for new orders.these related raw materials. The extent of realizing these sales price increases could materially affect future net sales, income from operations, net income and net cash providedimplemented during fiscal 2008 by operating activities.U.S. Pipe did not cover the higher costs of its raw materials.
The Company isWe are dependent upon the construction industry, which is seasonal due to the impact of cold and wet weather conditions. Net sales and income from operations have historically been lowest duringin 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 significant construction activity. Inventory quantities generally increase
In addition to reduced demand by our end user customers, we also believe our distributors have reduced their inventory levels in anticipationresponse to current economic conditions. This will further reduce demand for our products as our distributors may only be ordering items for existing projects that they cannot stock from goods already on hand. We do not expect our distributors to maintain higher inventory levels until their confidence in an economic recovery improves.
As a result of higher salesa deterioration of U.S. equity markets during the three months ended December 31, 2008, we performed a preliminary assessment of goodwill at December 31, 2008 and concluded that the carrying values of our U.S. Pipe and Mueller Co. segments exceeded their estimated fair values. Accordingly, we estimated a goodwill impairment charge of $59.5 million applicable to U.S. Pipe, completely impairing its goodwill, and we estimated a goodwill impairment charge of $340.5 million applicable to Mueller Co.’s prior goodwill balance of $718.4 million. We have not completed all of the necessary detailed fair value estimates. Any revision to the estimated impairment charge will be recorded during the three months ending June 30March 31, 2009, and September 30. Receivables balances are generally highest during the three months ending June 30 and September 30 duewe do not expect such revision to these being the highest sales periods.exceed an additional $200 million.
24
Results of Operations
Three Months Ended June 30,December 31, 2008 Compared to the Three Months Ended June 30,December 31, 2007
| Three months ended June 30, 2008 | ||||||||||||||||
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | ||||||||||||
| (in millions) | ||||||||||||||||
Net sales | $ | 203.0 | $ | 167.7 | $ | 157.8 | $ | — | $ | 528.5 | ||||||
Gross profit | $ | 63.9 | $ | 13.5 | $ | 46.0 | $ | — | $ | 123.4 | ||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 23.5 | 10.4 | 24.1 | 11.6 | 69.6 | |||||||||||
Restructuring | — | 0.2 | — | — | 0.2 | |||||||||||
Total operating expenses | 23.5 | 10.6 | 24.1 | 11.6 | 69.8 | |||||||||||
Income (loss) from operations | $ | 40.4 | $ | 2.9 | $ | 21.9 | $ | (11.6 | ) | 53.6 | ||||||
Interest expense, net | 17.5 | |||||||||||||||
Income before income taxes | 36.1 | |||||||||||||||
Income tax expense | 15.8 | |||||||||||||||
Net income | $ | 20.3 | ||||||||||||||
22
| Three months ended June 30, 2007 | Three months ended December 31, 2008 | |||||||||||||||||||||||||||||||||||
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | |||||||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||||||||
Net sales | $ | 203.1 | $ | 153.3 | $ | 146.1 | $ | — | $ | 502.5 | $ | 119.6 | $ | 115.7 | $ | 132.4 | $ | — | $ | 367.7 | ||||||||||||||||
Gross profit | $ | 61.7 | $ | 18.8 | $ | 39.0 | $ | — | $ | 119.5 | $ | 31.2 | $ | 2.5 | $ | 41.3 | $ | — | $ | 75.0 | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||
Selling, general and administrative | 22.7 | 9.0 | 20.0 | 10.6 | 62.3 | |||||||||||||||||||||||||||||||
Goodwill impairment | 340.5 | 59.5 | — | — | 400.0 | |||||||||||||||||||||||||||||||
Restructuring | — | (0.2 | ) | — | — | (0.2 | ) | |||||||||||||||||||||||||||||
Total operating expenses | 363.2 | 68.3 | 20.0 | 10.6 | 462.1 | |||||||||||||||||||||||||||||||
Income (loss) from operations | $ | (332.0 | ) | $ | (65.8 | ) | $ | 21.3 | $ | (10.6 | ) | (387.1 | ) | |||||||||||||||||||||||
Interest expense, net | 17.3 | |||||||||||||||||||||||||||||||||||
Gain on repurchase of debt | 1.5 | |||||||||||||||||||||||||||||||||||
Loss before income taxes | (402.9 | ) | ||||||||||||||||||||||||||||||||||
Income tax benefit | (2.9 | ) | ||||||||||||||||||||||||||||||||||
Net loss | $ | (400.0 | ) | |||||||||||||||||||||||||||||||||
| Three months ended December 31, 2007 | ||||||||||||||||||||||||||||||||||||
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | ||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||
Net sales | $ | 161.6 | $ | 110.7 | $ | 140.0 | $ | — | $ | 412.3 | ||||||||||||||||||||||||||
Gross profit | $ | 45.5 | $ | 10.6 | $ | 37.7 | $ | 0.6 | $ | 94.4 | ||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||
Selling, general and administrative | 20.2 | 9.9 | 21.6 | 10.4 | 62.1 | 20.7 | 9.7 | 21.8 | 9.6 | 61.8 | ||||||||||||||||||||||||||
Restructuring | — | — | — | — | — | — | 16.2 | — | — | 16.2 | ||||||||||||||||||||||||||
Total operating expenses | 20.2 | 9.9 | 21.6 | 10.4 | 62.1 | 20.7 | 25.9 | 21.8 | 9.6 | 78.0 | ||||||||||||||||||||||||||
Income (loss) from operations | $ | 41.5 | $ | 8.9 | $ | 17.4 | $ | (10.4 | ) | 57.4 | $ | 24.8 | $ | (15.3 | ) | $ | 15.9 | $ | (9.0 | ) | 16.4 | |||||||||||||||
Interest expense, net | 23.3 | 19.2 | ||||||||||||||||||||||||||||||||||
Loss on early extinguishment of debt | 36.4 | |||||||||||||||||||||||||||||||||||
Loss before income taxes | (2.3 | ) | (2.8 | ) | ||||||||||||||||||||||||||||||||
Income tax benefit | (1.0 | ) | (1.2 | ) | ||||||||||||||||||||||||||||||||
Net loss | $ | (1.3 | ) | $ | (1.6 | ) | ||||||||||||||||||||||||||||||
Consolidated Analysis
Net sales for the three months ended June 30,December 31, 2008 were $528.5$367.7 million an increase of $26.0 million, or 5.2%, compared to $502.5$412.3 million in the prior year period. Net sales increaseddecreased due primarilyprincipally to higher pricing across all business segments, volume increases at U.S. Pipe$80.0 million of lower shipment volumes and Anvil and the favorablean unfavorable impact offrom Canadian currency exchange rates. Volume decreased at Mueller Co.Higher sales prices from price increases implemented during fiscal 2008 contributed $43.8 million of higher net sales.
