What changed in this filing

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Item 1. Financial Statements

2023-02-03 compared with 2022-08-05 · 144 added, 219 removed, 428 unchanged (46% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, September 30,

December 31, September 30,

(in millions, except share amounts)

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600,000,000 shares authorized;

156,612,167 and 157,955,433 shares outstanding at June 30, 2022, and September 30, 2021, respectively

156,208,077 and 155,844,138 shares outstanding at December 31, 2022, and September 30, 2022, respectively

Additional paid-in capital 1,271.0 1,279.6

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended Nine months ended

June 30, June 30,

2022 2021 2022 2021

Three months ended

(in millions, except per share amounts)

4 unchanged sentences

Selling, general and administrative 62.9 56.3

Strategic reorganization and other charges 0.6 3.9 3.6 6.1

Strategic reorganization and other (benefits) charges ( 3.7 ) 2.4

Total operating expenses 59.2 58.7

1 unchanged sentence

Other expenses (income):

Pension benefit other than service ( 0.9 ) ( 0.8 ) ( 2.9 ) ( 2.4 )

Pension expense (benefit) other than service 0.9 ( 1.0 )

Interest expense, net 3.7 4.3

Loss on early extinguishment of debt — 16.7 — 16.7

Net other expenses 4.6 3.3

13 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three months ended Nine months ended

June 30, June 30,

2022 2021 2022 2021

Three months ended

(in millions)

Net income $ 22.5 $ 19.4

Other comprehensive (loss) income:

Pension 0.5 0.7 1.3 1.9

Other comprehensive income (loss) :

Pension benefit adjustments 0.9 0.4

Income tax effects ( 0.3 ) ( 0.1 )

Foreign currency translation 4.0 5.7

Total other comprehensive (loss) income, net ( 17.3 ) 4.9 ( 14.5 ) 9.9

Total other comprehensive income, net 4.6 6.0

Comprehensive income $ 27.1 $ 25.4

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Three months ended Nine months ended

June 30, June 30,

2022 2021 2022 2021

stock Additional

capital Accumulated

deficit Accumulated

comprehensive

(loss) income Total

(in millions)

Balance, beginning of period $ 1.6 $ 1.6 $ 1.6 $ 1.6

Change in common stock at par value — — — —

Balance, end of period 1.6 1.6 1.6 1.6

Additional paid-in capital

Balance, beginning of period 1,307.6 1,364.2 1,342.2 1,378.0

Balance at September 30, 2022 $ 1.6 $ 1,279.6 $ ( 567.3 ) $ ( 44.6 ) $ 669.3

Net income — — 22.5 — 22.5

Dividends declared — ( 9.5 ) — — ( 9.5 )

Shares retained for employee taxes ( 0.1 ) — ( 1.9 ) ( 1.0 )

Shares repurchased under buyback program ( 5.0 ) — ( 25.0 ) —

Stock-based compensation — 1.8 — — 1.8

Stock issued under stock compensation plan 0.5 0.5 1.6 1.5

Balance, end of period 1,296.1 1,358.7 1,296.1 1,358.7

Accumulated deficit

Balance, beginning of period ( 600.9 ) ( 676.7 ) ( 643.9 ) ( 714.2 )

Shares retained for employee taxes — ( 1.5 ) — — ( 1.5 )

Common stock issued — 0.6 — — 0.6

Other comprehensive income, net of tax — — — 4.6 4.6

Balance at December 31, 2022 $ 1.6 $ 1,271.0 $ ( 544.8 ) $ ( 40.0 ) $ 687.8

stock Additional

capital Accumulated

deficit Accumulated

comprehensive

(loss) income Total

(in millions)

Balance at September 30, 2021 $ 1.6 $ 1,342.2 $ (643.9) $ (5.0) $ 694.9

Net income — — 19.4 — 19.4

Cumulative effect of accounting change — — — ( 0.1 )

Balance, end of period ( 574.4 ) ( 662.3 ) ( 574.4 ) ( 662.3 )

Accumulated other comprehensive income (loss)

Balance, beginning of period ( 2.2 ) ( 19.7 ) ( 5.0 ) ( 24.7 )

