Mueller Water Products, Inc. 10-Q

Item 1. FINANCIAL STATEMENTS MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) December 31, September 30, 2020 2020 (in millions, except share amounts) Assets: Cash and cash equivalents $ 220.8 $ 208.9 Restricted cash 2.2 — Receivables, net 157.4 180.8 Inventories 167.2 162.5 Other current assets 30.3 29.0 Total current assets 577.9 581.2 Property, plant and equipment, net 261.4 253.8 Goodwill 101.1 99.8 Intangible assets 403.8 408.9 Other noncurrent assets 53.3 51.3 Total assets $ 1,397.5 $ 1,395.0 Liabilities and equity: Current portion of long-term debt $ 1.1 $ 1.1 Accounts payable 58.2 67.3 Other current liabilities 77.0 86.6 Total current liabilities 136.3 155.0 Long-term debt 446.6 446.5 Deferred income taxes 99.2 96.5 Other noncurrent liabilities 60.2 56.3 Total liabilities 742.3 754.3 Commitments and contingencies (Note 11.) Common stock: 600,000,000 shares authorized; 158,315,601 and 158,064,750 shares outstanding at December 31, 2020 and September 30, 2020, respectively 1.6 1.6 Additional paid-in capital 1,370.9 1,378.0 Accumulated deficit ( 697.6 ) ( 714.2 ) Accumulated other comprehensive loss ( 19.7 ) ( 24.7 ) Total stockholders’ equity 655.2 640.7 Total liabilities and equity $ 1,397.5 $ 1,395.0 The accompanying notes are an integral part of the condensed consolidated financial statements. 1 MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three months ended December 31, 2020 2019 (in millions, except per share amounts) Net sales $ 237.4 $ 212.6 Cost of sales 159.0 140.0 Gross profit 78.4 72.6 Operating expenses: Selling, general and administrative 49.2 49.9 Strategic reorganization and other charges 1.4 2.4 Total operating expenses 50.6 52.3 Operating income 27.8 20.3 Other expenses (income): Pension benefit other than service ( 0.8 ) ( 0.7 ) Interest expense, net 6.1 7.4 Walter Energy Accrual — 0.2 Net other expenses 5.3 6.9 Income before income taxes 22.5 13.4 Income tax expense 5.8 3.1 Net income $ 16.7 $ 10.3 Net income per share: Basic $ 0.11 $ 0.07 Diluted $ 0.11 $ 0.06 Weighted average shares outstanding: Basic 158.1 157.7 Diluted 158.8 158.7 Dividends declared per share $ 0.0550 $ 0.0525 The accompanying notes are an integral part of the condensed consolidated financial statements. 2 MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Three months ended December 31, 2020 2019 (in millions) Net income $ 16.7 $ 10.3 Other comprehensive income (loss): Pension 0.7 0.7 Income tax effects ( 0.2 ) ( 0.2 ) Foreign currency translation 4.5 3.5 5.0 4.0 Comprehensive income $ 21.7 $ 14.3 The accompanying notes are an integral part of the condensed consolidated financial statements. 3 MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) Three months ended December 31, 2020 2019 (in millions) Common stock Balance, beginning of period $ 1.6 $ 1.6 Change in common stock at par value — — Balance, end of period 1.6 1.6 Additional paid-in capital Balance, beginning of period 1,378.0 1,410.7 Dividends declared ( 8.7 ) ( 8.3 ) Buyout of noncontrolling interest — ( 3.2 ) Shares retained for employee taxes ( 0.9 ) ( 0.7 ) Stock-based compensation 1.9 1.3 Stock issued under stock compensation plan 0.6 1.4 Balance, end of period 1,370.9 1,401.3 Accumulated deficit Balance, beginning of period ( 714.2 ) ( 786.2 ) Net income 16.7 10.3 Cumulative effect of accounting change ( 0.1 ) — Balance, end of period ( 697.6 ) ( 775.9 ) Accumulated other comprehensive income (loss) Balance, beginning of period ( 24.7 ) ( 36.0 ) Other comprehensive income (loss) 5.0 4.0 Balance, end of period ( 19.7 ) ( 32.0 ) Noncontrolling interest Balance, beginning of period — 2.2 Acquisition of joint venture partner’s interest — ( 2.2 ) Balance, end of period — — Total stockholders' equity $ 655.2 $ 595.0 The accompanying notes are an integral part of the condensed consolidated financial statements. 4 MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three months ended December 31, 2020 2019 (in millions) Operating activities: Net income $ 16.7 $ 10.3 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 7.7 7.0 Amortization 7.0 7.0 Stock-based compensation 1.9 1.3 Retirement plans ( 0.5 ) 0.7 Deferred income taxes 1.6 1.0 Other, net 1.4 ( 0.4 ) Changes in assets and liabilities: Receivables 24.0 41.0 Inventories ( 4.8 ) ( 21.0 ) Other assets ( 1.3 ) 3.6 Accounts payable ( 9.4 ) ( 26.0 ) Walter Energy accrual — ( 22.0 ) Other current liabilities ( 9.9 ) ( 12.8 ) Other noncurrent liabilities ( 0.3 ) ( 2.1 ) Net cash provided by (used in) operating activities 34.1 ( 12.4 ) Investing activities: Capital expenditures ( 15.6 ) ( 15.2 ) Proceeds from sales of assets 0.1 0.1 Net cash used in investing activities ( 15.5 ) ( 