2 0 1 2 A N N U A L R E P O R T
Overview
Mueller Water Products, Inc. (NYSE:MWA) is a leading manufacturer and marketer of products and services used in the
transmission, distribution and measurement of water. Our broad product portfolio includes engineered valves, fire hydrants,
metering products and systems, leak detection and pipe condition assessment. We help municipalities increase operational
efficiencies, improve customer service and prioritize capital spending, demonstrating why Mueller Water Products is Where
Intelligence Meets Infrastructure™. The piping component systems produced by Anvil help build connections that last in
commercial, industrial, mechanical, fire protection and oil & gas applications. Visit us at www.muellerwaterproducts.com.
Complete Water Transmission Solutions
Drinking
Water
Source
Water Treatment Plant
Gate and
Butterfly Valve
Pump Station
Fittings, Couplings and Hangers
Office Building
Fire Hydrant
Gate Valve
Corporation Valve
Curb Valve
Fire Protection Hydrant and Valve
Leak
Leak
Detection
Detection
Fittings, Couplings and Hangers
Gate,
Butterfly, Plug
and Ball Valve
Gate Valve
Gate Valve
Metering
Metering
Systems
Systems
Residential Homes
Pipe
Pipe
Condition
Condition
Pump Station
Water Discharge after Treatment
This diagram is for illustrative purposes only.
• Mueller Co. • Anvil International
L E T T E R F R O M G R E G H Y L A N D C h a i r m a n , P r e s i d e n t a n d C h i e f E x e c u t i v e O f f i c e r
DECEMBER 17, 2012
TO MY FELLOW STOCKHOLDERS:
I am pleased to share Mueller Water Products’ 2012 results with you. It was a year of significant change and
accomplishment for the company. We restructured our portfolio by divesting a lower-margin business. Our newer
technology initiatives gained traction in the marketplace with new customers and product and service offerings. We
continued to improve our operational efficiencies. And, after several challenging years, some of our key end markets
began to show signs of recovery.
The actions we took during the year make us a stronger company today than a year ago. We remain well positioned to
capitalize on the growing need for improvements and operational efficiencies in North America’s water infrastructure
and to continue our long history of leading the industry through innovation.
Divestiture of U.S. Pipe
One of the most significant developments in 2012 was the divestiture of U.S. Pipe, which has enabled us to focus on our
higher-margin businesses and newer technology products and services. Our Mueller Co. and Anvil operating segments
provide a solid platform to profitably grow our business and serve our markets.
2012 Business Review
We focus our comments in this annual report on our continuing operations. U.S. Pipe’s operating results have been
reclassified as discontinued operations for all periods.
2012 net sales of $1,023.9 million were up 6.1 percent compared to 2011 net sales of $964.6 million. Our adjusted EBITDA
margin for 2012 was 12.5 percent, essentially flat with 2011. We reported adjusted net income of $6.3 million, or $0.04 per
diluted share for 2012, compared to adjusted net loss of $2.9 million or $.02 per diluted share in 2011. Our previously
reported 2011 adjusted net loss per diluted share, which included U.S. Pipe, was $0.18.
During 2012, we also generated free cash flow of $45.4 million up from $29.0 million in 2011.
Our debt leverage at the end of 2012 was 4.2x, compared to 5.2x at the end of 2011.
The net sales split among our end markets changed in 2012 primarily reflecting the divestiture of U.S. Pipe. For example,
the oil & gas markets (addressed primarily through our Anvil business) became a more significant part of our business.
We estimate that 55 percent of our 2012 net sales came from repair and replacement of water infrastructure, 30 percent
from non-residential construction, 10 percent from oil & gas, and 5 percent from investment in water infrastructure driven
by residential construction for new community development.
Our brands are recognized for quality and service. Our businesses have also built their reputation on developing innovative
products and services that have become industry standards. We are committed to continuing that tradition. In 2012 we
created the Mueller Technology Center to focus our research and development efforts on developing new solutions that
improve efficiency, distribution and monitoring capabilities for water utilities.
We are still in the investment phase with our metering systems, leak detection and pipe condition assessment solutions.
Our investments in these businesses negatively impacted Mueller Co.’s operating income in the short term; however,
we are bullish about their long-term potential. They continued to gain traction in the marketplace in 2012. Our new
product development efforts extend to other parts of our business as well.
We continue to invest in new products and services that utilize the latest technology to help address industry trends
such as conserving water and improving operational efficiencies. We are equally committed to improving our own
internal processes through our overall Operational Excellence manufacturing initiatives. Over the past several years,
these initiatives have made us an even more efficient and better managed organization.
Strategy
We are proud of our position as a leading North American provider of flow control products to the water infrastructure
market. Mueller is the most recognized brand in the water infrastructure industry with one of the largest installed bases
of fire hydrants and iron gate valves in the United States.
Our strategy is to continue to increase our financial flexibility, improve our operating leverage, reduce costs and leverage
the Mueller brand to pursue strategic growth opportunities. We will continue to focus on these areas with the overall
objective of capitalizing on the large, attractive and growing water infrastructure markets worldwide. Specifically, we will:
• Maintain our leadership positions with customers and end users by ensuring that our product portfolio,
quality and service levels continue to set the standard for the industry
• Continue to drive operational and organizational excellence as we continuously improve our processes
and efficiencies
• Increase the value we offer our customers by expanding the breadth and depth of our products,
technologies and services, and leveraging the Mueller and Anvil brands and our sales infrastructure
• Opportunistically expand internationally.
Summary
Over the past year, we restructured our portfolio; invested in new products and services, which continue to gain traction in
the marketplace; implemented new processes that have improved the way we do business; and reduced our net debt
leverage. We believe that we are well positioned to benefit from these initiatives as our end markets continue to improve,
especially the residential construction end market.
We also believe operating margins will continue to be positively impacted by the efficiencies generated from our Operational
Excellence initiatives and as we experience higher levels of capacity utilization.
I appreciate the dedication of our employees and their commitment to safely producing quality products and delivering
exceptional customer service. They are responsible for our many accomplishments and for ensuring that Mueller and Anvil
remain leading brands in the marketplace.
I look forward to updating you on our progress throughout the year. In the meantime, thank you for the trust you have
invested in us.
Sincerely,
Gregory E. Hyland
Chairman, President
and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2012
OR
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
(State or Other Jurisdiction of
Incorporation or Organization)
20-3547095
(I.R.S. Employer
Identification Number)
1200 Abernathy Road N.E.
Suite 1200
Atlanta, GA 30328
(Address of Principal Executive Offices)
Registrant’s telephone number: (770) 206-4200
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.01
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files.)
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.505 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Non-accelerated filer
Large accelerated filer
Accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No
There were 156,949,115 shares of common stock of the registrant outstanding at November 13, 2012. At March 31, 2012, the aggregate market value
of the voting and non-voting common stock held by non-affiliates (assuming only for purposes of this computation that directors and executive officers
may be affiliates) was $514 million based on the closing price per share as reported on the New York Stock Exchange.
Applicable portions of the Proxy Statement for the Annual Meeting of Stockholders of the Company to be held on January 30, 2013 are
incorporated by reference into Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Introductory Note
In this Annual Report on Form 10-K (this “annual report”), (1) the “Company,” “we,” “us” or “our” refer to Mueller Water
Products, Inc. and its subsidiaries, including Mueller Co. and Anvil or their management; (2) “Mueller Co.” refers to Mueller Co. LLC,
our subsidiary; (3) “Anvil” refers to Anvil International, LLC, our subsidiary; and (4) “U.S. Pipe” refers to United States Pipe and
Foundry Company, LLC, our former subsidiary. 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. 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. Unless the context
indicates otherwise, amounts related to our former U.S. Pipe segment have been excluded from amounts presented in this annual report.
Certain of the titles and logos of our products referenced in this annual report are our intellectual property. Each trade name,
trademark or servicemark of any other company appearing in this annual report is the property of its holder.
Unless the context indicates otherwise, whenever we refer in this annual report to a particular year, we mean the fiscal year ended
or ending September 30 in that particular calendar year. We manage our business and report operations through two business segments:
Mueller Co. and Anvil, based largely on the products sold and the customers served.
Industry and Market Data
In this annual report, we rely on and refer to information and statistics from third-party sources regarding economic conditions and
trends, the demand for our water infrastructure products, flow control and piping component system products and services and the
competitive conditions we face in serving our customers and end users. We believe that these sources of information and estimates are
accurate, but we have not independently verified them.
Most of our primary competitors are not publicly traded companies. Accordingly, only limited current public information is
available with respect to the size of our end markets or our relative strength or competitive position. Our statements in this annual report
about our relative market strength and competitive position with respect to other products are based on our beliefs, studies and
judgments concerning industry trends.
Forward-Looking Statements
This annual report contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements that address activities, events or developments that we intend, expect, plan,
project, believe or anticipate will or may occur in the future are forward-looking statements. Examples of forward-looking statements
include, but are not limited to, statements we make regarding general economic conditions, spending by municipalities, the outlook for
the residential and non-residential construction markets, the stability of Anvil's markets, Hurricane Sandy and the “fiscal cliff” and the
impacts of these factors on our business. Forward-looking statements are based on certain assumptions and assessments made by us in
light of our 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, business, competitive, market and regulatory conditions and the following:
•
•
•
•
the spending level for water and wastewater infrastructure;
the level of manufacturing and construction activity;
our ability to service our debt obligations; and
the other factors that are described under the section entitled “RISK FACTORS” in Item 1A of Part I of this annual report.
Undue reliance should not be placed on any forward-looking statements. We do not have any intention or obligation to update
forward-looking statements except as required by law.
TABLE OF CONTENTS
PART I
Item 1.
BUSINESS
Our Company
The Public Offerings, the Spin-off and the Sale of U.S. Pipe
Business Strategy
Description of Products and Services
Sales, Marketing and Distribution
Backlog
Manufacturing
Purchased Components and Raw Materials
Research and Development
Patents, Licenses and Trademarks
Seasonality
Competition
Environmental Matters
Regulatory Matters
Employees
Geographic Information
Item 1A.
RISK FACTORS
Risks Relating to Our Business
Risks Relating to Our Relationship with Walter Energy
PROPERTIES
LEGAL PROCEEDINGS
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Equity Compensation Plan Information
Sale of Unregistered Securities
Issuer Purchases of Equity Securities
Stock Price Performance Graph
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Results of Operations
Financial Condition
Liquidity and Capital Resources
Off-Balance Sheet Arrangements
Contractual Obligations
Effect of Inflation; Seasonality
Critical Accounting Estimates
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
CONTROLS AND PROCEDURES
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Item 2.
Item 3.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
PART III
Item 10*
Item 11*
Item 12*
Item 13*
Item 14*
PART IV
Item 15
*
All or a portion of the referenced section incorporated by reference from our definitive proxy statement that will be issued in
connection with the Annual Meeting of Stockholders to be held on January 30, 2013.
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Item 1.
BUSINESS
Our Company
PART I
Mueller Water Products, Inc. is a leading manufacturer and marketer of products and services used in the transmission,
distribution and measurement of water. Our product portfolio includes engineered valves, fire hydrants, metering products and
systems, leak detection and pipe condition assessment services and a broad range of pipe fittings, couplings and hangers for
heating, ventilation and air conditioning (“HVAC”), fire protection, industrial, energy and oil & gas applications. Our products
and services are used by municipalities and the residential and non-residential construction industries, and enjoy leading
positions due to their strong brand recognition and reputation for quality, service and innovation. We believe that we have one
of the largest installed bases of iron gate valves and fire hydrants in the United States. Our valve or fire hydrant products are
specified for use in the 100 largest metropolitan areas in the United States. Our large installed base, broad product range and
well-known brands have led to long-standing relationships with the key distributors and end users of our products.
Approximately 70% of our net sales in 2012 came from products for which we believe we have a leadership position in the
United States and Canada. Our net sales were $1,023.9 million in 2012.
We manage our business and report operations through two business segments, based largely upon the products sold and
the customers served: Mueller Co. and Anvil. Segment revenue and profit information and additional financial data and
commentary on the recent financial results for operating segments are provided in the Segment Analysis section in Part II, Item
7. “Management's Discussion and Analysis of Financial Condition and Results of Operations” and in Note 17 to the
consolidated financial statements in Part II, Item 8. “Financial Statements and Schedules” of this annual report.
Mueller Co.
Mueller Co. manufactures valves for water and gas systems, including iron gate, butterfly, tapping, check, plug and ball
valves, as well as dry-barrel and wet-barrel fire hydrants and a broad line of pipe repair products, such as clamps and couplings
used to repair leaks. Mueller Co. also offers residential and commercial metering products and systems and leak detection and
pipe condition assessment products and services. Sales of Mueller Co. products are driven principally by spending on water
and wastewater infrastructure upgrade, repair and replacement and construction of new water and wastewater infrastructure,
which is typically associated with construction of new residential communities. Mueller Co. products are sold primarily
through waterworks distributors. We estimate that a substantial majority of Mueller Co.'s 2012 net sales were for infrastructure
upgrade, repair and replacement.
Anvil
Anvil manufactures and sources a broad range of products, including a variety of fittings, couplings, hangers, valves and
related products for use in many forms of non-residential construction for HVAC, fire protection, industrial, energy and oil &
gas applications. Anvil's products are sold primarily through distributors who then sell the products to a wide variety of end
users. These distributors are serviced primarily through Anvil's distribution centers. We believe Anvil's network of distributors
is the largest such distribution network serving similar end users.
1
Major products and selected brand names
The table below illustrates each segment's net sales during 2012, major product lines, estimated product positions, selected
brand names and primary end users.
Net sales (in millions)
Major product lines (estimated product position in
U.S. and Canada*)
Selected brand names
Primary end users
Mueller Co.
$652.4
Fire hydrants (#1)
Iron gate valves (#1)
Butterfly and ball valves (#1)
Plug valves (#2)
Metering products and systems
Brass products (#2)
Canada Valve™
Echologics
Hersey®
HydroGate®
HydroGuard®
Jones®
LeakFinderRT™
LeakListener™
LeakTuner™
Mi.Data™
Mi.Hydrant™
Mi.Net®
Milliken™
Mueller ServiceSM
Mueller SystemsSM
Mueller®
Pratt®
U.S. Pipe Valve and Hydrant
Water and wastewater
infrastructure
Anvil
$371.5
Pipe fittings and couplings (#1)
Grooved products (#2)
Pipe hangers (#2)
Anvil®
AnvilStar®
Anvil-Strut®
Beck®
Catawissa™
Gruvlok®
J.B. Smith™
Merit®
SPF®
HVAC, fire protection,
industrial, energy and oil &
gas
* Product position information is based on our net sales compared to our estimates of the net sales of our principal
competitors for these product categories. Our estimates are based on internal analyses and information from trade
associations and our distributor networks, where available.
The Public Offerings, the Spin-off and the Sale of U.S. Pipe
Mueller Water Products, Inc. is a Delaware corporation that was incorporated on September 22, 2005 under the name
Mueller Holding Company, Inc. It is the surviving corporation of the merger on February 2, 2006 of Mueller Water Products,
LLC and Mueller Water Products Co-Issuer, Inc. with and into Mueller Holding Company, Inc. We changed our name to
Mueller Water Products, Inc. on February 2, 2006. On June 1, 2006, we completed an initial public offering of 28,750,000
shares of common stock.
On December 14, 2006, Walter Energy, Inc. (“Walter Energy”, formerly Walter Industries, Inc.) distributed to its
shareholders 85,844,920 shares of our Series B common stock (the “Spin-off”). On January 28, 2009, each share of Series B
common stock was converted into one share of Series A common stock and the Series A designation was discontinued.
On September 23, 2009, we completed a public offering of 37,122,000 shares of common stock.
On April 1, 2012, we completed the sale of the businesses comprising our former U.S. Pipe segment.
2
Our principal executive offices are located at 1200 Abernathy Road N.E., Suite 1200, Atlanta, Georgia 30328, and our
main telephone number at that address is (770) 206-4200.
Business Strategy
Our business strategy is to capitalize on the large, attractive and growing water infrastructure markets worldwide. Key
elements of this strategy are as follows:
We will maintain our leadership positions with our customers and end users.
We will maintain our leadership positions with our customers and end users by leveraging our brand names and large
installed base; our valve or fire hydrant products' specification in all of the largest 100 metropolitan areas in the United States;
our established and extensive distribution channels; and our broad range of leading water infrastructure, flow control and
piping component system products, as well as by developing and introducing additional products and services.
We will continue to enhance operational excellence.
We will continue to pursue superior product engineering, design and manufacturing by investing in technologically
advanced manufacturing processes, such as lost foam casting and automated molding machinery. We will also seek
opportunities to improve manufacturing efficiency safely by increasing the use of our manufacturing facility in China and
continuing our other cost-reduction and efficiency initiatives. We will continue to expand the use of LEAN manufacturing and
Six Sigma business improvement methodologies where appropriate to safely capture higher levels of quality, service and
operational efficiency. We will also continue to evaluate outsourcing certain products wherever doing so will lower our costs
while maintaining quality and service.
We will increase the breadth and depth of our products and services.
We will continue to focus on delivering value to our customers and end users by increasing the breadth and depth of our
products and services. Further, through acquisition and internal development of proprietary technologies and intellectual
capital, we will continue to enhance and develop products and services that will be recognized for their superior quality and
reliability.
We will expand internationally.
We will selectively pursue attractive international opportunities, including potential acquisitions, that may enable us to
enter new markets with growth potential, strengthen our current competitive positions, enhance our existing product and
service offerings, expand our technological capabilities or provide synergy opportunities.
Description of Products and Services
We offer a broad line of water infrastructure, flow control and piping component system products primarily in the United
States and Canada. Our principal products are water and gas valves, fire hydrants, metering products and systems and a broad
range of pipe fittings, couplings and hangers. Our products are generally designed, manufactured and tested in compliance with
industry standards.
We also offer leak detection and pipe condition assessment services through Mueller Co.
Mueller Co.
Mueller Co.'s water products are manufactured to meet or exceed American Water Works Association (“AWWA”)
Standards and are certified to NSF 61 for potable water conveyance. In addition, many of these products carry Underwriters
Laboratory (“UL”) and Factory Mutual (“FM”) approvals. These products are typically specified by the water utility for use in
its system.
Water and Gas Valves and Related Products. Mueller Co. manufactures valves for water and gas systems, including iron
gate, butterfly, tapping, check, plug and ball valves and sells these products under a variety of brand names, including Mueller
and U.S. Pipe Valve and Hydrant. Water and gas valves and related products accounted for $401.8 million, $387.9 million and
$411.6 million of our gross sales during 2012, 2011 and 2010, respectively. Our valve products are used to control transmission
of potable water, non-potable water or gas. Water valve products typically range in size from ¾ inch to 36 inches in diameter,
but we also manufacture significantly larger valves as custom order work through our Henry Pratt unit. Most of these valves
are used in water distribution and water treatment facilities.
3
We also produce small valves, meter bars and line stopper fittings for use in gas systems. In addition, we manufacture
machines and tools for tapping, drilling, extracting, installing and stopping-off, which are designed to work with our water and
gas fittings and valves as an integrated system.
Fire Hydrants. Mueller Co. manufactures dry-barrel and wet-barrel fire hydrants. Sales of fire hydrants and fire hydrant
parts accounted for $149.0 million, $137.6 million and $137.6 million of our gross sales in 2012, 2011 and 2010, respectively.
We sell fire hydrants for new water infrastructure development, fire protection systems and water infrastructure repair and
replacement projects.
Our fire hydrants consist of an upper barrel and nozzle section and a lower barrel and valve section that connects to a water
main. In dry-barrel hydrants, the valve connecting the barrel of the hydrant to the water main is located below ground at or
below the frost line, which keeps the hydrant upper barrel dry. We sell dry-barrel fire hydrants with the Mueller and U.S. Pipe
Valve and Hydrant brand names in the United States and the Mueller and Canada Valve brand names in Canada. We also make
wet-barrel hydrants, where the valves are located in the hydrant nozzles and the barrel contains water at all times. Wet-barrel
hydrants are made for warm weather climates in locations such as California and Hawaii and sold under the Jones brand name.
Most municipalities have a limited number of fire hydrant brands that are approved for installation within their system due
to their desire to use the same tools and operating instructions across their system and to minimize inventories of spare parts.
We believe that our large installed base of fire hydrants throughout the United States and Canada and our reputation for superior
quality and performance, together with our incumbent specification position, have contributed to the leading positions of our
fire hydrants. Our large installed base also leads to recurring sales as components of an installed hydrant are replaced.
Water technologies and other products and services. Mueller Co. manufactures a variety of intelligent water technology
products under the Mueller Systems and Hersey Meters brand names that are designed to help water providers accurately
measure water usage. These products include water meters, advanced metering infrastructure systems and automated meter
reading products. These products have the capability to measure water usage ranging from small residential flows to large
commercial and industrial applications.
Mueller Co. offers leak detection and pipe condition assessment products and services under the Echologics brand name
and installation, replacement and maintenance services on new and existing valves, fire hydrants and service lines under the
Mueller Service brand name. Services include wet taps, dry installs, line stops and main-to-meter connections with full
excavation and refurbishment.
Other products include pipe repair products, such as clamps and couplings used to repair leaks and municipal castings, such
as manhole covers and street drain grates. We sell these products under the Mueller and Jones brand names.
Anvil
Anvil products include a variety of fittings, couplings, hangers, valves and related pipe products for use in non-residential
construction for industrial, HVAC, fire protection, energy and oil & gas applications. Anvil's net sales were $371.5 million,
$359.1 million and $346.9 million in 2012, 2011 and 2010, respectively, of which $94.7 million, $87.9 million and $100.3
million, respectively, were of products manufactured by third parties.
The majority of Anvil's products are not specified by an architect or an engineer, but are required to be manufactured to
industry specifications, which could include material composition, tensile strength and various other requirements. Many
products carry the UL, FM or other approval rating.
Fittings and Couplings. Anvil manufactures threaded and grooved pipe fittings and couplings. Pipe fittings and couplings
join two pieces of pipe together. The five primary categories of pipe fittings and couplings that we manufacture are listed
below.
• Cast Iron Fittings. Cast iron is an economical threaded fittings material and is the standard used in the United States
for low pressure applications, such as sprinkler systems and other fire protection systems. We believe that the
substantial majority of our cast iron products are used in the fire protection industry, with the remainder used in steam
and other HVAC applications.
4
• Malleable Iron Fittings and Unions. Malleable iron is a cast iron that is heat-treated to make it stronger, allowing a
thinner wall and a lighter product. Malleable iron is primarily used to join pipe in various gas, plumbing and HVAC
applications.
• Grooved Fittings, Couplings and Valves. Grooved products use a threadless pipe-joining method that does not require
welding.
•
Threaded Steel Pipe Couplings. Threaded steel pipe couplings are used by plumbing and electrical end users to join
pipe and conduit and by pipe mills as threaded end protectors.
• Nipples. Pipe nipples are used to expand or compress the flow between pipes of different diameters. The pipe nipples
product line is a complementary product offering that is packaged with cast iron fittings for fire protection products,
malleable iron fittings for industrial applications and our forged steel products for oil & gas and chemical applications.
Pipe nipples are also general plumbing items.
Hangers. Anvil manufactures a broad array of pipe hangers and supports. Standard pipe hangers and supports are used in
fire protection sprinkler systems and HVAC applications where the objective is to provide rigid support from the building
structure. Special order, or engineered, pipe supports are used in power plants and petrochemical plants where the objective is
to support a piping system that is subject to thermal, dynamic or seismic movement.
Other Products. Anvil also distributes other products, including forged steel pipe fittings, hammer unions, bull plugs and
swage nipples used to connect pipe in oil & gas applications.
Sales, Marketing and Distribution
We sell primarily to distributors. Our distributor relationships are generally non-exclusive, but we attempt to align
ourselves with key distributors in every market we serve. We believe that Mueller is the most recognized brand in the U.S.
water infrastructure industry.
Mueller Co.
Mueller Co. sells its products, primarily through waterworks distributors, to a wide variety of end user customers,
including municipalities, water and wastewater utilities, gas utilities, and fire protection and construction contractors. Sales of
our products are heavily influenced by the specifications for the underlying projects. Approximately 13%, 14% and 15% of
Mueller Co.'s net sales were to Canadian customers in 2012, 2011 and 2010, respectively.
At September 30, 2012, Mueller Co. had 118 sales representatives in the field and 117 inside marketing and sales
professionals, as well as 130 non-employee manufacturers' representatives. In addition to calling on distributors, these
representatives also call on municipalities, water companies and other end users to ensure that the products specified for their
projects are our products or comparable to our products. Municipalities often require contractors to use the same products that
have been historically used by that municipality.
Mueller Co.'s large installed base, broad product range and well-known brands have led to many long-standing
relationships with the key distributors in the industries we serve. Our distribution network covers all of the major locations for
our products in the United States and Canada. Although we have long-standing relationships with most of our key distributors,
we typically do not have long-term contracts with them. We do not have written contracts with our two largest distributors,
which together accounted for approximately 29%, 29% and 31% of Mueller Co.'s gross sales in 2012, 2011 and 2010,
respectively. The loss of either of these distributors could have a material adverse effect on our business. See “Item 1A. RISK
FACTORS-Our business depends on a small group of key distributors for a significant portion of our sales.”
Anvil
Anvil sells its products primarily to distributors who then resell the products to a wide variety of end users, including
commercial contractors. At September 30, 2012, Anvil's sales force consisted of 130 sales and customer service representatives
and 21 independent sales representatives. Anvil ships products primarily from four major regional distribution centers, from
which we are generally able to provide 24-hour turnaround. Approximately 7%, 7% and 14% of Anvil's net sales were to
Canadian customers during 2012, 2011 and 2010, respectively. Anvil sold its Canadian wholesale distribution business in
January 2010.
Anvil generally does not have written contracts with its distributors, although it has long-standing relationships with most
of its key distributors. Anvil's top five distributors together accounted for approximately 24%, 24% and 20% of Anvil's gross
sales in 2012, 2011 and 2010, respectively. The loss of any one of these distributors could have a material adverse effect on our
5
business. See “Item 1A. RISK FACTORS-Our business depends on a small group of key distributors for a significant portion
of our sales.”
Backlog
Backlog is a meaningful indicator for the Henry Pratt and Mueller Systems units of Mueller Co. Henry Pratt manufactures
valves and other parts for large projects that typically require design and build specifications. The delivery lead time for parts
used for these projects can be as long as nine months. Mueller Systems manufactures water meters that are sometimes ordered
in large quantities with sequential delivery dates over an extended time period. Backlog for Henry Pratt and Mueller Systems
is presented below.
Henry Pratt
Mueller Systems
Manufacturing
September 30,
2012
2011
$
(in millions)
64.1
21.9
$
57.7
13.2
See “Item 2. PROPERTIES” for a description of our principal manufacturing facilities.
We will continue to expand the use of LEAN manufacturing and Six Sigma business improvement methodologies where
appropriate to safely capture higher levels of quality, service and operational efficiency.
Mueller Co.
At September 30, 2012, Mueller Co. operated ten manufacturing facilities in the United States, Canada and China. Our
manufacturing operations include foundry, machining, fabrication, assembly, testing and painting operations. Not all facilities
perform each of these operations. Our existing manufacturing capacity is sufficient for anticipated near-term requirements. We
have no current plans to expand capacity.
Mueller Co. foundries use lost foam and green sand casting techniques. We utilize the lost foam technique for fire hydrant
production in our Albertville, Alabama facility and for iron gate valve production in our Chattanooga, Tennessee facility. The
lost foam technique has several advantages over the green sand technique for high-volume products, including a reduction in
the number of manual finishing operations, lower scrap levels and the ability to reuse some of the materials. The selection of
the appropriate casting technique, pattern, core-making equipment, sand and other raw materials depends on the final product
and its complexity, specifications, function and production volume.
Anvil
At September 30, 2012, Anvil operated eight manufacturing facilities in the United States. Our manufacturing operations
include foundry, heat treating, machining, fabricating, assembling, testing and painting operations. Not every facility performs
each of these operations. Our foundry operations employ automated vertical and horizontal green sand molding equipment.
Our products are made in a high volume production environment extensively using high-speed computer controlled machines
and other automated equipment.
Purchased Components and Raw Materials
Our products are made using various purchased components and several basic raw materials, including scrap steel, sand,
resin, brass ingot and steel pipe. Purchased parts and raw materials represented 34% and 16%, respectively, of cost of goods
sold in 2012.
