Mueller Water Products, Inc. 10-K

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 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, at September 30, 2022, our disclosure controls and procedures were effective. Changes in Internal Control over Financial Reporting There have been no changes in internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 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 at September 30, 2022. 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 (2013 framework). After doing so, management concluded that, at September 30, 2022, our internal control over financial reporting was effective. The effectiveness of our internal control over financial reporting at September 30, 2022 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. Item 9B. OTHER INFORMATION Not applicable. Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 39 Table of Contents Index to Financial Statements PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The name and position at November 18, 2022 and age of each of our executive officers and directors at September 30, 2022 are presented below. Name Age Position Scott Hall 57 President and Chief Executive Officer Steven S. Heinrichs 54 Executive Vice President, Chief Legal and Compliance Officer and Secretary Marietta Edmunds Zakas 63 Executive Vice President and Chief Financial Officer William A. Cofield 63 Senior Vice President, Operations & Supply Chain Scott P. Floyd 53 Senior Vice President, Water Flow Solutions Todd P. Helms 55 Senior Vice President and Chief Human Resources Officer Chad D. Mize 46 Senior Vice President, Sales and Marketing Kenji Takeuchi 50 Senior Vice President, Water Management Solutions Richelle R. Feyerherm 51 Vice President, Operations Controller Suzanne G. Smith 55 Vice President and Chief Accounting Officer Mark J. O’Brien 79 Non-Executive Chairman of the Board of Directors Shirley C. Franklin 77 Director Thomas J. Hansen 73 Director Christine Ortiz 52 Director Bernard G. Rethore 81 Director Jeffery S. Sharritts 54 Director Brian L. Slobodow 54 Director Lydia W. Thomas 77 Director Michael T. Tokarz 72 Director Stephen C. Van Arsdell 72 Director Scott Hall has served as our President and Chief Executive Officer since January 2017. He served as President and CEO of Textron’s Industrial segment from December 2009 until January 2017. Mr. Hall joined Textron in 2001 as president of Tempo, a multi-facility roll-up of communication test equipment. He was named president of Greenlee, a manufacturer of tools used in installing wire and cable, in 2003 when Tempo became part of Textron’s Greenlee business unit. Prior to joining Textron, Mr. Hall had several leadership roles at General Cable, a leading manufacturer of wire and cable. Mr. Hall ran General Cable’s Canadian businesses before taking over responsibility for General Cable’s global Communications business. Mr. Hall earned his Bachelor of Commerce degree from Memorial University of Newfoundland and a Master of Business Administration from the University of Western Ontario Ivey School of Business. Mr. Hall is a director of Altra Industrial Motion, Inc. Steven S. Heinrichs has served as our Executive Vice President, Chief Legal and Compliance Officer and Secretary since August 2018. He served as Senior Vice President, General Counsel and Secretary of Neenah, Inc. (f/k/a Neenah Paper, Inc.), which spun off from Kimberly-Clark Corporation in December 2004, from June 2004 to July 2018. Mr. Heinrichs joined Kimberly-Clark as Chief Counsel, Pulp and Paper and General Counsel for Neenah, Inc. Prior to his employment with Kimberly-Clark, Mr. Heinrichs served as Associate General Counsel and Assistant Secretary for Mariner Health Care, Inc., a nursing home and long-term acute care hospital company. Before joining Mariner Health Care in 2003, Mr. Heinrichs served as Associate General Counsel and Assistant Secretary for American Commercial Lines LLC, a leading inland barge and shipbuilding company from 1998 through 2003. Mr. Heinrichs engaged in the private practice of law with Skadden, Arps, Slate, Meagher and Flom LLP and Shuttleworth, Smith, McNabb and Williams PLLC from 1994 through 1998. Mr. Heinrichs earned a Master of Business Administration from the Kellogg School of Management at Northwestern University in 2008, his law degree from Tulane University in 1994, and his Bachelor of Arts degree from the University of Virginia. 40 Table of Contents Index to Financial Statements Marietta Edmunds Zakas has served as our Executive Vice President and Chief Financial Officer since January 2018. She served as Senior Vice President, Strategy, Corporate Development and Communications from November 2006 to December 2017. She was also the interim head of Human Resources from January 2016 to December 2017. Previously, Ms. Zakas held various positions at Russell Corporation, an athletic apparel, footwear and equipment company, culminating in her role as Corporate Vice President, Chief of Staff, Business Development and Treasurer. She earned a Bachelor of Arts degree with honors 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 BlueLinx Holdings Inc. and is a former director of Atlantic Capital Bank and Atlantic Capital Bancshares. William A. Cofield has served as our Senior Vice President, Operations & Supply Chain since January 2018. Previously, Mr. Cofield served as Vice President of Operations and Supply Chain for MGA Entertainment from May 2014 to December 2018 and Vice President of Operations for the Rubbermaid business within Newell Brands, Inc. (formerly Newell Rubbermaid, Inc.) from January 2009 to May 2014. Mr. Cofield earned his Bachelor of Science degree from the United States Military Academy. Upon graduation, he was commissioned as an officer in the United States Army where he served for 10 years. Mr. Cofield achieved the rank of Major before resigning his commission. Scott P. Floyd has served as our Senior Vice President, Water Flow Solutions since October 2021. He served as Senior Vice President, Infrastructure from June 2020 to September 2021; Vice President and General Manager - Specialty Valves from February 2019 to May 2020; Plant Manager of our Cleveland, Tennessee facility from October 2007 to February 2019; Plant Manager of our Brownsville, Texas facility from March 2016 to February 2019; and Operations Manager of our Cleveland, Tennessee facility from September 1998 to October 2007. Todd P. Helms has served as our Senior Vice President and Chief Human Resources Officer since February 2020. Previously, Mr. Helms held the position of Executive Vice President and Chief Human Resource Officer at Synovus Financial Corporation and as Senior Vice President, Human Resources at Genuine Parts Company. Mr. Helms earned a Bachelor of Science degree from King College, a Bachelor of Mechanical Engineering from Georgia Institute of Technology and a Master of Business Administration from Ohio University. Chad D. Mize has served as our Senior Vice President, Sales and Marketing since October 2019. He served as Vice President and General Manager of the Brass, Gas and Repair Value Stream from October 2017 to September 2019; Chief Financial Officer and Vice President of Mueller Co. LLC from March 2010 to September 2017; Corporate Controller from January 2007 to February 2010; and Manager of Financial Reporting and Analysis from October 2004 to December 2006. Previously, Mr. Mize worked in accounting and finance for Archer Daniels Midland from May 1998 to September 2004. Mr. Mize earned a Bachelor of Science degree in Accounting from Illinois State University and a Master of Business Administration from Millikin University. Kenji Takeuchi has served as our Senior Vice President, Water Management Solutions since October 2021. He served as Senior Vice President, Technology Solutions from October 2019 to September 2021. Previously, Mr. Takeuchi served as a Startup Catalyst at the Advanced Technology Development Center at Georgia Tech, Georgia’s technology incubator. Prior to that, he served as Chief Technology Officer and Vice President of Engineering of Honeywell International Inc. and held various executive-level positions at Flextronics, culminating in his role as Vice President, Products and Technology. Mr. Takeuchi earned a Bachelor of Mechanical Engineering from Georgia Institute of Technology and a Master of Engineering from the University of California at Berkeley and completed the Executive Education Program at Stanford University’s Graduate School of Business. Richelle R. Feyerherm has served as our Vice President, Operations Controller since November 2019. Previously, Ms. Feyerherm served as a Financial Officer of the Water Products division of Lonza Group, Ltd. from October 2011 to February 2019. Ms. Feyerherm earned her Bachelor of Science degree from the State University of New York and is a certified public accountant. Suzanne G. Smith has served as our Vice President and Chief Accounting Officer since January 2021. Previously, Ms. Smith served as Chief Accounting Officer for ModivCare Inc., from February 2019 through November 2020 and for Cumulus Media from May 2017 through February 2019. Ms Smith is a certified public accountant, and she earned a Bachelor of Science degree from The Ohio State University and a Master of Business Administration from Georgia State University. 41 Table of Contents Index to Financial Statements Mark J. O’Brien has been a member of our Board of Directors since April 2006 and has served as our Non-Executive Chairman since January 2018. He served as Chairman of Walter Investment Management Corp. (formerly Walter Industries’ Homes Business), a mortgage portfolio owner and mortgage originator and servicer, from 2009 through December 2015, and he served as its Chief Executive Officer from 2009 to October 2015. Mr. O’Brien served as President and Chief Executive Officer of Brier Patch Capital and Management, Inc., a real estate management and investment firm, from 2004 to 2009. He served in various executive capacities at Pulte Homes, Inc., a home building company, for 21 years, retiring as President and Chief Executive Officer in 2003. Mr. O’Brien earned a Bachelor of Arts degree in history from the University of Miami. Shirley C. Franklin has been a member of our Board of Directors since November 2010. Ms. Franklin serves as the President of Clarke-Franklin & Associates, Inc., a management consulting firm, and is a co-founder of Authenticity Partners. In addition, Ms. Franklin serves as Chair of the board of directors of the National Center for Civil and Human Rights and is a board member of the Paul Volcker Alliance, both non-profit organizations dedicated to public service missions. Ms. Franklin also serves as a board member on CDC Foundation and several other non-profit organizations including CF Foundation, Atlanta Regional Commission on Homelessness, National Alliance for Public Charter Schools, and Purpose Built Schools Atlanta. From 2002 to 2010, Ms. Franklin was mayor of Atlanta, Georgia. Ms. Franklin earned a Bachelor of Arts degree in sociology from Howard University and a Master of Arts degree in sociology from the University of Pennsylvania. Thomas J. Hansen has been a member of our Board of Directors since October 2011. Until 2012, Mr. Hansen served as the Executive Vice President and 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 served as Executive Vice President of ITW. Mr. Hansen earned a Bachelor of Science degree in marketing from Northern Illinois University and a Master of Business Administration degree from Governors State University. Christine Ortiz has been a member of our Board of Directors since November 2018. Dr. Ortiz is the Morris Cohen Professor of Materials Science and Engineering at the Massachusetts Institute of Technology. The author of more than 200 scholarly publications, she has supervised research projects across multiple academic disciplines, received 30 national and international honors, including the Presidential Early Career Award in Science and Engineering awarded to her by President George W. Bush, and served as the Dean for Graduate Education at Massachusetts Institute of Technology from 2010 to 2016. She is also the founder of an innovative, nonprofit, higher education educational institution, Station1. Dr. Ortiz has served as a director of Enovis Corporation since 2022. She earned a Bachelor of Science degree from Rensselaer Polytechnic Institute and a Master of Science degree and a Doctor of Philosophy degree from Cornell University, each in the field of materials science and engineering. Bernard G. Rethore has been a member of our Board of Directors since April 2006. Mr. Rethore has served as Chairman Emeritus of Flowserve Corporation, a manufacturer of pumps, valves, seals and components, since 2000. From January 2000 to April 2000, he served as Flowserve’s Chairman and previously served as its Chairman, President and Chief Executive Officer. In 2008, Mr. Rethore 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. Jeffery S. Sharritts has been a member of our Board of Directors since March 2021. Mr. Sharritts is the Executive Vice President and Chief Customer and Partner Officer at Cisco. During his 22-year tenure at Cisco, Mr. Sharritts has held several executive sales roles, most recently Senior Vice President of the Americas from 2018 to 2022 and Senior Vice President, U.S. Commercial Sales from 2014 to 2018. Mr. Sharritts holds Advisory Board Member positions with the Georgia Chamber of Commerce and Metro Atlanta Chamber of Commerce. Mr. Sharritts earned a Bachelor of Science degree in Business Administration from The Ohio State University. Brian L. Slobodow has been a member of our Board of Directors since October 2022. Mr. Slobodow is an Operating Partner of Operational Resource Group, LLC (“ORG”), whose clients include a leading middle-market private equity firm. From 2015 to 2020, he served as an Operating Executive at Golden Gate Capital, where, between 2007 and 2015, he also held senior leadership positions in multiple former portfolio companies. Prior to joining Golden Gate Capital, Mr. Slobodow held multiple leadership positions within Johnson & Johnson Consumer Products from 2003 to 2007 and was a Principal at A.T. Kearney from 2000 to 2003. Mr. Slobodow holds a Bachelor of Science degree in Industrial and Manufacturing Engineering and a Master of Business Administration degree from the Massachusetts Institute of Technology Sloan School of Management. Lydia W. Thomas has been a member of our Board of Directors since January 2008. Dr. Thomas served as President and Chief Executive Officer of Noblis, Inc., a public interest scientific research, technology and strategy company, from 1996 to 2007. She was previously with The MITRE Corporation, Center for Environment, Resources and Space, serving as Senior Vice 42 Table of Contents Index to Financial Statements President and General Manager from 1992 to 1996, Vice President from 1989 to 1992 and Technical Director from 1982 to 1989. In 2013, she was honored by the Outstanding Directors Exchange as an Outstanding Director of the Year. Dr. Thomas is also a member of the Council on Foreign Relations. 