25
Gross profit for the three months ended June 30,December 31, 2008 was $123.4$75.0 million, an increasea decrease of $3.9$19.4 million or 3.3%, compared to $119.5$94.4 million in the prior year period. Of this decrease, $27.9 million was due to lower shipment volumes, partially offset by cost savings of $10.0 million. Gross margin decreased to 20.4% for the three months ended December 31, 2008 compared to 22.9% in the prior year period. Gross margin was 23.3% fordecreased due principally to a higher percentage of total net sales coming from U.S. Pipe (31% in the first three months ended June 30, 2008of fiscal 2009 compared to 23.8%27% in the prior year period. Gross profit increased due primarily to higher sales pricingperiod), whose gross margins are relatively low (2.2% in the first three months of $17.6 millionfiscal 2009 and cost reductions of $11.5 million that were partially offset by higher raw material costs of $17.6 million and9.6% in the negative impact from under-absorbed overhead of $9.5 million.prior year period).
Selling, general and administrative expenses for the three months ended June 30,December 31, 2008 and 2007 were $69.6$62.3 million and $62.1$61.8 million, respectively. The increase was due primarilyForeign exchange losses were recognized in the three months ended December 31, 2008 compared to sales commission expenses, employee-related severance, medical and other expenses and higher ongoing expenses associated withgains recognized in the separationthree months ended December 31, 2007. Anvil recognized a $3.5 million gain from the sale of Anvil’s Canadian manufacturing and distribution operations.a building during the three months ended December 31, 2008. Non-recurring professional fees of $1.2 million were recognized during the three months ended December 31, 2008 related to the conversion of Series B common stock into Series A common stock.
During the three months ended JuneDecember 31, 2008, we recorded an estimated goodwill impairment charge of $400.0 million related to Mueller Co. and U.S. Pipe goodwill. This charge is preliminary as we have not completed all of the necessary estimates of fair value. We expect to complete this process during our fiscal quarter ending March 31, 2009.
During the year ended September 30, 2008, the Company recordedU.S. Pipe closed its manufacturing operations in Burlington, New Jersey. In connection with this closure, restructuring charges of $0.2$16.2 million for employee-related and other items.
Interest expense, net was $17.5 million for the three months ended June 30, 2008 compared to $23.3 million in the prior year period. This decrease was mostly attributable to lower interest rates, due to the debt refinancing that occurred in May 2007 and lower market rates on the Company’s variable rate borrowings, and higher levels of invested cash. Interest income was $0.9 million and $0.6 million for the three months ended June 30, 2008 and 2007, respectively. For the three months ended June 30, 2007, interest expense included $1.7 million related to an adjustment on an interest rate swap contract.
Loss on early extinguishment of debtwere recorded during the three months ended June 30, 2007 was from the repurchase of the then outstanding senior subordinated and senior discount notes and the refinancing of the Company’s principal credit agreement. These note repurchases were funded from the May 2007 issuance of 7 3/8% senior subordinated notes.December 31, 2007.
Income tax expense duringDuring the three months ended June 30,December 31, 2008, was $15.8 million compared to a benefit of $1.0$5.0 million in the prior year period. The Company’s effective tax rates are higher than the statutory federal rateprincipal of 35% due primarily to state income taxes and compensation expense that is not deductible for income tax purposes.
23
Segment Analysis
Mueller Co.
Net sales for the three months ended June 30, 2008 were $203.0 million, a decrease of $0.1 million compared to $203.1 million in the prior year period. Sales price increases of $4.8 million and the favorable impact of Canadian currency exchange rates of $2.4 million were offset by lower volume of $7.3 million.
Gross profit for the three months ended June 30, 2008 was $63.9 million, an increase of $2.2 million, or 3.6%, compared to $61.7 million in the prior year period. Gross margin was 31.5% for the three months ended June 30, 2008 compared to 30.4% in the prior year period. Gross profit increased due primarily to cost reductions of $5.1 million, higher sales pricing and other net cost savings, which were partially offset by higher raw material and purchased component costs of $5.3 million, the negative impact from under-absorbed overhead of $3.6 million and lower shipment volumes of $2.8 million.
