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 six months ended March 31, 2025 are as follows:


	Number granted	Weighted average grant date fair value per instrument		Total grant date fair value (in millions)
Quarter ended December 31, 2024
MRSUs	64,044	$	38.25	$	2.4
PRSUs	64,044	25.58		1.6
Restricted stock units	87,344	25.58		2.2
Phantom Plan instruments	134,382	25.58		3.4
Non-qualified stock options	207,417	7.90		1.6
Employee stock purchase plan instruments	24,621	$	3.86	0.1
Total - Quarter ended December 31, 2024				$	11.3


Quarter ended March 31, 2025
MRSUs	7,692	$	41.24	$	0.3
PRSUs	7,692	25.19		0.2
Restricted stock units	84,355	26.60		2.2

Non-qualified stock options	21,198	9.14		0.2
Employee stock purchase plan instruments	24,802	$	4.53	0.1
Total - Quarter ended March 31, 2025				3.0
Total - Year-to-date ended March 31, 2025				$	14.3

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


	December 3, 2024	March 3, 2025
Variables used in determining grant date fair value:
Dividend yield	1.10%	1.10%
Risk-free rate	4.10%	3.90%
Expected term (in years)	2.80	2.60

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.

At March 31, 2025, the outstanding Phantom Plan instruments had a fair value of $25.42 per instrument and our accrued liability for Phantom Plan instruments was $4.1 million and is included within Other current liabilities for amounts related to instruments scheduled to vest in twelve months or less and Other noncurrent liabilities for amounts related to instruments scheduled to vest beyond twelve months.

Stock options generally vest ratably on each anniversary date of the original grant over three years. Compensation expense attributed to stock options is based on the fair value of the awards on their respective grant dates, as determined using a Black-Scholes model. The assumptions used to determine the grant date fair value are indicated below for awards granted to date during the current fiscal year.


	December 3, 2024	March 3, 2025
Variables used in determining grant date fair value:
Dividend yield	1.64%	1.41%
Risk-free rate	4.14%	4.02%
Expected term (in years)	6.00	6.00

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 against predetermined targets.

Restricted stock units generally vest ratably over the life of the award, usually three years, on each anniversary date of the original grant. Compensation expense for restricted stock units is recognized between the grant date and the vesting date (or the date on which a participant becomes retirement-eligible under the terms of the 2006 Stock Plan, if sooner) on a straight-line basis for each tranche of each award. Fair values of restricted stock units are determined using the closing price of our common stock on the respective grant date.

Employee stock purchase plan instruments are shares of our common stock purchased by employees under the Mueller Water Products Inc. 2006 Employee Stock Purchase Plan (“ESPP”). Generally, all full-time, active employees are eligible to participate in the ESPP, subject to certain restrictions. Employee purchases are funded through payroll deductions, and any

excess payroll withholdings are returned to the employee. The price for the shares purchased under the ESPP is 85% of the lower of the closing price on the first day or the last day of the offering period.

We issued 260,727 shares of common stock to settle PRSUs vested during the six months ended March 31, 2025; no shares of common stock were issued to settle PRSUs during the three months ended March 31, 2025. Additionally, we issued 114,895 and 227,492 shares of common stock to settle restricted stock units vested during the three and six months ended March 31, 2025. Finally, we issued 151,700 and 246,577 shares of common stock to settle stock options exercised during the three and six months ended March 31, 2025. Common shares totaling 13,428 and 169,488 were surrendered to us to pay the applicable tax withholding obligations of equity award participants for the three and six months ended March 31, 2025.

Operating income included stock-based compensation expense of $3.7 million and $3.0 million during the three months ended March 31, 2025 and 2024, respectively. Operating income included stock-based compensation of $7.6 million and $6.4 million during the six months ended March 31, 2025 and 2024, respectively. At March 31, 2025, there was approximately $16.8 million of unrecognized compensation expense related to stock-based compensation arrangements, which will be expensed through March 2028.

We excluded 323,349 and 603,417 stock-based compensation instruments from the calculations of diluted earnings per share in the three months ended March 31, 2025 and 2024, respectively, and 302,180 and 659,148 for the six months ended March 31, 2025 and 2024, respectively, since their inclusion would have been antidilutive.