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. From 1985 until 2002, Mr. Tokarz served as 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 served as non-executive Chairman of the Board of Walter Energy, Inc. until July 2016, and until May 2017, he served as a director of CNO Financial Group, Inc. (formerly Conseco, Inc.), an insurance provider, and as a director of Walter Investment Management Corp. Mr. Tokarz has served as the Chairman of the Board of the Tokarz Group, LLC, an investment company, since 2002 and the Chairman of MVC Capital, Inc., a registered investment company, since 2003. He assumed the role of vice chair of Shield T3, LLC in 2020. 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 with high distinction and a Master of Business Administration degree in finance from the University of Illinois. Stephen C. Van Arsdell has been a member of our Board of Directors since July 2019. Mr. Van Arsdell is a former senior partner of Deloitte LLP, where he served as Chairman and Chief Executive Officer of Deloitte & Touche LLP from 2010-2012 and as Deputy Chief Executive Officer from 2009-2010. He also served as a member of Deloitte’s board of directors from 2003-2009, during which time he held the position of Vice Chairman. Mr. Van Arsdell has served as a member of the board of directors of Old National Bancorp since February 2022 and has been a member of the audit committee of Brown Brothers Harriman since 2015. Mr. Van Arsdell previously served as a director of First Midwest Bancorp, Inc. from 2017 to February 2022. Mr. Van Arsdell earned both a Bachelor of Science degree in Accounting and a Master of Accounting Science degree from the University of Illinois. He is a certified public accountant. Additional Information Additional information required by this item will be contained in our definitive proxy statement issued in connection with the 2023 Annual Meeting of Stockholders filed with the SEC within 120 days after September 30, 2022 and is incorporated herein by reference. Our website address is www.muellerwaterproducts.com . You may read and print our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and any amendments to those reports from the investor relations section of our website free of charge. 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 . 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 for which SEC disclosure is required, we will make such disclose 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 2023 Annual Meeting of Stockholders and is incorporated herein by reference. 43 Table of Contents Index to Financial Statements 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 2023 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: (1) The Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan (“ESPP”), as amended; and (2) The Mueller Water Products, Inc. 2006 Stock Incentive Plan (“2006 Plan”), as amended. The following table sets forth certain information relating to these equity compensation plans at September 30, 2022. 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: 2006 Plan 2,576,183 (1) $ 12.19 (2) 5,083,831 (3) ESPP 47,463 — 2,103,114 (4) Total 2,623,646 7,186,945 (1) Consists of the maximum number of shares that could be earned upon exercise or vesting of outstanding stock-based awards granted under the 2006 Plan. This includes 1,410,503 shares associated with share-settled performance units that may or may not be earned, depending on Company performance or stock market performance, as described in Note 12. of the Notes to the Consolidated Financial Statements. (2) Weighted-average exercise price of 1,013,293 options. (3) The number of securities initially available for issuance under the 2006 Plan was 20,500,000 shares. (4) The number of securities initially available for issuance under the ESPP Plan was 5,800,000 shares. 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 2023 Annual Meeting of Stockholders and 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 2023 Annual Meeting of Stockholders and is incorporated herein by reference. 44 Table of Contents Index to Financial Statements PART IV Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Financial Statements Index to financial statements Page number Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) F-1 Consolidated Balance Sheets at September 30, 2022 and 2021 F-4 Consolidated Statements of Operations for the years ended September 30, 2022, 2021 and 2020 F-5 Consolidated Statements of Comprehensive Income for the years ended September 30, 2022, 2021 and 2020 F-6 Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2022, 2021 and 2020 F-7 Consolidated Statements of Cash Flows for the years ended September 30, 2022, 2021 and 2020 F-8 Notes to Consolidated Financial Statements for the three years ended September 30, 2022 F-9 (b) Financial Statement Schedules The information required by Schedule II is included in the Notes to Consolidated Financial Statements. All other schedules required by Item 15(b) are not applicable or not required. (c) Exhibits Exhibit no. Document 2.1 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. 2.2 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. 2.3 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. 2.5 Purchase Agreement dated as of January 6, 2017, by and among OEP Pioneer LLC, OEP Pioneer (Canada) Holdings Corp., Mueller Co. LLC, Anvil International, LLC and Mueller Water Products, Inc. Incorporated by reference to Exhibit 2.1 to Mueller Water Products, Inc. Form 8-K (File No. 001-32892) filed January 10, 2017. 3.1 Amended and Restated Bylaws 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 December 4, 2017. 3.2 Second Restated Certificate of Incorporation 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. 4.2 Description of Securities registered under Section 12 of the Securities Exchange Act of 1934 . 10.2 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. 10.3.1* Mueller Water Products, Inc. Second Amended and Restated 2006 Stock Incentive Plan. Incorporated by reference to Exhibit D to Mueller Water Products, Inc. Form DEF 14A (File no. 001-32892) filed on January 15, 2016. 10.4.2* Mueller Water Products, Inc. Form of Notice of Stock Option Grant. Incorporated by reference to Exhibit 10.4.2 to Mueller Water Products, Inc. Form 10-K (File no. 001-32892) filed on November 26, 2014. 10.6.1* Mueller Water Products, Inc. Amended and Restated 2006 Employee Stock Purchase Plan. Incorporated by reference to Exhibit C to Mueller Water Products, Inc. Form DEF 14A (File no. 001-32892) filed on January 15, 2016. 10.7* 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. 10.8* 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. 45 Table of Contents Index to Financial Statements Exhibit no. Document 10.9* 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. 10.10* 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. 10.11.2* 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. 10.14 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. 10.16* 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. 10.17.1* Mueller Water Products, Inc. Amended and Restated 2010 Management Incentive Plan. Incorporated by reference to Exhibit B to Mueller Water Products, Inc. Form DEF 14A (File no. 001-32892) filed on January 15, 2016. 10.19 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. 10.19.1 First Amendment to Credit Agreement, dated December 18, 2012. Incorporated by reference to Exhibit 10.20.1 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on December 19, 2012. 10.19.2 Second Amendment to Credit Agreement, dated November 25, 2014. Incorporated by reference to Exhibit 10.19.2 to Mueller Water Products, Inc. Form 10-K (File no. 001-32892) filed on November 26, 2014. 10.19.3 Third Amendment to Credit Agreement, dated July 12, 2016. Incorporated by reference to Exhibit 10.19.3 to Mueller Water Products, Inc. Form 10-Q (File no. 001-32892) filed on August 8, 2016. 10.21 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. 10.29* Employment Agreement, dated September 15, 2008, as amended, between Mueller Water Products Inc. and Marietta Edmunds Zakas. Incorporated by reference to Exhibit 10.28 to Mueller Water Products, Inc. Form 10-K (File no. 001-32892) filed November 22, 2016. 10.29.2* Fourth Amendment, dated December 27, 2017, to Employment Agreement, dated September 15, 2008, as amended, between Mueller Water Products Inc. and Marietta Edmunds Zakas. Incorporated by reference to Exhibit 10.1 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed December 28, 2017. 10.29.4* Executive Change-in-Control Severance Agreement, dated September 30, 2019 by and between Mueller Water Products and Marietta Edmunds Zakas 10.30* Employment Agreement, dated January 4, 2017, by and between Mueller Water Products Inc. and John Scott Hall. Incorporated by reference to Exhibit 10.2 to Mueller Water Products, Inc. Form 8-K (File No. 001-32892) filed January 10, 2017. 10.30.3* Executive Change-in-Control Severance Agreement, dated September 30, 2019 by and between Mueller Water Products and J. Scott Hall 10.31* Employment Agreement, dated July 18, 2018, by and between Mueller Water Products Inc. and Steven S. Heinrichs. Incorporated by reference to Exhibit 10.31 to Mueller Water Products, Inc. Form 10-K (File No. 001-32892) filed November 21, 2018. 10.31.2* Executive Change-in-Control Severance Agreement, dated September 30, 2019 by and between Mueller Water Products and Steven S. Heinrichs 10.32 * Mueller Water Products, Inc. Form of Performance Restricted Stock Unit Award Agreement . Incorporated by reference to Exhibit 10.32 to Mueller Water Products, Inc. Form 10-K (File No. 001-32892) filed November 19, 2021. 10.33 * Mueller Water Products, Inc. Form of Restricted Stock Unit Award Agreement . Incorporated by reference to Exhibit 10.3 3 to Mueller Water Products, Inc. Form 10-K (File No. 001-32892) filed November 19, 2021. 10.34 * Mueller Water Products, Inc. Form of Stock Option Grant Award Agreement . Incorporated by reference to Exhibit 10.3 4 to Mueller Water Products, Inc. Form 10-K (File No. 001-32892) filed November 19, 2021. 46 Table of Contents Index to Financial Statements Exhibit no. Document 10.35 Cooperation Agreement dated October 11, 2022, among Mueller Water Products, Inc. and Ancora Catalyst Institutional, LP; Ancora Merlin Institutional, LP; Ancora Catalyst, LP; Ancora Merlin, LP; Ancora Alternatives LLC; Ancora Advisors, LLC; Ancora Family Wealth Advisors, LLC; The Ancora Group LLC; Inverness Holdings LL; Ancora Holdings Group, LLC and Frederick D. DiSanto. Incorporated by reference to Exhibit 10.1 to Mueller Water Products, Inc. Form 8-K (File no 001-32892) filed October 13, 2022. 14.1* 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-Q (File no. 00132892) filed on February 7, 2014. 21.1** Subsidiaries of Mueller Water Products, Inc. 23.1** Consent of Independent Registered Accounting Firm. 31.1** Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2** Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2** Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101** The following financial information from the Annual Report on Form 10-K for the year ended September 30, 2022, 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 . 104** Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * Management compensatory plan, contract or arrangement ** Filed with this Annual Report 47 Table of Contents Index to Financial Statements SIGNATURES 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 18, 2022 MUELLER WATER PRODUCTS, INC. By: /s/ Scott Hall Name: Scott Hall Title: 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 Title Date /s/ Scott Hall President and Chief Executive Officer November 18, 2022 Scott Hall /s/ Marietta Edmunds Zakas Executive Vice President and Chief Financial Officer (principal financial officer) November 18, 2022 Marietta Edmunds Zakas /s/ Suzanne G. Smith Vice President and Chief Accounting Officer (principal accounting officer) November 18, 2022 Suzanne G. Smith /s/ Mark J. O’Brien Non-Executive Chairman of the Board of Directors November 18, 2022 Mark J. O’Brien /s/ Shirley C. Franklin Director November 18, 2022 Shirley C. Franklin /s/ Thomas J. Hansen Director November 18, 2022 Thomas J. Hansen /s/ Christine Ortiz Director November 18, 2022 Christine Ortiz /s/ Bernard G. Rethore Director November 18, 2022 Bernard G. Rethore /s/ Jeffery S. Sharritts Director November 18, 2022 Jeffery S. Sharritts /s/ Brian L. Slobodow Director November 18, 2022 Brian L. Slobodow /s/ Lydia W. Thomas Director November 18, 2022 Lydia W. Thomas /s/ Michael T. Tokarz Director November 18, 2022 Michael T. Tokarz /s/ Stephen C. Van Arsdell Director November 18, 2022 Stephen C. Van Arsdell 48 Table of Contents Index to Financial Statements Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Mueller Water Products, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Mueller Water Products, Inc. and subsidiaries (the Company) as of September 30, 2022 and 2021, the related consolidated statements of operations, comprehensive income , equity and cash flows for each of the three years in the period ended September 30, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2022, 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) (PCAOB), the Company's internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated November 18, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit s . We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. F- 1 Table of Contents Index to Financial Statements Valuation of Goodwill Description of the Matter At September 30, 2022, the Company’s goodwill was $ 98.6 million. As described in Note 6 to the consolidated financial statements, goodwill is tested at the reporting unit level on an annual basis 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 Company performed its annual impairment tests of goodwill and determined the fair values of its reporting units using the discounted cash flow method, a form of the income approach, and the guideline public company method, a form of the market approach. Auditing management’s estimates of reporting unit fair values using the discounted cash flow method involved especially subjective judgments due to the significant estimation uncertainty in determining the fair values of the reporting units. In particular, the fair value estimates were sensitive to significant assumptions such as forecasted revenues, EBITDA margins and discount rates. These significant assumptions are forward-looking and could be affected by future industry, market and economic conditions. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over review of the fair values of the reporting units. This included testing controls over management’s review of the significant assumptions described above. To test the estimated fair values of the reporting units, we performed audit procedures that included, among others, assessing the methodologies used to estimate fair values, testing the significant assumptions used to develop the fair value estimates, and testing the underlying data used by the Company in its analysis for completeness and accuracy. For example, we evaluated management’s forecasted revenues and EBITDA margins used in the fair value estimates by comparing those assumptions to historical results and current industry, market and economic forecasts. We also involved our valuation specialists to evaluate the valuation methodologies and the discount rates. As part of this evaluation, we compared the discount rates to market data. In addition, we performed a sensitivity analysis on the significant assumptions to evaluate the potential change in the fair values of the reporting units that would result from changes in the assumptions. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2007. Atlanta, Georgia November 18, 2022 F- 2 Table of Contents Index to Financial Statements Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Mueller Water Products, Inc. Opinion on Internal Control over Financial Reporting We have audited Mueller Water Products, Inc. and subsidiaries’ internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Mueller Water Products, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2022, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2022 and 2021, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended September 30, 2022, and the related notes and our report dated November 18, 2022 expressed an unqualified opinion thereon. Basis for Opinion The Company’s 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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. 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. Definition and Limitations of Internal Control Over Financial Reporting 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. /s/ Ernst & Young LLP Atlanta, Georgia November 18, 2022 F- 3 Table of Contents Index to Financial Statements MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2022 2021 (in millions, except share amounts) Assets: Cash and cash equivalents $ 146.5 $ 227.5 Receivables, net of allowance for credit losses of $ 5.6 million and $ 3.5 million 228.0 212.2 Inventories, net 278.7 184.7 Other current assets 26.8 29.3 Total current assets 680.0 653.7 Property, plant and equipment, net 301.6 283.4 Intangible assets, net 361.2 392.5 Goodwill 98.6 115.1 Other noncurrent assets 56.7 73.3 Total assets $ 1,498.1 $ 1,518.0 Liabilities and stockholders’ equity: Current portion of long-term debt $ 0.8 $ 1.0 Accounts payable 122.8 92.0 Other current liabilities 117.4 127.1 Total current liabilities 241.0 220.1 Long-term debt 446.1 445.9 Deferred income taxes 86.3 95.1 Other noncurrent liabilities 55.4 62.0 Total liabilities 828.8 823.1 Commitments and contingencies (Note 17.) Common stock: 600,000,000 shares authorized; 155,844,138 and 157,955,433 shares outstanding at September 30, 2022 and 2021, respectively 1.6 1.6 Additional paid-in capital 1,279.6 1,342.2 Accumulated deficit ( 567.3 ) ( 643.9 ) Accumulated other comprehensive loss ( 44.6 ) ( 5.0 ) Total stockholders’ equity 669.3 694.9 Total liabilities and stockholders’ equity $ 1,498.1 $ 1,518.0 The accompanying notes are an integral part of the consolidated financial statements. F- 4 Table of Contents Index to Financial Statements MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year ended September 30, 2022 2021 2020 (in millions, except per share amounts) Net sales $ 1,247.4 $ 1,111.0 $ 964.1 Cost of sales 883.1 752.5 635.9 Gross profit 364.3 358.5 328.2 Operating expenses: Selling, general and administrative 238.7 218.8 198.4 Strategic reorganization and other charges 7.2 8.0 13.0 Goodwill impairment 6.8 — — Total operating expenses 252.7 226.8 211.4 Operating income 111.6 131.7 116.8 Pension benefit other than service ( 3.9 ) ( 3.3 ) ( 3.0 ) Interest expense, net 16.9 23.4 25.5 Loss on early extinguishment of debt — 16.7 — Walter Energy accrual — — 0.2 Income before income taxes 98.6 94.9 94.1 Income tax expense 22.0 24.5 22.1 Net income $ 76.6 $ 70.4 $ 72.0 Net income per share: Basic $ 0.49 $ 0.44 $ 0.46 Diluted $ 0.48 $ 0.44 $ 0.45 Weighted average shares outstanding: Basic 157.4 158.4 157.8 Diluted 158.0 159.2 158.6 Dividends declared per share $ 0.232 $ 0.22 $ 0.21 The accompanying notes are an integral part of the consolidated financial statements. F- 5 Table of Contents Index to Financial Statements MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year ended September 30, 2022 2021 2020 (in millions) Net income $ 76.6 $ 70.4 $ 72.0 Other comprehensive (loss) income: Pension ( 18.8 ) 14.1 4.4 Income tax effects 4.7 ( 3.6 ) ( 1.1 ) Foreign currency translation ( 25.5 ) 9.2 8.0 Total other comprehensive (loss) income ( 39.6 ) 19.7 11.3 Total comprehensive income $ 37.0 $ 90.1 $ 83.3 The accompanying notes are an integral part of the consolidated financial statements. F- 6 Table of Contents Index to Financial Statements MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY FOR THE THREE YEARS ENDED SEPTEMBER 30, 2022 Common stock Additional paid-in capital Accumulated deficit Accumulated other comprehensive (loss) income Non-controlling interest Total (in millions) Balance at September 30, 2019 $ 1.6 $ 1,410.7 $ ( 786.2 ) $ ( 36.0 ) $ 2.2 $ 592.3 Net income — — 72.0 — — 72.0 Dividends declared — ( 33.1 ) — — — ( 33.1 ) Stock-based compensation — 5.3 — — — 5.3 Shares retained for employee taxes — ( 0.9 ) — — — ( 0.9 ) Common stock issued — 3.5 — — — 3.5 Stock repurchased under buyback program — ( 5.0 ) — — — ( 5.0 ) Acquisition of joint venture partner’s interest — ( 2.5 ) — — ( 2.2 ) ( 4.7 ) Other comprehensive loss, net of tax — — — 11.3 — 11.3 Balance at September 30, 2020 1.6 1,378.0 ( 714.2 ) ( 24.7 ) — 640.7 Net income — — 70.4 — — 70.4 Dividends declared — ( 34.8 ) — — — ( 34.8 ) Cumulative effect of accounting change (Note 2.) — — ( 0.1 ) — — ( 0.1 ) Stock-based compensation — 8.1 — — — 8.1 Shares retained for employee taxes — ( 1.0 ) — — — ( 1.0 ) Common stock issued — 1.9 — — — 1.9 Stock repurchased under buyback program — ( 10.0 ) — — — ( 10.0 ) Other comprehensive income, net of tax — — — 19.7 — 19.7 Balance at September 30, 2021 1.6 1,342.2 ( 643.9 ) ( 5.0 ) — 694.9 Net income — — 76.6 — — 76.6 Dividends declared — ( 36.5 ) — — — ( 36.5 ) Stock-based compensation — 8.7 — — — 8.7 Shares retained for employee taxes — ( 1.8 ) — — — ( 1.8 ) Common stock issued — 2.0 — — — 2.0 Stock repurchased under buyback program — ( 35.0 ) — — — ( 35.0 ) Other comprehensive income, net of tax — — — ( 39.6 ) — ( 39.6 ) Balance at September 30, 2022 $ 1.6 $ 1,279.6 $ ( 567.3 ) $ ( 44.6 ) $ — $ 669.3 The accompanying notes are an integral part of the consolidated financial statements. F- 7 Table of Contents Index to Financial Statements MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended September 30, 2022 2021 2020 (in millions) Operating activities: Net income $ 76.6 $ 70.4 $ 72.0 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 32.0 31.4 29.6 Amortization 28.5 28.2 28.2 Goodwill impairment 6.8 — — Loss on early extinguishment of debt — 16.7 — Stock-based compensation 8.7 8.1 5.3 Pension (benefit) cost ( 2.6 ) ( 1.9 ) 2.8 Deferred income taxes ( 3.5 ) ( 5.3 ) 7.2 Inventory reserves provision 1.6 3.1 4.3 Other, net 1.3 1.3 3.7 Changes in assets and liabilities, net of acquisitions: Receivables, net ( 17.8 ) ( 29.9 ) ( 7.5 ) Inventories, net ( 98.3 ) ( 23.5 ) 24.9 Other assets 1.3 ( 4.9 ) 0.9 Accounts payable 32.2 23.0 ( 17.6 ) Walter Energy accrual — — ( 22.0 ) Other current liabilities ( 8.5 ) 37.5 6.6 Other noncurrent liabilities ( 6.0 ) 2.5 1.9 Net cash provided by operating activities 52.3 156.7 140.3 Investing activities: Capital expenditures ( 54.7 ) ( 62.7 ) ( 67.7 ) Acquisitions, net of cash acquired ( 0.2 ) ( 19.7 ) — Proceeds from sales of assets — 0.7 0.2 Net cash used in investing activities ( 54.9 ) ( 81.7 ) ( 67.5 ) Financing activities: Repayment of 5.5% Senior Notes — ( 462.4 ) — Issuance of 4.0% Senior Notes — 450.0 — Dividends paid ( 36.5 ) ( 34.8 ) ( 33.1 ) Deferred financing costs paid — ( 6.0 ) ( 1.1 ) Proceeds from financing transaction — 3.9 — Acquisition of joint venture partner’s interest — — ( 5.2 ) Employee taxes related to stock-based compensation ( 1.8 ) ( 1.0 ) ( 0.9 ) Common stock issued 2.0 1.9 3.5 Stock repurchased under buyback program ( 35.0 ) ( 10.0 ) ( 5.0 ) Financing leases ( 0.7 ) ( 0.4 ) 0.4 Net cash used in financing activities ( 72.0 ) ( 58.8 ) ( 41.4 ) Effect of currency exchange rate changes on cash ( 6.4 ) 2.4 0.8 Net change in cash and cash equivalents ( 81.0 ) 18.6 32.2 Cash and cash equivalents at beginning of year 227.5 208.9 176.7 Cash and cash equivalents at end of year $ 146.5 $ 227.5 $ 208.9 The accompanying notes are an integral part of the consolidated financial statements. F- 8 Table of Contents Index to Financial Statements Supplemental cash flow information: Cash paid for interest $ 19.2 $ 25.3 $ 24.3 Cash paid for income taxes $ 26.9 $ 16.8 $ 15.3 The accompanying notes are an integral part of the consolidated financial statements. F- 9 Table of Contents Index to Financial Statements 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: Water Flow Solutions and Water Management Solutions. These segments are based on a management reorganization that became effective October 1, 2021; prior period information has been recast to conform to the current presentation. Water Flow Solutions’ product portfolio includes iron gate valves, specialty valves and service brass products. Water Management Solutions’ product and service portfolio includes fire hydrants, repair and installation, natural gas, metering, leak detection, pressure control and monitoring 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. We have approximately 3,600 employees globally, of which 64% of our hourly workers are covered by collective bargaining agreements. In July 2014, we acquired a 49 % ownership in an industrial valve joint-venture for $ 1.7 million. As a result of substantive control features in the joint-venture agreement, all of the joint venture’s assets, liabilities and results of operations were included in our consolidated financial statements. The noncontrolling interest portion was included in selling, general and administrative expenses. Noncontrolling interest was recorded at its carrying value, which approximated fair value. We acquired the remaining 51 % noncontrolling interest on October 3, 2019. On December 3, 2018, we completed our acquisition of Krausz Industries Development Ltd. and subsidiaries (“Krausz”). During our 2020 and 2019 fiscal years, we included the financial statements of Krausz on a one-month lag. During the three months ended March 31, 2021, we aligned the consolidation of the financial statements of Krausz in the Company’s consolidated financial statements, eliminating the previous inclusion of Krausz financial statements with a one-month reporting lag. In accordance with applicable accounting literature, the elimination of the one-month reporting lag is considered to be a change in accounting principle. We believe this change in accounting principle is preferable as the financial statements of all of our subsidiaries are now reported on the same basis, providing the most current information available. The effect of the elimination of the reporting lag during the year ended September 30, 2021 resulted in an increase of $6.0 million to net sales and an increase of $1.4 million to operating income. We concluded that the effect of this change is not material to the balance sheets, statements of operations, statements of cash flows, net income and earnings per share and therefore have not retrospectively applied this change. On June 14, 2021, we acquired all the outstanding capital stock of i2O Water Ltd (“i2O”) a provider of pressure management solutions to more than 100 water companies in 45 countries. The consolidated balance sheet at September 30, 2021 includes the preliminary estimated fair values of the net assets of i2O. The accounting for this business combination became final during the three months ended March 31, 2022. The results of i2O’s operations and cash flows for the period subsequent to the acquisition are included in the consolidated statement of operations and consolidated statement of cash flows, respectively. Refer to Note 5. for additional disclosures related to the acquisition. 