0001350593-13-000013.txt : 20130211 0001350593-13-000013.hdr.sgml : 20130211 20130211151747 ACCESSION NUMBER: 0001350593-13-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20121231 FILED AS OF DATE: 20130211 DATE AS OF CHANGE: 20130211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Mueller Water Products, Inc. CENTRAL INDEX KEY: 0001350593 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 203547095 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-32892 FILM NUMBER: 13591287 BUSINESS ADDRESS: STREET 1: 1200 ABERNATHY RD STREET 2: SUITE 1200 CITY: ATLANTA STATE: GA ZIP: 30328 BUSINESS PHONE: 770-206-4200 MAIL ADDRESS: STREET 1: 1200 ABERNATHY RD STREET 2: SUITE 1200 CITY: ATLANTA STATE: GA ZIP: 30328 FORMER COMPANY: FORMER CONFORMED NAME: Mueller Holding Company, Inc. DATE OF NAME CHANGE: 20060123 10-Q 1 mwa12312012-10xq.htm 10-Q MWA.12.31.2012 - 10-Q
 
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 December 31, 2012
o                       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-32892
MUELLER WATER PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
20-3547095
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
1200 Abernathy Road N.E.
Suite 1200
Atlanta, GA 30328
(Address of principal executive offices)
(770) 206-4200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer     x             Accelerated filer         o  
Non-accelerated filer      o            Smaller reporting company     o 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
There were 157,709,501 shares of common stock of the registrant outstanding at January 31, 2013.
 



PART I FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
December 31,
 
September 30,
 
2012
 
2012
 
(in millions)
Assets:
 
 
 
Cash and cash equivalents
$
74.5

 
$
83.0

Receivables, net
135.9

 
166.1

Inventories
190.2

 
183.2

Deferred income taxes
20.7

 
19.6

Other current assets
48.2

 
38.0

Total current assets
469.5

 
489.9

Property, plant and equipment, net
143.5

 
144.7

Identifiable intangible assets
566.6

 
573.7

Other noncurrent assets
20.3

 
32.6

Total assets
$
1,199.9

 
$
1,240.9

 
 
 
 
Liabilities and stockholders’ equity:
 
 
 
Current portion of long-term debt
$
23.7

 
$
1.1

Accounts payable
63.0

 
84.5

Other current liabilities
67.2

 
82.8

Total current liabilities
153.9

 
168.4

Long-term debt
599.3

 
621.7

Deferred income taxes
125.5

 
132.8

Other noncurrent liabilities
82.5

 
86.8

Total liabilities
961.2

 
1,009.7

 
 
 
 
Commitments and contingencies (Note 10)


 


 
 
 
 
Common stock: 600,000,000 shares authorized; 157,505,500 and 156,840,648
shares outstanding at December 31, 2012 and September 30, 2012, respectively
1.6

 
1.6

Additional paid-in capital
1,585.1

 
1,587.3

Accumulated deficit
(1,263.0
)
 
(1,270.0
)
Accumulated other comprehensive loss
(85.0
)
 
(87.7
)
Total stockholders’ equity
238.7

 
231.2

Total liabilities and stockholders’ equity
$
1,199.9

 
$
1,240.9












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

1


MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
Three months ended
 
December 31,
 
2012
 
2011
 
(in millions, except per share amounts)
Net sales
$
245.1

 
$
215.4

Cost of sales
188.0

 
162.6

Gross profit
57.1

 
52.8

Operating expenses:
 
 
 
Selling, general and administrative
49.5

 
46.5

Restructuring
0.7

 
0.4

Total operating expenses
50.2

 
46.9

Operating income
6.9

 
5.9

Interest expense, net
13.5

 
15.6

Loss before income taxes
(6.6
)
 
(9.7
)
Income tax benefit
(1.6
)
 
(3.2
)
Loss from continuing operations
(5.0
)
 
(6.5
)
Income (loss) from discontinued operations, net of tax
12.0

 
(5.4
)
Net income (loss)
$
7.0

 
$
(11.9
)
 
 
 
 
Net income (loss) per basic share:
 
 
 
Continuing operations
$
(0.03
)
 
$
(0.04
)
Discontinued operations
0.07

 
(0.04
)
Net income (loss)
$
0.04

 
$
(0.08
)
 
 
 
 
Net income (loss) per diluted share:
 
 
 
  Continuing operations
$
(0.03
)
 
$
(0.04
)
  Discontinued operations
0.07

 
(0.04
)
Net income (loss)
$
0.04

 
$
(0.08
)
 
 
 
 
Weighted average shares outstanding:
 
 
 
Basic
157.1

 
156.0

Diluted
159.2

 
156.0

 
 
 
 
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 COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
 
Three months ended
 
December 31,
 
2012
 
2011
 
(in millions)
Net income (loss)
$
7.0

 
$
(11.9
)
Other comprehensive income (loss):
 
 
 
Natural gas hedges

 
(0.3
)
Income tax effects

 
0.1

  Interest rate swap contracts

 
1.4

Income tax effects

 
(0.5
)
Foreign currency translation
(0.7
)
 
0.6

Minimum pension liability
(3.4
)
 
0.7

Income tax effects
6.8

 
(0.2
)
 
2.7

 
1.8

Comprehensive income (loss)
$
9.7

 
$
(10.1
)




































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

3


MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED DECEMBER 31, 2012
(UNAUDITED) 
 
  Common  
stock
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Accumulated
other
comprehensive
loss
 
Total    
 
(in millions)
Balance at September 30, 2012
$
1.6

 
$
1,587.3

 
$
(1,270.0
)
 
$
(87.7
)
 
$
231.2

Net income

 

 
7.0

 

 
7.0

Dividends declared

 
(2.7
)
 

 

 
(2.7
)
Stock-based compensation

 
1.5

 

 

 
1.5

Shares retained for employee
    taxes

 
(1.3
)
 

 

 
(1.3
)
Stock issued under stock compensation plans

 
0.3

 