Other comprehensive income ( 17.3 ) 4.9 ( 14.5 ) 9.9

Balance, end of period ( 19.5 ) ( 14.8 ) ( 19.5 ) ( 14.8 )

Total stockholders' equity $ 703.8 $ 683.2 $ 703.8 $ 683.2

Dividends declared — (9.2) — — (9.2)

Stock-based compensation — 2.0 — — 2.0

Shares retained for employee taxes — (1.9) — — (1.9)

Stock repurchased under buyback program (20.0) — — (20.0)

Common stock issued — 0.7 — — 0.7

Other comprehensive income, net of tax — — — 6.0 6.0

Balance at December 31, 2021 $ 1.6 $ 1,313.8 $ (624.5) $ 1.0 $ 691.9

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended

Three months ended

(in millions)

1 unchanged sentence

Net income $ 22.5 $ 19.4

Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition:

Adjustments to reconcile net income to net cash (used in) provided by operating activities, net of acquisition:

Depreciation 7.8 8.0

Amortization 7.0 7.2

Loss on early extinguishment of debt — 16.7

Gain on sale of assets ( 4.0 ) —

Stock-based compensation 1.8 2.0

Pension benefit ( 1.9 ) ( 1.4 )

Pension expense (benefit) 1.1 ( 0.7 )

Deferred income taxes ( 0.9 ) 3.6

8 unchanged sentences

Other noncurrent liabilities ( 2.2 ) ( 5.8 )

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Investing activities:

1 unchanged sentence

Acquisition, net of cash acquired — 0.2

Proceeds from sales of assets — 0.4

Proceeds from sale of assets 5.1 —

Net cash used in investing activities

1 unchanged sentence

Financing activities:

Issuance of debt — 450.0

Repayment of debt — ( 462.4 )

Dividends paid ( 9.5 ) ( 9.2 )

1 unchanged sentence

Common stock issued 0.6 0.7

Deferred financing costs paid — ( 6.0 )

Common stock repurchased under buyback program — ( 20.0 )

Proceeds from financing transaction — 3.9

Financing leases ( 0.1 ) ( 0.1 )

6 unchanged sentences

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

Nine months ended

Three months ended

(in millions)

1 unchanged sentence

Cash paid for interest, net $ 8.6 $ 10.0

Cash paid for income taxes 22.2 12.6

Cash paid for income taxes, net $ 0.2 $ 0.4

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

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2022

FOR THE THREE MONTHS ENDED DECEMBER 31, 2022

Organization and Basis of Presentation

2 unchanged sentences

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.

1 unchanged sentence

The “Company,” “we,” “us” or “our” refer to Mueller Water Products, Inc.

and its subsidiaries, and may also refer to the segment being discussed.

On December 3, 2018, we completed our acquisition of Krausz Industries Development Ltd.

and subsidiaries (“Krausz”).

During the year ended September 30, 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.

and its subsidiaries.

With regard to the Company’s segments, “we,” “us” or “our” may also refer to the segment being discussed.

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 included 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 subsequent to the acquisition are included in the Company’s consolidated statement of operations and consolidated statement of cash flows, respectively.

Refer to Note 2.

for additional disclosures related to the acquisition.

During the three months ended December 31, 2021, we recorded a purchase price adjustment of $0.2 million, resulting in a final purchase price of $19.5 million.

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which require us to make certain estimates and assumptions in recording assets, liabilities, sales and expenses as well as in the disclosure of contingent assets and liabilities.

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In our opinion, all normal and recurring adjustments that we consider necessary for a fair financial statement presentation have been made.

The condensed consolidated balance sheet at September 30, 2021 was derived from audited financial statements, but it does not include all disclosures required by GAAP.

Our business is seasonal as a result of cold weather conditions.

The condensed consolidated balance sheet at September 30, 2022 was derived from our audited financial statements, but it does not include all disclosures required by GAAP.

Our business is seasonal as a result of the impact of cold weather conditions.

Net sales and operating income historically have been lowest in the three month periods ending December 31 and March 31 when the northern United States and all of Canada generally face weather conditions that restrict significant construction activity.