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 our fiscal year ended or ending September 30 in that particular calendar year. New Markets Tax Credit Program On December 22, 2020, we entered into 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 F- 10 Table of Contents Index to Financial Statements 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. The Sub-CDE then loaned $ 16.2 million to us, with the use of the loan proceeds restricted to foundry project expenditures. 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 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 as a result of 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 associated with 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 are expensed as incurred. Note 2. Summary of Significant Accounting Policies 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. Receivables, net. Receivables are 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. We present trade receivables net of customer discounts and an allowance for credit losses. Our consolidated statements of operations reflect the measurement of credit losses for newly recognized trade receivables, as well as the expected increases or decreases of expected credit losses that have taken place during the period. When we determine a specific trade receivable will not be collected, we charge off the uncollectible amount against the allowance. Our periodic evaluations of expected credit losses are based upon our judgments regarding prior collection experience, specific customer creditworthiness, other current conditions, and forecasts of current economic trends within the industries served that may affect the collectability of the reported amounts. Significantly weaker than anticipated industry or economic conditions could impact our customers’ ability to pay such that actual credit losses may be greater than the amounts provided for in this allowance. The following table summarizes information concerning our allowance for credit losses. 2022 2021 2020 (in millions) Balance at beginning of year $ 3.5 $ 2.5 $ 1.5 Provision charged to expense 2.5 1.1 1.1 Other ( 0.4 ) ( 0.1 ) ( 0.1 ) Balance at end of year $ 5.6 $ 3.5 $ 2.5 Inventories, net. Inventories are recorded at the lower of first-in, first-out method cost or estimated net realizable 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 F- 11 Table of Contents Index to Financial Statements that is affected by levels of production and actual costs incurred. We periodically evaluate the effects of production levels and costs capitalized as part of inventory. The following table summarizes information concerning our inventory valuation reserves. 2022 2021 2020 (in millions) Balance at beginning of year $ 14.8 $ 11.7 $ 7.5 Provision charged to expense 1.8 5.9 4.7 Inventory disposed ( 1.4 ) ( 3.6 ) ( 0.7 ) Other 1.3 0.8 0.2 Balance at end of year $ 16.5 $ 14.8 $ 11.7 Maintenance and repair supplies and tooling. Maintenance and repair supplies and tooling is included in Other current assets and Other noncurrent assets. 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, net. 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 internal-use software are capitalized. Capitalized costs are depreciated over the estimated useful life of the system or software, generally six years, beginning when software is ready for its intended use. Liabilities are recognized at fair value for asset retirement obligations related to plant and landfill closures in the period in which they are reasonably estimable and the carrying amounts of the related long-lived assets are correspondingly adjusted. Over time, the liabilities are accreted to their estimated future values. At September 30, 2022 and 2021, asset retirement obligations were $ 3.6 million and $ 3.8 million, respectively. Leases. Refer to Note 4. for information regarding our leases. Accounting for the Impairment of Long-Lived Assets. We test indefinite-lived intangible assets and goodwill for impairment annually or more frequently if events or circumstances indicate impairment is possible. We perform our annual impairment testing at September 1. We amortize finite-lived intangible assets over their respective estimated useful lives and review for impairment if events or circumstances indicate impairment is possible. Refer to Note 6. for information regarding our goodwill impairment testing. Workers’ Compensation. Our exposure to workers’ compensation claims is generally limited to $ 0.8 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. Our gross workers’ compensation liabilities were $ 11.1 million as of September 30, 2022, and we expect to recover $ 5.9 million in insurance which is included as a receivable in Other current assets and Other noncurrent assets as of September 30, 2022. As of September 30, 2021, our gross worker’s compensation liability was $ 10.5 million and our insurance receivable was 3.5 million. Warranty Costs. We accrue for warranty expenses, which include 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 probable and reasonably estimable at that time. We monitor and analyze our warranty experience and costs periodically and revise our warranty accruals as necessary. Critical factors in our accrual 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. Activity in our accrued warranty, reported as part of both other current liabilities and other noncurrent liabilities, is presented below. F- 12 Table of Contents Index to Financial Statements 2022 2021 2020 (in millions) Balance at beginning of year $ 9.7 $ 14.4 $ 17.1 Warranty accruals 9.5 3.5 2.6 Warranty costs ( 8.5 ) ( 8.2 ) ( 5.3 ) Balance at end of year $ 10.7 $ 9.7 $ 14.4 Deferred Financing Costs. Debt issuance costs to obtain debt are deferred and charged to expense over the life of the underlying debt agreement. Remaining costs and the future period over which financing costs would be charged to expense are reassessed when amendments to the related financing agreements or prepayments occur. Deferred financing costs are offset against the underlying long-term debt in the accompanying consolidated balance sheets. Deferred financing costs under agreements that do not have outstanding debt and in other instances, such as our ABL and with regard to our N MTC transaction, are included in Other noncurrent assets consistent with the life of the instrument. Deferred financing costs of $ 5.6 million at September 30, 2022 are scheduled to amortize as follows: $ 0.7 million related to the ABL, $ 0.3 million related to the NMTC transaction which are amortized on a straight-line basis and; $ 4.6 million related to the 4.0% Senior Unsecured Notes (“4.0% Senior Notes”) which is amortized using the effective interest rate method. These amounts are amortized over the remaining term of the respective debt. Refer to Note 8. for disclosures related to our borrowing arrangements. Derivative Instruments and Hedging Activities. We manage U.S. dollar - Canadian dollar exchange rate risk related to intercompany loans with swap contracts from time to time without designating these swap contracts as a hedge. As a result, the changes in the fair value of these contracts have been reported in earnings. As of September 30, 2021, we had a $ 1.1 million liability in Other current liabilities in our consolidated balance sheets related to such a hedge. These currency swap contracts expired in February 2022, and we did not have any liabilities related to currency swap contracts as of September 30, 2022. 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 assets and liabilities 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 when, 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 for certain environmental liabilities under an agreement with a predecessor to Tyco that existed at August 16, 1999. Refer to Note 17. for additional disclosures regarding our environmental liabilities. Revenue Recognition. Refer to Note 3. for disclosures regarding our revenues. 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 our stock-settled share awards and is based on the fair value at each reporting date for our cash-settled share awards. Stock-based compensation expense is included within Selling, general and administrative expense within our consolidated statements of operations. Refer to Note 12. for more information regarding our stock-based compensation. Research and Development. Research and development costs are expensed as incurred. Advertising. Advertising costs are expensed as incurred. Translation of Foreign Currency. Foreign reporting entities are remeasured into local currencies with the effect reflected in the consolidated statements of operations. Assets and liabilities of our businesses whose functional currencies are not denominated in the United States dollar are translated into United States dollars using currency exchange rates at the balance F- 13 Table of Contents Index to Financial Statements 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 component of accumulated other comprehensive income (loss). Gains and losses resulting from foreign currency transactions are included in earnings as incurred. Recently Adopted Accounting Pronouncements During 2016, the Financial Accounting Standards Board (“FASB”) issued standard Accounting Standard Codification (“ASC”) 326 - Current Expected Credit Losses (“ASC 326”) to replace the “incurred loss” impairment approach with an “expected loss” approach. This requires consideration of a broader range of reasonable and supportable information to estimate credit losses. 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 December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by clarifying and amending existing guidance related to the recognition of franchise tax, the evaluation of a step up in the tax basis of goodwill, and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year, with early adoption permitted. We adopted this standard on October 1, 2021 and there was no material impact to our financial statements. In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (“ASU 2020-04”). The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Inter Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. ASU 2020-04 is effective from March 12, 2020; however, can be adopted prospectively from a date within an interim period subsequent to March 12, 2020. We adopted this standard on October 1, 2021, and there was no material impact to our financial statements. Accounting Pronouncements Not Yet Adopted ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions: The FASB issued this update in June 2022, to (1) clarify the guidance in Topic 820 on the fair value measurement of an equity security that is subject to a contractual sale restriction; and (2) to require specific disclosures related to such an equity security. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted. Management does not expect that changes required by the new standard will have a material impact on our financial statements and related disclosures. Note 3. 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 Refer to Note 16. for disaggregation our revenues from contracts with customers by reportable segment and by geographical region, which we believe 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 Differences in the timing of revenue recognition, billing and cash collection result in customer receivables, 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. 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 include current deferred revenue F- 14 Table of Contents Index to Financial Statements within Other current liabilities in the accompanying consolidated balance sheets. Deferred revenues represent contract liabilities and are recorded when customers remit cash payments in advance of our satisfaction of performance obligations under contractual arrangements. Contract liabilities are reversed when the performance obligation is satisfied and revenue is recognized. The table below represents the balances of our customer receivables and deferred revenues. September 30, 2022 2021 (in millions) Billed receivables $ 230.5 $ 213.4 Unbilled receivables 3.1 2.3 Gross customer receivables $ 233.6 $ 215.7 Allowance for credit losses ( 5.6 ) ( 3.5 ) Receivables, net $ 228.0 $ 212.2 Deferred revenues $ 8.1 $ 5.4 Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. Our performance obligations are satisfied at a point in time as related to sales of equipment or over time as related to our software hosting and leak detection monitoring services. Performance obligations are supported by customer contracts, which provide frameworks for the nature of the distinct products or services. The transaction price is adjusted for our estimate of variable consideration which may include discounts, and rebates. To estimate variable consideration, we apply the expected value or the most likely amount method, based on whichever method most appropriately predicts the amount of consideration we expect to receive. The method applied is typically based on historical experience and known trends. We constrain the amounts of variable consideration that are included in the transaction price, to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when uncertainties around the variable consideration are resolved. We exclude from the measurement of the transaction price all taxes assessed by a governmental authority. We have elected to use the practical expedient to not adjust the transaction price of a contract for the effects of a significant financing component if, at the inception of the contract, we expect that the period between when we transfer a product or service to a customer and when a customer remits payment will be one year or less. Revenues from products and services transferred to customers at a point in time represente d 98 % in the fiscal years 2022 and 2021, and 99 % of our revenues in the fiscal year 2020. The revenues recognized at a point in time related to the sale of our products are recognized when the obligations of the terms of our contract are satisfied, which is when the customer is able to direct the use of and obtain substantially all of the benefits from the product, which generally occurs upon shipment when control of the product transfers to the customer. Revenues from products and services transferred to customers over time represented 2 % of our revenues in the fiscal years 2022, and 2021, and 1 % of our revenues in the fiscal year 2020. 