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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-32892
MUELLER WATER PRODUCTS, INC.
(Exact name of registrant as specified in its charter)

Delaware |  | 20-3547095
(State or other jurisdiction of |  | (I.R.S. Employer
incorporation or organization) |  | Identification No.)

1200 Abernathy Road N.E.
Suite 1200
Atlanta, GA 30328
(Address of principal executive offices)
(770) 206-4200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common stock, par value $0.01 | MWA | New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
There were 156,485,455 shares of common stock of the registrant outstanding at July 31, 2023.

TABLE OF CONTENTS

ITEM |  | PAGE
PART I. | FINANCIAL INFORMATION |
Item 1. | Financial Statements |
| Unaudited Condensed Consolidated Balance Sheets - June 30, 2023 and September 30, 2022 | 3
| Unaudited Condensed Consolidated Statements of Operations - Three and Nine Months Ended June 30, 2023 and 2022 | 4
| Unaudited Condensed Consolidated Statements of Comprehensive Income - Three and Nine Months Ended June 30, 2023 and 2022 | 5
| Unaudited Condensed Consolidated Statements of Stockholders' Equity - Three and Nine Months Ended June 30, 2023 and 2022 | 6
| Unaudited Condensed Consolidated Statements of Cash Flows - Nine Months Ended June 30, 2023 and 2022 | 8
| Notes to the Unaudited Condensed Consolidated Financial Statements | 10
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24
Item 4. | Controls and Procedures | 34
PART II. | OTHER INFORMATION |
Item 1. | Legal Proceedings | 35
Item 1A. | Risk Factors | 35
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 35
Item 6. | Exhibits | 35
| Signatures | 35

2

Table of Contents
PART I
Item 1. FINANCIAL STATEMENTS
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

| June 30, |  | September 30,
| 2023 |  | 2022
| (in millions, except share amounts)
Assets: |  |  |
Cash and cash equivalents | $ | 141.2 |  |  | $ | 146.5 |
Receivables, net of allowance for credit losses of $6.4 million and $5.6 million | 210.3 |  |  | 228.0 |
Inventories, net | 312.7 |  |  | 278.7 |
Other current assets | 27.2 |  |  | 26.8 |
Total current assets | 691.4 |  |  | 680.0 |
Property, plant and equipment, net | 306.9 |  |  | 301.6 |
Intangible assets, net | 341.9 |  |  | 361.2 |
Goodwill, net | 97.0 |  |  | 98.6 |
Other noncurrent assets | 56.1 |  |  | 56.7 |
Total assets | $ | 1,493.3 |  |  | $ | 1,498.1 |
Liabilities and stockholders’ equity: |  |  |
Current portion of long-term debt | $ | 0.8 |  |  | $ | 0.8 |
Accounts payable | 101.0 |  |  | 122.8 |
Other current liabilities | 98.1 |  |  | 117.4 |
Total current liabilities | 199.9 |  |  | 241.0 |
Long-term debt | 446.7 |  |  | 446.1 |
Deferred income taxes | 80.0 |  |  | 86.3 |
Other noncurrent liabilities | 52.5 |  |  | 55.4 |
Total liabilities | 779.1 |  |  | 828.8 |
Commitments and contingencies (Note 10.) |  |  |
Preferred stock: par value $0.01 per share; 60,000,000 shares authorized; none outstanding at June 30, 2023, and September 30, 2022 | — |  |  | — |
Common stock: par value $0.01 per share; 600,000,000 shares authorized; 156,424,123 and 155,844,138 shares outstanding at June 30, 2023, and September 30, 2022, respectively | 1.6 |  |  | 1.6 |
Additional paid-in capital | 1,257.2 |  |  | 1,279.6 |
Accumulated deficit | (499.0) |  |  | (567.3) |
Accumulated other comprehensive loss | (45.6) |  |  | (44.6) |
Total stockholders' equity | 714.2 |  |  | 669.3 |
Total liabilities and stockholders' equity | $ | 1,493.3 |  |  | $ | 1,498.1 |

The accompanying notes are an integral part of the condensed consolidated financial statements.
3

Table of Contents
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

| Three months ended |  | Nine months ended
| June 30, |  | June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (in millions, except per share amounts)
Net sales | $ | 326.6 |  |  | $ | 333.2 |  |  | $ | 974.3 |  |  | $ | 916.0 |
Cost of sales | 226.5 |  |  | 234.9 |  |  | 683.2 |  |  | 637.3 |
Gross profit | 100.1 |  |  | 98.3 |  |  | 291.1 |  |  | 278.7 |
Operating expenses: |  |  |  |  |  |  |
Selling, general and administrative | 60.6 |  |  | 60.8 |  |  | 187.7 |  |  | 175.1 |
Strategic reorganization and other charges | 3.9 |  |  | 0.6 |  |  | 0.9 |  |  | 3.6 |
Total operating expenses | 64.5 |  |  | 61.4 |  |  | 188.6 |  |  | 178.7 |
Operating income | 35.6 |  |  | 36.9 |  |  | 102.5 |  |  | 100.0 |
Other expenses (income): |  |  |  |  |  |  |
Pension expense (benefit) other than service | 0.9 |  |  | (0.9) |  |  | 2.8 |  |  | (2.9) |
Interest expense, net | 3.8 |  |  | 4.2 |  |  | 11.4 |  |  | 13.0 |
Net other expenses | 4.7 |  |  | 3.3 |  |  | 14.2 |  |  | 10.1 |
Income before income taxes | 30.9 |  |  | 33.6 |  |  | 88.3 |  |  | 89.9 |
Income tax expense | 6.4 |  |  | 7.1 |  |  | 20.0 |  |  | 20.4 |
Net income | $ | 24.5 |  |  | $ | 26.5 |  |  | $ | 68.3 |  |  | $ | 69.5 |
Net income per share: |  |  |  |  |  |  |
Basic | $ | 0.16 |  |  | $ | 0.17 |  |  | $ | 0.44 |  |  | $ | 0.44 |
Diluted | $ | 0.16 |  |  | $ | 0.17 |  |  | $ | 0.44 |  |  | $ | 0.44 |
Weighted average shares outstanding: |  |  |  |  |  |  |
Basic | 156.4 |  |  | 157.0 |  |  | 156.2 |  |  | 157.6 |
Diluted | 157.2 |  |  | 157.6 |  |  | 156.8 |  |  | 158.3 |
Dividends declared per share | $ | 0.061 |  |  | $ | 0.058 |  |  | $ | 0.183 |  |  | $ | 0.174 |

The accompanying notes are an integral part of the condensed consolidated financial statements.
4

Table of Contents
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

| Three months ended |  | Nine months ended
| June 30, |  | June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (in millions)
Net income | $ | 24.5 |  |  | $ | 26.5 |  |  | $ | 68.3 |  |  | $ | 69.5 |
Other comprehensive income (loss), net of income tax: |  |  |  |  |  |  |
Pension actuarial amortization | 0.8 |  |  | 0.3 |  |  | 2.0 |  |  | 1.0 |
Foreign currency translation | (4.9) |  |  | (17.6) |  |  | (3.0) |  |  | (15.5) |
Total other comprehensive loss | (4.1) |  |  | (17.3) |  |  | (1.0) |  |  | (14.5) |
Comprehensive income | $ | 20.4 |  |  | $ | 9.2 |  |  | $ | 67.3 |  |  | $ | 55.0 |

The accompanying notes are an integral part of the condensed consolidated financial statements.
5