15.1 ) Financing activities: Dividends ( 8.7 ) ( 8.3 ) Acquisition of joint venture partner’s interest — ( 5.2 ) Employee taxes related to stock-based compensation ( 0.9 ) ( 0.7 ) Common stock issued 0.6 1.4 Proceeds from financing transaction 3.9 — Deferred financing costs paid ( 0.5 ) — Other ( 0.2 ) — Net cash used in financing activities ( 5.8 ) ( 12.8 ) Effect of currency exchange rate changes on cash 1.3 0.4 Net change in cash, cash equivalents and restricted cash 14.1 ( 39.9 ) Cash, cash equivalents and restricted cash at beginning of period 208.9 176.7 Cash, cash equivalents and restricted cash at end of period $ 223.0 $ 136.8 The accompanying notes are an integral part of the condensed consolidated financial statements. 5 MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2020 (UNAUDITED) Note. 1 Organization and Basis of Presentation Mueller Water Products, Inc., a Delaware corporation, together with its consolidated subsidiaries, operates in two business segments: Infrastructure and Technologies. Infrastructure manufactures valves for water and gas systems, including butterfly, iron gate, tapping, check, knife, plug and ball valves, as well as dry-barrel and wet-barrel fire hydrants and a broad line of pipe connection and repair products, such as clamps and couplings used to repair leaks. Technologies offers metering systems, leak detection, pipe condition assessment and other related smart-enabled products and services. The “Company,” “we,” “us” or “our” refer to Mueller Water Products, Inc. and its subsidiaries. With regard to the Company’s segments, “we,” “us” or “our” may also refer to the segment being discussed. In July 2014, Infrastructure acquired a 49 % ownership interest in an industrial valve joint venture for $ 1.7 million. As a result of substantive control features in the operating agreement, all of the joint venture’s assets, liabilities and results of operations were included in our consolidated financial statements. Infrastructure acquired the remaining 51 % ownership interest in the business in October 2019. We include the financial statements of Krausz Development Ltd. and subsidiaries (“Krausz”) in our consolidated financial statements on a one-month lag. 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 in recording 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. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2020. In our opinion, all normal and recurring adjustments that we consider necessary for a fair financial statement presentation have been made. The condensed consolidated balance sheet at September 30, 2020 was derived from audited financial statements, but it does not include all disclosures required by GAAP. In preparing these financial statements in conformity with GAAP, we have considered and, where appropriate, reflected the effects of the COVID-19 pandemic on our operations. The pandemic continues to provide significant challenges to the U.S. and global economies. Unless the context indicates otherwise, whenever we refer to a particular year, we mean our fiscal year ended or ending September 30 in that particular calendar year. During 2016, the Financial Accounting Standards Board (“FASB”) issued standard ASC 326 - Current Expected Credit Losses to replace the “incurred loss” impairment approach with an “expected loss” approach, which requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We have completed historical and forward-looking analyses for receivables and adopted this guidance effective October 1, 2020. Upon adoption, there was no material impact to our financial statements. In November 2019, we announced the purchase of a new facility in Kimball Tennessee to support and enhance our investment in our Chattanooga large casting foundry. As a result, we announced subsequent closures of our facilities in Hammond, Indiana and Woodland, Washington. Expenses incurred for these closures are primarily related to personnel and inventory and are included in Strategic reorganization and other charges. Activity in accrued restructuring, reported as part of other current liabilities, is presented below. Three months ended December 31, 2020 2019 (in millions) Beginning balance $ 2.8 $ 1.7 Expenses related to personnel and other 0.2 0.4 Amounts paid ( 1.1 ) ( 0.5 ) Ending balance $ 1.9 $ 1.6 6 New Markets Tax Credit Program- On December 22, 2020, we entered a financing transaction with Wells Fargo Community Investment Holdings, LLC (“Wells Fargo”) related to our brass foundry construction project in Decatur, Illinois under a qualified New Markets Tax Credit program (“NMTC”). The NMTC is a federal program intended to encourage capital investment in qualified lower income communities. Under