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. These cannot be purchased separately. Costs to Obtain or Fulfill a Contract Shipping and handling costs associated with freight activities after the customer has obtained control are accounted for as fulfillment costs and are expensed and accrued at the time revenue is recognized, as a component of cost of sales. We incur certain incremental costs to obtain a contract, which primarily relate to incremental sales commissions. Our commissions are paid based on a combination of orders and shipments, and we reserve the right to claw back any commissions in case of product returns or lost collections. As the expected benefit associated with these incremental costs is generally one year or less based on the nature of the product sold and benefits received, we have applied a practical expedient and therefore do not capitalize the related costs and expense them as incurred. F- 15 Table of Contents Index to Financial Statements Note 4. Leases On October 1, 2019, we adopted ASC 842 - Leases utilizing the modified retrospective approach. Adoption of the new standard resulted in an increase to total assets and liabilities as a result of recording lease right-of-use assets (“ROU”) and lease liabilities related to our operating lease portfolio. We elected three practical expedients for transition, which include the carry forward of our leases without reassessing whether any contracts are leases or contain leases, lease classification and initial direct costs as well as applying hindsight when determining the lease term and when assessing impairment of ROU assets at the adoption date. This allows us to update our assessments according to new information and changes in facts and circumstances that have occurred since lease inception. Presentation of Leases We lease certain office, warehouse, manufacturing, distribution, and research and development facilities and equipment under operating leases. Our leases have remaining lease terms of up to 12 years. The terms and conditions of our leases may include options to extend or terminate the lease which are considered and included in the lease term when these options are reasonably certain of exercise. We determine if a contract is, or contains, a lease at inception by evaluating whether the contract conveys the right to control the use of an identified asset. For all classes of leased assets, we have elected the practical expedient to account for any non-lease components in the contract together with the related lease component in the same unit of account. ROU assets and lease liabilities are recognized in our consolidated balance sheets at the commencement date based on the present value of remaining lease payments over the lease term. Additionally, ROU assets include any lease payments made at or before the commencement date, as well as any initial direct costs incurred, and are reduced by any lease incentives received. As most of our operating leases do not provide an implicit rate, we apply our incremental borrowing rate to determine the present value of remaining lease payments. Our incremental borrowing rate is determined based on information available at the commencement date of the lease. For all classes of leased assets, we have applied an accounting policy election to exclude short-term leases from recognition in our consolidated balance sheets. A short-term lease has a lease term of 12 months or less at the commencement date and does not include a purchase option that is reasonably certain of exercise. We recognize short-term lease expense in our condensed consolidated statements of operations on a straight-line basis over the lease term. Our short-term lease expense for the years ended September 30, 2022 and 2021 and short-term lease commitments at September 30, 2022 are immaterial. We have certain lease contracts with terms and conditions that provide for variability in the payment amount based on changes in facts or circumstances occurring after the commencement date. These variable lease payments are recognized in our consolidated statements of operations as the obligation is incurred. F- 16 Table of Contents Index to Financial Statements At September 30, 2022, any legally-binding minimum lease payments for operating leases signed but not yet commenced, subleases, leases that imposed significant restrictions or covenants, related party leases or sale-leaseback arrangements were immaterial. The components of lease cost are presented below. Year ended September 30, 2022 2021 2020 (in millions) Operating lease cost $ 5.8 $ 6.1 $ 6.3 Finance lease cost 1.3 1.2 1.3 Total lease expense $ 7.1 $ 7.3 $ 7.6 Supplemental cash flow information related to leases are presented below, in millions. Year ended September 30, 2022 2021 Operating cash used for operating leases $ 5.8 $ 6.1 Financing cash used for finance leases $ 1.3 $ 1.2 Supplemental information regarding our lease assets and liabilities is below. September 30, 2022 2021 (in millions) Right-of-use assets: Operating leases Other noncurrent assets $ 26.0 $ 27.1 Finance leases Plant, property and equipment 1.4 2.2 Total right-of-use assets $ 27.4 $ 29.3 Lease liabilities: Operating leases - current Other current liabilities $ 4.4 $ 4.0 Operating leases - noncurrent Other noncurrent liabilities 22.4 24.6 Finance leases - current Current portion of long-term debt 0.8 1.0 Finance leases - noncurrent Long-term debt 0.8 1.2 Total lease liabilities $ 28.4 $ 30.8 Supplemental information related to lease terms and discount rates are presented below. Year ended September 30, 2022 2021 Weighted-average remaining lease term (years): Operating leases 6.67 7.82 Finance leases 2.15 2.53 Weighted-average interest rate: Operating leases 5.48 % 5.36 % Finance leases 3.64 % 4.24 % Total lease liabilities at September 30, 2022 have scheduled maturities as follows: F- 17 Table of Contents Index to Financial Statements Operating Leases Finance Leases (in millions) 2023 $ 5.9 $ 0.9 2024 5.7 0.5 2025 5.1 0.2 2026 4.7 0.1 2027 3.9 — Thereafter 7.3 — Total lease payments 32.6 1.7 Less: imputed interest ( 5.8 ) ( 0.1 ) Present value of lease liabilities $ 26.8 $ 1.6 Note 5. Acquisitions Acquisition of i2O Water Ltd On June 14, 2021, we acquired all of the outstanding capital stock of i2O Water Ltd for $ 19.7 million, net of cash acquired. The purchase agreement provided for customary final adjustments, including a net working capital adjustment that was completed during the three months ended December 31, 2021, resulting in a purchase price of $ 19.5 million. We have recognized the assets acquired and liabilities assumed at their estimated acquisition date fair values, with the excess of the purchase price over the estimated fair values of the identifiable net assets acquired recorded as goodwill. The accounting for the business combination is considered to be final. The results of i2O are included in our Water Management Solutions segment. The goodwill below is attributable to the strategic opportunities and synergies that we expect to arise from the acquisition of i2O and the value of its workforce. Goodwill is nondeductible for income tax purposes. Identified intangible assets consist of customer relationships, non-compete agreements and developed technology with an estimated weighted-average useful life of approximately 12 years and trade names with an indefinite life. Values of intangible assets were determined using a discounted cash flow method. The following is a summary of the fair values of the net assets acquired (in millions): Assets, net of cash: Receivables $ 0.5 Inventories 0.6 Other current assets 0.9 Identified intangible assets: Tradename 1.8 Customer relationships 2.1 Non-compete agreements 0.1 Developed technology 3.5 Goodwill 12.1 Liabilities: Accounts payable ( 0.8 ) Other current liabilities ( 1.3 ) Fair value of net assets acquired, net of cash $ 19.5 F- 18 Table of Contents Index to Financial Statements Note 6. Intangible Assets and 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. We performed the annual impairment testing at September 1, 2022 and recognized a $ 6.8 million goodwill impairment charge related to a reporting unit within our Water Flow Solutions segment as the carrying value exceeded its fair value primarily due to an increase in the discount rate. The carrying value of the reporting unit, including goodwill, is compared with the estimated fair value of the reporting unit as determined utilizing a combination of the income and market approaches. The income approach, which involved significant unobservable inputs (Level 3 inputs), is based on projected debt-free cash flow which is discounted to the present value using discount rates that consider the timing and risk of the cash flows. The market approach is based on the guideline public company method, which uses market multiples to value our reporting units. The Company weights the income and market approaches in a manner considering the risks of the underlying cash flows. The key assumptions used in estimating the fair value of the Company's reporting units utilizing the income approach include management's best estimate of revenue, EBITDA margin, and discount rate, and accordingly, a change in market conditions or other factors could have a material effect on the estimated values. There are inherent uncertainties related to the assumptions used and to management's application of these assumptions. Intangible Assets Direct internal and external costs to develop software used in the provision of services to customers by Water Management Solutions are capitalized and amortized over the 6 -year estimated useful life of the software, beginning when the software is ready for its intended use. At September 30, 2022, the remaining weighted-average amortization period for this software was 3.6 years. Amortization expense related to such software assets was $ 2.9 million in 2022 , and $3.3 million in each of fiscal years 2021 and 2020. Amortization expense for each of the next five years is expected to be $ 3.1 million in 2023, $ 2.5 million in 2024, $ 1.5 million in 2025, $ 0.9 million in 2026, and $ 0.5 million in 2027. At September 30, 2022, the remaining weighted-average amortization period for business combination-related finite-lived customer relationships and technology intangible assets wer e 3.3 years and 8.5 years, respectively. Amortization expense related to these assets was $ 25.5 million , $ 25.2 million and $ 24.9 million for 2022, 2021 and 2020, respectively. Amortization expense for each of the next five years is scheduled to be $ 25.1 million in 2023, $ 24.6 million in 2024, $ 5.6 million in 2025, $ 4.9 million in 2026 and $ 4.7 million in 2027. Intangible assets are presented below. F- 19 Table of Contents Index to Financial Statements September 30, 2022 2021 (in millions) Capitalized internal-use software: Cost $ 35.5 $ 34.1 Accumulated amortization ( 26.8 ) ( 24.1 ) Capitalized internal-use software, net $ 8.7 $ 10.0 Business combination-related: Cost: Finite-lived intangible assets: Technology 119.9 123.5 Customer relationships and other 371.6 373.0 Indefinite-lived intangible assets: Trade names and trademarks 272.7 273.8 $ 764.2 $ 770.3 Accumulated amortization: Technology ( 89.5 ) ( 85.8 ) Customer relationships and other ( 322.2 ) ( 302.0 ) ( 411.7 ) ( 387.8 ) Business combination-related intangible assets, net 352.5 382.5 Intangible assets, net $ 361.2 $ 392.5 Goodwill We recognized a $ 6.8 million goodwill impairment charge related to a reporting unit within our Water Flow Solutions segment in our fiscal year 2022. As of September 30, 2022, o ur remaining goodwill balance is within our Water Management Solutions segment. Changes in the carrying amount of goodwill for the years ended September 30, 2022 and 2021 were as follows: Balance at September 30, 2020: (in millions) Goodwill $ 817.1 Accumulated impairment ( 717.3 ) Net goodwill 99.8 2021 Activity: Acquisition of i2O Water Ltd 12.1 Change in foreign currency exchange rates 3.2 Balance at September 30, 2021: Goodwill 832.4 Accumulated impairment ( 717.3 ) Net goodwill 115.1 2022 Activity: Goodwill impairment ( 6.8 ) Change in foreign currency exchange rates ( 9.7 ) Balance at September 30, 2022: Goodwill 822.7 Accumulated impairment ( 724.1 ) Net goodwill $ 98.6 F- 20 Table of Contents Index to Financial Statements Note 7. Income Taxes The components of income before income taxes are presented below. 2022 2021 2020 (in millions) U.S. $ 81.6 $ 94.0 $ 89.7 Non-U.S. 17.0 0.9 4.4 Income before income taxes $ 98.6 $ 94.9 $ 94.1 The Tax Cuts and Jobs Act (the “Act”) imposed a one-time transition tax on the undistributed, previously untaxed, post-1986 foreign “earnings and profits” as defined by the Internal Revenue Services (“IRS”) of certain United States-owned corporations. At September 30, 2022, the remaining balance of our transition obligation is $ 4.1 million , which will be paid annually through January 2026, as provided in the Act. Other than for Krausz’s investment in its United States subsidiary, we have not recorded income taxes for unrepatriated foreign earnings that may be subject to withholding tax or any outside cost basis differences inherent in our foreign subsidiaries, as these amounts continue to be indefinitely reinvested in foreign operations. We have a foreign tax credit carryforward of $ 4.5 million , for which we have recorded a valuation allowance as we do not expect to utilize it prior to expiration. The federal income tax returns for Mueller Water Products, Inc. are closed for years prior to 2018. We remain liable for any taxes related to U.S. Pipe income for periods prior to 2012 pursuant to the terms of the sale agreement with the purchaser of the segment. Our state income tax returns are generally closed for years prior to 2018, except with regard to our state net operating loss carryforwards. Our Canadian income tax returns are generally closed for years prior to 2015. We do not have any material unpaid assessments . F- 21 Table of Contents Index to Financial Statements The components of income tax expense are as follows: 2022 2021 2020 (in millions) Current: U.S. federal $ 19.5 $ 21.9 $ 10.9 U.S. state and local 4.3 6.3 2.7 Non-U.S. 1.7 1.6 1.3 Total current income tax expense 25.5 29.8 14.9 Deferred: U.S. federal ( 3.4 ) ( 4.7 ) 5.6 U.S. state and local ( 0.9 ) ( 1.3 ) 2.0 Non-U.S. 0.8 0.7 ( 0.4 ) Total deferred income tax (benefit) expense ( 3.5 ) ( 5.3 ) 7.2 Income tax expense $ 22.0 $ 24.5 $ 22.1 The reconciliation between income tax expense at the United States federal statutory income tax rate and reported income tax expense is presented below. 