What changed in this filing

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Item 1. Financial Statements

2023-05-09 compared with 2023-02-03 · 104 added, 68 removed, 504 unchanged (25% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, September 30,

March 31, September 30,

(in millions, except share amounts)

21 unchanged sentences

600,000,000 shares authorized;

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

156,366,647 and 155,844,138 shares outstanding at March 31, 2023, and September 30, 2022, respectively

Additional paid-in capital 1,264.3 1,279.6

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended

Three months ended Six months ended

March 31, March 31,

2023 2022 2023 2022

(in millions, except per share amounts)

4 unchanged sentences

Selling, general and administrative 64.2 58.0 127.1 114.3

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

Strategic reorganization and other charges (benefits) 0.7 0.6 ( 3.0 ) 3.0

Total operating expenses 64.9 58.6 124.1 117.3

18 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three months ended

Three months ended Six months ended

March 31, March 31,

2023 2022 2023 2022

(in millions)

1 unchanged sentence

Other comprehensive income (loss):

Pension benefit adjustments 0.9 0.4

Pension actuarial amortization 0.9 0.4 1.8 0.8

Income tax effects ( 0.3 ) — ( 0.6 ) ( 0.1 )

Foreign currency translation ( 2.1 ) ( 3.6 ) 1.9 2.1

Total other comprehensive income, net 4.6 6.0

Total other comprehensive income (loss), net ( 1.5 ) ( 3.2 ) 3.1 2.8

Comprehensive income $ 19.8 $ 20.4 $ 46.9 $ 45.8

17 unchanged sentences

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

Net income — — 21.3 — 21.3

Dividends declared — ( 9.5 ) — — ( 9.5 )

Stock-based compensation — 2.4 — — 2.4

Common stock issued — 0.4 — — 0.4

Other comprehensive loss, net of tax — — — ( 1.5 ) ( 1.5 )

Balance at March 31, 2023 $ 1.6 $ 1,264.3 $ ( 523.5 ) $ ( 41.5 ) $ 700.9

stock Additional

13 unchanged sentences

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

Net income — — 23.6 — 23.6

Dividends declared — ( 9.1 ) — — ( 9.1 )

Stock-based compensation — 2.4 — — 2.4

Shares retained for employee taxes — 0.1 — — 0.1

Common stock issued — 0.4 — — 0.4

Other comprehensive loss, net of tax — — — ( 3.2 ) ( 3.2 )

Balance at March 31, 2022 $ 1.6 $ 1,307.6 $ ( 600.9 ) $ ( 2.2 ) $ 706.1

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended

Six months ended

(in millions)

6 unchanged sentences

Stock-based compensation 4.2 4.4

Pension expense (benefit) 1.1 ( 0.7 )

Pension net periodic cost (benefit) 2.2 ( 1.3 )

Deferred income taxes 0.1 6.1

11 unchanged sentences

Capital expenditures ( 20.5 ) ( 26.0 )

Acquisition, net of cash acquired — 0.2

Acquisition purchase price adjustment — 0.2

Proceeds from sale of assets 5.1 —

6 unchanged sentences

Common stock repurchased under buyback program — ( 20.0 )

Financing leases ( 0.1 ) ( 0.1 )

Payments for finance lease obligations ( 0.6 ) ( 0.1 )

Net cash used in financing activities

5 unchanged sentences

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

Three months ended

Six months ended

(in millions)

6 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2022

AS OF AND FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2023

Organization and Basis of Presentation

2 unchanged sentences

These segments are based on a management reorganization that became effective October 1, 2021.

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.

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

Water Management Solutions’ portfolio includes fire hydrants, repair and installation, natural gas, metering, leak detection, pressure control and software products and services.

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

25 unchanged sentences

We evaluated our contracts and the optional expedients provided by ASU 2020-04.

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

We adopted ASU 2020-04 on October 1, 2021 and there was no material impact to our financial statements.

In December 2019, the FASB issued ASU No.

11 unchanged sentences

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.

The restructuring accrual amounts as of March 31, 2023 and September 30, 2022 were immaterial.

New Markets Tax Credit Program

7 unchanged sentences

The investment fund contributed $ 16.5 million cash for a 99.99% stake in a joint venture (“Sub-CDE”) with a CDE.