the NMTC, investors claim federal income tax credits over a period of seven years in connection with qualified investments in the equity of community development entities (“CDE”s), which are privately managed investment institutions that are certified to make qualified low-income community investments, such as in our foundry project. Under the NMTC, Wells Fargo contributed capital of $ 4.8 million to an investment fund and we loaned $ 12.2 million to the fund. Wells Fargo is entitled to the associated tax credits, which are subject to 100% recapture if we do not comply with various regulations and contractual provisions surrounding the foundry project. We have indemnified Wells Fargo for any loss or recapture of tax credits related to the transaction until the seven-year period elapses. We do not anticipate any credit recaptures will be required in connection with this arrangement. The investment fund contributed $ 16.5 million cash for a 99.99% stake in a joint venture (“Sub-CDE”) with a CDE. T he Sub-CDE then loaned $ 16.2 million to us, with the use of the loan proceeds restricted to foundry project expenditures. At December 31, 2020, $ 2.2 million of these restricted proceeds remained, and the restriction on this cash lapsed in January 2021. This transaction also includes a put/call provision under which we may be obligated or entitled to repurchase Wells Fargo’s interest in the investment fund. We believe that Wells Fargo will exercise its put option in December 2027 for nominal consideration, resulting in our becoming the sole owner of the investment fund, cancelling the related loans, and recognizing an estimated gain of $ 3.9 million. We have determined that the investment fund and the Sub-CDE are variable interest entities (“VIEs”) and that we are the primary beneficiary of the VIEs. The ongoing activities of the VIEs, namely collecting and remitting interest and fees and administering NMTC compliance, were contemplated in the initial design of the transaction and are not expected to significantly affect economic performance throughout the life of the VIEs. Additionally, we are obligated to deliver tax benefits and provide various other guarantees to Wells Fargo and to absorb the losses of the VIEs. Wells Fargo does not have a material interest in the underling economics of the project. Consequently we have included the financial statements of the VIEs in our consolidated financial statements. Intercompany transactions between us and the VIEs have been eliminated in consolidation. Wells Fargo’s contribution to the investment fund is consolidated in our financial statements as an Other noncurrent liability due to its redemption features. Direct costs associated with Wells Fargo’s capital contribution have been netted against the recorded proceeds, resulting in a net cash contribution of $ 3.9 million. Other direct costs incurred associated with executing the transaction were capitalized and will be recognized as interest expense over the seven-year tax credit period. Incremental costs to maintain the structure during the compliance period will be expensed as incurred. Note 2. Revenue from Contracts with Customers We recognize revenue when control of promised products or services is transferred to our customers, in amounts that reflect the consideration to which we expect to be entitled in exchange for those products or services. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, the payment terms are identified, the contract has commercial substance and collectability of consideration is probable. We determine the appropriate revenue recognition for our contracts with customers by analyzing the type, terms and conditions of each contract or arrangement with a customer. Disaggregation of Revenue We disaggregate our revenues from contracts with customers by reportable segment (see Note 9.) and further by geographical region as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Geographical region represents the location of the customer. Contract Asset and Liability Balances The timing of revenue recognition, billings and cash collections results in customer receivables, customer advance payments and billings in excess of revenue recognized. Customer receivables include amounts billed and currently due from customers as well as unbilled amounts (contract assets). Amounts are billed in accordance with contractual terms and unbilled amounts arise when the timing of billing differs from the timing of revenue recognized. 