Table of Contents
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)

| Common stock |  | Additional paid-in capital |  | Accumulated deficit |  | Accumulated other comprehensive (loss) income |  |  |  | Total
| (in millions)
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) |
Stock-based compensation | — |  |  | 1.8 |  |  | — |  |  | — |  |  |  |  | 1.8 |
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 |
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 |
Net income | — |  |  | — |  |  | 24.5 |  |  | — |  |  |  |  | 24.5 |
Dividends declared | — |  |  | (9.6) |  |  | — |  |  | — |  |  |  |  | (9.6) |
Stock-based compensation | — |  |  | 1.7 |  |  | — |  |  | — |  |  |  |  | 1.7 |
Shares retained for employee taxes | — |  |  | (0.1) |  |  | — |  |  | — |  |  |  |  | (0.1) |
Common stock issued | — |  |  | 0.9 |  |  | — |  |  | — |  |  |  |  | 0.9 |
Other comprehensive loss, net of tax | — |  |  | — |  |  | — |  |  | (4.1) |  |  |  |  | (4.1) |
Balance at June 30, 2023 | $ | 1.6 |  |  | $ | 1,257.2 |  |  | $ | (499.0) |  |  | $ | (45.6) |  |  |  |  | $ | 714.2 |

The accompanying notes are an integral part of the condensed consolidated financial statements.
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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)

| Common stock |  | Additional paid-in capital |  | Accumulated deficit |  | Accumulated other 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 |
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 |
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 |
Net income | — |  |  | — |  |  | 26.5 |  |  | — |  |  |  |  | 26.5 |
Dividends declared | — |  |  | (9.1) |  |  | — |  |  | — |  |  |  |  | (9.1) |
Stock-based compensation | — |  |  | 2.2 |  |  | — |  |  | — |  |  |  |  | 2.2 |
Shares retained for employee taxes | — |  |  | (0.1) |  |  | — |  |  | — |  |  |  |  | (0.1) |
Stock repurchased under buyback program | — |  |  | (5.0) |  |  | — |  |  | — |  |  |  |  | (5.0) |
Common stock issued | — |  |  | 0.5 |  |  | — |  |  | — |  |  |  |  | 0.5 |
Other comprehensive income, net of tax | — |  |  | — |  |  | — |  |  | (17.3) |  |  |  |  | (17.3) |
Balance at June 30, 2022 | $ | 1.6 |  |  | $ | 1,296.1 |  |  | $ | (574.4) |  |  | $ | (19.5) |  |  |  |  | $ | 703.8 |

The accompanying notes are an integral part of the condensed consolidated financial statements.
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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

| Nine months ended
| June 30,
| 2023 |  | 2022
| (in millions)
Operating activities: |  |  |
Net income | $ | 68.3 |  |  | $ | 69.5 |
Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition: |  |  |
Depreciation | 25.1 |  |  | 23.8 |
Amortization | 21.0 |  |  | 21.1 |
Gain on sale of assets | (3.7) |  |  | — |
Stock-based compensation | 5.9 |  |  | 6.6 |
Pension net periodic cost (benefit) | 3.4 |  |  | (1.9) |
Deferred income taxes | (6.7) |  |  | 1.8 |
Inventory reserves provision | 0.4 |  |  | 3.9 |
Other, net | 0.7 |  |  | 0.7 |
Changes in assets and liabilities, net of acquisition: |  |  |
Receivables, net | 18.2 |  |  | (10.6) |
Inventories | (34.1) |  |  | (71.3) |
Other assets | (2.0) |  |  | (5.5) |
Accounts payable | (21.8) |  |  | 6.7 |
Other current liabilities | (19.4) |  |  | (23.1) |
Other noncurrent liabilities | (2.8) |  |  | (1.2) |
Net cash provided by operating activities | 52.5 |  |  | 20.5 |
Investing activities: |  |  |
Capital expenditures | (32.4) |  |  | (36.7) |
Acquisition purchase price adjustment | — |  |  | 0.2 |
Proceeds from sale of assets | 5.1 |  |  | — |
Net cash used in investing activities | (27.3) |  |  | (36.5) |
Financing activities: |  |  |
Dividends paid | (28.6) |  |  | (27.4) |
Employee taxes related to stock-based compensation | (1.6) |  |  | (1.9) |
Common stock issued | 1.9 |  |  | 1.6 |
Common stock repurchased under buyback program | — |  |  | (25.0) |
Payments for finance lease obligations | (0.9) |  |  | (0.4) |
Net cash used in financing activities | (29.2) |  |  | (53.1) |
Effect of currency exchange rate changes on cash | (1.3) |  |  | (3.5) |
Net change in cash and cash equivalents | (5.3) |  |  | (72.6) |
Cash and cash equivalents at beginning of period | 146.5 |  |  | 227.5 |
Cash and cash equivalents at end of period | $ | 141.2 |  |  | $ | 154.9 |

The accompanying notes are an integral part of the condensed consolidated financial statements.
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| Nine months ended
| June 30,
| 2023 |  | 2022
| (in millions)
Supplemental cash flow information: |  |  |
Cash paid for interest, net | $ | 16.5 |  |  | $ | 19.3 |
Cash paid for income taxes, net | $ | 27.5 |  |  | $ | 22.2 |

The accompanying notes are an integral part of the condensed consolidated financial statements.
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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2023
(UNAUDITED)
Note 1. Organization and Basis of Presentation
Mueller Water Products, Inc., a Delaware corporation, together with its consolidated subsidiaries, operates in two business segments: Water Flow Solutions and Water Management Solutions. These segments are based on a management reorganization that became effective October 1, 2021. 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. 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. 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. Actual results could differ from those estimates. All significant intercompany balances and transactions have been eliminated. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2022. 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, 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.
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 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 Accounting Standards Codification (“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. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (“ASU 2020-04”). This 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, but may be adopted prospectively from a date within an interim period subsequent to March 12, 2020. We evaluated our contracts and the optional expedients provided by ASU 2020-04. 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. 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.
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Restructuring
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 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. Additionally, during our fiscal year 2023, we incurred severance costs related to a reorganization of our sales force. In connection with these reorganizations, we recognized certain restructuring costs.
During the nine months ended June 30, 2023, we recorded amounts related to severance and transaction-related costs partially offset by a $4.0 million gain, before tax, on the sale of the Aurora, Illinois facility. Activity in accrued restructuring, reported as part of Other current liabilities, is presented below:

| Nine months ended
| June 30,
| 2023 |  | 2022
| (in millions)
Beginning balance | $ | 3.3 |  |  | $ | 3.1 |
Amounts accrued | 0.9 |  |  | 0.4 |
Amounts paid | (2.0) |  |  | (3.0) |
Ending balance | $ | 2.2 |  |  | $ | 0.5 |

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 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 underlying 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 within Other noncurrent liabilities as a result of its redemption features.
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Direct costs associated with Wells Fargo’s capital contribution were 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 are being 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. 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 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.
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 (i.e., 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 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 pursuant to 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 revenue:

| June 30, |  | September 30,
| 2023 |  | 2022
| (in millions)
Billed receivables | $ | 211.2 |  |  | $ | 230.5 |
Unbilled receivables | 5.5 |  |  | 3.1 |
Gross customer receivables | 216.7 |  |  | 233.6 |
Allowance for credit losses | (6.4) |  |  | (5.6) |
Receivables, net | $ | 210.3 |  |  | $ | 228.0 |
Deferred revenue | $ | 8.7 |  |  | $ | 8.1 |