Income from operations during the three months ended June 30, 2008 was $40.4 million, a decrease of $1.1 million, or 2.7%, compared to $41.5 million in the prior year period. This decline was due to higher selling, general and administrative expenses, primarily attributable to employee-related and other expenses, that more than offset the increase in gross profit.
U.S. Pipe
Net sales for the three months ended June 30, 2008 were $167.7 million, an increase of $14.4 million, or 9.4%, compared to $153.3 million in the prior year period. This increase was attributable to $8.0 million of sales price increases and $6.4 million of higher volumes.
Gross profit for the three months ended June 30, 2008 was $13.5 million, a decrease of $5.3 million, or 28.2%, compared to $18.8 million in the prior year period. Gross margin was 8.1% for the three months ended June 30, 2008 compared to 12.3% in the prior year period. Gross profit was negatively affected for the three months ended June 30, 2008 primarily by increased raw material costs of $12.2 million, the negative impact from under-absorbed overhead of $4.5 million and incremental warranty-related expenses of $3.4 million, which were partially offset by sales price increases, cost reductions of $4.9 million and higher shipment volumes of $2.0 million.
Income from operations for the three months ended June 30, 2008 was $2.9 million, a decrease of $6.0 million, or 67.4%, compared to $8.9 million in the prior year period. The decrease was due primarily to the decline in gross profit discussed above.
Anvil
Net sales for the three months ended June 30, 2008 were $157.8 million, an increase of $11.7 million, or 8.0%, compared to $146.1 million in the prior year period. This increase was attributable to sales price increases of $4.8 million, increased volume of $3.6 million and the favorable impact of Canadian currency exchange rates of $3.3 million.
Gross profit for the three months ended June 30, 2008 was $46.0 million, an increase of $7.0 million, or 17.9%, compared to $39.0 million in the prior year period. Gross margin was 29.2% for the three months ended June 30, 2008 compared to 26.7% in the prior year period. Gross profit increased for the three months ended June 30, 2008 due primarily to sales price increases, higher shipment volumes of $1.1 million and cost reductions.
Income from operations for the three months ended June 30, 2008 was $21.9 million, an increase of $4.5 million, or 25.9%, compared to $17.4 million in the prior year period. This increase was attributable to higher gross profit partially offset by $2.5 million of higher selling, general and administrative expenses for the three months ended June 30, 2008 compared to the prior year period. These higher selling, general and administrative expenses were due primarily to higher sales commission expenses and higher ongoing expenses associated with the separation of Canadian manufacturing and distribution operations.
24
Corporate
Corporate expenses were $11.6 million for the three months ended June 30, 2008 compared to $10.4 million during the prior year period. This increase was attributable to employee-related and other expenses.
Nine Months Ended June 30, 2008 Compared to Nine Months Ended June 30, 2007
| Nine months ended June 30, 2008 | |||||||||||||||||
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | |||||||||||||
| (in millions) | |||||||||||||||||
Net sales | $ | 533.5 | $ | 392.6 | $ | 436.3 | $ | — | $ | 1,362.4 | |||||||
Gross profit | $ | 159.3 | $ | 33.4 | $ | 123.3 | $ | 0.6 | $ | 316.6 | |||||||
Operating expenses: | |||||||||||||||||
Selling, general and administrative | 66.7 | 30.7 | 72.6 | 30.7 | 200.7 | ||||||||||||
Restructuring | — | 17.9 | — | — | 17.9 | ||||||||||||
Total operating expenses | 66.7 | 48.6 | 72.6 | 30.7 | 218.6 | ||||||||||||
Income (loss) from operations | $ | 92.6 | $ | (15.2 | ) | $ | 50.7 | $ | (30.1 | ) | 98.0 | ||||||
Interest expense, net | 54.8 | ||||||||||||||||
Income before income taxes | 43.2 | ||||||||||||||||
Income tax expense | 18.8 | ||||||||||||||||
Net income | $ | 24.4 | |||||||||||||||
| Nine months ended June 30, 2007 | |||||||||||||||||
| Mueller Co. | U.S. Pipe | Anvil | Corporate | Total | |||||||||||||
| (in millions) | |||||||||||||||||
Net sales | $ | 561.1 | $ | 399.4 | $ | 413.6 | $ | — | $ | 1,374.1 | |||||||
Gross profit | $ | 179.8 | $ | 53.2 | $ | 112.0 | $ | — | $ | 345.0 | |||||||
Operating expenses: | |||||||||||||||||
Selling, general and administrative | 59.8 | 30.3 | 68.0 | 27.6 | 185.7 | ||||||||||||
Restructuring | — | — | — | — | — | ||||||||||||
Total operating expenses | 59.8 | 30.3 | 68.0 | 27.6 | 185.7 | ||||||||||||
Income (loss) from operations | $ | 120.0 | $ | 22.9 | $ | 44.0 | $ | (27.6 | ) | 159.3 | |||||||
Interest expense, net | 64.8 | ||||||||||||||||
Loss on early extinguishment of debt | 36.4 | ||||||||||||||||
Income before income taxes | 58.1 | ||||||||||||||||
Income tax expense | 24.5 | ||||||||||||||||
Net income | $ | 33.6 | |||||||||||||||
Consolidated Analysis
Net sales for the nine months ended June 30, 2008 were $1,362.4 million, a decrease of $11.7 million, or 0.9%, compared to $1,374.1 million in the prior year period. Net sales decreased due primarily to lower volumes of $73 million, partially offset by higher pricing of $33 million, the favorable impact from Canadian currency exchange rates and the acquisition of Fast Fabricators.
