| |
Note 8. | Note 7. Supplemental Balance Sheet Information |
Selected supplemental balance sheetasset information is presented below.below:
| | | | | | | | | | | |
| March 31, | | September 30, |
| 2024 | | 2023 |
| | | |
| (in millions) |
Inventories: | | | |
Purchased components and raw materials | $ | 172.6 | | | $ | 176.9 | |
Work in process, net | 66.8 | | | 60.0 | |
Finished goods, net | 67.9 | | | 61.0 | |
Inventories, net | $ | 307.3 | | | $ | 297.9 | |
| | | |
Other current assets: | | | |
Prepaid expenses | $ | 17.4 | | | $ | 17.8 | |
Non-trade receivables | 1.6 | | | 1.7 | |
Maintenance and repair supplies and tooling | 5.2 | | | 4.1 | |
Income taxes | 0.8 | | | 0.8 | |
Workers' compensation reimbursement receivable | 2.0 | | | 2.2 | |
Other current assets | 5.4 | | | 4.9 | |
Total other current assets | $ | 32.4 | | | $ | 31.5 | |
| | | |
Property, plant and equipment: | | | |
Land | $ | 6.4 | | | $ | 6.4 | |
Buildings | 120.6 | | | 117.2 | |
Machinery and equipment | 529.0 | | | 525.8 | |
Construction in progress | 43.7 | | | 36.9 | |
Total property, plant and equipment | 699.7 | | | 686.3 | |
Accumulated depreciation | (390.6) | | | (374.6) | |
Property, plant and equipment, net | $ | 309.1 | | | $ | 311.7 | |
| | | |
Other noncurrent assets: | | | |
Operating lease right-of-use assets | $ | 28.2 | | | $ | 23.6 | |
Maintenance and repair supplies and tooling | 20.7 | | | 21.1 | |
Workers' compensation reimbursement receivable | 3.3 | | | 2.4 | |
Pension asset | 5.8 | | | 6.6 | |
Note receivable | 1.8 | | | 1.8 | |
Deferred financing fees | 1.4 | | | 0.7 | |
Other noncurrent assets | 1.2 | | | 2.6 | |
Total other noncurrent assets | $ | 62.4 | | | $ | 58.8 | |
|
| | | | | | | |
| December 31, | | September 30, |
| 2017 | | 2017 |
| (in millions) |
Inventories: | | | |
Purchased components and raw material | $ | 74.3 |
| | $ | 67.7 |
|
Work in process | 37.8 |
| | 35.6 |
|
Finished goods | 43.1 |
| | 35.6 |
|
| $ | 155.2 |
| | $ | 138.9 |
|
| | | |
Other current assets: | | | |
Maintenance and repair tooling | $ | 3.2 |
| | $ | 3.3 |
|
Income taxes | 11.9 |
| | 10.9 |
|
Other | 11.4 |
| | 10.2 |
|
| $ | 26.5 |
| | $ | 24.4 |
|
| | | |
Property, plant and equipment: | | | |
Land | $ | 5.5 |
| | $ | 5.6 |
|
Buildings | 51.4 |
| | 53.4 |
|
Machinery and equipment | 270.0 |
| | 266.7 |
|
Construction in progress | 25.2 |
| | 24.7 |
|
| 352.1 |
| | 350.4 |
|
Accumulated depreciation | (229.8 | ) | | (228.1 | ) |
| $ | 122.3 |
| | $ | 122.3 |
|
Other current liabilities: | | | |
Compensation and benefits | $ | 18.2 |
| | $ | 26.9 |
|
Customer rebates | 8.1 |
| | 6.5 |
|
Taxes other than income taxes | 2.4 |
| | 3.2 |
|
Warranty | 3.7 |
| | 3.5 |
|
Income taxes | 0.8 |
| | 0.9 |
|
Environmental | 1.2 |
| | 1.3 |
|
Interest | 0.7 |
| | 0.6 |
|
Restructuring | 4.2 |
| | 3.3 |
|
Other | 6.8 |
| | 7.3 |
|
| $ | 46.1 |
| | $ | 53.5 |
|
Selected supplemental liability information is presented below: | | | | | | | | | | | |
| March 31, | | September 30, |
| 2024 | | 2023 |
| | | |
| (in millions) |
Other current liabilities: | | | |
Compensation and benefits | $ | 36.6 | | | $ | 33.8 | |
Customer rebates | 14.3 | | | 14.6 | |
Income taxes payable | 13.2 | | | 8.5 | |
Warranty accrual | 9.3 | | | 8.6 | |
Deferred revenue | 3.9 | | | 9.2 | |
Returned goods accrual | 6.9 | | | 6.7 | |
Taxes other than income taxes | 0.5 | | | 2.0 | |
Operating lease liabilities | 5.2 | | | 4.9 | |
Workers' compensation accrual | 4.0 | | | 4.0 | |
Strategic reorganization and other charges liabilities | 7.2 | | | 6.6 | |
Interest payable | 5.3 | | | 5.3 | |
Other current liabilities | 8.5 | | | 11.0 | |
Total other current liabilities | $ | 114.9 | | | $ | 115.2 | |
| | | |
Other noncurrent liabilities: | | | |
Operating lease liabilities | $ | 24.1 | | | $ | 19.8 | |
Warranty accrual | 5.7 | | | 7.1 | |
Transition tax liability | 1.6 | | | 3.1 | |
Uncertain tax position liability | 4.0 | | | 5.0 | |
NMTC liability | 3.9 | | | 3.9 | |
Workers' compensation accrual | 6.0 | | | 5.9 | |
Asset retirement obligation | 4.2 | | | 4.2 | |
Deferred revenue | 5.0 | | | — | |
Deferred development grant | 2.5 | | | 2.5 | |
Other noncurrent liabilities | 2.9 | | | 2.7 | |
Total other noncurrent liabilities | $ | 59.9 | | | $ | 54.2 | |
Goodwill
Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis on September 1 of each fiscal year or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.
The following table summarizes information concerning our goodwill, all of which is within our Water Management Solutions segment, during the six months ended March 31, 2024, in millions:
| | | | | |
Note 9.Balance at September 30, 2023: | | Segment Information
Goodwill | $ | 817.8 | |
Accumulated impairment | (724.1) | |
Goodwill, net | 93.7 | |
Activity during the six months ended March 31, 2024: | |
Change in foreign currency exchange rates | 3.3 | |
Balance at March 31, 2024 | $ | 97.0 | |
Note 8. Segment Information
We have two reportable segments, Water Flow Solutions and Water Management Solutions. Water Flow Solutions’ portfolio includes iron gate valves, specialty valves and service brass products. Water Management Solutions’ portfolio includes fire hydrants, repair and installation, natural gas, metering, leak detection, and pressure management and control products and solutions. Summarized financial information for our segments is presented below.below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Six months ended |
| March 31, | | March 31, |
| 2024 | | 2023 | | 2024 | | 2023 |
| | | | | | | |
| (in millions) |
Net revenue, excluding intercompany: | | | | | | | |
Water Flow Solutions | $ | 205.8 | | | $ | 157.2 | | | $ | 347.1 | | | $ | 322.8 | |
Water Management Solutions | 147.6 | | | 175.7 | | | 262.7 | | | 324.9 | |
| $ | 353.4 | | | $ | 332.9 | | | $ | 609.8 | | | $ | 647.7 | |
Operating income (loss): | | | | | | | |
Water Flow Solutions | $ | 52.6 | | | $ | 15.2 | | | $ | 79.8 | | | $ | 39.4 | |
Water Management Solutions | 29.0 | | | 31.7 | | | 44.1 | | | 51.3 | |
Corporate | (18.1) | | | (14.0) | | | (37.6) | | | (23.8) | |
| $ | 63.5 | | | $ | 32.9 | | | $ | 86.3 | | | $ | 66.9 | |
Depreciation and amortization: | | | | | | | |
Water Flow Solutions | $ | 9.8 | | | $ | 7.8 | | | $ | 19.1 | | | $ | 15.5 | |
Water Management Solutions | 6.7 | | | 7.7 | | | 13.7 | | | 14.7 | |
Corporate | — | | | — | | | 0.1 | | | 0.1 | |
| $ | 16.5 | | | $ | 15.5 | | | $ | 32.9 | | | $ | 30.3 | |
Strategic reorganization and other charges (benefits): | | | | | | | |
Water Flow Solutions | $ | — | | | $ | — | | | $ | 0.2 | | | $ | — | |
Water Management Solutions | — | | | 0.2 | | | — | | | 0.2 | |
Corporate | 3.2 | | | 0.5 | | | 9.6 | | | (3.2) | |
| $ | 3.2 | | | $ | 0.7 | | | $ | 9.8 | | | $ | (3.0) | |
Capital expenditures: | | | | | | | |
Water Flow Solutions | $ | 6.0 | | | $ | 7.8 | | | $ | 9.9 | | | $ | 15.6 | |
Water Management Solutions | 4.1 | | | 2.8 | | | 5.9 | | | 4.9 | |
Corporate | — | | | — | | | — | | | — | |
| $ | 10.1 | | | $ | 10.6 | | | $ | 15.8 | | | $ | 20.5 | |
Water Flow Solutions disaggregated revenue: | | | | | | | |
Central | $ | 55.0 | | | $ | 44.0 | | | $ | 93.5 | | | $ | 88.0 | |
Northeast | 37.4 | | | 30.4 | | | 65.7 | | | 61.7 | |
Southeast | 53.2 | | | 28.6 | | | 90.3 | | | 62.0 | |
West | 48.3 | | | 36.4 | | | 78.9 | | | 85.6 | |
United States | 193.9 | | | 139.4 | | | 328.4 | | | 297.3 | |
Canada | 9.3 | | | 15.0 | | | 14.1 | | | 19.4 | |
Other international locations | 2.6 | | | 2.8 | | | 4.6 | | | 6.1 | |
| $ | 205.8 | | | $ | 157.2 | | | $ | 347.1 | | | $ | 322.8 | |
Water Management Solutions disaggregated revenue: | | | | | | | |
Central | $ | 41.4 | | | $ | 44.3 | | | $ | 70.6 | | | $ | 85.8 | |
Northeast | 32.7 | | | 40.6 | | | 59.5 | | | 71.8 | |
Southeast | 37.1 | | | 39.4 | | | 65.5 | | | 72.7 | |
West | 23.8 | | | 32.7 | | | 43.8 | | | 61.8 | |
United States | 135.0 | | | 157.0 | | | 239.4 | | | 292.1 | |
Canada | 7.4 | | | 12.6 | | | 13.1 | | | 19.9 | |
Other international locations | 5.2 | | | 6.1 | | | 10.2 | | | 12.9 | |
| $ | 147.6 | | | $ | 175.7 | | | $ | 262.7 | | | $ | 324.9 | |
|
| | | | | | | |
| Three months ended |
| December 31, |
| 2017 | | 2016 |
| (in millions) |
Net sales, excluding intercompany: | | | |
Infrastructure | $ | 160.1 |
| | $ | 146.3 |
|
Technologies | 18.2 |
| | 20.9 |
|
| $ | 178.3 |
| | $ | 167.2 |
|
Intercompany sales: | | | |
Infrastructure | $ | — |
| | $ | 1.1 |
|
Technologies | — |
| | — |
|
| $ | — |
| | $ | 1.1 |
|
Operating income (loss): | | | |
Infrastructure | $ | 28.1 |
| | $ | 26.2 |
|
Technologies | (4.7 | ) | | (2.2 | ) |
Corporate | (2.7 | ) | | (9.8 | ) |
| $ | 20.7 |
| | $ | 14.2 |
|
Depreciation and amortization: | | | |
Infrastructure | $ | 9.1 |
| | $ | 9.0 |
|
Technologies | 1.4 |
| | 1.2 |
|
Corporate | 0.1 |
| | 0.1 |
|
| $ | 10.6 |
| | $ | 10.3 |
|
Strategic reorganization and other charges: | | | |
Infrastructure | $ | — |