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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 for sales of equipment or product and 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. 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 do 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.
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 our products.
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 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 do not capitalize the related costs and expense them as incurred.
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Note 3. Income Taxes
The reconciliation between the U.S. federal statutory income tax rate and the effective income tax rate is presented below:

| Three months ended |  | Nine months ended
| June 30, |  | June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
U.S. federal statutory income tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Adjustments to reconcile to the effective tax rate: |  |  |  |  |  |  |
State income taxes, net of federal benefit | 3.2 |  |  | 3.3 |  |  | 3.2 |  |  | 3.3 |
Excess tax benefits related to stock-based compensation | — |  |  | — |  |  | 0.2 |  |  | (0.3) |
Tax credits | (3.5) |  |  | (3.0) |  |  | (2.8) |  |  | (3.0) |
Global Intangible Low-Taxed Income | 1.1 |  |  | 1.1 |  |  | 1.1 |  |  | 1.1 |
Foreign income tax rate differential | (2.2) |  |  | (1.7) |  |  | (2.2) |  |  | (1.7) |
Nondeductible compensation | 0.9 |  |  | 0.9 |  |  | 0.9 |  |  | 0.9 |
Basis difference in foreign investment | — |  |  | (0.1) |  |  | — |  |  | (0.1) |
Valuation allowances | — |  |  | — |  |  | — |  |  | 0.3 |
Other | 0.2 |  |  | (0.4) |  |  | 1.3 |  |  | 1.2 |
Effective income tax rate | 20.7 | % |  | 21.1 | % |  | 22.7 | % |  | 22.7 | %

At June 30, 2023 and September 30, 2022, the gross liabilities for unrecognized income tax benefits were $5.3 million and $4.7 million, respectively, and are included in Other noncurrent liabilities.
Note 4. Borrowing Arrangements
The components of our long-term debt are as follows:

| June 30, |  | September 30,
| 2023 |  | 2022
| (in millions)
4.0% Senior Notes | $ | 450.0 |  |  | $ | 450.0 |
Finance leases | 1.6 |  |  | 1.6 |
Total borrowings | 451.6 |  |  | 451.6 |
Less: deferred financing costs | 4.1 |  |  | 4.7 |
Less: current portion of long-term debt | 0.8 |  |  | 0.8 |
Long-term debt | $ | 446.7 |  |  | $ | 446.1 |

ABL Agreement. 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.
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.
Borrowings under the ABL bear interest at a floating rate equal to SOFR plus an adjustment of 10 basis points 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 June 30, 2023 the applicable margin for SOFR-based loans was 200 basis points and for base rate loans was 100 basis points.
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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 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 June 30, 2023 data was $162.3 million, as reduced by $12.5 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 Unsecured Notes (“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% 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 $400.7 million at June 30, 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 June 30, 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. 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. 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.
Note 5. Retirement Plans
The components of net periodic costs (benefits) for our pension plans are presented below:

| Three months ended |  | Nine months ended
| June 30, |  | June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (in millions)
Service cost | $ | 0.2 |  |  | $ | 0.3 |  |  | $ | 0.6 |  |  | $ | 0.9 |
Pension costs (benefits) other than service: |  |  |  |  |  |  |
Interest cost | 3.4 |  |  | 2.5 |  |  | 10.4 |  |  | 7.3 |
Expected return on plan assets | (3.5) |  |  | (3.8) |  |  | (10.4) |  |  | (11.4) |
Amortization of actuarial net loss | 1.0 |  |  | 0.4 |  |  | 2.8 |  |  | 1.2 |
Pension costs (benefits) other than service | 0.9 |  |  | (0.9) |  |  | 2.8 |  |  | (2.9) |
Net periodic costs (benefits) | $ | 1.1 |  |  | $ | (0.6) |  |  | $ | 3.4 |  |  | $ | (2.0) |

The amortization of actuarial losses, net of income tax, is recorded as a component of other comprehensive loss. For each of the three months ended June 30, 2023 and 2022, the amortization of actuarial net loss is shown net of income tax of $0.2 million in the condensed consolidated statements of comprehensive income. For the nine months ended June 30, 2023 and 2022, the amortization of actuarial loss is shown net of income tax of $0.8 million and $0.3 million respectively, in the condensed consolidated statements of comprehensive income.
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Note 6. Stock-based Compensation Plans
We grant various forms of stock-based compensation, including market-based restricted stock units (“MRSUs”), restricted stock units, stock options and performance-based restricted stock units (“PRSUs”) under our Amended and Restated 2006 Mueller Water Products, Inc. Stock Incentive Plan (the “2006 Stock Plan”), Phantom Plan instruments under our Mueller Water Products, Inc. 2012 Phantom Plan, and Employee stock purchase plan instruments under our 2006 Employee Stock Purchase Plan. Grants issued during the nine months ended June 30, 2023 are as follows:

| Number granted |  | Weighted average grant date fair value per instrument |  | Total grant date fair value (in millions)
Quarter ended December 31, 2022 |  |  |  |  |
MRSUs | 166,284 |  |  | $ | 15.08 |  |  | $ | 2.5 |
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 |
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 |  |  | $ | 2.21 |  |  | 0.1 |
Total - Quarter ended March 31, 2023 |  |  |  |  | $ | 1.3 |
Quarter ended June 30, 2023 |  |  |  |  |
Phantom Plan instruments | 7,176 |  |  | $ | 13.93 |  |  | $ | 0.1 |
Employee stock purchase plan instruments | 45,860 |  |  | $ | 2.28 |  |  | 0.1 |
Total - Quarter ended June 30, 2023 |  |  |  |  | 0.2 |
Total - Year to date ended June 30, 2023 |  |  |  |  | $ | 13.5 |

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. Settlements, in our common shares, will range from zero to two times the number of MRSUs granted, depending on our TSR performance relative to that of the peer group.
Compensation expense attributed to MRSUs is based on the fair value of the awards on their respective grant dates, as determined using a Monte Carlo model. 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
Variables used in determining grant date fair value: |  |
Dividend yield |  | 2.20%
Risk-free rate |  | 4.20%
Expected term (in years) |  | 2.83

The expected dividend yield is based on our estimated annual dividend and our stock price history at the grant date. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield in effect at the grant date with a term equal to the expected term. The expected term represents the average period of time the units are expected to be outstanding.
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At June 30, 2023, the outstanding Phantom Plan instruments had a fair value of $16.23 per instrument and our liability for Phantom Plan instruments was $3.5 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 for awards granted to date during the current fiscal year.

| November 29, 2022
Variables used in determining grant date fair value: |
Dividend yield | 1.80%
Risk-free rate | 3.89%
Expected term (in years) | 6.00

The expected dividend yield is based on our estimated annual dividend and our stock price history at the grant date. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield in effect at the grant date with a term equal to the expected term. The expected term represents the average period of time the options are expected to be outstanding.
A PRSU award consists of a 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 issued 282,472 shares of common stock to settle PRSUs vested during the nine months ended June 30, 2023; no shares of common stock were issued to settle PRSUs vested during the three months ended June 30, 2023. Additionally, we issued 2,098 and 218,121 shares of common stock to settle restricted stock units vested during the three and nine months ended June 30, 2023, respectively. Finally, we issued 2,896 and 64,847 shares of common stock to settle stock options exercised during the three and nine months ended June 30, 2023. Common shares totaling 1,589 and 138,525 were surrendered to us to pay the applicable tax withholding obligations of equity award participants for the three and nine months ended June 30, 2023, respectively.
Operating income included stock-based compensation expense of $2.7 million and $2.5 million during the three months ended June 30, 2023 and 2022, respectively. Operating income included stock-based compensation expense of $8.8 million and $7.6 million during the nine months ended June 30, 2023 and 2022, respectively. At June 30, 2023, there was approximately $11.9 million of unrecognized compensation expense related to stock-based compensation arrangements, which will be expensed through February 2026.
We excluded 249,933 and 892,662 stock-based compensation instruments from the calculations of diluted earnings per share in the three months ended June 30, 2023 and 2022, respectively, and 1,156,428 and 750,343 for the nine months ended June 30, 2023 and 2022, respectively, since their inclusion would have been antidilutive.
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Note 7. Supplemental Balance Sheet Information
Selected supplemental asset information is presented below:

| June 30, |  | September 30,
| 2023 |  | 2022
| (in millions)
Inventories: |  |  |
Purchased components and raw materials | $ | 180.2 |  |  | $ | 181.8 |
Work in process, net | 64.9 |  |  | 56.8 |
Finished goods, net | 67.6 |  |  | 40.1 |
Inventories, net | $ | 312.7 |  |  | $ | 278.7 |
Other current assets: |  |  |
Prepaid expenses | $ | 15.6 |  |  | $ | 14.6 |
Non-trade receivables | 1.7 |  |  | 1.6 |
Maintenance and repair supplies and tooling | 3.9 |  |  | 2.8 |
Income taxes | 0.8 |  |  | 0.8 |
Workers' compensation reimbursement receivable | 1.5 |  |  | 2.6 |
Other current assets | 3.7 |  |  | 4.4 |
Total other current assets | $ | 27.2 |  |  | $ | 26.8 |
Property, plant and equipment: |  |  |
Land | $ | 6.6 |  |  | $ | 5.7 |
Buildings | 104.0 |  |  | 87.6 |
Machinery and equipment | 505.7 |  |  | 456.0 |
Construction in progress | 59.4 |  |  | 104.7 |
Total property, plant and equipment | 675.7 |  |  | 654.0 |
Accumulated depreciation | (368.8) |  |  | (352.4) |
Property, plant and equipment, net | $ | 306.9 |  |  | $ | 301.6 |
Other noncurrent assets: |  |  |
Operating lease right-of-use assets | $ | 25.2 |  |  | $ | 26.0 |
Maintenance and repair supplies and tooling | 21.6 |  |  | 20.4 |
Workers' compensation reimbursement receivable | 3.1 |  |  | 3.6 |
Pension asset | 0.1 |  |  | 0.6 |
Note receivable | 1.8 |  |  | 1.7 |
Deferred financing fees | 0.8 |  |  | 1.0 |
Other noncurrent assets | 3.5 |  |  | 3.4 |
Total other noncurrent assets | $ | 56.1 |  |  | $ | 56.7 |

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Selected supplemental liability information is presented below:

| June 30, |  | September 30,
| 2023 |  | 2022
| (in millions)
Other current liabilities: |  |  |
Compensation and benefits | $ | 33.6 |  |  | $ | 40.2 |
Customer rebates | 12.7 |  |  | 16.2 |
Income taxes payable | 6.4 |  |  | 7.5 |
Warranty accrual | 7.9 |  |  | 6.5 |
Deferred revenue | 8.7 |  |  | 8.1 |
Returned goods accrual | 5.7 |  |  | 4.2 |
Taxes other than income taxes | 2.7 |  |  | 4.4 |
Operating lease liabilities | 5.1 |  |  | 4.4 |
Workers' compensation accrual | 3.1 |  |  | 4.6 |
CARES Act payroll tax liabilities | — |  |  | 4.4 |
Restructuring liabilities | 2.2 |  |  | 3.3 |
Environmental liabilities | 0.7 |  |  | 0.7 |
Interest payable | 0.8 |  |  | 5.3 |
Other current liabilities | 8.5 |  |  | 7.6 |
Total other current liabilities | $ | 98.1 |  |  | $ | 117.4 |
Other noncurrent liabilities: |  |  |
Operating lease liabilities | $ | 21.2 |  |  | $ | 22.4 |
Warranty accrual | 3.1 |  |  | 4.2 |
Transition tax liability | 3.1 |  |  | 4.1 |
Uncertain tax position liability | 5.3 |  |  | 4.7 |
NMTC liability | 3.9 |  |  | 3.9 |
Workers' compensation accrual | 6.1 |  |  | 6.5 |
Environmental liabilities | 3.6 |  |  | 3.6 |
Deferred development grant | 2.5 |  |  | 2.5 |
Other noncurrent liabilities | 3.7 |  |  | 3.5 |
Total other noncurrent liabilities | $ | 52.5 |  |  | $ | 55.4 |

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Goodwill
Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis each September 1 st and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.
The following table summarizes information concerning our goodwill, all of which is within our Water Management Solutions segment, during the nine months ended June 30, 2023, in millions:

Balance at September 30, 2022: |
Goodwill | $ | 822.7 |
Accumulated impairment | (724.1) |
Goodwill, net | 98.6 |
Activity during the nine months ended June 30, 2023: |
Change in foreign currency exchange rates | (1.6) |
Balance at June 30, 2023 | $ | 97.0 |

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Note 8. Segment Information
We have two reportable segments, Water Flow Solutions and Water Management Solutions. 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 |  | Nine months ended
| June 30, |  | June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (in millions)
Net sales, excluding intercompany: |  |  |  |  |  |  |
Water Flow Solutions | $ | 150.1 |  |  | $ | 195.9 |  |  | $ | 472.9 |  |  | $ | 534.7 |
Water Management Solutions | 176.5 |  |  | 137.3 |  |  | 501.4 |  |  | 381.3 |
| $ | 326.6 |  |  | $ | 333.2 |  |  | $ | 974.3 |  |  | $ | 916.0 |
Operating income (loss): |  |  |  |  |  |  |
Water Flow Solutions | $ | 12.6 |  |  | $ | 38.1 |  |  | $ | 52.0 |  |  | $ | 104.8 |
Water Management Solutions | 39.0 |  |  | 12.0 |  |  | 90.3 |  |  | 35.1 |
Corporate | (16.0) |  |  | (13.2) |  |  | (39.8) |  |  | (39.9) |
| $ | 35.6 |  |  | $ | 36.9 |  |  | $ | 102.5 |  |  | $ | 100.0 |
Depreciation and amortization: |  |  |  |  |  |  |
Water Flow Solutions | $ | 8.2 |  |  | $ | 7.6 |  |  | $ | 23.7 |  |  | $ | 22.5 |
Water Management Solutions | 7.6 |  |  | 7.2 |  |  | 22.3 |  |  | 22.2 |
Corporate | — |  |  | 0.1 |  |  | 0.1 |  |  | 0.2 |
| $ | 15.8 |  |  | $ | 14.9 |  |  | $ | 46.1 |  |  | $ | 44.9 |
Strategic reorganization and other charges (benefits): |  |  |  |  |  |  |
Water Flow Solutions | $ | 0.1 |  |  | $ | — |  |  | $ | 0.1 |  |  | $ | — |
Water Management Solutions | 1.0 |  |  | — |  |  | 1.2 |  |  | 0.2 |
Corporate | 2.8 |  |  | 0.6 |  |  | (0.4) |  |  | 3.4 |
| $ | 3.9 |  |  | $ | 0.6 |  |  | $ | 0.9 |  |  | $ | 3.6 |
Capital expenditures: |  |  |  |  |  |  |
Water Flow Solutions | $ | 7.5 |  |  | $ | 8.1 |  |  | $ | 23.1 |  |  | $ | 29.6 |
Water Management Solutions | 4.4 |  |  | 2.6 |  |  | 9.3 |  |  | 7.1 |
Corporate | — |  |  | — |  |  | — |  |  | — |
| $ | 11.9 |  |  | $ | 10.7 |  |  | $ | 32.4 |  |  | $ | 36.7 |
Water Flow Solutions disaggregated net sales: |  |  |  |  |  |  |
Central | $ | 43.0 |  |  | $ | 53.8 |  |  | $ | 131.0 |  |  | $ | 145.0 |
Northeast | 31.7 |  |  | 29.4 |  |  | 93.4 |  |  | 90.5 |
Southeast | 24.8 |  |  | 44.3 |  |  | 86.8 |  |  | 122.3 |
West | 37.8 |  |  | 47.4 |  |  | 123.4 |  |  | 131.3 |
United States | 137.3 |  |  | 174.9 |  |  | 434.6 |  |  | 489.1 |
Canada | 9.8 |  |  | 18.8 |  |  | 29.2 |  |  | 40.7 |
Other international locations | 3.0 |  |  | 2.2 |  |  | 9.1 |  |  | 4.9 |
| $ | 150.1 |  |  | $ | 195.9 |  |  | $ | 472.9 |  |  | $ | 534.7 |
Water Management Solutions disaggregated net sales: |  |  |  |  |  |  |
Central | $ | 47.4 |  |  | $ | 37.7 |  |  | $ | 133.2 |  |  | $ | 101.1 |
Northeast | 44.3 |  |  | 25.4 |  |  | 116.1 |  |  | 78.1 |
Southeast | 37.1 |  |  | 27.8 |  |  | 109.8 |  |  | 79.6 |
West | 31.2 |  |  | 30.8 |  |  | 93.0 |  |  | 77.8 |
United States | 160.0 |  |  | 121.7 |  |  | 452.1 |  |  | 336.6 |
Canada | 10.0 |  |  | 9.7 |  |  | 29.9 |  |  | 26.0 |
Other international locations | 6.5 |  |  | 5.9 |  |  | 19.4 |  |  | 18.7 |
| $ | 176.5 |  |  | $ | 137.3 |  |  | $ | 501.4 |  |  | $ | 381.3 |