Gross profit for the nine months ended June 30, 2008 was $316.6 million, a decrease of $28.4 million, or 8.2%, compared to $345.0 million in the prior year period. Gross margin was 23.2% for the nine months ended June 30, 2008 compared to 25.1% in the prior year period. Gross profit declined due primarily to higher raw material and purchased component costs of $46 million, the negative impact from under-absorbed overhead of $39 million and lower sales volumes of $24 million, which were partially offset by cost reductions of $41 million, higher sales pricing and other factors.
25
Selling, general, and administrative expenses for the nine months ended June 30, 2008 and 2007 were $200.7 million and $185.7 million, respectively. The increase was due primarily to employee-related expenses, sales commission expenses, bad debt expenses, higher ongoing expenses associated with the separation of Anvil’s Canadian manufacturing and distribution operations and other expenses.
During the nine months ended June 30, 2008, the Company recorded Burlington restructuring charges of $17.9 million, consisting of $14.8 million of asset impairment charges and $3.1 million of employee-related and other charges.
Interest expense, net was $54.8 million for the nine months ended June 30, 2008 compared to $64.8 million in the prior year period. This decrease was mostly attributable to lower interest rates, due to the debt refinancing that occurred in May 2007 and lower market rates on the Company’s variable rate borrowings, and higher levels of invested cash. Interest income was $3.3 million and $2.4 million during the nine months ended June 30, 2008 and 2007, respectively.
Loss on early extinguishment of debt during the nine months ended June 30, 2007 was from the repurchase of the then outstanding senior subordinated and senior discount notes and the refinancing of the Company’s principal credit agreement. These note repurchases were funded from the May 2007 issuance of 7 3/8% senior subordinated notes.
Income tax expense during the nine months ended June 30, 2008 was $18.8 million compared to $24.5 million in the prior year period. The Company’s effective tax rates are higher than the statutory federal rate of 35% due primarily to state income taxes and compensation expense that is not deductible for income tax purposes.
Segment Analysis
Mueller Co.
Net sales for the nine months ended June 30, 2008 were $533.5 million, a decrease of $27.6 million, or 4.9%, compared to $561.1 million in the prior year period. Net sales declined due primarily to reduced volumes of $47 million, partially offset by sales price increases of $15 million and the favorable impact of Canadian currency exchange rates.
Gross profit for the nine months ended June 30, 2008 was $159.3 million, a decrease of $20.5 million, or 11.4%, compared to $179.8 million in the prior year period. Gross margin was 29.9% for the nine months ended June 30, 2008 compared to 32.0% in the prior year period. Gross profit primarily declined due primarily to reduced sales volumes of $18 million. The benefits from higher sales pricing were comparable to the increased costs of raw materials and purchased components. Cost reductions and other net cost savings were comparable to the negative impact from under-absorbed overhead of $26 million.
Income from operations during the nine months ended June 30, 2008 was $92.6 million, a decrease of $27.4 million, or 22.8%, compared to $120.0 million in the prior year period. This decline was due primarily to lower gross profit and higher selling, general and administrative expenses. Higher selling, general and administrative expenses were attributable to employee-related, bad debt and other expenses.
U.S. Pipe
Net sales for the nine months ended June 30, 2008 were $392.6 million, a decrease of $6.8 million, or 1.7%, compared to $399.4 million in the prior year period. Net sales decreased due primarily to reduced volume of $24 million, partially offset by the acquisition of Fast Fabricators and sales price increases.
Gross profit for the nine months ended June 30, 2008 was $33.4 million, a decrease of $19.8 million, or 37.2%, compared to $53.2 million in the prior year period. Gross margin was 8.5% for the nine months ended June 30, 2008 compared to 13.3% in the prior year period. Gross profit declined due primarily to higher raw material costs of $30 million, the negative impact from under-absorbed overhead of $7 million and reduced sales volumes of $6 million. These factors were partially offset by cost reductions of $22 million and sales price increases.
26
Loss from operations for the nine months ended June 30, 2008 was $15.2 million, a decrease of $38.1 million compared to income from operations of $22.9 million in the prior year period. The decrease was due primarily to $17.9 million of Burlington restructuring charges and the decline in gross profit discussed above.
Anvil
Net sales for the nine months ended June 30, 2008 were $436.3 million, an increase of $22.7 million, or 5.5%, compared to $413.6 million in the prior year period. Net sales increased due primarily to the favorable impact of Canadian currency exchange rates of $14 million and sales price increases of $12 million, partially offset by reduced sales volumes.
Gross profit for the nine months ended June 30, 2008 was $123.3 million, an increase of $11.3 million, or 10.1%, compared to $112.0 million in the prior year period. Gross margin was 28.3% for the nine months ended June 30, 2008 compared to 27.1% in the prior year period. Gross profit increased due primarily to sales price increases, cost reductions and other net cost savings, partially offset by the negative impact from under-absorbed overhead of $6 million.
Operating income for the nine months ended June 30, 2008 was $50.7 million, an increase of $6.7 million, or 15.2%, compared to $44.0 million in the prior year period. Operating income increased due to the increase in gross profit, partially offset by higher sales commission expenses and higher ongoing expenses associated with the separation of Canadian manufacturing and distribution operations.
Corporate
Corporate expenses for the nine months ended June 30, 2008 were $30.7 million, an increase of $3.1 million, or 11.2%, compared to $27.6 million in the prior year period. This increase was attributable to employee-related and other expenses.