| | $ | 0.1 |
|
Technologies | 0.1 |
| | — |
|
Corporate | 3.8 |
| | 1.2 |
|
| $ | 3.9 |
| | $ | 1.3 |
|
Capital expenditures: | | | |
Infrastructure | $ | 4.8 |
| | $ | 3.0 |
|
Technologies | 1.5 |
| | 1.1 |
|
Corporate | 0.1 |
| | 0.1 |
|
| $ | 6.4 |
| | $ | 4.2 |
|
Note 9. Accumulated Other Comprehensive Income (Loss) | |
Note 10. | Accumulated Other Comprehensive Loss
|
Accumulated other comprehensive lossincome (loss) is presented below.as follows:
| | | | | | | | | | | | | | | | | |
| Pension actuarial amortization, net of income tax | | Foreign currency translation, net of income tax | | Total |
| | | | | |
| (in millions) |
Balance at September 30, 2023 | $ | (28.5) | | | $ | (20.2) | | | $ | (48.7) | |
Current period other comprehensive income | 1.2 | | | 8.9 | | | 10.1 | |
Balance at March 31, 2024 | $ | (27.3) | | | $ | (11.3) | | | $ | (38.6) | |
For the six months ended March 31, 2024, pension actuarial amortization included in the condensed consolidated statements of comprehensive income as a component of pension expense other than service was $1.6 million, net of income tax of $0.4 million. Refer to Note 5. Retirement Plans for further information. For the six months ended March 31, 2024, foreign currency translation included in the condensed consolidated statements of comprehensive income was $8.9 million, net of no income tax.
Note 10. Commitments and Contingencies
|
| | | | | | | | | | | | | | | |
| Pension, net of tax | | Foreign currency translation | | Derivative instruments, net of tax | | Total |
| |
Balance at September 30, 2017 | $ | (47.0 | ) | | $ | (3.3 | ) | | $ | (1.5 | ) | | $ | (51.8 | ) |
Current period other comprehensive income (loss) | 0.5 |
| | 0.1 |
| | 1.0 |
| | 1.6 |
|
Balance at December 31, 2017 | $ | (46.5 | ) | | $ | (3.2 | ) | | $ | (0.5 | ) | | $ | (50.2 | ) |
| |
Note 11. | Commitments and Contingencies
|
We are involved in various legal proceedings that have arisen in the normal course of operations, including the proceedings summarized below. We provide for costs relating to these matters when a loss is probable and the amount is reasonably estimable. Legal and administrative costs related to these matters are expensed as incurred. The effect of the outcome of these matters on our financial statements cannot be predicted with certainty as any such effect depends on 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 materialmaterially adverse effect on our businessfinancial position, results of operations, cash flows or prospects.liquidity.
Environmental. We are subject to a wide variety of laws and regulations concerning the protection of the environment, both with respect to the operations at many of our properties and with respect to remediating environmental conditions that may exist at our own or other properties. We accrue for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and reasonably estimable.
In the acquisition agreement pursuant to which a predecessor to Tyco International plc, now Johnson Controls International plc (“Tyco”), sold our businesses to a previous owner in August 1999, Tyco agreed to indemnify us and our affiliates, among other things, for all “Excluded Liabilities.” Excluded Liabilities include, among other things, substantially all liabilities relating to the time prior to August 1999, including environmental liabilities. The indemnity survives indefinitely. Tyco’s indemnity does not cover liabilities to the extent caused by us or the operation of our businesses after August 1999, nor does it cover liabilities arising with respect to businesses or sites acquired after August 1999. Since 2007, Tyco has engaged in multiple corporate restructurings, split-offs and divestitures. While none of these transactions directly affects the indemnification obligations of the Tyco indemnitors under the 1999 acquisition agreement, the result of such transactions is that the assets of, and control over, such Tyco indemnitors has changed. Should any of these Tyco indemnitors become financially unable or fail to comply with the terms of the indemnity, we may be responsible for such obligations or liabilities.
On July 13, 2010, Rohcan Investments Limited, the former owner of property leased by Mueller Canada Ltd. and located in Milton, Ontario, filed suit against Mueller Canada Ltd. and its directors seeking C$10.0 million in damages arising from the defendants’ alleged environmental contamination of the property and breach of lease. Mueller Canada Ltd. leased the property from 1988 through 2008. We are pursuing indemnification from a former owner for certain potential liabilities that are alleged in this lawsuit, and we have accrued for other liabilities not covered by indemnification. On December 7, 2011, the Court denied the plaintiff’s motion for summary judgment.
The purchaser of U.S. Pipe has been identified as a “potentially responsible party” (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) in connection with a former manufacturing facility operated by U.S. Pipe that was in the vicinity of a proposed Superfund site located in North Birmingham, Alabama. Under the terms of the acquisition agreement relating to our sale of U.S. Pipe, we agreed to indemnify the purchaser for certain environmental liabilities, including those arising out of the former manufacturing site in North Birmingham. Accordingly, the purchaser tendered the matter to us for indemnification, which we accepted. Ultimate liability for the site will depend on many factors that have not yet been determined, including the determination of EPA’sthe Environmental Protection Agency’s remediation costs, the number and financial viability of the other PRPs (there are four other PRPs currently) and the determination of the final allocation of the costs among the PRPs. Accordingly, becauseSince the amountamounts of such costs cannot be reasonably estimated at this time, no amounts hadhave been accrued for this matter at December 31, 2017.
Walter Energy. Each member of the Walter Energy consolidated group, which included us through December 14, 2006, is jointly and 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. Accordingly, we could be liable in the event any such federal income tax liability is incurred, and not discharged, by any other member of the Walter Energy consolidated group for any period during which we were included in the Walter Energy consolidated group.
Walter Energy effectively controlled all of our tax decisions for periods during which we were a member of the Walter Energy consolidated group for federal income tax purposes and certain combined, consolidated or unitary state and local income tax groups. Under the terms of an income tax allocation agreement between us and Walter Energy, dated May 26, 2006, we generally compute our tax liability on a stand-alone basis, but Walter Energy has sole authority to respond to and conduct all tax proceedings (including tax audits) relating to our federal income and combined state tax returns, to file all such tax returns on our behalf and to determine the amount of our liability to (or entitlement to payment from) Walter Energy for such previous periods.
As described further below, the IRS is currently alleging that Walter Energy owes substantial amounts for prior taxable periods (specifically, 1983-1994, 2000-2002 and 2005). As a matter of law, we are jointly and severally liable for any final tax determination, which means we would be liable in the event Walter Energy is unable to pay any amounts owed.
In July 2015, Walter Energy filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code before the Bankruptcy Court for the Northern District of Alabama (“Chapter 11 Case”). During the pendency of the Chapter 11 Case, we monitored the proceeding to determine whether we could be liable for all or a portion of this federal income tax liability if it is incurred, and not discharged, for any period during which we were included in the Walter Energy consolidated group. On January 11, 2016, the IRS filed a proof of claim in the Chapter 11 Case, alleging that Walter Energy owes taxes, interest and penalties for the years 1983-1994, 2000-2002 and 2005 in an aggregate amount of $554.3 million ($229.1 million of which the IRS claims is entitled to priority status in the Chapter 11 Case). The IRS asserts that its claim is based on an alleged settlement of Walter Energy’s tax liability for the 1983-1995 taxable periods in connection with Walter Energy’s prior bankruptcy proceeding in the United States Bankruptcy Court for the Middle District of Florida. In the proof of claim, the IRS included an alternative calculation in the event the alleged settlement of the prior bankruptcy court is found to be non-binding, which provides for a claim by the IRS in an aggregate amount of $860.4 million ($535.3 million of which the IRS claims is entitled to priority status in the Chapter 11 Case).