6
Research and Development
Our primary research and development (“R&D”) facilities are located in Chattanooga, Tennessee and Middleborough,
Massachusetts for Mueller Co. and in North Kingstown, Rhode Island for Anvil. The primary focus of these operations is to
develop new products, improve and refine existing products and obtain and assure compliance with industry approval
certifications or standards (such as AWWA, UL, FM and The Public Health and Safety Company). At September 30, 2012, we
employed 86 people dedicated to R&D activities. R&D expenses were $12.7 million, $9.9 million and $7.8 million during
2012, 2011 and 2010, respectively. The increases in our R&D expense relate primarily to development of our newer water-
technology products. We actively seek patent protection where possible to prevent copying of our proprietary products.
Patents, Licenses and Trademarks
We have active patents and trademarks relating to the design of our products and trademarks for our brands and products.
We have filed and continue to file, when appropriate, patent applications used in connection with our business and products.
Most of the patents for technology underlying our products have been in the public domain for many years, and we do not
believe third-party patents individually or in the aggregate are material to our business. However, we consider the pool of
proprietary information, consisting of expertise and trade secrets relating to the design, manufacture and operation of our
products to be particularly important and valuable. We generally own the rights to the products that we manufacture and sell
and we are not dependent in any material way upon any license or franchise to operate. See “Item 1A. RISK FACTORS-Any
inability to protect our intellectual property and the expiration of our patents could adversely affect our competitive position.”
Seasonality
See “Item 1A. RISK FACTORS-Seasonal demand of certain of our products may adversely affect our financial results.”
and “Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS-Effect of Inflation; Seasonality.”
Competition
The U.S. and Canadian markets for water infrastructure, flow control and piping component system products are very
competitive. See “Item 1A. RISK FACTORS-Our markets are very competitive.” However, there are only a few competitors
for most of our product offerings. Many of our competitors are well-established companies with strong brand recognition. We
consider our installed base, product quality, customer service level, brand recognition, price, innovation, distribution and
technical support to be competitive strengths.
The competitive environment for most Mueller Co. products is mature and many end users are slow to transition to brands
other than their historically preferred brand. It is difficult to increase market share in this environment. We believe that
Mueller Co. fire hydrants and valves enjoy strong competitive positions based largely on their installed base, product quality
and brand recognition. Our principal competitors for fire hydrants and iron gate valves are McWane, Inc. and American Cast
Iron Pipe Company. The primary competitors for our brass products are The Ford Meter Box Company, Inc. and A.Y.
McDonald Mfg. Co. Many brass valves are interchangeable among different manufacturers.
The markets for Anvil's products are highly competitive, price sensitive and vulnerable to the increased acceptance of
products produced in perceived lower-cost countries, such as China and India. We compete primarily on the basis of
availability, service, price and breadth of product offerings. Our primary competitors are Ward Manufacturing L.L.C. for cast
iron and malleable iron fittings, Victaulic Company and Tyco International Ltd. for ductile grooved fittings and ERICO
International Corporation, Cooper Industries plc and Carpenter & Paterson, Inc. for pipe hangers. Our mechanical and
industrial customers have been slower to accept products manufactured outside the United States than our fire protection
customers.
Environmental Matters
See “Item 3. LEGAL PROCEEDINGS - Environmental.”
7
Regulatory Matters
The production and marketing of our products and services are subject to the rules and regulations of various U.S. and non-
U.S. federal, state and local agencies, including, but not limited to, rules and regulations concerning bribery, competition,
environmental protection, international trade, our relationships with distributors and workplace health and safety. We are not
aware of any pending rule or regulation that is likely to have a material adverse effect on our operations. See “Item 3. LEGAL
PROCEEDINGS.”
Employees
At September 30, 2012, we employed approximately 3,900 people, of whom approximately 86% work in the United
States. At September 30, 2012, approximately 67% of our hourly workforce was covered by collective bargaining agreements.
Our locations with employees covered by such agreements are presented below.
Location
Albertville, AL
Aurora, IL
Decatur, IL
University Park, IL
Bloomington, MN
Columbia, PA
Chattanooga, TN
Henderson, TN
St. Jerome, Canada
Simcoe, Canada
Expiration of current agreement(s)
September 2014
August 2015
June 2016
April 2014
March 2015
April 2014 and May 2014
September 2013 and October 2014
December 2015
November 2014
November 2013
We believe that relations with our employees, including those represented by collective bargaining agreements, are good.
Geographic Information
See Note 17 to the consolidated financial statements in Part II, Item 8. “Financial Statements and Schedules”.
Item 1A.
RISK FACTORS
Risks Relating to Our Business
Our end markets are subject to economic cycles.
Our primary end markets are municipal water distribution and treatment systems, the non-residential construction industry,
the oil & gas industry and new water and wastewater infrastructure associated with new residential construction. Sustained
uncertainty about these end markets could cause our distributors and our end use customers to delay purchasing, or determine
not to purchase, our products or services. General economic and other factors, including high levels of unemployment and
home foreclosures, interest rate fluctuations, fuel and other energy costs, labor and healthcare costs, the state of credit markets
(including municipal bonds, mortgages, home equity loans and consumer credit), weather, natural disasters and other factors
beyond our control, could adversely affect our sales, profitability and cash flows.
A significant portion of our business depends on spending for water and wastewater infrastructure construction activity.
A significant portion of our business depends on local, state and federal spending on water and wastewater infrastructure
upgrade, repair and replacement. Funds for water and wastewater infrastructure repair and replacement typically come from
local taxes or water rates, and the ability of state and local governments to increase taxes or water rates may be limited. In
addition, state and local governments that do not budget for capital expenditures in setting tax rates and water rates may be
unable to pay for water infrastructure repair and replacement if they do not have access to other funding sources. It is not
unusual for water and wastewater projects to be delayed and rescheduled for a number of reasons, including changes in project
priorities and difficulties in complying with environmental and other governmental regulations.
Some state and local governments have placed or may place significant restrictions on the use of water by their
constituents. These water use restrictions may lead to reduced water revenues by private water entities, municipalities or other
governmental agencies, which could similarly affect funding decisions for water-related projects.
8
Poor economic conditions may cause states, municipalities or private water entities to receive lower than anticipated
revenues, which may lead to reduced or delayed funding for water infrastructure projects. Even if favorable economic
conditions exist, water infrastructure owners may choose not to address deferred infrastructure needs due to a variety of
political factors or competing spending priorities.
Low levels of spending for water and wastewater infrastructure construction activity could adversely affect our sales,
profitability and cash flows.
Portions of our business depend on both non-residential and new residential construction activity.
A portion of our business depends on non-residential construction, which is cyclical. Low levels of non-residential
construction activity could adversely affect our sales, profitability and cash flows.
In addition, a portion of our business depends on new water and wastewater infrastructure spending, which in turn largely
depends on residential construction, which is cyclical and has historically represented a significant portion of our sales,
profitability and cash flows. Our previously high level of exposure to the residential construction market caused us to be
severely impacted by the U.S. economic downturn over the last several years. As the U.S. economy slowly recovers and the
new homebuilding market improves, our residential construction-related business may lag any increased levels of new home
construction.
Our business depends on a small group of key distributors for a significant portion of our sales.
We sell our products primarily to distributors and our success depends on these outside parties operating their businesses
profitably and effectively. Their profitability and effectiveness can vary significantly from company to company and among
different regional groups served by the same company. Further, our distributors generally also carry competing products. We
may fail to align our operations with successful distributors in any given market.
Approximately 36% of our 2012 gross sales were to our 10 largest distributors, and approximately 22% of our 2012 gross
sales were to our two largest distributors, Ferguson Enterprises, Inc. and HD Supply, Inc. In 2012, Ferguson Enterprises, Inc.
and HD Supply, Inc. accounted for 14% and 15%, respectively, of gross sales for Mueller Co.
Distributors in our industry have experienced consolidation in recent years. If such consolidation continues, our
distributors could be acquired by other distributors who have better relationships with our competitors. Pricing and profit
margin pressure may also result if consolidation among distributors continues. Pricing and profit margin pressure or the loss of
any one of our key distributors in any market could adversely affect our operating results.
Our business strategy includes acquiring and investing in companies and technologies that complement our existing
business, which could be unsuccessful or consume significant resources and adversely affect our operating results.
We will continue to evaluate the acquisition of strategic business, technologies and product lines with the potential to
strengthen our industry position or enhance our existing set of product and service offerings. We cannot assure that we will
identify or successfully complete suitable acquisitions in the future or that completed acquisitions will be successful.
Acquisitions and technology investments may involve significant cash expenditures, debt incurrence, operating losses and
expenses that could have a material adverse effect on our business, financial condition, results of operations and cash flows.
These types of transactions involve numerous other risks, including:
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diversion of management time and attention from daily operations;
difficulties integrating acquired businesses, technologies and personnel into our business;
difficulties in obtaining and verifying full information regarding a business or technology prior to the consummation of
the transaction, including the identification and assessment of liabilities, claims or other circumstances, including those
relating to intellectual property claims, that could result in litigation or regulatory exposure;
verifying the financial statements and other business information of an acquired business;
inability to obtain required regulatory approvals and/or required financing on favorable terms;
potential loss of key employees, key contractual relationships or key customers;
increased operating expenses related to the acquired business or technologies;
the failure of new technologies, products or services to gain market acceptance with acceptable profit margins;
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•
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entering into new markets in which we have little or no experience or in which competitors may have stronger market
positions;
dilution of interests of holders of our common shares through the issuance of equity securities or equity-linked
securities; and
•
inability to achieve expected synergies.
Any acquisitions or investments may ultimately harm our business or financial condition, as such acquisitions may not be
successful and may ultimately result in impairment charges.
Our markets are very competitive.
The U.S. and Canadian markets for water infrastructure and flow control products are very competitive. While there are
only a few competitors for most of our product and service offerings, many of our competitors are well-established companies
with strong brand recognition. We compete on the basis of a variety of factors, including the quality, price and innovation of
our products and services. Anvil's products in particular also compete on availability and breadth of product offerings and are
sold in fragmented markets with low barriers to entry. Our ability to retain our customers in the face of competition depends on
our ability to market our products and services to our customers effectively.
In addition to competition from U.S. companies, we face the threat of competition from companies from other countries.
The intensity of competition from these companies is affected by fluctuations in the value of the U.S. dollar against their local
currencies, by the cost to ship competitive products into North America and by the availability of trade remedies. Competition
may also increase as a result of U.S. competitors shifting their operations to lower-cost countries or otherwise reducing their
costs.
Our competitors may reduce the prices of their products or services, improve their quality, improve their functionality or
enhance their marketing or sales activities. Any of these potential developments could adversely affect our sales, profitability
and cash flows.
Disruptions in our supply chain and other factors affecting the distribution of our products could adversely affect our
business.
A disruption within our logistics or supply chain network, including a work stoppage at any of the freight companies that
deliver our products to our customers, could adversely affect our business and result in lost sales or damage to our reputation.
Such a disruption could adversely affect our financial performance or financial condition.
Transportation costs are relatively high for most of our products.
Transportation costs can be an important factor in a customer's purchasing decision. Our valve and hydrant products are
generally big, bulky and heavy, which tend to increase transportation costs. We also have relatively few manufacturing sites,
which tends to increase transportation distances to our customers and costs. High transportation costs could make our products
less competitive compared to similar or alternative products offered by competitors.
We typically depend on rail, barge and trucking systems to deliver our products to customers. While our customers
typically arrange and pay for transportation from our factory to the point of use, disruption of these transportation services
because of weather-related problems, strikes, lock-outs or other events could temporarily impair our ability to supply our
products to our customers, thereby adversely affecting our sales, profitability and cash flows.
10
Normal operations at our key manufacturing facilities may be interrupted.
Some of our key products, including fire hydrants and valves, are manufactured at single or few manufacturing facilities
that depend on critical pieces of heavy equipment that cannot be economically moved to other locations. We are therefore
limited in our ability to shift production between locations. The operations at our manufacturing facilities may be interrupted or
impaired by various operating risks, including, but not limited to:
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•
catastrophic events, such as fires, floods, explosions, natural disasters, severe weather or other similar occurrences;
interruptions in the delivery of raw materials or other manufacturing inputs;
adverse government regulations;
equipment breakdowns or failures;
information systems failures;
violations of our permit requirements or revocation of permits;
releases of pollutants and hazardous substances to air, soil, surface water or ground water;
shortages of equipment or spare parts;
labor disputes; and
terrorist acts.
The occurrence of any of these events may impair our production capabilities and adversely affect our sales, profitability
and cash flows.
We manage our business as a decentralized organization.
We have two business segments that operate under a decentralized organizational structure. Our operations have different
business practices, accounting policies, internal controls, procedures and compliance programs. Further, we may need to
modify existing programs and processes to increase efficiency and operating effectiveness and improve corporate visibility into
our decentralized operations. We also regularly update compliance programs and processes to comply with existing laws, new
interpretations of existing laws and new laws and we may not implement those modifications effectively. It could take time for
any such modifications to be implemented across our operations. During the implementation periods, our decentralized
operating approach could result in inconsistent management practices and procedures, which could adversely affect our
business. Once achieved, it may also be difficult to maintain operational consistency across our organization.
Any inability to protect our intellectual property and the expiration of our patents could adversely affect our competitive
position.
Our business depends on our technology and expertise, which were largely developed internally and are not subject to
statutory protection. We rely on a combination of patent protection, copyright and trademark laws, trade secrets protection,
employee and third party confidentiality agreements and technical measures to protect our intellectual property rights. The
measures that we take to protect our intellectual property rights may not adequately deter infringement, misappropriation or
independent third-party development of our technology, and they may not prevent an unauthorized third party from obtaining or
using information or intellectual property that we regard as proprietary or keep others from using brand names similar to our
own. The disclosure, misappropriation or infringement of our intellectual property could harm our competitive position. In
addition, our actions to enforce our rights may result in substantial costs and the diversion of management time and other
resources. We may also be subject to intellectual property infringement claims from time to time, which may result in our
incurring additional expenses and diverting resources to respond to these claims. Finally, for those products in our portfolio
that rely on patent protection, once a patent has expired the product is generally open to competition. Products under patent
protection usually generate significantly higher revenue and earnings than those not protected by patents. If we fail to
successfully enforce our intellectual property rights or register new patents, our competitive position could suffer, which could
adversely affect our business, financial condition, results of operations and cash flows.
11
If we do not successfully maintain and/or upgrade our information and technology networks, or if we are unable to
maintain the security of our information and technology networks, our operations could be disrupted.
We rely on various information technology systems to manage various aspects of our operations. We are continuously
upgrading and consolidating our systems, including making changes to legacy systems, replacing legacy systems with successor
systems with new functionality and acquiring new systems with new functionality. These types of activities subject us to
inherent costs and risks associated with replacing and changing these systems, including impairment of our ability to fulfill
customer orders, potential disruption of our internal control structure, substantial capital expenditures, additional administration
and operating expenses, retention of sufficiently skilled personnel to implement and operate the systems, demands on
management time and other risks and costs of delays or difficulties in transitioning to new systems or of integrating new
systems into our current systems. Our system implementations may not result in productivity improvements at a level that
outweighs the costs of implementation, or at all. In addition, the implementation of new technology systems may adversely
affect our business and operations.
We depend on the Internet and our information technology infrastructure for electronic communications among our
locations around the world and between our personnel and suppliers and customers. Security breaches of this infrastructure can
create system disruptions, shutdowns or unauthorized disclosure of confidential information. If we are unable to prevent such
breaches, our operations could be disrupted or we may suffer financial damage or loss because of lost or misappropriated
information.
We are subject to a variety of claims and litigation that could cause our results of operations to be adversely affected and
our reputation to suffer.
In the normal course of our business, we are subject to claims and lawsuits, including from time to time claims for damages
related to product liability and warranties, litigation alleging the infringement of intellectual property rights and litigation
related to employee matters and commercial disputes. The defense of these lawsuits may divert our management's attention,
and we may incur significant expenses in defending these lawsuits. In addition, we may be required to pay damage awards or
settlements, or become subject to injunctions or other equitable remedies, that could have a material adverse effect on our
business, financial condition, results of operations and cash flows. If we were required to participate in a product recall or take
other action to address a product liability or other claim, our reputation could suffer. Moreover, any insurance or
indemnification rights that we have may be insufficient or unavailable to protect us against potential loss exposures.
We rely on successors to Tyco to indemnify us for certain liabilities and they may become financially unable or fail to
comply with the terms of the indemnity.
Under the terms of the acquisition agreement relating to the August 1999 sale by Tyco of the Mueller Co. and Anvil
businesses to the prior owner of these businesses, we are indemnified by certain Tyco entities (“Tyco Indemnitors”) for all
liabilities arising in connection with the operation of these businesses prior to their sale by Tyco, including with respect to
products manufactured or sold prior to the closing of that transaction, as well as certain environmental liabilities. These
indemnities survive indefinitely and are not subject to any dollar limits. In the past, Tyco Indemnitors have made substantial
payments and assumed defense of claims in connection with these indemnification obligations. 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.
Our expenditures for pension obligations are significant and could be materially higher than we have predicted.
We provide pension benefits to certain current and former employees. In determining our future payment obligations under
the plans, we assume certain rates of return on the plan assets and growth rates of certain costs. We contributed $21.3 million,
$23.3 million and $23.0 million in 2012, 2011 and 2010, respectively, to our pension plans. At September 30, 2012, the market
value of our pension plan assets was $387.1 million, which represents an 86% funded status. The Pension Protection Act of
2006 (“PPA”) incents U.S. plans to be fully funded by 2015. PPA funded status is assessed annually on January 1. At January
1, 2012, the funded status of our U.S. plan was 103%.
Assumed discount rates and expected return on plan assets have a significant effect on the amounts reported for the pension
obligations and pension expense. Significant adverse changes in credit and capital markets or changes in investments could
result in discount rates or actual rates of return on plan assets being materially lower than projected and increased pension
expense in future years to meet funding level requirements. If increased funding requirements are particularly significant and
12
sustained, our overall liquidity could be materially reduced, which could force us to reduce investments and capital
expenditures, sell assets, seek additional capital or restructure or refinance our debt.
Failure to attract, motivate, train and retain qualified personnel could adversely affect our business. We also rely on
certain key personnel, the loss of whose services would adversely affect our business.
Our ability to expand or maintain our business depends on our ability to hire, train and retain employees with the skills
necessary to understand and adapt to the continuously developing needs of our customers. The increasing demand for qualified
personnel makes it more difficult for us to attract and retain employees with requisite skill sets. If we fail to attract, motivate,
train and retain qualified personnel, or if we experience excessive turnover, we may experience declining sales, manufacturing
delays or other inefficiencies, increased recruiting, training and relocation costs and other difficulties, and our business,
financial condition, results of operations and cash flows could be materially and adversely affected. In addition, our business
depends on the efforts, skills, reputations and business relationships of certain key personnel who are not obligated to remain
employed with us. The loss of these personnel could jeopardize our relationships with customers and may adversely affect our
business, financial condition, results of operations and cash flows.
We may not be able to generate sufficient cash flows from operating activities to service all of our debt.
Our business may not generate cash flows from operating activities in an amount sufficient to enable us to pay our debt or
to fund our other debt service obligations. If our cash flows and capital resources are insufficient to fund our debt service
obligations, we may be forced to reduce investments and capital expenditures, sell assets, seek additional capital, or restructure
or refinance our debt. However, we may not be able to accomplish these actions on satisfactory terms, or at all. In addition,
these actions, if accomplished, could adversely affect the operation and growth of our business.
Covenants in our debt instruments may adversely affect us.
Our debt instruments contain various covenants that limit our ability to engage in certain transactions that might be
beneficial. The indentures governing our notes restrict our ability to, among other things, borrow money or issue preferred
stock, pay dividends, make certain types of investments and other restricted payments, create liens, sell certain assets or merge
with or into other companies, engage in sale and leaseback transactions and enter into certain transactions with affiliates. Our
asset based lending agreement also requires the maintenance of a specified amount of excess availability when our fixed charge
coverage ratio is below a certain level.
The prices of our purchased components and raw materials can be volatile.
Our operations require substantial amounts of purchased components and raw materials, such as scrap steel, sand, resin,
brass ingot and steel pipe. We generally purchase components and raw materials at current market prices. Purchased parts and
raw materials represented 34% and 16%, respectively, of cost of goods sold in 2012. The cost and availability of these
materials are subject to economic forces largely beyond our control, including North American and international demand,
foreign currency exchange rates, freight costs and speculation. Mueller Co. experienced a 3% decrease in the average cost per
ton of scrap steel and a 5% decrease in the average cost of brass ingot purchased in the 2012 compared to 2011. Anvil
experienced a 5% increase in the average cost per ton of scrap steel purchased in 2012 compared to 2011.
We may not be able to pass on the entire cost of price increases for purchased components and raw materials to our
customers or offset fully the effects of these higher costs through productivity improvements. In particular, when purchased
component or raw material prices increase rapidly or to significantly higher than normal levels, we may not be able to pass cost
increases through to our customers on a timely basis, if at all, which would reduce our profitability and cash flows. In addition,
if purchased components or raw materials were not available or not available on commercially reasonable terms, that would
reduce our sales, profitability and cash flows. Our competitors could operate better under different market conditions than we
do, which could give them a cost advantage compared to us.
We may be affected by new governmental legislation and regulations relating to carbon dioxide emissions.
Many of our manufacturing plants use significant amounts of electricity generated by burning fossil fuels, which releases
carbon dioxide. Federal and state courts and administrative agencies are considering the scope and scale of carbon dioxide
emission regulation under various laws pertaining to the environment, energy use and development and greenhouse gas
emissions. For example, although various attempts to pass comprehensive legislation reducing carbon emissions have been
unsuccessful in the United States, the EPA has proceeded with regulating carbon emissions from stationary sources under
existing law. In addition, several states are considering various carbon dioxide registration and reduction programs. The final
details and scope of these various legislative, regulatory and policy measures are unclear and their potential impact is still
uncertain, so we cannot fully predict the impact on our business.
13
The potential impacts of climate change on our operations are highly uncertain. The EPA has found that global climate
change could increase the severity and possibly the frequency of severe weather patterns. Although the financial impact of
these potential changes is not reasonably estimable at this time, our operations in certain locations and those of our customers
and suppliers could potentially be adversely affected, which could adversely affect our profitability and cash flows.
We are subject to environmental, health and safety laws and regulations.
We are subject to various laws and regulations relating to the protection of the environment and human health and safety
and must incur capital and other expenditures to comply with these requirements. Failure to comply with any environmental,
health or safety requirements could result in the assessment of damages, the imposition of penalties, suspension of production,
changes to equipment or processes or a cessation of operations at our facilities. Because these laws are complex, subject to
change and may be applied retroactively, these requirements, in particular as they change in the future, may adversely affect our
sales, profitability and cash flows.
In addition, we incurred costs to comply with the National Emissions Standards for Hazardous Air Pollutants issued by the
EPA for iron and steel foundries and for our foundries' painting operations. We may be required to conduct investigations and
perform remedial activities that could require us to incur material additional costs. Our operations involve the use of hazardous
substances and the disposal of hazardous wastes. We may incur additional costs to manage these substances and wastes, and we
may be subject to claims for damage for personal injury, property damage or damage to natural resources.
Our former U.S. Pipe subsidiary has been identified as a potentially responsible party liable under federal environmental
laws for a portion of the cleanup costs with regard to two sites and is currently subject to an administrative consent order
requiring certain monitoring and cleanup with regard to a property in New Jersey. Such cleanup costs could be substantial and,
since we remain responsible for these potential liabilities, could adversely affect our profitability and cash flows in any given
reporting period.
Seasonal demand of certain of our products may adversely affect our financial results.
Sales of some of our products, including valves and fire hydrants, are seasonal, with lower sales in our first and second
fiscal quarters when weather conditions throughout most of North America tend to be cold resulting in lower levels of
construction activity. This seasonality in demand has resulted in fluctuations in our sales and operating results. To satisfy
demand during expected peak periods, we may incur costs associated with inventory build-up, and our projections as to future
needs may not be accurate. Because many of our expenses are fixed, seasonal trends can cause reductions in our profitability
and profit margins and deterioration of our financial condition during periods affected by lower production or sales activity.
Potential international business opportunities may expose us to additional risks.
A part of our growth strategy depends on us expanding internationally. Although net sales outside of the United States and
Canada have historically accounted for a small percentage of our total net sales, we expect to increase our level of business
activity outside of the United States and Canada. Some countries that present good business opportunities also face political
and economic instability and vulnerability to infrastructure and other disruptions. Seeking to expand our business
internationally exposes us to additional risks, which include political and economic uncertainties, currency fluctuations,
changes in local business conditions and national and international conflicts. A primary risk that we face in connection with our
export orders relates to our ability to collect amounts due from customers. We also face the potential risks that arise from
staffing, monitoring and managing international operations, including the risk that such activities may divert our resources and
management time.
In addition, compliance with the laws and regulations of multiple international jurisdictions increases our cost of doing
business. International operations also are subject to anti-corruption laws and anti-competition regulations, among others. For
example, the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws generally prohibit companies and their
intermediaries from making improper payments or providing anything of value to improperly influence foreign government
officials and certain others for the purpose of obtaining or retaining business, or obtaining an unfair advantage. Violations of
these laws and regulations could result in severe criminal and civil sanctions, could disrupt our business and adversely affect
our brands, our international expansion efforts, our business and our operating results.
Any failure to satisfy international trade compliance regulations may adversely affect us.
Our operations require importing and exporting goods and technology between countries on a regular basis. From time to
time, we obtain or receive information alleging improper activity in connection with our imports or exports. Our policy
mandates strict compliance with U.S. and non-U.S. trade laws applicable to our products. If we receive information alleging
improper activity, our policy is to investigate that information and respond appropriately, including, if warranted, reporting our
14
findings to relevant governmental authorities. Nonetheless, we cannot provide assurance that our policies and procedures will
always protect us from actions that would violate U.S. and/or non-U.S. laws. Any improper actions could subject us to civil or
criminal penalties, including material monetary fines, or other adverse actions, including denial of import or export privileges,
and could damage our reputation and our business prospects.
A material weakness in our internal control over financial reporting could lead to errors in our financial statements and
a lack of investor confidence and a resulting decline in our stock price.
In connection with changes to our internal controls over financial reporting during the quarter ended September 30, 2012,
management discovered errors in the classification of cash flows as between those from continuing operations and those from
discontinued operations. These errors related to the classification of deferred income tax and retirement plan adjustments in
determining net cash used in operating activities due to designating our U.S. Pipe segment as discontinued operations in our
consolidated financial statements during the quarter ended March 31, 2012. Specifically, net cash used in operating activities
was overstated by $8.0 million for the six months ended March 31, 2011 and by $10.0 million for the nine months ended June
30, 2011, as presented in our Quarterly Reports filed on Form 10-Q for the quarterly periods ended March 31, 2012 and June
30, 2012, respectively. Net cash used in discontinued operations was understated by these same amounts for these periods. As
a result of these errors, management concluded that as of March 31, 2012 and June 30, 2012 our internal control over financial
reporting and our disclosure controls and procedures were not effective. In connection with this determination, management
also concluded that we had a material weakness, at those dates, in these controls. We remediated this material weakness during
the quarter ended September 30, 2012.
In addition, management determined that a non-cash adjustment of $2.5 million was necessary to increase certain health
and welfare accrued liabilities and related expenses at September 30, 2011. This adjustment did not result in any material
misstatement of any previously issued financial statements. As a result of this adjustment, management concluded that we had
a material weakness in our period end consolidating process for reconciling certain health and welfare accrued liability
accounts. Consequently, management concluded that we had not maintained effective internal control over financial reporting.
We remediated this material weakness during the quarter ended December 31, 2011 by changing our period end consolidating
account reconciliation process related to these accounts.
The fact that we have previously identified material weaknesses could lead investors to question the reliability and
accuracy of our reported financial information and could adversely impact the market price of our common stock.
Risks Relating to Our Relationship with Walter Energy
We may have substantial additional liability for federal income tax allegedly owed by Walter Energy.
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 (including our subsidiaries) through December 14,
2006, is also jointly and severally liable for pension and benefit funding and termination liabilities of other group members, as
well as certain benefit plan taxes. Accordingly, we could be liable under such provisions in the event any such liability is
incurred, and not discharged, by any other member of the Walter 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 years 1980 to 1994 and 1999 to 2001 allegedly owed by the Walter
Energy consolidated group, which included U.S. Pipe during these periods. As a matter of law, we are jointly and severally
liable for any final tax determination, which means that in the event Walter Energy is unable to pay any amounts owed, we
would be liable.
The tax allocation agreement between us and Walter Energy allocates to us certain tax risks associated with the Spin-
off.
Walter Energy effectively controlled all of our tax decisions for periods during which we were a member of the Walter
Energy consolidated federal income tax group and certain combined, consolidated or unitary state and local income tax groups.