In preparing these financial statements in conformity with GAAP, we have considered and, where appropriate, included the effects of the COVID-19 pandemic on our operations.

The pandemic continues to provide significant challenges to the U.S.

and global economies.

Unless the context indicates otherwise, whenever we refer to a particular year, we mean our fiscal year ended or ending September 30 in that particular calendar year.

Recently Adopted Accounting Guidance

During 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 326 - Current Expected Credit Losses to replace the “incurred loss” impairment approach with an “expected loss” approach, which requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

We 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 was 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.

Recently Adopted Accounting Pronouncements

In December 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2022-06, “Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848” (“ASU 2022-06”).

ASU 2022-06 defers the sunset date for applying the reference rate reform relief in ASC 848 to December 31, 2024 from December 31, 2022.

ASU 2022-06 became effective immediately upon issuance.

In March 2020, the FASB issued ASU No.

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We adopted this standard on October 1, 2021 and there was no material impact to our financial statements.

In December 2019, the FASB issued ASU No.

2019-12, "Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes” (“ASU 2019-12”).

ASU 2019-12 was 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.

Restructuring

Since November 2019, we have announced the purchase and closure of several facilities.

Between November 2019 and 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, Woodland, Washington and Surrey, British Columbia, Canada.

We also announced the closure of our facility in Aurora, Illinois which we expect to complete substantially by the end of fiscal 2022.

The majority of the activities from these facilities have been transferred to our Kimball, Tennessee facility.

We also completed the closure of our facility in Aurora, Illinois during our fiscal year 2022.

The majority of the activities from these plants were transferred to our Kimball, Tennessee facility.

In connection with these reorganizations, we recognized certain restructuring costs.

Activity in accrued restructuring, reported as part of Other current liabilities, is presented below.

Nine months ended

(in millions)

Beginning balance $ 3.1 $ 2.8

Amounts accrued 0.4 2.0

Amounts paid ( 3.0 ) ( 2.2 )

Ending balance $ 0.5 $ 2.6

During the three months ended December 31, 2022, we recorded a $4.0 million gain, before tax, on the sale of the Aurora, Illinois facility.

The restructuring accrual amounts as of December 31, 2022 and December 31, 2021 were immaterial.

New Markets Tax Credit Program

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Incremental costs to maintain the structure during the compliance period are expensed as incurred.

Acquisition of i2O Water Ltd

On June 14, 2021, we acquired all the outstanding capital stock of i2O 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

Accounts payable ( 0.8 )

Other current liabilities ( 1.3 )

Fair value of net assets acquired, net of cash $ 19.5

Revenue from Contracts with Customers

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Disaggregation of Revenue

We disaggregate our revenue from contracts with customers by reportable segment (see Note 10.) and further by geographical region as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

Refer to Note 8.

for disaggregation of 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.

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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 we expect to receive within one year and therefore is included within Other current liabilities in the accompanying consolidated balance sheets.

Deferred revenue represents contract liabilities and are recorded when customers remit cash payments in advance of our satisfaction of performance obligations under contractual arrangements.

Contract liabilities are relieved and revenue is recognized when the performance obligation is satisfied.

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 within Other current liabilities in the accompanying consolidated balance sheets.

Deferred revenue represents contract liabilities and is 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.

Th e table below represents the balances of our customer receivables and deferred revenue.

June 30, September 30,

December 31, September 30,

(in millions)

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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 for sales of product or over time for our software hosting and leak detection monitoring services.

Our performance obligations are satisfied at a point in time for sales of equipment or over time for 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.

We allocate the transaction price of each contract to the performance obligations on the basis of standalone selling price and recognize revenue when control of the performance obligation transfers to the customer.

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 based typically on historical experience and known trends.

We do not recognize variable consideration in the event there are uncertainties in the amount of variable consideration to be paid nor when it is probable there will be a significant reversal in the related revenue.

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 classify shipping and handling costs, such as freight to our customers’ destinations, as a component of Cost of sales.

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.