According to a quarterly report on Form 10-Q filed by Walter Energy with the SEC on November 5, 2015 (“Walter November 2015 Filing”), at September 30, 2015, Walter Energy had $33.0 million of accruals for unrecognized tax benefits in connection with the matters subject to the IRS claims. In the Walter November 2015 Filing, Walter Energy stated it believed it had sufficient accruals to address any claims, including interest and penalties, and did not believe that any potential difference between any final settlements and amounts accrued would have a material effect on Walter Energy’s financial position, but such potential difference could be material to its results of operations in a future reporting period.
According to a Form 8-K filed by Walter Energy with the SEC on April 1, 2016 (“Walter April 2016 Filing”), on March 31, 2016, Walter Energy closed on the sale of substantially all of Walter Energy’s Alabama assets pursuant to the provisions of Sections 105, 363 and 365 of the Bankruptcy Code. The Walter April 2016 Filing further stated that Walter Energy would have no further material business operations after April 1, 2016 and Walter Energy was evaluating its options with respect to the wind down of its remaining assets. The asset sale did not impact the IRS’ proof of claim filed in the bankruptcy cases and the proof of claim, as well as the alleged tax liability thereunder, remain unresolved.2024.
On February 2, 2017, at the request of Walter Energy, the Bankruptcy Court for the Northern District of Alabama signed an order converting the Chapter 11 Case to a liquidation proceeding under Chapter 7 of the U.S. Bankruptcy Code, pursuant to which Walter Energy will be wound-down and liquidated (“Chapter 7 Case”). In its objection contesting such conversion, the IRS indicated its intent to pursue collection of amounts included in the Proof of Claim from former members of the Walter Energy consolidated group.
We cannot predict whether or to what extent we may become liable for the tax-related amounts of the Walter Energy consolidated group asserted in the IRS’ proof of claim filed in the bankruptcy cases, in part, because: (i) the amounts owed by the Walter Energy consolidated group for certain of the taxable periods from 1980 through 2006 remain unresolved; (ii) it is unclear what priority, if any, the IRS will receive in the Chapter 7 Case with respect to its claims against Walter Energy, and whether and to what extent funds will be available in the Chapter 7 Case to pay priority tax claims. We also intend to vigorously assert any and all available defenses against any liability we may have as a member of the Walter Energy consolidated group. However, we cannot currently estimate our liability, if any, relating to the tax-related liabilities of Walter Energy’s consolidated tax group for tax years prior to 2007, and such liability could have a material adverse effect on our business, financial condition, liquidity or results of operations.
Indemnifications. We are a party to contracts in which it is common for us to agree to indemnify third parties for certain liabilities that arise out of or relate to the subject matter of the contract. In some cases, this indemnity extends to related liabilities arising from the negligence of the indemnified parties, but usually excludes any liabilities caused by gross negligence or willful misconduct. We cannot estimate the potential amount of future payments under these indemnities until events arise that would trigger a liability under the indemnities.
Additionally, in connection with the sale of assets and the divestiture of businesses, such as the divestitures of U.S. Pipe and Anvil, we may agree to indemnify buyers and related parties for certain losses or liabilities incurred by these parties with respect to: (i) the representations and warranties made by us to these parties in connection with the sale and (ii) liabilities related to the pre-closing operations of the assets or business sold. Indemnities related to pre-closing operations generally include certain environmental and tax liabilities and other liabilities not assumed by these parties in the transaction.
Indemnities related to the pre-closing operations of sold assets or businesses normally do not represent additional liabilities to us, but simply serve to protect these parties from potential liability associated with our obligations existing at the time of the sale. As with any liability, weWe have accrued for those pre-closing obligations that are considered probable and reasonably estimable. Should circumstances change, increasing the likelihood of payments related to a specific indemnity, we will accrue a liability when future payment is probable and the amount is reasonably estimable.
Other Matters. We offer warranties on many of our products, including products related to our metrology business line, which carry an extended warranty in many instances. Our products are often utilized in harsh environmental conditions and are exposed to water and other exogenous factors such as flooding and other environmental conditions that are beyond our control. We periodically monitor and analyze our warranty experience and costs. Accordingly, should specific events or issues occur, additional warranty accruals may also be made relating to those issues or events. Factors considered in our analyses include warranty terms, specific claim situations, general incurred and projected failure rates, the nature of product failures, product and labor costs, and general business conditions.
We are party to a number of lawsuits arising in the ordinary course of business, including product liability cases for products manufactured by us or third parties. We provide for costs relating to these matters when a loss is probable and the amount is reasonably estimable. Administrative costs related to these matters are expensed as incurred. The effect of the outcome of these matters on our future financial statements cannot be predicted with certainty as any such effect depends on the amount and timing of the resolution of such matters. While the results of litigation cannot be predicted with certainty, we believe that the final outcome of such other litigation is not likely to have a materially adverse effect on our businessfinancial position, results of operations, cash flows or prospects.liquidity.
| |
Note 12. | Note 11. Subsequent Events |
On January 24, 2018,April 23, 2024, our boardBoard of directorsDirectors declared a dividend of $0.05$0.064 per share on our common stock, payable on or about FebruaryMay 20, 20182024 to stockholders of record at the close of business on February 9, 2018.May 10, 2024.
| |
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes thereto that appear elsewhere in this report. This report contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. federal securities laws. All statements that address activities, events or developments that we intend, expect, plan, project, believethe Company intends, expects, plans, projects, believes or anticipateanticipates will or may occur in the future are forward-looking statements.statements, including, without limitation, statements regarding outlooks, projections, forecasts, expectations, commitments, trend descriptions and the ability to capitalize on trends, value creation, Board of Directors and committee composition plans, long-term strategies and the execution or acceleration thereof, operational improvements, inventory positions, the benefits of capital investments, financial or operating performance including improving sales growth and driving increased margins, capital allocation and growth strategy plans, the Company’s product portfolio positioning and the demand for the Company’s products. Forward-looking statements are based on certain assumptions and assessments made by usthe Company in light of ourthe Company’s experience and perception of historical trends, current conditions and expected future developments.
Actual results and the timing of events may differ materially from those contemplated by the forward-looking statements due to a number of factors, including, regional, national or global political, economic,without limitation, legal, reputational, audit and financial risks resulting from previously reported cybersecurity incidents and possible future cybersecurity incidents, the effectiveness of the Company’s business competitive, market and regulatory conditionscontinuity plans related thereto, and the Company’s ability to recover under its cybersecurity insurance policies; logistical challenges and supply chain disruptions, geopolitical conditions, including the Israel-Hamas war, public health crises, or other events; inventory and in-stock positions of our distributors and end customers; an inability to realize the anticipated benefits from our operational initiatives, including our large capital investments in Chattanooga and Kimball, Tennessee, and Decatur, Illinois, plant closures, and reorganization and related strategic realignment activities; an inability to attract or retain a skilled and diverse workforce, including executive officers, increased competition related to the workforce and labor markets; an inability to protect the Company’s information systems against further service interruption, misappropriation of data or breaches of security; failure to comply with personal data protection and privacy laws; cyclical and changing demand in core markets such as municipal spending, residential construction, and natural gas distribution; government monetary or fiscal policies; the impact of adverse weather conditions; the impact of manufacturing and product performance; the impact of wage, commodity and materials price inflation; foreign exchange rate fluctuations; the impact of higher interest rates; the impact of warranty charges and claims, and related accommodations; the strength of our brands and reputation; an inability to successfully resolve significant legal proceedings or government investigations; compliance with environmental, trade and anti-corruption laws and regulations; climate change and legal or regulatory responses thereto; changing regulatory, trade and tariff conditions; the failure to integrate and/or realize any of the anticipated benefits of acquisitions or divestitures; an inability to achieve some or all of our Environmental, Social and Governance goals; and other factors that are described underin the section entitled “RISK FACTORS” in Item 1A.1A of our annual reportthe Company’s most recent Annual Report on Form 10-K forand later filings on Form 10-Q, as applicable.
Forward-looking statements do not guarantee future performance and are only as of the year ended September 30, 2017 (“Annual Report”).date they are made. The Company undertakes no duty to update its forward-looking statements except as required by law. Undue reliance should not be placed on any forward-looking statements. The Company does not haveYou are advised to review any intention or obligation to update forward-looking statements, except as required by law.
Unless the context indicates otherwise, whenever we refer to a particular year, we mean our fiscal year ended or ending September 30 in that particular calendar year. We manage our businesses and report operations through two business segments, Infrastructure and Technologies, based largely on the products sold and the customers served.
Overview
Organization
On October 3, 2005, Walter Energy acquired all outstanding shares of capital stock representing the Mueller Co. and Anvil businesses and contributed them to its U.S. Pipe business to form the Company. In June 2006, we completed an initial public offering of 28,750,000 shares of Series A common stock and in December 2006, Walter Energy distributed to its shareholders all of its equity interests infurther disclosures the Company consisting of all ofmakes on related subjects in subsequent Forms 10-K, 10-Q, 8-K and other reports filed with the Company’s outstanding shares of Series B common stock. On January 28, 2009, each share of Series B common stock was converted into one share of Series A common stockU.S. Securities and the Series A designation was discontinued.Exchange Commission.
On January 6, 2017, we sold our former Anvil segment. Amounts applicable to Anvil have been classified as discontinued operations.
Overview
Business
We expecthave two reportable segments: Water Flow Solutions and Water Management Solutions. Water Flow Solutions’ portfolio includes iron gate valves, specialty valves and service brass products. Water Flow Solutions represented 50% of our two primary end markets,fiscal 2023 net sales. Water Management Solutions’ portfolio includes fire hydrants, repair and installation, natural gas, metering, leak detection, and pressure management and control products and solutions. Water Management Solutions represented 50% of our fiscal 2023 net sales.
Approximately 60% to 65% of our 2023 net sales were associated with the repair and replacement of water infrastructure driven by municipal spending and new water infrastructure installation driven by residential construction to grow in 2018. We expect the residential construction market to grow faster than municipal spending.
Infrastructure
We estimate approximately 60% of Infrastructure’s 2017 net sales were for repair and replacement directly related to municipal water infrastructure, spending, approximately 25% to 30% were related to residential construction activity and approximately 5% to 10% of net sales were related to natural gas utilities.utilities and industrial applications.
Infrastructure
In October 2023, the Israel-Hamas war caused a temporary shutdown of our facility in Ariel, Israel. While we have reopened the facility, the war has caused supply interruptions and may hinder our ability to acquire the necessary materials we
need to make our products. Supply disruptions from lack of access to materials have adversely impacted, and continue to adversely impact, our ability to produce and deliver our products from our facility in Ariel, Israel. Additionally, production at this facility has been adversely impacted by limited labor availability in the region. We have made investments in recruiting and training new team members, expanding our suppliers and expediting product shipments to increase production levels and meet customer delivery times.
As announced on October 28, 2023, we identified a cybersecurity incident impacting certain internal operations and information technology systems. We believe we have contained and eliminated the unauthorized access and activity. All of our facilities are fully operational and have returned to normalized operations.
The cybersecurity incident consisted of unauthorized access and deployment of ransomware by a third party to a portion of our internal information system infrastructure. The incident caused temporary disruptions and limitations of access to portions of our business applications supporting aspects of our operations including shipping, receiving and payment functions. Operational delays and investigation and remediation costs in connection with the incident adversely impacted our results for the first quarter of 2024; however, on a fiscal year-to-date basis, there was no impact to our consolidated net sales. We have restored the impacted applications and systems. As reported on November 29, 2023, we identified a separate cybersecurity incident, which primarily related to a system that was at the end of its useful life and was already in the process of being replaced in the ordinary course of business and the replacement of this system was concluded during our second quarter.
In the first quarter of fiscal 2024, we incurred approximately $1.5 million of expenses related to the cybersecurity incidents. We continue to analyze and remediate the impacts of the cybersecurity incidents, including making enhancements to our cybersecurity processes and analyzing the data accessed, exfiltrated or otherwise impacted in connection with the cybersecurity incidents.
Although we believe that our channel and customer inventory levels normalized during the first quarter of 2024, the external operating environment remains uncertain. We expect to continue to face challenges emanating from the higher interest rate environment, the Israel-Hamas war and labor inflation and availability. From a comparable perspective, in fiscal year 2023, we benefited from fulfilling an elevated backlog for certain products, which has now become more normalized as we have reduced short-cycle backlog across our portfolio, particularly with regard to iron gate valve and hydrant products. For fiscal year 2024, we anticipate that consolidated net sales will be flat to down two percent as compared with fiscal year 2023. We anticipate stable demand in the municipal repair and replacement end market driven by the aging water infrastructure despite budgetary pressures on municipalities. Additionally, we anticipate that new residential construction activity will stabilize relative to the challenges we experienced in fiscal 2023 where Census data indicates that total housing starts decreased 12.9% compared to 2022. In April 2024, Blue Chip Economic Indicators forecasted a 0.7% increase in housing starts for the calendar year 2024 as compared to the calendar year 2023. Finally, we anticipate that high interest rates will continue to negatively impact new lot and land development, depending on the geography.
For the remainder of fiscal 2024, we anticipate that inflation will continue to modestly impact manufacturing costs, primarily due to wage inflation but also raw materials and purchased parts. Inventory for the first half of fiscal 2024 experienced approximately 0.1% deflation. We expect external challenges to persist during the balance of fiscal year 2024. We will continue to monitor the market and economic conditions impacting our business and take appropriate actions to address inflationary and other cost pressures such as price increases, on valves, hydrantscost containment measures and gas products effective in February 2018 for its U.S. and Canadian markets. We believe that some customers may accelerate orders prior to the effective datesupplier management, among other things.
Technologies
The municipal market is the key end market for Technologies. These businesses are project-oriented and depend on customer adoption of their technology-based products and services. Mueller Systems is benefiting from its recent introduction of new, longer-range radio capabilities, and its growth strategy is focused on the AMI segment of the market. Mueller Systems’ 2018 first quarter AMI backlog was lower at December 31, 2017 than at December 31, 2016. Echologics had a greater number of projects under contract at at December 31, 2017 than at December 31, 2016.
Results of Operations
Three Months Ended DecemberMarch 31, 20172024 Compared to Three Months Ended DecemberMarch 31, 20162023
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2024 |
| Water Flow Solutions | | Water Management Solutions | | Corporate | | Total |
| | | | | | | |
| (in millions) |
Net sales | $ | 205.8 | | | $ | 147.6 | | | $ | — | | | $ | 353.4 | |
Gross profit | $ | 77.2 | | | $ | 53.2 | | | $ | — | | | $ | 130.4 | |
Operating expenses: | | | | | | | |
Selling, general and administrative | 24.6 | | | 24.2 | | | 14.9 | | | 63.7 | |
Strategic reorganization and other charges | — | | | — | | | 3.2 | | | 3.2 | |
Total operating expenses | 24.6 | | | 24.2 | | | 18.1 | | | 66.9 | |
Operating income (loss) | $ | 52.6 | | | $ | 29.0 | | | $ | (18.1) | | | 63.5 | |
Non-operating expenses: | | | | | | | |
Pension expense other than service | | | | | | | 1.0 | |
Interest expense, net | | | | | | | 3.6 | |
| | | | | | | |
Income before income taxes | | | | | | | 58.9 | |
Income tax expense | | | | | | | 14.6 | |
Net income | | | | | | | $ | 44.3 | |
| | | | | | | |
| Three months ended March 31, 2023 |
| Water Flow Solutions | | Water Management Solutions | | Corporate | | Total |
| | | | | | | |
| (in millions) |
Net sales | $ | 157.2 | | | $ | 175.7 | | | $ | — | | | $ | 332.9 | |
Gross profit | $ | 37.2 | | | $ | 60.6 | | | $ | — | | | $ | 97.8 | |
Operating expenses: | | | | | | | |
Selling, general and administrative | 22.0 | | | 28.7 | | | 13.5 | | | 64.2 | |
Strategic reorganization and other charges | — | | | 0.2 | | | 0.5 | | | 0.7 | |
Total operating expenses | 22.0 | | | 28.9 | | | 14.0 | | | 64.9 | |
Operating income (loss) | $ | 15.2 | | | $ | 31.7 | | | $ | (14.0) | | | 32.9 | |
Non-operating expenses: | | | | | | | |
| | | | | | | |
Pension benefit other than service | | | | | | | 1.0 | |
Interest expense, net | | | | | | | 3.9 | |
Income before income taxes | | | | | | | 28.0 | |
Income tax expense | | | | | | | 6.7 | |
Net income | | | | | | | $ | 21.3 | |
|
| | | | | | | | | | | | | | | |
| Three months ended December 31, 2017 |
| Infrastructure | | Technologies | | Corporate | | Total |
| (in millions) |
Net sales | $ | 160.1 |
| | $ | 18.2 |
| | $ | — |
| | $ | 178.3 |
|
Gross profit | $ | 52.5 |
| | $ | 2.9 |
| | $ | — |
| | $ | 55.4 |
|
Operating expenses: | | | | | | | |
Selling, general and administrative | 24.4 |
| | 7.5 |
| | 7.9 |
| | 39.8 |
|
Gain on sale of idle property | — |
| | — |
| | (9.0 | ) | | (9.0 | ) |
Strategic reorganization and other charges | — |
| | 0.1 |
| | 3.8 |
| | 3.9 |
|
| 24.4 |
| | 7.6 |
| | 2.7 |
| | 34.7 |
|
Operating income (loss) | $ | 28.1 |
| | $ | (4.7 | ) | | $ | (2.7 | ) | | 20.7 |
|
Pension costs other than service | | | | | | | 0.2 |
|
Interest expense, net | | | | | | | 5.2 |
|
Income before income taxes | | | | | | | 15.3 |
|
Income tax benefit | | | | | | | (39.8 | ) |
Income from continuing operations | | | | | | | $ | 55.1 |
|
| | | | | | | |
| Three months ended December 31, 2016 |
| Infrastructure | | Technologies | | Corporate | | Total |
| (in millions) |
Net sales | $ | 146.3 |
| | $ | 20.9 |
| | $ | — |
| | $ | 167.2 |
|
Gross profit | $ | 47.6 |
| | $ | 4.2 |
| | $ | — |
| | $ | 51.8 |
|
Operating expenses: | | | | | | | |
Selling, general and administrative | 21.3 |
| | 6.4 |
| | 8.6 |
| | 36.3 |
|
Other charges | 0.1 |
| | — |
| | 1.2 |
| | 1.3 |
|
| 21.4 |
| | 6.4 |
| | 9.8 |
| | 37.6 |
|
Operating income (loss) | $ | 26.2 |
| | $ | (2.2 | ) | | $ | (9.8 | ) | | 14.2 |
|
Pension costs other than service | | | | | | | 0.3 |
|
Interest expense, net | | | | | | | 6.4 |
|
Income before income taxes | | | | | | | 7.5 |
|
Income tax expense | | | | | | | 2.1 |
|
Income from continuing operations | | | | | | | $ | 5.4 |
|
Consolidated Analysis
Net sales forin the quarterthree months ended DecemberMarch 31, 2017 increased $11.12024 were $353.4 million to $178.3 million from $167.2 million due primarily to increased shipment volumes, including the addition of Singer Valve, and improved pricing at Infrastructure, which were partially offset by volume decline at Technologies.
Gross profit for the quarter ended December 31, 2017 increased $3.6 million to $55.4 million from $51.8as compared with $332.9 million in the prior year period, an increase of $20.5 million or 6.2%, primarily due toas a result of higher pricing across most product lines and overall increased shipment volumes, improved pricingvolumes.
Gross profit in the three months ended March 31, 2024 was $130.4 million as compared with $97.8 million in the prior year period, an increase of $32.6 million or 33.3%, primarily as a result of an increase in both favorable manufacturing performance and Infrastructure's improved operating efficiencies and other manufacturing cost savings,pricing. These increases were partially offset by increased material costs.Cost of sales inflation of approximately 2% while inflation impacted Gross profit by approximately 3%. As a result, Gross margin increased to 31.1% forwas 36.9% in the quarterthree months ended DecemberMarch 31, 20172024 as compared to 31.0%with 29.4% in the prior year period.
Selling, general and administrative expenses (“SG&A”&A”) forin the quarterthree months ended DecemberMarch 31, 2017 increased to $39.82024 were $63.7 million from $36.3as compared with $64.2 million in the prior year period, a decrease of $0.5 million or 0.8%, primarily due primarily to the acquisition of Singer Valve during the second quarter of last yeara decrease in salary and higher personnel-related expenses.benefit expense associated with our restructuring activities, as well as lower third-party fees, and engineering materials, partially offset by approximately 3% inflation, an increase in bad debt expense and incentives. SG&A as a percentage of net sales was 22.3%18.0% and 19.3% for the three months ended March 31, 2024 and March 31, 2023, respectively.
Strategic reorganization and other charges in the quarterthree months ended DecemberMarch 31, 20172024 were $3.2 million and 21.7%primarily consisted of expenses associated with our previously announced leadership transition, severance and certain transaction-related expenses. Strategic reorganization and other charges for the three months ended March 31, 2023 were $0.7 million and primarily consisted of severance and certain transaction-related expenses.
Net interest expense in the three months ended March 31, 2024 was $3.6 million as compared with $3.9 million in the prior year period.
Interest expense, net declined $1.2period, a decrease of $0.3 million in the quarter ended December 31, 2017 comparedor 7.7%, primarily due to the prior year period.higher interest income as a result of higher interest rates, partially offset by lower capitalized interest. The components of net interest expense net are provided below.below:
| | | | | | | | | | | |
| Three months ended |
| March 31, |
| 2024 | | 2023 |
| | | |
| (in millions) |
4.0% Senior Notes | $ | 4.5 | | | $ | 4.5 | |
Deferred financing costs amortization | 0.2 | | | 0.3 | |
ABL Agreement | 0.3 | | | 0.2 | |
Capitalized interest | — | | | (0.8) | |
Other interest expense | 0.1 | | | 0.2 | |
Total interest expense | 5.1 | | | 4.4 | |
Interest income | (1.5) | | | (0.5) | |
Interest expense, net | $ | 3.6 | | | $ | 3.9 | |
|
| | | | | | | |
| Three months ended |
| December 31, |
| 2017 | | 2016 |
| (in millions) |
Term Loan | $ | 4.8 |
| | $ | 5.1 |
|
Interest rate swap contracts | 0.4 |
| | 0.6 |
|
Deferred financing costs amortization | 0.5 |
| | 0.4 |
|
ABL Agreement | 0.2 |
| | 0.2 |
|
Other interest expense | 0.1 |
| | 0.2 |
|
| 6.0 |
| | 6.5 |
|
Interest income | (0.8 | ) | | (0.1 | ) |
| $ | 5.2 |
| | $ | 6.4 |
|
On December 22, 2017, tax legislation was enacted that made significant revisions to federal income tax laws, including lowering the corporate income tax rate to 21 percent from 35 percent, overhauling the taxation of income earned outside the United States and eliminating or limiting certain deductions. Since the effective date of the tax rate change was January 1, 2018, we are subject to a blended federal statutory tax rate of 24.5 percent throughout fiscal 2018.
For the quarter ended December 31, 2017, we reported a net income tax benefit of $39.8 million, which was driven by a benefit of $42.6 million related to remeasurement of our net deferred income tax liabilities using the enacted tax rates in effect when we expect to recognize the related tax expenses or benefits. Other than this remeasurement benefit, income tax expense was $2.8 million, or 18.3 percent of income before income taxes. For the 2017 first quarter, income tax expense was 28.0 percent of income before income taxes. The reconciliation between the U.S. federal statutory income tax rate and the effective income tax rate is presented below.below:
| | | | | | | | Three months ended |
| Three months ended |
| December 31, |
| 2017 | | 2016 |
| March 31, | | | March 31, |
| 2024 | | | 2024 | | 2023 |
U.S. federal statutory income tax rate | 24.5 | % | | 35.0 | % | U.S. federal statutory income tax rate | 21.0 | % | | 21.0 | % |
Adjustments to reconcile to the effective tax rate: | | | |
State income taxes, net of federal benefit | 4.3 |
| | 3.9 |
|
Valuation allowance adjustment related to stock compensation | (5.7 | ) | | — |
|
Excess tax benefits related to stock compensation | (2.8 | ) | | (7.6 | ) |
Domestic production activities deduction | (1.6 | ) | | (3.3 | ) |
State income taxes, net of federal benefit | |
State income taxes, net of federal benefit | |
| Tax credits | (0.9 | ) | | (0.8 | ) |
Tax credits | |
Tax credits | |
Global Intangible Low-Taxed Income | |
Foreign income tax rate differential | |
Nondeductible compensation | |
Uncertain tax positions | |
| Other | 0.5 |
| | 0.8 |
|
| 18.3 | % | | 28.0 | % |
Remeasurement of deferred taxes for change in rates | (278.4 | )% | | — | % |
Other | |
Other | |
Effective income tax rate | (260.1 | )% | | 28.0 | % | Effective income tax rate | 24.8 | % | | 23.9 | % |
Also under this legislation, we are subject to a one-time transition tax on undistributed foreign earnings, but the amount of this tax is not reasonably estimable at this time. Accordingly, no provision for this tax has been recorded, but will be recorded later in 2018.
Segment Analysis
Infrastructure
Water Flow Solutions
Net sales forin the quarterthree months ended DecemberMarch 31, 2017 increased 9.4% to $160.12024 were $205.8 million as compared to $146.3with $157.2 million in the prior year period, an increase of $48.6 million or 30.9%, primarily due toas a result of higher shipment volumes the addition of Singer Valve and favorable pricing.higher pricing across most product lines.
Gross profit forin the quarterthree months ended DecemberMarch 31, 2017 increased to $52.52024 was $77.2 million from $47.6as compared with $37.2 million in the prior year period, due to increased shipmentan increase of $40.0 million or 107.5%. This increase was primarily a result of higher volumes improved operatingacross most product lines, favorable manufacturing performance driven by overhead, material and labor efficiencies, as well as higher pricing. Additionally, inflation negatively impacted Cost of sales by approximately 2% and other manufacturing cost savings.Gross profit by approximately 4%. As a result, Gross margin increased to 32.8% forwas 37.5% in the quarterthree months ended DecemberMarch 31, 2017 compared to 32.5%2024 and 23.7% in the prior year period.
SG&A forin the quarterthree months ended DecemberMarch 31, 20172024 was $24.6 million as compared with $22.0 million in the prior year period, an increase of $2.6 million or 11.8%, primarily as a result of higher incentives, inflation of approximately 3%, as well as increased travel expenses partially offset by lower salary and benefit expense associated with our restructuring activities, and third-party fees. SG&A as a percentage of net sales was 12.0% and 14.0% in the three months ended March 31, 2024 and 2023, respectively.
Water Management Solutions
Net sales in the three months ended March 31, 2024 were $147.6 million as compared with $175.7 million in the prior year period, a decrease of $28.1 million or 16.0%, as a result of lower volumes across most products lines partially offset by higher pricing across most product lines. Net sales were impacted nominally by the Israel-Hamas war.
Gross profit in the three months ended March 31, 2024 was $53.2 million as compared with $60.6 million in the prior year period, a decrease of $7.4 million or 12.2%. The decrease was primarily a result of lower volumes across most product lines and impacts of the Israel-Hamas war, partially offset by favorable manufacturing performance driven by material efficiencies and lower supply chain costs and higher pricing. Gross margin was 36.0% in the three months ended March 31, 2024 as compared with 34.5% in the prior year period.
SG&A in the three months ended March 31, 2024 was $24.2 million as compared with $28.7 million in the prior year period, a decrease of $4.5 million or 15.7%, primarily due to $24.4lower salary and benefit expense associated with our restructuring activities, third-party fees and engineering material expenses, which were partially offset by increased costs related to incentives as well as approximately 4% inflation and increased bad debt expense. SG&A as a percentage of net sales was 16.4% and 16.3% in the three months ended March 31, 2024 and 2023, respectively.