Under the terms of the income tax allocation agreement between us and Walter 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 periods. This
arrangement may result in conflicts of interests between us and Walter Energy. In addition, the tax allocation agreement
provides that if the Spin-off is determined not to be tax-free pursuant to Section 355 of the Internal Revenue Code of 1986, as
15
amended, 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 actions or omissions or
Walter Energy’s actions or omissions or taxes based on 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
our tax allocation agreement, we could be liable for those taxes as a result of being a member of the Walter Energy consolidated
federal income tax group for the year in which the Spin-off occurred. Walter Energy’s income tax returns for the year in which
the Spin-off occurred are still open for federal examination.
Item 2.
PROPERTIES
Our principal properties are listed below.
Location
Mueller Co.:
Albertville, AL
Aurora, IL
Decatur, IL
Hammond, IN
Cleveland, NC
Chattanooga, TN
Cleveland, TN
Brownsville, TX
Barrie, Ontario
St. Jerome, Quebec
Jingmen, China
Anvil:
Ontario, CA
University Park, IL
Bloomington, MN
Columbia, PA
Greencastle, PA
Waynesboro, PA
North Kingstown, RI
Henderson, TN
Houston, TX
Irving, TX
Longview, TX
Simcoe, Ontario
Corporate:
Atlanta, GA
Activity
Size
(sq. ft.)
Owned or
leased
Manufacturing
Manufacturing and distribution
Manufacturing
Manufacturing
Manufacturing
Manufacturing and research and development
Manufacturing
Manufacturing
Distribution
Manufacturing
Manufacturing
Distribution
Distribution
Distribution
Manufacturing and distribution
Manufacturing
Manufacturing
Manufacturing and research and development
Manufacturing
Manufacturing and distribution
Distribution
Manufacturing
Distribution
422,000
230,000
467,000
51,000
190,000
547,000
40,000
108,000
50,000
55,000
154,000
73,000
192,000
105,000
663,000
133,000
73,000
167,000
180,000
105,000
218,000
114,000
126,000
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Leased
Owned
Owned
Leased
Leased
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Leased
Owned
Owned
Corporate headquarters
25,000
Leased
We consider our facilities to be well maintained and believe we have sufficient capacity to meet our anticipated needs
through 2013. Our leased properties have terms expiring at various dates through August 2019.
16
Item 3.
LEGAL PROCEEDINGS
We are involved in various legal proceedings that have arisen in the normal course of operations, including the proceedings
summarized below. The effect of the outcome of these matters on our future results of operations cannot be predicted with
certainty as any such effect depends on future results of operations and the amount and timing of the resolution of such matters.
Other than the litigation described below, we do not believe that any of our outstanding litigation would have a material adverse
effect on our 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. These expenses were $1.7 million, $1.3 million and $1.3 million during 2012, 2011 and 2010,
respectively. We capitalize environmental expenditures that increase the life or efficiency of long-term assets or that reduce or
prevent environmental contamination. Capital expenditures for environmental requirements are anticipated to be approximately
$1 million during 2013. Capitalized environmental-related expenditures were $0.7 million, $0.5 million and $0.5 million
during 2012, 2011 and 2010, respectively.
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
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 our financial condition or results of operations.
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 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.
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 results of operations cannot be predicted with certainty as any such effect
depends on future results of operations and the amount and timing of the resolution of such matters. While the results of
litigation cannot be predicted with certainty, we believe that the final outcome of such other litigation is not likely to have a
materially adverse effect on our business or prospects.
17
PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange under the trading symbol MWA.
Covenants contained in certain of the debt instruments referred to in Note 7 to the consolidated financial statements restrict
the amount we can pay in cash dividends. Future dividends will be declared at the discretion of our board of directors and will
depend on our future earnings, financial condition and other factors.
The range of high and low intraday sales prices of our common stock and the dividends declared per share is presented
below.
2012:
4th quarter
3rd quarter
2nd quarter
1st quarter
2011:
4th quarter
3rd quarter
2nd quarter
1st quarter
High
Low
Dividends
per share
$
$
$
$
4.93
4.06
3.57
3.15
4.09
4.80
4.73
4.45
$
$
3.33
3.12
2.47
1.96
1.94
3.49
3.61
2.80
0.0175
0.0175
0.0175
0.0175
0.0175
0.0175
0.0175
0.0175
At September 30, 2012, there were 132 stockholders of record for our common stock.
Equity Compensation Plan Information
The information regarding our compensation plans under which equity securities are authorized for issuance is set forth in
“Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.”
Sale of Unregistered Securities
We did not issue any unregistered securities within the past three years.
Issuer Purchases of Equity Securities
We did not repurchase shares of our common stock in the quarter ended September 30, 2012.
18
Stock Price Performance Graph
The following graph compares the cumulative quarterly stock market performance of our common stock with the Russell
2000 Stock Index (“Russell 2000”) and the Dow Jones U.S. Building Materials & Fixtures Index (“DJ Building Materials &
Fixtures”) since September 30, 2007.
Total return values were calculated based on cumulative total return assuming (i) the investment of $100 in our common
stock, the Russell 2000 and the DJ Building Materials & Fixtures on the dates indicated and (ii) reinvestment of all dividends.
19
Item 6.
SELECTED FINANCIAL DATA
The selected financial and other data presented below should be read in conjunction with, and are qualified by reference
to, “Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS” and the consolidated financial statements and notes thereto included elsewhere in this annual report.
2012
2009
2010
2011
(in millions, except per share data)
2008
$
$
$
$
$
$
$
Statement of operations data:
Net sales
Cost of sales
Gross profit
Selling, general and administrative
expenses
Restructuring
Impairment(1)
Interest expense, net
Loss on early extinguishment of debt, net
Income (loss) before income taxes
Income tax expense (benefit)
Income (loss) from continuing operations
Discontinued operations(2)
Net income (loss)
Net income (loss) per basic share:
Continuing operations
Discontinued operations
Net income (loss)
Net income (loss) per diluted share:
Continuing operations
Discontinued operations
Net income (loss)
Weighted average shares outstanding:
Basic
Diluted
Balance sheet data (at September 30):
Cash and cash equivalents
Working capital
Property, plant and equipment, net
Assets held for sale
Total assets
Total debt
Long-term liabilities
Liabilities held for sale
Total liabilities
Stockholders’ equity
Other data (year ended September 30):
Depreciation and amortization(3)
Capital expenditures(3)
Cash dividends declared per share
$
1,023.9
752.8
271.1
204.2
2.8
—
59.9
1.5
2.7
7.9
(5.2)
(103.2)
(108.4) $
(0.03) $
(0.66)
(0.69) $
(0.03) $
(0.66)
(0.69) $
$
156.5
156.5
83.0
321.5
144.7
—
1,240.9
622.8
841.3
—
1,009.7
231.2
60.6
31.4
0.07
$
964.6
716.5
248.1
191.8
3.6
—
65.6
—
(12.9)
(2.9)
(10.0)
(28.1)
(38.1) $
(0.07) $
(0.18)
(0.25) $
(0.07) $
(0.18)
(0.25) $
$
155.3
155.3
61.0
404.0
145.7
249.7
1,485.0
678.3
911.2
56.9
1,106.0
379.0
63.1
23.1
0.07
$
959.7
700.6
259.1
188.8
0.6
—
68.0
4.6
(2.9)
2.5
(5.4)
(39.8)
(45.2) $
(0.03) $
(0.26)
(0.29) $
(0.03) $
(0.26)
(0.29) $
$
154.3
154.3
84.0
452.7
157.0
260.0
1,568.2
692.2
979.2
41.1
1,162.9
405.3
65.6
21.8
0.07
$
1,017.0
754.4
262.6
203.5
6.2
911.4
78.4
3.8
(940.7)
(53.5)
(887.2)
(109.5)
(996.7) $
(7.61) $
(0.94)
(8.55) $
(7.61) $
(0.94)
(8.55) $
$
116.6
116.6
61.6
525.3
178.8
281.2
1,739.5
740.2
1,082.0
55.4
1,303.2
436.3
69.0
28.5
0.07
1,313.3
918.1
395.2
231.7
—
—
72.3
—
91.2
38.0
53.2
(11.2)
42.0
0.46
(0.10)
0.36
0.46
(0.10)
0.36
115.1
115.5
185.6
755.6
193.9
465.9
3,090.2
1,095.5
1,466.4
1.1
1,761.3
1,328.9
70.4
29.6
0.07
(1) In 2009, goodwill was determined to be fully impaired resulting in charges of $717.3 million for Mueller Co., and $92.7 million for
Anvil. Mueller Co.'s trademarks and trade names were determined to be partially impaired resulting in a charge of $101.4 million.
(2) In 2012, we sold our former U.S. Pipe segment. 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 periods presented.
(3) Excludes discontinued operations.
20
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto that
appear elsewhere in this annual report.
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 in the Company, consisting of all of 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 stock and the Series
A designation was discontinued.
The businesses comprising our former U.S. Pipe segment were sold effective April 1, 2012.
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. We manage our business and report operations through two business segments:
Mueller Co. and Anvil, based largely on the products sold and the customers served.
Business
Overall, we think the signs we are seeing in our water markets are mostly positive, giving us more confidence that our
markets have stabilized and we could see some continued growth.
Most of the net sales of Mueller Co. are for municipal or residential construction water infrastructure projects in the United
States.
Spending on water infrastructure is based on the condition of the infrastructure systems and access to funding from existing
resources, the issuance of debt, higher tax rates or higher water rates. Water authorities may find it challenging to increase tax
or water rates. We believe the general municipal spending environment continues to remain stable although budget pressures
and economic uncertainty persist. According to U.S. Census Bureau data at September 30, 2012, state and local tax receipts
grew at over 3% year-over-year for the fifth consecutive quarter. While both are showing improving trends, local tax receipt
improvement is weaker than improvement in state tax receipts.
We believe residential construction activity measures indicate the housing market may be stabilizing. U.S. Census Bureau
data for housing starts, on a seasonally adjusted annualized basis, indicates that housing starts in September 2012 represented
the ninth consecutive month of greater than 700,000 units. September 2012 housing permit activity was above 800,000 units
for the first time since September 2008. Furthermore, September 2012 single family housing starts were above 500,000 units
for the sixth consecutive month and the 603,000 units reported was the highest since August 2000.
As another potential future indicator, U.S. Census Bureau data shows housing permits in September 2012 were close to
900,000 seasonally adjusted annualized units and represented the highest level since July 2008. Total permits in September
2012 grew by 45%, while single family permits reached their highest level since July 2008 and grew 27% on a year-over-year
basis.
We believe an improving housing market would also bolster municipalities' fiscal condition, since local governments
benefit from increased property taxes as well as connection and other ancillary fees associated with residential construction.
Most of Anvil's net sales are driven by commercial construction, which we expect to be essentially flat with the possibility
of higher spending in some segments in 2013. We also believe spending in the oil & gas market will increase in the second half
of 2013.
Hurricane Sandy inflicted significant damage in the northeastern United States, particularly upon making landfall on
October 29, 2012. The operations at our facilities in North Kingstown, Rhode Island and Columbia, Greencastle and
Waynesboro, Pennsylvania were temporarily interrupted by the effects of the hurricane. It is too early to quantify any potential
impact, whether favorable or unfavorable, Hurricane Sandy may have on our results.
21
There continues to be growing concerns about the potential impact of the “fiscal cliff” arising from the combination of tax
increases and automatic spending cuts scheduled to take effect at the end of calendar 2012 and in early calendar 2013 in the
United States. A failure by Congress to act to avert or delay these tax increases and spending cuts could negatively affect the
overall economy and our primary end markets. In particular, these changes could increase the level of uncertainty among our
customers and end users, which could cause them to delay or cancel purchases of our products and services.
Our U.S. pension plan was 103% funded at January 1, 2012 under the provisions of the PPA. This reflects the revised
governmental guidance of Moving Ahead for Progress in the 21st Century (“MAP-21”). The total market value of our U.S.
pension plan assets was $375.8 million and $321.1 million at September 30, 2012 and 2011, respectively. During 2012, the
investment performance of these assets was a gain of $57.3 million and we contributed $21.3 million to this plan. 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. If we lower our estimated rate of return on
pension plan assets, pension expense and required contributions to these plans may increase.
Results of Operations
Year Ended September 30, 2012 Compared to Year Ended September 30, 2011
$
$
$
$
$
$
Net sales
Gross profit
Operating expenses:
Selling, general and administrative
Restructuring
Operating income (loss)
Interest expense, net
Loss on early extinguishment of debt
Loss before income taxes
Income tax expense
Loss from continuing operations
Loss from discontinued operations, net of tax
Net loss
Net sales
Gross profit
Operating expenses:
Selling, general and administrative
Restructuring
Operating income (loss)
Interest expense, net
Loss before income taxes
Income tax benefit
Loss from continuing operations
Loss from discontinued operations, net of tax
Net income (loss)
Mueller Co.
Year ended September 30, 2012
Corporate
Anvil
Total
652.4
162.8
$
$
102.6
2.5
105.1
57.7
$
(in millions)
371.5
108.3
$
$
— $
— $
1,023.9
271.1
70.7
0.3
71.0
37.3
$
30.9
—
30.9
(30.9)
204.2
2.8
207.0
64.1
59.9
1.5
2.7
7.9
(5.2)
(103.2)
(108.4)
$
Year ended September 30, 2011
Mueller Co.
Anvil
Corporate
Total
605.5
147.0
$
$
91.8
1.4
93.2
53.8
$
(in millions)
359.1
101.1
$
$
68.1
1.2
69.3
31.8
$
— $
— $
31.9
1.0
32.9
(32.9)
$
22
964.6
248.1
191.8
3.6
195.4
52.7
65.6
(12.9)
(2.9)
(10.0)
(28.1)
(38.1)
Consolidated Analysis
Net sales for 2012 increased to $1,023.9 million from $964.6 million in 2011. Net sales increased $34.6 million due to
higher shipment volumes and $27.1 million due to higher pricing.
Gross profit for 2012 increased to $271.1 million from $248.1 million in 2011. Gross profit increased primarily due to
$27.1 million in higher sales prices and manufacturing cost savings, partially offset by increased raw material costs. Gross
margin was 26.5% in 2012 and 25.7% in 2011.
Selling, general and administrative expenses in 2012 increased to $204.2 million from $191.8 million in 2011. As a
percentage of net sales, selling, general and administrative expenses was 19.9% in each year.
Interest expense, net was $59.9 million in 2012 compared to $65.6 million in the prior year period. The components of
interest expense, net are detailed below.
2012
2011
7.375% Senior Subordinated Notes
8.75% Senior Unsecured Notes
Interest rate swap contracts
ABL Agreement borrowings
Deferred financing fees amortization
Other interest expense
Interest income
$
$
$
(in millions)
31.0
19.3
5.0
1.1
2.3
1.5
60.2
(0.3)
59.9
$
31.0
20.0
8.0
1.9
2.3
2.7
65.9
(0.3)
65.6
Interest expense included expenses related to terminated interest rate swap contracts. The losses on these contracts were
initially recorded in other comprehensive loss and were being amortized to interest expense over the original lives of the swap
contracts. At September 30, 2012, all deferred swap contract expenses were fully recognized. Interest expense excluding the
effects of the interest rate swap contracts decreased by $2.7 million primarily due to reduced borrowing levels.
Income tax expense for 2012 includes $5.9 million expense related to a valuation allowance provided on deferred tax assets
existing at the beginning of the year. In 2012 and 2011, the remaining other differences between income tax expense and the
amount expected using the U.S. federal statutory rate of 35% relate primarily to state taxes and non-deductible compensation.
Segment Analysis
Mueller Co.
Net sales in 2012 increased to $652.4 million from $605.5 million in 2011 primarily due to increased shipment volumes.
Gross profit in 2012 increased to $162.8 million from $147.0 million in 2011 primarily due to manufacturing and other cost
savings, higher sales prices and higher shipment volumes, partially offset by higher raw material costs. Gross margin increased
to 25.0% in 2012 compared to 24.3% in 2011 primarily due to lower manufacturing costs.
Excluding restructuring charges, operating income in 2012 was $60.2 million compared to $55.2 million in 2011. This
increase was primarily due to increased gross profit of $15.8 million partially offset by higher selling, general and
administrative expenses of $10.8 million. Expenses associated with the development of our newer technology products
contributed to the higher selling, general and administrative expenses.
Anvil
Net sales in 2012 increased to $371.5 million from $359.1 million in 2011 due to higher pricing partially offset by a decline
in shipment volumes.
Gross profit in 2012 increased to $108.3 million from $101.1 million in 2011 due primarily to higher sales prices, which
were partially offset by higher raw material costs. Gross margin was 29.2% in 2012 compared to 28.2% in 2011. Gross margin
improved primarily as a result of higher sales prices.
23
Excluding restructuring charges, operating income in 2012 increased to $37.6 million from $33.0 million in 2011, driven
primarily by the increased gross profit. As a percentage of net sales, selling, general and administrative expenses was 19.0% in
each year.
Corporate
Selling, general and administrative expenses decreased to $30.9 million in 2012 from $31.9 million in 2011 primarily due
to lower employee-related costs.
Year Ended September 30, 2011 Compared to Year Ended September 30, 2010
Mueller Co.
Year ended September 30, 2011
Corporate
Anvil
Total
$
$
$
$
$
$
Net sales
Gross profit
Operating expenses:
Selling, general and administrative
Restructuring
Operating income (loss)
Interest expense, net
Loss before income taxes
Income tax benefit
Loss from continuing operations
Loss from discontinued operations, net of tax
Net loss
Net sales
Gross profit
Operating expenses:
Selling, general and administrative
Restructuring
Operating income (loss)
Interest expense, net
Loss on early extinguishment of debt, net
Loss before income taxes
Income tax expense
Loss from continuing operations
Loss from discontinued operations, net of tax
Net loss
Consolidated Analysis
605.5
147.0
$
$
91.8
1.4
93.2
53.8
$
(in millions)
359.1
101.1
$
$
68.1
1.2
69.3
31.8
$
— $
— $
31.9
1.0
32.9
(32.9)
$
964.6
248.1
191.8
3.6
195.4
52.7
65.6
(12.9)
(2.9)
(10.0)
(28.1)
(38.1)
Mueller Co.
Year ended September 30, 2010
Corporate
Anvil
Total
612.8
170.3
$
$
89.2
0.1
89.3
81.0
$
(in millions)
346.9
88.8
$
$
66.2
0.5
66.7
22.1
$
— $
— $
33.4
—
33.4
(33.4)
$
959.7
259.1
188.8
0.6
189.4
69.7
68.0
4.6
(2.9)
2.5
(5.4)
(39.8)
(45.2)
Net sales for 2011 increased to $964.6 million from $959.7 million in 2010. Net sales increased $30.0 million after
excluding the net sales of two businesses Anvil divested in 2010 for $25.1 million. Net sales increased $30.6 million due to
higher pricing across both business segments and $5.2 million of favorable Canadian currency exchange rates offset by $5.8
million of lower shipment volumes.
Gross profit for 2011 decreased to $248.1 million from $259.1 million in 2010. Gross profit decreased $25.1 million due
to higher raw material costs, $6.4 million due to higher manufacturing costs, $6.2 million due to lower shipment volumes and
$5.5 million due to the loss of gross profit from the divested Anvil businesses. These factors were mostly offset by $30.6
24
million of higher sales pricing. Gross margin was 25.7% in 2011 and 27.0% in 2010. The biggest contributor to lower gross
margin in 2011 was higher raw material costs.
Selling, general and administrative expenses in 2011 increased to $191.8 million from $188.8 million in 2010. Mueller Co.
increased $2.6 million, Anvil increased $1.9 million and Corporate decreased $1.5 million.
Interest expense, net was $65.6 million in 2011 compared to $68.0 million in the prior year period. The components of
interest expense, net are detailed below.
2011
2010
7.375% Senior Subordinated Notes
8.75% Senior Unsecured Notes
2007 Credit Agreement, including swap contracts
ABL Agreement borrowings
Deferred financing fees amortization
Other interest expense
Interest income
$
$
$
(in millions)
31.0
20.0
8.0
1.9
2.3
2.7
65.9
(0.3)
65.6
$
31.0
2.0
28.8
0.2
2.9
3.4
68.3
(0.3)
68.0
Interest expense in both 2011 and 2010 included net expenses of $8.0 million related to terminated interest rate swap
contracts. The losses on these swap contracts were initially recorded in other comprehensive loss and amortized to interest
expense over the original lives of the swap contracts. Interest expense decreased by $2.4 million primarily due to a lower
effective interest rate.
Loss on early extinguishment of debt in 2010 represents writing off deferred financing fees pursuant to debt prepayments.
In 2011 and 2010, the differences between income tax benefit (expense) reported and those expected using the U.S. federal
statutory rate of 35% related primarily to state income taxes and non-deductible compensation as well as a $2.2 million expense
related to the repatriation of earnings from Canada for 2010. After the divestiture of a Canadian business early in 2010, we
determined the Canadian operations no longer needed approximately $21 million of cash, which we repatriated.
Segment Analysis
Mueller Co.
Net sales in 2011 decreased to $605.5 million from $612.8 million in 2010. Net sales decreased due to $30.8 million of
lower shipment volumes, partially offset by $18.9 million of higher pricing and $4.6 million of favorable Canadian currency
exchange rates.
Gross profit in 2011 decreased to $147.0 million from $170.3 million in 2010. Gross profit decreased $17.1 million due to
higher raw material costs, $13.7 million due to higher net manufacturing costs and $12.2 million due to lower shipment
volumes. Higher net manufacturing costs consisted primarily of generally comparable fixed costs allocated over lower
production levels in 2011, which were offset by certain manufacturing and other cost savings. These factors were partially
offset primarily by $18.9 million of higher sales pricing. Gross margin decreased to 24.3% in 2011 compared to 27.8% in
2010. Gross margin decreased primarily due to higher manufacturing costs.
Excluding restructuring charges, operating income in 2011 was $55.2 million compared to $81.1 million in 2010. This
decrease was primarily due to decreased gross profit of $23.3 million and higher selling, general and administrative expenses of
$2.6 million. Expenses associated with the development of our newer technology products contributed to the higher selling,
general and administrative expenses.
Anvil
Net sales in 2011 increased to $359.1 million from $346.9 million in 2010. Net sales increased $37.3 million excluding net
sales of $25.1 million of two divested businesses in 2010. Net sales increased $25.0 million due to higher shipment volumes
and $11.7 million due to higher pricing.
25
Gross profit in 2011 increased to $101.1 million from $88.8 million in 2010. Gross profit increased $11.7 million due to
higher sales pricing, $7.3 million from manufacturing and other cost savings and $6.0 million from higher shipment volumes.
These factors were partially offset primarily by $8.0 million of higher raw material costs and the loss of $5.5 million of gross
profit from the divested businesses. Gross margin was 28.2% in 2011 compared to 25.6% in 2010. Gross margin improved
primarily as a result of manufacturing and other cost savings.
Excluding restructuring charges, operating income in 2011 increased to $33.0 million from $22.6 million in 2010. Selling,
general and administrative expenses in 2010 included $4.4 million of gains from the sale of two businesses. Excluding these
gains, operating income increased $14.8 million due to $12.3 million of higher gross profit and $4.4 million of lower selling,
general and administrative expenses, as a result of expenses related to the divested businesses and $1.9 million of higher
selling, general and administrative expenses related to ongoing operations due to higher net sales.
Corporate
Selling, general and administrative expenses decreased to $31.9 million in 2011 from $33.4 million in 2010 primarily due
to lower employee-related costs.
Financial Condition
Cash and cash equivalents were $83.0 million at September 30, 2012 compared to $61.0 million at September 30, 2011.
Cash and cash equivalents increased during 2012 as a result of cash provided by operating activities of $76.8 million and cash
provided by discontinued operations of $44.2 million, partially offset by cash used in investing and financing activities of $32.4
million and $68.1 million, respectively. Cash and cash equivalents also increased $1.5 million during 2012 due to changes in
currency exchange rates.
Receivables, net were $166.1 million at September 30, 2012 compared to $147.4 million million at September 30, 2011.
Receivables at September 30, 2012 represented approximately 53.8 days net sales compared to September 30, 2011 receivables
representing approximately 52.4 days net sales.
Inventories were $183.2 million at September 30, 2012 compared to $175.9 million at September 30, 2011. We continue
improving our processes to minimize inventory levels. Inventory turns per year at September 30, 2012 were 4.2x compared to
3.8x at September 30, 2011.
Property, plant and equipment, net was $144.7 million at September 30, 2012 compared to $145.7 million at September 30,
2011. Capital expenditures were $31.4 million and depreciation expense was $31.2 million in 2012.
Identifiable intangible assets were $573.7 million at September 30, 2012 compared to $602.4 million at September 30,
2011. Finite-lived intangible assets, $274.0 million of net book value at September 30, 2012, are amortized over their
estimated useful lives. Such amortization expense was $29.4 million during 2012 and is expected to be between $20 million
and $30 million for each of the next five years. Indefinite-lived identifiable intangible assets, $299.7 million at September 30,
2012, are not amortized, but tested at least annually for possible impairment.
Accounts payable and other current liabilities were $167.3 million at September 30, 2012 compared to $137.0 million at
September 30, 2011. Increased payables relate primarily to increased purchasing activity in the 2012 fourth quarter compared
to the 2011 fourth quarter.
Outstanding borrowings were $622.8 million at September 30, 2012 compared to $678.3 million at September 30, 2011.
The decrease of $55.5 million during 2012 represents repayments of $34.0 million of borrowings under our asset based lending
agreement (the “ABL Agreement”) and early retirement of $22.5 million in principal of our 8.75% Senior Unsecured Notes.
Deferred income taxes were net liabilities of $113.2 million at September 30, 2012 compared to net liabilities of $125.5
million at September 30, 2011. Deferred tax assets decreased by $14.0 million, which was primarily related to increased
valuation allowances against state and federal net operating losses partially offset by net increases relating to various other
items. Deferred tax liabilities related to property, plant and equipment and identifiable intangible assets were $212.3 million
and $238.6 million at September 30, 2012 and 2011, respectively. The sale of our former U.S. Pipe segment was the most
significant driver of these deferred tax changes.
26
Liquidity and Capital Resources
We had cash and cash equivalents of $83.0 million and $140.5 million of additional borrowing capacity under our ABL
Agreement at September 30, 2012.
Cash flows from operating activities are categorized below.
Collections from customers
Disbursements, other than interest and income taxes
Interest payments, net
Income tax refunds (payments), net
Cash provided by operating activities
2012
2011
(in millions)
$
$
$
1,005.4
(882.2)
(53.3)
6.9
76.8
$
951.0
(839.5)
(54.8)
(4.6)
52.1
Collections of receivables were higher during 2012 compared to 2011 due primarily to higher net sales in 2012.
Increased disbursements, other than interest and income taxes, during 2012 reflect timing differences of material, labor and
overhead purchased.
We sold our former U.S. Pipe segment on April 1, 2012. We believe there are purchase price adjustments related to net
working capital and net indebtedness that would increase our cash proceeds by $9.2 million. However, the purchaser has
claimed purchase price adjustments related to net working capital and net indebtedness that would reduce our cash proceeds by
$4.8 million. This dispute will be resolved by an independent auditor who has been selected by the parties, and we cannot
make a reliable estimate of what the resolution may be. The resolution of the purchase price adjustments dispute will likely
result in a cash settlement within the range described above and an adjustment to our recorded loss on sale of discontinued
operations.
Capital expenditures were $31.4 million during 2012 compared to $23.1 million during 2011. We estimate 2013 capital
expenditures to be between $30 million and $34 million. In 2011, Mueller Co. acquired Echologics, a water leak detection and
pipe condition and diagnostic assessment company, for $7.4 million.
Our U.S. pension plan was 103% funded at January 1, 2012 under the provisions of the PPA. This reflects the revised
governmental guidance of MAP-21. During 2012, the investment performance of these assets was a gain of $57.3 million and
we contributed $21.3 million to this plan. As a result of our MAP-21 changes, we do not expect to make any contributions to
our U.S. pension plan during 2013. If we lower our estimated rate of return on pension plan assets, pension expense and
required contributions to these plans may increase.
We anticipate that our existing cash, cash equivalents and borrowing capacity combined with our expected operating cash
flows will be sufficient to meet our anticipated operating expenses, capital expenditures and debt service obligations as they
become due through September 30, 2013. However, our ability to make these payments will depend partly upon our future
operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and
other factors beyond our control.
ABL Agreement
The ABL Agreement consists of a revolving credit facility of up to $275 million of revolving credit borrowings, swing line
loans and letters of credit. The ABL Agreement also permits us to increase the size of the credit facility by an additional $150
million. We may borrow up to $25 million through swing line loans and 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 275 to
325 basis points, or a base rate as defined in the ABL Agreement plus a margin ranging from 175 to 225 basis points. At
September 30, 2012, the applicable rate was LIBOR plus 300 basis points.