The revenue recognized at a point in time related to the sale of our products is recognized when the obligations of the terms of our contract are satisfied, which generally occurs upon shipment when control of the product transfers to the customer.

We offer warranties that provide assurance that the products provided will function as intended and comply with any agreed-upon specifications.

These cannot be purchased separately.

Revenue for the sale of our products is 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.

We offer warranties to our customers which provide assurance that the products provided will function as intended and comply with any agreed-upon specifications.

These warranties cannot be purchased separately from us.

Costs to Obtain or Fulfill a Contract

Shipping and handling costs associated with freight activities after the customer has obtained control of a product are included in cost of sales at the time the related revenue is recognized.

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.

Our sales 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, cancellations 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.

1 unchanged sentence

federal statutory income tax rate and the effective income tax rate is presented below.

Three months ended Nine months ended

June 30, June 30,

2022 2021 2022 2021

Three months ended

federal statutory income tax rate 21.0 % 21.0 %

6 unchanged sentences

Nondeductible compensation 0.5 —

Basis difference in foreign investment (0.1) 1.2 (0.1) 1.2

Valuation allowances ( 0.2 ) 1.4

1 unchanged sentence

Effective income tax rate 23.5 % 24.2 %

At June 30, 2022 and September 30, 2021, the gross liabilities for unrecognized income tax benefits were $ 4.9 million and $ 4.8 million, respectively, and are included in Other noncurrent liabilities.

At December 31, 2022 and September 30, 2022, the gross liabilities for unrecognized income tax benefits were $ 4.8 million and $ 4.7 million, respectively, and are included in Other noncurrent liabilities.

Borrowing Arrangements

The components of our long-term debt are as follows:

June 30, September 30,

December 31, September 30,

(in millions)

2 unchanged sentences

Total borrowings 451.4 451.6

Less deferred financing costs ( 4.8 ) ( 5.3 )

Less current portion ( 0.9 ) ( 1.0 )

deferred financing costs ( 4.4 ) ( 4.7 )

current portion ( 0.9 ) ( 0.8 )

Long-term debt $ 446.1 $ 446.1

ABL Agreement.

Our asset-based lending agreement (“ABL Agreement”) consists of a revolving credit facility for up to $ 175.0 million which includes up to $ 25.0 million of swing line loans and may have up to $ 60.0 million of letters of credit.

The ABL Agreement permits us to increase the size of the credit facility by an additional $ 150.0 million in certain circumstances subject to adequate borrowing base availability.

Borrowings under the ABL Agreement 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 Agreement, plus an applicable margin range of from 100 to 125 basis points.

At June 30, 2022 the applicable margin for LIBOR based loans was 200 basis points and for base rate loans was 100 basis points.

The ABL Agreement is subject to mandatory prepayments if total outstanding borrowings under the ABL Agreement are greater than the aggregate commitments under the revolving credit facility or if we dispose of overdue accounts receivable in certain circumstances.

The borrowing base under the ABL Agreement is equal to the sum of (a) 85% of the value of eligible accounts receivable and (b) the lesser of (i) 70% of the value of eligible inventory or (ii) 85% of the net orderly liquidation value of eligible inventory, less certain reserves.

Our asset-based lending agreement, as amended, (“ABL”) is provided by a consortium of banking institutions and consists of a revolving credit facility for up to $ 175.0 million in borrowing that expires on July 29, 2025.

The ABL allows up to $ 25.0 million of swing line loans and up to $ 60.0 million of letters of credit.

The ABL permits us to increase the size of the credit facility by an additional $ 150.0 million in certain circumstances subject to adequate borrowing base availability.

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 from 100 to 125 basis points.

At December 31, 2022 the applicable margin for LIBOR based loans w as 200 basis points and for base rate loans was 100 basis points.

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 Agreement and are jointly and severally liable for any outstanding borrowings.

Our obligations under the ABL Agreement are secured by a first-priority perfected lien on all of our United States inventories, accounts receivable, certain cash and other related items.

The ABL Agreement terminates on July 29, 2025 and 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 or 10% of the Loan Cap as defined in the ABL Agreement.

Excess availability based on June 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.