T he Sub-CDE then loaned $ 16.2 million to us, with the use of the loan proceeds restricted to foundry project expenditures.

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.

22 unchanged sentences

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 within Other current liabilities in the accompanying consolidated balance sheets.

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 of when we expect to recognize revenue.

We include current deferred revenue within Other current liabilities in the accompanying condensed 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.

December 31, September 30,

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

March 31, September 30,

(in millions)

7 unchanged sentences

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 equipment 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 product 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.

7 unchanged sentences

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.

These warranties cannot be purchased separately from our products.

Costs to Obtain or Fulfill a Contract

2 unchanged sentences

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.

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 the practical expedient and do not capitalize the related costs and expense them as incurred.

The reconciliation between the U.S.

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

Three months ended

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March 31, March 31,

2023 2022 2023 2022

federal statutory income tax rate 21.0 % 21.0 % 21.0 % 21.0 %

9 unchanged sentences

Effective income tax rate 23.9 % 23.1 % 23.7 % 23.6 %

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.

At March 31, 2023 and September 30, 2022, the gross liabilities for unrecognized income tax benefits were $ 4.9 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:

December 31, September 30,

March 31, September 30,

(in millions)

6 unchanged sentences

ABL Agreement.

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.

Our asset-based lending agreement, as amended, (“ABL”) is provided by a syndicate 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.

As of March 31, 2023, borrowings under the ABL bore 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 March 31, 2023 the applicable margin for LIBOR based loans was 200 basis points and for base rate loans was 100 basis points.

On April 5, 2023, we amended the ABL.

This amendment replaced LIBOR-based loans with Secured Overnight Financing Rate (“SOFR”) based loans plus an adjustment of 10 basis points, among other immaterial modifications.

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.

5 unchanged sentences

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.

Excess availability based on March 31, 2023 data was $ 162.5 million, as reduced by $ 12.4 million of outstanding letters of credit and $ 0.1 million of accrued fees and expenses.

4.0% Senior Unsecured Notes.

1 unchanged sentence

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.

Proceeds from the 4.0% Senior Notes, along with cash on hand, were used to redeem our previously existing 5.5% Unsecured 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.

Based on quoted market prices, which is a Level 1 measurement, the outstanding 4.0% Senior Notes had a fair value of $ 407.9 million at March 31, 2023.

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.

There are no financial maintenance covenants associated with the Indenture.

We believe we were in compliance with these covenants at December 31, 2022.

We believe we were in compliance with these covenants at March 31, 2023.

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.

2 unchanged sentences

Retirement Plans

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

Three months ended

The components of net periodic costs (benefits) for our pension plans are presented below.

Three months ended Six months ended

March 31, March 31,

2023 2022 2023 2022

(in millions)

11 unchanged sentences

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

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

Grants issued during the six months ended March 31, 2023 are as follows:

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

7 unchanged sentences

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

Total - Quarter ended December 31, 2022 $ 12.0

Quarter ended March 31, 2023

Restricted stock units 82,769 $ 13.89 $ 1.1

Phantom Plan instruments 8,367 $ 13.42 $ 0.1

Employee stock purchase plan instruments 56,066 $ 2.28 $ 0.1

Total - Quarter ended March 31, 2023 $ 1.3

Total - Year to date ended March 31, 2023 $ 13.3

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

1 unchanged sentence

Compensation expense attributed to MRSUs is based on the fair value of the awards on their respective grant dates, as determined using a Monte Carlo model.

The assumptions used to determine the grant date fair value are indicated below.

For these awards, compensation expense is recognized even if the awards are not earned or vested.

The assumptions used to determine the grant date fair value are indicated below for awards granted to date during the current fiscal year.

November 29, 2022

7 unchanged sentences

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

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.

At March 31, 2023, the outstanding Phantom Plan instruments had a fair value of $ 13.94 per instrument and our liability for Phantom Plan instruments was $ 2.5 million and is included within Other current and Other noncurrent liabilities.

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

Compensation expense attributed to stock options is based on the fair value of the awards on their respective grant dates, using a Black-Scholes model.

The assumptions used to determine the grant date fair value are indicated below.