 

 
0.3

Foreign currency translation

 

 

 
(0.7
)
 
(0.7
)
Minimum pension liability

 

 

 
3.4

 
3.4

Balance at December 31, 2012
$
1.6

 
$
1,585.1

 
$
(1,263.0
)
 
$
(85.0
)
 
$
238.7




































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)
 
Three months ended
 
December 31,
 
2012
 
2011
 
(in millions)
Operating activities:
 
 
 
Net income (loss)
$
7.0

 
$
(11.9
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
(Income) loss from discontinued operations
(12.0
)
 
5.4

Loss from continuing operations
(5.0
)
 
(6.5
)
 
 
 
 
Depreciation
7.4

 
7.6

Amortization
7.4

 
7.4

Stock-based compensation
1.5

 
1.4

Deferred income taxes
(1.8
)
 
(1.0
)
Retirement plans
1.1

 
1.8

Interest rate swap contracts

 
1.4

Other, net
0.8

 
0.8

Changes in assets and liabilities, net of acquisitions:
 
 
 
Receivables
30.0

 
26.0

Inventories
(7.1
)
 
(14.1
)
Other assets
(0.4
)
 
0.9

Liabilities
(33.3
)
 
(13.8
)
Net cash provided by operating activities from continuing operations
0.6

 
11.9

Investing activities:
 
 
 
Capital expenditures
(6.2
)
 
(5.3
)
Acquisitions, net of cash acquired
(0.3
)
 

Net cash used in investing activities from continuing operations
(6.5
)
 
(5.3
)
Financing activities:
 
 
 
Dividends paid
(2.7
)
 
(2.7
)
Shares retained for employee taxes
(1.3
)
 
(0.3
)
Payment of deferred financing fees
(0.7
)
 

Other
(0.3
)
 

Net cash used in financing activities from continuing operations
(5.0
)
 
(3.0
)
Net cash flows from discontinued operations:
 
 
 
  Operating activities
(1.7
)
 
(22.9
)
  Investing activities
4.5

 
(2.8
)
  Financing activities

 
1.0

Net cash provided by (used in) discontinued operations
2.8

 
(24.7
)
Effect of currency exchange rate changes on cash
(0.4
)
 
0.4

Net change in cash and cash equivalents
(8.5
)
 
(20.7
)
Cash and cash equivalents at beginning of period
83.0

 
61.0

Cash and cash equivalents at end of period
$
74.5

 
$
40.3






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
Note 1.
Organization
Mueller Water Products, Inc., a Delaware corporation, together with its consolidated subsidiaries, operates in two business segments: Mueller Co. and Anvil. Mueller Co. manufactures valves for water and gas systems, including butterfly, iron gate, tapping, check, plug and ball valves, as well as dry-barrel and wet-barrel fire hydrants and a broad range of metering, leak detection and pipe condition assessment products for the water infrastructure industry. Anvil manufactures and sources a broad range of products, including a variety of fittings, couplings, hangers and related products. The “Company,” “we,” “us” or “our” refer to Mueller Water Products, Inc. and its 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.
On April 1, 2012, we sold the businesses comprising our former U.S. Pipe segment to USP Holdings Inc., an affiliate of Wynnchurch Capital, Ltd (“Wynnchurch”). U.S. Pipe's results of operations have been reclassified as discontinued operations, and its assets and liabilities reclassified as held for sale, for all prior periods.
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which require us to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses and the disclosure of contingent assets and liabilities for the reporting periods. Actual results could differ from those estimates. All significant intercompany balances and transactions have been eliminated. In our opinion, all normal and recurring adjustments that we consider necessary for a fair financial statement presentation have been made. Certain reclassifications have been made to previously reported amounts to conform to the current presentation. The condensed consolidated balance sheet data at September 30, 2012 was derived from audited financial statements, but does not include all disclosures required by GAAP.
Unless the context indicates otherwise, whenever we refer to a particular year, we mean the fiscal year ended or ending September 30 in that particular calendar year.
Note 2.
Discontinued Operations
On April 1, 2012, we sold our former U.S. Pipe segment and received proceeds of $94.0 million in cash, subject to adjustments, and the agreement by the purchaser to reimburse us for expenditures to settle certain previously-existing liabilities estimated at $10.1 million at March 31, 2012. During the quarter ended December 31, 2012, we received $4.5 million in cash for certain purchase price adjustments and reduced our loss on sale of discontinued operations accordingly. Additional purchase price adjustments related to closing date balances, which would increase the purchase price by $1.0 million if resolved in our favor, remain in dispute.
The table below represents a summary of the operating results for the U.S. Pipe discontinued operations.
 
Three months ended
 
December 31,
 
2012
 
2011
 
(in millions)
Net sales
$

 
$
96.1

Cost of sales

 
97.1

Gross loss

 
(1.0
)
Operating expenses (benefits)
(7.2
)
 
7.8

Operating income (loss)
7.2

 
(8.8
)
Interest expense

 
0.1

Reduction of loss on sale of discontinued operations
(4.8
)
 

Income tax benefit

 
(3.5
)
Income (loss) from discontinued operations, net of tax
$
12.0

 
$
(5.4
)

6


Note 3.
Income Taxes
After including the tax effect of the loss on the sale of U.S. Pipe, our U.S. deferred tax liabilities are insufficient to fully support our U.S. deferred tax assets, which include net operating loss carryforwards.  Accordingly, we initially recorded income tax expense to establish valuation allowances related to our overall deferred tax assets during the quarter ended March 31, 2012.
We reevaluate the need for a valuation allowance against the U.S. deferred tax assets each quarter, considering results to date, projections of taxable income, tax planning strategies and reversing taxable temporary differences. During the quarter ended December 31, 2012, we decreased our U.S. deferred tax valuation allowance by $4.6 million, including $0.8 million included in other comprehensive income. Notwithstanding the valuation allowance, our net operating loss carryforwards remain available to offset future taxable earnings.
The components of income tax benefit on continuing operations are provided below.
 
Three months ended
 
December 31,
 
2012
 
2011
 
(in millions)
Benefit from pre-tax operating loss
$
(2.4
)
 
$
(3.8
)
Deferred tax asset valuation allowance adjustment
0.8

 

Other discrete items

 
0.6


$
(1.6
)
 
$
(3.2
)
At December 31, 2012 and September 30, 2012, the gross liabilities for unrecognized income tax benefits were $4.3 million and $4.3 million, respectively.
We recognize interest related to uncertain income tax positions as interest expense and would recognize any penalties that may be incurred as selling, general and administrative expense. At December 31, 2012 and September 30, 2012, we had $0.9 million and $0.9 million, respectively, of accrued interest expense related to uncertain tax positions.
Generally, our state income tax returns are closed for years prior to 2006, except to the extent of our state net operating loss carryforwards, and our Canadian income tax returns are closed for years prior to 2005. During 2012, we concluded an audit by the Internal Revenue Service (the "IRS") for the years 2007 through 2010 with no adverse changes. We are also under audit by several states at various levels of completion. We do not have any material unpaid assessments.
Note 4.
Borrowing Arrangements
The components of long-term debt are presented below.
 
December 31,
 
September 30,
 
2012
 
2012
 
(in millions)
ABL Agreement
$

 
$

8.75% Senior Unsecured Notes
200.0

 
199.9

7.375% Senior Subordinated Notes
420.0

 
420.0

Other
3.0

 
2.9

 
623.0

 
622.8

Less current portion
(23.7
)
 
(1.1
)
 
$
599.3

 
$
621.7


7


ABL Agreement. On December 18, 2012, we entered into a first amendment to our asset based lending agreement dated August 26, 2010 (the “ABL Agreement”). This amendment, among other things, provides for the following:
a reduction of $50.0 million in the size of the revolving credit facility to $225.0 million;
a 100 basis point per annum reduction in the interest rate margins;
a reduction in the commitment fee to either 0.375% per annum or 0.25% per annum, based on daily average availability during the previous calendar quarter, from 0.50% per annum;
the extension of the maturity date to the earlier of (1) December 18, 2017 and (2) 60 days prior to the final maturity of our 7.375% Senior Subordinated Notes;
additional flexibility for us to incur debt, make investments (including acquisitions), dispose of assets and make restricted payments (whether as dividends or junior debt repayments); and
a reduction in the springing consolidated fixed charge coverage ratio to 1.0:1.0 from 1.1:1.0.
The ABL Agreement also permits us to increase the size of the credit facility by an additional $150 million in certain circumstances subject to adequate borrowing base availability. We may borrow up to $25 million through swing line loans and may have up to $60 million of letters of credit outstanding.
Borrowings under the ABL Agreement bear interest at a floating rate equal to LIBOR plus a margin ranging from 175 to 225 basis points, or a base rate, as defined in the ABL Agreement, plus a margin ranging from 75 to 125 basis points. At December 31, 2012, the applicable LIBOR-based margin was 200 basis points.
Our obligations under the ABL Agreement are secured by a first-priority perfected lien on all of our U.S. receivables and inventory, certain cash and other supporting obligations. Borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $22.5 million and 10% of the aggregate commitments under the ABL Agreement. Excess availability based on December 31, 2012 data, as reduced by outstanding letters of credit and accrued fees and expenses of $34.6 million, was $122.1 million.
8.75% Senior Unsecured Notes. The 8.75% Senior Unsecured Notes (the “Senior Unsecured Notes”) mature in September 2020 and bear interest at 8.75%, paid semi-annually. Based on quoted market prices, the outstanding Senior Unsecured Notes had a fair value of $230.9 million at December 31, 2012.
On January 23, 2013, we delivered notice to redeem $22.5 million aggregate principal amount on February 22, 2013 at a redemption price of 103% plus accrued and unpaid interest. This amount is included in current portion of long-term debt at December 31, 2012.
We may also redeem up to $33.8 million of the Senior Unsecured Notes at a redemption price of 108.75%, plus accrued and unpaid interest, with the net cash proceeds from certain equity offerings prior to September 2013. After August 2015, we may redeem the Senior Unsecured Notes at specified redemption prices plus accrued and unpaid interest. Upon a Change of Control (as defined in the indenture securing the Senior Unsecured Notes), we are required to offer to purchase the outstanding Senior Unsecured Notes at a purchase price of 101% plus accrued and unpaid interest. The Senior Unsecured Notes are subordinate to borrowings under the ABL Agreement.
The indenture securing the Senior Unsecured Notes contains customary covenants and events of default, including covenants that limit our ability to incur debt, pay dividends and make investments. Substantially all of our U.S. subsidiaries guarantee the Senior Unsecured Notes. We believe we were compliant with these covenants at December 31, 2012 and expect to remain in compliance through December 31, 2013.
7.375% Senior Subordinated Notes. The 7.375% Senior Subordinated Notes (the “Senior Subordinated Notes”) mature in June 2017 and bear interest at 7.375%, paid semi-annually. Based on quoted market prices, the outstanding Senior Subordinated Notes had a fair value of $433.7 million at December 31, 2012.
We may redeem any portion of the Senior Subordinated Notes at specified redemption prices plus accrued and unpaid interest, subject to restrictions in the Senior Unsecured Notes. Upon a Change of Control (as defined in the indenture securing the Senior Subordinated Notes), we are required to offer to purchase the outstanding Senior Subordinated Notes at a purchase price of 101%, plus accrued and unpaid interest. The Senior Subordinated Notes are subordinate to borrowings under the ABL Agreement and the Senior Unsecured Notes.
The indenture securing the Senior Subordinated Notes contains customary covenants and events of default, including covenants that limit our ability to incur debt, pay dividends and make investments. Substantially all of our U.S. subsidiaries

8


guarantee the Senior Subordinated Notes. We believe we were compliant with these covenants at December 31, 2012 and expect to remain in compliance through December 31, 2013.
Note 5.
Derivative Financial Instruments
Our ongoing business operations expose us to commodity price risk and interest rate risk that we have previously managed to some extent using derivative instruments. We have used natural gas swap contracts to manage the price risk associated with purchases of natural gas used in certain of our manufacturing processes and interest rate swap contracts to manage interest rate risk associated with our variable-rate borrowings. During 2010, we terminated all of our remaining interest rate swap contracts and no new interest rate swap contracts have been initiated. During 2012, we terminated our remaining natural gas swap contract.
We had designated our natural gas swap contracts and interest rate swap contracts as cash flow hedges of our purchases of natural gas and our interest payments, respectively. As a result, to the extent the hedges were effective, the changes in the fair value of these contracts prior to settlement were reported as a component of other comprehensive income (loss) and reclassified into earnings in the periods during which the hedged transactions affected earnings. Gains and losses on those contracts representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness were recognized in earnings as they occurred.
Our derivative contracts were recorded at fair value using publicly observable data such as market natural gas prices and market interest rates. We did not have any derivative contracts outstanding at December 31, 2012 or September 30, 2012.
In the quarter ended December 31, 2011, we reclassified $1.4 million related to previously terminated interest rate swap contracts to interest expense from accumulated other comprehensive loss.
Note 6.
Retirement Plans
The components of net periodic benefit cost allocated to continuing operations for defined benefit pension plans are as follows.
 
Three months ended
 
December 31,
 
2012
 
2011
 
(in millions)
Service cost
$
0.5

 
$
0.3

Interest cost
1.6

 
2.6

Expected return on plan assets
(2.1
)
 
(2.9
)
Amortization of prior service cost

 
0.1

Amortization of actuarial net loss
0.7

 
0.8

Net periodic benefit cost
$
0.7

 
$
0.9

The amortization of unrecognized prior service cost and of actuarial losses, net of tax, are recorded as components of other comprehensive income (loss).
Our U.S. pension plan was 103% funded at January 1, 2012 under the provisions of the Pension Protection Act. This reflects the revised governmental guidance of Moving Ahead for Progress in the 21st Century (“MAP-21”). As a result of the MAP-21 changes, we do not expect to make any contributions to our U.S. pension plan during 2013. For financial reporting purposes, our pension plan obligations were 86% funded at September 30, 2012.
On April 1, 2012, we changed certain provisions of our pension and postretirement benefit plans affecting U.S. Pipe participants in these plans. These changes vested all accumulated pension benefits and then froze the plan such that no additional pension benefits would accumulate. Postretirement medical benefits substantially ceased on December 31, 2012. During the three months ended December 31, 2012, we recorded a benefit of $7.4 million, which is included in income from discontinued operations, related to this cessation of benefits.

9


The assets of the defined benefit pension plans at December 31, 2012 and September 30, 2012, by level within the fair value hierarchy, are presented below.
 
December 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Equity funds:
 
 
 
 
 
 
 
International funds
$

 
$

 
$

 
$

S&P 500 Index funds

 
15.6

 

 
15.6

Large Cap Value funds

 
62.8

 

 
62.8

S&P Midcap Index funds

 

 

 

Smallcap Index funds

 
30.7

 

 
30.7

Mutual funds
121.8

 

 

 
121.8


121.8

 
109.1

 

 
230.9

Bond funds

 
149.6

 

 
149.6

Cash
0.2

 
2.3

 

 
2.5

Other

 

 
1.5

 
1.5


$
122.0

 
$
261.0

 
$
1.5

 
$
384.5

 
September 30, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Equity funds:
 
 
 
 
 
 
 
International funds
$

 
$
10.6

 
$

 
$
10.6

Large Cap Growth funds

 
15.6

 

 
15.6

Large Cap Value funds

 
30.4

 

 
30.4

S&P Midcap Index funds

 
5.2

 

 
5.2

Smallcap Index funds

 
31.1

 

 
31.1

Mutual funds
134.4

 

 

 
134.4

 
134.4

 
92.9

 

 
227.3

Bond funds

 
151.3

 

 
151.3

Cash
0.2

 
6.8

 

 
7.0

Other

 

 
1.5

 
1.5

 
$
134.6

 
$
251.0

 
$
1.5

 
$
387.1

Note 7.
Stock-based Compensation Plans
During the quarter ended December 31, 2012, we granted cash-settled and stock-settled performance shares under our Amended and Restated 2006 Mueller Water Products, Inc. Stock Incentive Plan (the "2006 Stock Plan"). The performance shares are part of multi-year award cycles consisting of annual performance periods coinciding with our fiscal years, with performance goals established within 90 days of the beginning of each performance period by the Compensation and Human Resources Committee of our board of directors. Performance shares do not convey voting rights or earn dividends. Performance shares vest on the last day of the award cycle, unless vested sooner due to change-of-control, death, disability or retirement after accumulation of the required number of points, which are a function of age and years of service, provided that the participant continues to be employed by us through that date. We will distribute the related cash and common stock within 90 days of the end of the award cycle.
A cash-settled performance share entitles the recipient to a cash payment determined at the end of each of two annual performance periods. The amount of cash to be distributed equals the product of the number of performance shares granted multiplied by a performance factor ranging from 0.0 to 2.0 and by the closing price of our common stock on the last day of the award cycle. Compensation expense for cash-settled performance shares is charged against income over the applicable performance period based on the estimated performance factor and the closing price per share of our common stock at each balance sheet date. Outstanding cash-settled performance shares had a fair value of $5.61 per share and a total fair value of $2.1 million at December 31, 2012.

10


A stock-settled performance share entitles the recipient to receive a number of shares of our common stock determined at the end of each of three performance periods. The number of shares of our common stock issuable equals the number of performance shares granted multiplied by a performance factor that ranges from 0.0 to 2.0. Compensation expense for stock-settled performance shares is charged against income over the applicable performance period based on the estimated performance factor and the grant-date price of our common stock.
During the quarter ended December 31, 2011, the Company adopted the Mueller Water Products, Inc. Phantom Plan (the "Phantom Plan"). Phantom Plan awards entitle a recipient to a per-award cash payment equal to the closing price per share of our common stock on the vesting date. Awards generally vest in thirds on successive anniversaries of the grant date. Compensation expense for Phantom Plan awards is charged against income over the vesting period, based on the closing stock price at each balance sheet date until vested. Outstanding Phantom Plan awards had a fair value of $5.61 per award and a total fair value of $3.5 million at December 31, 2012.
We recorded stock-based compensation expense of $2.3 million during the three months ended December 31, 2012, and $1.4 million during the three months ended December 31, 2011. At December 31, 2012, there was approximately $8.4 million of unrecognized compensation expense related to stock-based awards.
Because the effect of including normally dilutive securities in the earnings per share calculation is antidilutive in loss periods, we exclude all stock-based compensation instruments from the calculations of diluted earnings per share in such periods. Accordingly, we excluded 0.8 million of such instruments from the calculation of diluted earnings per share for the three months ended December 31, 2011.
We granted stock-based compensation awards under the 2006 Stock Plan, Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan and Phantom Plan during the three months ended December 31, 2012 as follows.    
 
Number granted
 
Weighted average grant date fair value per instrument
 
Total grant date fair value (in millions)
Quarter ended December 31, 2012:
 
 
 
 
 
Restricted stock units
406,658

 
$
5.22

 
$
2.1

Employee stock purchase plan instruments
87,390

 
1.28

 
0.1

Phantom Plan awards
382,605

 
5.22

 
2.0

Cash-settled performance shares
243,992

 
5.22

 
1.3

Stock-settled performance shares
406,658

 
5.22

 
2.1

 

 
 
 
$
7.6


11


Note 8.
Supplemental Balance Sheet Information
Selected supplemental balance sheet information is presented below.
 
December 31,
 
September 30,
 
2012
 
2012
 
(in millions)
Inventories:
 
 
 
Purchased components and raw materials
$
73.9

 
$
69.7

Work in process
30.6

 
27.5

Finished goods
85.7

 
86.0

 
$
190.2

 
$
183.2

Other current assets:
 
 
 
Maintenance and repair tooling
$
23.2

 
$
22.9

Income tax-related
15.2

 
3.9

Workers compensation and other reimbursements receivable
3.5

 
4.3

Other
6.3

 
6.9

 
$
48.2

 
$
38.0

Property, plant and equipment:
 
 
 
Land
$
10.6

 
$
10.6

Buildings
73.9

 
73.0

Machinery and equipment
298.2

 
292.4

Construction in progress
14.3

 
15.3

 
397.0

 
391.3

Accumulated depreciation and amortization
(253.5
)
 
(246.6
)
 
$
143.5

 
$
144.7

Other current liabilities:
 
 
 
Compensation and benefits
$
28.3

 
$
41.0

Customer rebates
15.6

 
13.7

Interest
8.8

 
12.2

Taxes other than income taxes
5.0

 
5.6

Warranty
1.8

 
1.6

Income taxes
1.4

 
0.9

Restructuring
0.1

 
0.6

Environmental
0.2

 
0.2

Other
6.0

 
7.0

 
$
67.2

 
$
82.8

Accumulated other comprehensive loss:
 
 
 
Foreign currency translation
$
8.5

 
$
9.2

Minimum pension liability
(93.5
)
 
(96.9
)
 
$
(85.0
)
 
$
(87.7
)

12


Note 9.
Segment Information
Summarized financial information for our segments is presented below.
 
Three months ended
 
December 31,
 
2012
 
2011
 
(in millions)
Net sales, excluding intersegment sales:
 
 
 
Mueller Co.
$
151.1

 
$
128.1

Anvil
94.0

 
87.3

 
$
245.1

 
$
215.4

Intersegment sales:
 
 
 
Mueller Co.
$
1.4

 
$
1.7

Anvil

 

 
$
1.4

 
$
1.7

Operating income (loss):
 
 
 
Mueller Co.
$
8.1

 
$
4.7

Anvil
5.9

 
7.7

Corporate
(7.1
)
 
(6.5
)
 
$
6.9

 
$
5.9

Depreciation and amortization:
 
 
 
Mueller Co.
$
11.2

 
$
11.2

Anvil
3.5

 
3.6

Corporate
0.1

 
0.2

 
$
14.8

 
$
15.0

Restructuring:
 
 
 
Mueller Co.
$
0.7

 
$
0.4

Anvil

 
0.1

Corporate

 
(0.1
)
 
$
0.7

 
$
0.4

Capital expenditures:
 
 
 
Mueller Co.
$
3.4

 
$
3.4

Anvil
2.8

 
1.9

Corporate

 

 
$
6.2

 
$
5.3

Note 10.Commitments and Contingencies
We are involved in various legal proceedings that have arisen in the normal course of operations, including the proceedings summarized below. The effect of the outcome of these matters on our 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 material adverse effect on our business or prospects.
Environmental. We are subject to a wide variety of laws and regulations concerning the protection of the environment, both with respect to the operations at many of our properties and with respect to remediating environmental conditions that may exist at our own or other properties. We strive to comply 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 the acquisition agreement pursuant to which a predecessor to Tyco sold our Mueller Co. and Anvil businesses to the prior owners of these businesses 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

13


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.
In September 1987, we implemented an Administrative Consent Order (“ACO”) for our Burlington, New Jersey property, which 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 completed, and received final approval on, the soil cleanup required by the ACO. We retained this property related to the sale of our former U.S. Pipe segment. We expect ground-water issues as well as issues associated with the demolition of former manufacturing facilities at this site will continue and remediation by us could be required. Long-term ground-water monitoring may also be required, but we do not know how long such monitoring would be required and do not believe monitoring or further remediation costs, if any, will have a material adverse effect on any of our financial statements.
On July 13, 2010, Rohcan Investments Limited (“Rohcan”), 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.
Walter Energy-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 Energy consolidated group, which included us through December 14, 2006, is also jointly and severally liable for pension and benefit funding and termination liabilities of other group members, as well as certain benefit plan taxes. Accordingly, we could be liable under such provisions in the event any such liability is incurred, and not discharged, by any other member of the Walter Energy consolidated group for any period during which we were included in the Walter Energy consolidated group.
A dispute exists with regard to federal income taxes for 1980 through 1994 allegedly owed by the Walter Energy consolidated group. According to Walter Energy's last available public filing on the matter, Walter Energy's management estimated that the amount of tax claimed by the IRS was approximately $34.0 million for issues currently in dispute in bankruptcy court for matters unrelated to us. This amount is subject to interest and penalties. Of the $34.0 million in claimed tax, $21.0 million represents issues in which the IRS is not challenging the deductibility of the particular expense but only whether such expense is deductible in a particular year. Walter Energy's management believes that Walter Energy's financial exposure should be limited to interest and possible penalties and the amount of any tax claimed will be offset by favorable adjustments in other years.
In addition, the IRS previously issued a Notice of Proposed Deficiency assessing additional tax of $82.2 million for the fiscal years ended May 31, 2000 through December 31, 2005. Walter Energy filed a formal protest with the IRS, but had not reached a final resolution with the Appeals Division at December 31, 2012. The unresolved issues relate primarily to Walter Energy's method of recognizing revenue on the sale of homes and related interest on the installment notes receivable. The items at issue relate primarily to the timing of revenue recognition and consequently, should the IRS prevail on its positions, Walter Energy's financial exposure should be limited to interest and penalties. As a matter of law, we are jointly and severally liable for any final tax determination for any year in which any of our subsidiaries were members of the Walter Energy consolidated group, which means that we would be liable in the event Walter Energy is unable to pay any amounts owed. Walter Energy has disclosed that it believes its filing positions have substantial merit and that it intends to defend vigorously any claims asserted.
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 the 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 returns, to file all such returns on our behalf and to determine the amount of our liability to (or entitlement to payment from) Walter Energy for such previous periods. This arrangement may result in conflicts between Walter Energy and us.
Our separation from Walter Energy on December 14, 2006 was intended to qualify as a tax-free spin-off under Section 355 of the Internal Revenue Code. In addition, the tax allocation agreement provides that if the spin-off is determined not to be tax-free pursuant to Section 355, we generally will be responsible for any taxes incurred by Walter Energy 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

14


actions or omissions or Walter Energy's actions or omissions or taxes based upon our market value relative to Walter Energy's market value. Additionally, to the extent that Walter Energy 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 Energy consolidated group for the year in which the spin-off occurred.
In accordance with the income tax allocation agreement, Walter Energy used certain tax assets of one of our predecessors in its calendar 2006 tax return for which payment to us is required. The income tax allocation agreement only requires Walter Energy to make the payment upon realization of the tax benefit by receiving a refund or otherwise offsetting taxes due. Walter Energy currently owes us $11.6 million, which includes recent tax audit and amended tax return adjustments, that is payable pending completion of an IRS audit of Walter Energy's 2006 tax year and the related refund of tax from that year. This receivable is included in other current assets at December 31, 2012.
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 divestiture of our U.S. Pipe segment, 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, we 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 are party to a number of other 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 business or prospects.
Note 11.
Subsequent Events
On January 23, 2013, we delivered notice to redeem $22.5 million of the Senior Unsecured Notes at a redemption price of 103% plus accrued and unpaid interest on February 22, 2013. We expect to record a loss on early extinguishment of debt of $1.4 million on that date.
On January 30, 2013, our board of directors declared a dividend of $0.0175 per share on our common stock, payable on or about February 20, 2013, to stockholders of record at the close of business on February 11, 2013.

15


Note 12.
Consolidating Guarantor and Non-Guarantor Financial Information
The following information is included as a result of the guarantee by certain of our 100% owned U.S. subsidiaries (“Guarantor Companies”) of the Senior Unsecured Notes and the Senior Subordinated Notes. None of our other subsidiaries guarantee the Senior Unsecured Notes or the Senior Subordinated Notes. Each of the guarantees is joint and several and full and unconditional. Fast Fabricators, LLC and United States Pipe and Foundry Company, LLC were released as Guarantor Companies in connection with the sale of U.S. Pipe and related balances are included with the Issuer financial information in the following tables. Guarantor Companies are listed below.
 
    
State of
incorporation
or organization
Anvil International, LLC
 
Delaware
AnvilStar, LLC
 
Delaware
Echologics, LLC
 
Delaware
Henry Pratt Company, LLC
 
Delaware
Henry Pratt International, LLC
 
Delaware
Hunt Industries, LLC
    
Delaware
Hydro Gate, LLC
 
Delaware
J.B. Smith Mfg. Co., LLC
 
Delaware
James Jones Company, LLC
 
Delaware
Milliken Valve, LLC
 
Delaware
Mueller Co. LLC
 
Delaware
Mueller Financial Services, LLC
    
Delaware
Mueller Group, LLC
 
Delaware
Mueller Group Co-Issuer, Inc.
    
Delaware
Mueller International, L.L.C.
    
Delaware
Mueller Property Holdings, LLC
 
Delaware
Mueller Co. International Holdings, LLC
 
Delaware
Mueller Service California, Inc.
 
Delaware
Mueller Service Co., LLC
 
Delaware
Mueller Systems, LLC
    
Delaware
OSP, LLC
 
Delaware
U.S. Pipe Valve & Hydrant, LLC
 
Delaware




16


Mueller Water Products, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
December 31, 2012
 
Issuer    
 
Guarantor
 companies 
 
Non-
guarantor
 companies 
 
Eliminations
 
Total    
 
 
 
 
 
(in millions)
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
45.1

 
$
(3.9
)
 
$
33.3

 
$

 
$
74.5

Receivables, net

 
125.3

 
10.6

 

 
135.9

Inventories

 
176.7

 
13.5

 

 
190.2

Deferred income taxes
19.8

 

 
0.9

 

 
20.7

Other current assets
19.3

 
26.2

 
2.7

 

 
48.2

Total current assets
84.2

 
324.3

 
61.0

 

 
469.5

Property, plant and equipment, net
1.7

 
133.3

 
8.5

 

 
143.5

Identifiable intangible assets

 
564.9

 
1.7

 

 
566.6

Other noncurrent assets
18.1

 
0.8

 
1.4

 

 
20.3

Investment in subsidiaries
41.6

 
36.3

 

 
(77.9
)
 

Total assets
$
145.6

 
$
1,059.6

 
$
72.6

 
$
(77.9
)
 
$
1,199.9

Liabilities and stockholders' equity:
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
22.5

 
$
1.2

 
$

 
$

 
$
23.7

Accounts payable
5.1

 
52.3

 
5.6

 

 
63.0

Other current liabilities
22.1

 
43.2

 
1.9

 

 
67.2

Total current liabilities
49.7

 
96.7

 
7.5

 

 
153.9

Long-term debt
597.5

 
1.8

 

 

 
599.3

Deferred income taxes
124.9

 

 
0.6

 

 
125.5

Other noncurrent liabilities
72.6

 
7.8

 
2.1

 

 
82.5

Intercompany accounts
(937.8
)
 
911.7

 
26.1

 

 

Total liabilities
(93.1
)
 
1,018.0

 
36.3

 

 
961.2

Stockholders' equity
238.7

 
41.6

 
36.3

 
(77.9
)
 
238.7

Total liabilities and stockholders' equity
$
145.6

 
$
1,059.6

 
$
72.6

 
$
(77.9
)
 
$
1,199.9


17


Mueller Water Products, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
September 30, 2012
 
Issuer    
 
Guarantor
 companies 
 
Non-
guarantor
 companies 
 
Eliminations
 
Total    
 
 
 
 
 
(in millions)
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
53.3

 
$
(3.7
)
 
$
33.4

 
$

 
$
83.0

Receivables, net

 
146.9

 
19.2

 

 
166.1

Inventories

 
169.3

 
13.9

 

 
183.2

Deferred income taxes
18.5

 

 
1.1

 

 
19.6

Other current assets
10.5

 
26.3

 
1.2

 

 
38.0

Total current assets
82.3

 
338.8

 
68.8

 

 
489.9

Property, plant and equipment, net
1.8

 
134.2

 
8.7

 

 
144.7

Identifiable intangible assets

 
572.2

 
1.5

 

 
573.7

Other noncurrent assets
30.5

 
0.7

 
1.4

 

 
32.6

Investment in subsidiaries
27.2

 
37.9

 

 
(65.1
)
 

Total assets
$
141.8

 
$
1,083.8

 
$
80.4

 
$
(65.1
)
 
$
1,240.9

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

 
$
1.1

 
$

 
$

 
$
1.1

Accounts payable
8.3

 
68.7

 
7.5

 

 
84.5

Other current liabilities
29.9

 
49.0

 
3.9

 

 
82.8

Total current liabilities
38.2

 
118.8

 
11.4

 

 
168.4

Long-term debt
619.9

 
1.8

 

 

 
621.7

Deferred income taxes
132.0

 

 
0.8

 

 
132.8

Other noncurrent liabilities
77.2

 
7.6

 
2.0

 

 
86.8

Intercompany accounts
(956.7
)
 
928.4

 
28.3

 

 

Total liabilities
(89.4
)
 
1,056.6

 
42.5

 

 
1,009.7

Stockholders' equity
231.2

 
27.2

 
37.9

 
(65.1
)
 
231.2

Total liabilities and stockholders' equity
$
141.8

 
$
1,083.8

 
$
80.4

 
$
(65.1
)
 
$
1,240.9



18


Mueller Water Products, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
Three months ended December 31, 2012
 
Issuer    
 
Guarantor
 companies 
 
Non-
guarantor
 companies 
 
Eliminations
 
Total    
 
 
 
 
 
(in millions)
 
 
 
 
Net sales
$

 
$
221.8

 
$
23.3

 
$

 
$
245.1

Cost of sales

 
167.6

 
20.4

 

 
188.0

Gross profit

 
54.2

 
2.9

 

 
57.1

Operating expenses:
 
 
 
 
 
 
 
 
 
Selling, general and administrative
7.1

 
39.2

 
3.2

 

 
49.5

Restructuring

 
0.7

 

 

 
0.7

Total operating expenses
7.1

 
39.9

 
3.2

 

 
50.2

Operating income (loss)
(7.1
)
 
14.3

 
(0.3
)
 

 
6.9

Interest expense, net
13.4

 
0.1

 

 

 
13.5

Income (loss) from before income taxes
(20.5
)
 
14.2

 
(0.3
)
 

 
(6.6
)
Income tax expense (benefit)
(5.0
)
 
3.5

 
(0.1
)
 

 
(1.6
)
Equity in income (loss) of subsidiaries
10.5

 
(0.2
)
 

 
(10.3
)
 

Income (loss) from continuing operations
(5.0
)
 
10.5

 
(0.2
)
 
(10.3
)
 
(5.0
)
Income from discontinued operations, net of tax
12.0

 

 

 

 
12.0

Net income (loss)
$
7.0

 
$
10.5

 
$
(0.2
)
 
$
(10.3
)
 
$
7.0


Mueller Water Products, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
Three months ended December 31, 2011
 
Issuer    
 
Guarantor
 companies 
 
Non-
guarantor
 companies 
 
Eliminations
 
Total    
 
 
 
 
 
(in millions)
 
 
 
 
Net sales
$

 
$
193.4

 
$
22.0

 
$

 
$
215.4

Cost of sales

 
145.1

 
17.5

 

 
162.6

Gross profit

 
48.3

 
4.5

 

 
52.8

Operating expenses:
 
 
 
 
 
 
 
 
 
Selling, general and administrative
6.5

 
36.0

 
4.0

 

 
46.5

Restructuring

 
0.4

 

 

 
0.4

Total operating expenses
6.5

 
36.4

 
4.0

 

 
46.9

Operating income (loss)
(6.5
)
 
11.9

 
0.5

 

 
5.9

Interest expense, net
15.6

 

 

 

 
15.6

Income (loss) before income taxes
(22.1
)
 
11.9

 
0.5

 

 
(9.7
)
Income tax expense (benefit)
(7.9
)
 
4.6

 
0.1

 

 
(3.2
)
Equity in income of subsidiaries
7.7

 
0.4

 

 
(8.1
)
 

Income (loss) from continuing operations
(6.5
)
 
7.7

 
0.4

 
(8.1
)
 
(6.5
)
Loss from discontinued operations, net of tax
(5.4
)
 

 

 

 
(5.4
)
Net income (loss)
$
(11.9
)
 
$
7.7

 
$
0.4

 
$
(8.1
)
 
$
(11.9
)


19


Mueller Water Products, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income (Loss)
Three months ended December 31, 2012
 
Issuer    
 
Guarantor
 companies 
 
Non-
guarantor
 companies 
 
Eliminations
 
Total    
 
 
 
 
 
(in millions)
 
 
 
 
Net income (loss)
$
7.0

 
$
10.5

 
$
(0.2
)
 
$
(10.3
)
 
$
7.0

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Equity in other comprehensive income (loss) of subsidiaries
(0.7
)
 
(0.7
)
 

 
1.4

 

Natural gas hedges, net of tax

 

 

 

 

Interest rate swap contracts, net of tax

 

 

 

 

Foreign currency translation

 

 
(0.7
)
 

 
(0.7
)
Minimum pension liability, net of tax
3.4

 

 

 

 
3.4

 
2.7

 
(0.7
)
 
(0.7
)
 
1.4

 
2.7

Comprehensive income (loss)
$
9.7

 
$
9.8

 
$
(0.9
)
 
$
(8.9
)
 
$
9.7


Mueller Water Products, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income (Loss)
Three months ended December 31, 2011
 
Issuer    
 
Guarantor
 companies 
 
Non-
guarantor
 companies 
 
Eliminations
 
Total    
 
 
 
 
 
(in millions)
 
 
 
 
Net income (loss)
$
(11.9
)
 
$
7.7

 
$
0.4

 
$
(8.1
)
 
$
(11.9
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Equity in other comprehensive income of subsidiaries
0.6

 
0.6

 

 
(1.2
)
 

Natural gas hedges, net of tax
(0.2
)
 

 

 

 
(0.2
)
Interest rate swap contracts, net of tax
0.9

 

 

 

 
0.9

Foreign currency translation

 

 
0.6

 

 
0.6

Minimum pension liability, net of tax
0.5

 

 

 

 
0.5

 
1.8

 
0.6

 
0.6

 
(1.2
)
 
1.8

Comprehensive income (loss)
$
(10.1
)
 
$
8.3

 
$
1.0

 
$
(9.3
)
 
$
(10.1
)


20


Mueller Water Products, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Three months ended December 31, 2012 
 
Issuer    
 
Guarantor
 companies 
 
Non-
guarantor
 companies 
 
Eliminations
 
Total    
 
 
 
 
 
(in millions)
 
 
 
 
Operating activities:
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities from continuing operations
$
(5.9
)
 
$
6.0

 
$
0.5

 
$

 
$
0.6

Investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(6.0
)
 
(0.2
)
 

 
(6.2
)
Acquisitions, net of cash acquired

 
(0.3
)
 

 

 
(0.3
)
Net cash used in investing activities from continuing operations

 
(6.3
)
 
(0.2
)
 

 
(6.5
)
Financing activities:
 
 
 
 
 
 
 
 
 
Dividends paid
(2.7
)
 

 

 

 
(2.7
)
Shares retained for employee taxes
(1.3
)
 

 

 

 
(1.3
)
Payment of deferred financing fees
(0.7
)
 

 

 

 
(0.7
)
Other
(0.4
)
 
0.1

 

 

 
(0.3
)
Net cash used in financing activities from continuing operations
(5.1
)
 
0.1

 

 

 
(5.0
)
Net cash flows from discontinued operations:
 
 
 
 
 
 
 
 
 
  Operating activities
(1.7
)
 

 

 

 
(1.7
)
  Investing activities
4.5

 

 

 

 
4.5

Net cash provided by discontinued operations
2.8

 

 

 

 
2.8

Effect of currency exchange rate changes on cash

 

 
(0.4
)
 

 
(0.4
)
Net change in cash and cash equivalents
(8.2
)
 
(0.2
)
 
(0.1
)
 

 
(8.5
)
Cash and cash equivalents at beginning of period
53.3

 
(3.7
)
 
33.4

 

 
83.0

Cash and cash equivalents at end of period
$
45.1

 
$
(3.9
)
 
$
33.3

 
$

 
$
74.5




21


Mueller Water Products, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Three months ended December 31, 2011
 
Issuer    
 
Guarantor
 companies 
 
Non-
guarantor
 companies 
 
Eliminations
 
Total    
 
 
 
 
 
(in millions)
 
 
 
 
Operating activities:
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities from continuing operations
$
3.4

 
$
7.0

 
$
1.5

 
$

 
$
11.9

Investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(5.2
)
 
(0.1
)
 

 
(5.3
)
Acquisitions, net of cash acquired

 

 

 

 

Net cash used in investing activities from continuing operations

 
(5.2
)
 
(0.1
)
 

 
(5.3
)
Financing activities:
 
 
 
 
 
 
 
 
 
Dividends paid
(2.7
)
 

 

 

 
(2.7