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 assets.

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 December 31, 2022 data was $162.4 million, as reduced by $ 12.4 million of outstanding letters of credit and $ 0.2 million of accrued fees and expenses.

4.0% Senior Unsecured Notes.

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We capitalized $ 5.5 million of financing costs which are being amortized over the term of the 4.0% Senior Notes using the effective interest method.

Substantially all of our U.S.

subsidiaries guarantee the 4.0% Senior Notes that are subordinate to borrowings under our ABL Agreement.

Based on quoted market prices that are a Level 1 measurement, the outstanding 4.0% Senior Notes had a fair value of $ 392.8 million at June 30, 2022.

An indenture governing the 4.0% Senior Notes (“Indenture”) contains customary covenants and events of default, including covenants that limit our ability to incur certain debt and liens.

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 $ 395.8 million at December 31, 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 June 30, 2022.

We believe we were in compliance with these covenants at December 31, 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.

1 unchanged sentence

Upon a change of control, we would be required to offer to purchase the 4.0% Senior Notes at a price equal to 101% of the outstanding principal amount.

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 had no direct effect on our consolidated financial statements, it created exposure to currency risk for the Canadian subsidiary.

To reduce this exposure, we entered into a U.S.

dollar-Canadian dollar swap contract with the Canadian subsidiary and an offsetting Canadian dollar-U.S.

dollar swap with a domestic bank.

We did not designate these swaps as hedges and the changes in their fair value were included in earnings, offsetting the currency gains and losses associated with the intercompany loan.

The value of our currency swap contracts as of September 30, 2021 was a liability of $1.1 million, and was included in Other current liabilities.

The currency swap contracts expired in February 2022.

Retirement Plans

The components of net periodic benefit cost for our pension plans are presented below.

Three months ended Nine months ended

June 30, June 30,

2022 2021 2022 2021

Three months ended

(in millions)

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Amortization of actuarial net loss 0.9 0.4

Pension benefits other than service ( 0.9 ) ( 0.8 ) ( 2.9 ) ( 2.4 )

Net periodic benefit $ ( 0.6 ) $ ( 0.4 ) $ ( 2.0 ) $ ( 1.2 )

Pension costs (benefits) other than service 0.9 ( 1.0 )

Net periodic costs (benefits) $ 1.1 $ ( 0.7 )

The amortization of actuarial losses, net of tax, is recorded as a component of other comprehensive income (loss).

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2012 Phantom Plan, and Employee stock purchase plan instruments under our 2006 Employee Stock Purchase Plan.

Grants issued during the nine months ended June 30, 2022 are as follows:

Grants issued during the three months ended December 31, 2022 are as follows:

Number granted Weighted average grant date fair value per instrument Total grant date fair value

2 unchanged sentences

MRSUs 166,284 $ 15.08 $ 2.5

Phantom Plan instruments 199,549 13.64 2.7

PRSUs 166,284 $ 11.41 $ 1.9

Restricted stock units 228,692 $ 11.39 $ 2.6

Phantom Plan instruments 267,093 $ 11.41 $ 3.0

Non-qualified stock options 573,279 $ 3.31 $ 1.9

2020 award 57,627 13.81 0.8

Employee stock purchase plan instruments 47,463 $ 2.56 $ 0.1

Quarter ended March 31, 2022

Restricted stock units 88,250 13.03 1.1

Employee stock purchase plan instruments 38,512 3.39 0.1

Quarter ended June 30, 2022

Restricted stock units 4,285 11.66 —

Employee stock purchase plan instruments 40,946 2.94 0.1

An MRSU award represents a target number of units that may be paid out at the end of a three-year award cycle based on a calculation of our relative total shareholder return (“TSR”) performance as compared with the TSR of a selected peer group.

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The expected term represents the average period of time the units are expected to be outstanding.

At June 30, 2022, the outstanding Phantom Plan instruments had a fair value of $ 11.73 per instrument and our liability for Phantom Plan instruments was $ 2.5 million and is included within Other current and Other noncurrent liabilities.