The assumptions used to determine the grant date fair value are indicated below for awards granted to date during the current fiscal year.

November 29, 2022

8 unchanged sentences

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

We issued 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.

We issued 282,472 shares of common stock to settle PRSUs vested during the six months ended March 31, 2023;

no shares of common stock were issued to settle PRSUs vested during the three months ended March 31, 2023.

Additionally, we issued 87,975 and 216,023 shares of common stock to settle restricted stock units vested during the three and six months ended March 31, 2023, respectively.

Finally, we issued 24,217 and 61,951 shares of common stock to settle stock options exercised during the three and six months ended March 31, 2023.

Common shares totaling 1,633 and 136,936 were surrendered to us to pay the applicable tax withholding obligations of equity award participants for the three and six months ended March 31, 2023.

Operating income included stock-based compensation expense of $ 3.4 million and $ 2.5 million during the three months ended March 31, 2023 and 2022, respectively.

Operating income included stock-based compensation expense of $ 6.2 million and $ 5.1 million during the six months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, there was approximately $ 14.9 million of unrecognized compensation expense related to stock-based compensation arrangements, which will be expensed through February 2026.

We excluded 998,607 and 944,631 stock-based compensation instruments from the calculations of diluted earnings per share in the three months ended March 31, 2023 and 2022, respectively, and 1,269,484 and 563,299 for the six months ended March 31, 2023 and 2022, respectively, since their inclusion would have been antidilutive.

Supplemental Balance Sheet Information

Selected supplemental asset information is presented below.

December 31, September 30,

March 31, September 30,

(in millions)

29 unchanged sentences

Selected supplemental liability information is presented below.

December 31, September 30,

March 31, September 30,

(in millions)

27 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, all of which is within our Water Management Solutions segment, during the three months ended December 31, 2022, in millions.

The following table summarizes information concerning our goodwill, all of which is within our Water Management Solutions segment, during the six months ended March 31, 2023, in millions.

Balance at September 30, 2022:

1 unchanged sentence

Accumulated impairment ( 724.1 )

Net goodwill 98.6

Activity during the three months ended December 31, 2022:

Goodwill, net 98.6

Activity during the six months ended March 31, 2023:

Change in foreign currency exchange rates 0.4

Balance at December 31, 2022 $ 100.0

Balance at March 31, 2023

Segment Information

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

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

Water Management Solutions’ portfolio includes fire hydrants, repair and installation, natural gas, metering, leak detection, pressure control and software products and services.

Summarized financial information for our segments is presented below.

Three months ended Six months ended

March 31, March 31,

2023 2022 2023 2022

(in millions)

13 unchanged sentences

$ 15.5 $ 14.8 $ 30.3 $ 30.0

Strategic reorganization and other (benefits) charges:

Strategic reorganization and other charges (benefits):

Water Flow Solutions $ — $ — $ — $ —

6 unchanged sentences

Corporate — — — —

$ 10.6 $ 15.0 $ 20.5 $ 26.0

Water Flow Solutions disaggregated net revenue:

18 unchanged sentences

Accumulated other comprehensive income (loss) is as follows:

Pension, net of tax Foreign currency translation Total

net of tax Foreign currency translation Total

(in millions)

1 unchanged sentence

Current period other comprehensive income 1.2 1.9 3.1

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

Balance at March 31, 2023 $ ( 35.1 ) $ ( 6.4 ) $ ( 41.5 )

Commitments and Contingencies

18 unchanged sentences

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.

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

The purchaser of U.S.

5 unchanged sentences

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 December 31, 2022.

Since the amounts of such costs cannot be reasonably estimated at this time, no amounts have been accrued for this matter at March 31, 2023.

The COVID-19 Pandemic.

7 unchanged sentences

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.

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 materially 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.

2 unchanged sentences

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.

We cannot estimate the potential amount of future payments under these indemnities unless 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.

11 unchanged sentences

Subsequent Events

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.

On April 5, 2023, we amended our ABL to replace LIBOR-based loans with SOFR-based loans plus a 10 basis point adjustment, among other immaterial modifications.

On April 25, 2023 , our Board of Directors declared a dividend of $ 0.061 per share on our common stock, payable on or about May 22, 2023 to stockholders of record at the close of business on May 10, 2023 .

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