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Note 9. Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) is as follows:

| Pension actuarial amortization, net of income tax |  | Foreign currency translation, net of income tax |  | Total
| (in millions)
Balance at September 30, 2022 | $ | (36.3) |  |  | $ | (8.3) |  |  | $ | (44.6) |
Current period other comprehensive income (loss) | 2.0 |  |  | (3.0) |  |  | (1.0) |
Balance at June 30, 2023 | $ | (34.3) |  |  | $ | (11.3) |  |  | $ | (45.6) |

For the nine months ended June 30, 2023, pension actuarial amortization included in the condensed consolidated statements of comprehensive income as a component of pension expense other than service was $2.8 million, net of income tax of $0.8 million. Refer to Note 5. Retirement Plans for further information. For the nine months ended June 30, 2023, foreign currency translation included in the condensed consolidated statements of comprehensive income was $3.0 million, net of $0 income tax.
Note 10. 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, 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.
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 June 30, 2023.
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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 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. Facility in Albertville, Alabama. On June 15, 2021, we experienced a mass shooting event at our Mueller Co. 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 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.
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. 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 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. 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.
Note 11. Subsequent Events
On July 26, 2023, our Board of Directors declared a dividend of $0.061 per share on our common stock, payable on or about August 21, 2023 to stockholders of record at the close of business on August 10, 2023.
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Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto that appear elsewhere in this report. This report contains certain statements that may be deemed “forward-looking statements” within the meaning of the federal securities laws. All statements that address activities, events or developments that the Company intends, expects, plans, projects, believes or anticipates will or may occur in the future are forward-looking statements, including, without limitation, statements regarding outlooks, projections, forecasts, expectations, commitments, trend descriptions and the ability to capitalize on trends, value creation, Board and committee composition plans, long-term strategies and the execution or acceleration thereof, operational improvements, inventory positions, the benefits of capital investments, financial or operating performance including improving sales growth and driving increased margins, capital allocation and growth strategy plans, the Company’s product portfolio positioning and the demand for the Company’s products. Forward-looking statements are based on certain assumptions and assessments made by the Company in light of the Company’s experience and perception of historical trends, current conditions and expected future developments.
Actual results and the timing of events may differ materially from those contemplated by the forward-looking statements due to a number of factors, without limitation, including the future impact of the COVID-19 pandemic on the Company’s operations and results, including effects on the financial health of customers (including collections and inventory positions); logistical challenges and supply chain disruptions, geopolitical conditions, or other events; an inability to realize the anticipated benefits from our operational initiatives, including our large capital investments in Chattanooga and Kimball, Tennessee, and Decatur, Illinois, plant closures, and our reorganization and related strategic realignment activities; an inability to attract or retain a skilled and diverse workforce, increased competition related to the workforce and labor markets; an inability to protect the Company’s information systems against service interruption, misappropriation of data or breaches of security; failure to comply with personal data protection and privacy laws; cyclical and changing demand in core markets such as municipal spending, residential construction, and natural gas distribution; government monetary or fiscal policies; the impact of adverse weather conditions; the impact of manufacturing and product performance; the impact of wage, commodity and materials price inflation; foreign exchange rate fluctuations; the impact of warranty claims; an inability to successfully resolve significant legal proceedings or government investigations; compliance with environmental, trade and anti-corruption laws and regulations; climate change and legal or regulatory responses thereto; changing regulatory, trade and tariff conditions; the failure to integrate and/or realize any of the anticipated benefits of recent acquisitions or divestitures; an inability to achieve some or all of our Environmental, Social, and Governance goals; and other factors that are described in the section entitled “RISK FACTORS” in Item 1A of the Company’s most recent Annual Report on Form 10-K and later filings on Form 10-Q, as applicable.
Forward-looking statements do not guarantee future performance and are only as of the date they are made. The Company undertakes no duty to update its forward-looking statements except as required by law. Undue reliance should not be placed on any forward-looking statements. You are advised to review any further disclosures the Company makes on related subjects in subsequent Forms 10-K, 10-Q, 8-K and other reports filed with the U.S. Securities and Exchange Commission.
Overview
Business
Approximately 60% to 65% of our 2022 net sales were associated with repair and replacement directly related to municipal water infrastructure spending, approximately 25% to 30% of net sales were related to residential construction activity and less than 10% of net sales were related to natural gas utilities spending.
We have experienced a variety of external challenges in 2023 including inflation, raw material availability and supply chain disruptions, including from the war in Ukraine and labor challenges. Additionally, due to ongoing inventory destocking by our distribution partners, lead times returning to pre-pandemic levels for most of our products and end markets adjusting to higher interest rates, especially new residential construction, we are seeing lower order rates for many products compared with the prior year. In July 2023, Blue Chip Economic Indicators forecasted an 11.6% decrease in housing starts for the calendar year 2023 as compared to the calendar year 2022. In addition to experiencing lower production volumes at many of our facilities, we continue to incur additional costs at our facilities associated with unfavorable manufacturing performance and labor which have contributed to higher costs to manufacture our products and in our capital expenditures. We expect challenging demand conditions to persist during the balance of our fiscal year 2023. We will continue to closely monitor the challenging market conditions discussed above and the related uncertainties and risks on our business.
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We have two reportable segments: Water Flow Solutions and Water Management Solutions. Water Flow Solutions’ portfolio includes iron gate valves, specialty valves and service brass products. Water Flow Solutions represented 57% of our fiscal 2022 net sales. Water Management Solutions’ portfolio includes fire hydrants, repair and installation, natural gas, metering, leak detection, pressure control and software products and services. Water Management Solutions represented 43% of our fiscal 2022 net sales.
Results of Operations
Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