At December 31, 2022, the outstanding Phantom Plan instruments had a fair v alue of $ 10.76 pe r instrument and our liability for Phantom Plan instruments was $ 1.4 million and is included within Other current and Other noncurrent liabilities.

Stock options generally vest ratably over three years on each anniversary date.

9 unchanged sentences

The expected term represents the average period of time the options are expected to be outstanding.

A PRSU award consists of a number of units that may be paid out at the end of a three-year award cycle consisting of a series of annual performance periods coinciding with our fiscal years.

After we establish the financial performance targets related to PRSUs for a given performance period, typically during the first quarter of that fiscal year, we consider that portion of a PRSU award to be granted.

Thus, each award consists of a grant in the year of award and grants in the two following years.

A PRSU award consists of a target number of units that may be paid out at the end of a three-year award cycle.

Settlements, in our common shares, will range from zero to two times the number of PRSUs granted, depending on our financial performance relative to the targets.

We did not issue any shares of common stock to settle PRSUs vested during the three months ended June 30, 2022;

however, we issued 240,412 shares of common stock to settle PRSUs vested during the nine months ended June 30, 2022.

Additionally, we issued 3,716 and 238,811 shares of common stock to settle restricted stock units vested during the three and nine months ended June 30, 2022, respectively.

Finally, we issued no shares of common stock to settle stock options exercised during the three months ended June 30, 2022;

however, we issued 24,153 shares of common stock to settle stock options exercised during the nine months ended June 30, 2022.

Operating income included stock-based compensation expense of $ 2.5 million and $3.4 million for the three months ended June 30, 2022 and 2021, respectively.

Operating income included stock-based compensation expense of $7.6 million and $8.4 million during the nine months ended June 30, 2022 and 2021, respectively.

At June 30, 2022, there was approximately $ 10.5 million of unrecognized compensation expense related to stock-based compensation arrangements and there were 53,067 PRSUs that have been awarded for the 2022 performance period for which performance goal achievement cannot yet be determined.

We excluded 892,662 and 131,178 stock-based compensation instruments from the calculations of diluted earnings per share in the three months ended June 30, 2022 and 2021, respectively, and 750,343 and 566,666 for the nine months ended June 30, 2022 and 2021, respectively, since their inclusion would have been antidilutive.

We issued 282,472 shares of common stock to settle PRSUs vested during the three months ended December 31, 2022.

Additionally, we issued 128,048 and 37,734 shares of common stock to settle restricted stock units vested and stock options exer cised, respectively, during the three months ended December 31, 2022.

Additionally, 131,670 shares of common stock were surrendered to us to pay the withholding obligations of equity award participants.

Operating income included stock-based compensation expense of $ 2.7 million and $ 2.6 million during the three months ended December 31, 2022 and 2021, respectively.

At December 31, 2022, there was approximately $ 15.8 million of unrecognized compensation expense related to stock-based compensation arrangemen ts, which will be expensed through December 2025.

We excluded 1,274,371 and 277,344 stock-based compensation instruments from the calculations of diluted earnings per share in the three months ended December 31, 2022 and 2021, respectively, since their inclusion would have been antidilutive.

Supplemental Balance Sheet Information

Selected supplemental asset information is presented below.

June 30, September 30,

December 31, September 30,

(in millions)

Purchased components and raw material $ 154.6 $ 100.9

Purchased components and raw materials $ 200.2 $ 181.8

Work in process, net 56.0 56.8

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Selected supplemental liability information is presented below.

June 30, September 30,

December 31, September 30,

(in millions)

2 unchanged sentences

Customer rebates 21.3 16.2

Income taxes payable 15.1 7.5

Warranty accrual 6.5 6.5

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Interest payable 0.8 5.3

Income taxes payable 4.8 8.5

Other current liabilities 11.0 7.6

8 unchanged sentences

Asset retirement obligation 3.6 3.6

CARES Act payroll tax liabilities — 3.6

Deferred development grant 2.5 2.5

2 unchanged sentences

Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis each September 1 st and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

The following table summarizes information concerning our goodwill balance in the nine months ended June 30, 2022, in millions.