7 Customer advance payments and billings in excess of revenue are recognized and recorded as deferred revenue, the majority of which is classified as current based on the timing when we expect to recognize revenue. We reverse these contract liabilities and recognize revenue when we satisfy the related performance obligations. We include current deferred revenue in Other current liabilities. The table below represents the balances of our customer receivables and deferred revenues. December 31, September 30, 2020 2020 (in millions) Billed receivables $ 156.3 $ 180.2 Unbilled receivables 5.3 4.6 Total customer receivables $ 161.6 $ 184.8 Deferred revenues $ 5.1 $ 5.6 Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. Performance obligations are supported by customer contracts, which provide frameworks for the nature of the distinct products or services. We allocate the transaction price of each contract to the performance obligations on the basis of standalone selling price and recognize revenue when, or as, control of the performance obligation transfers to the customers. Most of our performance obligations are satisfied at a “point in time” for sales of equipment and for provision of one-time services, and we generally recognize such revenue when goods are shipped or when the services are provided. The remainder of our performance obligations are satisfied “over time” for our software hosting and leak detection monitoring services, and we generally recognize such revenue ratably as services are provided over the expected term of the contract. We offer warranties to our customers in the form of assurance-type warranties, which provide assurance that the products provided will function as intended and comply with any agreed-upon specifications. Such warranties generally cannot be purchased separately. We accrue our expected cost of warranty at the time of sale. Costs to Obtain or Fulfill a Contract We incur certain incremental costs to obtain a contract, which primarily relate to incremental sales commissions. Our commissions are paid based on either orders or shipments, and we reserve the right to claw back any commission in the event of product returns or lost collections. Since the expected benefit associated with these incremental costs is one year or less based on the nature of the products sold and services provided, we expense such costs as incurred. Note 3. Income Taxes The reconciliation between the U.S. federal statutory income tax rate and the effective tax rate is presented below. Three months ended December 31, 2020 2019 U.S. federal statutory income tax rate 21.0 % 21.0 % Adjustments to reconcile to the effective tax rate: State income taxes, net of federal benefit 4.5 4.5 Excess tax benefits related to stock-based compensation ( 0.6 ) ( 1.5 ) Tax credits ( 1.4 ) ( 1.1 ) Global Intangible Low-Taxed Income 0.6 0.1 Foreign income tax rate differential ( 0.9 ) ( 0.7 ) Valuation allowances 1.5 ( 0.7 ) Other 1.1 1.5 25.8 % 23.1 % Walter Energy accrual — ( 0.3 ) Effective income tax rate 25.8 % 22.8 % At December 31, 2020 and September 30, 2020, the gross liabilities for unrecognized income tax benefits were $ 4.6 million and $ 4.5 million, respectively, and are reflected in Other noncurrent liabilities. 8 Note 4. Borrowing Arrangements The components of our long-term debt are presented below. December 31, September 30, 2020 2020 (in millions) 5.5% Senior Notes $ 450.0 $ 450.0 Finance leases 2.4 2.5 452.4 452.5 Less deferred financing costs 4.7 4.9 Less current portion 1.1 1.1 Long-term debt $ 446.6 $ 446.5 5.5% Senior Unsecured Notes. On June 12, 2018, we privately issued $ 450.0 million of 5.5% Senior Unsecured Notes (“Notes”), which mature in 2026 and bear interest at 5.5 %, paid semi-annually. We capitalized $ 6.6 million of financing costs, which are being amortized over the term of the Notes using the effective interest method. Proceeds from the Notes, along with other cash, were used to repay our Term Loan. Substantially all of our U.S. subsidiaries guarantee the Notes, which are subordinate to borrowings under the ABL. Based on quoted market prices, the outstanding Notes had a fair value of $ 466.3 million at December 31, 2020. ABL Agreement . Our asset based lending agreement (“ABL Agreement”) consists of a revolving credit facility for up to $ 175.0 million of revolving credit borrowings, swing line loans and letters of credit. The ABL Agreement permits us to increase the size of the credit facility by an additional $ 150.0 million in certain circumstances subject to adequate borrowing base availability. We may borrow up to $ 25.0 million through swing line loans and we are permitted to issue up to $ 60.0 million of letters of credit. Borrowings under the ABL Agreement bear interest at a floating rate equal to LIBOR, plus an applicable margin ranging from 200 to 225 basis points, or a base rate, as defined in the ABL Agreement, plus