Liquidity and Capital Resources
Cash and cash equivalents increased $43.0 million during the nine months ended June 30, 2008 to a total of $141.9 million at June 30, 2008. Cash and cash equivalents activity is summarized below (in millions):
Balance at September 30, 2007 | $ | 98.9 | ||
Cash provided by operating activities | 105.9 | |||
Cash used in investing activities | (53.4 | ) | ||
Cash used in financing activities | (9.4 | ) | ||
Effect of currency exchange rate changes on cash | (0.1 | ) | ||
Balance at June 30, 2008 | $ | 141.9 | ||
Operating activities
Receivables are generally higher at the end of the third and fourth quarters compared to the end of the first and second quarters of each fiscal year as a result of seasonal construction activity. Inventory quantities generally increase in anticipation of higher sales during the three months ending June 30 and September 30. Raw material prices reflected in ending inventory were notably higher at June 30, 2008 compared to June 30, 2007.
Net cash provided by operating activities was $105.9 million during the nine months ended June 30, 2008 compared to $62.9 million in the prior year period. Cash collections of receivables during the nine months ended June 30, 2008 were approximately $60 million less than during the nine months ended June 30, 2007. The total cost of inventory purchases was similar during the nine months ended June 30, 2008 compared to the nine months ended June 30, 2007. Other operating cash flow activities included $48.1 million during the nine months ended June 30, 2007 related to debt refinancing activities for which there were no comparable cash flows during the nine
27
months ended June 30, 2008 and $2.9 million of income tax payments during the fiscal 2008 period compared to $44.6 million during the fiscal 2007 period. All other operating cash flow activities were comparable in the fiscal 2008 period compared to the fiscal 2007 period.
Investing activities
Net cash used in investing activities was $53.4 million during the nine months ended June 30, 2008 compared to $92.3 million in the prior year period. Capital expenditures were $60.8 million during the nine months ended June 30, 2008 compared to $66.1 million in the prior year period. Total capital expenditures were $88.3 million during fiscal 2007 and are projected to be within the range of approximately $80 million to $85 million for fiscal 2008. Recent capital expenditures have been for normal replacement and upgrade projects and the construction of an automated ductile iron pipe manufacturing facility by U.S. Pipe.
Other investing activities during the nine months ended June 30, 2008 included $7.4 million of proceeds from the sale of a closed plant in California and other property, plant and equipment. Other investing activities during the nine months ended June 30, 2007 included $23.0 million for the acquisition of Fast Fabricators and a $3.7 earnout payment related to the 2004 acquisition of Star Pipe, Inc.
Financing activities
Net cash used in financing activities was $9.4 million during the nine months ended June 30, 2008 compared to $4.8 million of cash provided by financing activities in the prior year period. The Company’s cash management practice is to fund checks written only when they are presented for payment. The change in outstanding checks is reported as a financing activity, and during the nine months ended June 30, 2008 resulted in a $0.9 million use of cash compared to an $8.8 million use of cash in the prior year period. Other financing activities during the nine months ended June 30, 2008 included dividends paid to stockholders of $6.0 million, debt payments of $3.8 million and proceeds from issuing common stock of $1.3 million. During the nine months ended June 30, 2007, the Company executed a series of transactions to refinance its debt. Borrowings under new credit agreements provided $1,140 million of cash, which was used primarily to repay substantially all pre-existing borrowings and refinancing fees.
Existing borrowings at June 30, 2008 consisted of primarily $669.7 million under the 2007 Credit Agreement and $425.0 million of 7 3/8% Senior Subordinated Notes, which mature in 2017. Interest and related fees are paid at least quarterly under the 2007 Credit Agreement and semi-annually on the 7 3/8% Senior Subordinated Notes. Borrowings under the 2007 Credit Agreement consisted of $141.6 million designated as Term A, which is scheduled to be repaid with quarterly principal payments of approximately $3.5 million beginning September 2009 with the balance due in 2012, and $528.1 million designated as Term B, which is currently being repaid with quarterly principal payments of approximately $1.3 million with the balance due in 2014. The 2007 Credit Agreement also includes a $300 million revolving line of credit against which there were no outstanding borrowings at June 30, 2008. The availability under this agreement is reduced by outstanding letters of credit, which were $38.3 million at June 30, 2008.
The 2007 Credit Agreement and/or the indenture securing the 7 3/8% Senior Subordinated Notes contain mandatory prepayment provisionswere repurchased for a gain of $1.5 million.
Interest expense, net of interest income of $0.8 million, was $17.3 million during the three months ended December 31, 2008 compared to interest expense, net of interest income of $1.4 million, of $19.2 million during the three months ended December 31, 2007. Interest declined as a result of lower interest rates and lower average debt outstanding.
The income tax benefit recorded during the three months ended December 31, 2008 included a $1.2 million adjustment to the valuation allowance related to nondeductible compensation and $0.4 million due principally to legacy state income matters that were effectively resolved. Excluding these items, the effective income tax rate was comparable to the 41.5% effective income tax rate during the three months ended December 31, 2007.
Segment Analysis
Mueller Co.
Net sales for the three months ended December 31, 2008 were $119.6 million compared to $161.6 million in the eventprior year period. Lower shipment volumes of certain asset$49.0 million were partially offset by higher sales restrict certain business activitiesprices of $8.8 million. Lower shipment volumes occurred for iron gate valves, hydrants and require maintenancebrass service products.
Gross profit for the three months ended December 31, 2008 was $31.2 million compared to $45.5 million in the prior year period. Gross profit decreased $21.2 million due to lower shipment volumes and $6.1 million due to higher raw material costs, partially offset by higher sales prices and cost savings of certain financial ratios. The Company$4.6 million. Gross margin was compliant with applicable provisions26.1% for the three months ended December 31, 2008 compared to 28.2% in the prior year period. Changes in product mix reduced gross margin by approximately 6% and cost savings improved gross margin by approximately 4%.