Corporate
SG&A in the three months ended March 31, 2024 was $14.9 million from $21.3as compared with $13.5 million in the prior year period, an increase of $1.4 million or 10.4%, primarily as a result of higher incentive costs and third-party fees, as well as approximately 3% inflation.
Six Months Ended March 31, 2024 Compared to Six Months Ended March 31, 2023
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended March 31, 2024 |
| Water Flow Solutions | | Water Management Solutions | | Corporate | | Total |
| | | | | | | |
| (in millions) |
Net sales | $ | 347.1 | | | $ | 262.7 | | | $ | — | | | $ | 609.8 | |
Gross profit | $ | 123.8 | | | $ | 92.9 | | | $ | — | | | $ | 216.7 | |
Operating expenses: | | | | | | | |
Selling, general and administrative | 43.8 | | | 48.8 | | | 28.0 | | | 120.6 | |
Strategic reorganization and other charges | 0.2 | | | — | | | 9.6 | | | 9.8 | |
Total operating expenses | 44.0 | | | 48.8 | | | 37.6 | | | 130.4 | |
Operating income (loss) | $ | 79.8 | | | $ | 44.1 | | | $ | (37.6) | | | 86.3 | |
Non-operating expenses: | | | | | | | |
Pension expense other than service | | | | | | | 2.0 | |
Interest expense, net | | | | | | | 6.9 | |
Other expense | | | | | | | 1.6 | |
Income before income taxes | | | | | | | 75.8 | |
Income tax expense | | | | | | | 17.2 | |
Net income | | | | | | | $ | 58.6 | |
| | | | | | | |
| Six months ended March 31, 2023 |
| Water Flow Solutions | | Water Management Solutions | | Corporate | | Total |
| | | | | | | |
| (in millions) |
Net sales | $ | 322.8 | | | $ | 324.9 | | | $ | — | | | $ | 647.7 | |
Gross profit | $ | 83.8 | | | $ | 107.2 | | | $ | — | | | $ | 191.0 | |
Operating expenses: | | | | | | | |
Selling, general and administrative | 44.4 | | | 55.7 | | | 27.0 | | | 127.1 | |
Strategic reorganization and other charges (benefits) | — | | | 0.2 | | | (3.2) | | | (3.0) | |
Total operating expenses | 44.4 | | | 55.9 | | | 23.8 | | | 124.1 | |
Operating income (loss) | $ | 39.4 | | | $ | 51.3 | | | $ | (23.8) | | | 66.9 | |
Non-operating expenses: | | | | | | | |
| | | | | | | |
Pension benefit other than service | | | | | | | 1.9 | |
Interest expense, net | | | | | | | 7.6 | |
Income before income taxes | | | | | | | 57.4 | |
Income tax expense | | | | | | | 13.6 | |
Net income | | | | | | | $ | 43.8 | |
Consolidated Analysis
Net sales in the six months ended March 31, 2024 were $609.8 million as compared with $647.7 million in the prior year period. SG&A was 15.2% and 14.6%a decrease of $37.9 million or 5.9%, primarily as a result of a decrease in net sales for the quarters ended December 31, 2017 and 2016, respectively. These increases in SG&A were primarily due tovolumes partially offset by higher personnel-related expenses and the additional SG&A of Singer Valve.pricing across most product lines.
Technologies
Net salesGross profit in the quartersix months ended DecemberMarch 31, 2017 declined to $18.22024 was $216.7 million from $20.9as compared with $191.0 million in the prior year period, an increase of $25.7 million or 13.5%, primarily dueas a result of higher pricing and favorable manufacturing performance related to lower AMI shipment volumes,labor, overhead, material and logistic efficiencies, partially offset by overall lower volumes. As a result, Gross margin increased leak detection sales.
Gross profit600 basis points to 35.5% in the quartersix months ended DecemberMarch 31, 2017 was $2.9 million2024 as compared to $4.2 millionwith 29.5% in the prior year period. Gross margin declined to 15.9%
Selling, general and administrative expenses (“SG&A”) in the quartersix months ended DecemberMarch 31, 20172024 were $120.6 million as compared to 20.1% in the prior year period. These declines were primarily due to lower shipment volumes.
SG&A increased to $7.5 million in the quarter ended December 31, 2017 compared to $6.4with $127.1 million in the prior year period, a decrease of $6.5 million or 5.1%, primarily due to personnel-related expenses.a decrease in salary and benefit expense associated with our restructuring activities, third-party fees, commission, and engineering materials expense, partially offset by higher costs associated with approximately 3% inflation, the impact of foreign currency fluctuation and higher incentives. SG&A increased to 41.2%as a percentage of net sales was 19.8% and 19.6% for the quartersix months ended DecemberMarch 31, 2017 from 30.6% of net sales2024 and March 31, 2023, respectively.
Strategic reorganization and other charges in the prior year period.six months ended March 31, 2024 were $9.8 million, primarily consisting of expenses associated with our previously announced leadership transition, approximately $1.5 million of expenses related to the cybersecurity incidents, severance, and certain transaction-related expenses. Strategic reorganization and other charges for the six months ended March 31, 2023 were a benefit of $3.0 million, which primarily consisted of a $4.0 million gain, before tax, on the sale of our Aurora, Illinois facility, which was partially offset by certain transaction-related expenses.
Corporate
SG&A was $7.9 millionNet interest expense in the quartersix months ended DecemberMarch 31, 20172024 was $6.9 million as compared to $8.6with $7.6 million in the prior year period.period, a decrease of $0.7 million or 9.2%, primarily due to higher interest income as a result of higher interest rates, partially offset by lower capitalized interest. The components of net interest expense are provided below:
| | | | | | | | | | | |
| Six months ended |
| March 31, |
| 2024 | | 2023 |
| | | |
| (in millions) |
4.0% Senior Notes | $ | 9.0 | | | $ | 9.0 | |
Deferred financing costs amortization | 0.5 | | | 0.6 | |
ABL Agreement | 0.5 | | | 0.4 | |
Capitalized interest | (0.1) | | | (1.5) | |
Other interest expense | 0.3 | | | 0.3 | |
Total interest expense | 10.2 | | | 8.8 | |
Interest income | (3.3) | | | (1.2) | |
Interest expense, net | $ | 6.9 | | | $ | 7.6 | |
| | | |
Other expense in the six months ended March 31, 2024 was $1.6 million from the release of an indemnification receivable related to an expired uncertain tax position. There was no Other expense in the six months ended March 31, 2023.
The reconciliation between the U.S. federal statutory income tax rate and the effective income tax rate is presented below:
| | | | | | | | | | | |
| Six months ended |
| March 31, |
| 2024 | | 2023 |
U.S. federal statutory income tax rate | 21.0 | % | | 21.0 | % |
Adjustments to reconcile to the effective tax rate: | | | |
State income taxes, net of federal benefit | 3.4 | | | 3.4 | |
Excess tax deficit related to stock-based compensation | 0.1 | | | 0.3 | |
Tax credits | (2.1) | | | (1.5) | |
Global Intangible Low-Taxed Income | 0.2 | | | 0.8 | |
Foreign income tax rate differential | (0.8) | | | (1.6) | |
Nondeductible compensation | 1.0 | | | 0.6 | |
Uncertain tax positions | (1.6) | | | — | |
Valuation allowances | — | | | (0.2) | |
Other | 1.5 | | | 0.9 | |
Effective income tax rate | 22.7 | % | | 23.7 | % |
During the six months ended March 31, 2024, we recorded $1.6 million in income tax benefits due to the release of an uncertain tax position that expired on December 31, 2023.
Segment Analysis
Water Flow Solutions
Net sales in the six months ended March 31, 2024 were $347.1 million as compared with $322.8 million in the prior year period, an increase of $24.3 million or 7.5%, primarily as a result of higher pricing and higher volumes across most product lines.
Gross profit in the six months ended March 31, 2024 was $123.8 million as compared with $83.8 million in the prior year period, an increase of $40.0 million or 47.7%. Gross margin was 35.7% in the six months ended March 31, 2024 and 26.0% in the prior year period. This increase was primarily a result of higher pricing across most product lines, favorable manufacturing performance driven by material, labor, overhead, and logistic efficiencies, and higher volumes across most product lines. Additionally, Cost of sales and Gross profit were negatively impacted by approximately 1% inflation.
SG&A in the six months ended March 31, 2024 was $43.8 million as compared with $44.4 million in the prior year period, a decrease of $0.6 million or 1.4%, primarily as a result of lower salary and benefit expense associated with our restructuring activities, and third-party fees, partially offset by approximately 3% inflation and increased incentives. SG&A as a percentage of net sales was 12.6% and 13.8% in the six months ended March 31, 2024 and 2023, respectively.
Water Management Solutions
Net sales in the six months ended March 31, 2024 were $262.7 million as compared with $324.9 million in the prior year period, a decrease of $62.2 million or 19.1%, primarily as a result of lower volumes across most product lines partially offset by higher pricing across most product lines.
Gross profit in the six months ended March 31, 2024 was $92.9 million as compared with $107.2 million in the prior year period, a decrease of $14.3 million or 13.3%. This decrease was primarily a result of lower volumes, offset by pricing and favorable manufacturing performance. Gross margin was 35.4% in the six months ended March 31, 2024 and 33.0% in the prior year period. Additionally, Cost of sales and Gross margin were impacted approximately 1% by deflation.