| Three months ended June 30, 2023
| Water Flow Solutions |  | Water Management Solutions |  | Corporate |  | Total
| (in millions)
Net sales | $ | 150.1 |  |  | $ | 176.5 |  |  | $ | — |  |  | $ | 326.6 |
Gross profit | $ | 33.6 |  |  | $ | 66.5 |  |  | $ | — |  |  | $ | 100.1 |
Operating expenses: |  |  |  |  |  |  |
Selling, general and administrative | 20.9 |  |  | 26.5 |  |  | 13.2 |  |  | 60.6 |
Strategic reorganization and other charges | 0.1 |  |  | 1.0 |  |  | 2.8 |  |  | 3.9 |
Total operating expenses | 21.0 |  |  | 27.5 |  |  | 16.0 |  |  | 64.5 |
Operating income (loss) | $ | 12.6 |  |  | $ | 39.0 |  |  | $ | (16.0) |  |  | 35.6 |
Non-operating expenses: |  |  |  |  |  |  |
Pension expense other than service |  |  |  |  |  |  | 0.9 |
Interest expense, net |  |  |  |  |  |  | 3.8 |
Income before income taxes |  |  |  |  |  |  | 30.9 |
Income tax expense |  |  |  |  |  |  | 6.4 |
Net income |  |  |  |  |  |  | $ | 24.5 |
| Three months ended June 30, 2022
| Water Flow Solutions |  | Water Management Solutions |  | Corporate |  | Total
| (in millions)
Net sales | $ | 195.9 |  |  | $ | 137.3 |  |  | $ | — |  |  | $ | 333.2 |
Gross profit | $ | 60.8 |  |  | $ | 37.5 |  |  | $ | — |  |  | $ | 98.3 |
Operating expenses: |  |  |  |  |  |  |
Selling, general and administrative | 22.7 |  |  | 25.5 |  |  | 12.6 |  |  | 60.8 |
Strategic reorganization and other charges | — |  |  | — |  |  | 0.6 |  |  | 0.6 |
Total operating expenses | 22.7 |  |  | 25.5 |  |  | 13.2 |  |  | 61.4 |
Operating income (loss) | $ | 38.1 |  |  | $ | 12.0 |  |  | $ | (13.2) |  |  | 36.9 |
Non-operating expenses: |  |  |  |  |  |  |
Pension benefit other than service |  |  |  |  |  |  | (0.9) |
Interest expense, net |  |  |  |  |  |  | 4.2 |
Income before income taxes |  |  |  |  |  |  | 33.6 |
Income tax expense |  |  |  |  |  |  | 7.1 |
Net income |  |  |  |  |  |  | $ | 26.5 |

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Consolidated Analysis
Net sales in the three months ended June 30, 2023 decreased $6.6 million or 2.0% to $326.6 million as compared with $333.2 million in the prior year period primarily as a result of a decrease in volume in our Water Flow Solutions segment, which was partially offset by higher pricing across most of our product lines in both our Water Flow Solutions and Water Management Solutions segments as well as an increase in volume in our Water Management Solutions segment.
Gross profit in the three months ended June 30, 2023 increased $1.8 million or 1.8% to $100.1 million from $98.3 million in the prior year period primarily as a result of higher pricing across most of our product lines. This increase was partially offset by overall lower net volume, unfavorable manufacturing performance predominately in Water Flow Solutions as well as inflation. The unfavorable manufacturing performance was due to outsourcing costs, product mix, supply chain disruption and machine downtime mainly in our foundry operations. Additionally, we incurred a $4.5 million warranty accrual charge in the prior year. Gross margin was 30.6% in the three months ended June 30, 2023 as compared with 29.5% in the prior year period.
Selling, general and administrative expenses (“SG&A”) in the three months ended June 30, 2023 decreased $0.2 million or 0.3% to $60.6 million from $60.8 million in the prior year period primarily due to a decrease in personnel expense and software licensing expense, partially offset by higher inflation and foreign exchange. SG&A as a percentage of net sales was 18.6% and 18.2% for the three months ended June 30, 2023 and June 30, 2022, respectively.
Strategic reorganization and other charges in the three months ended June 30, 2023 was $3.9 million which primarily consisted of severance and certain transaction-related expenses. Strategic reorganization and other charges for the three months ended June 30, 2022 was $0.6 million, which primarily consisted of costs associated with the closures of our facilities in Aurora, Illinois and Surrey, British Columbia, Canada.
Net interest expense in the three months ended June 30, 2023 declined $0.4 million or 9.5% to $3.8 million as compared with $4.2 million in the prior year period primarily due to higher interest income as a result of higher interest rates. The components of net interest expense are provided below:

| Three months ended
| June 30,
| 2023 |  | 2022
| (in millions)
4.0% Senior Notes | $ | 4.5 |  |  | $ | 4.5 |
Deferred financing costs amortization | 0.1 |  |  | 0.2 |
ABL Agreement | 0.3 |  |  | 0.3 |
Capitalized interest | (0.3) |  |  | (0.7) |
Other interest expense | 0.1 |  |  | — |
Total interest expense | 4.7 |  |  | 4.3 |
Interest income | (0.9) |  |  | (0.1) |
Interest expense, net | $ | 3.8 |  |  | $ | 4.2 |

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The reconciliation between the U.S. federal statutory income tax rate and the effective income tax rate is presented below:

| Three months ended
| June 30,
| 2023 |  | 2022
U.S. federal statutory income tax rate | 21.0 | % |  | 21.0 | %
Adjustments to reconcile to the effective tax rate: |  |  |
State income taxes, net of federal benefit | 3.2 |  |  | 3.3 |
Tax credits | (3.5) |  |  | (3.0) |
Global Intangible Low-Taxed Income | 1.1 |  |  | 1.1 |
Foreign income tax rate differential | (2.2) |  |  | (1.7) |
Nondeductible compensation | 0.9 |  |  | 0.9 |
Basis difference in foreign investment | — |  |  | (0.1) |
Other | 0.2 |  |  | (0.4) |
Effective income tax rate | 20.7 | % |  | 21.1 | %

Segment Analysis
Water Flow Solutions
Net sales in the three months ended June 30, 2023 decreased $45.8 million or 23.4% to $150.1 million as compared with $195.9 million in the prior year period primarily as a result of lower volumes for iron gate valve and service brass products partially offset by higher pricing across most product lines and volume growth in specialty valve products.
Gross profit in the three months ended June 30, 2023 decreased $27.2 million or 44.7% to $33.6 million from $60.8 million in the prior year period. This decrease was primarily a result of lower volume, unfavorable sales mix and higher cost of sales associated with unfavorable manufacturing performance, including inefficiencies and start-up costs for the new brass foundry, and inflation, which were partially offset by higher pricing. Gross margin was 22.4% in the three months ended June 30, 2023 and 31.0% in the prior year period.
SG&A in the three months ended June 30, 2023 decreased $1.8 million to $20.9 million from $22.7 million in the prior year period primarily as a result of lower personnel expenses and software licensing expense partially offset by inflation. SG&A as a percentage of net sales was 13.9% and 11.6% in the three months ended June 30, 2023 and 2022, respectively.
Water Management Solutions
Net sales in the three months ended June 30, 2023 increased $39.2 million or 28.6% to $176.5 million as compared with $137.3 million in the prior year period primarily as a result of higher pricing across most product lines and increased volumes mainly in hydrant and water management applications products.
Gross profit in the three months ended June 30, 2023 was $66.5 million as compared with $37.5 million in the prior year period. Gross margin increased to 37.7% in the three months ended June 30, 2023 as compared with 27.3% in the prior year period primarily as a result of higher pricing and increased volumes, which were partially offset by higher cost of sales associated with unfavorable manufacturing performance, largely due to higher costs as a result of outsourcing, as well as inflation.
SG&A in the three months ended June 30, 2023 increased $1.0 million to $26.5 million from $25.5 million in the prior year period primarily due to inflation and unfavorable foreign currency fluctuation, which was partially offset by lower personnel expenses. SG&A as a percentage of net sales was 15.0% and 18.6% in the three months ended June 30, 2023 and 2022, respectively.
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Corporate
SG&A increased $0.6 million to $13.2 million in the three months ended June 30, 2023 as compared with $12.6 million in the three months ended June 30, 2022 primarily as a result of inflation and unfavorable foreign currency fluctuation partially offset by lower personnel expenses.
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Nine Months Ended June 30, 2023 Compared to Nine Months Ended June 30, 2022