26
During the three months ended December 31, 2008, we recorded an estimated goodwill impairment charge of these debt instruments at June 30,$340.5 million.
Excluding the goodwill impairment charge, income from operations during the three months ended December 31, 2008 was $8.5 million compared to $24.8 million in the prior year period. This decline was primarily due to decreased gross profit. Selling, general and administrative expenses were $2.0 million higher in the three months ended December 31, 2008 compared to the prior year period principally due to foreign exchange gains and losses.
U.S. Pipe
Net sales for the three months ended December 31, 2008 were $115.7 million compared to $110.7 million in the prior year period. Net sales increased $22.8 million due to higher sales prices, but decreased $17.8 million due to lower shipment volumes of ductile iron pipe.
Gross profit for the three months ended December 31, 2008 was $2.5 million compared to $10.6 million in the prior year period. Gross profit decreased $30.4 million due to higher raw material costs and $4.7 million due to lower shipment volumes. These factors were partially offset by $22.8 million of higher sales prices and $4.4 million of cost savings. Gross margin was 2.2% for the three months ended December 31, 2008 compared to 9.6% in the prior year period. Gross margin decreased due primarily to raw material cost increases exceeding sales price increases.
During the three months ended December 31, 2008, we recorded an estimated goodwill impairment charge of $59.5 million.
Excluding the goodwill impairment charge and Burlington-related restructuring items, the loss from operations decreased $7.4 million during the three months ended December 31, 2008 compared to the prior year period. This decrease was due to $8.1 million of lower gross profit partially offset by $0.7 million of lower selling, general and administrative expenses.
Anvil
Net sales for the three months ended December 31, 2008 were $132.4 million compared to $140.0 during the prior year period. Net sales decreased due to $13.2 million of lower shipment volumes and $6.6 million due to unfavorable Canadian currency exchange rates. These factors were partially offset by $12.2 million of higher prices.
Gross profit for the three months ended December 31, 2008 was $41.3 million compared to $37.7 million in the prior year period. Gross profit increased due to higher sales prices, partially offset by higher raw material costs of $3.5 million, lower shipment volumes of $2.0 million and higher per-unit overhead costs. Gross margin was 31.2% in the three months ended December 31, 2008 compared to 26.9% in the prior year period. Gross margin increased due primarily to the excess of sales price increases over higher raw material costs.
Income from operations for the three months ended December 31, 2008 was $21.3 million compared to $15.9 million in the prior year period. This increase was due to $3.6 million of higher gross profit and $1.8 million of lower selling, general and administrative expenses. Lower selling, general and administrative expenses were due to a $3.5 million gain from the sale of a building during the three months ended December 31, 2008, partially offset by a $1.8 million difference between foreign exchange losses in the three months ended December 31, 2008 and management anticipates maintaining such compliance forforeign exchange gains in the foreseeable future.prior year period.
27
Corporate
In FebruaryCorporate expenses were $10.6 million during the three months ended December 31, 2008 Moody’s changed its corporate outlook rating forcompared to $9.6 million during the Company to “Stable” from “Positive”.
The Company’sprior year period. During the three months ended December 31, 2008, minimum required contributions to its defined benefit pension plans are $9.2 million. Through June 30, 2008, the Company contributed $5.6 million to its defined benefit pension plans. In July 2008, the Company fulfilled its remaining minimum contribution requirements of $3.6 million. Management expects to contribute approximately $11$1.2 million of additional discretionary contributions duringprofessional fees were expensed related to the fourth quarter of fiscal 2008, but the actual amount of such contributions may vary.
28
Management anticipates the Company’s borrowing availability under the revolving line of credit featureconversion of the 2007 Credit Agreement, the existing balance ofSeries B common stock into Series A common stock.
Liquidity and Capital Resources
We had cash and cash equivalents of $151.8 million at June 30,December 31, 2008 and $262.3 million of borrowing capacity under the revolving credit facility component of our 2007 Credit Agreement. Our operating activities used $17.9 million of cash during the three months ended December 31, 2008 and provided $55.9 million of cash during the three months ended December 31, 2007.
Cash flows from operating activities are categorized below.
| Three months ended December 31, | ||||||||
| 2008 | 2007 | |||||||
| (in millions) | ||||||||
Collections from customers | $ | 456.4 | $ | 477.0 | ||||
Disbursements, other than interest and income taxes | (441.5 | ) | (393.4 | ) | ||||
Interest payments, net | (24.7 | ) | (26.2 | ) | ||||
Income tax payments, net | (8.1 | ) | (1.5 | ) | ||||
Cash provided by (used in) operating activities | $ | (17.9 | ) | $ | 55.9 | |||
Collections of receivables were lower during the three months ended December 31, 2008 compared to the prior year period primarily due to lower year over year net sales. There was not a significant difference in collection patterns between these two periods.
Disbursements, other than interest and income taxes during the three months ended December 31, 2008 reflect timing differences and higher per unit inventory prices in the current period partially offset by lower inventory volumes purchased.
Capital expenditures were $10.0 million during the three months ended December 31, 2008 compared to $16.8 million during the prior year period and $88.1 million for fiscal 2008. Most of the capital expenditures during fiscal 2008 were for construction of our new ductile iron pipe manufacturing operation in Bessemer, Alabama. Total capital expenditures during fiscal 2009 are expected to be between $40 million and $50 million.