The ABL Agreement terminates in August 2015 and we had no outstanding borrowings at September 30, 2012. We pay a
commitment fee of 50 basis points for any unused borrowing capacity under the ABL Agreement. The borrowing capacity
under the ABL Agreement is not subject to any financial maintenance covenants unless excess availability is less than the
greater of $34 million and 12.5% of the aggregate commitments under the ABL Agreement. Excess availability, as reduced by
outstanding borrowings, outstanding letters of credit and accrued fees and expenses of $37.8 million, was $140.5 million based
on September 30, 2012 data.
27
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) 65% of the value of eligible inventory or (ii) 85% of the net orderly liquidation
value of the value of eligible inventory, less certain reserves. Prepayments can be made at any time with no penalty.
Substantially all of our U.S. 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. inventory, accounts receivable, certain cash and other supporting obligations.
The ABL Agreement contains customary negative covenants and restrictions on our ability to engage in specified activities,
such as:
•
•
•
limitations on other debt, liens, investments and guarantees;
restrictions on dividends and redemptions of our capital stock and prepayments and redemptions of debt; and
restrictions on mergers and acquisition, sales of assets and transaction with affiliates.
8.75% Senior Unsecured Notes
We owed $202.5 million of principal of 8.75% Senior Unsecured Notes at September 30, 2012. Interest on the Senior
Unsecured Notes is paid semi-annually and the principal is due September 2020. We may redeem up to $22.5 million of the
Senior Unsecured Notes at a redemption price of 103% plus accrued and unpaid interest once in the year ending September 1,
2013. We may also redeem up to $56.3 million of the original issued principal amount 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, provided that at least $146.2 million remains outstanding immediately after such redemption. After August
2015, the Senior Unsecured Notes may be redeemed 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 essentially guaranteed by all of our U.S. subsidiaries, but are subordinate to borrowings under the ABL Agreement.
7.375% Senior Subordinated Notes
We also owed $420 million of principal of 7.375% Senior Subordinated Notes (“Senior Subordinated Notes”) at
September 30, 2012. Interest on the Senior Subordinated Notes is payable semi-annually and the principal is due June 2017.
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 101%, plus
accrued and unpaid interest. The Senior Subordinated Notes are secured by the guarantees of essentially all of our U.S.
subsidiaries, but are subordinate to the borrowings under the ABL Agreement and the Senior Unsecured Notes.
Our corporate credit rating and the credit rating for our debt are presented below.
Corporate credit rating
ABL Agreement
8.75% Senior Unsecured Notes
7.375% Senior Subordinated Notes
Outlook
Off-Balance Sheet Arrangements
September 30, 2012
September 30, 2011
Moody’s
Standard &
Poor’s
Moody’s
Standard &
Poor’s
B3
Not rated
B2
Caa2
Positive
B
B3
B
Not rated
Not rated
Not rated
B+
CCC+
Stable
B2
Caa2
Stable
B+
CCC+
Stable
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings
or debt or any derivative contracts other than those described in “Item 7A. Quantitative and Qualitative Disclosure About
28
Market Risk” or synthetic leases. Therefore, we are 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 September 30, 2012, we had $37.6 million of letters of credit and $43.7 million of surety bonds outstanding.
Contractual Obligations
Our contractual obligations at September 30, 2012 are presented below.
Long-term debt:
Principal payments(1)
Interest
Operating leases
Unconditional purchase
obligations(2)
Other noncurrent liabilities(3)
Less than
1 year
1-3
years
4-5
years
(in millions)
After
5 years
Total
$
$
1.1
48.9
6.6
59.2
0.2
116.0
$
$
1.6
97.7
9.8
0.1
0.3
109.5
$
$
420.2
97.5
6.4
—
0.2
524.3
$
$
202.5
53.2
2.2
—
0.5
258.4
$
$
625.4
297.3
25.0
59.3
1.2
1,008.2
(1) The long-term debt balance at September 30, 2012 is net of $2.6 million of unamortized discount on the 8.75% Senior
Unsecured Notes.
(2) Includes contractual obligations for purchases of raw materials and capital expenditures.
(3) Consists of obligations for other postretirement benefits and represents the estimated minimum payments required to
meet obligations. Required pension contributions for 2013 are less than $1 million. Actual payments may differ. We
have not estimated required pension contributions beyond 2013.
Effect of Inflation; Seasonality
We experience changing price levels related to purchased components and raw materials. Mueller Co. experienced a 3%
decrease in the average cost per ton of scrap steel and a 5% decrease in the average cost of brass ingot purchased in the 2012
compared to 2011. Anvil experienced a 5% increase in the average cost per ton of scrap steel purchased in 2012 compared to
2011.
We do not believe that changing prices for other goods had a material impact on our financial position or results of
operations in 2012 compared to 2011.
Our water infrastructure business is dependent upon construction activity, which is seasonal due to the impact of cold
weather conditions on construction. Net sales and operating income have historically been lowest in the three-month periods
ending December 31 and March 31 when the northern United States and all of Canada generally face weather conditions that
restrict significant construction activity. In general, approximately 45% of a fiscal year's net sales occurs in the first half of the
fiscal year with 55% occurring in the second half of the fiscal year. See “Item 1A. RISK FACTORS-Seasonal demand of
certain of our products may adversely affect our financial results.”
Critical Accounting Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and
related disclosure of contingent assets and liabilities. These estimates are based upon experience and on various other
assumptions that 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. We consider
the accounting topics presented below to include our critical accounting estimates.
29
Revenue Recognition
We recognize revenue when delivery of a product has occurred and there is persuasive evidence of a sales arrangement,
sales prices are fixed and determinable and collectability from the customers is reasonably assured. Sales are recorded net of
estimated discounts, returns and rebates. Discounts, returns and rebates are estimated based upon current offered sales terms
and actual historical return and allowance rates.
Receivables
The estimated allowance for doubtful receivables is based upon judgments and estimates of expected losses and specific
identification of problem accounts. Significantly weaker than anticipated industry or economic conditions could impact
customers' ability to pay such that actual losses may be greater than the amounts provided for in this allowance. The periodic
evaluation of the adequacy of the allowance for doubtful receivables is based on an analysis of prior collection experience,
specific customer creditworthiness and current economic trends within the industries served. In circumstances where a specific
customer's inability to meet its financial obligation is known to us (e.g., bankruptcy filings or substantial downgrading of credit
ratings), we record a specific allowance to reduce the receivable to the amount we reasonably believe will be collected.
Inventories
We record inventories at the lower of first-in, first-out method cost or market value. Inventory cost includes an overhead
component that can be affected by levels of production and actual costs incurred. We evaluate the need to record adjustments
for impairment of inventory at least quarterly. This evaluation includes such factors as anticipated usage, inventory turnover,
inventory levels and ultimate product sales value. Inventory that, in the judgment of management, is obsolete or in excess of
our normal usage is written-down to its estimated market value, if less than its cost. Significant judgments must be made when
establishing the allowance for obsolete and excess inventory.
Income Taxes
We recognize deferred tax liabilities and deferred tax assets for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Deferred tax liabilities and assets are determined based on the
differences between the financial statements and the tax basis of assets and liabilities, using enacted tax rates in effect for the
years in which the differences are expected to reverse. A valuation allowance is provided to offset any net deferred tax assets if,
based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. If
we were to reduce our estimates of future taxable income, we could be required to record additional valuation allowances
against our deferred tax assets. Our tax balances are based on our expectations of future operating performance, tax planning
strategies, interpretation of the tax regulations currently enacted and rulings in numerous tax jurisdictions.
We only record tax benefits for positions that we believe are more likely than not of being sustained under audit
examination based solely on the technical merits of the associated tax position. The amount of tax benefit recognized for any
position that meets the more likely than not threshold is the largest amount of the tax benefit that we believe is greater than 50%
likely of being realized.
Accounting for the Impairment of Long-Lived Assets Including Goodwill and Other Intangible Assets
We test goodwill and indefinite-lived intangible assets for impairment annually (or more frequently if events or
circumstances indicate possible impairment). We performed this annual impairment testing at September 1, with the assistance
of a valuation specialist, and concluded that our indefinite-lived intangible assets were not impaired. We tested the indefinite-
lived intangible assets for impairment using a “royalty savings method,” which is a variation of the discounted cash flow
method. This method estimates a fair value by calculating an estimated discounted future cash flow stream from the
hypothetical licensing of the indefinite-lived intangible assets. If this estimated fair value exceeds the carrying value, no
impairment is indicated. This analysis is dependent on management's best estimates of future operating results and the selection
of reasonable discount rates and hypothetical royalty rates. Significantly different projected operating results could result in a
different conclusion regarding impairment. No impairments would have been indicated for any discount rates and hypothetical
royalty rates consistent with standard valuation methodologies considered reasonable by management.
Other long-lived assets, including finite-lived intangible assets, are amortized over their respective estimated useful lives
and reviewed for impairment if events or circumstances indicate possible impairment.
We tested U.S. Pipe's amortizing long-lived assets, principally property, plant and equipment, for possible impairment at
September 30, 2011 due to U.S. Pipe's then-recent financial performance and the exploration of strategic alternatives for our
U.S. Pipe businesses. As required by GAAP, we performed this test on a “held and used” basis using management's best
30
estimate of probability-weighted undiscounted future cash flows of various alternatives. We concluded that U.S. Pipe's
amortizing long-lived assets were not impaired at September 30, 2011 on a “held and used” basis. As our efforts to sell U.S.
Pipe proceeded, we concluded that U.S. Pipe qualified for treatment as “held for sale” during the quarter ended March 31, 2012.
Accordingly, we evaluated U.S. Pipe's long-lived assets for impairment and concluded that an impairment was indicated at that
time.
Litigation, Investigations and Claims
We are involved in litigation, investigations and claims arising out of the normal conduct of our business. We estimate and
accrue liabilities resulting from such matters based on a variety of factors, including outstanding legal claims and proposed
settlements; assessments by internal counsel of pending or threatened litigation; and assessments of potential environmental
liabilities and remediation costs. We believe we have adequately accrued for these potential liabilities; however, facts and
circumstances may change and could cause the actual liability to exceed the estimates, or may require adjustments to the
recorded liability balances in the future.
Workers Compensation, Defined Benefit Pension and Other Postretirement Benefits, Environmental and Other Long-
term Liabilities
We are obligated for various liabilities that will ultimately be determined over what could be a very long future time period.
We established the recorded liabilities for such items at September 30, 2012 using estimates for when such amounts will be paid
and what the amounts of such payments will be. These estimates are subject to change based on numerous factors, including
among others, regulatory changes, technology changes, the investment performance of related assets, the discount rate used, the
lifespan of plan participants and other individuals and changes to plan designs.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to various market risks, which are potential losses arising from adverse changes in market rates and prices,
such as various commodity prices, interest rates, foreign exchange rates. We do not enter into derivatives or other financial
instruments for trading or speculative purposes.
Our primary financial instruments are cash and cash equivalents. This includes cash in banks and highly rated, liquid
money market investments. We believe that those instruments are not subject to material potential near-term losses in future
earnings from reasonably possible near-term changes in market rates or prices.
Commodity Price Risk
Our products are made using various purchased components and several basic raw materials, including scrap steel, sand,
resin, brass ingot and steel pipe. Price levels for such goods change and our product margins and level of profitability may
fluctuate if we do not pass changes in purchased component and raw material costs to our customers.
We do not believe that changing prices for other goods had a material impact on our financial position or results of
operations in 2012 compared to 2011. We expect these prices to fluctuate based on marketplace demand. Mueller Co.
experienced a 3% decrease in the average cost per ton of scrap steel and a 5% decrease in the average cost of brass ingot
purchased in the 2012 compared to 2011. Anvil experienced a 5% increase in the average cost per ton of scrap steel purchased
in 2012 compared to 2011. See “Item 1A. RISK FACTORS-The prices of our purchased components and raw materials can be
volatile.”
We used natural gas swap contracts to hedge against cash flow variability arising from changes in natural gas prices, but
terminated our natural gas swap contracts after the sale of U.S. Pipe.
Interest Rate Risk
At September 30, 2012, we had fixed rate debt of $622.8 million and no variable rate debt. There would be no impact on
pre-tax earnings or cash flows resulting from a 100 basis point increase in interest rates on variable rate debt, holding other
variables constant.
Currency Risk
We maintain assets and operations in Canada and, to a much lesser extent, China, and Europe that use local currency as
their functional currency. The assets and liabilities of non-U.S. subsidiaries are translated into U.S. dollars at currency
exchange rates in effect at the end of each period, with the effect of such translation reflected in other comprehensive loss. Our
stockholders' equity will fluctuate depending upon the weakening or strengthening of the U.S. dollar against these non-U.S.
31
currencies. Net sales and expenses of non-U.S. subsidiaries are translated into U.S. dollars at the average currency exchange
rate during the period. At September 30, 2012, $66.3 million of our net assets were denominated in non-U.S. currencies.
We also have relatively small amounts of receivables and payables denominated in currencies other than an entity's
functional currency. Changes in currency exchange rates between when these balances originate and when they are settled
result in foreign exchange gains and losses that are recognized as they occur.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Registered Public Accounting Firm, our Consolidated Financial Statements and the
accompanying Notes to Consolidated Financial Statements that are filed as part of this annual report are listed under “Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES” and are set forth on pages F-1 through F-44 immediately
following the signature pages of this annual report.
Selected quarterly financial data for 2012 and 2011 are provided in Note 20 of the notes to consolidated financial
statements.
Item 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Item 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the
reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission
(the “SEC”) and that such information is accumulated and communicated to our management, including the Chief Executive
Officer and the Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the
period covered by this annual report. Based on this evaluation, those officers have concluded that, as of September 30, 2012,
our disclosure controls and procedures were effective.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined
in Rule 13a-15(f) of the Exchange Act). Internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting as of September 30, 2012. In making this
assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control - Integrated Framework. After doing so, management concluded that, as of September 30, 2012, our internal
control over financial reporting was effective.
The effectiveness of our internal control over financial reporting at September 30, 2012 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as stated in their report which is included in this annual report.
32
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2012, we changed our internal control over financial reporting and our disclosure
controls and procedures by enhancing these controls with additional review procedures, including reviews by a more highly
skilled and experienced manager, to help ensure appropriate classification of cash flows from operating activities as between
those from continuing operations and those from discontinued operations in prior periods.
In connection with these control changes, we discovered errors that had been made earlier in the classification of cash
flows as between those from continuing operations and those from discontinued operations. These errors, which were reported
on a Current Report on Form 8-K filed with the SEC on November 23, 2012, had no impact on any consolidated balance sheet,
consolidated statement of operations and other comprehensive income, consolidated statement of changes in stockholders'
equity, debt compliance covenant or employee compensation metric for any period. These errors also had no impact on any
consolidated statement of cash flows information for any period other than the six months ended March 31, 2011 and the nine
months ended June 30, 2011 as presented in our Quarterly Reports filed on Form 10-Q for the quarterly periods ended March
31, 2012 and June 30, 2012, respectively.
These errors related to the classification of deferred income tax and retirement plan adjustments in determining net cash
used in operating activities due to designating our U.S. Pipe segment as discontinued operations in our condensed consolidated
financial statements during the quarter ended March 31, 2012. Specifically, net cash used in operating activities was overstated
by $8.0 million and $10.0 million for the six months ended March 31, 2011 and nine months ended June 30, 2011, respectively.
Net cash used in discontinued operations was understated by these same amounts for these periods. Corrected unaudited
condensed consolidated statements of cash flows for these periods are presented in Note 22 of the consolidated financial
statements included in this annual report and, in addition, were reported in our Current Report on Form 8-K filed with the SEC
on November 23, 2012.
As a result of these errors, management concluded that as of March 31, 2012 and June 30, 2012 our internal control over
financial reporting and our disclosure controls and procedures were not effective. In connection with this determination,
management also concluded that we had a material weakness as of March 31, 2012 and June 30, 2012 in these controls related
to classification of cash flows as between those from continuing operations and those from discontinued operations related
solely to the prior period cash flow statements as presented for comparative purposes. At the same time, in light of the
enhancement of our internal control over financial reporting and our disclosure controls and procedures during the fourth
quarter of 2012, management concluded that such weakness had been remediated as of September 30, 2012.
33
PART III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The name, age at November 15, 2012 and position of each of our executive officers and directors are presented below.
Name
Age
Position
Gregory E. Hyland
Keith L. Belknap
Robert D. Dunn
Thomas E. Fish
Evan L. Hart
Robert P. Keefe
Kevin G. McHugh
Gregory S. Rogowski
Marietta Edmunds Zakas
Howard L. Clark, Jr.
Shirley C. Franklin
Thomas J. Hansen
Jerry W. Kolb
Joseph B. Leonard
Mark J. O’Brien
Bernard G. Rethore
Neil A. Springer
Lydia W. Thomas
Michael T. Tokarz
61 Chairman of the board of directors, President and Chief Executive Officer
54 Senior Vice President, General Counsel, Chief Compliance Officer and Corporate
Secretary
55 Senior Vice President, Human Resources
57 President, Anvil
47 Senior Vice President and Chief Financial Officer
58 Senior Vice President and Chief Technology Officer
54 Vice President and Controller
53 President, Mueller Co.
53 Senior Vice President, Strategy, Corporate Development and Communications
68 Director
67 Director
63 Director
76 Director
69 Director
69 Director
71 Director
74 Director
68 Director
62 Director
Gregory E. Hyland has been Chairman of the board of directors since October 2005 and President and Chief Executive
Officer since January 2006. Mr. Hyland was Chairman, President and Chief Executive Officer of Walter Energy, a
homebuilding, financial services and natural resources company, from September 2005 to December 2006. Prior to that time,
he was President, U.S. Fleet Management Solutions of Ryder System, Inc. (“Ryder“), a transportation and logistics company,
from June 2005 to September 2005. Mr. Hyland was Executive Vice President, U.S. Fleet Management Solutions of Ryder from
October 2004 to June 2005. He earned Bachelor and Master of Business Administration degrees from the University of
Pittsburgh.
Keith L. Belknap has been our Senior Vice President, General Counsel and Corporate Secretary since April 2012, and our
Chief Compliance Officer since October 2012. Previously, Mr. Belknap was Senior Vice President, General Counsel and
Corporate Secretary of PRIMEDIA, Inc., a real estate advertising company, since 2007. Prior to that time, he held senior legal
positions with PPG Industries, a supplier of paint, coating, optical product, specialty material, chemical, glass and fiberglass,
and Georgia-Pacific Corporation, a manufacturer and marketer of tissue, packaging, paper, pulp and building products. Mr.
Belknap earned a Bachelor of Arts degree from the University of Tulsa (Phi Beta Kappa) and a Juris Doctor with honors from
Harvard Law School.
Robert D. Dunn has been our Senior Vice President, Human Resources since November 2007. Previously, Mr. Dunn was
Senior Vice President, Human Resources of Dean Foods Company (formerly Suiza Foods Corporation), a food and dairy
company since 1999. He earned a Bachelor of Science degree from Murray State University and a Master of Business
Administration degree from Embry Riddle Aeronautical University.
Thomas E. Fish has been President of our Anvil segment since 2000. From January 2005 to November 2005, Mr. Fish was
Mueller Co.'s Interim Chief Financial Officer. He earned a Bachelor of Science degree from the University of Rhode Island
and is a certified public accountant.
Evan L. Hart has been our Senior Vice President and Chief Financial Officer since July 2008. Mr. Hart was our Controller
from December 2007 to July 2008 and our Vice President of Financial Planning and Analysis from September 2006 to
December 2007. Previously, he was Vice President, Controller and Treasurer for Unisource Worldwide, Inc., a marketer and
distributor of commercial printing & business imaging papers, packaging systems and facility supplies and equipment from
34
2002 to 2006. Mr. Hart earned a Bachelor of Science degree from Birmingham-Southern College and is a certified public
accountant.
Robert P. Keefe has been our Senior Vice President and Chief Technology Officer since December 2011 and our Senior
Vice President and Chief Information Officer since March 2007. Previously, Mr. Keefe was Corporate Vice President and Chief
Information Officer at Russell Corporation, an athletic apparel, footwear and equipment company. He is a director of the
Society for Information Management, International, a non-profit trade organization. Mr. Keefe earned a Bachelor degree from
the State University of New York at Oswego and a Master of Business Administration degree from Pace University.
Kevin G. McHugh has been our Vice President and Controller since July 2008. Mr. McHugh was our Vice President,
Financial Reporting from January 2008 to July 2008. Previously, he was Corporate Controller at Unisource Worldwide, Inc.
from 2003 to 2007. Mr. McHugh earned a Bachelor of Business Administration degree with honors from the University of
Notre Dame and is a certified public accountant.
Gregory S. Rogowski has been President of our Mueller Co. segment since May 2009. Previously, Mr. Rogowski was
President and/or Chief Executive Officer of Performance Fibers, Inc., a polyester industrial fibers business from 2004 to 2009.
He earned a Bachelor of Science degree from Virginia Polytechnic Institute and State University, a Master of Science degree
from the University of Akron and a Master of Business Administration degree from the University of Richmond.
Marietta Edmunds Zakas has been our Senior Vice President, Strategy, Corporate Development and Communications since
November 2006. Previously, Ms. Zakas held various positions at Russell Corporation, culminating in her role as Corporate
Vice President, Chief of Staff, Business Development and Treasurer. She earned a Bachelor of Arts degree from Randolph-
Macon Woman's College (now known as Randolph College), a Master of Business Administration degree from the University
of Virginia Darden School of Business and a Juris Doctor from the University of Virginia School of Law. Ms. Zakas is a
director of Atlantic Capital Bank and Atlantic Capital Bancshares.
Howard L. Clark, Jr. has been a member of our board of directors since April 2006. Mr. Clark has been a director of Walter
Energy since March 1995. He was Vice Chairman of Barclays Capital, the investment banking division of Barclays Bank PLC,
from September 2008 through June 2011. Mr. Clark was Vice Chairman of Lehman Brothers Inc., an investment banking firm,
from February 1993 to September 2008 and, before that, Chairman and Chief Executive Officer of Shearson Lehman Brothers
Inc. Until June 2012, he was a director of United Rentals, Inc., an equipment rental company. Mr. Clark is a director of White
Mountains Insurance Group, Ltd., a financial services and insurance holding company. Mr. Clark earned a Master of Business
Administration degree from Columbia University, Graduate School of Business.
Shirley C. Franklin has been a member of our board of directors since November 2010. Ms. Franklin is Chair of the board
of directors and Chief Executive Officer of Purpose Built Communities, Inc., a national non-profit organization established to
transform struggling neighborhoods into sustainable communities. She also is Co-Chair of the Atlanta Regional Commission on
Homelessness and Chair of the board of directors of the National Center for Civil and Human Rights. From 2002 to 2010, Ms.
Franklin was mayor of Atlanta, Georgia. Since July 2011, she has been a director of Delta Air Lines, Inc., a provider of air
transportation for passengers and cargo. Ms. Franklin earned a Bachelor of Science degree in sociology from Howard
University and a Master's degree in sociology from the University of Pennsylvania.
Thomas J. Hansen has been a member of our board of directors since October 2011. Until March 2012, Mr. Hansen was
Vice Chairman of Illinois Tool Works Inc. (“ITW”), a manufacturer of fasteners and components, consumable systems and a
variety of specialty products and equipment. He joined ITW in 1980 as sales and marketing manager of the Shakeproof
Industrial Products businesses. From 1998 until May 2006, Mr. Hansen was Executive Vice President of ITW. He is a member
of the Northern Illinois University Executive Club, a member of the Economics Club of Chicago, Chairman of The ITW Better
Government Council and a former member of the Board of Trustees of MAPI (Manufacturers Alliance). Mr. Hansen is a
director of Terex Corporation, a diversified global manufacturer of a variety of machinery products. From 2005 through 2008,
he was a director of CDW Corporation. Mr. Hansen earned a Bachelor of Science degree in marketing from Northern Illinois
State University and a Master of Business Administration degree from Governors State University.
Jerry W. Kolb has been a member of our board of directors since April 2006. Mr. Kolb has been a director of Walter
Energy since June 2003. He was a Vice Chairman of Deloitte & Touche LLP, a registered public accounting firm, from 1986 to
1998. Mr. Kolb earned a Bachelor of Science degree in accountancy from the University of Illinois and Master of Business
Administration degree in finance from DePaul University. Mr. Kolb is a certified public accountant.
35
Joseph B. Leonard has been a member of our board of directors since April 2006. Mr. Leonard was a director of Walter
Energy from June 2005 to April 2007 and he rejoined that board in February 2009. He was Interim Chief Executive Officer of
Walter Energy from March 2010 through March 2011 and from August 2011 to September 2011. Mr. Leonard was Chairman of
AirTran Holdings, Inc., a full service airline company, from November 2007 to June 2008, Chairman and Chief Executive
Officer of AirTran Holdings, Inc. from January 1999 to November 2007 and President of AirTran Holdings, Inc. from January
1999 to January 2001. He is a director of Air Canada, a full service airline company. Mr. Leonard earned a Bachelor of
Science degree in aerospace engineering from Auburn University.
Mark J. O'Brien has been a member of our board of directors since April 2006. Mr. O'Brien was a director of Walter
Energy from June 2005 to April 2009. Since March 2006, he has been Chairman and Chief Executive Officer of Walter
Investment Management Corp. (formerly Walter Energy's financing business). Mr. O'Brien has been President and Chief
Executive Officer of Brier Patch Capital and Management, Inc., a real estate investment firm, since September 2004. He held
various executive positions at Pulte Homes, Inc., a home building company, for 21 years, retiring as President and Chief
Executive Officer in June 2003. Mr. O'Brien earned a Bachelor of Arts degree in history from the University of Miami.
Bernard G. Rethore has been a member of our board of directors since April 2006. He has been a director of Walter Energy
since March 2002. Mr. Rethore has been Chairman of the Board Emeritus of Flowserve Corporation, a manufacturer of pumps,
valves, seals and components, since April 2000. From January 2000 to April 2000, he was Flowserve's Chairman. Mr. Rethore
had previously served as its Chairman, President and Chief Executive Officer. He had been a director of Belden, Inc., a
manufacturer of specialty signal-transmission products, from 1997 until May 2012. Mr. Rethore is a director of Dover Corp., a
diversified manufacturer of a wide range of proprietary products. In 2008, he was honored by the Outstanding Directors
Exchange as an Outstanding Director of the Year and in 2012, he was designated a Board Leadership Fellow by the National
Association of Corporate Directors. Mr. Rethore earned a Bachelor of Arts degree in Economics (Honors) from Yale University
and a Master of Business Administration degree from the Wharton School of the University of Pennsylvania, where he was a
Joseph P. Wharton Scholar and Fellow.
Neil A. Springer has been a member of our board of directors since April 2006. Mr. Springer was a director of Walter
Energy from August 2000 to April 2006. He has been managing director of Springer & Associates LLC, a board consulting and
executive recruitment company, since 1994. Mr. Springer was a director of IDEX Corporation from 1990 until April 2011. He
earned a Bachelor of Science degree in accounting from Indiana University, a Master of Business Administration degree from
the University of Dayton and a certificate of accountancy from the University of Illinois.
Lydia W. Thomas has been a member of our board of directors since January 2008. Dr. Thomas was President and Chief
Executive Officer of Noblis, Inc., a public interest research and development company, from 1996 to 2007. She was previously
with The MITRE Corporation, Center for Environment, Resources and Space, serving as Senior Vice President and General
Manager from 1992 to 1996, Vice President from 1989 to 1992 and Technical Director from 1982 to 1989. Dr. Thomas is a
director of Cabot Corporation, a global performance materials company. She earned a Bachelor of Science degree in zoology
from Howard University, a Master of Science degree in microbiology from American University and a Doctor of Philosophy
degree in cytology from Howard University.
Michael T. Tokarz has been a member of our board of directors since April 2006. Mr. Tokarz has been a non-executive
Chairman of the Board of Walter Energy since December 2006. Since February 2002, he has been a member of the Tokarz
Group, LLC, a venture capital investment company. From January 1996 until February 2002, Mr. Tokarz was a member of the
limited liability company that serves as the general partner of Kohlberg Kravis Roberts & Co. L.P., a private equity company.
He is a director of IDEX Corporation, CNO Financial Group, Inc. (formerly Conseco, Inc.), an insurance provider, MVC
Capital, Inc., a registered investment company, Dakota Growers Pasta Company, Inc., a manufacturer and marketer of dry pasta
products and Walter Investment Management Corp. In 2007, he was honored by the Outstanding Directors Exchange as an
Outstanding Director of the Year. Mr. Tokarz earned a Bachelor of Arts degree in economics and a Master of Business
Administration degree in finance from the University of Illinois.