an applicable margin ranging from 100 to 125 basis points. At December 31, 2020, the applicable rate was LIBOR plus 200 basis points. The ABL Agreement terminates on July 29, 2025 and provides for a commitment fee for any unused borrowing capacity of 37.5 basis points per annum. Our obligations under the ABL Agreement are secured by a first-priority perfected lien on all of our U.S. receivables and inventories, certain cash and other supporting obligations. Borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $ 17.5 million and 10 % of the Loan Cap as defined in the ABL Agreement. Excess availability based on December 31, 2020 data, as reduced by outstanding letters of credit and accrued fees and expenses of $ 15.0 million, was $ 113.4 million. Note 5. Derivative Financial Instruments In connection with the acquisition of Singer Valve in 2017, we loaned U.S. dollar-denominated funds to one of our Canadian subsidiaries. Although this intercompany loan has no direct effect on our consolidated financial statements, it creates exposure to currency risk for the Canadian subsidiary. To reduce this exposure, we entered into a U.S. dollar-Canadian dollar swap contract with the Canadian subsidiary and an offsetting Canadian dollar-U.S. dollar swap with a domestic bank. We have not designated these swaps as hedges and we include the changes in their fair values in earnings to offset the currency gains and losses associated with the intercompany loan. The values of our currency swap contracts were liabilities of $ 1.1 million and $ 0.2 million at December 31, 2020 and September 30, 2020, respectively, and are included in Other noncurrent liabilities. 9 Note 6. Retirement Plans The components of net periodic benefit cost for our pension plans are presented below. Three months ended December 31, 2020 2019 (in millions) Service cost $ 0.4 $ 0.4 Pension costs (benefits) other than service: Interest cost 2.5 2.8 Expected return on plan assets ( 3.9 ) ( 4.2 ) Amortization of actuarial net loss 0.6 0.7 Pension benefits other than service ( 0.8 ) ( 0.7 ) Net periodic benefit $ ( 0.4 ) $ ( 0.3 ) The amortization of actuarial losses, net of tax, is recorded as a component of other comprehensive loss. Note 7. Stock-based Compensation Plans We granted various forms of stock-based compensation, including market-based restricted stock units (“MRSUs”) , restricted stock units, stock options and performance-based restricted stock units (“PRSUs”) under our Amended and Restated 2006 Mueller Water Products, Inc. Stock Incentive Plan (the “2006 Stock Plan”), Phantom Plan instruments under our Mueller Water Products, Inc. 2012 Phantom Plan, and Employee stock purchase plan instruments under our 2006 Employee Stock Purchase Plan during the three months ended December 31, 2020 as follows. Number granted Weighted average grant date fair value per instrument Total grant date fair value (in millions) Quarter ended December 31, 2020 MRSUs 234,199 15.39 $ 3.6 Phantom Plan instruments 180,987 11.86 2.1 Restricted stock units 129,081 $ 11.86 1.5 Non-qualified stock options 423,405 3.05 1.3 PRSUs: 2020 award 60,019 11.86 0.7 2019 award 84,483 11.86 1.0 Employee stock purchase plan instruments 40,286 1.92 0.1 $ 10.3 An MRSU award represents a target number of units that may be paid out at the end of a three-year award cycle based on a calculation of our relative total shareholder return (“TSR”) performance as compared with a selected peer group's TSR. Settlements, in our common shares, will range from zero to two times the number of MRSUs granted, depending on our TSR performance relative to that of the peer group. Compensation expense attributed to MRSUs is based on the fair value of the awards on their respective grant dates, as determined using a Monte Carlo model. The assumptions used to determine the grant-date fair value are indicated below. December 2, 2020 Variables used in determining grant date fair value: Dividend yield 1.77 % Risk-free rate 0.21 % Expected term (in years) 2.83 The expected dividend yield is based on our estimated annual dividend and our stock price history at the grant date. 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 term. The expected term represents the average period of time the units are expected to be outstanding. 10 At December 31, 2020, the outstanding Phantom Plan instruments had a fair value of $ 12.38 per instrument and our liability for Phantom Plan instruments was $ 1.3 million and is included within current and noncurrent liabilities. Stock options generally vest on each anniversary date of the original grant ratably over three years. Compensation expense attributed to stock options is based on the fair value of the awards on their respective grant dates, as determined using a Black-Scholes model. The assumptions used to determine the grant-date fair value are indicated below. December 2, 2020 Dividend yield 2.01 % Risk-free rate 0.66 % Expected term (in years) 6.00 The expected dividend yield is based on our estimated annual dividend and our stock price history at the grant date. 