SG&A in the six months ended March 31, 2024 was $48.8 million as compared with $55.7 million in the prior year period, a decrease of $6.9 million or 12.4%, primarily due to lower salary and benefit expense associated with our restructuring activities, third-party fees, and engineering materials expense, partially offset by unfavorable foreign currency fluctuation, and higher costs associated with approximately 4% inflation and increased incentives. SG&A as a percentage of net sales was 18.6% and 17.1% in the six months ended March 31, 2024 and 2023, respectively.
Corporate
SG&A in the six months ended March 31, 2024 was $28.0 million as compared with $27.0 million in the prior year period, an increase of $1.0 million or 3.7%, primarily as a result of higher costs associated with approximately 3% inflation, increased incentives, higher third-party fees and unfavorable foreign currency fluctuation, partially offset by lower salary and benefit expense associated with our restructuring activities, and lower travel expense.
Liquidity and Capital Resources
We had cash and cash equivalents on hand of $348.3$179.2 million at DecemberMarch 31, 20172024 and $96.3$162.6 million of additional borrowing capacity under our ABL Agreement based on DecemberMarch 31, 2017 data, which, along with cash generated by operations, would be our source of incremental liquidity. Undistributed earnings from our subsidiaries in Canada and China are considered to be permanently invested outside the United States.2024 data. At DecemberMarch 31, 2017,2024, cash and cash equivalents included $12.1$76.2 million, $1.7 million and $7.2$9.0 million in Israel, Canada, and China, respectively.
We expect the recently enacted tax law changesdeclared a quarterly dividend of $0.064 per share on April 23, 2024, payable on or about May 20, 2024 to benefit our liquidity through reductionstockholders of record as of May 10, 2024, which will result in overall income tax liability and through provisions allowing immediate deductibility for capital assets placed in service in the next five years. This benefit will be partially offset by payment of the transition tax discussed above. However, the transition tax may be paid over eight years, and we do not expect any payments to have a material liquidity impact in any particular year.an estimated $10.0 million cash outlay.
We repurchased shares$10.0 million of our outstanding common stock for $10 million during the quartersix months ended DecemberMarch 31, 2017,2024 under our publicly announced share repurchase program, and as of March 31, 2024, we had $180$80.0 million remaining onunder our share repurchase authorization at that date.authorization.
The ABL Agreement and Term Loan4.0% Senior Notes contain customary representations and warranties, covenants and provisions governing an event of default. TheThese covenants restrictlimit our ability to engage in certain specified activities, including but not limited to the payment of dividends and the redemption of our common stock.
Cash flows fromNet cash provided by operating activities was $62.2 million during the six months ended March 31, 2024 as compared with net cash used in operating activities of continuing operations are categorized below.
|
| | | | | | | |
| Three months ended |
| December 31, |
| 2017 | | 2016 |
| (in millions) |
Collections from customers | $ | 216.1 |
| | $ | 194.6 |
|
Disbursements, other than interest and income taxes | (211.3 | ) | | (203.5 | ) |
Interest payments, net | (4.4 | ) | | (5.6 | ) |
Income tax refunds (payments), net | 0.1 |
| | (5.4 | ) |
Cash provided by (used in) operating activities | $ | 0.5 |
| | $ | (19.9 | ) |
Collections from customers were higher during the three months ended December 31, 2017 compared to the prior year period primarily due to the timing of cash receipts and net sales growth.
Increased disbursements, other than interest and income taxes, during the three months ended December 31, 2017 reflect higher purchasing activity, higher costs for raw materials, and differences in the timing of expenditures.
Income tax payments were lower during the three months ended December 31, 2017 compared to the prior year period because we began the current year quarter with U.S. federal income taxes prepaid.
Capital expenditures were $6.4 million in the three months ended December 31, 2017 compared to $4.2$22.2 million in the prior year period. We estimate 2018The increase in net operating cash flow was primarily driven by higher net income and improvements in working capital compared with the prior year period, including a reduction in Inventory purchases as well as a lesser impact of Accounts payable and Other current liabilities.
Capital expenditures were $15.8 million in the six months ended March 31, 2024 as compared with $20.5 million in the prior year period. Capital expenditures decreased primarily as a result of lower expenditures associated with the new Decatur foundry as compared with the prior year period. For the fiscal year 2024, we have provided guidance that our capital expenditures willare expected to be between $40$40.0 million and $48 million, although we are also evaluating possibilities for additional capital expenditures in 2018.$45.0 million.
We anticipate that our existing cash, cash equivalents and borrowing capacity combined with our expected operating cash flows will be sufficient to meet our anticipated operating expenses,needs, income tax payments, capital expenditures and debt service obligations as they become due through December 31, 2018.the twelve months from the date of this filing. However, our ability to make these payments will depend partly uponlargely on our future operating performance, which willmay be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control.
ABL Agreement
At December 31, 2017, theOur ABL Agreement consistedis provided by a syndicate of banking institutions and consists of a revolving credit facility for up to $225$175.0 million in borrowings that matures the earlier of revolving credit borrowings,(a) March 16, 2029, which is ninety-one days prior to the stated maturity date of our 4.0% Senior Notes if the Notes are still outstanding on that date or (b) March 28, 2029. The ABL includes the ability to borrow up to $25.0 million of swing line loans and up to $60.0 million of letters of credit. The ABL Agreement permits us to increase the size of the credit facility by an additional $150$150.0 million in certain circumstances subject to adequate borrowing base availability. We
In December 2023, we obtained a waiver under our ABL (“ABL Waiver”) to provide for additional time associated with certain reporting requirements that were delayed as a result of the cybersecurity incident announced on October 28, 2023. Under the ABL Waiver, the maximum aggregate amount of borrowings and other credit extensions under the ABL was limited to $50.0 million at any time outstanding until all of the required reports were delivered. During our first fiscal quarter of 2024, we delivered the required reports, and on February 6, 2024, the ABL Waiver was terminated. Accordingly, we are no longer subject to any additional restrictions or borrowing limitations under the ABL, including the $50.0 million temporary limit on credit extensions.
On March 28, 2024, we amended our ABL to, among other things, (i) extend the maturity date from July 29, 2025 to the earlier of (a) March 28, 2029 and (b) 91 days prior to the stated maturity date of the Company’s 4.0% Senior Notes due June 15, 2029 (as may borrow upbe extended from time to $25 million through swing linetime in accordance with the Indenture governing the notes) if the 4.0% Senior Notes are then outstanding, (ii) decrease the grid-based interest rate margins by approximately 50 basis points to 150 basis points for Secured Overnight Financing Rate (“SOFR”) loans and may have up50 basis points for base rate loans when average availability is greater than 50% of the aggregate revolving commitments, and to $60175 basis points for SOFR loans and 75 basis points for base rate loans, when average availability is less than or equal to 50% of the aggregate revolving credit commitments and (iii) replace the previously fixed 37.5 basis point unused commitment fee with a grid-based, quarterly unused commitment fee equal to (a) 37.5 basis points if average daily outstanding credit extensions for such quarter under the ABL (“Total Outstandings”) are less than or equal to 50% of the aggregate revolving credit commitments or (b) 25.0 basis points if Total Outstandings for such quarter are greater than or equal to 50% of the aggregate revolving credit commitments. We incurred approximately $0.8 million in debt issuance costs in connection with the ABL amendment which were capitalized and will be amortized over the term of letters of credit outstanding.the ABL.
Borrowings under the ABL Agreement bear interest at a floating rate equal to LIBOR,SOFR plus aan adjustment of 10 basis points plus an applicable margin ranging from 125range of 150 to 150175 basis points, or a base rate, as defined in the ABL, Agreement, plus aan applicable margin ranging from 25range of 50 to 75 basis points. At March 31, 2024, the applicable margin for SOFR-based loans was 150 basis points and for base rate loans was 50 basis points. At December 31, 2017, the applicable LIBOR-based margin was 125 basis points.
The ABL Agreement terminates on July 13, 2021. We pay a commitment fee for any unused borrowing capacity under the ABL Agreement of 25 basis points per annum.
The ABL Agreement is subject to mandatory prepayments if total outstanding borrowings under the ABL Agreement are greater than the aggregate commitments under the revolving credit facility or if we dispose of overdue accounts receivable in certain circumstances. The borrowing base under the ABL Agreement is equal to the sum of (a) 85% of the value of eligible accounts receivable and (b) the lesser of (i) 70% of the value of eligible inventoriesinventory or (ii) 85% of the net orderly liquidation value of the value of eligible inventories,inventory, less certain reserves. Prepayments can be made at any time with nowithout penalty.
Substantially all of our U.S.United States subsidiaries are borrowers under the ABL Agreement and are jointly and severally liable for any outstanding borrowings. Our obligations under the ABL Agreement are secured by a first-priority perfected lien on all of our U.S. inventories,United States inventory, accounts receivable, certain cash balances and other supporting obligations.assets.
The ABL includes a commitment fee for any unused borrowing capacity of 37.5 basis points per annum when the unused capacity is above 50% of the credit commitments, with a step down to 25.0 basis points per annum when unused capacity is less than or equal to 50% of the credit commitments. At March 31, 2024, the commitment fee was 37.5 basis points.
Borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $17.5 million and 10% of the Loan Cap as defined in the ABL. Excess availability based on March 31, 2024 data was $162.6 million, as reduced by $12.2 million of outstanding letters of credit and $0.2 million of accrued fees and expenses.
4.0% Senior Unsecured Notes
On May 28, 2021, we privately issued $450.0 million of 4.0% Senior Unsecured Notes (“4.0% Senior Notes”), which mature on June 15, 2029, and bear interest at 4.0%, paid semi-annually in June and December. We capitalized $5.5 million of financing costs which are being amortized over the term of the 4.0% Senior Notes using the effective interest method. Substantially all of our United States subsidiaries guarantee the 4.0% Senior Notes, which are subordinate to borrowings under our ABL. Based on quoted market prices, which is a Level 1 measurement, the ABL Agreement.outstanding 4.0% Senior Notes had a fair value of $407.7 million at March 31, 2024.