Additional Information
Additional information required by this item will be contained in our definitive proxy statement issued in connection with
the 2013 annual meeting of stockholders filed with the SEC within 120 days after September 30, 2012 and is incorporated
herein by reference.
Our website address is www.muellerwaterproducts.com. You may obtain free electronic copies of our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports from the investor
relations section of our website. These reports are available on our website soon after we file them with or furnish them to the
SEC. These reports should also be available through the SEC's website at www.sec.gov.
36
We have adopted a written code of conduct that applies to all directors, officers and employees, including a separate code
that applies only to our principal executive officer and senior financial officers in accordance with Section 406 of the Sarbanes-
Oxley Act of 2002 and the rules of the SEC promulgated thereunder. Our Code of Business Conduct and Ethics is available in
the corporate governance section of our website. In the event that we make changes in, or provide waivers from, the provisions
of this Code of Business Conduct and Ethics that the SEC requires us to disclose, we will disclose these events in the corporate
governance section of our website.
We have adopted corporate governance guidelines. The guidelines and the charters of our board committees are available
in the corporate governance section of our website. Copies of the Code of Business Conduct and Ethics, corporate governance
guidelines and board committee charters are also available in print upon written request to the Corporate Secretary, Mueller
Water Products, Inc., 1200 Abernathy Road N.E., Suite 1200, Atlanta, GA 30328.
Item 11.
EXECUTIVE COMPENSATION
The information required by this item will be contained in our definitive proxy statement issued in connection with the
2013 annual meeting of stockholders is incorporated herein by reference.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Except for the information set forth below and the information set forth in Part II, Item 5. MARKET FOR
REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES, the information required by this item will be contained in our definitive proxy statement issued in connection
with the 2013 annual meeting of stockholders and is incorporated herein by reference.
Securities Authorized for Issuance under Equity Compensation Plans
We have two compensation plans under which our equity securities are authorized for issuance. The Mueller Water
Products, Inc. 2006 Employee Stock Purchase Plan was approved by our sole stockholder in May 2006 and the Mueller Water
Products, Inc. 2006 Stock Incentive Plan was approved by our sole stockholder in May 2006 and amended by our stockholders
in January 2008, January 2009 and January 2012.
The following table sets forth certain information relating to these equity compensation plans at September 30, 2012.
Number of securities
to be issued
upon exercise of
outstanding options,
warrants and rights
Weighted average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available
for future issuance
Equity compensation plans approved by
stockholders:
Mueller Water Products, Inc. 2006 Stock
Incentive Plan
Mueller Water Products, Inc. 2006 Employee
Stock Purchase Plan
Total
Equity compensation plans not approved by
stockholders
7,946,372 (1)
$
6.30 (2)
8,890,767 (3)
87,390
8,033,762
— $
3.08
—
2,177,336 (4)
11,068,103
—
(1) Consists of shares to be issued upon exercise or vesting of outstanding stock awards granted under the Mueller Water
Products, Inc. 2006 Stock Incentive Plan.
(2) Weighted average exercise price of 5,522,610 outstanding stock options.
(3) The number of shares available for future issuance under the Mueller Water Products, Inc. 2006 Stock Incentive Plan
is 20,500,000 shares less the cumulative number of awards granted under the plan plus the cumulative number of
awards canceled under the plan after January 25, 2012.
(4) The number of shares available for future issuance under the Mueller Water Products, Inc. 2006 Employee Stock
Purchase Plan is 4,000,000 shares less the cumulative number of shares issued under the plan.
37
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item will be contained in our definitive proxy statement issued in connection with the
2013 annual meeting of stockholders is incorporated herein by reference.
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be contained in our definitive proxy statement issued in connection with the
2013 annual meeting of stockholders is incorporated herein by reference.
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
Financial Statements
PART IV
Index to financial statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at September 30, 2012 and 2011
Consolidated Statements of Operations and Other Comprehensive Income for the years ended September 30,
2012, 2011 and 2010
Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the years ended September 30, 2012, 2011 and 2010
Notes to Consolidated Financial Statements
Page
number
F-1
F-3
F-4
F-5
F-6
F-7
(b) Financial Statement Schedules
Except for Schedule II, Valuation and Qualifying Accounts, the schedules for which provision is made in the applicable
accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been
omitted. The information required by Schedule II is included in the notes to consolidated financial statements.
(c) Exhibits
Exhibit
no.
2.1
2.1.1
2.2
3.1
3.1.1
Document
Agreement and Plan of Merger dated as of June 17, 2005 among Mueller Water Products, Inc., Walter
Industries, Inc., JW MergerCo, Inc. and DLJ Merchant Banking II, Inc., as stockholders’ representative.
Incorporated by reference to Exhibit 2.1 to Mueller Water Products, Inc. Form 8-K (File no. 333-116590) filed
on June 21, 2005.
Letter Agreement dated as of February 23, 2006 between Walter Industries, Inc. and Mueller Water
Products, Inc. Incorporated by reference to Exhibit 10.1 to Mueller Water Products, Inc. Form 8-K (File no.
333-131521) filed February 27, 2006.
Agreement and Plan of Merger, dated as of January 31, 2006, by and among Mueller Holding Company, Inc.,
Mueller Water Products, LLC and Mueller Water Products Co-Issuer, Inc. Incorporated by reference to
Exhibit 2.1 Mueller Water Products, Inc. Form 8-K (File no. 333-116590) filed on February 3, 2006.
Second Restated Certificate of Incorporation of Mueller Water Products, Inc. Incorporated by reference to
Exhibit 3.1 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on January 25, 2012.
Certificate of Merger, dated February 2, 2006, of Mueller Water Products, LLC and Mueller Water Products Co-
Issuer, Inc. with and into Mueller Holding Company, Inc. Incorporated by reference to Exhibit 3.1.2 to Mueller
Water Products, Inc. Form 8-K (File no. 333-116590) filed on February 3, 2006.
38
Exhibit
no.
3.2
4.1
4.2
10.2
10.3*
10.4
Document
Amended and Restated Bylaws of Mueller Water Products, Inc. Incorporated by reference to Exhibit 3.2 to
Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on January 25, 2012.
Indenture dated as of May 24, 2007 among Mueller Water Products, Inc., the guarantors named on the signature
pages thereto and The Bank of New York (including form of global notes). Incorporated by reference to
Exhibit 4.6 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on May 30, 2007.
Indenture, dated August 26, 2010, among Mueller Water Products, Inc., the guarantors named on the signature
pages thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (including form of global
notes). Incorporated by reference to Exhibit 4.6 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892)
filed on August 27, 2010.
Income Tax Allocation Agreement by and among Walter Industries, Inc., the Walter Affiliates (as defined
therein), Mueller Water Products, Inc. and the Mueller Affiliates (as defined therein). Incorporated by reference
to Exhibit 10.2 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on May 30, 2006.
Mueller Water Products, Inc. Amended and Restated 2006 Stock Incentive Plan. Incorporated by reference to
Exhibit A to Mueller Water Products, Inc. Form DEF 14A (File no. 001-32892) filed on December 14, 2011.
Mueller Water Products, Inc. Form of Notice of Stock Option Grant. Incorporated by reference to Exhibit 10.21
to Mueller Water Products, Inc. Form 10-Q (File no. 001-32892) filed on February 9, 2010.
10.5**
Mueller Water Products, Inc. Form of Restricted Stock Unit Award Agreement.
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.11.1*
10.11.2*
10.11.3*
10.11.4*
10.11.5*
10.12*
10.12.1*
10.12.2
Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan, as amended September 27, 2006.
Incorporated by reference to Exhibit 10.5 to Mueller Water Products, Inc. Form 10-K (File no. 001-32892) filed
on December 21, 2006.
Mueller Water Products, Inc. Directors’ Deferred Fee Plan. Incorporated by reference to Exhibit 10.7 to Mueller
Water Products, Inc. 8-K (File no. 001-32892) filed on May 30, 2006.
Form of Mueller Water Products, Inc. Director Indemnification Agreement. Incorporated by reference to
Exhibit 99.2 to Mueller Water Products, Inc. 8-K (File no. 001-32892) filed on October 31, 2008.
Executive Incentive Plan of Mueller Water Products, Inc. Incorporated by reference to Exhibit 10.6 to Mueller
Water Products, Inc. 8-K (File no. 001-32892) filed on May 30, 2006.
Mueller Water Products, Inc. Executive Deferred Compensation Plan. Incorporated by reference to Exhibit 99.3
to Mueller Water Products, Inc. 8-K (File no. 001-32892) filed on October 31, 2008.
Employment Agreement, dated September 15, 2008 between Mueller Water Products, Inc. and Gregory E.
Hyland. Incorporated by reference to Exhibit 99.1 to Mueller Water Products, Inc. Form 8-K (File no.
001-32892) filed on October 6, 2008.
Amendment, dated as of March 2, 2006, to Executive Employment Agreement dated September 9, 2005
between Walter Industries, Inc. and Gregory E. Hyland. Incorporated by reference to Exhibit 10.1 to Mueller
Water Products, Inc. Form 8-K (File no. 333-131521) filed on March 3, 2006.
Amended and Restated Mueller Water Products, Inc. Supplemental Defined Contribution Plan, effective as of
January 1, 2009. Incorporated by reference to Exhibit 10.13.2 to Mueller Water Products, Inc. Form 8-K (File
no. 001-32892) filed on February 9, 2009.
Amendment, dated December 1, 2009, to Executive Employment Agreement, dated September 9, 2005, between
Mueller Water Products, Inc. and Gregory E. Hyland. Incorporated by reference to Exhibit 99.1 to Mueller
Water Products, Inc. Form 8-K (File no. 001-32892) filed on December 4, 2009.
Amendment, dated December 1, 2010, to Executive Employment Agreement, dated September 9, 2005, between
Mueller Water Products, Inc. and Gregory E. Hyland. Incorporated by reference to Exhibit 99.1 to Mueller
Water Products, Inc. Form 8-K (File no. 001-32892) filed on December 6, 2010.
Amendment, dated March 31, 2012, to Executive Employment Agreement, dated September 9, 2005, between
Mueller Water Products, Inc. and Gregory E. Hyland. Incorporated by reference to Exhibit 99.1 to Mueller
Water Products, Inc. Form 10-Q (File no. 001-32892) filed on May 10, 2012.
Executive Employment Agreement, dated as of July 16, 2008, between Mueller Water Products, Inc. and Evan
L. Hart. Incorporated by reference to Exhibit 10.18 to Mueller Water Products, Inc. Form 10-Q (File 001-32892)
filed on August 11, 2008.
Amendment, dated December 1, 2009, to Executive Employment Agreement, dated September 6, 2006, between
Mueller Water Products, Inc. and Evan L. Hart. Incorporated by reference to Exhibit 99.3 to Mueller Water
Products, Inc. Form 8-K (File no. 001-32892) filed on December 4, 2009.
Amendment, dated March 31, 2012, to Executive Employment Agreement, dated September 6, 2006, between
Mueller Water Products, Inc. and Evan L. Hart. Incorporated by reference to Exhibit 99.3 to Mueller Water
Products, Inc. Form 8-K (File no. 001-3892) filed on May 10, 2012.
39
Exhibit
no.
10.13*
10.13.1*
10.13.2*
10.13.3
10.14*
10.15*
10.16*
10.17*
10.18*
10.18.1*
10.18.2*
10.18.3
10.19
10.20
10.21*
10.21.1*
10.21.2*
10.21.3
Document
Employment Agreement, dated as of July 31, 2006, between Mueller Water Products, Inc. and Thomas E. Fish.
Incorporated by reference to Exhibit 10.2 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed
on August 3, 2006.
Employment Agreement, dated as of February 22, 2010, between Mueller Water Products, Inc. and Thomas E.
Fish. Incorporated by reference to Exhibit 99.1 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892)
filed on February 26, 2010.
Executive Change-in-Control Severance Agreement, dated February 22, 2010, between Mueller Water Products,
Inc. and Thomas E. Fish. Incorporated by reference to Exhibit 99.2 to Mueller Water Products, Inc. Form 8-K
(File no. 001-32892) filed on February 26, 2010.
Amendment, dated March 31, 2012, to Executive Employment Agreement, dated September 9, 2005, between
Mueller Water Products, Inc. and Thomas E. Fish. Incorporated by reference to Exhibit 99.1 to Mueller Water
Products, Inc. Form 10-Q (File no. 001-32892) filed on May 10, 2012.
Joint Litigation Agreement dated December 14, 2006 between Walter Industries, Inc. and Mueller Water
Products, Inc. Incorporated by reference to Exhibit 10.3 to Mueller Water Products, Inc. Form 8-K (File no.
001-32892) filed on December 19, 2006.
Form of Executive Change-in-Control Severance Agreement. Incorporated by reference to Exhibit 99.3 to
Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on October 6, 2008.
Form of Amendment to Executive Employment Agreement. Incorporated by reference to Exhibit 99.1 to
Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on February 6, 2009.
Mueller Water Products, Inc. 2010 Management Incentive Plan. Incorporated by reference to Exhibit 10.20 to
Mueller Water Products, Inc. Form 10-Q (File no. 001-32892) filed on February 9, 2010.
Employment Agreement, dated August 9, 2010, between Mueller Water Products, Inc. and Paul Ciolino.
Incorporated by reference to Exhibit 10.20 to Mueller Water Products, Inc. Form 10-Q (File no. 001-32892)
filed on August 9, 2010.
Executive Change-in-Control Severance Agreement, dated August 9, 2010, between Mueller Water Products,
Inc. and Paul Ciolino. Incorporated by reference to Exhibit 10.21 to Mueller Water Products, Inc. Form 10-Q
(File no. 001-32892) filed on August 9, 2010.
Assignment and Amendment of Executive Change-in-Control Severance Agreement, dated June 10, 2011,
among Mueller Water Products, Inc., United States Pipe and Foundry Company, LLC and Paul Ciolino.
Incorporated by reference to Exhibit 10.23.2 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892)
filed on June 14, 2011.
Assignment and Assumption Agreement, dated April 2, 2012, between United States Pipe and Foundry
Company, LLC and Mueller Water Products, Inc. Incorporated by reference to Exhibit 10.21.3 to Mueller Water
Products, Inc. Form 8-K (File no. 001-32892) filed on April 4, 2012.
Purchase Agreement, dated August 19, 2010, between Mueller Water Products, Inc. and the Guarantors named
therein and Banc of America Securities LLC. Incorporated by reference to Exhibit 10.22 to Mueller Water
Products, Inc. Form 8-K (File no. 001-32892) filed on August 20, 2010.
Credit Agreement, dated August 26, 2010, among Mueller Water Products, Inc. and the borrowing subsidiaries
named on the signature pages thereto, each as a Borrower, certain financial institutions, as Lenders, JPMorgan
Chase Bank, N.A., as Syndication Agent, Wells Fargo Bank, National Association and SunTrust Bank, as Co-
Documentation Agents, Bank of America, N.A. as Administrative Agent and Banc of America Securities LLC
and J.P. Morgan Securities Inc., as Joint Lead Arrangers and Joint Bookrunners. Incorporated by reference to
Exhibit 10.23 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on August 27, 2010.
Employment Agreement, dated April 10, 2009, between Mueller Water Products, Inc. and Gregory Rogowski.
Incorporated by reference to Exhibit 10.26 to Mueller Water Products, Inc. Form 10-K (File no. 001-32892)
filed on November 23, 2010.
Amendment to Employment Agreement, date December 1, 2009, between Mueller Water Products, Inc. and
Gregory Rogowski. Incorporated by reference to Exhibit 10.27 to Mueller Water Products, Inc. Form 10-K (File
no. 001-32892) filed on November 23, 2010.
Executive Change-in-Control Severance Agreement, dated May 4, 2009, between Mueller Water Products, Inc.
and Gregory Rogowski. Incorporated by reference to Exhibit 10.28 to Mueller Water Products, Inc. Form 10-K
(File no. 001-32892) filed on November 23, 2010.
Amendment, dated March 31, 2012, to Executive Employment Agreement, dated September 9, 2005, between
Mueller Water Products, Inc. and Gregory Rogowski. Incorporated by reference to Exhibit 99.1 to Mueller
Water Products, Inc. Form 10-Q (File no. 001-32892) filed on May 10, 2012.
40
Exhibit
no.
10.22*
10.23
10.24**
Document
Special Incentive Award Program for Selected Employees of U.S. Pipe, dated June 2011. Incorporated by
reference to Exhibit 10.29 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on June 14,
2011.
Purchase Agreement, dated March 7, 2012, among Mueller Water Products, Inc., Mueller Group, LLC and USP
Holdings Inc. Incorporated by reference to Exhibit 2.3 to Mueller Water Products, Inc. Form 8-K (File no.
001-32892) filed on March 8, 2012.
Employment Agreement, dated September 15, 2008, between Mueller Water Products, Inc. and Robert Dunn.
10.24.1**
Executive Change-in-Control Severance Agreement, dated September 15, 2008.
10.24.2** Amendment to Employment Agreement, dated February 6, 2009, between Mueller Water Products, Inc. and
Robert Dunn.
10.24.3*
Amendment to Employment Agreement, dated December 1, 2009, between Mueller Water Products, Inc. and
Robert Dunn. Incorporated by reference to Exhibit 99.3 to Mueller Water Products, Inc. Form 8-K (File no.
001-32892) filed on December 4, 2009.
10.24.4** Amendment to Employment Agreement, dated January 23, 2012, between Mueller Water Products, Inc. and
Robert Dunn.
10.24.5** Amendment to Employment Agreement, dated March 1, 2012, between Mueller Water Products, Inc. and Robert
Dunn.
10.25**
10.26**
12.1**
14.1
21.1**
31.1**
31.2**
32.1**
32.2**
101**
Mueller Water Products, Inc. Form of Performance Share Award Agreement.
Mueller Water Products, Inc. Form of Performance Share Award Agreement (Stub Period).
Computation of Ratio of Earnings to Fixed Charges
Code of Business Conduct and Ethics for Mueller Water Products, Inc. Incorporated by reference to Exhibit 14.1
to Mueller Water Products, Inc. Form 10-K (File no. 001-32892) filed on November 26, 2008.
Subsidiaries of Mueller Water Products, Inc.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
The following financial information from the Annual Report on Form 10-K for the year ended September 30,
2011, formatted in XBRL (Extensible Business Reporting Language), (i) the Consolidated Balance Sheets, (ii)
the Consolidated Statements of Operations and Other Comprehensive Income, (iii) the Consolidated Statements
of Stockholders' Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated
Financial Statements.
_____________________________
*
**
Management compensatory plan, contract or arrangement
Filed with this annual report
41
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 29, 2012
SIGNATURES
MUELLER WATER PRODUCTS, INC.
By:
/s/ Gregory E. Hyland
Name: Gregory E. Hyland
Title: Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, as amended, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Gregory E. Hyland
Gregory E. Hyland
/s/ Evan L. Hart
Evan L. Hart
Title
Date
Chairman of the Board of Directors, President and Chief Executive
Officer (principal executive officer)
November 29, 2012
Senior Vice President and Chief Financial Officer (principal
financial officer)
November 29, 2012
/s/ Kevin G. McHugh
Vice President and Controller (principal accounting officer)
November 29, 2012
Kevin G. McHugh
/s/ Howard L. Clark
Director
Howard L. Clark
/s/ Shirley C. Franklin
Director
Shirley C. Franklin
/s/ Thomas J. Hansen
Director
Thomas J. Hansen
/s/ Jerry W. Kolb
Director
Jerry W. Kolb
/s/ Joseph B. Leonard
Director
Joseph B. Leonard
/s/ Mark J. O’Brien
Director
Mark J. O’Brien
/s/ Bernard G. Rethore
Director
Bernard G. Rethore
/s/ Neil A. Springer
Director
Neil A. Springer
/s/ Lydia W. Thomas
Director
Lydia W. Thomas
/s/ Michael T. Tokarz
Director
Michael T. Tokarz
42
November 29, 2012
November 29, 2012
November 29, 2012
November 29, 2012
November 29, 2012
November 29, 2012
November 29, 2012
November 29, 2012
November 29, 2012
November 29, 2012
The Board of Directors and Stockholders of Mueller Water Products, Inc.
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Mueller Water Products, Inc. and subsidiaries as of
September 30, 2012 and 2011, and the related consolidated statements of operations and other comprehensive income,
stockholders' equity, and cash flows for each of the three years in the period ended September 30, 2012. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Mueller Water Products, Inc. and subsidiaries at September 30, 2012 and 2011, and the consolidated results of their
operations and other comprehensive income and their cash flows for each of the three years in the period ended September 30,
2012, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Mueller Water Products, Inc.'s internal control over financial reporting as of September 30, 2012, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated November 29, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Atlanta, Georgia
November 29, 2012
F- 1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Mueller Water Products, Inc.
We have audited Mueller Water Products, Inc. and subsidiaries' internal control over financial reporting as of September 30,
2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Mueller Water Products, Inc. and subsidiaries' management is
responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Mueller Water Products, Inc. and subsidiaries maintained, in all material respects, effective internal control over
financial reporting as of September 30, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Mueller Water Products, Inc. and subsidiaries as of September 30, 2012 and 2011, and the
related consolidated statements of operations and other comprehensive income, stockholders' equity, and cash flows for each of
the three years in the period ended September 30, 2012 and our report dated November 29, 2012 expressed an unqualified
opinion on those financial statements.
/s/ Ernst & Young LLP
Atlanta, Georgia
November 29, 2012
F- 2
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Assets:
Cash and cash equivalents
Receivables, net
Inventories
Deferred income taxes
Other current assets
Current assets held for sale
Total current assets
Property, plant and equipment, net
Identifiable intangible assets
Other noncurrent assets
Noncurrent assets held for sale
Total assets
Liabilities and stockholders’ equity:
Current portion of long-term debt
Accounts payable
Other current liabilities
Current liabilities held for sale
Total current liabilities
Long-term debt
Deferred income taxes
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (Note 18)
Common stock: 600,000,000 shares authorized;156,840,648 and 155,793,612
shares outstanding at September 30, 2012 and September 30, 2011, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
September 30,
2012
2011
(in millions, except share amounts)
$
83.0
$
166.1
183.2
19.6
38.0
—
489.9
144.7
573.7
32.6
—
61.0
147.4
175.9
28.7
43.8
142.0
598.8
145.7
602.4
30.4
107.7
$
$
1,240.9
$
1,485.0
1.1
$
84.5
82.8
—
168.4
621.7
132.8
86.8
0.9
59.1
77.9
56.9
194.8
677.4
154.2
79.6
1,009.7
1,106.0
1.6
1,587.3
(1,270.0)
(87.7)
231.2
$
1,240.9
$
1.6
1,593.2
(1,161.6)
(54.2)
379.0
1,485.0
The accompanying notes are an integral part of the consolidated financial statements.
F- 3
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
Year ended September 30,
2012
2010
2011
(in millions, except per share amounts)
$
$
1,023.9
752.8
271.1
$
964.6
716.5
248.1
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Restructuring
Total operating expenses
Operating income
Interest expense, net
Loss on early extinguishment of debt
Income (loss) before income taxes
Income tax expense (benefit)
Loss from continuing operations
Loss from discontinued operations, net of tax
Net loss
Other comprehensive loss:
Derivatives
Income tax effects
Amortization of interest expense on terminated swap contracts
Income tax effects
Foreign currency translation
Minimum pension liability
Income tax effects
Other
Comprehensive loss
Net loss per basic share:
Continuing operations
Discontinued operations
Net loss
Net loss per diluted share:
Continuing operations
Discontinued operations
Net loss
Weighted average shares outstanding:
Basic
Diluted
Dividends declared per share
$
$
$
$
$
$
959.7
700.6
259.1
188.8
0.6
189.4
69.7
68.0
4.6
(2.9)
2.5
(5.4)
(39.8)
(45.2)
(0.7)
0.3
6.5
(2.6)
3.4
14.6
(5.8)
—
15.7
(29.5)
(0.03)
(0.26)
(0.29)
(0.03)
(0.26)
(0.29)
204.2
2.8
207.0
64.1
59.9
1.5
2.7
7.9
(5.2)
(103.2)
(108.4)
—
—
5.0
(2.0)
2.9
(39.8)
0.4
—
(33.5)
(141.9) $
(0.03) $
(0.66)
(0.69) $
(0.03) $
(0.66)
(0.69) $
191.8
3.6
195.4
52.7
65.6
—
(12.9)
(2.9)
(10.0)
(28.1)
(38.1)
—
—
8.0
(3.1)
(1.1)
19.2
(7.6)
0.6
16.0
(22.1) $
(0.07) $
(0.18)
(0.25) $
(0.07) $
(0.18)
(0.25) $
156.5
156.5
155.3
155.3
154.3
154.3
0.07
$
0.07
$
0.07
The accompanying notes are an integral part of the consolidated financial statements.
F- 4
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common
stock
Additional
paid-in
capital
Accumulated
deficit
(in millions)
Accumulated
other
comprehensive
income (loss)
Total
Balance at September 30, 2009
$
Net loss
Dividends declared
Stock-based compensation
Stock issued under stock
compensation plans
Derivative instruments
Foreign currency translation
Minimum pension liability
Balance at September 30, 2010
Net loss
Dividends declared
Stock-based compensation
Stock issued under stock
compensation plans
Derivative instruments
Foreign currency translation
Minimum pension liability
Balance at September 30, 2011
Net loss
Dividends declared
Stock-based compensation
Stock issued under stock
compensation plans
Derivative instruments
Foreign currency translation
Minimum pension liability
Balance at September 30, 2012
$
1.5
—
—
—
—
—
—
—
1.5
—
—
—
0.1
—
—
—
1.6
—
—
—
—
—
—
—
1.6
$
$
1,599.0
—
(10.8)
8.3
1.0
—
—
—
1,597.5
—
(10.9)
5.7
0.9
—
—
—
1,593.2
—
(11.0)
4.9
0.2
—
—
—
1,587.3
$
(1,078.3) $
(45.2)
—
—
(85.9) $
—
—
—
—
—
—
—
(1,123.5)
(38.1)
—
—
—
—
—
—
(1,161.6)
(108.4)
—
—
—
3.5
3.4
8.8
(70.2)
—
—
—
—
4.9
(1.1)
12.2
(54.2)
—
—
—
—
—
—
—
(1,270.0) $
$
—
3.0
2.9
(39.4)
(87.7) $
436.3
(45.2)
(10.8)
8.3
1.0
3.5
3.4
8.8
405.3
(38.1)
(10.9)
5.7
1.0
4.9
(1.1)
12.2
379.0
(108.4)
(11.0)
4.9
0.2
3.0
2.9
(39.4)
231.2
The accompanying notes are an integral part of the consolidated financial statements.
F- 5
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2012
Year ended September 30,
2011
(in millions)
2010
Operating activities:
Net loss
Less: loss from discontinued operations
Loss from continuing operations
Adjustments to reconcile loss from continuing operations to net cash
$
(108.4) $
103.2
(5.2)
(38.1) $
28.1
(10.0)
provided by operating activities:
Depreciation
Amortization
Loss on early extinguishment of debt, net
Stock-based compensation expense
Deferred income taxes
Retirement plans
Interest rate swap contracts
Other, net
Changes in assets and liabilities, net of acquisitions:
Receivables
Inventories
Other current assets and other noncurrent assets
Accounts payable and other liabilities
Net cash provided by operating activities
Investing activities:
Capital expenditures
Acquisitions
Proceeds from sales of assets
Net cash provided by (used in) investing activities
Financing activities:
Debt borrowings
Debt paid or repurchased
Common stock issued
Payment of deferred financing fees
Dividends paid
Other
Net cash used in financing activities
Net cash flows from discontinued operations:
Operating activities
Investing activities
Net cash provided by (used in) discontinued operations
Effect of currency exchange rate changes on cash
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
31.2
29.4
1.5
5.1
7.6
4.6
5.0
3.0
(17.6)
(6.0)
13.5
4.7
76.8
(31.4)
(1.3)
0.3
(32.4)
0.6
(57.2)
0.2
—
(11.0)
(0.7)
(68.1)
(43.3)
87.5
44.2
1.5
22.0
61.0
83.0
$
33.9
29.2
—
5.0
(5.9)
7.5
8.0
5.1
(13.6)
24.7
1.9
(33.7)
52.1
(23.1)
(9.2)
1.1
(31.2)
0.7
(15.0)
1.0
(0.4)
(10.9)
1.7
(22.9)
(12.2)
(8.4)
(20.6)
(0.4)
(23.0)
84.0
61.0
$
$
(45.2)
39.8
(5.4)
35.6
30.0
4.6
7.2
(10.3)
9.4
6.5
(3.0)
2.0
44.3
32.5
(55.5)
97.9
(21.8)
—
55.0
33.2
270.5
(318.5)
1.0
(9.8)
(10.8)
1.7
(65.9)
(34.7)
(9.6)
(44.3)
1.5
22.4
61.6
84.0
The accompanying notes are an integral part of the consolidated financial statements.