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 term. The expected term represents the average period of time the options are expected to be outstanding. A PRSU award consists of a number of units that may be paid out at the end of a three year award cycle consisting of a series of annual performance periods coinciding with our fiscal years. After we establish the financial performance targets related to PRSUs for a given performance period, typically during the first quarter of that fiscal year, we consider that portion of a PRSU award to be granted. Thus, each award consists of a grant in the year of award and grants in the two following years. Settlements, in our common shares, will range from zero to two times the number of PRSUs granted, depending on our financial performance relative to the targets. We issued 103,058 shares of common stock during the three months ended December 31, 2020 to settle PRSUs during the period. Additionally, we issued 125,576 and 63,433 shares of common stock to settle restricted stock units vested and stock options exercised, respectively, during the three months ended December 31, 2020. Operating income included stock-based compensation expense of $ 2.5 million and $ 1.9 million during the three months ended December 31, 2020 and 2019, respectively. At December 31, 2020, there was approximately $ 14.1 million of unrecognized compensation expense related to stock-based compensation arrangements and there were 204,520 PRSUs that have been awarded for the 2021 and 2022 performance periods for which performance goal achievement cannot yet be determined. We excluded 258,522 and 108,976 stock-based compensation instruments from the calculations of diluted earnings per share for the three months ended December 31, 2020 and 2019, respectively, since their inclusion would have been antidilutive. 11 Note 8. Supplemental Balance Sheet Information Selected supplemental asset information is presented below. December 31, September 30, 2020 2020 (in millions) Cash, cash equivalents and restricted cash: Cash, cash equivalents $ 220.8 $ 208.9 Restricted cash 2.2 — $ 223.0 $ 208.9 Inventories: Purchased components and raw material $ 88.3 $ 87.3 Work in process 32.9 32.4 Finished goods 46.0 42.8 $ 167.2 $ 162.5 Other current assets: Prepaid expenses $ 11.7 $ 10.9 Non-trade receivables 9.3 8.5 Maintenance and repair supplies and tooling 3.5 3.7 Income taxes 2.7 5.5 Other 3.1 0.4 $ 30.3 $ 29.0 Property, plant and equipment: Land $ 6.2 $ 6.2 Buildings 81.1 80.4 Machinery and equipment 411.1 406.3 Construction in progress 67.5 57.4 565.9 550.3 Accumulated depreciation ( 304.5 ) ( 296.5 ) $ 261.4 $ 253.8 Other noncurrent assets: Operating lease right-of-use asset $ 25.2 $ 25.6 Maintenance and repair supplies and tooling 18.2 17.5 Workers compensation reimbursement receivable 2.0 2.1 Pension asset 2.0 0.9 Note receivable 1.8 1.8 Deferred financing fees 1.7 — Other 2.4 3.4 $ 53.3 $ 51.3 12 Selected supplemental liability information is presented below. December 31, September 30, 2020 2020 (in millions) Other current liabilities: Compensation and benefits $ 23.6 $ 35.5 Customer rebates 12.1 9.6 Warranty 6.5 7.2 Deferred revenues 5.1 5.6 Refund liability 5.1 4.3 Taxes other than income taxes 4.1 3.9 Operating lease liabilities 3.8 4.0 Accrued settlements 3.8 0.2 CARES Act payroll tax liabilities 3.1 — Restructuring 1.9 2.8 Environmental 1.2 1.2 Interest 1.1 7.3 Income taxes 0.2 0.2 Other 5.4 4.8 $ 77.0 $ 86.6 Other noncurrent liabilities: Operating lease liabilities $ 23.0 $ 23.3 Warranty 6.8 7.2 Transition tax 5.2 5.2 Unrecognized income tax benefits 4.6 4.5 NMTC liability 3.9 — Workers compensation 3.8 3.8 Asset retirement obligation 3.6 3.5 CARES Act payroll tax liabilities 3.1 3.3 Deferred development grant 2.5 2.5 Other 3.7 3.0 $ 60.2 $ 56.3 Goodwill Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis each September 1 st and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The following table summarizes information concerning our goodwill balance for the three months ended December 31, 2020, in millions. Balance at September 30, 2020 $ 99.8 Effects of changes in foreign currency exchange rates 1.3 Balance at December 31, 2020 $ 101.1 13 Note 9. Segment Information Summarized financial information for our segments is presented below. Net sales and operating income