Term Loan
An indenture governing the 4.0% Senior Notes (“Indenture”) contains customary covenants and events of default, including covenants that limit our ability to incur certain debt and liens. There are no financial maintenance covenants associated with the Indenture. We believe we were in compliance with these covenants at March 31, 2024.
We had $485.1 million face value outstanding undermay redeem some or all of the Term Loan at December 31, 2017. Term Loan borrowings accrue interest at a floating rate equal to LIBOR, subject to a floor of 0.75%, plus 250 basis points. We may voluntarily repay amounts borrowed under the Term Loan4.0% Senior Notes at any time. Thetime prior to June 15, 2024 at certain “make-whole” redemption prices and on or after June 15, 2024 at specified redemption prices. Additionally, we may redeem up to 40% of the aggregate principal amount of the Term Loan is4.0% Senior Notes at any time prior to June 15, 2024 with the net proceeds of specified equity offerings at specified redemption prices as set forth in the Indenture. Upon a Change of Control, as defined in the Indenture, we could be required to be repaidoffer to purchase the 4.0% Senior Notes at a price equal to 101% of the outstanding principal amount if there is a Ratings Decline (as defined in quarterly installments of $1.225 million. The Term Loan matures on November 25, 2021. The Term Loan is guaranteed by substantially all of our U.S. subsidiaries and secured by essentially all of our assets, although the ABL Agreement has a senior claim on certain collateral securing borrowings thereunder.Indenture).
Our corporate credit rating and the credit rating for our debt and outlook are presented below.below:
| | | | | | | | | | Moody’s | | Standard & Poor’s |
| Moody’s | | Standard & Poor's |
| December 31, | | September 30, | | December 31, | | September 30, |
| 2017 | | 2017 | | 2017 | | 2017 |
| March 31, | | | March 31, | | September 30, | | March 31, | | September 30, |
| 2024 | | | 2024 | | 2023 | | 2024 | | 2023 |
Corporate credit rating | Ba3 | | Ba3 | | BB- | | BB- | Corporate credit rating | Ba1 | | Ba1 | | BB |
ABL Agreement | Not rated | | Not rated | | Not rated | | Not rated | ABL Agreement | Not rated | | Not rated |
Term Loan | Ba3 | | Ba3 | | BB | | BB |
4.0% Senior Notes | | 4.0% Senior Notes | Ba1 | | Ba1 | | BB |
Outlook | Stable | | Stable | | Stable | | Stable | Outlook | Stable | | Stable |
These ratings are not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agencies.
Material Cash Requirements
We enter into a variety of contractual obligations as part of our normal operations in addition to capital expenditures. As of March 31, 2024, we had (i) debt obligations related to our $450.0 million 4.0% Senior Notes which mature in 2029 and include annual cash interest payments of $18.0 million in 2024 through 2029, (ii) cumulative cash obligations of $36.6 million for operating leases through 2033 and $2.3 million for finance leases through 2028, and (iii) purchase obligations for raw materials and other parts of approximately $105.3 million which we expect to incur during the next 12 months and $0.9 million beyond March 31, 2025. Additionally, we may continue to invest to strengthen our systems, cybersecurity training, policies, programs, response plans and other similar measures. We expect to fund these cash requirements from cash on hand and cash generated from operations.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as “structured finance”finance” or “special purpose”purpose” entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, at DecemberMarch 31, 20172024, we did not have any undisclosed borrowings, debt, derivative contracts or synthetic leases. Therefore, we were not exposed to any financing, liquidity, market or credit risk that could have arisen had we engaged in such relationships.
We use letters of credit and surety bonds in the ordinary course of business to ensure the performance of contractual obligations. At DecemberMarch 31, 2017,2024, we had $17.5$12.2 million of letters of credit and $35.6$13.7 million of surety bonds outstanding.
Seasonality
Our business is dependent upon the construction industry, which is seasonal due toas a result of the impact of cold weather conditions. Net sales and operating income historically have historically been lowest in the quarterlythree-month periods ending December 31 and March 31 when the northern United States and allmost of Canada generally face weather conditions that restrict significant construction activity.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. These estimates are based upon experience and on various other assumptions we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We consider an accounting estimate to be critical if changes in the estimate that are reasonably likely to occur over time or the use of reasonably different estimates could have a material impact on our financial condition or results of operations. Our critical accounting estimates can be found in the “Critical Accounting Estimates” section
in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 2023 Annual Report on Form 10-K. There have been no changes in the Company’s determination of critical accounting estimates since September 30, 2023.
| |
Item 4. | CONTROLS AND PROCEDURES |
During the quarter ended December 31, 2017, there wereItem 4. CONTROLS AND PROCEDURES
There have been no changes in our internal control over financial reporting thatwhich have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.reporting during the quarter ended March 31, 2024.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
Our Chief Executive Officer and our Chief Financial Officer have concluded, based on an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) by our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, that such disclosure controls and procedures were effective as of the end of the period covered by this report.
Our management, including theour Chief Executive Officer and our Chief Financial Officer, does not expect that our 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 our disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to 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.
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Refer to the information provided in Note 11.10. to the Notes to the Condensed Consolidated Financial Statements presented in Item 11. of Part I of this report.
| |
Item 1A. | Item 1A. RISK FACTORS |
Recent changes in U.S. tax law may have a significant impact on our Company
On December 22, 2017, HR-1, formerly referred to as the Tax Cuts and Jobs Act, (“Act”) was signed into law, significantly impacting several sections of the Internal Revenue Code. The Act, among other things, reduces the corporate tax rate to 21% from 35%, limits the deductibility of interest expense and executive compensation and implements a modified territorial tax system which includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. The Act requires complex computations to be performed that were not previously required in U.S. tax law, judgments to be made in interpretation of the provisions of the Act and estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. We are continuing to examine the impact of the Act, including certain provisions that will become applicable to us in fiscal year 2019 related to base erosion anti-abuse tax (“BEAT”), global intangible low-taxed income (“GILTI”), and other provisions that could adversely affect our effective tax rate in the future. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the Act will be applied or otherwise administered that is different from our interpretation. Furthermore, because there may be additional state income tax implications, we will continue to monitor changes in state and local tax laws to determine if state and local taxing authorities intend to conform or deviate from changes to U.S. federal tax legislation as a result of the Act.
In addition to the risk factor above and other information set forth in this report, you should carefully consider the factors discussed in PART I, “Item 1A. RISK FACTORS” in our 2023 Annual Report on Form 10-K, each of which could materially affect our business, financial condition or operating results. These described risks are not the only risks facing us. Additional risks and uncertainties not known to us or that we deem to be immaterial also may materially adversely affect our business, financial condition or operating results.
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Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
DuringItem 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In 2015, we announced the quarter ended December 31,authorization of a stock repurchase program for up to $50.0 million of our common stock. The program does not commit us to a particular timing or quantity of purchases, and we may suspend or discontinue the program at any time. In 2017, we announced an increase to the authorized amount of this program to $250.0 million.
We repurchased 636,789 shares of our common stock including shares repurchasedduring the three months ended March 31, 2024 pursuant to this authorization, and as of March 31, 2024, we had $80.0 million remaining under our existing share repurchase authorization andauthorization.
During the three months ended March 31, 2024, 9,952 shares were surrendered to us to pay the tax withholding obligations of participants in connection with the lapsingvesting of restrictions on restricted stock units,equity awards.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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 dollar value of shares that may yet be purchased under the plans or programs (in millions) |
January 1-31, 2024 | | — | | | $ | — | | | — | | | $ | 90.0 | |
February 1-29, 2024 | | 646,741 | | | 15.68 | | | 636,789 | | | 80.0 | |
March 1-31, 2024 | | — | | | — | | | — | | | $ | 80.0 | |
Total | | 646,741 | | | $ | 15.68 | | | 636,789 | | | |
Item 5. OTHER INFORMATION
(c) No officers or directors, as follows.defined in Rule 16a-1(f), adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as defined in Regulation S-K Item 408, during the second quarter of fiscal 2024.
|
| | | | | | | | | | | | | | |
Period | | Total number of shares purchased | | Average price paid per share | | Total number of shares purchased as part of publically announced plans or programs | | Maximum dollar value of shares that may yet be purchased under the plans or programs (in millions) |
October 1-31, 2017 | | — |
| | $ | — |
| | — |
| | $ | — |
|
November 1-30, 2017 | | 845,390 |
| | 12.15 |
| | 823,739 |
| | — |
|
December 1-31, 2017 | | 122,753 |
| | 12.35 |
| | — |
| | — |
|
Total | | 968,143 |
| | $ | 12.17 |
| | 823,739 |
| | $ | — |
|
| | | | | | | | |
| | |
Exhibit No. | | Document |
3.1 | |
|
10.20.5**10.1* | | |
10.2 | |
|
10.22.2*10.3+* | |
|
10.29.2** | |
|
10.29.3**31.1* | |
|
10.30.2** | |
|
31.1* | | |
31.2* | | |
32.1* | | |
32.2* | | |
101* | | |
104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Filed with this quarterly report
**+ Management compensatory plan, contract or arrangement
* Filed or furnished with this quarterly report
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 8, 2018May 7, 2024 | By: | /s/ Michael S. NancarrowSuzanne G. Smith |
| | | | Michael S. NancarrowSuzanne G. Smith |
| | | | Chief Accounting Officer |