| Nine months ended June 30, 2023
| Water Flow Solutions |  | Water Management Solutions |  | Corporate |  | Total
| (in millions)
Net sales | $ | 472.9 |  |  | $ | 501.4 |  |  | $ | — |  |  | $ | 974.3 |
Gross profit | 117.4 |  |  | 173.7 |  |  | — |  |  | $ | 291.1 |
Operating expenses: |  |  |  |  |  |  |
Selling, general and administrative | 65.3 |  |  | 82.2 |  |  | 40.2 |  |  | 187.7 |
Strategic reorganization and other charges (benefits) | 0.1 |  |  | 1.2 |  |  | (0.4) |  |  | 0.9 |
Total operating expenses | 65.4 |  |  | 83.4 |  |  | 39.8 |  |  | 188.6 |
Operating income (loss) | $ | 52.0 |  |  | $ | 90.3 |  |  | $ | (39.8) |  |  | 102.5 |
Non-operating expenses: |  |  |  |  |  |  |
Pension expense other than service |  |  |  |  |  |  | 2.8 |
Interest expense, net |  |  |  |  |  |  | 11.4 |
Income before income taxes |  |  |  |  |  |  | 88.3 |
Income tax expense |  |  |  |  |  |  | 20.0 |
Net income |  |  |  |  |  |  | $ | 68.3 |
| Nine months ended June 30, 2022
| Water Flow Solutions |  | Water Management Solutions |  | Corporate |  | Total
| (in millions)
Net sales | $ | 534.7 |  |  | $ | 381.3 |  |  | $ | — |  |  | $ | 916.0 |
Gross profit | 169.9 |  |  | 108.8 |  |  | — |  |  | $ | 278.7 |
Operating expenses: |  |  |  |  |  |  |
Selling, general and administrative | 65.1 |  |  | 73.5 |  |  | 36.5 |  |  | 175.1 |
Strategic reorganization and other charges | — |  |  | 0.2 |  |  | 3.4 |  |  | 3.6 |
Total operating expenses | 65.1 |  |  | 73.7 |  |  | 39.9 |  |  | 178.7 |
Operating income (loss) | $ | 104.8 |  |  | $ | 35.1 |  |  | $ | (39.9) |  |  | 100.0 |
Non-operating expenses: |  |  |  |  |  |  |
Pension benefit other than service |  |  |  |  |  |  | (2.9) |
Interest expense, net |  |  |  |  |  |  | 13.0 |
Income before income taxes |  |  |  |  |  |  | 89.9 |
Income tax expense |  |  |  |  |  |  | 20.4 |
Net income |  |  |  |  |  |  | $ | 69.5 |

Consolidated Analysis
Net sales in the nine months ended June 30, 2023 increased $58.3 million or 6.4% to $974.3 million as compared with $916.0 million in the prior period as a result of higher pricing across most product lines and an increase in Water Management Solutions’ volume, partially offset by a decrease in volumes in our Water Flow Solutions segment.
Gross profit in the nine months ended June 30, 2023 increased $12.4 million or 4.4% to $291.1 million from $278.7 million in the prior year period primarily as a result of higher pricing across most product lines, partially offset by net overall lower
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volume, unfavorable manufacturing performance, including outsourcing costs, and inflation. Additionally, we incurred a $4.5 million warranty accrual charge in the prior year. Gross margin was 29.9% in the nine months ended June 30, 2023 as compared with 30.4% in the prior year period.
SG&A in the nine months ended June 30, 2023 increased $12.6 million or 7.2% to $187.7 million from $175.1 million in the prior year period primarily as a result of higher personnel expenses, inflation, professional fees and increased travel and entertainment expenses, partially offset by lower software licensing expense. SG&A as a percentage of net sales was 19.3% and 19.1% for the nine months ended June 30, 2023 and 2022, respectively.
Strategic reorganization and other charges in the nine months ended June 30, 2023 was $0.9 million which primarily related to severance and certain transaction-related expenses partially offset from a gain on the sale of our Aurora, Illinois facility. Strategic reorganization and other charges in the nine months ended June 30, 2022 was $3.6 million, which primarily related to the Albertville tragedy and termination benefits associated with our facility closures in Aurora, Illinois and Surrey, British Columbia, Canada.
Net interest expense in the nine months ended June 30, 2023 decreased $1.6 million or 12.3% to $11.4 million as compared with the prior year period of $13.0 million primarily as a result of increased interest income associated with higher interest rates. The components of net interest expense are provided below:

| Nine months ended
| June 30,
| 2023 |  | 2022
| (in millions)
4.0% Senior Notes | $ | 13.5 |  |  | $ | 13.5 |
Deferred financing costs amortization | 0.7 |  |  | 0.7 |
ABL Agreement | 0.7 |  |  | 0.7 |
Capitalized interest | (1.8) |  |  | (1.9) |
Other interest expense | 0.4 |  |  | 0.3 |
Total interest expense | 13.5 |  |  | 13.3 |
Interest income | (2.1) |  |  | (0.3) |
Interest expense, net | $ | 11.4 |  |  | $ | 13.0 |

The reconciliation between the U.S. federal statutory income tax rate and the effective income tax rate is presented below:

| Nine months ended
| June 30,
| 2023 |  | 2022
U.S. federal statutory income tax rate | 21.0 | % |  | 21.0 | %
Adjustments to reconcile to the effective tax rate: |  |  |
State income taxes, net of federal benefit | 3.2 |  |  | 3.3 |
Excess tax benefits related to stock-based compensation | 0.2 |  |  | (0.3) |
Tax credits | (2.8) |  |  | (3.0) |
Global Intangible Low-Taxed Income | 1.1 |  |  | 1.1 |
Foreign income tax rate differential | (2.2) |  |  | (1.7) |
Nondeductible compensation | 0.9 |  |  | 0.9 |
Basis difference in foreign investment | — |  |  | (0.1) |
Valuation allowances | — |  |  | 0.3 |
Other | 1.3 |  |  | 1.2 |
Effective income tax rate | 22.7 | % |  | 22.7 | %