F- 6
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO 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 and services 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 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.
Certain reclassifications have been made to previously reported amounts to conform to the current presentation.
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.
Summary of Significant Accounting Policies
Revenue Recognition-Revenue is recognized when delivery of products has occurred or services have been rendered and
there is persuasive evidence of a sales arrangement, selling prices are fixed or determinable and collectibility is reasonably
assured. Revenue is reported net of estimated discounts, returns and rebates as “net sales.”
Shipping and Handling-Costs to ship products to customers are included in cost of sales. Amounts billed to customers, if
any, to cover shipping and handling costs are included in net sales.
Stock-based Compensation-Compensation expense for stock-based awards granted to employees and directors is based on
the fair value at the grant dates for most of our outstanding stock-based compensation awards, and is based on the fair value at
each reporting date for our Phantom Plan awards. See Note 12 for more information regarding our stock-based compensation.
Stock-based compensation expense is a component of selling, general and administrative expenses.
Cash and Cash Equivalents-All highly liquid investments with remaining maturities of 90 days or less when purchased are
classified as cash equivalents. Where there is no right of offset against cash balances, outstanding checks are included in
accounts payable. At September 30, 2012 and 2011, checks issued but not yet presented to the banks for payment were $4.6
million and $5.3 million, respectively, and were included in accounts payable.
Receivables-Receivables relate primarily to amounts due from customers. To reduce credit risk, credit investigations are
generally performed prior to accepting orders from new customers and, when necessary, letters of credit, bonds or other
instruments are required to ensure payment.
The estimated allowance for doubtful receivables is based upon judgments and estimates of expected losses and specific
identification of problem accounts. Significantly weaker than anticipated industry or economic conditions could impact
customers' ability to pay such that actual losses may be greater than the amounts provided for in this allowance. The periodic
evaluation of the adequacy of the allowance for doubtful receivables is based on an analysis of prior collection experience,
specific customer creditworthiness and current economic trends within the industries served. In circumstances where we expect
a specific customer's inability to meet its financial obligations (e.g., bankruptcy filings or substantial downgrading of credit
ratings), we record a specific allowance to reduce the receivable to the amount management reasonably believes will
be collected.
F- 7
The following table summarizes information concerning our allowance for doubtful receivables.
Balance at beginning of year
Provision charged (credited) to expense
Balances written off, net of recoveries
Reclassifications
Other
Balance at end of year
2012
2011
(in millions)
2010
$
$
4.8
0.6
(0.1)
0.4
—
5.7
$
$
5.3
(0.1)
(0.3)
—
(0.1)
4.8
$
$
3.0
0.4
(0.8)
2.7
—
5.3
Inventories-Inventories are recorded at the lower of first-in, first-out method cost or market value. We evaluate our
inventory in terms of excess and obsolete exposures. This evaluation includes such factors as anticipated usage, inventory
turnover, inventory levels and ultimate product sales value. Inventory cost includes an overhead component that is affected by
levels of production and actual costs incurred. Management periodically evaluates the effects of production levels and costs
capitalized as part of inventory.
The following table summarizes information concerning our inventory reserves.
Balance at beginning of year
Provision charged to expense
Amounts written off
Other
Balance at end of year
2012
2011
(in millions)
2010
$
$
15.0
1.8
(2.3)
0.1
14.6
$
$
17.3
1.2
(1.7)
(1.8)
15.0
$
$
20.0
1.7
(3.4)
(1.0)
17.3
Prepaid Expenses-Prepaid expenses include maintenance supplies and tooling costs. Costs for perishable tools and
maintenance items are expensed when put into service. Costs for more durable items are amortized over their estimated useful
lives, ranging from 3 to 10 years.
Property, Plant and Equipment-Property, plant and equipment is recorded at cost, less accumulated depreciation.
Depreciation is recorded using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are
10 to 20 years for land improvements, 10 to 40 years for buildings and 3 to 15 years for machinery and equipment. Leasehold
improvements and capitalized leases are depreciated using the straight-line method over the lesser of the useful life of the asset
or the remaining lease term. Gains and losses upon disposition are reflected in operating results in the period of disposition.
Direct internal and external costs to implement computer systems and software are capitalized. Capitalized costs are
depreciated over the estimated useful life of the system or software, generally 3 to 5 years, beginning when site installation or
module development is complete and ready for use.
Liabilities are recognized at fair value for asset retirement obligations related to plant and landfill closures in the period in
which they are incurred and the carrying amounts of the related long-lived assets are correspondingly increased. Over time, the
liabilities are accreted to their estimated future values. At September 30, 2012 and 2011, asset retirement obligations were $3.5
million and $3.4 million, respectively.
Accounting for the Impairment of Long-Lived Assets-Management tests intangible assets that have an indefinite life for
impairment annually (or more frequently if events or circumstances indicate possible impairment). We perform our annual
impairment testing at September 1. Finite-lived intangible assets are amortized over their respective estimated useful lives and
reviewed for impairment if events or circumstances indicate possible impairment.
Management tests goodwill for possible impairment by first determining the fair value of the related reporting unit and
comparing this value to the recorded net assets of the reporting unit, including goodwill. Fair value is determined using a
combination of a discounted cash flow model and stock market comparable valuations for a peer group of companies.
Significant judgments and estimates must be made when estimating future cash flows, determining the appropriate discount rate
and identifying appropriate comparable companies.
F- 8
Workers Compensation-Our exposure to workers compensation claims is generally limited to $1 million per incident.
Liabilities, including those related to claims incurred but not reported, are recorded principally using annual valuations based on
discounted future expected payments and using historical data combined with insurance industry data when historical data is
limited. We are indemnified by a predecessor to Tyco International Ltd. for all Mueller Co. and Anvil workers compensation
liabilities related to incidents that occurred prior to August 16, 1999. See Note 18. We retained U.S. Pipe workers
compensation liabilities related to incidents that occurred prior to April 1, 2012, but the Purchaser has agreed to reimburse us
for up to $11.8 million in payments we make related to these liabilities. See Note 5. On an undiscounted basis, workers
compensation liabilities were $22.6 million and $25.4 million at September 30, 2012 and 2011, respectively. On a discounted
basis, workers compensation liabilities were $20.0 million and $22.4 million at September 30, 2012 and 2011, respectively.
We apply a discount rate at a risk-free interest rate, generally a U.S. Treasury bill rate, for each policy period. The rate
used is one with a duration that corresponds to the weighted average expected payout period for each policy period. Once a
discount rate is applied to a policy period, it remains the discount rate for that policy period until all claims are paid.
Warranty Costs-We accrue for warranty expenses that can include customer costs of repair and/or replacement, including
labor, materials, equipment, freight and reasonable overhead costs. We accrue for the estimated cost of product warranties at
the time of sale if such costs are determined to be reasonably estimable at that time. Warranty cost estimates are revised
throughout applicable warranty periods as better information regarding warranty costs becomes available.
Activity in accrued warranty, reported as part of other current liabilities, is presented below.
Balance at beginning of year
Warranty expense
Warranty payments
Balance at end of year
2012
2011
(in millions)
2010
$
$
2.0
1.4
(1.8)
1.6
$
$
1.5
1.6
(1.1)
2.0
$
$
2.0
1.3
(1.8)
1.5
Deferred Financing Fees-Costs of debt financing are charged to expense over the life of the related financing agreements,
which range from 5 to 10 years. Remaining costs and the future period over which they would be charged to expense are
reassessed when amendments to the related financing agreements or prepayments occur.
Derivative Instruments and Hedging Activities-Changes in the fair value of derivative instruments accounted for as
effective cash-flow hedges are recorded to accumulated other comprehensive loss. Gains and losses on derivative instruments
not qualifying as effective cash-flow hedges, representing hedge ineffectiveness and hedge components excluded from the
assessment of effectiveness are recognized in earnings in the periods in which they occur.
Income Taxes-Deferred tax liabilities and deferred tax assets are recognized for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Such liabilities and assets are determined based on the
differences between the financial statement basis and the tax basis of assets and liabilities, using tax rates in effect for the years
in which the differences are expected to reverse. A valuation allowance is provided if, based upon the available evidence, it is
more likely than not that some or all of the deferred tax assets will not be realized.
We only record tax benefits for positions that management believes are more likely than not of being sustained under audit
based solely on the technical merits of the associated tax position. The amount of tax benefit recognized for any position that
meets the more likely than not threshold is the largest amount of the tax benefit that we believe is greater than 50% likely of
being realized.
Environmental Expenditures-We capitalize environmental expenditures that increase the life or efficiency of noncurrent
assets or that reduce or prevent environmental contamination. We accrue for environmental expenses resulting from existing
conditions that relate to past operations when the costs are probable and reasonably estimable. We are indemnified under an
agreement with a predecessor to Tyco for certain environmental liabilities that existed at August 16, 1999. See Note 18.
Research and Development-Research and development costs are expensed as incurred.
Advertising-Advertising costs are expensed as incurred.
Translation of Foreign Currency-Assets and liabilities of our businesses whose functional currency is other than the U.S.
dollar are translated into U.S. dollars using currency exchange rates at the balance sheet date. Revenues and expenses are
translated at average currency exchange rates during the period. Foreign currency translation gains and losses are reported as a
F- 9
component of accumulated other comprehensive loss. Gains and losses resulting from foreign currency transactions are
included in operating results as incurred.
Note 3.
Identifiable Intangible Assets
Identifiable intangible assets are presented below.
Cost:
Finite-lived intangible assets:
Technology
Customer relationships and other
Indefinite-lived intangible assets:
Trade names and trademarks
Accumulated amortization:
Technology
Customer relationships
Net book value
September 30,
2012
2011
(in millions)
$
$
$
79.3
398.2
299.7
777.2
(53.5)
(150.0)
(203.5)
573.7
$
79.3
397.7
299.5
776.5
(45.5)
(128.6)
(174.1)
602.4
At September 30, 2012, the remaining weighted-average amortization period for the finite-lived intangible assets was 10.2
years. Amortization expense related to finite-lived intangible assets was $29.4 million, $29.2 million and $30.0 million for
2012, 2011 and 2010, respectively. Amortization expense for each of the next five years is scheduled to be $29.5 million in
2013, $28.1 million in 2014, $27.2 million in 2015, $21.9 million in 2016 and $21.9 million in 2017.
Note 4.
Acquisition and Goodwill
On December 14, 2010, we acquired Echologics Engineering Inc., a water leak detection and pipe condition assessment
company headquartered in Toronto, Canada, for $7.9 million in cash, which included $1.5 million placed in escrow related to
seller indemnifications. During the quarter ended December 31, 2011, we resolved one of these contingencies in our favor and
reduced the purchase price by $0.5 million, which reduced the associated goodwill balance to zero. During 2012, we released
the remaining $1.0 million from escrow to the sellers. We have included the operating results of the business in Mueller Co.
effective December 14, 2010. The fair values of the related assets and liabilities are presented below, in millions.
Assets acquired:
Receivables
Inventories
Other current assets
Property, plant, and equipment
Identifiable intangible assets
Liabilities:
Accounts payable and other current liabilities
Deferred income taxes
$
$
0.3
0.1
0.2
0.1
7.3
(0.2)
(0.4)
7.4
Identifiable intangible assets consisted of trade names and trademarks of $0.6 million that have indefinite useful lives and
technology of $6.7 million that has an estimated useful life of 15 years.
F- 10
The change in the carrying amount of goodwill in the year ended September 30, 2012 is presented below.
Balances at September 30, 2011:
Gross goodwill
Accumulated impairment
Purchase price adjustment
Balances at September 30, 2012:
Gross goodwill
Accumulated impairment
Mueller Co.
Anvil
(in millions)
Total
$
$
$
717.8
(717.3)
0.5
(0.5)
717.3
(717.3)
$
92.7
(92.7)
—
—
92.7
(92.7)
— $
— $
810.5
(810.0)
0.5
(0.5)
810.0
(810.0)
—
Note 5.
Discontinued Operations, Assets Held for Sale and Divestitures
U.S. Pipe. 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. We believe there are net additional purchase price adjustments related
to net working capital and net indebtedness that would increase the purchase price by $9.2 million. However, the Purchaser has
claimed net purchase price adjustments related to net working capital and net indebtedness that would reduce the purchase price
by $4.8 million. This dispute will be resolved by an independent auditor who has been selected by the parties, and we cannot
make a reliable estimate of what the resolution may be. The resolution of the purchase price adjustments dispute will likely
result in an adjustment to our recorded loss on sale of discontinued operations.
There were no assets or liabilities held for sale at September 30, 2012. The table below presents the components of the
balance sheet accounts classified as assets and liabilities held for sale at September 30, 2011, in millions.
Assets:
Cash
Receivables, net
Inventories
Other current assets
Total current assets held for sale
Property, plant and equipment, net
Identifiable intangible assets
Other noncurrent assets
Total noncurrent assets held for sale
Liabilities:
Accounts payable
Other current liabilities
Total current liabilities held for sale
F- 11
$
$
$
$
$
$
0.2
73.4
61.8
6.6
142.0
98.1
8.5
1.1
107.7
48.5
8.4
56.9
The table below represents a summary of the operating results for the U.S. Pipe discontinued operations. These operating
results do not reflect what they would have been had U.S. Pipe not been classified as discontinued operations.
Net sales
Cost of sales
Gross loss
Operating expenses
Operating loss
Interest expense
Loss on sale of discontinued operations
Income tax benefit
Loss from discontinued operations, net of tax
2012
2011
(in millions)
2010
$
$
$
197.0
197.9
(0.9)
4.2
(5.1)
0.3
119.7
(21.9)
(103.2) $
$
374.6
388.6
(14.0)
32.0
(46.0)
—
—
(17.9)
(28.1) $
377.8
400.5
(22.7)
43.0
(65.7)
—
—
(25.9)
(39.8)
Certain assets, liabilities and activities previously associated with our former U.S. Pipe segment have been retained by the
Company, including ownership of certain real property and retention of pension and other postretirement obligations to
employees of U.S. Pipe. Cash flows associated with some of these items are anticipated to continue indefinitely, but they are
not clearly and closely related to the future operations of U.S. Pipe under its new owners.
Picoma. In November 2009, Anvil sold certain assets of Picoma, its former electrical fittings business, in exchange for
cash and certain assets of Seminole Tubular Company that complement Anvil's existing mechanical pipe nipple business. A
pre-tax gain of $1.6 million was recorded during 2010 to selling, general and administrative expenses in connection with this
transaction.
MFC. In January 2010, Anvil sold its Canadian wholesale distribution business for $40.3 million, including post-closing
adjustments, and recorded a pre-tax gain of $2.8 million to selling, general and administrative expenses. Anvil also entered into
a 3½ year supply agreement with the buyer requiring the buyer to purchase at least a specified amount of products from Anvil at
market rates.
Note 6.
Income Taxes
The components of income (loss) before income taxes are presented below.
U.S.
Non-U.S.
Income (loss) before income taxes
2012
2011
(in millions)
2010
$
$
(0.1) $
2.8
2.7
$
(15.2) $
2.3
(12.9) $
(10.7)
7.8
(2.9)
F- 12
Income tax expense (benefit) is presented below.
Current:
U.S. federal
U.S. state and local
Non-U.S.
Deferred:
U.S. federal
U.S. state and local
Non-U.S.
Income tax expense (benefit)
2012
2011
(in millions)
2010
$
$
0.2
(1.0)
1.1
0.3
(0.6)
9.0
(0.8)
7.6
7.9
$
$
$
3.8
(0.6)
(0.2)
3.0
(5.7)
(0.2)
—
(5.9)
(2.9) $
10.7
(0.5)
2.6
12.8
(8.2)
(2.0)
(0.1)
(10.3)
2.5
The reconciliation between income tax expense (benefit) at the U.S. federal statutory income tax rate and reported income
tax expense (benefit) is presented below.
2012
2011
(in millions)
2010
$
0.9
$
(4.5) $
5.9
1.4
(0.8)
0.7
(0.3)
(0.1)
—
—
—
0.2
7.9
$
—
1.3
(0.5)
0.5
0.2
(0.3)
—
—
—
0.4
(2.9) $
(1.0)
0.1
1.2
(1.8)
0.6
(0.3)
—
1.2
2.0
0.5
—
2.5
Tax at U.S. federal statutory income tax rate of 35%
Adjustments to reconcile to income tax expense (benefit):
State valuation allowance, net of federal benefit
Nondeductible compensation
State income taxes, net of federal benefit
Other nondeductible expenses
Foreign income taxes
Tax credits
Federal reserves and other
Repatriation of foreign earnings
U.S. manufacturing deduction
Other
Income tax expense (benefit)
$
F- 13
Deferred income tax assets (liabilities) are presented below.
Deferred income tax assets:
Receivable reserves
Inventory reserves
Accrued expenses
Pension and other postretirement benefits
Stock compensation
State net operating losses
Federal net operating losses and credit carryovers
All other
Valuation allowance
Total deferred income tax assets
Deferred income tax liabilities:
Identifiable intangible assets
Property, plant and equipment
Total deferred income tax liabilities
Net deferred income tax liabilities
September 30,
2012
2011
(in millions)
$
$
$
0.8
13.5
19.4
24.7
7.0
16.9
65.1
0.9
148.3
(49.2)
99.1
(206.9)
(5.4)
(212.3)
(113.2) $
1.0
14.6
18.6
17.5
7.2
13.2
40.4
1.9
114.4
(1.3)
113.1
(213.6)
(25.0)
(238.6)
(125.5)
After including the tax effect of the loss on the sale of U.S. Pipe, our deferred tax liabilities are insufficient to fully support
our deferred tax assets, which include net operating loss carryforwards. Accordingly, we recorded income tax expense to
establish valuation allowances related to deferred tax assets during 2012. GAAP requires us to allocate a portion of the
valuation allowance charge relating to deferred tax assets to continuing operations.
Our net operating loss carryforwards remain available to offset future taxable earnings. Our state net operating losses
expire between 2013 and 2032, with 90% of the state net operating losses expiring after 2018. Our federal net operating losses
expire between 2030 and 2032.
F- 14
The components of income tax expense (benefit) for the years ended September 30, 2012, 2011 and 2010 are provided
below.
Expense (benefit) from operations
Valuation allowance-related expense
Other items
Income tax expense (benefit)
Benefit from operations
Valuation allowance-related expense
Income tax benefit
Benefit from operations
Valuation allowance-related expense
Other items (1)
Income tax expense (benefit)
2012
Continuing
operations
Discontinued
operations
(in millions)
$
$
$
$
$
$
(48.7)
26.7
0.1
(21.9)
1.4
6.5
—
7.9
$
$
2011
Continuing
operations
Discontinued
operations
(in millions)
(3.4) $
0.5
(2.9) $
(17.9)
—
(17.9)
2010
Continuing
operations
Discontinued
operations
(in millions)
(0.1) $
0.4
2.2
2.5
$
(25.9)
—
—
(25.9)
(1) During 2010, the Company repatriated excess cash from the disposal of Anvil's Canadian distribution business,
resulting in $2.0 million additional U.S. tax and $0.2 million of additional net foreign tax.
The cumulative amount of undistributed earnings of foreign subsidiaries for which United States income taxes have not
been provided was $54.3 million at September 30, 2012. It is not currently practical to estimate the amount of unrecognized
United States income taxes that might be payable on the repatriation of these earnings.
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is presented below.
Balance at beginning of year
Increases related to prior year positions
Decreases related to prior year positions
Decreases due to lapse in statute of limitations
Increases related to current year positions
Payments and settlements
Balance at end of year
2012
2011
(in millions)
7.8
$
0.6
(0.2)
(2.5)
—
(1.4)
4.3
$
10.6
0.6
(0.6)
(2.7)
—
(0.1)
7.8
$
$
All unrecognized tax benefits would, if recognized, impact the effective tax rate.
After including the tax effect of the loss on the sale of U.S. Pipe, our net reversing deferred tax credits are insufficient to
fully support our deferred tax assets, which include net operating loss carryforwards. After considering all sources of available
income, including tax planning strategies, we concluded that a valuation allowance was necessary to reduce our net reversing
F- 15
deferred tax assets to zero. Accordingly, we recorded income tax expense to establish valuation allowances related to deferred
tax assets. GAAP requires us to allocate a portion of the valuation allowance charge relating to deferred tax assets at
September 30, 2011 to continuing operations, with the remaining valuation allowances charged against minimum pension
liability in accumulated other comprehensive loss and to discontinued operations. The allocation to these categories is noted in
the table below.
A reconciliation of the beginning and ending deferred tax valuation allowances is presented below.
Balance at beginning of year
Increase charged to continuing operations
Increase charged to discontinued operations
Increase charged to accumulated other comprehensive income
Expired items
Balance at end of year
2012
2011
(in millions)
$
$
1.3
6.5
26.7
15.2
(0.5)
49.2
$
$
1.4
0.5
—
—
(0.6)
1.3
Income tax expense for 2012 includes $5.9 million expense related to a valuation allowance provided on deferred tax assets
existing at September 30, 2011 and $0.6 million associated with executive stock compensation that is limited pursuant to
Section 162 of the Internal Revenue Code.
We expect to settle certain state income tax audits within the next 12 months and believe it is reasonably possible that these
audit settlements will reduce the gross unrecognized tax benefits by $0.8 million.
We recognize interest related to uncertain tax positions as interest expense and recognize any penalties incurred as a
component of selling, general and administrative expenses. At September 30, 2012 and 2011, we had $0.9 million and $1.8
million, respectively of accrued interest expense related to unrecognized tax benefits.
The federal income tax returns for Mueller Co. and Anvil are closed for years prior to 2005. U.S. Pipe is subject to statute
extension agreements that may be applicable to Walter Energy, and we remain liable for any tax related to U.S. Pipe pursuant to
the terms of our sale of those businesses. See Note 18. During 2012, the Internal Revenue Service (“IRS”) completed its audit
of our income tax returns filed for 2010, 2009, 2008 and 2007. The IRS audit resulted in no additional tax liability.
Our state income tax returns are generally closed for years prior to 2006. Our Canadian income tax returns are generally
closed for years prior to 2005. We are currently under audit by several states at various levels of completion. We do not have
any material unpaid assessments.
Note 7.
Borrowing Arrangements
The components of our long-term debt are presented below.
ABL Agreement
8.75% Senior Unsecured Notes
7.375% Senior Subordinated Notes
Other
Less current portion
Long-term debt
September 30,
2012
2011
(in millions)
— $
199.9
420.0
2.9
622.8
(1.1)
621.7
$
34.0
221.7
420.0
2.6
678.3
(0.9)
677.4
$
$
ABL Agreement. At September 30, 2012, our asset based lending agreement (the “ABL Agreement”) consisted of a
revolving credit facility for up to $275 million of revolving credit borrowings, swing line loans and letters of credit. 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
F- 16
$60 million of letters of credit outstanding. We estimate the carrying value of the borrowings under the ABL Agreement
approximates the fair value.
Borrowings under the ABL Agreement bear interest at a floating rate equal to LIBOR plus a margin ranging from 275 to
325 basis points, or a base rate, as defined in the ABL Agreement, plus a margin ranging from 175 to 225 basis points. At
September 30, 2012, the applicable rate was LIBOR plus 300 basis points.
The ABL Agreement terminates in August 2015. We pay a commitment fee of 50 basis points for any unused borrowing
capacity and our obligations are secured by a first-priority perfected lien on all of our U.S. inventory, accounts receivable,
certain cash and other supporting obligations. Borrowings are not subject to any financial maintenance covenants unless excess
availability is less than the greater of $34 million or 12.5% of the aggregate commitments under the ABL Agreement. Excess
availability based on September 30, 2012 data, as reduced by outstanding borrowings, outstanding letters of credit and accrued
fees and expenses of $37.8 million, was $140.5 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. The Senior Unsecured Notes balance at September 30, 2012 is net of $2.6
million of unamortized discount. Based on quoted market prices, the outstanding Senior Unsecured Notes had a fair value of
$227.8 million at September 30, 2012.
We may redeem up to $22.5 million of the Senior Unsecured Notes at a redemption price of 103% plus accrued and unpaid
interest once through September 1, 2013. We may also redeem up to $56.3 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, provided that at least $146.2 million remains outstanding immediately after such redemption. 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 September 30, 2012 and expect
to remain in compliance through September 30, 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 $430.5 million at September 30, 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 the 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
guarantee the Senior Subordinated Notes. We believe we were compliant with these covenants at September 30, 2012 and
expect to remain in compliance through September 30, 2013.
Future maturities of outstanding borrowings at September 30, 2012 for each of the following years are $1.1 million for
2013, $1.0 million for 2014, $0.6 million for 2015, $0.2 million for 2016, $420.0 million for 2017 and $202.5 million after
2017.
Note 8.
Derivative Financial Instruments
Our ongoing business operations expose us to commodity price risk, interest rate risk and foreign currency exchange risk,
which we have managed to some extent using derivative instruments. We have used natural gas swap contracts to manage the
commodity price risk associated with purchases of natural gas used in certain of our manufacturing processes, interest rate swap
contracts to manage interest rate risk associated with our variable-rate borrowings and foreign currency forward exchange
contracts to manage foreign currency exchange risk associated with our Canadian operations. During 2010, we terminated all
of our remaining interest rate swap contracts and settled our only outstanding foreign currency forward contract, and no new
F- 17
interest rate or foreign currency 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 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 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 September 30, 2012.
Natural Gas Swap Contracts. Our outstanding natural gas swap contracts at September 30, 2012 and 2011 are presented
below.
Rate benchmark
NYMEX natural gas
September 30,
2012
2011
(MMBtu)
—
406,000
The effects of our natural gas swap contracts on the consolidated statements of operations are presented below, net of tax.
2012
2011
(in millions)
2010
Gain (loss) reclassified from accumulated other comprehensive loss
into discontinued operations
Ineffectiveness loss recognized in discontinued operations
$
— $
—
$
0.1
(0.2)
0.2
(0.5)
Interest Rate Swap Contracts. During 2010, we recorded a non-cash net credit to interest expense and a pre-tax debit to
accumulated other comprehensive loss of $4.7 million related to interest rate swap contracts that had been terminated in
September 2009.
The effects of our interest rate swap contracts on the consolidated statements of operations are presented below, net of tax.
Loss recognized in other comprehensive loss
Loss reclassified from accumulated other comprehensive loss into
$
income
Ineffectiveness loss recognized in interest expense
2012
2011
(in millions)
2010
— $
— $
(3.0)
—
(4.9)
—
(0.4)
(8.1)
(0.7)
Foreign Currency Forward Contracts. We settled our only outstanding foreign currency forward contract during 2010 with
a cash payment of $1.7 million. Gains and losses on our foreign currency forward contract were included in selling, general,
and administrative expenses, where they offset transaction losses and gains recorded in connection with an intercompany loan.
The effects of our foreign currency forward contract on the condensed consolidated statements of operations are presented
below, net of tax.
2012
2011
(in millions)
2010
Loss recognized in income
$
— $
— $
(0.6)
Note 9.
Deferred Financing Fees
Deferred financing fees of $10.7 million at September 30, 2012 are scheduled to amortize as follows: $3.0 million related
to the ABL Agreement amortizes on a straight-line basis; $4.1 million related to the Senior Unsecured Notes amortizes using
the effective-interest rate method; and $3.6 million related to the Senior Subordinated Notes amortizes using the effective-
interest rate method. All such amortization is over the remaining term of the respective debt.
F- 18
Note 10.
Retirement Plans
We have various pension and other retirement plans covering substantially all our employees (the “Pension Plans”). We
fund the Pension Plans in accordance with their requirements and, where applicable, in amounts sufficient to satisfy the
minimum funding requirements of applicable laws. The Pension Plans provide benefits based on years of service and
compensation or at stated amounts for each year of service.
We also provide certain postretirement benefits other than pensions, primarily healthcare, to eligible retirees. Our
postretirement benefit plans are funded as benefits are paid.
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 will substantially cease on December 31, 2012.
As a result of these provision changes, we remeasured the funded status of our U.S. pension plan and our other postretirement
benefit plans in 2012. We recorded a pension curtailment expense of $0.2 million and an other postretirement benefit plan
curtailment gain of $2.4 million, which are included in loss from discontinued operations for 2012.
We froze the participation of new entrants into our Pension Plans for all remaining U.S. employees in 2011. This
amendment decreased our pension and postretirement benefit liabilities by $30.6 million and $1.8 million, respectively, and
resulted in an after-tax decrease in accumulated other comprehensive loss of $19.7 million. We also recorded a pension plan
curtailment expense of $0.7 million.