We anticipate that our existing cash, cash equivalents and borrowing capacity combined with our expected operating cash flows will be sufficient to meet the Company’sour anticipated operating expenses, capital expenditures, working capital investments,pension contributions and scheduled debt service obligations and other cash requirements in the normal course of business as they become due for at least the next twelve months. However, the Company’sour ability to fulfill itsmake scheduled payments of principal of, to pay interest on or to refinance our debt serviceand to satisfy our other debt obligations will depend on the Company’supon our future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond management’sour control.
The 2007 Credit Agreement includes Term Loan A, Term Loan B and a revolving credit facility. Term Loan A was $141.6 million at December 31, 2008, accrues interest at LIBOR plus a margin of up to 175 basis points and is payable $3.5 million per quarter beginning September 2009 with the balance due May 2012. Term Loan B was $525.4 million at December 31, 2008, accrues interest at LIBOR plus 175 basis points and is payable $1.3 million per quarter with the balance due May 2014. The revolving credit facility provides for borrowings of up to $300 million, including letters of credit, and terminates in May 2012. At December 31, 2008, letters of credit outstanding under the revolving credit facility were $37.7 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 and the revolving credit facility was 150 basis points at December 31, 2008.
28
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 leverage ratio. The fee was 0.375% at December 31, 2008.
The 2007 Credit Agreement is subject to mandatory prepayment with the net cash proceeds from the sale or other disposition of any property or assets, subject to permitted reinvestments and other specified exceptions. All mandatory prepayment amounts are applied to the prepayment of the term loans pro rata between Term Loan A and Term Loan B to reduce the remaining amortization payments of each term loan.
All of our material direct and indirect U.S. restricted subsidiaries are guarantors of the 2007 Credit Agreement. Our obligations under the 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. restricted subsidiaries (including of each guarantor), a pledge of no more than 65% of the voting stock of any first-tier non-U.S. restricted subsidiary held by us or a guarantor and a pledge of all intercompany indebtedness in favor of us or any guarantor;
first-priority perfected liens on all of our material existing and after-acquired real property fee interests, subject to customary permitted liens described in the 2007 Credit Agreement; and
a negative pledge on all of our assets, including our intellectual property.
The 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 time and an interest charge coverage ratio on a quarterly basis. Borrowings under the revolving credit facility are subject to significant conditions, including compliance with the financial ratios included in the 2007 Credit Agreement and the absence of any material adverse change.
We believe we were in compliance with all applicable debt covenants at December 31, 2008 and anticipate maintaining such compliance.
We also owed $420.0 million of principal of 7 3/8% Senior Subordinated Notes (“Notes”) at December 31, 2008. Interest on the Notes is payable semi-annually and the principal is due June 2017. We may redeem any portion of the Notes after May 2012 at specified redemption prices, or prior to June 2010 we may redeem up to 35% of the 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 Notes at 101% of their principal amount, plus accrued and unpaid interest. The Notes are secured by the guarantees of essentially all of our U.S. subsidiaries, but are subordinate to the borrowings under the 2007 Credit Agreement.
29
At December 31, 2008, our credit ratings issued by Moody’s and Standard & Poor’s were as follows. These ratings are unchanged from those at September 30, 2008
| Moody’s | Standard & Poor’s | |||
Corporate credit rating | B1 | BB- | ||
2007 Credit Agreement | Ba3 | BB+ | ||
Notes | B3 | B | ||
Outlook | Stable | Stable(1) | ||
| (1) | Changed to “Negative” at February 6, 2009. |
A significant portion of the assets invested in our defined benefit pension plans are invested in equity securities. Equity markets have generally declined in value between December 31, 2008 and September 30, 2008, the end of our previous fiscal year. An analysis of the funded status of our pension plans will be performed as of January 1, 2009 for purposes of determining funding thresholds under provisions of the Pension Protection Act. We expect this analysis to be concluded during our fiscal fourth quarter. We currently anticipate total pension plan contributions during fiscal 2009 will be approximately $25 million to $35 million.
Off-Balance Sheet Arrangements
The Company doesWe do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as “structuredstructured finance entities” or “specialspecial purpose entities”,entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, there are nowe do not have any undisclosed borrowings or debt or any derivative contracts (otherother than those described in “Item 3. 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 had engaged in such relationships.
The Company usesWe use letters of credit and surety bonds in the ordinary course of business to ensure itsour performance of certain contractual obligations. At June 30,December 31 2008, the Companywe had $24.1$22.2 million of surety bonds outstanding in addition to the $38.3and $37.7 million of outstanding letters of credit.credit outstanding.
Effect of Inflation; Seasonality
The Company experiences inflation related to purchases of raw materials and purchased components. The average costs of brass ingot and high grade scrap iron, components of Mueller Co. products, increased 11% and 48%, respectively, duringOur business is dependent upon the three months ended June 30, 2008 compared to the prior year period. The average cost of low grade scrap iron, a component of U.S. Pipe products, increased 102% during the three months ended June 30, 2008 compared to the prior year period. The Company has implemented sales price increases for these products in an effort to cover rising raw material costs.
Constructionconstruction industry, activity, which is seasonal due to the impact of cold and wet weather conditions, influences the Company’s business activity.conditions. Net sales and operating income from operations have historically been lowest duringin the three month periods ending December 31 and March 31 when the northern United States and all of Canada generally experienceface weather conditions that restrictsrestrict significant construction activity. Inventory quantities generally increase in anticipation of higher sales during the three months ending June 30 and September 30. Receivables balances are generally highest during the three months ending June 30 and September 30 due to these being the highest sales periods.
29
Interest Rate Swap Contracts
The CompanyWe used interest rate swap contracts with a cumulative total notional amount of $475$425 million in force at June 30,December 31, 2008 to hedge against cash flow variability arising from changes in LIBOR in conjunction with itsour LIBOR-indexed variable rate borrowings. The CompanyWe also hashad $200 million cumulative total notional amount of forward-starting swap contracts that will replace existing swap contracts upon their expiration. TheseAll of these swap contracts were accounted for as effective hedges. During the three months and nine months ended June 30,December 31, 2008, the Companywe recorded an unrealized after-tax gainloss from these swap contracts of $5.1$10.5 million, and an after-tax loss of $5.0 million, respectively, which werewas reported as componentsa component of accumulated other comprehensive income.loss. These interest rate swap contracts had a liability fair value of $9.9$28.8 million at June 30,December 31, 2008, which was included in other noncurrent liabilities. There was no ineffectiveness related to these swap contracts for the three months or nine months ended June
30 2008.
Forward Foreign Currency Exchange Contracts
The Company usedWe entered into Canadian dollar forward exchange contracts to reduce exposure to currency fluctuations from Canadian-denominated intercompany loans. These contracts were not accounted for as hedges, andinstruments had a cumulative notional amount of $27.2$21.9 million at June 30,December 31, 2008. Gains and losses on these contractsinstruments were included in selling, general and administrative expenses. During the three months and nine months ended June 30,December 31, 2008, the Companywe recorded a lossnet losses of $0.3$1.1 million and a gain of $1.2 million, respectively, related to such contracts.
Natural Gas Swap Contracts
The CompanyWe used natural gas swap contracts with a cumulative total notional amount of 112,000approximately 734,000 MMBtu of natural gas at June 30,December 31, 2008 to hedge against cash flow variability arising from changes in natural gas prices in conjunction with itsour anticipated purchases of natural gas. These swap contracts were accounted for as effective hedges. These swap contracts had an asset fair valuehedges, though we did record $0.3 million in hedge ineffectiveness as a component of $0.6 million at June 30, 2008. Duringcost of sales during the three months and nine months ended June 30, 2008, the Company recorded unrealized after-tax gains from these swap contracts of $0.1 million and $0.5 million, respectively, which were reported as components of accumulated other comprehensive income. Hedge ineffectiveness related to these swap contacts was immaterial for the three months and nine months ended June 30,December 31, 2008.
In July and August 2008, the Company entered into These natural gas swap contracts covering 719,000 MMBtuhad a liability fair value of natural gas between August$2.2 million at December 31, 2008, and September 2009. These contracts have the effect of fixing the Company’s purchase price per MMBtu for a portion of its natural gas purchases during that timeframe, and will be accounted for as effective hedges.which was included in other current liabilities.
The Company maintainsWe maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in itsthe reports we file or submit under the Securities Exchange Act reportsof 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’s rules and forms,Commission (the “SEC”) and that such information is accumulated and communicated to the Company’sour management, including the Chief Executive Officer and the Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding the adequacy of the Company’s controls.
The Company’sOur management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Company’sour disclosure controls can prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations in all control systems, including the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of one or more persons. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and, while the Company’sour disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to
30
operate effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.
AsOur Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report, there was anannual report. Based on this evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’sthose officers have concluded that our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). Based upon the foregoing, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures arewere effective at providing reasonable assurance that all material information relating to the Company required to be included in its Exchange Act reports is reported in a timely manner.September 30, 2008.
There have been no significant changes in the Company’sour internal procedures that significantly affected, or are reasonably likely to affect, the Company’sour disclosure controls during the ninethree months ended June 30,December 31, 2008.
31
PART II - OTHER INFORMATION
| Item 1. | Legal |
Refer to the information provided in Note 1213 to the notes to the condensed consolidated financial statements presented in Item 1 of Part I of this report.
32
| Item 1A. | Risk |
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’sour Annual Report on Form 10-K for the year ended September 30, 2007,2008, all of which could materially affect the Company’sour business, financial condition or future results, should be carefully considered.results. These described risks are not the only risks facing the Company.us. Additional risks and uncertainties not currently known to the Company’s management orus that arewe currently deemeddeem to be immaterial also may materially adversely affect the Company’sour business, financial condition, and/or operating results.
31
| Item 2. | Unregistered Sales of Equity Securities and Use of |
During the three months ended June 30,December 31, 2008, the Companywe repurchased shares of itsour Series A common stock as presented below.follows.
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 | |||||
April 1-30, 2008 | — | $ | — | — | — | ||||
May 1-31, 2008 | — | — | — | — | |||||
June 1-30, 2008 | 570 | 8.07 | — | — | |||||
Total | 570 | $ | 8.07 | — | — | ||||
Period | Total number of shares purchased | 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 | ||||||
October 1-31, 2008 | — | $ | — | — | — | |||||
November 1-30, 2008 | 15,275 | (1) | 6.16 | — | — | |||||
December 1-31, 2008 | — | — | — | — | ||||||
Total | 15,275 | $ | 6.16 | — | — | |||||
(1) The total number of shares purchased consists of shares surrendered to us to pay the tax withholding obligations of employees in connection with the vesting of restricted stock units issued to them. | ||||||||||
| Item 6. |
(a) Exhibits
Exhibit No. | Document | |
3.4 | ||
10.13.2 | ||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of | |
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of | |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of | |
3233
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MUELLER WATER PRODUCTS, INC. | ||||||
| Date: | February 9, 2009 | By: | /s/ | |||
| Evan L. Hart | ||||||
| Chief Financial Officer | ||||||
3334