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Segment Analysis
Water Flow Solutions
Net sales in the nine months ended June 30, 2023 decreased $61.8 million or 11.6% to $472.9 million as compared with $534.7 million in the prior year period primarily as a result of lower sales volume of iron gate valve products partially offset by increased pricing across most product lines.
Gross profit in the nine months ended June 30, 2023 decreased $52.5 million or 30.9% to $117.4 million from $169.9 million in the prior year period. The decrease was primarily a result of lower volumes, higher cost of sales associated with unfavorable manufacturing performance, including inefficiencies and start-up costs for the new brass foundry and inflation which were partially offset by higher pricing. Gross margin was 24.8% in the nine months ended June 30, 2023 and 31.8% in the prior year period.
SG&A in the nine months ended June 30, 2023 increased $0.2 million or 0.3% to $65.3 million from $65.1 million in the prior year period primarily as a result of inflation partially offset by lower personnel expenses. SG&A as a percentage of net sales was 13.8% and 12.2% in the nine months ended June 30, 2023 and 2022, respectively.
Water Management Solutions
Net sales in the nine months ended June 30, 2023 increased $120.1 million or 31.5% to $501.4 million as compared with $381.3 million in the prior year period primarily as a result of higher pricing across most of the segment’s product lines and increased volumes, mainly in our hydrant products.
Gross profit in the nine months ended June 30, 2023 increased $64.9 million or 59.7% to $173.7 million as compared with $108.8 million in the prior year period. Gross margin increased to 34.6% in the nine months ended June 30, 2023 as compared with 28.5% in the prior year period primarily as a result of higher pricing and higher volumes partially offset by unfavorable manufacturing performance and inflation.
SG&A increased $8.7 million or 11.8% to $82.2 million from $73.5 million in the prior year period primarily as a result of professional fees, inflation, and increased personnel expenses. SG&A as a percentage of net sales was 16.4% and 19.3% in the nine months ended June 30, 2023 and 2022, respectively.
Corporate
SG&A increased $3.7 million or 10.1% to $40.2 million in the nine months ended June 30, 2023 as compared with $36.5 million in the nine months ended June 30, 2022 primarily as a result of inflation and higher personnel expenses.
Liquidity and Capital Resources
We had cash and cash equivalents on hand of $141.2 million at June 30, 2023 and $162.3 million of additional borrowing capacity under our ABL based on June 30, 2023 data. Undistributed earnings from our subsidiaries in Israel, Canada, and China are considered to be permanently invested outside the United States. At June 30, 2023, cash and cash equivalents included $59.7 million, $7.5 million, and $11.1 million in Israel, Canada, and China, respectively.
We declared a quarterly dividend of $0.061 per share on July 26, 2023, payable on or about August 21, 2023 to stockholders of record as of August 10, 2023, which will result in an estimated $9.5 million cash outlay.
We did not repurchase any of our outstanding common stock during the nine months ended June 30, 2023 and had $100.0 million remaining of our share repurchase authorization.
The ABL and 4.0% Senior Notes contain customary representations and warranties, covenants and provisions governing an event of default. The covenants restrict our ability to engage in certain specified activities, including but not limited to the payment of dividends and the redemption of our common stock.
Net cash provided by operating activities was $52.5 million during the nine months ended June 30, 2023 as compared with net cash provided by operating activities of $20.5 million in the prior year period. The increase in net operating cash flow was primarily driven by improvements in working capital compared with the prior year period, including a lesser increase in Inventories and higher Receivables collections, partially offset by higher Accounts payable turnover.
Capital expenditures were $32.4 million in the nine months ended June 30, 2023 as compared with $36.7 million in the prior year period. Capital expenditures decreased primarily as a result of lower expenditures associated with the new Decatur foundry
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as compared with the prior year period. For fiscal year 2023, we have provided guidance that our capital expenditures are expected to be between $50.0 million and $55.0 million.
We anticipate that our existing cash, cash equivalents and borrowing capacity combined with our expected operating cash flows will be sufficient to meet our anticipated operating expenses, income tax payments, capital expenditures and debt service obligations as they become due through the twelve months from the date of this filing. However, our ability to make these payments will depend largely on our future operating performance, which may be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control.
ABL Agreement
Our ABL is provided by a syndicate of banking institutions and consists of a revolving credit facility for up to $175.0 million in borrowings that expires on July 28, 2025. The ABL permits us to borrow 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.
On April 5, 2023, we amended the ABL. This amendment replaced LIBOR-based loans with SOFR-based loans plus an adjustment of 10 basis points, among other immaterial modifications.
Borrowings under the ABL bear interest at a floating rate equal to SOFR plus an adjustment of 10 basis points plus an applicable margin ranging from 200 to 225 basis points, or a base rate, as defined in the ABL, plus an applicable margin range from 100 to 125 basis points. At June 30, 2023, the applicable margin was 200 basis points for SOFR-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 inventories or (ii) 85% of the net orderly liquidation value of eligible inventory, less certain reserves. Prepayments can be made at any time with no penalty.
Substantially all of our U.S. subsidiaries are borrowers under the ABL 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 U.S. inventories, accounts receivable, certain cash and other related 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 June 30, 2023 data was $162.3 million, as reduced by $12.5 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 Unsecured Notes (“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 previously existing 5.5% Unsecured Senior Notes. Substantially all of our U.S. 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 $400.7 million at June 30, 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 June 30, 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. 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. Upon a change in 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.
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Our corporate credit rating and the credit rating for our debt are presented below:

| Moody’s |  | Standard & Poor’s
| June 30, |  | September 30, |  | June 30, |  | September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Corporate credit rating | Ba1 |  | Ba1 |  | BB |  | BB
ABL Agreement | Not rated |  | Not rated |  | Not rated |  | Not rated
4.0% Senior Notes | Ba1 |  | Ba1 |  | BB |  | BB
Outlook | Stable |  | Stable |  | Stable |  | Stable

These ratings are not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agencies.
Material Cash Requirements
We enter into a variety of contractual obligations as part of our normal operations in addition to capital expenditures. As of June 30, 2023, we have (i) debt obligations related to our $450.0 million 4.0% Senior Notes which mature in 2029 and include cash interest payments of $18.0 million in 2023 annually through 2029, (ii) cash obligations of $30.8 million for operating leases through 2033 and $1.6 million for finance leases through 2027, and (iii) purchase obligations for raw materials and other parts of approximately $89.6 million which we expect to incur during the next 12 months. We expect to fund these cash requirements from cash on hand and cash generated from operations.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as “structured finance” or “special purpose” entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, at June 30, 2023 we did not have any undisclosed borrowings, debt, derivative contracts or synthetic leases. Therefore, we were not exposed to any financing, liquidity, market or credit risk that could have arisen had we engaged in such relationships.
We use letters of credit and surety bonds in the ordinary course of business to ensure the performance of contractual obligations. At June 30, 2023, we had $12.5 million of letters of credit and $20.4 million of surety bonds outstanding.
Seasonality
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.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. These estimates are based upon experience and on various other assumptions we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We consider an accounting estimate to be critical if changes in the estimate that are reasonably likely to occur over time or the use of reasonably different estimates could have a material impact on our financial condition or results of operations. Our critical accounting estimates can be found in the “Critical Accounting Estimates” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 2022 Annual Report on Form 10-K. There have been no changes in the Company’s determination of critical accounting policies and estimates since September 30, 2022.
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Item 4. CONTROLS AND PROCEDURES
There have been no changes in our internal control over financial reporting which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended June 30, 2023.
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 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 our Chief Financial Officer have concluded, based on an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) by our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, that such disclosure controls and procedures were effective as of the end of the period covered by this report.
Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls can prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations in all control systems, including the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of one or more persons. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and, while our disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to operate effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.
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PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Refer to the information provided in Note 10. to the Notes to the Condensed Consolidated Financial Statements presented in Item 1. of Part I of this report.
Item 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in PART I, “Item 1A. RISK FACTORS” in our Annual Report, each of which could materially affect our business, financial condition or operating results. These described risks are not the only risks facing us. Additional risks and uncertainties not known to us or that we deem to be immaterial also may materially adversely affect our business, financial condition or operating results.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended June 30, 2023, 1,589 shares were surrendered to us to pay the tax withholding obligations of participants in connection with the vesting of equity awards.
In 2015, we announced the authorization of a stock repurchase program for up to $50.0 million of our common stock. The program does not commit us to a particular timing or quantity of purchases, and we may suspend or discontinue the program at any time. In 2017, we announced an increase to the authorized amount of this program to $250.0 million.
We did not repurchase any shares of our common stock during the three months ended June 30, 2023 pursuant to this authorization, and we had $100.0 million remaining under our share repurchase authorization.
Item 6. EXHIBITS

Exhibit No. |  | Document
10.1 |  | Sixth Amendment to Credit Agreement, dated April 5, 2023
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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in XBRL (Extensible Business Reporting Language), (i) the Unaudited Condensed Consolidated Balance Sheets, (ii) the Unaudited Condensed Consolidated Statements of Operations, (iii) the Unaudited Condensed Consolidated Statements of Comprehensive Income, (iv) the Unaudited Condensed Consolidated Statements of Stockholders' Equity, (v) the Unaudited Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Unaudited Condensed Consolidated Financial Statements.
104* |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed with this quarterly report
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | MUELLER WATER PRODUCTS, INC.
Date: | August 4, 2023 | By: | /s/ Suzanne G. Smith
|  |  | Suzanne G. Smith
|  |  | Chief Accounting Officer

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