We closed U.S. Pipe's North Birmingham facility in 2010 and recorded pension curtailment expense of $2.6 million and an
other postretirement benefit plan curtailment gain of $1.8 million in discontinued operations. We also recorded $0.4 million
settlement cost for the divestiture of Anvil's Canadian wholesale distribution business. See Note 5 for more information on this
divestiture.
The measurement date for all Pension Plans and other postretirement plans was September 30.
Information for Pension Plans with accumulated benefit obligations in excess of plan assets is presented below.
Projected benefit obligations
Accumulated benefit obligations
Fair value of plan assets
September 30,
2012
2011
$
(in millions)
445.2
445.0
383.2
377.3
375.3
326.8
$
Information for Pension Plans with accumulated benefit obligations less than plan assets is presented below.
Projected benefit obligations
Accumulated benefit obligations
Fair value of plan assets
September 30,
2012
2011
(in millions)
$
$
3.1
3.1
3.9
4.0
4.0
5.0
F- 19
The components of net periodic benefit cost (gain) are presented below.
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost (gain)
Amortization of net loss (gain)
Curtailment / special settlement loss (gain)
Costs allocated to discontinued operations
Net periodic benefit cost (gain)
2012
Pension Plans
2011
(in millions)
2010
$
$
1.8
20.2
(24.0)
0.6
6.0
0.2
(1.1)
3.7
$
$
2.5
21.2
(23.4)
0.6
5.9
0.7
(4.3)
3.2
$
$
Amounts recognized for our Pension Plans and other postretirement benefit plans are presented below.
Pension Plans
Other Plans
2012
2011
2012
2011
(in millions)
Projected benefit obligations:
Beginning of year
Service cost
Interest cost
Plan amendment
Actuarial loss (gain)
Benefits paid
Currency translation
Decrease in obligation due to curtailment
Other
End of year
Accumulated benefit obligations at end of year
Plan assets:
Beginning of year
Actual return on plan assets
Employer contributions
Currency translation
Benefits paid
End of year
Accrued benefit cost at end of year:
Unfunded status
Recognized on balance sheet:
Other noncurrent assets
Other current liabilities
Other noncurrent liabilities
Recognized in accumulated other comprehensive
loss, before tax:
Prior year service cost (gain)
Net actuarial loss (gain)
$
$
$
$
$
$
$
$
$
$
381.3
1.8
20.2
—
71.6
(24.7)
0.6
(2.8)
0.3
448.3
448.1
331.8
58.2
21.3
0.5
(24.7)
387.1
$
$
$
$
$
398.9
2.5
21.2
—
(12.4)
(24.2)
(0.1)
(4.6)
—
381.3
379.3
313.1
19.6
23.3
—
(24.2)
331.8
$
$
$
$
$
3.7
—
0.2
(1.4)
(0.1)
(0.6)
—
—
—
1.8
1.8
$
$
$
— $
—
0.6
—
(0.6)
— $
(61.2) $
(49.5) $
(1.8) $
$
0.9
—
(62.1)
(61.2) $
0.3
136.9
137.2
$
$
F- 20
$
1.0
(0.3)
(50.2)
(49.5) $
0.7
108.2
108.9
$
$
— $
(0.2)
(1.6)
(1.8) $
(0.5) $
(4.6)
(5.1) $
3.6
21.1
(21.7)
0.7
8.8
3.0
(9.7)
5.8
6.7
0.1
0.3
—
(1.0)
(0.5)
—
(1.9)
—
3.7
3.7
—
—
0.5
—
(0.5)
—
(3.7)
—
(0.5)
(3.2)
(3.7)
(3.8)
(13.4)
(17.2)
Pension and other postretirement benefits activity in accumulated other comprehensive loss, before tax, in 2012 is
presented below.
Balance at beginning of year
Amounts reclassified as amortization of net periodic cost:
Gain (loss) amortization
Prior year service gain (loss) amortization and curtailment
Net prior service costs
Loss (gain) during the year
Other
Balance at end of year
Pension
benefits
Other
postretirement
benefits
(in millions)
108.9
$
(8.8)
(0.6)
0.1
37.5
0.1
137.2
$
(17.2)
9.0
4.6
(1.4)
(0.1)
—
(5.1)
$
$
The components of accumulated other comprehensive loss related to pension and other postretirement benefits that
management expects to be amortized into net periodic benefit cost in 2013, including both continuing and discontinued
operations, are presented below.
Amortization of unrecognized prior year service cost (credit)
Amortization of unrecognized gain (loss)
Pension
benefits
Other
postretirement
benefits
(in millions)
— $
(9.0)
(9.0) $
(0.4)
(4.2)
(4.6)
$
$
The discount rates for determining the present value of pension and other postretirement liabilities were selected using a
“bond settlement” approach, which constructs a hypothetical bond portfolio that could be purchased such that the coupon
payments and maturity values could be used to satisfy the projected benefit payments. The discount rate is the equivalent rate
that results in the present value of the projected benefit payments equaling the market value of this bond portfolio. Only high
quality (AA graded or higher), non-callable corporate bonds are included in this bond portfolio. We rely on the Pension Plans'
actuaries to assist in the development of the discount rate model.
Separate discount rates were selected for different plans due to differences in the timing of projected benefit payments.
The discount rate model for the plan covering participants in the United States reflected yields available on investments in the
United States, while plans covering participants in Canada reflected yields available on investments in Canada. The discount
rate for the other postretirement benefit plans was remeasured at April 1, 2012 to 5.00%.
Management's expected returns on plan assets and assumed healthcare cost trend rates were determined with the assistance
of the Pension Plans' actuaries and investment consultants. Expected returns on plan assets were developed using forward
looking returns over a time horizon of 10 to 15 years for major asset classes along with projected risk and historical
correlations.
F- 21
A summary of key assumptions for our pension and other postretirement benefit plans is below.
Plan measurement date
Pension Plans
2011
2012
2010
2012
Other Plans
2011
2010
Weighted average used to determine benefit obligations:
Discount rate
Rate of compensation increases
4.21%
3.50%
5.66%
3.50%
5.44%
3.50%
4.22%
n/a
5.69%
n/a
5.44%
n/a
Weighted average used to determine net periodic cost:
Discount rate
Expected return on plan assets
Rate of compensation increases
Assumed healthcare cost trend rates:
Next year – pre-65
Ultimate trend rate – pre-65
Year ultimate trend rate achieved
5.66%
6.95%
3.50%
5.88%
7.47%
3.50%
5.45%
7.88%
3.50%
5.69%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
5.88%
n/a
n/a
7.50%
5.00%
2016
5.45%
n/a
n/a
7.90%
4.90%
2016
Assumed healthcare cost trend rates, discount rates, expected return on plan assets and salary increases affect the amounts
reported for the pension and healthcare plans. The effects of a one-percentage-point change in the trend rate for these
assumptions are below.
1 Percentage
point increase
1 Percentage
point decrease
(in millions)
Pension Plans:
Discount rate:
Effect on pension service and interest cost components
Effect on pension benefit obligations
Effect on 2013 pension expense
$
(0.3) $
(48.0)
(2.7)
Expected return on plan assets:
Effect on current year pension expense
Rate of compensation increase:
Effect on pension benefit obligations
Effect on 2013 pension expense
Other plans:
Discount rate:
Effect on postretirement service and interest cost components
Effect on postretirement benefit obligations
(3.7)
0.1
0.1
—
(0.3)
0.4
58.7
3.2
3.8
—
—
—
0.4
F- 22
We maintain a single trust to hold the assets of the U.S. pension plan. This trust's strategic asset allocations, tactical range
at September 30, 2012 and actual asset allocations at September 30, 2012, 2011 and 2010, respectively, are presented below.
Equity investments:
Large capitalization stocks
Small capitalization stocks
International stocks
Fixed income investments
Cash
Strategic asset
allocation
Tactical
range
Actual asset allocations at
September 30,
2012
2011
2010
38%
8%
14%
60%
40%
—%
100%
19-57%
4-12%
7-21%
50-70%
30-50%
0-5%
59%
39%
2%
100%
46%
53%
1%
100%
58%
39%
3%
100%
Assets of the Pension Plans are allocated to various investments to attain diversification and reasonable risk-adjusted
returns while also managing our exposure to asset and liability volatility. These ranges are targets and deviations may occur
from time to time due to market fluctuations. Portfolio assets are typically rebalanced to the allocation targets at least annually.
Following is a description of the valuation methodologies used to measure the assets of the Pension Plans at fair value.
• Equity investments are valued at the closing price reported on the active market when reliable market quotations are
readily available. When market quotations are not readily available, assets of the Pension Plans are valued by a
method the trustees of the Pension Plans believe accurately reflects fair value.
• Bond fund investments are valued using the closing price reported in the active market in which the investment is
traded or based on yields currently available on comparable securities of issuers with similar credit ratings.
• Other investments are valued as determined by the trustees of the Pension Plans based on their net asset values and
supported by the value of the underlying securities and by the unit prices of actual purchase and sale transactions
occurring at or close to the financial statement date.
The assets of the Pension Plans at September 30, 2012 and 2011, by level within the fair value hierarchy, are presented
below, in millions.
Equity:
International Funds
Large Cap Growth funds
Large Cap Value funds
S&P Midcap index funds
Smallcap index funds
Mutual funds
Total equity
Bond funds
Cash and cash equivalents
Other
Total
Level 1
Level 2
Level 3
Total
September 30, 2012
(in millions)
$
$
— $
—
—
—
—
134.4
134.4
—
0.2
—
134.6
$
10.6
15.6
30.4
5.2
31.1
—
92.9
151.3
6.8
—
251.0
$
$
— $
—
—
—
—
—
—
—
—
1.5
1.5
$
10.6
15.6
30.4
5.2
31.1
134.4
227.3
151.3
7.0
1.5
387.1
F- 23
Equity:
Large cap growth funds
Large cap value funds
S&P Midcap index funds
Mutual funds
Total equity
Bond funds
Cash
Other
Total
Level 1
Level 2
Level 3
Total
September 30, 2011
$
$
— $
—
—
137.1
137.1
—
0.2
—
137.3
$
(in millions)
7.5
7.3
2.2
—
17.0
172.7
3.3
—
193.0
$
$
— $
—
—
—
—
—
—
1.5
1.5
$
7.5
7.3
2.2
137.1
154.1
172.7
3.5
1.5
331.8
There were no changes in the fair value of Level 3 assets of the Pension Plans for 2012.
We currently estimate contributing less than $1 million to our Pension Plans during 2013.
The estimated benefit payments, which reflect expected future service, as appropriate, are presented below.
2013
2014
2015
2016
2017
2018-2022
$
Pension
benefits
Other
Plans
$
(in millions)
26.6
26.6
26.5
26.5
26.7
136.4
0.2
0.1
0.1
0.1
0.1
0.5
Our U.S. plan comprises 97% of the total Pension Plans' obligation at September 30, 2012.
Defined Contribution Retirement Plan-Certain U.S. employees participate in defined contribution 401(k) plans. We make
matching contributions as a function of employee contributions. Matching contributions were $4.4 million, $4.4 million and
$3.5 million during 2012, 2011 and 2010, respectively. Matching contributions were suspended from April 2009 through
December 2009.
Note 11.
Capital Stock
Common stock share activity is presented below.
Shares outstanding at September 30, 2009
Stock options
Employee stock purchase plan
Restricted stock units, net
Shares outstanding at September 30, 2010
Stock options
Employee stock purchase plan
Restricted stock units, net
Shares outstanding at September 30, 2011
Stock options
Employee stock purchase plan
Restricted stock units, net
Shares outstanding at September 30, 2012
F- 24
153,790,887
26,346
431,964
459,277
154,708,474
7,327
397,010
680,801
155,793,612
8,552
339,242
699,242
156,840,648
Note 12.
Stock-based Compensation Plans
The Mueller Water Products, Inc. 2006 Stock Incentive Plan (the “2006 Plan”) authorizes an aggregate of 20.5 million
shares of common stock that may be granted through the issuance of stock-based awards. Any awards canceled are available
for reissuance. Generally, all of our employees and members of our board of directors are eligible to participate in the 2006
Plan. At September 30, 2012, 8,890,767 shares of common stock were available for future grants of awards under the 2006
Plan.
An award granted under the 2006 Plan becomes exercisable at such times and in such installments as set by the
Compensation and Human Resources Committee of the board of directors, but no award will be exercisable after the tenth
anniversary of the date on which it is granted. Stock option exercise prices equal the closing stock price on the grant date.
Outstanding stock options generally vest on each anniversary date of the original grant on a pro rata basis based on the total
number of years until all awards are vested, usually three years. Outstanding restricted stock units generally vest either on each
anniversary date of the original grant on a pro rata basis based on the total number of years until all awards are vested, usually
three years, or cliff vest after either three years or seven years from the grant date. Awards that cliff vest after seven years
generally provide for an acceleration of vesting if certain stock price performance targets are met.
Stock awards granted since November 2007 also vest upon the participant accumulating the required number of points,
which are a function of age and years of service. The exercise prices for stock options outstanding at September 30, 2012 range
from $2.03 to $20.56 per share. Stock option activity under the 2006 Plan is summarized below.
Outstanding at September 30, 2009
Granted
Exercised
Canceled
Outstanding at September 30, 2010
Granted
Exercised
Canceled
Outstanding at September 30, 2011
Granted
Exercised
Canceled
Outstanding at September 30, 2012
Exercisable at September 30, 2012
Options
3,403,996
1,630,424
(26,346)
(283,528)
4,724,546
1,516,316
(7,327)
(608,402)
5,625,133
677,117
(8,552)
(771,088)
5,522,610
3,708,511
Expected to vest after September 30, 2012
1,757,813
Weighted
average
exercise
price
per option
9.36
4.91
4.45
8.84
7.89
3.57
3.33
7.78
6.74
2.18
3.59
5.97
6.30
7.73
3.34
$
$
$
$
Weighted
average
remaining
contractual
term (years)
8.3
$
Aggregate
intrinsic
value
(millions)
0.2
0.1
—
—
—
—
3.5
0.6
1.6
7.9
7.5
6.8
6.0
8.3
$
$
$
F- 25
Restricted stock unit activity under the 2006 Plan is summarized below.
Outstanding at September 30, 2009
Granted
Vested
Canceled
Outstanding at September 30, 2010
Granted
Vested
Canceled
Outstanding at September 30, 2011
Granted
Vested
Canceled
Outstanding at September 30, 2012
Restricted
stock units
1,714,491
$
986,583
(513,505)
(91,856)
2,095,713
990,139
(762,893)
(257,193)
2,065,766
1,406,318
(867,451)
(180,871)
2,423,762
Weighted
average
grant date
fair value
per unit
Weighted
average
remaining
contractual
term (years)
Aggregate
intrinsic
value
(millions)
9.73
4.91
9.20
8.00
7.66
3.63
7.02
6.48
6.11
2.19
5.44
5.33
4.13
4.15
2.3
$
1.9
1.6
1.0
1.0
$
$
9.4
2.5
6.3
2.7
5.1
2.2
11.9
11.4
$
$
Expected to vest after September 30, 2012
2,327,374
Compensation expense attributed to stock awards is based on the fair value of the awards on the date granted.
Compensation expense is recognized between the grant date and the vesting date on a straight-line basis for each tranche of
each award. Fair values of stock option awards are determined using a Black-Scholes model. Fair values of restricted stock
units are determined using the closing stock price. The weighted average grant-date fair values of stock options granted and the
weighted average assumptions used to determine these fair values are indicated below.
Grant-date fair value
Risk-free interest rate
Dividend yield
Expected life (years)
Expected annual volatility
2012
2011
2010
$
1.31
$
1.25
$
1.74%
1.97%
8.00
2.26%
1.57%
7.19
1.66
2.47%
1.48%
6.00
0.7342
0.3658
0.3692
The risk-free interest rate is based on the U.S. Treasury zero-coupon yield in effect at the grant date with a term equal to the
expected life. The expected dividend yield is based on our estimated annual dividend and stock price history at the grant date.
The expected term represents the period of time the awards are expected to be outstanding. In 2011 and 2010, we determined
the volatility assumption for calculating the fair value of our stock option grants based upon a group of peer companies. The
average volatility for these peer companies had been used as we believed our volatility since our initial public offering in 2006
was not representative of expected volatility over the expected term of the option grants due to the historically unusual volatility
in our end markets since the date of our initial public offering. In 2012, we concluded that our own historical volatility
provided a better estimate of our expected volatility over the expected life of options granted in 2012 and beyond.
The number of instruments expected to vest is less than the number outstanding because management expects some
instruments will be forfeited prior to vesting. Grants to members of our board of the directors are expected to vest fully. Based
on historical forfeitures, we expect grants to others to be forfeited at an annual rate of 4%.
The Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan (the “ESPP”) authorizes the sale of up to 4 million
shares of our common stock to employees. Employees may designate up to the lesser of $25,000 or 20% of their annual
compensation for the purchase of our common stock. An employee's purchase during any three-month offering period is
limited to 1,000 shares of our common stock. Any excess payroll withholdings are returned to the employee. The price for
shares purchased under the ESPP is the lower of 85% of closing price on the first day or the last day of the offering period.
Generally, all full-time, active employees are eligible to participate in the ESPP.
F- 26
Under the ESPP, employees purchased 339,242 shares, 397,010 shares and 335,100 shares of our common stock during
2012, 2011 and 2010, respectively. At September 30, 2012, 2,177,336 shares were available for issuance under the ESPP.
In 2012, the Company adopted the Mueller Water Products, Inc. Phantom Plan (the “Phantom Plan”). The Phantom Plan
awards were awarded to certain non-officer employees. Outstanding phantom awards vest on each anniversary date of the
original grant on a pro rata basis for three years until all awards are vested. Phantom awards are recorded as liability awards
and the liability recorded for phantom awards was $0.8 million at September 30, 2012. The activity for 2012 is summarized
below.
Outstanding at September 30, 2011
Granted
Vested
Canceled
Outstanding at September 30, 2012
Phantom
award units
—
358,866
—
—
358,866
Expected to vest after September 30, 2012
342,409
Weighted
average
grant date
fair value
per unit
—
2.03
—
2.03
2.03
$
$
Weighted
average
remaining
contractual
term (years)
—
Aggregate
intrinsic
value
(millions)
—
—
1.8
1.7
1.2
1.1
$
$
At September 30, 2012, there was approximately $3.5 million of unrecognized compensation expense related to stock
awards not yet vested. We expect to recognize this expense over a weighted average life of approximately 1.26 years.
The effect of stock-based compensation on our statements of operations and other comprehensive income is presented
below.
2012
2011
(in millions, except per share data)
2010
Decrease in operating income
Increase in net loss
Increase in basic loss per share
Increase in diluted loss per share
$
$
6.0
3.5
0.02
0.02
$
5.0
3.3
0.02
0.02
7.2
5.0
0.03
0.03
We recorded net losses and net losses from both continuing and discontinued operations for 2012, 2011 and 2010. The
effect of including normally dilutive securities in the loss per share calculations would have been antidilutive. Therefore, all
stock-based compensation instruments were excluded from diluted loss per share calculations for 2012, 2011 and 2010.
F- 27
Note 13.
Supplemental Balance Sheet Information
Selected supplemental balance sheet information is presented below.
Inventories:
Purchased components and raw material
Work in process
Finished goods
Other current assets:
Maintenance and repair tooling
Current portion of Wynnchurch receivable
Prepaid income taxes
Other
Property, plant and equipment:
Land
Buildings
Machinery and equipment
Construction in progress
Accumulated depreciation
Other current liabilities:
Compensation and benefits
Customer rebates
Interest
Taxes other than income taxes
Warranty
Income taxes
Restructuring
Environmental
Other
September 30,
2012
2011
(in millions)
69.7
27.5
86.0
183.2
22.9
4.3
3.9
6.9
38.0
12.3
71.3
292.4
15.3
391.3
(246.6)
144.7
40.1
13.7
12.2
5.5
1.6
1.1
0.6
0.3
7.7
82.8
$
$
$
$
$
$
$
$
56.2
34.9
84.8
175.9
24.2
—
12.6
7.0
43.8
13.5
70.2
273.1
10.4
367.2
(221.5)
145.7
33.5
13.2
13.0
5.4
2.0
—
1.4
0.3
9.1
77.9
$
$
$
$
$
$
$
$
F- 28
Note 14.
Supplemental Statement of Operations and Other Comprehensive Income Information
Selected supplemental statement of operations and other comprehensive income information is presented below.
Included in selling, general and administrative expenses:
Research and development
Advertising
Interest expense, net:
7.375% Senior Subordinated Notes
8.75% Senior Unsecured Notes
2007 Credit Agreement, including swap contracts
ABL Agreement borrowings
Deferred financing fees amortization
Other interest expense
Interest income
Note 15.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is presented below.
Net unrecognized loss on derivatives
Foreign currency translation
Minimum pension liability
2012
2011
(in millions)
2010
$
$
$
$
12.7
4.9
31.0
19.3
5.0
1.1
2.3
1.5
60.2
(0.3)
59.9
$
$
$
$
9.9
4.3
31.0
20.0
8.0
1.9
2.3
2.7
65.9
(0.3)
65.6
$
$
$
$
7.8
4.1
31.0
2.0
28.8
0.2
2.9
3.4
68.3
(0.3)
68.0
September 30,
2012
2011
(in millions)
— $
9.2
(96.9)
(87.7) $
(3.0)
6.3
(57.5)
(54.2)
$
$
Note 16.
Supplemental Cash Flow Information
The impact these transactions had on our consolidated balance sheets is presented below.
Pension and other postretirement plans:
Decrease in other noncurrent assets
Decrease (increase) in other current liabilities
Decrease (increase) in other liabilities
Decrease (increase) in accumulated other comprehensive loss
Cash paid (received), net:
Interest
Income taxes
Note 17.
Segment Information
2012
2011
(in millions)
2010
$
$
$
$
(0.1) $
0.3
(36.8)
36.6
— $
53.3
$
(6.9) $
(0.5) $
(0.3)
(8.8)
9.6
— $
54.8
4.6
$
$
—
—
5.3
(5.3)
—
77.5
(29.2)
Our operations consist of two business segments: Mueller Co. and Anvil. These segments are organized based on products
sold and customers served and are consistent with how the segments are managed, how resources are allocated and how
information is used by the chief operating decision maker. Mueller Co. manufactures valves for water and gas systems
including butterfly, iron gate, tapping, check, plug and ball valves, dry-barrel and wet-barrel fire hydrants and a broad range of
F- 29
metering, leak detection, pipe condition assessment and other products and services for the water infrastructure industry. Anvil
manufactures and sources a broad range of products including a variety of fittings, couplings, hangers and related products.
Intersegment sales and transfers are made at selling prices generally intended to cover costs. The determination of segment
results does not reflect allocations of certain corporate expenses not directly attributable to segment operations and
intersegment sales and expenses, which are designated as Corporate. Interest, loss on early extinguishment of debt and income
taxes are not allocated to business segments. Corporate expenses include those costs incurred by our corporate function, such
as accounting, treasury, risk management, human resources, legal, tax and other administrative functions. Therefore, segment
results are not reflective of their results on a stand-alone basis. Corporate assets principally consist of cash, income tax assets,
receivables related to the sale of our former U.S. Pipe segment and deferred financing fees. Segment assets consist primarily of
receivables, inventories, property, plant and equipment and identifiable intangible assets.
Geographical area information is presented below.
Net sales:
2012
2011
2010
Property, plant and equipment, net:
September 30, 2012
September 30, 2011
United States
Canada
Other
Total
(in millions)
$
$
872.3
$
112.4
$
834.0
805.7
136.0
$
136.6
113.5
141.6
$
5.6
5.8
$
$
39.2
17.1
12.4
3.1
3.3
1,023.9
964.6
959.7
144.7
145.7
Approximately 36% of our 2012 gross sales were to our 10 largest distributors, and approximately 22% of our 2012 gross
sales were to our two largest distributors, Ferguson Enterprises, Inc. (“Ferguson Enterprises”) and HD Supply, Inc. (“HD
Supply”). Sales to Ferguson Enterprises comprised approximately 12%, 12% and 13% of our total gross sales during 2012,
2011 and 2010, respectively. In 2012, Ferguson Enterprises accounted for approximately 14% and 8% of gross sales for
Mueller Co and Anvil, respectively. Receivables from Ferguson Enterprises totaled $22.4 million and $15.4 million at
September 30, 2012 and 2011, respectively. Sales to HD Supply comprised approximately 10%, 10% and 10% of our total
gross sales during 2012, 2011, and 2010. In 2012, HD Supply accounted for approximately 15% and 4% of gross sales for
Mueller Co. and Anvil, respectively. Receivables from HD Supply totaled $16.4 million and $15.3 million at September 30,
2012 and 2011, respectively.
F- 30
Summarized financial information for our segments is presented below.
Mueller Co.
Anvil
Corporate
Total
(in millions)
Net sales, excluding intercompany:
2012
2011
2010
Intercompany sales:
2012
2011
2010
Operating income (loss):
2012
2011
2010
Depreciation and amortization:
2012
2011
2010
Restructuring and impairment:
2012
2011
2010
Capital expenditures:
2012
2011
2010
Total assets:
September 30, 2012
September 30, 2011
Identifiable intangible assets, net:
September 30, 2012
September 30, 2011
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
652.4
605.5
612.8
7.3
8.7
15.4
57.7
53.8
81.0
45.7
47.7
49.7
2.5
1.4
0.1
20.0
14.8
15.6
843.0
843.5
508.7
534.5
$
$
$
$
$
$
$
$
371.5
359.1
346.9
0.1
0.1
0.4
37.3
31.8
22.1
14.3
14.5
15.4
0.3
1.2
0.5
11.4
7.5
6.0
258.7
258.2
65.0
67.9
— $
—
—
— $
—
—
(30.9) $
(32.9)
(33.4)
$
0.6
0.9
0.5
— $
1.0
—
— $
0.8
0.2
1,023.9
964.6
959.7
7.4
8.8
15.8
64.1
52.7
69.7
60.6
63.1
65.6
2.8
3.6
0.6
31.4
23.1
21.8
$
139.2
383.3
1,240.9
1,485.0
— $
—
573.7
602.4
Note 18.
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 future results of operations cannot be predicted with
certainty as any such effect depends on future results of operations and the amount and timing of the resolution of such matters.
Other than the litigation described below, we do not believe that any of our outstanding litigation would have a material adverse
effect on our 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
F- 31
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.
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 our financial condition or results of operations.
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 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 June 30, 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.
The separation of the Company 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
F- 32
or its shareholders if such taxes result from certain of our actions or omissions and for a percentage of any such taxes that are
not a result of our actions or omissions or Walter 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 a predecessor to the
Company in its calendar 2006 tax return for which payment to us is required. The income tax allocation agreement only
requires Walter Energy to make the payment upon realization of the tax benefit by receiving a refund or otherwise offsetting
taxes due. Walter Energy currently owes us $10.9 million that is payable pending completion of an IRS audit of Walter
Energy's 2006 tax year and the related refund of tax from that year. We recorded this receivable in other noncurrent assets.
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 (see Note 5), 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 results of operations cannot be predicted with certainty as any such effect
depends on future results of operations and the amount and timing of the resolution of such matters. While the results of
litigation cannot be predicted with certainty, we believe that the final outcome of such other litigation is not likely to have a
materially adverse effect on our business or prospects.
Operating Leases. We maintain operating leases primarily for equipment and facilities. Rent expense was $8.4 million,
$8.5 million and $9.1 million for 2012, 2011 and 2010, respectively. Future minimum payments under non-cancelable
operating leases are $6.6 million, $5.3 million, $4.5 million, $3.9 million and $2.5 million during 2013, 2014, 2015, 2016 and
2017, respectively. Minimum payments due beyond 2017 are $2.2 million.
Note 19.
Subsequent Events
On October 26, 2012, our board of directors declared a dividend of $0.0175 per share on our common stock, payable on or
about November 21, 2012 to stockholders of record at the close of business on November 10, 2012.
F- 33
Note 20.
Quarterly Consolidated Financial Information (Unaudited)
Quarter
Fourth
Third
Second
First
(in millions, except per share amounts)
2012:
Net sales
Gross profit
Operating income
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Net income (loss) per basic share(1):
Continuing operations
Discontinued operations
Net income (loss)
Net income (loss) per diluted share(1):
Continuing operations
Discontinued operations
Net income (loss)
2011:
Net sales
Gross profit
Operating income
Income (loss) from continuing operations
Loss from discontinued operations
Net loss(2)
Net loss per basic share(1):
Continuing operations
Discontinued operations
Net income (loss)
Net income (loss) per diluted share(1):
Continuing operations
Discontinued operations
Net income (loss)
$
$
$
$
$
$
$
$
281.1
76.6
21.9
4.3
(0.8)
3.5
0.03
(0.01)
0.02
0.03
(0.01)
0.02
256.3
64.9
12.2
(5.8)
(3.8)
(9.6)
(0.04) $
(0.02)
(0.06) $
(0.04) $
(0.02)
(0.06) $
$
275.9
79.6
25.7
5.9
3.9
9.8
0.04
0.02
0.06
0.04
0.02
0.06
$
259.6
73.1
24.7
6.9
(9.6)
(2.7)
$
0.04
(0.06)
(0.02) $
$
0.04
(0.06)
(0.02) $
$
251.5
62.1
10.6
(8.9)
(100.9)
(109.8)
(0.06)
(0.64)
(0.70)
(0.06)
(0.64)
(0.70)
235.5
58.1
9.8
(5.4)
(8.3)
(13.7)
$
(0.04) $
(0.05)
(0.09) $
(0.04) $
(0.05)
(0.09) $
215.4
52.8
5.9
(6.5)
(5.4)
(11.9)
(0.04)
(0.04)
(0.08)
(0.04)
(0.04)
(0.08)
213.2
52.0
6.0
(5.7)
(6.4)
(12.1)
(0.04)
(0.04)
(0.08)
(0.04)
(0.04)
(0.08)
(1) The sum of the quarterly amounts may not equal the full year amount due to rounding.
(2) The 2011 fourth quarter includes $1.4 million of certain health and welfare expenses applicable to prior quarters.
F- 34
Note 21.
Consolidating Guarantor and Non-Guarantor Financial Information
The following information is included as a result of the guarantee by certain of our wholly-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 and the Senior Subordinated Notes. Each of the guarantees is joint and several and full
and unconditional. Guarantor Companies are listed below.
Name
Anvil International, LLC
AnvilStar, LLC
Echologics, LLC
Henry Pratt Company, LLC
Henry Pratt International, LLC
Hunt Industries, LLC
Hydro Gate, LLC
J.B. Smith Mfg. Co., LLC
James Jones Company, LLC
Milliken Valve, LLC
Mueller Co. LLC
Mueller Financial Services, LLC
Mueller Group, LLC
Mueller Group Co-Issuer, Inc.
Mueller International, L.L.C.
Mueller Property Holdings, LLC
Mueller Co. International Holdings, LLC
Mueller Service California, Inc.
Mueller Service Co., LLC
Mueller Systems, LLC
OSP, LLC
U.S. Pipe Valve & Hydrant, LLC
State of
incorporation
or organization
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
F- 35
Mueller Water Products, Inc. and Subsidiaries
Consolidating Balance Sheet
September 30, 2012
Issuer
Guarantor
companies
Non-
guarantor
companies
(in millions)
Eliminations
Total
33.4
19.2
13.9
1.1
1.2
68.8
8.7
1.5
1.4
—
80.4
$
$
— $
7.5
3.9
11.4
—
0.8
2.0
28.3
42.5
37.9
80.4
$
— $
—
—
—
—
—
—
—
—
(65.1)
(65.1) $
— $
—
—
—
—
—
—
—
—
(65.1)
(65.1) $
83.0
166.1
183.2
19.6
38.0
489.9
144.7
573.7
32.6
—
1,240.9
1.1
84.5
82.8
168.4
621.7
132.8
86.8
—
1,009.7
231.2
1,240.9
$
$
$
Assets:
Cash and cash equivalents
Receivables, net
Inventories
Deferred income taxes
Other current assets
Total current assets
Property, plant and equipment
Identifiable intangible assets
Other noncurrent assets
Investment in subsidiaries
Total assets
Liabilities and equity:
Current portion of long-term debt
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Deferred income taxes
Other noncurrent liabilities
Intercompany accounts
Total liabilities
Equity
Total liabilities and equity
$
53.3
—
—
18.5
10.5
82.3
1.8
—
30.5
27.2
141.8
$
— $
8.3
29.9
38.2
619.9
132.0
77.2
(956.7)
(89.4)
231.2
141.8
$
$
(3.7) $
146.9
169.3
—
26.3
338.8
134.2
572.2
0.7
37.9
1,083.8
1.1
68.7
49.0
118.8
1.8
—
7.6
928.4
1,056.6
27.2
1,083.8
$
$
$
F- 36
Mueller Water Products, Inc. and Subsidiaries
Consolidating Balance Sheet
September 30, 2011
Issuer
Guarantor
companies
Non-
guarantor
companies
(in millions)
Eliminations
Total
28.6
15.6
12.5
0.6
1.1
—
58.4
9.1
1.5
1.9
—
—
70.9
$
$
— $
3.7
2.9
—
6.6
—
0.4
0.7
39.4
47.1
23.8
70.9
$
— $
—
—
—
—
—
—
—
—
—
—
0.1
0.1
$
— $
—
—
—
—
—
—
—
—
—
0.1
0.1
$
61.0
147.4
175.9
28.7
43.8
142.0
598.8
145.7
602.4
30.4
107.7
—
1,485.0
0.9
59.1
77.9
56.9
194.8
677.4
154.2
79.6
—
1,106.0
379.0
1,485.0
$
$
$
Assets:
Cash and cash equivalents
Receivables, net
Inventories
Deferred income taxes
Other current assets
Current assets held for sale
Total current assets
Property, plant and equipment
Identifiable intangible assets
Other noncurrent assets
Noncurrent assets held for sale
Investment in subsidiaries
Total assets
Liabilities and equity:
Current portion of long-term debt
Accounts payable
Other current liabilities
Current liabilities held for sale
Total current liabilities
Long-term debt
Deferred income taxes
Other noncurrent liabilities
Intercompany accounts
Total liabilities
Equity
Total liabilities and equity
$
36.2
—
—
28.1
15.4
142.0
221.7
3.9
—
27.6
107.7
(23.9)
337.0
$
— $
6.1
30.1
56.9
93.1
676.0
153.8
71.0
(1,035.9)
(42.0)
379.0
337.0
$
$
(3.8) $
131.8
163.4
—
27.3
—
318.7
132.7
600.9
0.9
—
23.8
1,077.0
0.9
49.3
44.9
—
95.1
1.4
—
7.9
996.5
1,100.9
(23.9)
1,077.0
$
$
$
F- 37
Total
1,023.9
752.8
271.1
204.2
2.8
207.0
64.1
59.9
1.5
2.7
7.9
—
(5.2)
(103.2)
(108.4)
—
3.0
2.9
(39.4)
(33.5)
(141.9)
Mueller Water Products, Inc. and Subsidiaries
Consolidating Statement of Operations and Other Comprehensive Income
Year Ended September 30, 2012
Issuer
Guarantor
companies
$
— $
—
—
Non-
guarantor
companies Eliminations
(in millions)
116.9
$
100.7
16.2
$
— $
—
—
13.4
0.1
13.5
2.7
(0.3)
—
3.0
0.6
—
2.4
—
2.4
—
—
—
—
—
—
—
—
(61.0)
(61.0)
—
(61.0)
907.0
652.1
254.9
160.2
2.7
162.9
92.0
0.2
—
91.8
35.6
2.4
58.6
—
58.6
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Restructuring
Total operating expenses
Operating income (loss)
Interest expense, net
Loss on early extinguishment of debt
Income (loss) before income taxes
Income tax expense (benefit)
Equity in income of subsidiaries
Income (loss) from continuing operations
Income (loss) from discontinued operations,
net of tax
Net income (loss)
Other comprehensive income (loss):
Equity in other comprehensive income of
subsidiaries
Interest rate swap contracts, net of tax
Foreign currency translation
Minimum pension liability, net of tax
Comprehensive income (loss)
$
30.6
—
30.6
(30.6)
60.0
1.5
(92.1)
(28.3)
58.6
(5.2)
(103.2)
(108.4)
2.9
3.0
—
(39.4)
(33.5)
(141.9) $
2.9
—
—
—
2.9
61.5
$
—
—
2.9
—
2.9
5.3
$
(5.8)
—
—
—
(5.8)
(66.8) $
F- 38
Mueller Water Products, Inc. and Subsidiaries
Consolidating Statement of Operations and Other Comprehensive Income
Year Ended September 30, 2011
Issuer
Guarantor
companies
Non-
guarantor
companies Eliminations
(in millions)
Total
$
— $
844.9
$
119.7
$
— $
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Restructuring
Total operating expenses
Operating income (loss)
Interest expense, net
Income (loss) before income taxes
Income tax expense (benefit)
Equity in income of subsidiaries
Income (loss) from continuing operations
Income (loss) from discontinued operations,
net of tax
Net income (loss)
Other comprehensive income (loss):
Equity in other comprehensive loss of
subsidiaries
Interest rate swap contracts, net of tax
Foreign currency translation
Minimum pension liability, net of tax
(0.1)
0.1
31.1
1.0
32.1
(32.0)
65.6
(97.6)
(34.4)
53.2
(10.0)
(28.1)
(38.1)
(1.1)
4.9
—
12.2
16.0
613.8
231.1
147.0
2.2
149.2
81.9
—
81.9
30.6
1.9
53.2
—
53.2
(1.1)
—
—
—
(1.1)
52.1
$
102.8
16.9
13.7
0.4
14.1
2.8
—
2.8
0.9
—
1.9
—
1.9
—
—
(1.1)
—
(1.1)
0.8
—
—
—
—
—
—
—
—
—
(55.1)
(55.1)
—
(55.1)
2.2
—
—
—
2.2
(52.9) $
$
964.6
716.5
248.1
191.8
3.6
195.4
52.7
65.6
(12.9)
(2.9)
—
(10.0)
(28.1)
(38.1)
—
4.9
(1.1)
12.2
16.0
(22.1)
Comprehensive income (loss)
$
(22.1) $
F- 39
Mueller Water Products, Inc. and Subsidiaries
Consolidating Statement of Operations and Other Comprehensive Income
Year Ended September 30, 2010
Issuer
Guarantor
companies
Non-
guarantor
companies Eliminations
(in millions)
Total
$
— $
807.8
$
151.9
$
— $
132.8
19.1
9.9
—
9.9
9.2
—
—
9.2
2.9
—
6.3
—
6.3
—
—
—
3.4
—
3.4
9.7
—
—
—
—
—
—
—
—
—
(69.0)
(69.0)
—
(69.0)
(6.8)
—
—
—
—
(6.8)
(75.8) $
$
959.7
700.6
259.1
188.8
0.6
189.4
69.7
68.0
4.6
(2.9)
2.5
—
(5.4)
(39.8)
(45.2)
—
(0.4)
3.9
3.4
8.8
15.7
(29.5)
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Restructuring
Total operating expenses
Operating income
Interest expense (income), net
Loss on early extinguishment of debt, net
Income (loss) before income taxes
Income tax expense (benefit)
Equity in income (loss) of subsidiaries
Income (loss) from continuing operations
Income (loss) from discontinued operations,
net of tax
Net income (loss)
Other comprehensive income (loss):
Equity in other comprehensive income of
subsidiaries
Natural gas hedges, net of tax
Interest rate swap contracts, net of tax
Foreign currency translation
Minimum pension liability, net of tax
(0.3)
0.3
33.1
—
33.1
(32.8)
68.0
4.6
(105.4)
(37.3)
62.7
(5.4)
(39.8)
(45.2)
3.4
(0.4)
3.9
—
8.8
15.7
568.1
239.7
145.8
0.6
146.4
93.3
—
—
93.3
36.9
6.3
62.7
—
62.7
3.4
—
—
—
—
3.4
Comprehensive income (loss)
$
(29.5) $
66.1
$
F- 40
Operating activities:
Net cash provided by operating activities
from continuing operations
Investing activities:
Capital expenditures
Acquisitions
Proceeds from sales of assets
Net cash used in investing activities from
continuing operations
Financing activities:
Debt borrowings
Debt payments
Common stock issued
Dividends paid
Other
Net cash used in financing activities
from continuing operations
Net cash flows from discontinued
operations:
Operating activities
Investing activities
Net cash used in discontinued operations
Effect of currency exchange rate changes on
cash
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of
year
Cash and cash equivalents at end of year $
Mueller Water Products, Inc. and Subsidiaries
Consolidating Statement of Cash Flows
Year Ended September 30, 2012
Issuer
Guarantor
companies
Non-
guarantor
companies Eliminations
(in millions)
Total
$
40.9
$
32.2
$
3.7
$
— $
76.8
—
—
—
—
—
(57.2)
0.2
(11.0)
—
(68.0)
(43.3)
87.5
44.2
—
17.1
36.2
53.3
(30.5)
(1.8)
0.3
(32.0)
0.6
—
—
—
(0.7)
(0.1)
—
—
—
—
0.1
(0.9)
0.5
—
(0.4)
—
—
—
—
—
—
—
—
—
1.5
4.8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3.8)
(3.7) $
28.6
33.4
$
$
—
— $
(31.4)
(1.3)
0.3
(32.4)
0.6
(57.2)
0.2
(11.0)
(0.7)
(68.1)
(43.3)
87.5
44.2
1.5
22.0
61.0
83.0
F- 41
Mueller Water Products, Inc. and Subsidiaries
Consolidating Statement of Cash Flows
Year Ended September 30, 2011
Issuer
Guarantor
companies
Non-
guarantor
companies Eliminations
(in millions)
Total
31.6
$
17.9
$
2.6
$
— $
52.1
Operating activities:
Net cash provided by (used in) operating
activities from continuing operations
$
Investing activities:
Capital expenditures
Acquisitions
Proceeds from sales of assets
Net cash used in investing activities from
continuing operations
Financing activities:
Debt borrowings
Debt paid or repurchased
Common stock issued
Dividends paid
Payment of deferred financing fees
Other
Net cash provided by (used in) financing
activities from continuing operations
Net cash flows from discontinued
operations:
Operating activities
Investing activities
Net cash used in discontinued operations
Effect of currency exchange rate changes on
cash
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of
year
Cash and cash equivalents at end of year
(0.8)
—
—
(0.8)
—
(15.0)
1.0
(10.9)
(0.4)
—
(25.3)
(12.2)
(8.4)
(20.6)
—
(15.1)
(21.8)
(1.3)
1.1
(22.0)
0.7
—
—
—
1.7
2.4
—
—
—
(0.5)
(7.9)
—
(8.4)
—
—
—
—
—
—
—
—
—
—
(1.7)
(2.1)
(3.8) $
(0.4)
(6.2)
34.8
28.6
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
(23.1)
(9.2)
1.1
(31.2)
0.7
(15.0)
1.0
(10.9)
(0.4)
1.7
(22.9)
(12.2)
(8.4)
(20.6)
(0.4)
(23.0)
84.0
61.0
51.3
36.2
$
$
F- 42
Operating activities:
Net cash provided by (used in) operating
activities from continuing operations
Investing activities:
Capital expenditures
Acquisitions
Proceeds from sales of assets
Net cash used in investing activities from
continuing operations
Financing activities:
Debt borrowings
Debt paid or repurchased
Common stock issued
Dividends paid
Payment of deferred financing fees
Other
Net cash provided by (used in) financing
activities from continuing operations
Net cash flows from discontinued
operations:
Operating activities
Investing activities
Net cash used in discontinued operations
Effect of currency exchange rate changes on
cash
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of
year
Cash and cash equivalents at end of year
$
Mueller Water Products, Inc. and Subsidiaries
Consolidating Statement of Cash Flows
Year Ended September 30, 2010
Issuer
Guarantor
companies
Non-
guarantor
companies Eliminations
(in millions)
Total
$
121.2
$
(37.2) $
13.9
$
— $
97.9
(0.2)
—
—
(0.2)
270.5
(318.5)
1.0
(10.8)
(9.8)
—
(67.6)
.
(34.7)
(9.6)
(44.3)
—
9.1
42.2
51.3
$
(21.0)
—
55.0
34.0
—
—
—
—
—
1.7
1.7
—
—
—
—
(1.5)
(0.6)
(2.1) $
(0.6)
—
—
(0.6)
—
—
—
—
—
—
—
—
—
—
1.5
14.8
20.0
34.8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
— $
(21.8)
—
55.0
33.2
270.5
(318.5)
1.0
(10.8)
(9.8)
1.7
(65.9)
(34.7)
(9.6)
(44.3)
1.5
22.4
61.6
84.0
F- 43
Note 22.
Corrections to Previously Reported Information (Unaudited)
During the quarter ended September 30, 2012, we discovered errors in the classification of cash flows as between those
from continuing operations and those from discontinued operations. These errors had no impact on any consolidated balance
sheet, consolidated statement of operations and other comprehensive income, consolidated statement of changes in
stockholders' equity, debt compliance covenant or employee compensation metric for any period. These errors also had no
impact on any consolidated statement of cash flows information for any period other than the six months ended March 31, 2011
and the nine months ended June 30, 2011, as presented in our Quarterly Reports filed on Form 10-Q (“10-Q”) for the quarterly
periods ended March 31, 2012 and June 30, 2012, respectively.
These errors related to the classification of deferred income tax and retirement plan adjustments in determining net cash
used in operating activities due to designating our U.S. Pipe segment as discontinued operations in our condensed consolidated
financial statements during the quarter ended March 31, 2012. Corrected unaudited condensed consolidated statements of cash
flows for these periods are presented below.
Six months ended
March 31, 2011
Previously
reported
Corrected
Nine months ended
June 30, 2011
Previously
reported
Corrected
(in millions)
Operating activities:
Net loss
Less: loss from discontinued operations
Loss from continuing operations
Adjustments to reconcile loss from continuing operations to net
cash provided by (used in) operating activities:
Depreciation
Amortization
Stock-based compensation expense
Deferred income taxes
Retirement plans
Interest rate swap contracts
Other, net
Changes in assets and liabilities, net of acquisitions:
Receivables
Inventories
Other current assets and other noncurrent assets
Accounts payable and other liabilities
Net cash provided by (used in) operating activities
Investing activities:
Capital expenditures
Acquisitions
Proceeds from sales of assets
Net cash used in investing activities
Financing activities:
Debt borrowings
Common stock issued
Payment of deferred financing fees
Dividends paid
Other
Net cash used in financing activities
Net cash flows from discontinued operations:
Operating activities
Investing activities
Net cash used in discontinued operations
Effect of currency exchange rate changes on cash
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
(25.8) $
14.7
(11.1)
(25.8) $
14.7
(11.1)
(28.5) $
24.3
(4.2)
17.0
14.5
3.6
(7.2)
2.5
3.9
0.2
(4.6)
1.6
0.7
(34.5)
(13.4)
(10.0)
(7.9)
0.9
(17.0)
0.1
0.3
(0.3)
(5.4)
0.2
(5.1)
(1.8)
(4.2)
(6.0)
1.3
(40.2)
84.0
43.8
$
17.0
14.5
3.6
(1.4)
4.7
3.9
0.2
(4.6)
1.6
0.7
(34.5)
(5.4)
(10.0)
(7.9)
0.9
(17.0)
0.1
0.3
(0.3)
(5.4)
0.2
(5.1)
(9.8)
(4.2)
(14.0)
1.3
(40.2)
84.0
43.8
$
25.3
21.9
4.9
(14.5)
6.2
6.0
1.5
(18.0)
7.2
(2.0)
(34.5)
(0.2)
(15.9)
(7.9)
1.1
(22.7)
0.5
—
(0.4)
(8.1)
0.6
(7.4)
(3.0)
(6.1)
(9.1)
1.1
(38.3)
84.0
45.7
$
$
F- 44
(28.5)
24.3
(4.2)
25.3
21.9
4.9
(4.5)
6.2
6.0
1.5
(18.0)
7.2
(2.0)
(34.5)
9.8
(15.9)
(7.9)
1.1
(22.7)
0.5
—
(0.4)
(8.1)
0.6
(7.4)
(13.0)
(6.1)
(19.1)
1.1
(38.3)
84.0
45.7
These errors also affect the presentation of the Consolidating Guarantor and Non-Guarantor Financial Information
presented in Note 14 to the 10-Qs for the quarterly periods ended March 31, 2012 and June 30, 2012. With respect to the 10-Q
for the quarterly period ended March 31, 2012, Issuer Net cash used in operating activities from continuing operations was
previously reported as $6.8 million, the corrected number is Net cash provided by operating activities from continuing
operations of $1.2 million. With respect to the 10-Q for the quarterly period ended June 30, 2012, Issuer Net cash used in
operating activities from continuing operations was previously reported as $9.5 million, the corrected number is Net cash
provided by operating activities from continuing operations of $0.5 million. Net cash flows from discontinued operations:
Operating activities are all reported in the Issuer column and changed as reported in the table above.
F- 45
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is shown below.
2012
2011
Year ended September 30,
2010
(in millions)
2009
Exhibit 12.1
2008
Income (loss) before income taxes
Fixed charges:
Total interest including amortization of debt
discount and issue costs and amounts
capitalized
Estimated interest within rent expense
Total fixed charges
Earnings (a)
Ratio of earnings to fixed
$
$
$
$
2.7
$
(12.9) $
(2.9) $
(940.7) $
91.2
$
$
$
60.2
2.8
63.0
65.7
1.0
$
$
$
65.9
2.8
68.7
55.8
—
$
$
$
68.3
3.0
71.3
68.4
—
$
79.9
4.1
76.4
4.1
84.0
$
80.5
(856.7) $
171.7
—
2.1
(a) For these ratios, “earnings” represents income (loss) before income taxes plus fixed charges.
(b) Due to a loss during 2011, 2010 and 2009, the ratio of earnings to fixed charges for these years was less than 1.0. The
deficiency of earnings to total fixed charges was $12.9 million, $2.9 million and $940.7 million for 2011, 2010 and
2009, respectively.
Subsidiaries of Mueller Water Products, Inc.
Exhibit 21.1
Entity
Anvil International Holdings, LLC
Anvil International, LC
AnvilStar, LLC
Echologics, LLC
Henry Pratt Company, LLC
Henry Pratt International, LLC
Hunt Industries, LLC
Hydro Gate, LLC
J.B. Smith Mfg Co., LLC
James Jones Company, LLC
Jingmen Pratt Valve Co. Ltd.
Millikin Valve, LLC
Mueller Canada Holdings Corp.
Mueller Canada Ltd.
Mueller Co. LC
Mueller Financial Services, LLC
Mueller Group Co-Issuer, Inc.
Mueller Group, LLC
Mueller Co. International Holdings, LLC
Mueller International, LLC
Mueller Property Holdings, LLC
Mueller Service California, Inc.
Mueller Service Co., LLC
Mueller Systems, LLC
OSP, LLC
PCA-Echologices Pty Ltd.
U.S. Pipe Valve & Hydrant, LLC
State of
incorporation or
organization
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
China
Delaware
Canada
Canada
Doing business as
Anvil International (N.H.)
Anvil Int'l Ltd Partnership of Delaware
Anvil International LP of Delaware
NA
NA
NA
NA
NA
NA
NA
James Jones Company of Delaware, LLC
NA
NA
NA
Anvil Canada; Echologics Engineering
Delaware
Mueller Co. Ltd., L.P.
Mueller Co. Ltd. (LP)
Mueller Flow, LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Australia
Delaward
NA
NA
NA
Mueller International Finance (N.H.)
NA
NA
NA
NA
NA
NA
NA
NA
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
We consent to the incorporation by reference in (1) the Registration Statement (Form S-8 No. 333-179441) pertaining to the
2006 Stock Incentive Plan and 2006 Employee Stock Purchase Plan of Mueller Water Products, Inc. and (2) the Registration
Statement (Form S-3 No. 333-182160) of our reports dated November 29, 2012, with respect to the consolidated financial
statements of Mueller Water Products, Inc. and the effectiveness of internal control over financial reporting of Mueller Water
Products, Inc. included in this Annual Report (Form 10-K) for the year ended September 30, 2012.
/s/ Ernst & Young LLP
Atlanta, Georgia
November 29, 2012
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gregory E. Hyland, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Mueller Water Products, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s
board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Dated: November 29, 2012
/s/ Gregory E. Hyland
Gregory E. Hyland
Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Evan L. Hart, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Mueller Water Products, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s
board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Dated: November 29, 2012
/s/ Evan L. Hart
Evan L. Hart,
Senior Vice President
and Chief Financial Officer
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the accompanying annual report on Form 10-K of Mueller Water Products, Inc. (the “Company”) for
the fiscal year ended September 30, 2012 (the “Report”), I, Gregory E. Hyland, Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
Exhibit 32.1
operations of the Company.
Dated: November 29, 2012
/s/ Gregory E. Hyland
Gregory E. Hyland
Chief Executive Officer
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the accompanying annual report on Form 10-K of Mueller Water Products, Inc. (the “Company”) for
the fiscal year ended September 30, 2012 (the “Report”), I, Evan L. Hart, Senior Vice President and Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
Exhibit 32.2
operations of the Company.
Dated: November 29, 2012
/s/ Evan L. Hart
Evan L. Hart,
Senior Vice President
and Chief Financial Officer
Board of Directors
Gregory E. Hyland
Chairman, President and
Chief Executive Officer
Mueller Water Products, Inc.
Howard L. Clark, Jr.
Former Vice Chairman
Investment Banking Division
Barclays Capital
Shirley C. Franklin
Chief Executive Officer
Purpose Built Communities, Inc.
and Former Mayor of Atlanta
Thomas J. Hansen
Former Vice Chairman
Illinois Tool Works Inc.
Executive Officers
Gregory E. Hyland
Chairman, President and
Chief Executive Officer
Thomas E. Fish
President, Anvil International
Gregory S. Rogowski
President, Mueller Co.
Stockholder Information
Annual Meeting
The annual meeting of stockholders of
Mueller Water Products, Inc. will be held
January 30, 2013 at 10:00 A.M.
InterContinental® Hotel
3315 Peachtree Road, NE
Atlanta, Georgia 30326
Corporate Office
Mueller Water Products, Inc.
1200 Abernathy Road, N.E.
Suite 1200
Atlanta, GA 30328
(770) 206-4200
www.muellerwaterproducts.com
Investor Contact
Investor Relations
Mueller Water Products, Inc.
1200 Abernathy Road, N.E.
Suite 1200
Atlanta, GA 30328
(770) 206-4237
Fax: (770) 206-4260
Jerry W. Kolb
Retired Vice Chairman
Deloitte & Touche LLP
Joseph B. Leonard
Retired Chairman
AirTran Holdings, Inc.
Mark J. O’Brien
Chairman and Chief Executive Officer
Walter Investment Management Corp.
Bernard G. Rethore
Chairman Emeritus
Flowserve Corporation
Neil A. Springer
Managing Director
Springer & Associates LLC
Lydia W. Thomas
Retired President and
Chief Executive Officer
Noblis, Inc.
Michael T. Tokarz
Chairman, Walter Energy, Inc.
and Chairman, MVC Capital, Inc.
Keith L. Belknap
Senior Vice President,
General Counsel, Corporate Secretary
and Chief Compliance Officer
Robert P. Keefe
Senior Vice President and
Chief Technology Officer
Marietta Edmunds Zakas
Senior Vice President
Strategy, Corporate Development
and Communications
Kevin G. McHugh
Vice President and Controller
Common Stock
Trading Symbol: MWA
New York Stock Exchange
Transfer Agent and Registrar
Computershare Shareowner Services LLC
250 Royall Street
Canton, MA 02021
Toll Free Number: 866-205-6698
www.computershare.com/investor
TDD for Hearing Impaired: 800-231-5469
Foreign Shareowners: 201-680-6578
TDD Foreign Shareowners: 201-680-6610
Robert D. Dunn
Senior Vice President
Human Resources
Evan L. Hart
Senior Vice President and
Chief Financial Officer
Media Contact
Corporate Communications
Mueller Water Products, Inc.
1200 Abernathy Road, N.E.
Suite 1200
Atlanta, GA 30328
(770) 206-4240
Fax: (770) 206-4235
Form 10-K
A copy of the Company’s Annual Report
on Form 10-K for the fiscal year ended
September 30, 2012, including financial
statements, is available on the
Company’s Web site at
www.muellerwaterproducts.com
or by written request to:
Investor Relations
Mueller Water Products, Inc.
1200 Abernathy Road, N.E.
Suite 1200
Atlanta, GA 30328
A DIVISION OF MUELLER CO.
North Alabama Pipe
Innovators of Pipe Fabrication Equipment
1200 Abernathy Road, N.E., Suite 1200
Atlanta, GA 30328
www.muellerwaterproducts.com
© 2012 Mueller Water Products, Inc.
Trademarks referred to herein are owned by Mueller International, Inc. or other affiliates of Mueller Water Products, Inc.
The 2012 Mueller Water Products, Inc. annual report saved the
following resources by printing on processed-chlorine-free paper
containing up to 30% post-consumer waste.
trees
4
grown
waste water
net energy
solid waste
greenhouse gases
1,777
gallons
1
million BTUs
108
pounds
369
pounds