associated with certain products have been reclassified as Technologies segment items to confirm to the current period presentation. Three months ended December 31, 2020 2019 (in millions) Net sales, excluding intercompany: Infrastructure $ 215.9 $ 192.3 Technologies 21.5 20.3 $ 237.4 $ 212.6 Operating income (loss): Infrastructure $ 41.6 $ 35.5 Technologies ( 1.5 ) ( 1.8 ) Corporate ( 12.3 ) ( 13.4 ) $ 27.8 $ 20.3 Depreciation and amortization: Infrastructure $ 12.5 $ 12.0 Technologies 2.1 2.0 Corporate 0.1 — $ 14.7 $ 14.0 Strategic reorganization and other charges: Infrastructure $ 0.1 $ — Technologies — — Corporate 1.3 2.4 $ 1.4 $ 2.4 Capital expenditures: Infrastructure $ 14.7 $ 14.5 Technologies 0.8 0.6 Corporate 0.1 0.1 $ 15.6 $ 15.2 Infrastructure disaggregated net revenues: Central $ 56.9 $ 46.4 Northeast 45.8 41.7 Southeast 38.4 39.4 West 53.4 46.0 United States 194.5 173.5 Canada 12.1 11.6 Other international locations 9.3 7.2 $ 215.9 $ 192.3 Technologies disaggregated net revenues: Central $ 4.9 $ 4.8 Northeast 3.5 6.3 Southeast 7.3 6.0 West 5.0 2.0 United States 20.7 19.1 Canada 0.3 0.6 Other international locations 0.5 0.6 $ 21.5 $ 20.3 14 Note 10. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss is presented below. Pension, net of tax Foreign currency translation Total (in millions) Balance at September 30, 2020 $ ( 32.7 ) $ 8.0 $ ( 24.7 ) Current period other comprehensive income 0.5 4.5 $ 5.0 Balance at December 31, 2020 $ ( 32.2 ) $ 12.5 $ ( 19.7 ) Note 11. Commitments and Contingencies We are involved in various legal proceedings that have arisen in the normal course of operations, including the proceedings summarized below. We provide for costs relating to these matters when a loss is probable and the amount is reasonably estimable. Administrative costs related to these matters are expensed as incurred. The effect of the outcome of these matters on our financial statements cannot be predicted with certainty as any such effect depends on the amount and timing of the resolution of such matters. Other than the litigation described below, we do not believe that any of our outstanding litigation would have a 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 accrue for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and reasonably estimable. In the acquisition agreement pursuant to which a predecessor to Tyco International plc, now Johnson Controls International plc (“Tyco”), sold our businesses to a previous owner in August 1999, Tyco agreed to indemnify us and our affiliates, among other things, for all “Excluded Liabilities.” Excluded Liabilities include, among other things, substantially all liabilities relating to the time prior to August 1999, including environmental liabilities. The indemnity survives indefinitely. Tyco’s indemnity does not cover liabilities to the extent caused by us or the operation of our businesses after August 1999, nor does it cover liabilities arising with respect to businesses or sites acquired after August 1999. Since 2007, Tyco has engaged in multiple corporate restructurings, split-offs and divestitures. While none of these transactions directly affects the indemnification obligations of the Tyco indemnitors under the 1999 acquisition agreement, the result of such transactions is that the assets of, and control over, such Tyco indemnitors has changed. Should any of these Tyco indemnitors become financially unable or fail to comply with the terms of the indemnity, we may be responsible for such obligations or liabilities. On July 13, 2010, Rohcan Investments Limited, the former owner of property leased by Mueller Canada Ltd. and located in Milton, Ontario, filed suit against Mueller Canada Ltd. and its directors seeking C$ 10.0 million in damages arising from the defendants’ alleged environmental contamination of the property and breach of lease. Mueller Canada Ltd. leased the property from 1988 through 2008. We are pursuing indemnification from a former owner for certain potential liabilities that are alleged in this lawsuit, and we have accrued for other liabilities not covered by indemnification. On December 7, 2011, the Court denied the plaintiff’s motion for summary judgment. The purchaser of U.S. Pipe has been identified as a “potentially responsible party” (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act in connection with a former manufacturing facility operated by U.S. Pipe that was in the vicinity of a proposed Superfund site located in North Birmingham, Alabama. Under the terms of the acquisition agreement relating to our sale of U.S. Pipe, we agreed to indemnify the purchaser for certain environmental liabilities, including those arising out of the former manufacturing site in North Birmingham. Accordingly, the purchaser tendered the matter to us for indemnification, which we accepted. Ultimate liability for the site will depend on many factors that have not yet been determined, including the determination of EPA’s remediation costs, the number and financial viability of the other PRPs (there are four other PRPs currently) and the determination of the final allocation of the costs among the PRPs. Since the amounts of such costs cannot be reasonably estimated at this time, no amounts have been accrued for this matter at December 31, 2020. Walter Energy . On November 18, 2019, we paid approximately $ 22.2 million to the IRS in final settlement of a tax dispute related to our former parent company, Walter Energy, Inc. 15 The COVID-19 Pandemic. The pandemic has caused, and is likely to continue to cause, severe economic, market and other disruptions to the U.S. and global economies. We have taken and continue to counter such disruption and work to protect the safety of our production workers as essential workers at our various manufacturing plants, distribution centers and R&D centers. We are uncertain of the potential full magnitude or duration of the business and economic impacts from the unprecedented public health effort to contain and combat the spread of COVID-19, and while the extent to which the pandemic affects our results will depend on future developments, the outbreak could result in material effects to our future financial position, results of operations, cash flows and liquidity. Mass Shooting Event at our Henry Pratt Facility in Aurora, Illinois. On February 15, 2019, we experienced a mass shooting event at our Henry Pratt facility in Aurora, Illinois, in which five employees were killed and one employee and six law enforcement officers were injured. Various workers’ compensation claims arising from the event have been made to date, and we anticipate that additional claims may be made, and that liability under such claims, if any, is not expected to have a material adverse effect on our results of operations or cash flows. However, the possibility of other legal proceedings, and any related effects, arising from this event cannot be predicted with certainty. Indemnifications . We are a party to contracts in which it is common for us to agree to indemnify third parties for certain liabilities that arise out of or relate to the subject matter of the contract. In some cases, this indemnity extends to related liabilities arising from the negligence of the indemnified parties, but usually excludes any liabilities caused by gross negligence or willful misconduct. We cannot estimate the potential amount of future payments under these indemnities until events arise that would trigger a liability under the indemnities. Additionally, in connection with the sale of assets and the divestiture of businesses, such as the divestitures of U.S. Pipe and Anvil, we may agree to indemnify buyers and related parties for certain losses or liabilities incurred by these parties with respect to: (i) the representations and warranties made by us to these parties in connection with the sale and (ii) liabilities related to the pre-closing operations of the assets or business sold. Indemnities related to pre-closing operations generally include certain environmental and tax liabilities and other liabilities not assumed by these parties in the transaction. Indemnities related to the pre-closing operations of sold assets or businesses normally do not represent additional liabilities to us, but simply serve to protect these parties from potential liability associated with our obligations existing at the time of the sale. As with any liability, 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 monitor and analyze our warranty experience and costs periodically and may revise our accruals as necessary. Critical factors in our analyses include warranty terms, specific claim situations, general incurred and projected failure rates, the nature of product failures, product and labor costs, and general business conditions. We are party to a number of lawsuits arising in the ordinary course of business, including product liability cases for products manufactured by us or third parties. While the results of litigation cannot be predicted with certainty, we believe that the final outcome of such other litigation is not likely to have a materially adverse effect on our business or prospects. Note 12. Subsequent Events On January 27, 2021 , our Board of Directors declared a dividend of $ 0.0550 per share on our common stock, payable on February 22, 2021 to stockholders of record at the close of business on February 10, 2021 . 16