2022 2021 2020 (in millions) Expense at U.S. federal statutory income tax rate $ 20.7 $ 19.9 $ 19.8 Adjustments to reconcile to income tax expense: State income taxes, net of federal benefit 2.6 3.1 3.3 Uncertain tax positions — 0.3 1.0 Nondeductible compensation 0.9 0.6 0.6 Nondeductible expenses, other than compensation 0.8 0.5 0.4 Valuation allowances 1.0 ( 0.4 ) 0.1 Basis difference in foreign investment 0.1 1.5 0.1 Foreign income taxes ( 1.5 ) ( 1.7 ) ( 0.5 ) Excess tax benefits related to stock compensation ( 0.1 ) ( 0.2 ) ( 0.5 ) Tax credits ( 2.3 ) ( 1.6 ) ( 1.8 ) Other ( 0.2 ) 2.5 ( 0.4 ) Income tax expense $ 22.0 $ 24.5 $ 22.1 The following table summarizes information concerning our gross unrecognized tax benefits. 2022 2021 (in millions) Balance at beginning of year $ 4.8 $ 4.5 Increase related to current year positions 0.7 0.6 Decrease related to current year positions ( 0.4 ) — Decrease as a result of statute of limitations lapse ( 0.3 ) ( 0.3 ) Foreign currency exchange losses ( 0.1 ) — Balance at end of year $ 4.7 $ 4.8 Substantially all unrecognized tax benefits would, if recognized, impact the effective tax rate. 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, 2022 and 2021, we had $ 0.7 million and $ 0.6 million, respectively, of accrued interest expense related to unrecognized tax benefits. F- 22 Table of Contents Index to Financial Statements Deferred income tax balances are presented below. September 30, 2022 2021 (in millions) Deferred income tax assets: Accrued expenses $ 10.5 $ 12.7 Lease liabilities 8.1 8.2 Inventories 7.0 6.1 State net operating losses 2.1 2.8 Net operating losses and credit carryovers 12.9 14.8 Stock-based compensation 4.1 3.8 Pension 0.1 — Other 2.3 2.9 Total deferred income tax assets 47.1 51.3 Valuation allowance ( 13.2 ) ( 13.6 ) Total deferred income tax assets, net of valuation allowance 33.9 37.7 Deferred income tax liabilities: Intangible assets 77.7 86.3 Lease assets 7.4 7.6 Basis difference in foreign investment 6.2 6.8 Pension — 3.9 Property, plant and equipment 28.4 27.4 Other 0.5 0.5 Total deferred income tax liabilities 120.2 132.5 Net deferred income tax liabilities $ 86.3 $ 94.8 We reevaluate the need for a valuation allowance against our deferred tax assets each quarter considering results to date, projections of taxable income, tax planning strategies and reversing taxable temporary differences. Our state net operating loss carryforwards, which expire between the years 2024 and 2032, remain available to offset future taxable earnings. Note 8. Borrowing Arrangements The components of our long-term debt are as follows: September 30, 2022 2021 (in millions) 4.0% Senior Notes $ 450.0 $ 450.0 Finance leases 1.6 2.2 Total debt 451.6 452.2 Less deferred financing costs ( 4.7 ) ( 5.3 ) Less current portion of long-term debt ( 0.8 ) ( 1.0 ) Long-term debt $ 446.1 $ 445.9 The scheduled maturities of all borrowings outstanding at September 30, 2022 for each of the following years are $ 0.8 million in 2023, $ 0.5 million in 2024, $ 0.3 million in 2025, $ 0 million in 2026 and $ 450.0 million thereafter. F- 23 Table of Contents Index to Financial Statements ABL Agreement . Our ABL Agreement, as amended, (“ABL”) is provided by a consortium of banking institutions and consists of a revolving credit facility for up to $ 175 million in borrowings that expires on July 29, 2025. Included in the ABL is the ability to borrow up to $ 25 million of swing line loans and up to $ 60 million of letters of credit. The ABL permits us to increase the size of the credit facility by an additional $ 150 million in certain circumstances subject to adequate borrowing base availability. Borrowings under the ABL bear interest at a floating rate equal to LIBOR plus an applicable margin range of 200 to 225 basis points, or a base rate, as defined in the ABL, plus an applicable margin range of 100 to 125 basis points. At September 30, 2022, the applicable margin was 200 basis points for LIBOR-based loans, and 100 basis points for base rate loans. The ABL is subject to mandatory prepayments if total outstanding borrowings under the ABL 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 is equal to the sum of (a) 85% of the value of eligible accounts receivable and (b) the lesser of (i) 70% of the value of eligible inventory or (ii) 85% of the net orderly liquidation value of eligible inventory, less certain reserves. Prepayments can be made at any time without penalty. Substantially all of our United States subsidiaries are borrowers under the ABL and are jointly and severally liable for outstanding borrowings. Our obligations under the ABL are secured by a first-priority perfected lien on all of our United States inventory, accounts receivable, certain cash balances and other supporting obligations. The ABL includes a commitment fee for any unused borrowing capacity of 37.5 basis points per annum. Borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $ 17.5 million and 10 % of the Loan Cap as defined in the ABL. Excess availability based on September 30, 2022 data was $ 160.7 million, as reduced by $ 14.1 million of outstanding letters of credit and $ 0.2 million of accrued fees and expenses. 4.0% Senior Unsecured Notes. On May 28, 2021, we privately issued $ 450.0 million of 4.0% Senior Notes, which mature on June 15, 2029 and bear interest at 4.0 %, paid semi-annually in June and December. We capitalized $ 5.5 million of financing costs, which are being amortized over the term of the 4.0% Senior Notes using the effective interest method. Proceeds from the 4.0% Senior Notes, along with cash on hand were used to redeem our previously existing 5.5% Senior Notes. Substantially all of our United States subsidiaries guarantee the 4.0% Senior Notes, which are subordinate to borrowings under our ABL. Based on quoted market prices, which is a Level 1 measurement, the outstanding 4.0% Senior Notes had a fair value of $ 382.1 million as of September 30, 2022. An indenture securing the 4.0% Senior Notes (“Indenture”) contains customary covenants and events of default, including covenants that limit our ability to incur certain debt and liens. There are no financial maintenance covenants associated with the Indenture. We believe we were in compliance with these covenants at September 30, 2022. As set forth in the Indenture, we may redeem some or all of the 4.0% Senior Notes at any time prior to June 15, 2024 at certain “make-whole” redemption prices and on or after June 15, 2024, at specified redemption prices. Additionally, we may redeem up to 40% of the aggregate principal amount of the 4.0% Senior Notes at any time prior to June 15, 2024 with the net proceeds of specified equity offerings at specified redemption prices as set forth in the Indenture. Upon a change of control as defined in the Indenture, we would be required to offer to purchase the 4.0% Senior Notes at a price equal to 101% of the outstanding principal amount. 5.5% Senior Unsecured Notes. On June 12, 2018, we privately issued $ 450.0 million of 5.5% Senior Notes, which were set to mature in June 2026 and bore interest at 5.5 %, paid semi-annually. We called the 5.5% Senior Notes effective June 17, 2021 and redeemed the 5.5% Senior Notes with the proceeds from the 4.0% Senior Notes and cash on hand. As a result, we incurred $ 16.7 million in loss on early extinguishment of debt, comprised of a $ 12.4 million call premium and a $ 4.3 million write-off of the remaining deferred debt issuance costs. . F- 24 Table of Contents Index to Financial Statements Note 9. Derivative Financial Instruments In connection with the acquisition of Singer Valve in 2017, we loaned 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 United States dollar-Canadian dollar swap contract with the Canadian subsidiary and an offsetting Canadian dollar-United States dollar swap with a domestic bank, without designating these swap contracts as a hedge. As a result, the changes in the fair value of these contracts have been reported in earnings. As of September 30, 2021, we had a $ 1.1 million liability in Other current liabilities in our consolidated balance sheets related to such a hedge. These currency swap contracts expired in February 2022. As a result, we did not have any liabilities related to currency swap contracts as of September 30, 2022. Note 10. Retirement Plans Defined Benefit Plans. We have had various pension plans that we funded in accordance with their requirements and, where applicable, in amounts sufficient to satisfy the minimum funding requirements of applicable laws. Our pension plans provide benefits based on years of service and compensation or at stated amounts for each year of service with an annual measurement date as of September 30. After September 30, 2019, our only remaining defined benefit plan is our United States Pension Plan (“Pension Plan”). A summary of key assumptions for the valuations of our Pension Plan is as follows: September 30, 2022 2021 2020 Weighted average used to determine benefit obligations: Discount rate 5.79 % 3.01 % 2.84 % Weighted average used to determine net periodic cost: Discount rate 3.01 % 2.84 % 3.26 % Expected return on plan assets 4.50 % 4.50 % 5.00 % The discount rates for determining the present value of pension obligations 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 Plan’s actuaries to assist in the development of the discount rate model. The expected returns on plan assets are determined with the assistance of the Pension Plan’s 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- 25 Table of Contents Index to Financial Statements Amounts recognized for the Pension Plan are presented below. September 30, 2022 2021 (in millions) Projected benefit obligations: Beginning of year $ 336.8 $ 359.5 Service cost 1.3 1.5 Interest cost 9.8 9.9 Actuarial gain ( 74.0 ) ( 10.8 ) Benefits paid ( 22.7 ) ( 23.3 ) Accumulated benefit obligations at end of year $ 251.2 $ 336.8 Plan assets: Beginning of year $ 353.5 $ 360.4 Actual return on plan assets ( 79.0 ) 16.4 Benefits paid ( 22.7 ) ( 23.3 ) Fair value of plan assets at end of year $ 251.8 $ 353.5 Accrued benefit cost at end of year: Funded status $ 0.6 $ 16.8 Recognized on balance sheet: Other noncurrent assets $ 0.6 $ 16.8 Recognized in accumulated other comprehensive income (loss), before tax: Net actuarial loss 78.7 59.9 $ 78.7 $ 59.9 The components of net periodic (benefit) cost for our Pension Plan are presented below. 2022 2021 2020 (in millions) Service cost $ 1.3 $ 1.5 $ 1.5 Components of net periodic cost (benefit) excluded from operating income: Interest cost 9.8 9.9 11.2 Expected return on plan assets ( 15.4 ) ( 15.7 ) ( 16.9 ) Amortization of actuarial net loss 1.7 2.5 2.8 Other — — ( 0.1 ) Pension benefit other than service ( 3.9 ) ( 3.3 ) ( 3.0 ) Net periodic benefit $ ( 2.6 ) $ ( 1.8 ) $ ( 1.5 ) Pension P lan activity in accumulated other comprehensive loss, before tax, in 2022 is presented below, in millions. Balance at beginning of year $ 59.9 Actuarial loss 20.5 Prior year actuarial loss amortization to net periodic cost ( 1.7 ) Balance at end of year $ 78.7 F- 26 Table of Contents Index to Financial Statements We amortize amounts in accumulated other comprehensive loss representing unrecognized prior year service cost and unrecognized loss related to the Pension Plan over the weighted average life expectancy of their inactive participants. Actuarial gains and losses are amortized using a corridor approach. The gain/loss corridor is equal to 10% of the greater of the benefit obligation and the market-related value of assets. Gains and losses in excess of the corridor are generally amortized over the average remaining lifetime of the plan participants. We expect to amortiz e $ 3.7 million of unrecognized loss into net periodic expense from accumulated other comprehensive loss in 2023. S trategic asset allocations, tactical range at September 30, 2022 and actual asset allocations are as follows: Strategic asset allocation Actual asset allocations at September 30, Tactical range 2022 2021 2020 Fixed income investments 70 % 65 % - 70 % 70 % 70 % 78 % Equity investments 30 25 % - 30 % 29 29 21 Cash — 0 % - 5 % 1 1 1 100 % 100 % 100 % 100 % Assets of the Pension Plan are allocated to various investments to attain diversification and reasonable risk-adjusted returns while also managing the exposure to asset and liability volatility. These ranges are targets and deviations may occur from time to time as a result of market fluctuations. Portfolio assets are typically rebalanced to the allocation targets at least annually. The assets of the Pension Plan are primarily invested in mutual funds and investment trusts valued at net asset value, which in turn hold fixed income and equity investments. The valuation methodologies used to measure the assets of the Pension Plan at fair value are: • Mutual funds are valued at the closing price reported on the active market; • Fixed income fund investments held by the investment trusts are valued using the closing price reported in the active market in which the investment is traded. When market quotations are not readily available, these assets are valued by a method the trustees believe accurately reflects fair value. F- 27 Table of Contents Index to Financial Statements The assets of the Plan by level within the fair value hierarchy are as follows: September 30, 2022 Level 1 Level 2 Total (in millions) Fixed income $ 125.2 $ 50.1 $ 175.3 Equity: Large cap index funds 37.2 — 37.2 International stocks: International funds 37.4 — 37.4 Total equity 74.6 — 74.6 Cash and cash equivalents 1.9 — 1.9 $ 201.7 $ 50.1 $ 251.8 September 30, 2021 Level 1 Level 2 Total (in millions) Fixed income $ 176.7 $ 70.3 $ 247.0 Equity: Large cap index funds 52.1 — 52.1 International stocks: International funds 52.5 — 52.5 Total equity 104.6 — 104.6 Cash and cash equivalents 1.9 — 1.9 $ 283.2 $ 70.3 $ 353.5 Our estimated future pension benefit payments are presented below (in millions): 2023 $ 23.3 2024 23.1 2025 22.8 2026 22.4 2027 21.9 2028-2032 $ 100.7 Defined Contribution Retirement Plans. Certain of our employees participate in defined contribution 401(k) plans or similar plans outside of the United States. We make matching contributions as a function of employee contributions which were $ 7.3 million , $ 5.9 million and $ 5.3 million during 2022, 2021 and 2020, respectively. F- 28 Table of Contents Index to Financial Statements Note 11. Capital Stock Common stock share activity is presented below. Shares outstanding at September 30, 2019 157,462,140 Vesting of restricted stock units, net of shares withheld for taxes 242,112 Exercise of stock options 534,291 Exercise of employee stock purchase plan instruments 182,971 Settlement of performance-based restricted stock units, net of shares withheld for taxes 61,610 Stock repurchased under buyback program ( 418,374 ) Shares outstanding at September 30, 2020 158,064,750 Vesting of restricted stock units, net of shares withheld for taxes 182,024 Exercise of stock options 151,399 Exercise of employee stock purchase plan instruments 146,135 Settlement of performance-based restricted stock units, net of shares withheld for taxes 62,396 Stock repurchased under buyback program ( 651,271 ) Shares outstanding at September 30, 2021 157,955,433 Vesting of restricted stock units, net of shares withheld for taxes 195,156 Exercise of stock options 36,731 Exercise of employee stock purchase plan instruments 150,909 Settlement of performance-based restricted stock units, net of shares withheld for taxes 160,163 Stock repurchased under buyback program ( 2,654,254 ) Shares outstanding at September 30, 2022 155,844,138 The Company has authorized 20.0 million shares of $ 0.01 par value preferred stock. The preferred stock may be issued in one or more series and with such designations and preferences for each series as shall be stated in the resolutions providing for the designation and issue of each such series adopted by the Board of Directors of the Company. The Board of Directors is authorized by the Company's articles of incorporation to determine the voting, dividend, redemption and liquidation preferences pertaining to each such series. No shares of preferred stock have been issued by the Company as of September 30, 2022. Note 12. Stock-based Compensation Plans The effect of stock-based compensation on our consolidated statements of operations is presented below. Such amounts are included within selling, general, and administrative costs. 2022 2021 2020 (in millions, except per share data) Decrease in operating income $ 9.9 $ 11.0 $ 7.2 Decrease in net income 7.6 8.2 5.5 Decrease in earnings per basic share 0.05 0.05 0.03 Decrease in earnings per diluted share 0.05 0.05 0.03 We excluded 790,759 , 578,005 and 267,298 instruments from the calculation of diluted earnings per share for 2022, 2021 and 2020, respectively, because the effect of including them would have been antidilutive. At September 30, 2022, there was approximately $ 7.6 million of unrecognized compensation expense related to stock-based awards not yet vested. We expect to recognize this expense over a weighted average life of approximately 1.5 years. F- 29 Table of Contents Index to Financial Statements The Mueller Water Products, Inc. 2006 Stock Incentive Plan (“2006 Plan”) authorizes an aggregate of 20,500,000 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, 2022, 5,083,831 shares of common stock were available for future grants of awards under the 2006 Plan. This total assumes that the maximum number of shares will be earned for awards for which the final number of shares to be earned has not yet been determined. An award granted under the 2006 Plan vests at such times and in such installments as set by the Compensation and Human Resources Committee of our Board of Directors (“Compensation Committee”), but no award will be exercisable after the 10 -year anniversary of the date on which it is granted. Management expects some instruments will be forfeited prior to vesting. Grants to members of our Board of Directors are expected to vest fully. Based on historical forfeitures, we expect grants to others to be forfeited at an annual rate of 2 %. Restricted Stock Units. Depending on the specific terms of each award, restricted stock units generally vest ratably over the life of the award, usually three years, on each anniversary date of the original grant. Compensation expense for restricted stock units is recognized between the grant date and the vesting date (or the date on which a participant becomes Retirement-eligible, if sooner) on a straight-line basis for each tranche of each award. Fair values of restricted stock units are determined using the closing price of our common stock on the respective dates of grant. Restricted stock unit activity under the 2006 Plan is summarized below. Restricted stock units Weighted average grant date fair value per unit Weighted average remaining contractual term (years) Aggregate intrinsic value (millions) Outstanding at September 30, 2019 437,022 $ 11.31 0.9 Granted 301,979 11.55 Vested ( 295,241 ) 11.40 $ 3.4 Cancelled ( 35,254 ) 11.48 Outstanding at September 30, 2020 408,506 11.41 0.9 Granted 220,795 12.29 Vested ( 228,121 ) 11.62 $ 2.8 Cancelled ( 5,083 ) 11.41 Outstanding at September 30, 2021 396,097 11.78 0.8 Granted 223,379 13.41 Vested ( 251,981 ) 11.81 $ 2.8 Cancelled ( 8,763 ) 11.87 Outstanding at September 30, 2022 358,732 $ 12.77 0.7 Performance-Based Awards. Our performance-based awards consist of performance-based restricted stock units (“PRSUs”). PRSUs represent a target number of units that may be paid out at the end of a multi-year award cycle consisting of annual performance periods coinciding with our fiscal years. As determined at the date of award, PRSUs may settle in cash-value equivalent of, or directly in, shares of our common stock. Settlement will range from zero to two times the number of PRSUs granted, depending on our financial performance against predetermined targets. The grant date for each year’s performance period is set when the Compensation Committee establishes performance goals for the period, normally within 90 days of the beginning of each performance period. At the end of each annual performance period, the Compensation Committee confirms performance against the applicable performance targets. PRSUs do not convey voting rights or earn dividends. PRSUs vest on the last day of an award cycle, unless vested sooner as a result of a “Change of Control” of the Company, or the death, disability or Retirement of a participant. We recognize compensation expense for stock-settled PRSUs starting on the first day of the applicable performance period and ending on the respective vesting dates. We base the recognized compensation expense upon the number of units awarded for each performance period, the closing price of our common stock on the grant date and the estimated performance factor. In 2022 and 2021, 240,412 shares and 103,058 shares, respectively, vested related to PRSUs. F- 30 Table of Contents Index to Financial Statements Stock-settled PRSUs activity under the 2006 Plan is summarized below. Award date Settlement year Performance period Grant date per unit fair value Units awarded Units forfeited Net units Performance factor Shares earned November 29, 2016 2020 2017 $ 13.26 59,285 ( 5,279 ) 54,006 1.000 54,006 2018 $ 12.50 59,286 ( 39,910 ) 19,376 1.357 26,294 2019 $ 10.53 59,290 ( 39,909 ) 19,381 0.645 12,501 January 23, 2017 2020 2017 $ 13.15 19,012 — 19,012 1.000 19,012 2018 $ 12.50 19,011 — 19,011 1.357 25,798 2019 $ 10.53 19,011 — 19,011 0.645 12,263 November 28, 2017 2021 2018 $ 12.50 57,092 — 57,092 1.357 77,474 2019 $ 10.53 57,092 ( 4,793 ) 52,299 0.645 33,733 2020 $ 11.26 57,104 ( 21,679 ) 35,425 0.909 32,202 November 27, 2018 2022 2019 $ 10.53 110,954 ( 8,751 ) 102,203 0.645 65,921 2020 $ 11.26 110,954 ( 13,182 ) 97,772 0.909 88,875 2021 $ 11.86 110,967 ( 28,478 ) 82,489 1.161 95,770 December 3, 2019 2023 2020 $ 11.26 69,988 ( 2,391 ) 67,597 0.909 61,446 2021 $ 11.86 69,989 ( 9,614 ) 60,375 1.161 70,096 2022 $ 13.81 69,988 ( 9,614 ) 60,374 0.700 42,262 Market-Based Awards. Our market-based awards consist of market-based restricted stock units (“MRSUs”). MRSUs represent a target number of units that may be paid out at the end of a three-fiscal year award cycle based on a calculation of our relative total shareholder return (“TSR”) performance as compared with the TSRs of a selected peer group. Settlements in our common shares, will range from zero to two times the number of MRSUs granted, depending on our TSR performance ranking within the peer group. The fair values of MRSUs are fixed at the date of grant and the related expense is recognized ratably over the vesting period, which is roughly three years from the date of grant. The table below provides information regarding MRSU awards, which were valued using Monte Carlo simulations on the grant date. November 30, 2021 January 27, 2021 December 2, 2020 February 24, 2020 January 28, 2020 December 3, 2019 Fair value at grant date $ 15.76 $ 14.26 $ 15.39 $ 18.17 $ 16.76 $ 14.94 Units granted 230,089 4,187 234,199 7,498 2,763 147,213 Variables used in determining grant date fair value: Dividend yield 1.70 % 1.84 % 1.77 % 1.73 % 1.76 % 1.87 % Risk-free rate 0.76 % 0.16 % 0.21 % 1.23 % 1.44 % 1.53 % Expected term (in years) 2.83 2.67 2.83 2.60 2.67 2.83 Stock Options. 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. F- 31 Table of Contents Index to Financial Statements The assumptions used to determine the grant date fair value are indicated below for grants issued during our 2022 fiscal year. November 30, 2021 Variables used in determining grant date fair value: Dividend yield 1.62 % Risk-free rate 1.33 % Expected term (in years) 6.0 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 United States 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. Stock option activity under the 2006 Plan is summarized below. Options Weighted average exercise price per option Weighted average remaining contractual term (years) Aggregate intrinsic value (millions) Outstanding at September 30, 2019 862,390 $ 4.89 2.0 $ 5.5 Exercised ( 534,291 ) 4.15 3.3 Cancelled — — Outstanding at September 30, 2020 328,099 $ 6.11 2.3 $ 1.4 Granted 431,520 11.86 Exercised ( 151,399 ) 4.09 1.7 Cancelled ( 8,421 ) — Outstanding at September 30, 2021 599,799 $ 10.67 7.8 $ 2.7 Granted 457,482 13.64 Exercised ( 36,731 ) 5.67 0.2 Cancelled ( 7,257 ) — Outstanding at September 30, 2022 1,013,293 $ 12.19 7.7 $ 0.3 Exercisable at September 30, 2022 278,569 $ 10.12 4.8 $ 0.3 Stock option exercise prices are equal to the closing price of our common stock on the relevant grant date. The ranges of exercise prices for stock options outstanding at September 30, 2022 are summarized below. Exercise price Options Weighted average exercise price Weighted average remaining contractual term (years) Exercisable options Weighted average exercise price $ 5.00 - $ 9.99 139,969 8.40 1.4 139,969 8.40 $ 10.00 - $ 14.99 873,324 $ 12.79 8.7 138,600 $ 11.86 1,013,293 $ 12.19 7.7 278,569 $ 10.12 Employee Stock Purchase Plan. The Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan (“ESPP”) authorizes the sale of up to 5,800,000 shares of our common stock to employees. Generally, all full-time, active employees are eligible to participate in the ESPP, subject to certain restrictions. Employee purchases are funded through payroll deductions, and any excess payroll withholdings are returned to the employee. The price for shares purchased under the ESPP is 85 % of F- 32 Table of Contents Index to Financial Statements the lower of the closing price on the first day or the last day of the offering period. At September 30, 2022, 2,103,114 shares were available for issuance under the ESPP. Phantom Plan. Under the Mueller Water Products, Inc. Phantom Plan adopted in 2012 (“Phantom Plan”), we have awarded “phantom units” to certain non-officer employees. A phantom unit settles in cash equal to the price of one share of our common stock on the vesting date. Phantom units vest ratably over three years on each anniversary date of the original grant. We recognize compensation expense for phantom units on a straight-line basis for each tranche of each award based on the closing price of our common stock at each balance sheet date. The outstanding phantom units had a fair value of $ 10.27 per unit at September 30, 2022 and our accrued liability for such units was $ 2.3 million. Phantom Plan activity is summarized below. Phantom Plan units Weighted average grant date fair value per unit Weighted average remaining contractual term (years) Aggregate intrinsic value (millions) Outstanding at September 30, 2019 256,154 $ 11.61 0.9 Granted 188,973 11.26 Vested ( 118,908 ) $ 1.3 Cancelled ( 11,744 ) 11.23 Outstanding at September 30, 2020 314,475 11.16 0.9 Granted 185,808 11.91 Vested ( 131,182 ) $ 1.6 Cancelled ( 24,257 ) 11.30 Outstanding at September 30, 2021 344,844 11.51 0.9 Granted 203,834 13.60 Vested ( 162,969 ) $ 1.6 Cancelled ( 46,578 ) 12.39 Outstanding at September 30, 2022 339,131 $ 12.74 1.1 F- 33 Table of Contents Index to Financial Statements Note 13. Supplemental Balance Sheet Information Selected supplemental asset information is presented below. September 30, 2022 2021 (in millions) Inventories, net: Purchased components and raw materials $ 181.8 $ 106.6 Work in process 56.8 33.5 Finished goods 40.1 44.6 Total inventories, net $ 278.7 $ 184.7 Other current assets: Prepaid expenses $ 14.6 $ 12.8 Non-trade receivables 1.6 10.7 Income taxes 0.8 0.2 Maintenance and repair supplies and tooling 2.8 2.9 Workers’ compensation reimbursement receivable 2.6 0.8 Other current assets 4.4 1.9 Total other current assets $ 26.8 $ 29.3 Property, plant and equipment, net: Land $ 5.7 $ 6.1 Buildings 87.6 84.6 Machinery and equipment 456.0 433.3 Construction in progress 104.7 83.7 Total property, plant and equipment $ 654.0 $ 607.7 Accumulated depreciation ( 352.4 ) ( 324.3 ) Total property, plant and equipment, net $ 301.6 $ 283.4 Other noncurrent assets: Operating lease right-of-use assets $ 26.0 $ 27.1 Maintenance and repair supplies and tooling 20.4 19.3 Workers’ compensation reimbursement receivable 3.6 2.7 Note receivable 1.7 1.8 Pension assets 0.6 16.8 Deferred financing fees 1.0 1.3 Other noncurrent assets 3.4 4.3 Total noncurrent assets $ 56.7 $ 73.3 F- 34 Table of Contents Index to Financial Statements Selected supplemental liability information is presented below. September 30, 2022 2021 (in millions) Other current liabilities: Compensation and benefits $ 40.2 $ 44.6 Customer rebates 16.2 19.6 Interest payable 5.3 6.2 Warranty accrual 6.5 6.7 Deferred revenues 8.1 5.4 Refund liability 4.2 6.0 Operating lease liabilities 4.4 4.0 Taxes other than income taxes 4.4 4.4 Restructuring liabilities 3.3 3.1 Environmental liabilities 0.7 1.2 Income taxes payable 7.5 8.5 Workers’ compensation accrual 4.6 2.6 CARES Act payroll tax liabilities 4.4 3.6 Other current liabilities 7.6 11.2 Total current liabilities $ 117.4 $ 127.1 Other noncurrent liabilities: Operating lease liabilities $ 22.4 $ 24.6 Warranty accrual 4.2 3.0 Transition tax liability 4.1 4.7 Uncertain tax position liability 4.7 4.8 Workers' compensation accrual 6.5 7.9 NMTC liability 3.9 3.9 Asset retirement obligation 3.6 3.6 CARES Act payroll tax liabilities — 3.6 Deferred development grant 2.5 2.5 Other noncurrent liabilities 3.5 3.4 Total noncurrent liabilities $ 55.4 $ 62.0 CARES Act On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act is a relief package intended to assist in many aspects of the American economy through direct secured loans and deferrals of the employer portion of social security taxes through the end of calendar year 2020, with 50% of the deferral due December 31, 2021 and the remainder due December 31, 2022. For the fiscal year ended September 30, 2022 and September 30, 2021, we have elected to defer these obligations, which are approximately $ 4.4 million and $ 7.2 million, respectively, as shown above. F- 35 Table of Contents Index to Financial Statements Note 14. Supplemental Statement of Operations Information Between November 2019 a nd March 2021, we announced the purchase and closure of several facilities. We purchased a new facility in Kimball, Tennessee, to support and enhance our investment in our Chattanooga, Tennessee large casting foundry and closed our facilities in Hammond, Indiana and Woodland, Washington. We also completed the closures of our facilities in Aurora, Illinois and Surrey, British Columbia, Canada during our fiscal year 2022. The majority of the activities from these plants were transferred to our Kimball, Tennessee facility. We incurred $ 1.5 million and $ 5.6 million of expenses, respectively, for the years ended September 30, 2022, and 2021, as a result of these plant closures. The $ 5.6 million incurred during fiscal 2021 included approximately $ 3.2 million of termination benefit costs which are included in Strategic reorganization and other charges and approximately $ 2.4 million in inventory write-downs which are included in Cost of sales in our consolidated statements of operations. Additionally, fiscal year 2022 included Strategic reorganization and other charges related to the Albertville tragedy and certain transaction-related costs. Fiscal year 2021 included Strategic reorganization and other charges related to the Albertville tragedy, and certain transaction costs, partially offset by a one-time settlement gain in connection with an indemnification from a previously owned property. Activity in accrued restructuring, reported as part of other current liabilities, is presented below. 2022 2021 2020 (in millions) Beginning balance $ 3.1 $ 2.8 $ 1.7 Expenses incurred $ 7.2 $ 5.4 $ 4.8 Amounts paid $ ( 7.0 ) $ ( 5.1 ) $ ( 3.7 ) Ending balance $ 3.3 $ 3.1 $ 2.8 Selected supplemental statement of operations information is presented below. 2022 2021 2020 (in millions) Included in selling, general and administrative expenses: Research and development $ 24.5 $ 17.1 $ 15.0 Advertising $ 5.5 $ 3.2 $ 3.3 Interest expense, net: 5.5% Senior Notes $ — $ 17.6 $ 24.8 4.0% Senior Notes 18.0 6.2 — Deferred financing costs amortization 1.0 1.1 1.2 ABL Agreement 0.9 0.9 0.6 Capitalized interest ( 2.6 ) ( 2.3 ) ( 0.3 ) Other interest expense 0.3 0.3 0.3 Total interest expense 17.6 23.8 26.6 Interest income ( 0.7 ) ( 0.4 ) ( 1.1 ) Net interest expense $ 16.9 $ 23.4 $ 25.5 F- 36 Table of Contents Index to Financial Statements Note 15. Accumulated Other Comprehensive Income (Loss) Accumulated other comprehensive income (loss) is as follows: Foreign currency translation Pension liability, net of tax Total (in millions) Balance at September 30, 2021 $ 17.2 $ ( 22.2 ) $ ( 5.0 ) Current period other comprehensive income ( 25.5 ) ( 14.1 ) ( 39.6 ) Balance at September 30, 2022 $ ( 8.3 ) $ ( 36.3 ) $ ( 44.6 ) Note 16. Segment Information We adopted a new management structure effective October 1, 2021 which resulted in a change to our reportable segments. Prior period information has been recast to conform to the current presentation. The recasting has no effect on our previously reported consolidated balance sheets, consolidated statements of operations, or consolidated statements of cash flows. The two newly named business units and reportable segments are Water Flow Solutions and Water Management Solutions. Water Flow Solutions’ product portfolio includes iron gate valves, specialty valves and service brass products. Water Management Solutions’ product and service portfolio includes fire hydrants, repair and installation, natural gas, metering, leak detection, pressure control and software products. Segment results are not reflective of their results on a stand-alone basis. Intersegment sales and transfers are made at selling prices generally intended to cover costs. The determination of segment results excludes certain expenses designated as Corporate because they are not directly attributable to segment operations. Interest expense, loss on early extinguishment of debt and income taxes are not allocated to the 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. Corporate assets principally consist of our cash, operating lease assets, and certain real property previously owned by U.S. Pipe and Anvil. Business segment assets consist primarily of receivables, inventories, property, plant and equipment, intangible assets and other noncurrent assets. The Company has two significant customers that comprise greater than 10% of our gross sales. One customer comprised 21%, 18%, and 17% of consolidated revenues for the fiscal years ended September 30, 2022, 2021, and 2020, respectively. The Company has outstanding accounts receivable from this customer of $ 52.1 million and $ 48.1 million as of September 30, 2022 and 2021, respectively. Another customer comprised 20 %, 19 %, and 17 % of consolidated revenues for the fiscal years ended September 30, 2022, 2021, and 2020, respectively. The Company has outstanding accounts receivable from this customer of $ 38.6 million and $ 32.1 million as of September 30, 2022 and 2021, respectively. The Company reports revenue for these customers in both reportable segments, Water Flow Sol utions and Water Management Solutions. Geographical area information is presented below. United States Israel Other Total (in millions) Property, plant and equipment, net: September 30, 2022 $ 284.9 $ 12.6 $ 4.1 $ 301.6 September 30, 2021 263.9 13.8 5.7 283.4 F- 37 Table of Contents Index to Financial Statements Year ended September 30, 2022 2021 2020 (in millions) Water Flow Solutions disaggregated net revenues: Central $ 190.9 $ 155.1 $ 133.6 Northeast 125.3 110.4 95.1 Southeast 154.3 125.7 108.3 West 182.8 172.4 148.5 United States $ 653.3 $ 563.6 $ 485.5 Canada 55.0 45.7 39.4 Other international locations 5.8 8.5 7.3 $ 714.1 $ 617.8 $ 532.2 Water Management Solutions disaggregated net revenues: Central $ 142.9 $ 125.6 $ 107.3 Northeast 115.1 100.2 112.1 Southeast 109.4 106.5 76.3 West 102.9 99.1 81.8 United States $ 470.3 $ 431.4 $ 377.5 Canada 39.2 38.1 33.4 Other international locations 23.8 23.7 21.0 $ 533.3 $ 493.2 $ 431.9 Summarized financial information for our segments is presented below. F- 38 Table of Contents Index to Financial Statements Water Flow Solutions Water Management Solutions Corporate Total (in millions) Net revenue: 2022 $ 714.1 $ 533.3 $ — $ 1,247.4 2021 617.8 493.2 — 1,111.0 2020 532.2 431.9 — 964.1 Operating income (loss): 2022 $ 118.3 $ 48.7 $ ( 55.4 ) $ 111.6 2021 120.9 70.3 ( 59.5 ) 131.7 2020 104.9 68.7 ( 56.8 ) 116.8 Depreciation and amortization: 2022 $ 30.0 $ 30.3 $ 0.2 $ 60.5 2021 30.5 28.9 0.2 59.6 2020 28.9 28.7 0.2 57.8 Strategic reorganization and other charges: 2022 $ 0.2 $ 0.4 $ 6.6 $ 7.2 2021 0.1 ( 0.4 ) 8.3 8.0 2020 — 0.7 12.3 13.0 Capital expenditures: 2022 $ 43.4 $ 11.3 $ — $ 54.7 2021 51.0 11.6 0.1 62.7 2020 57.3 10.1 0.3 67.7 Intangible assets, net and goodwill September 30, 2022 $ 302.6 $ 157.2 $ — $ 459.8 September 30, 2021 324.1 183.5 — 507.6 Inventories, net: September 30, 2022 $ 160.5 $ 118.2 $ — 278.7 September 30, 2021 $ 104.5 $ 80.2 $ — 184.7 Note 17. Commitments and Contingencies We are involved in various legal proceedings that have arisen in the normal course of operations, including the proceedings summarized below. We provide for costs relating to these matters when a loss is probable and the amount is reasonably estimable. Legal and administrative costs related to these matters are expensed as incurred. The effect of the outcome of these matters on our financial statements cannot be predicted with certainty as any such effect depends on the amount and timing of the resolution of such matters. Other than the litigation described below, we do not believe that any of our outstanding litigation would have a materially adverse effect on our financial position, results of operations, cash flows or liquidity. Environmental. We are subject to a wide variety of laws and regulations concerning the protection of the environment, both with respect to the operations at many of our properties and with respect to remediating environmental conditions that may exist at our own or other properties. We accrue for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and reasonably estimable. In the acquisition agreement pursuant to which a predecessor to Tyco International plc, now Johnson Controls International plc (“Tyco”), sold our businesses to a previous owner in August 1999, Tyco agreed to indemnify us and our affiliates, among other things, for all “Excluded Liabilities.” Excluded Liabilities include, among other things, substantially all liabilities relating to the time prior to August 1999, including environmental liabilities. The indemnity survives indefinitely. Tyco’s indemnity does not cover liabilities to the extent caused by us or the operation of our businesses after August 1999, nor does it cover liabilities arising with respect to businesses or sites acquired after August 1999. Since 2007, Tyco has engaged in multiple corporate restructurings, split-offs and divestitures. While none of these transactions directly affects the indemnification obligations of the Tyco indemnitors under the 1999 acquisition agreement, the result of such transactions is that the assets of, F- 39 Table of Contents Index to Financial Statements 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 in the Ontario Superior Court of Justice 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 the Environmental Protection Agency’s remediation costs, the number and financial viability of the other PRPs (there are four other PRPs currently) and the determination of the final allocation of the costs among the PRPs. Since the amounts of such costs cannot be reasonably estimated at this time, no amounts have been accrued for this matter at September 30, 2022. 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 action and continue to counter such disruption, and work to protect the safety of our employees. While the extent to which the pandemic affects our results will depend on future developments, the pandemic could result in material effects to our future financial position, results of operations, cash flows and liquidity. Mass Shooting Event at our Facility in Albertville, Alabama . On June 15, 2021, we exp erienced a mass shooting event at our facility in Albertville, Alabama. Various claims arising from the event have been filed to date, some of which have been resolved, and we anticipate that additional claims may be made. 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 outcome of outstanding and potential claims, legal proceedings and 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 financial position, results of operations, cash flows or liquidity. F- 40 Table of Contents Index to Financial Statements Note 18. Subsequent Events Dividend Declaration. On October 21, 2022 , our Board of Directors declared a dividend of $ 0.061 per share on our common stock, payable on or about November 21, 2022 to stockholders of record at the close of business on November 10, 2022 . Collective Bargaining Agreement Extension. On October 29, 2022, we successfully negotiated a collective bargaining agreement with the United Steelworkers in our Chattanooga, Tennessee facility. The agreement expires October 29, 2025. F- 41