The following table summarizes information concerning our goodwill, all of which is within our Water Management Solutions segment, during the three months ended December 31, 2022, in millions.

Balance at September 30, 2022:

Acquisition adjustments 0.1

Effects of changes in foreign currency exchange rates ( 6.6 )

Balance at June 30, 2022 $ 108.6

Goodwill $ 822.7

Accumulated impairment ( 724.1 )

Net goodwill 98.6

Activity during the three months ended December 31, 2022:

Change in foreign currency exchange rates 1.4

Balance at December 31, 2022 $ 100.0

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.

Solutions’ product portfolio includes iron gate valves, specialty valves and service brass products.

We have two reportable segments, 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.

Su mmarized financial information for our segments is presented below.

Three months ended Nine months ended

June 30, June 30,

2022 2021 2022 2021

Three months ended

(in millions)

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$ 14.8 $ 15.2

Strategic reorganization and other charges:

Strategic reorganization and other (benefits) charges:

Water Flow Solutions $ — $ —

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Corporate — —

$ 10.7 $ 15.0 $ 36.7 $ 46.1

Water Flow Solutions disaggregated net revenue:

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Current period other comprehensive income 0.6 4.0 4.6

Balance at June 30, 2022 $ ( 21.2 ) $ 1.7 $ ( 19.5 )

Balance at December 31, 2022 $ ( 35.7 ) $ ( 4.3 ) $ ( 40.0 )

Commitments and Contingencies

1 unchanged sentence

We provide for costs relating to these matters when a loss is probable and the amount is reasonably estimable.

Legal costs related to these matters are expensed as incurred.

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.

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On July 13, 2010, Rohcan Investments Limited, the former owner of property leased by Mueller Canada Ltd.

and located in Milton, Ontario, filed suit against Mueller Canada Ltd.

and located in Milton, Ontario, filed a lawsuit 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.

On November 15, 2022, Mueller Canada Ltd.

agreed to pay Rohcan Investments Limited C$1.5 million in settlement of all liability, damages and other claims related to the lawsuit.

We have paid the settlement amount, and are pursuing indemnification from a former owner for certain potential liabilities that are alleged in this lawsuit.

The purchaser of U.S.

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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 June 30, 2022.

Since the amounts of such costs cannot be reasonably estimated at this time, no amounts have been accrued for this matter at December 31, 2022.

The COVID-19 Pandemic.

2 unchanged sentences

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.

While the extent to which the pandemic continues to affect 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 Mueller Co.

1 unchanged sentence

On June 15, 2021, we experienced a mass shooting event at our Mueller Co.

facility in Albertville, Alabama, in which two employees were killed and two employees were injured.

facility in Albertville, Alabama.

Various claims arising from the event have been filed to date, and we anticipate that additional claims may be made and that liability under such claims, if any, is not expected to have a material adverse effect on our results of operations or cash flows.

However, the outcome of these claims, or legal proceedings, and related effects arising from this event cannot be predicted with certainty.

Indemnifications .

Indemnification .

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.

11 unchanged sentences

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.

During the three months ended June 30, 2022, we recorded $ 4.5 million of warranty obligations.

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.

1 unchanged sentence

Subsequent Events

On July 27, 2022 , our Board of Directors declared a dividend of $ 0.058 per share on our common stock, payable on or about August 22, 2022 to stockholders of record at the close of business on August 10, 2022 .

In July 2022, the Company entered into an amendment to the collective bargaining agreement with Albertville, AL USWA 65B to extend the current agreement to October 2027 on substantially similar terms.

In August 2022, the Company entered into an amendment to its Decatur, IL collective bargaining agreement with Local 7-838 United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO (United Steelworkers, USW) to extend the current agreement to June 2027 on substantially similar terms.

On January 25, 2023 , our Board of Directors declared a dividend of $ 0.061 per share on our common stock, payable on or about February 21, 2023 to stockholders of record at the close of business on February 10, 2023 .

A new collective bargaining agreement with the International Association of Machinists and Aerospace Workers at our Chattanooga, Tennessee facility was successfully negotiated and signed in January, 2023.

The agreement expires January 14, 2027.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements