SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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

2020, which trade under the ticker symbol MWA on the New York Stock Exchange.

Item 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS


	December 31,		September 30,
	2019		2019
	(in millions, except share amounts)
Assets:
Cash and cash equivalents	$	136.8	$	176.7
Receivables, net	132.1		172.8
Inventories	212.9		191.4
Other current assets	25.7		26.0
Total current assets	507.5		566.9
Property, plant and equipment, net	224.5		217.1
Goodwill	97.5		95.7
Intangible assets	428.0		433.7
Other noncurrent assets	51.5		23.9
Total assets	$	1,309.0	$	1,337.3

Liabilities and equity:
Current portion of long-term debt	$	0.9	$	0.9
Accounts payable	58.6		84.6
Other current liabilities	63.9		93.0
Total current liabilities	123.4		178.5
Long-term debt	445.5		445.4
Deferred income taxes	89.5		87.9
Other noncurrent liabilities	55.6		33.2
Total liabilities	714.0		745.0

Commitments and contingencies (Note 13.)

Common stock: 600,000,000 shares authorized; 157,889,045 and 157,462,140 shares outstanding at December 31, 2019 and September 30, 2019, respectively	1.6		1.6
Additional paid-in capital	1,401.3		1,410.7
Accumulated deficit	(775.9)		(786.2)
Accumulated other comprehensive loss	(32.0)		(36.0)
Total Company stockholders’ equity	595.0		590.1
Noncontrolling interest	—		2.2
Total equity	595.0		592.3
Total liabilities and equity	$	1,309.0	$	1,337.3

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

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

December 31, September 30,
2017 2017
(in millions, except share amounts)
Assets:
Cash and cash equivalents $ 348.3
$ 361.7
Receivables, net 107.4
145.3
Inventories 155.2
138.9
Other current assets 26.5
24.4
Total current assets 637.4
670.3
Property, plant and equipment, net 122.3
122.3
Intangible assets 434.6
439.3
Other noncurrent assets 25.9
26.4
Total assets $ 1,220.2
$ 1,258.3

Liabilities and equity:
Current portion of long-term debt $ 5.6
$ 5.6
Accounts payable 51.3
82.5
Other current liabilities 46.1
53.5
Total current liabilities 103.0
141.6
Long-term debt 474.3
475.0
Deferred income taxes 76.2
115.1
Other noncurrent liabilities 32.4
37.1
Total liabilities 685.9
768.8

Commitments and contingencies (Note 11)

Common stock: 600,000,000 shares authorized; 158,539,376 and 158,590,383 shares outstanding at December 31, 2017 and September 30, 2017, respectively 1.6
1.6
Additional paid-in capital 1,482.4
1,494.2
Accumulated deficit (900.5 ) (955.6 )
Accumulated other comprehensive loss (50.2 ) (51.8 )
Total Company stockholders’ equity 533.3
488.4
Noncontrolling interest 1.0
1.1
Total equity 534.3
489.5
Total liabilities and equity $ 1,220.2
$ 1,258.3
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three months ended
	December 31,
	2019		2018
	(in millions, except per share amounts)
Net sales	$	212.6	$	192.8
Cost of sales	140.0		132.7
Gross profit	72.6		60.1
Operating expenses:
Selling, general and administrative	49.9		41.0
Strategic reorganization and other charges	2.4		3.2
Total operating expenses	52.3		44.2
Operating income	20.3		15.9
Other expenses (income):
Pension costs (benefits) other than service	(0.7)		(0.1)
Interest expense, net	7.4		5.5
Walter Energy Accrual	0.2		37.4
Net other expense	6.9		42.8
Income (loss) before income taxes	13.4		(26.9)
Income tax expense (benefit)	3.1		(5.9)
Net income (loss)	$	10.3	$	(21.0)

Net income (loss) per share:
Basic	$	0.07	$	(0.13)
Diluted	$	0.06	$	(0.13)

Weighted average shares outstanding:
Basic	157.7		157.7
Diluted	158.7		158.8

Dividends declared per share	$	0.0525	$	0.0500

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

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
December 31,
2017 2016
(in millions, except per share amounts)
Net sales $ 178.3
$ 167.2
Cost of sales 122.9
115.4
Gross profit 55.4
51.8
Operating expenses:
Selling, general and administrative 39.8
36.3
Gain on sale of idle property (9.0 ) —
Strategic reorganization and other charges 3.9
1.3
Total operating expenses 34.7
37.6
Operating income 20.7
14.2
Pension costs other than service 0.2
0.3
Interest expense, net 5.2
6.4
Income before income taxes 15.3
7.5
Income tax expense (benefit) (39.8 ) 2.1
Income from continuing operations 55.1
5.4
Income from discontinued operations —
1.3
Net income $ 55.1
$ 6.7

Income per basic share:
Continuing operations $ 0.35
$ 0.03
Discontinued operations —
0.01
Net income $ 0.35
$ 0.04

Income per diluted share:
Continuing operations $ 0.34
$ 0.03
Discontinued operations —
0.01
Net income $ 0.34
$ 0.04

Weighted average shares outstanding:
Basic 158.5
161.8
Diluted 160.0
164.6

Dividends declared per share $ 0.04
$ 0.03
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three months ended
	December 31,
	2019		2018
	(in millions)
Net income (loss)	$	10.3	$	(21.0)
Other comprehensive income (loss):
Pension	0.7		0.5
Income tax effects	(0.2)		(0.1)
Foreign currency translation	3.5		(1.2)
	4.0		(0.8)
Comprehensive income (loss)	$	14.3	$	(21.8)

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

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three months ended
December 31,
2017 2016
(in millions)
Net income $ 55.1
$ 6.7
Other comprehensive income (loss):
Pension 0.8
1.0
Income tax effects (0.3 ) (0.4 )
Foreign currency translation 0.1
(1.5 )
Derivative fair value change 1.6
4.7
Income tax effects (0.6 ) (1.8 )
1.6
2.0
Comprehensive income $ 56.7
$ 8.7
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY


	Three months ended
	December 31,
	2019		2018
	(in millions)
Common stock
Balance, beginning of period	$	1.6	$	1.6
Change in common stock at par value	—		—
Balance, end of period	1.6		1.6

Additional paid-in-capital
Balance, beginning of period	1,410.7		1,444.5
Dividends declared	(8.3)		(7.9)
Buyout of noncontrolling interest	(3.2)		—
Shares retained for employee taxes	(0.7)		(1.2)
Stock-based compensation	1.3		1.7
Stock issued under stock compensation plan	1.4		3.1
Balance, end of period	1,401.3		1,440.2

Accumulated deficit
Balance, beginning of period	(786.2)		(850.0)
Net income (loss)	10.3		(21.0)
Balance, end of period	(775.9)		(871.0)

Accumulated other comprehensive income (loss)
Balance, beginning of period	(36.0)		(32.8)
Other comprehensive income (loss)	4.0		(0.8)
Balance, end of period	(32.0)		(33.6)

Noncontrolling interest
Balance, beginning of period	2.2		1.5
Acquisition of joint venture partner’s interest	(2.2)		—
Net income	—		0.2
Balance, end of period	—		1.7

Total stockholders' equity	$	595.0	$	538.9

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

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
THREE MONTHS ENDED DECEMBER 31, 2017
(UNAUDITED)

Common
stock

Additional
paid-in
capital

Accumulated
deficit

Accumulated
other
comprehensive
loss
Non-controlling interest Total
(in millions)
Balance at September 30, 2017 $ 1.6
$ 1,494.2
$ (955.6 ) $ (51.8 ) $ 1.1
$ 489.5
Net income (loss) —
—
55.1
—
(0.1 ) 55.0
Dividends declared —
(6.3 ) —
—
—
(6.3 )
Stock repurchased under buyback program —
(10.0 ) —
—
—
(10.0 )
Shares retained for employee taxes —
(1.8 ) —
—
—
(1.8 )
Stock-based compensation —
2.0
—
—
—
2.0
Common stock issued —
4.3
—
—
—
4.3
Other comprehensive income, net of tax —
—
—
1.6
—
1.6
Balance at December 31, 2017 $ 1.6
$ 1,482.4
$ (900.5 ) $ (50.2 ) $ 1.0
$ 534.3
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three months ended
	December 31,
	2019		2018
	(in millions)
Operating activities:
Net income (loss)	$	10.3	$	(21.0)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation	7.0		6.1
Amortization	7.0		6.0
Stock-based compensation	1.3		1.7
Retirement plans	0.7		0.3
Deferred income taxes	1.0		(2.2)

Other, net	(0.4)		1.2
Changes in assets and liabilities:
Receivables	41.0		57.7
Inventories	(21.0)		(21.9)
Other assets	3.6		(3.5)
Accounts payable	(26.0)		(32.0)
Walter Energy Accrual	(22.0)		37.4
Other current liabilities	(12.8)		(12.2)
Long-term liabilities	(2.1)		(7.7)
Net cash (used in) provided by operating activities	(12.4)		9.9
Investing activities:
Business acquisitions, net of cash received	—		(123.0)
Capital expenditures	(15.2)		(15.9)
Proceeds from sales of assets	0.1		—
Net cash used in investing activities	(15.1)		(138.9)
Financing activities:
Dividends	(8.3)		(7.9)
Repayment of Krausz debt	—		(13.2)
Acquisition of joint venture partner’s interest	(5.2)		—
Employee taxes related to stock-based compensation	(0.7)		(1.2)
Common stock issued	1.4		3.1
Other	—		0.4
Net cash used in financing activities	(12.8)		(18.8)
Effect of currency exchange rate changes on cash	0.4		(0.5)
Net change in cash and cash equivalents	(39.9)		(148.3)
Cash and cash equivalents at beginning of period	176.7		347.1
Cash and cash equivalents at end of period	$	136.8	$	198.8

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

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
December 31,
2017 2016
(in millions)
Operating activities:
Net income $ 55.1
$ 6.7
Less income from discontinued operations —
1.3
Income from continuing operations 55.1
5.4
Adjustments to reconcile income from continuing operations to net cash provided by (used in) operating activities:
Depreciation 4.9
4.9
Amortization 5.7
5.4
Stock-based compensation 2.0
1.8
Retirement plans 0.7
0.8
Deferred income taxes (39.7 ) (2.1 )
Gain on sale of idle property (9.0 ) —
Other, net 0.7
0.3
Changes in assets and liabilities:
Receivables 38.4
27.4
Inventories (16.3 ) (12.2 )
Other assets (0.8 ) (0.8 )
Liabilities (41.2 ) (50.8 )
Net cash provided by (used in) operating activities of continuing operations 0.5
(19.9 )
Investing activities:
Capital expenditures (6.4 ) (4.2 )
Proceeds from sales of assets 7.4
—
Net cash provided by (used in) investing activities of continuing operations 1.0
(4.2 )
Financing activities:
Dividends (6.3 ) (4.8 )
Employee taxes related to stock-based compensation (1.8 ) (2.5 )
Repayments of debt (1.2 ) (1.3 )
Common stock issued 4.3
0.4
Stock repurchased under buyback program (10.0 ) —
Other —
0.1
Net cash used in financing activities of continuing operations (15.0 ) (8.1 )
Net cash flows from discontinued operations:
Operating activities —
12.4
Investing activities —
(2.1 )
Financing activities —
(0.1 )
Net cash provided by discontinued operations —
10.2
Effect of currency exchange rate changes on cash 0.1
(0.7 )
Net change in cash and cash equivalents (13.4 ) (22.7 )
Cash and cash equivalents at beginning of period 361.7
195.0
Cash and cash equivalents at end of period $ 348.3
$ 172.3

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, ~~2017~~2019


~~Note 1.~~	~~Organization~~ Note 1.Organization

Mueller Water Products, Inc., a Delaware corporation, together with its consolidated subsidiaries, operates in two business segments: Infrastructure and Technologies. Infrastructure manufactures valves for water and gas systems, including butterfly, iron gate, tapping, check, knife, plug and ball valves, as well as dry-barrel and wet-barrel fire ~~hydrants.~~hydrants and a broad line of pipe connection and repair products, such as clamps and couplings used to repair leaks. Technologies offers metering systems, leak detection, pipe condition assessment and other related smart-enabled 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 January 6, 2017, we sold our former Anvil segment. Amounts applicable to Anvil have been classified as discontinued operations.~~

In July 2014, Infrastructure ~~owns~~acquired a 49% ownership interest in an industrial valve joint ~~venture.~~venture for $1.7 million. Due to substantive control features in the operating agreement, all of the joint ~~venture's~~venture’s assets, liabilities and results of operations ~~are~~were included in our consolidated financial statements. ~~The net loss~~We included an adjustment for the income attributable to the noncontrolling interest ~~is included~~ in selling, general and administrative expenses. ~~Noncontrolling~~Infrastructure acquired the remaining 51% interest ~~is recorded at its carrying value, which approximates fair value.~~in the business on October 3, 2019.

~~Unless~~On December 3, 2018, we completed our acquisition of Krausz Development Ltd. and subsidiaries (“Krausz”). We include the ~~context indicates otherwise, whenever we refer~~financial statements of Krausz in our consolidated financial statements on a one-month lag. For the quarter ended December 31, 2018, the consolidated statements of operations and of cash flows exclude the results of Krausz’s operations. Refer to ~~a particular year, we mean our fiscal year ended or ending September 30 in that particular calendar year.~~Note 2. for additional disclosures related to the acquisition.

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which require us to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses and the disclosure of contingent assets and liabilities for the reporting periods. Actual results could differ from those estimates. All significant intercompany balances and transactions have been eliminated. 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, ~~2017.~~2019. In our opinion, all normal and recurring adjustments that we consider necessary for a fair financial statement presentation have been made. ~~Certain reclassifications have been made to previously reported amounts to conform to the current presentation.~~ The condensed consolidated balance sheet data at September 30, ~~2017~~2019 was derived from audited financial statements, but it does not include all disclosures required by GAAP.

~~On October 1, 2017,~~Unless the context indicates otherwise, whenever we ~~adopted Financial Accountings Standards Board~~ ~~Accounting Standards Update No. 2017-07,~~ ~~which requires us~~refer to ~~exclude from operating income the components of net periodic benefit cost other than service cost. Accordingly,~~a particular year, we mean our fiscal year ended or ending September 30 in the Condensed Consolidated Statement of Operations for the three months ended December 31, 2016, we have reclassified $0.2 million from selling, general and administrative expenses and $0.1 million from cost of sales to pension costs other than service.

~~On February 15, 2017, we acquired Singer Valve. Singer had net sales of $3.7 million in the quarter ended December 31, 2017 and is included in Infrastructure.~~that particular calendar year.

HR-1, ~~formerly~~commonly referred to as the Tax Cuts and Jobs Act, was enacted on December 22, 2017 and made significant revisions to federal income tax laws, including lowering the corporate income tax rate to 21% from 35%, effective January 1, 2018. ~~The effects of these revisions are discussed in Note 3.~~

In ~~May~~ 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance for the recognition of revenue and requiring additional financial statement disclosures. ~~We plan~~On October 1, 2018, we adopted the new guidance related to ~~adopt~~revenue recognition from contracts with customers using the modified retrospective approach and no transition adjustment was required. See Note 3. for more information regarding our adoption of this guidance.

In 2016, FASB issued new guidance for the recognition of lease assets and lease liabilities for those leases currently referred to as operating leases and requiring additional financial statement disclosures. On October 1, 2019, we adopted the new guidance related to leases using the modified retrospective transition ~~method beginning in~~method. See Note 4. for more information regarding our adoption of this guidance.

In October 2018, we announced the first quarter of fiscal 2019. We have completed our initial scoping and are implementing a project plan to evaluate revenue recognition practices for each revenue stream against the new requirements, to consider changes to the termsmove of our ~~sales contracts,~~Middleborough, Massachusetts research and development facility to ~~design~~Atlanta to consolidate our resources and ~~implement processes to quantify the effects~~accelerate product innovation through creation of ~~necessary changes. This work is ongoing, but at this time, we do not expect the new guidance to materially impact our stockholders' equity, net sales or operating income.~~

~~On September 7, 2017,~~a research and development center of excellence for software and electronics. In November 2019, we announced ~~a strategic reorganization plan designed~~the planned move of our manufacturing facility in Hammond, Indiana to ~~accelerate~~ our ~~product innovation~~new facility in Kimball, Tennessee. Expenses incurred for these moves were primarily personnel-related and revenue growth. We have adopted a matrix management structure, where business teams have line and cross-functional responsibility for managing distinct product portfolios, and engineering, operations, sales and marketing and other functions are ~~centralized to better align with business needs and generate greater efficiencies. Costs and expenses in the quarter ended December 31, 2017 for this plan,~~ included in strategic reorganization and other charges ~~were primarily personnel-related.~~

~~Table~~in the Condensed Consolidated Statements of ~~Contents~~

~~Index to Financial Statements~~

Operations.

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


	Three months ended
	December 31,
	2019		2018
	(in millions)
Beginning balance	$	1.7	$	0.9
Expense accrued	0.4		2.4
Amounts paid	(0.5)		(1.1)
Ending balance	$	1.6	$	2.2

Note 2. Business Combinations

Three months ended
December 31, 2017
(in millions)
Beginning balance $ 3.3
Expense 2.3
Payments (1.4 )
Ending balance $ 4.2
Acquisition of Krausz


~~Note 2.~~	~~Discontinued Operations and Divestitures~~

On December ~~4, 2017,~~3, 2018, we ~~sold an idle~~completed our acquisition of Krausz, a manufacturer of pipe couplings, grips and clamps with operations in the United States and Israel, for $140.7 million, net of cash acquired, including the assumption and simultaneous repayment of certain debt of $13.2 million. The acquisition of Krausz was financed with cash on hand.

We have recognized the assets acquired and liabilities assumed at their estimated acquisition date fair values, with the excess of the purchase price over the estimated fair values of the identifiable net assets acquired recorded as goodwill. The accounting for the business combination is considered final. During the quarter, we reduced property, ~~in Burlington, New Jersey that had previously been a~~ plant ~~in our former U.S. Pipe segment and recorded a gain of $9.0 million on our Corporate segment. We received $7.4 million in cash, recorded net current assets of $0.8 million and conveyed plant, property~~ and equipment ~~with a net carrying value~~by $0.3 million, which resulted in an increase in goodwill of ~~$0.4 million, and the buyer assumed related environmental liabilities with a carrying value of $1.2~~$0.3 million.

~~On January 6, 2017, we sold our former Anvil segment to affiliates of One Equity Partners.~~ The ~~table below presents~~following is a summary of the ~~operating~~fair values of the net assets acquired (in millions):


Assets, net of cash:
Receivables	$	6.9
Inventories	17.0
Other current assets	0.2
Property, plant and equipment	8.1
Identified intangible assets:
Patents	32.1
Customer relationships	8.7
Tradenames	4.6
Favorable leasehold interests	2.3
Goodwill	74.7
Liabilities:
Accounts payable	(5.5)
Other current liabilities	(2.9)
Deferred income taxes	(5.5)
Fair value of assets acquired, net of liabilities assumed	140.7
Repayment of Krausz debt	(13.2)
Consideration paid to seller	$	127.5

The goodwill above is attributable to the strategic opportunities and synergies that we expect to arise from the acquisition of Krausz and the value of its workforce. The goodwill is nondeductible for income tax purposes. The intangible assets of $47.7 million consist of indefinite-lived tradenames and patents, customer relationships and favorable leasehold interests with an estimated weighted average useful life of approximately 12 years. We determined the values of the intangible assets using discounted cash flow methods.

Note 3. Revenue from Contracts with Customers

We recognize revenue when control of promised products or services is transferred to our customers, in amounts that reflect the consideration to which we expect to be entitled in exchange for those products or services. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, the payment terms are identified, the contract has commercial substance and collectability of consideration is probable. We determine the appropriate revenue recognition for our contracts with customers by analyzing the type, terms and conditions of each contract or arrangement with a customer.

Disaggregation of Revenue

We disaggregate our revenues from contracts with customers by reportable segment (Note 11.) and further by geographical region as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Geographical region represents the location of the customer.

Contract Asset and Liability Balances

The timing of revenue recognition, billings and cash collections results in customer receivables, advance payments and billings in excess of revenue recognized. Customer receivables include amounts billed and currently due from customers as well as unbilled amounts (contract assets). Amounts are billed in accordance with contractual terms and unbilled amounts arise when the timing of billing differs from the timing of revenue recognized.

Advance payments and billings in excess of revenue are recognized and recorded as deferred revenue, the majority of which is classified as current based on the timing when we expect to recognize revenue. We include current deferred revenue as part of our accrued expenses. Deferred revenues represent contract liabilities and are recorded when customers remit contractual cash payments in advance of us satisfying performance obligations under contractual arrangements. Contract liabilities are reversed when the performance obligation is satisfied and revenue is recognized.

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


	December 31,		September 30,
	2019		2019
	(in millions)
Billed receivables	$	129.2	$	171.0
Unbilled receivables	5.2		4.5
Total customer receivables	$	134.4	$	175.5

Deferred revenues	$	4.4	$	4.7

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. Our performance obligations are satisfied at a point in time as related to sales of equipment or over time as related to our software hosting and leak detection monitoring services. Performance obligations are supported by customer contracts, which provide frameworks for the ~~Anvil discontinued operations during~~nature of the distinct products or services. We allocate the transaction price of each contract to the performance obligations on the basis of standalone selling price and recognize revenue when, or as, control of the performance obligation transfers to the customers.

We have elected to use the practical expedient to not adjust the transaction price of a contract for the effects of a significant financing component if, at the inception of the contract, we expect that the period between when we transfer a product or service to a customer and when a customer remits payment will be one year or less.

Revenues from products and services transferred to customers at a point in time represented 98% of our revenues in the three months ended December 31, 2019 and 2018. The revenues recognized at a point in time related to the sale of our products was recognized when the obligations of the terms of our contract were satisfied, which generally occurs upon shipment, when control of the product transfers to the customer.

Revenues from products and services transferred to customers over time represented 2% of our revenues in the three months ended December 31, 2019 and 2018.

We offer warranties to our customers in the form of assurance-type warranties, which provide assurance that the products provided will function as intended and comply with any agreed-upon specifications. These cannot be purchased separately. There was no change to our warranty accounting as a result of the implementation of the new revenue standard and we will continue to use our current cost accrual method in accordance with GAAP.

Costs to Obtain or Fulfill a Contract

We incur certain incremental costs to obtain a contract, which primarily relate to incremental sales commissions. Our commissions are paid based on orders and shipments and we reserve the right to claw back any commissions in case of product returns or lost collections. As the expected benefit associated with these incremental costs is one year or less based on the nature of the product sold and benefits received, we have applied a practical expedient and therefore do not capitalize the related costs and expense them as incurred, consistent with our previous accounting treatment.

Note 4. Leases

We adopted the new leasing standard utilizing the modified retrospective approach on October 1, 2019. Adoption of the new standard resulted in an increase to total assets and liabilities due to the recording of lease right-of-use assets (“ROU”) and lease liabilities related to our operating lease portfolio.

We elected the package of three practical expedients for transition, which include the carry forward of our leases without reassessing whether any contracts are leases or contain leases, lease classification and initial direct costs and applying hindsight when determining the lease term and when assessing impairment of right-of-use assets at the adoption date. This allows us to update our assessments according to new information and changes in facts and circumstances that have occurred since lease inception.

Presentation of Leases

The Company leases certain office, warehouse, manufacturing, distribution, and research and development facilities and equipment under operating leases.

Our leases have remaining lease terms of 1 year to 14 years. The terms and conditions of our leases may include options to extend or terminate the lease which are considered and included in the lease term when these options are reasonably certain of exercise.

We determine if a contract is (or contains) a lease at inception by evaluating whether the contract conveys the right to control the use of an identified asset. For all classes of leased assets, we have elected the practical expedient to account for any non-lease components in the contract together with the related lease component in the same unit of account.

ROU assets and lease liabilities are recognized in our condensed consolidated balance sheets at the commencement date based on the present value of remaining lease payments over the lease term. Additionally, ROU assets include any lease payments made at or before the commencement date, as well as any initial direct costs incurred, and are reduced by any lease incentives received. As most of our operating leases do not provide an implicit rate, we apply our incremental borrowing rate to determine the present value of remaining lease payments. Our incremental borrowing rate is determined based on information available at the commencement date of the lease.

Operating leases are included in other noncurrent assets, other current liabilities and noncurrent liabilities in our condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, current portion of long-term debt and long-term debt in our condensed consolidated balance sheets.

For all classes of leased assets, we have applied an accounting policy election to exclude short-term leases from recognition in our condensed consolidated balance sheets. A short-term lease has a lease term of 12 months or less at the commencement date and does not include a purchase option that is reasonably certain of exercise. We recognize short-term lease expense in our condensed consolidated income statements on a straight-line basis over the lease term.

Our short-term lease expense for the quarter ended December 31, ~~2016.~~2019 and short-term lease commitments at December 31, 2019 are immaterial.

We have certain lease contracts with terms and conditions that provide for variability in the payment amount based on changes in facts or circumstances occurring after the commencement date. These ~~operating results do not reflect what they would have been had Anvil not been sold.~~variable lease payments are recognized in our condensed consolidated income statements as the obligation is incurred.

Three months ended
December 31, 2016
(in millions)
Net sales $ 83.1
Cost of sales 62.8
Gross profit 20.3
Operating expenses:
Selling, general and administrative 18.3
Other charges 0.2
Total operating expenses 18.5
Operating income 1.8
Income tax expense 0.5
Income from discontinued operations $ 1.3
At December 31, 2019, we had no material, legally-binding minimum lease payments for operating leases signed but not yet commenced. We did not have material subleases, leases that imposed significant restrictions or covenants, material related party leases or sale-leaseback arrangements.

The components of lease cost for the three months ended December 31, 2019 are presented below, in millions.


~~Note 3.~~Operating lease cost	~~Income Taxes~~$	1.6
Finance lease cost	0.3
Total lease expense	$	1.9

OnSupplemental information related to leases for the three months ended December ~~22, 2017, HR-1, formerly referred~~31, 2019 is presented below, in millions.


Cash Flow Information:
Operating cash flows from operating leases	$	1.4
Financing cash flows from finance leases	$	0.3

Supplemental information related to leases as ~~the Tax Cuts and Jobs Act (“Act”), was enacted, which made significant revisions~~of December 31, 2019 is presented below, in millions.


Balance Sheet Information:
Right of use assets	Balance Sheet Caption
Operating leases	Other noncurrent assets	$	27.2
Finance leases	Plant, property and equipment	2.0
Total right of use assets		$	29.2
Lease liabilities	Balance Sheet Caption
Operating leases - current	Other current liabilities	$	4.4
Operating leases - noncurrent	Other noncurrent liabilities	24.5
Finance leases - current	Current portion of long-term debt	0.9
Finance leases - noncurrent	Long-term debt	1.1
Total lease liabilities		$	30.9

Additional supplemental information related to ~~federal income tax laws, including lowering the corporate income tax rate to 21% from 35% effective January 1, 2018, overhauling the taxation~~leases as of ~~income earned outside the United States and eliminating or limiting certain deductions.~~December 31, 2019 is presented below.

~~Our deferred tax assets~~


Lease term and discount rate:
Weighted-average remaining lease term (years):
Operating leases	8.41
Finance leases	2.63
Weighted-average interest rate:
Operating leases	5.78	%
Finance leases	5.37	%

Total lease liabilities are provided at the enacted tax rates in effect when we expect to recognize the related tax expenses or benefits. The average of these rates varies slightly from year to year but historically has been approximately 39%. With the legislation changing enacted rates taking place in the current quarter, we have remeasured our deferred tax items at an average rate of approximately 25%. This resulted in a provisional income tax benefit of $42.6 million, which is subject to change, if necessary, as we continue to analyze certain aspects of the Act and refine our calculations. We do not expect changes to this amount to be material.

The Act also imposes a one-time transition tax on the undistributed, non-previously taxed, post-1986 foreign “earnings and profits” (as defined by the IRS) of certain U.S.-owned corporations. Determination of our transition tax liability requires us to calculate foreign earnings and profits going back to 1992, which in many cases requires information that is not readily available, and then to assess our historical overall foreign loss position and the applicability of certain foreign tax credits. We are gathering this information and completing these calculations, but we are unable at this time to reasonably estimate our transition tax liability, and therefore we have not recorded any amount for this tax at December 31, ~~2017.~~2019 have scheduled maturities as follows:


	Operating Leases		Finance Leases
	(in millions)
2020	$	4.5	$	0.9
2021	5.1		0.9
2022	4.3		0.6
2023	3.9		0.2
2024	3.7		—
Thereafter	16.1		—
Total lease payments	37.6		2.6
Less: imputed interest	8.7		0.6
Present value of lease liabilities	$	28.9	$	2.0

In addition to the deferred tax remeasurement item discussed above, our income tax benefit includes federal income tax expense on our current period earnings at a full-year blended rate of 24.5%, since the rate reduction in the Act is effective on January 1, 2018.

Note 5. Income Taxes

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


	Three months ended					Three months ended
	December 31,					December 31,
	2017		2016			2019		2018
U.S. federal statutory income tax rate	24.5	%	35.0	%	U.S. federal statutory income tax rate	21.0	%	21.0	%
Adjustments to reconcile to the effective tax rate:					Adjustments to reconcile to the effective tax rate:
State income taxes, net of federal benefit	4.3		3.9		State income taxes, net of federal benefit	4.5		3.3
Valuation allowance adjustment related to stock compensation	(5.7	)	—
Excess tax benefits related to stock compensation	(2.8	)	(7.6	)
Domestic production activities deduction	(1.6	)	(3.3	)
Excess tax (benefits) related to stock compensation					Excess tax (benefits) related to stock compensation	(1.5)		1.3
Tax credits	(0.9	)	(0.8	)	Tax credits	(1.1)		0.4
Global Intangible Low-taxed Income					Global Intangible Low-taxed Income	0.1		(0.1)
Foreign income taxes					Foreign income taxes	(0.7)		—
Valuation allowances					Valuation allowances	(0.7)		—
Other	0.5		0.8		Other	1.5		(0.3)
	18.3	%	28.0	%		23.1	%	25.6	%
Remeasurement of deferred taxes for change in rates	(278.4	)	—
Walter Energy Accrual					Walter Energy Accrual	(0.3)		(5.8)
Remeasurement related to tax law changes					Remeasurement related to tax law changes	—		2.1
Effective income tax rate	(260.1	)%	28.0	%	Effective income tax rate	22.8	%	21.9	%

At December 31, ~~2017~~2019 and September 30, ~~2017,~~2019, the gross liabilities for unrecognized income tax benefits were ~~$3.1~~$3.5 million and ~~$3.0~~$3.3 million, respectively.

Note 6. Borrowing Arrangements

The components of our long-term debt are presented below.


	December 31,		September 30,
	2019		2019
	(in millions)
5.5% Senior Notes	$	450.0	$	450.0
ABL Agreement	—		—
Finance leases	2.0		2.1
	452.0		452.1
Less deferred financing costs	5.6		5.8
Less current portion	0.9		0.9
Long-term debt	$	445.5	$	445.4

December 31, September 30,
2017 2017
(in millions)
ABL Agreement $ —
$ —
Term Loan 483.7
484.8
Other 1.7
1.7
485.4
486.5
Less deferred financing costs 5.5
5.9
Less current portion 5.6
5.6
Long-term debt $ 474.3
$ 475.0
5.5% Senior Unsecured Notes. On June 12, 2018, we privately issued $450.0 million of 5.5% Senior Unsecured Notes (“Notes”), which mature in 2026 and bear interest at 5.5%. We capitalized $6.6 million of financing costs, which are being amortized over the term of the Notes using the effective interest method. Proceeds from the Notes, along with other cash, were used to repay our Term Loan. Substantially all of our U.S. subsidiaries guarantee the Notes, which are subordinate to borrowings under the ABL. Based on quoted market prices, the outstanding Notes had a fair value of $473.6 million at December 31, 2019.

ABL Agreement. At December 31, ~~2017,~~2019, our asset based lending agreement (“ABL Agreement”) consisted of a revolving credit facility for up to ~~$225~~$175 million of revolving credit borrowings, swing line loans and letters of credit. The ABL Agreement permits us to increase the size of the credit facility by an additional $150 million in certain circumstances subject to adequate borrowing base availability. We may borrow up to $25 million through swing line loans and ~~may have~~we are permitted to issue up to $60 million of letters of ~~credit outstanding.~~credit.

Borrowings under the ABL Agreement bear interest at a floating rate equal to LIBOR, plus a margin ranging from 125 to 150 basis points, or a base rate, as defined in the ABL Agreement, plus a margin ranging from 25 to 50 basis points. At December 31, ~~2017,~~2019, the applicable rate was LIBOR plus 125 basis points.

The ABL Agreement terminates on July 13, 2021. We pay a commitment fee for any unused borrowing capacity under the ABL Agreement of 25 basis points per annum. Our obligations under the ABL Agreement are secured by a first-priority perfected lien on all of our U.S. receivables and inventories, certain cash and other supporting obligations. 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 Agreement. Excess availability based on December 31, ~~2017~~2019 data, as reduced by outstanding letters of credit ~~swap contract liabilities~~ and accrued fees and expenses of ~~$19.8~~$14.5 million, was ~~$96.3~~$122.0 million.

~~Term Loan. On November 25, 2014,~~Note 7. Derivative Financial Instruments

In connection with the acquisition of Singer Valve in 2017, we loaned funds to one of our Canadian subsidiaries. Although this intercompany loan has no direct effect on our consolidated financial statements, it creates exposure to currency risk for the Canadian subsidiary. To reduce this exposure, we entered into a ~~$500.0 million senior secured term loan (“Term Loan”). The proceeds from~~U.S. dollar-Canadian dollar swap contract with the ~~Term Loan, along~~Canadian subsidiary and an offsetting Canadian dollar-U.S. dollar swap with ~~other cash, were used to prepay our 7.375% Senior Subordinated Notes and 8.75% Senior Unsecured Notes and to satisfy and discharge our obligations under the respective indentures.~~

~~The Term Loan accrues interest at~~ a floating rate equal to LIBOR, subject to a floor of 0.75%, plus 250 basis points. At December 31, 2017, the weighted-average effective interest rate was 4.60%. We may voluntarily repay amounts borrowed under the Term Loan at any time. The principal amount of the Term Loan is required to be repaid in quarterly installments of $1.225 million, with any remaining principal due on November 25, 2021. The Term Loan is guaranteed by substantially all of our U.S. subsidiaries and is secured by essentially all of our assets, although the ABL Agreement has a senior claim on certain collateral securing borrowings thereunder. The Term Loan is reported net of unamortized discount, which was $1.4 million at December 31, 2017. Based on quoted market prices, the outstanding Term Loan had a fair value of $490 million at December 31, 2017.

The Term Loan contains affirmative and negative operating covenants applicable to us and our restricted subsidiaries. We believe we were compliant with these covenants at December 31, 2017 and expect to remain in compliance through December 31, 2018.

~~Derivative Financial Instruments~~

We are exposed to interest rate risk that we manage to some extent using derivative instruments. Under our April 2015 interest rate swap contracts, we receive interest calculated using 3-month LIBOR, subject to a floor of 0.75%, and pay fixed interest at 2.341%, on an aggregate notional amount of $150.0 million. These swap contracts effectively fix the cash interest rate on $150.0 million of our borrowings under the Term Loan at 4.841% from September 30, 2016 through September 30, 2021.

domestic bank. We have not designated ~~our interest rate swap contracts~~these swaps as ~~cash flow~~ hedges ~~of our future interest payments~~ and ~~elected to apply~~ the ~~“shortcut” method of assessing hedge effectiveness. As a result,~~changes in their fair values are included in earnings, where they offset the currency gains and losses onassociated with the intercompany loan. The values of our currency swap contracts ~~are reported~~were liabilities of $0.6 million and $0.3 million as ~~a component~~ of ~~other comprehensive loss~~December 31, 2019 and September 30, 2019, respectively, and are ~~reclassified into interest expense as the related interest payments are made. During the quarters ended December 31, 2017 and December 31, 2016, we~~ included ~~$0.4 million and $0.6 million of such interest expense~~ in ~~income from continuing operations, respectively.~~other noncurrent liabilities in our Condensed Consolidated Balance Sheets.

~~The fair values of the swap contracts are presented below.~~

Note 8. Retirement Plans

December 31, September 30,
2017 2017
(in millions)
Interest rate swap contracts, designated as cash flow hedges:
Other current liabilities $ 0.7
$ 1.2
Other noncurrent liabilities 0.2
1.3
$ 0.9
$ 2.5

Currency swap contracts, not designated as hedges:
Other noncurrent liabilities $ 1.3
$ 1.3

The fair values and the classification of the fair values between current and noncurrent portions are based on calculated cash flows using publicly available interest rate forward rate yield curve information, but amounts due at the actual settlement dates are dependent on actual rates in effect at the settlement dates and may differ significantly from amounts shown above.

~~Retirement Plans~~

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

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

Note 9. Stock-based Compensation Plans

We have granted various forms of stock-based compensation, including stock options, restricted stock units, ~~and both cash-settled and stock-settled~~ performance-based restricted stock units (“PRSUs”) and market-based restricted stock units (“MRSUs”) under our Amended and Restated 2006 Mueller Water Products, Inc. Stock Incentive Plan (the “2006 Stock Plan”).

A PRSU award ~~represents~~consists of a ~~target~~ number of units that may be paid out at the end of a multi-year award cycle consisting of a series of annual performance periods coinciding with our fiscal years. After we ~~determine~~establish the financial performance targets related to PRSUs for a given performance period, typically during the first quarter of that fiscal year, we consider that portion of a PRSU award to be granted. Thus, each award consists of a grant in the year of award and grants in the designated following years. ~~Settlement~~Settlements, in our common shares, will range from ~~zero~~0 to ~~two~~2 times the number of PRSUs granted, depending on our financial performance against the targets. ~~As determined~~

A MRSU award represents a target number of units that may be paid out at the ~~date~~end of a three year award ~~PRSUs may settle~~cycle based on a calculation of the Company's relative total shareholder return (“TSR”) performance as compared with a selected peer group's total shareholder return. Settlements, in ~~cash-value equivalent of, or directly in, shares of~~ our common ~~stock.~~shares, will range from 0 to 2 times the number of MRSUs granted, depending on our TSR performance versus the peer group.

The per-unit fair value of the MRSU award was $14.94, as determined using a Monte Carlo simulation with the following inputs:


	December 31, 2019
Dividend yield	1.87	%
Risk-free rate	1.53	%
Expected term (in years)	2.83

We awarded ~~171,288~~196,284 stock-settled PRSUs and 147,213 MRSUs in the ~~quarter~~three months ended December 31, ~~2017~~2019 that are scheduled to settle in ~~three~~3 years.

We issued ~~146,061~~93,647 shares and ~~263,410~~181,065 shares of common stock during the ~~quarters~~three months ended December 31, ~~2017~~2019 and ~~2016,~~2018, respectively, to settle ~~PRSUs.~~PRSUs that vested during the periods.

In addition to the PRSU activity, ~~213,532~~132,303 restricted stock units vested during the ~~quarter~~three months ended December 31, ~~2017.~~2019, respectively.

We have granted cash-settled Phantom Plan instruments under the Mueller Water Products, Inc. Phantom Plan (“Phantom Plan”). At December 31, ~~2017,~~2019, the outstanding Phantom Plan instruments had a fair value of ~~$12.53~~$11.98 per instrument and our liability for Phantom Plan instruments was ~~$1.2~~$1.0 million.

We granted stock-based compensation awards under the 2006 Stock Plan, the Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan, and the Phantom Plan during the three months ended December 31, ~~2017~~2019 as follows.


	Number granted	Weighted average grant date fair value per instrument		Total grant date fair value (in millions)
Restricted stock units	162,433	$	11.26	$	1.8

Employee stock purchase plan instruments	39,492	1.97		0.1
Phantom Plan awards	188,973	11.26		2.1
PRSUs: 2020 award	58,040	11.26		0.7
2019 award	102,203	11.26		1.2
2018 award	44,451	11.26		0.5
MRSUs	147,213	14.94		2.2
				$	8.6

Number granted Weighted average grant date fair value per instrument
Total grant date fair value
(in millions)
Restricted stock units 171,288
$ 12.41
$ 2.1
Employee stock purchase plan instruments 35,099
2.28
0.1
Phantom Plan awards 160,672
12.41
2.0
PRSUs: 2018 award 57,092
12.41
0.7
2017 award 71,070
12.41
0.9
2016 award 71,072
12.41
0.9
$ 6.7

~~Income from continuing operations~~Operating income included stock-based compensation expense of ~~$2.4~~$1.9 million and ~~$2.7~~$1.7 million during the three months ended December 31, ~~2017~~2019 and ~~2016,~~2018, respectively. At December 31, ~~2017,~~2019, there was approximately ~~$8.9~~$11.8 million of unrecognized compensation expense related to stock-based compensation arrangements and ~~185,270~~there were 218,292 PRSUs that have been awarded for the ~~2019~~2021 and ~~2020~~2022 performance periods for which performance goals have not been set.

We excluded ~~70,996~~108,976 and ~~323,010~~165,467 of stock-based compensation instruments from the calculations of diluted earnings per share for the quarters ended December 31, ~~2017~~2019 and ~~2016,~~2018, respectively, since their inclusion would have been antidilutive.

Note 10. Supplemental Balance Sheet Information

Selected supplemental balance sheet information is presented below.


	December 31,		September 30,
	2019		2019
	(in millions)
Inventories:
Purchased components and raw material	$	100.2	$	95.2
Work in process	44.1		43.7
Finished goods	68.6		52.5
	$	212.9	$	191.4

Other current assets:
Maintenance and repair tooling	$	4.2	$	4.2
Income taxes	3.1		4.7
Other	18.4		17.1
	$	25.7	$	26.0

Property, plant and equipment:
Land	$	5.2	$	5.2
Buildings	68.8		68.9
Machinery and equipment	368.8		362.9
Construction in progress	57.0		48.0
	499.8		485.0
Accumulated depreciation	(275.3)		(267.9)
	$	224.5	$	217.1
Other current liabilities:
Compensation and benefits	$	20.1	$	28.5
Customer rebates	10.6		8.7
Taxes other than income taxes	3.1		3.3
Warranty	6.8		6.5
Income taxes	—		0.6
Environmental	1.2		1.2
Interest	1.1		7.3
Restructuring	1.6		1.7
Walter Energy Accrual	—		22.0
Other	19.4		13.2
	$	63.9	$	93.0

December 31, September 30,
2017 2017
(in millions)
Inventories:
Purchased components and raw material $ 74.3
$ 67.7
Work in process 37.8
35.6
Finished goods 43.1
35.6
$ 155.2
$ 138.9

Other current assets:
Maintenance and repair tooling $ 3.2
$ 3.3
Income taxes 11.9
10.9
Other 11.4
10.2
$ 26.5
$ 24.4

Property, plant and equipment:
Land $ 5.5
$ 5.6
Buildings 51.4
53.4
Machinery and equipment 270.0
266.7
Construction in progress 25.2
24.7
352.1
350.4
Accumulated depreciation (229.8 ) (228.1 )
$ 122.3
$ 122.3
Other current liabilities:
Compensation and benefits $ 18.2
$ 26.9
Customer rebates 8.1
6.5
Taxes other than income taxes 2.4
3.2
Warranty 3.7
3.5
Income taxes 0.8
0.9
Environmental 1.2
1.3
Interest 0.7
0.6
Restructuring 4.2
3.3
Other 6.8
7.3
$ 46.1
$ 53.5
Note 11. Segment Information

~~Segment Information~~

Summarized financial information for our segments is presented below.


	Three months ended
	December 31,
	2019		2018
	(in millions)
Net sales, excluding intercompany:
Infrastructure	$	192.8	$	172.0
Technologies	19.8		20.8
	$	212.6	$	192.8
Operating income (loss):
Infrastructure	$	35.7	$	30.9
Technologies	(2.0)		(3.7)
Corporate	(13.4)		(11.3)
	$	20.3	$	15.9
Depreciation and amortization:
Infrastructure	$	12.0	$	10.1
Technologies	2.0		2.0
Corporate	—		—
	$	14.0	$	12.1
Strategic reorganization and other charges:
Infrastructure	$	—	$	—
Technologies	—		—
Corporate	2.4		3.2
	$	2.4	$	3.2
Capital expenditures:
Infrastructure	$	14.5	$	14.8
Technologies	0.6		1.1
Corporate	0.1		—
	$	15.2	$	15.9
Infrastructure disaggregated net revenues:
Central	$	46.5	$	40.3
Northeast	41.9		37.9
Southeast	39.6		34.7
West	46.0		44.8
United States	174.0		157.7
Canada	11.6		9.9
Other international locations	7.2		4.4
	$	192.8	$	172.0
Technologies disaggregated net revenues:
Central	$	4.7	$	6.5
Northeast	6.1		3.4
Southeast	5.8		6.8
West	2.0		2.7
United States	18.6		19.4
Canada	0.6		0.2
Other international locations	0.6		1.2
	$	19.8	$	20.8

Three months ended
December 31,
2017 2016
(in millions)
Net sales, excluding intercompany:
Infrastructure $ 160.1
$ 146.3
Technologies 18.2
20.9
$ 178.3
$ 167.2
Intercompany sales:
Infrastructure $ —
$ 1.1
Technologies —
—
$ —
$ 1.1
Operating income (loss):
Infrastructure $ 28.1
$ 26.2
Technologies (4.7 ) (2.2 )
Corporate (2.7 ) (9.8 )
$ 20.7
$ 14.2
Depreciation and amortization:
Infrastructure $ 9.1
$ 9.0
Technologies 1.4
1.2
Corporate 0.1
0.1
$ 10.6
$ 10.3
Strategic reorganization and other charges:
Infrastructure $ —
$ 0.1
Technologies 0.1
—
Corporate 3.8
1.2
$ 3.9
$ 1.3
Capital expenditures:
Infrastructure $ 4.8
$ 3.0
Technologies 1.5
1.1
Corporate 0.1
0.1
$ 6.4
$ 4.2

Note 12. Accumulated Other Comprehensive Loss

~~Accumulated Other Comprehensive Loss~~

Accumulated other comprehensive loss is presented below.


	Pension, net of tax		Foreign currency translation		Total
	(in millions)
Balance at September 30, 2019	$	(36.0)	$	—	$	(36.0)
Current period other comprehensive income	0.5		3.5		$	4.0
Balance at December 31, 2019	$	(35.5)	$	3.5	$	(32.0)

Note 13. Commitments and Contingencies

Pension, net of tax Foreign currency translation Derivative instruments, net of tax Total

Balance at September 30, 2017 $ (47.0 ) $ (3.3 ) $ (1.5 ) $ (51.8 )
Current period other comprehensive income (loss) 0.5
0.1
1.0
1.6
Balance at December 31, 2017 $ (46.5 ) $ (3.2 ) $ (0.5 ) $ (50.2 )

~~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. 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 material adverse effect on our business or prospects.

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.

On July 13, 2010, Rohcan Investments Limited, the former owner of property leased by Mueller Canada Ltd. and located in Milton, Ontario, filed suit against Mueller Canada Ltd. and its directors seeking C$10.0 million in damages arising from the defendants’ alleged environmental contamination of the property and breach of lease. Mueller Canada Ltd. leased the property from 1988 through 2008. We are pursuing indemnification from a former owner for certain potential liabilities that are alleged in this lawsuit, and we have accrued for other liabilities not covered by indemnification. On December 7, 2011, the Court denied the plaintiff’s motion for summary judgment.

The purchaser of U.S. Pipe has been identified as a “potentially responsible party” (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act ~~(“CERCLA”)~~ 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 EPA’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. Accordingly, because the amount of such costs cannot be reasonably estimated at this time, no amounts ~~had~~have been accrued for this matter at December 31, ~~2017.~~2019.

Walter Energy. ~~Each~~We were a member of the Walter Energy, Inc (“Walter Energy”) federal tax consolidated group ~~which included us~~ through December 14, 2006, isat which time the Company was spun-off from Walter Energy. Until our spin-off from Walter Energy, we joined in the filing of Walter Energy’s consolidated federal income tax return for each taxable year during which we were a member of the consolidated group. As a result, we were jointly and severally liable for the federal income tax liability, ~~of each other member~~if any, of the consolidated group for ~~any year in which it is a member~~each of the group at any time during such year. Accordingly, we could be liable in the event any such federal income tax liability is incurred, and not discharged, by any other member of the Walter Energy consolidated group for any period during which we were included in the Walter Energy consolidated group.

Walter Energy effectively controlled all of our tax decisions for periods during which we were a member of the Walter Energy consolidated group for federal income tax purposes and certain combined, consolidated or unitary state and local income tax groups. Under the terms of an income tax allocation agreement between us and Walter Energy, dated May 26, 2006, we generally compute our tax liability on a stand-alone basis, but Walter Energy has sole authority to respond to and conduct all tax proceedings (including tax audits) relating to our federal income and combined state tax returns, to file all such tax returns on our behalf and to determine the amount of our liability to (or entitlement to payment from) Walter Energy for such previous periods.

As described further below, the IRS is currently alleging that Walter Energy owes substantial amounts for prior taxable periods (specifically, 1983-1994, 2000-2002 and 2005). As a matter of law, we are jointly and severally liable for any final tax determination, which means we would be liable in the event Walter Energy is unable to pay any amounts owed.

those years. In July 2015, Walter Energy filed ~~a petition~~ for ~~reorganization~~bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code ~~before the Bankruptcy Court for~~in the Northern District of Alabama (“~~Chapter 11~~Bankruptcy Case”). During the pendency of the Chapter 11 Case, we monitored the proceeding to determine whether we could be liable for all or a portion of this federal income tax liability if it is incurred, and not discharged, for any period during which we were included in theThe Internal Revenue Service (“IRS”) alleged that Walter Energy ~~consolidated group. On~~owed substantial amounts (“Walter Tax Liability”), and on January 11, 2016, the IRS filed a proof of claim in the ~~Chapter 11~~Bankruptcy Case, alleging that Walter Energy ~~owes~~owed taxes, interest and penalties ~~for the years 1983-1994, 2000-2002 and 2005~~ in an aggregate amount of $554.3 million ($229.1 million of which the IRS claims is entitled to priority status in the Chapter 11 Case). The IRS asserts that its claim is based on an alleged settlement of Walter Energy’s tax liability for the 1983-1995 taxable periods in connection with Walter Energy’s prior bankruptcy proceeding in the United States Bankruptcy Court for the Middle District of Florida.million. In the proof of claim, the IRS included an alternative calculation in ~~the event the alleged settlement of the prior bankruptcy court is found to be non-binding, which provides for a claim by the IRS in~~ an aggregate amount of $860.4 ~~million ($535.3 million of which~~million.

On November 5, 2019, we agreed to be bound by a settlement agreement between the bankruptcy trustee in the Bankruptcy Case and the IRS ~~claims is entitled~~ to ~~priority status~~resolve the Walter Tax Liability. On November 18, 2019, the settlement agreement was approved by the U.S. Bankruptcy Court in the ~~Chapter 11 Case).~~

~~According to a quarterly report on Form 10-Q filed by Walter Energy with~~Northern District of Alabama. Under the ~~SEC on November 5, 2015 (“Walter November 2015 Filing”), at September 30, 2015, Walter Energy had $33.0~~terms of the settlement agreement, we contributed approximately $22.2 million ~~of accruals for unrecognized tax benefits in connection with the matters subject~~ to the ~~IRS claims. In the Walter November 2015 Filing, Walter Energy stated it believed it had sufficient accruals to address any claims, including interest~~settlement. All appeal periods have expired, and penalties, and did not believe that any potential difference between any final settlements and amounts accrued would have a material effect on Walter Energy’s financial position, but such potential difference could be material to its results of operations in a future reporting period.

According to a Form 8-K filed by Walter Energy with the SEC on April 1, 2016 (“Walter April 2016 Filing”), on March 31, 2016, Walter Energy closed on the sale of substantially all of Walter Energy’s Alabama assets pursuant to the provisions of Sections 105, 363 and 365 of the Bankruptcy Code. The Walter April 2016 Filing further stated that Walter Energy would have no further material business operations after April 1, 2016 and Walter Energy was evaluating its optionsour liabilities with respect to the ~~wind down~~Walter Tax Liability have been fully resolved.

Chapman v. Mueller Water Products, et al. In 2017, our warranty analyses identified that certain Technologies radio products produced prior to 2017 and installed in particularly harsh environments had been failing at higher than expected rates. During the quarter ended March 31, 2017, we conducted additional testing of these products and revised our estimates of warranty expenses. As a result, we recorded additional warranty expense of $9.8 million in the second quarter of 2017. During the quarter ended June 30, 2018, we completed a similar analysis and determined, based on this new information, that certain other Technologies products had been failing at higher-than-expected rates as well and that the average cost to repair or replace certain products under warranty was higher than previously estimated. As a result, in the third quarter of 2018, we recorded additional warranty expense of $14.1 million associated with such products. Related to the above warranty expenses, on April 11, 2019, an alleged stockholder filed a putative class action lawsuit against Mueller Water Products, Inc. and certain of our former and current officers (collectively, the “Defendants”) in the U.S. District Court for the Southern District of New York. The proposed class consists of all persons and entities that acquired our securities between May 9, 2016 and August 6, 2018 (the “Class Period”). The complaint alleges violations of the federal securities laws, including, among other things, that we made materially false and/or misleading statements and failed to disclose material adverse facts about our business, operations, and prospects during the proposed Class Period. The plaintiff seeks compensatory damages and attorneys’ fees and costs but does not specify the amount. Accordingly, we cannot reasonably estimate the amount of any cost or liabilities related to this matter and therefore no amounts have been accrued related to this matter as of December 31, 2019. Defendants filed their motion to dismiss on November 1, 2019 and second motion to dismiss (in response to the second amended complaint filed on December 24, 2019) on January 31, 2020. We believe the allegations are without merit and intend to vigorously defend against the claims. However, the outcome of this legal proceeding cannot be predicted with certainty.

City of Jackson, MS v. Siemens Industry, Inc., et al.On or about August 22, 2013, Mueller Systems, LLC (“Mueller Systems”) entered into an agreement with Siemens Industries, Inc (“Siemens”) to provide automated meter infrastructure (“AMI”) products and services to Siemens as part of Siemens’ project for the City of Jackson, MS (the “City”). This project included products and services for the City’s water treatment plants, sewer lines and billing system, which were provided by parties other than Mueller Systems (the “Project”).On June 11, 2018, the City filed a lawsuit against Siemens and several of its ~~remaining assets. The asset sale did not impact~~contractors (excluding Mueller Systems) for multiple claims related to the ~~IRS’ proof~~Project, including claims for fraud, negligence, breach of ~~claim~~implied warranty of good workmanship, negligent representation, civil conspiracy, unjust enrichment, breach of contract and breach of covenant of good faith and fair dealing (“Siemens Lawsuit”). In the Siemens Lawsuit, the City alleged damages in excess of $450.0 million.On November 12, 2019, the City filed an amended complaint, adding Mueller Systems as a defendant in the ~~bankruptcy cases~~Siemens Lawsuit.Mueller Systems is reviewing the claims to determine the portion, if any, of the City’s alleged damages that may be related to Mueller Systems’ AMI products and ~~the proof~~services. However, there remains a high degree of ~~claim,~~uncertainty around these claims, as well as their potential effect on Mueller Systems’ future operations, earnings, cash flows and financial condition. Accordingly, at this time, it is not practicable to estimate the ~~alleged tax liability thereunder, remain unresolved.~~magnitude and timing of any possible obligations or payments.

Mass Shooting Event at our Henry Pratt Facility in Aurora, Illinois. On February ~~2, 2017,~~15, 2019, we experienced a mass shooting event at our Henry Pratt facility in Aurora, Illinois, in which five employees were killed and one employee and six law enforcement officers were injured. Various workers’ compensation claims arising from the ~~request of Walter Energy, the Bankruptcy Court for the Northern District of Alabama signed an order converting the Chapter 11 Case~~event have been made to ~~a liquidation proceeding~~date, and we anticipate that additional claims may be made, and that liability under ~~Chapter 7 of the U.S. Bankruptcy Code, pursuant to which Walter Energy will be wound-down and liquidated (“Chapter 7 Case”). In its objection contesting~~ such ~~conversion, the IRS indicated its intent to pursue collection of amounts included in the Proof of Claim from former members of the Walter Energy consolidated group.~~

We cannot predict whether or to what extent we may become liable for the tax-related amounts of the Walter Energy consolidated group asserted in the IRS’ proof of claim filed in the bankruptcy cases, in part, because: (i) the amounts owed by the Walter Energy consolidated group for certain of the taxable periods from 1980 through 2006 remain unresolved; (ii) it is unclear what priority,claims, if any, ~~the IRS will receive in the Chapter 7 Case with respect~~is not expected to its claims against Walter Energy, and whether and to what extent funds will be available in the Chapter 7 Case to pay priority tax claims. We also intend to vigorously assert any and all available defenses against any liability we may have as a member of the Walter Energy consolidated group. However, we cannot currently estimate our liability, if any, relating to the tax-related liabilities of Walter Energy’s consolidated tax group for tax years prior to 2007, and such liability could have a material adverse effect on our ~~business, financial condition, liquidity or~~ results of ~~operations.~~operations or cash flows. However, the possibility of other legal proceedings, and any related effects, arising from this event cannot be predicted with certainty.

Indemnifications. We are a party to contracts in which it is common for us to agree to indemnify third parties for certain liabilities that arise out of or relate to the subject matter of the contract. In some cases, this indemnity extends to related liabilities arising from the negligence of the indemnified parties, but usually excludes any liabilities caused by gross negligence or willful misconduct. We cannot estimate the potential amount of future payments under these indemnities until events arise that would trigger a liability under the indemnities.

Additionally, in connection with the sale of assets and the divestiture of businesses, such as the divestitures of U.S. Pipe and Anvil, we may agree to indemnify buyers and related parties for certain losses or liabilities incurred by these parties with respect to: (i) the representations and warranties made by us to these parties in connection with the sale and (ii) liabilities related to the pre-closing operations of the assets or business sold. Indemnities related to pre-closing operations generally include certain environmental and tax liabilities and other liabilities not assumed by these parties in the transaction.

Indemnities related to the pre-closing operations of sold assets or businesses normally do not represent additional liabilities to us, but simply serve to protect these parties from potential liability associated with our obligations existing at the time of the sale. As with any liability, we have accrued for those pre-closing obligations that are considered probable and reasonably estimable. Should circumstances change, increasing the likelihood of payments related to a specific indemnity, we will accrue a liability when future payment is probable and the amount is reasonably estimable.

Other Matters. We monitor and analyze our warranty experience and costs periodically and may revise our accruals as necessary. Critical factors in our analyses include warranty terms, specific claim situations, general incurred and projected failure rates, the nature of product failures, product and labor costs, and general business conditions.

We are party to a number of lawsuits arising in the ordinary course of business, including product liability cases for products manufactured by us or third parties. We provide for costs relating to these matters when a loss is probable and the amount is reasonably estimable. Administrative costs related to these matters are expensed as incurred. The effect of the outcome of these matters on our future financial statements cannot be predicted with certainty as any such effect depends on the amount and timing of the resolution of such matters. 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 business or prospects.

Note 14. Subsequent Events

On January ~~24, 2018,~~30, 2020, our board of directors declared a dividend of ~~$0.05~~$0.0525 per share on our common stock, payable on or about February 20, ~~2018~~2020 to stockholders of record at the close of business on February ~~9, 2018.~~10, 2020.

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 Private Securities Litigation Reform Act of 1995. All statements that address activities, events or developments that we intend, expect, plan, project, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements are based on certain assumptions and assessments made by us in light of our 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, including regional, national or global political, economic, business, competitive, market and regulatory conditions and the other factors described under the section entitled “RISK FACTORS” in Item 1A. of our ~~annual report~~Annual Report on Form 10-K for the year ended September 30, ~~2017 (“Annual Report”).~~2019 and in this Quarterly Report on Form 10-Q. Undue reliance should not be placed on any forward-looking statements. The Company does not have any intention or obligation to update forward-looking statements, except as required by law.

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. We manage our businesses and report operations through two business segments, Infrastructure and Technologies, based largely on the products sold and the customers served.

On October 3, 2005, Walter Energy, Inc (“Walter Energy”) acquired all outstanding shares of capital stock representing the Mueller Co. and Anvil businesses and contributed them to its U.S. Pipe business to form Mueller Water Products, Inc. (“Mueller” or the ~~Company.~~“Company”). In June 2006, we completed an initial public offering of 28,750,000 shares of Series A common stock and in December 2006, Walter Energy distributed to its shareholders all of its equity interests in the Company, consisting of all of the Company’s outstanding shares of Series B common stock. On January 28, 2009, each share of Series B common stock was converted into one share of Series A common stock and the Series A designation was discontinued.

~~On January 6, 2017, we~~Mueller, completing our spin-off. We subsequently sold our ~~former~~U.S. Pipe and Anvil ~~segment. Amounts applicable~~businesses in 2012 and 2017, respectively.

We estimate approximately 60-65% of our 2019 net sales were for repair and replacement directly related to ~~Anvil have been classified as discontinued operations.~~

~~Business~~municipal water infrastructure spending, approximately 25-30% were related to residential construction activity and less than 10% were related to natural gas utilities.

We expect our two primary end markets, repair and replacement of water infrastructure, driven by municipal spending, and new water infrastructure installation, driven by residential construction, to grow in ~~2018. We expect~~ the ~~residential construction market~~low single digits during 2020. In January 2020, Blue Chip Economic Indicators forecasted a 4% increase in housing starts for calendar 2020 compared to ~~grow faster than municipal spending.~~the prior year.

On December 3, 2018, we completed our acquisition of Krausz Development Ltd. and subsidiaries (“Krausz”), a manufacturer of pipe couplings, grips and clamps with operations in the United States and Israel, for $140.7 million, net of cash acquired, including the assumption and simultaneous repayment of certain debt of $13.2 million. We ~~estimate approximately 60%~~include financial results of ~~Infrastructure’s 2017 net sales were~~Krausz in our consolidated financial statements on a one-month lag. For the quarter ended December 31, 2018, the consolidated statements of operations and of cash flows exclude the results of Krausz’s operations.

On October 3, 2019, we acquired the noncontrolling interest of our previously existing joint venture operation for repair and replacement directly related to municipal water infrastructure spending, approximately 30% were related to residential construction activity and approximately 10% were related to natural gas utilities.

~~Infrastructure announced~~a negotiated purchase price ~~increases on valves, hydrants and gas products effective in February 2018 for its U.S. and Canadian markets. We believe that some customers may accelerate orders prior to the effective date~~ of ~~the price increases.~~$5.4 million.

The municipal market is the key end market for Technologies. ~~These~~The businesses in Technologies are project-oriented and depend on customer adoption of their technology-based products and services. Mueller Systems is benefiting from its recent introduction of new, longer-range radio capabilities, and its growth strategy is focused on the AMI segment of the market. Mueller Systems’ 2018 first quarter AMI backlog was lower at December 31, 2017 than at December 31, 2016. Echologics had a greater number of projects under contract at at December 31, 2017 than at December 31, 2016.

Results of Operations

Three Months Ended December 31, ~~2017~~2019 Compared to Three Months Ended December 31, ~~2016~~2018

Consolidated Analysis

Net sales for the quarter ended December 31, ~~2017~~2019 increased ~~$11.1~~10.3% or $19.8 million to ~~$178.3~~$212.6 million from ~~$167.2~~$192.8 million primarily due ~~primarily~~ to ~~increased~~Krausz sales, as well as higher pricing and shipment volumes ~~including the addition of Singer Valve, and improved pricing~~ at ~~Infrastructure, which were partially offset by volume decline at Technologies.~~Infrastructure.

Gross profit for the quarter ended December 31, ~~2017~~2019 increased ~~$3.6~~$12.5 million to ~~$55.4~~$72.6 million from ~~$51.8~~$60.1 million in the prior year period, primarily due to ~~increased shipment volumes, improved~~higher pricing, product mix and ~~Infrastructure's improved operating efficiencies and other manufacturing cost savings,~~the addition of Krausz, which was partially offset by ~~increased material costs.~~higher costs associated with tariffs and inflation. Gross margin ~~increased to 31.1%~~was 34.1% for the quarter ended December 31, ~~2017~~2019 compared to ~~31.0%~~31.2% in the prior year period.

Selling, general and administrative expenses (“SG&A”&A”) for the quarter ended December 31, ~~2017~~2019 increased to ~~$39.8~~$49.9 million from ~~$36.3~~$41.0 million in the prior year period due primarily to the ~~acquisition~~inclusion of ~~Singer Valve during the second quarter of last year~~Krausz’s SG&A expenses as well as IT-related activities, personnel-related costs and ~~higher personnel-related expenses.~~professional fees. SG&A as a percentage of net sales was ~~22.3%~~23.5% and 21.3% in the ~~quarter~~quarters ended December 31, ~~2017~~2019 and ~~21.7% in~~2018, respectively. Krausz related expenses accounted for approximately half of the ~~prior year period.~~increase.

~~Interest expense, net declined $1.2~~Strategic reorganization and other charges were $2.4 million in the quarter ended December 31, ~~2017~~2019 and were $3.2 million in the prior year period.

Interest expense, net increased $1.9 million in the quarter ended December 31, 2019 compared to the prior year ~~period.~~period primarily due to a non-cash adjustment to capitalized interest in the quarter and decreased interest income. The components of interest expense, net are provided below.


	Three months ended
	December 31,
	2019		2018
	(in millions)
Notes	$	6.2	$	6.2
Deferred financing costs amortization	0.3		0.3
ABL Agreement	0.1		0.1
Capitalized interest, including adjustment	1.3		—
Other interest expense	—		0.3
	7.9		6.9
Interest income	(0.5)		(1.4)
Interest expense, net	$	7.4	$	5.5

Three months ended
December 31,
2017 2016
(in millions)
Term Loan $ 4.8
$ 5.1
Interest rate swap contracts 0.4
0.6
Deferred financing costs amortization 0.5
0.4
ABL Agreement 0.2
0.2
Other interest expense 0.1
0.2
6.0
6.5
Interest income (0.8 ) (0.1 )
$ 5.2
$ 6.4

On December 22, 2017, tax legislation was enacted that made significant revisions to federal income tax laws, including lowering the corporate income tax rate to 21 percent from 35 percent, overhauling the taxation of income earned outside the United States and eliminating or limiting certain deductions. Since the effective date of the tax rate change was January 1, 2018, we are subject to a blended federal statutory tax rate of 24.5 percent throughout fiscal 2018.

For the quarter ended December 31, 2017, we reported a net income tax benefit of $39.8 million, which was driven by a benefit of $42.6 million related to remeasurement of our net deferred income tax liabilities using the enacted tax rates in effect when we expect to recognize the related tax expenses or benefits. Other than this remeasurement benefit, income tax expense was $2.8 million, or 18.3 percent of income before income taxes. For the 2017 first quarter, income tax expense was 28.0 percent of income before income taxes. The reconciliation between the U.S. federal statutory income tax rate and the effective tax rate is presented below.

Three months ended
December 31,
2017 2016
U.S. federal statutory income tax rate 24.5 % 35.0 %
Adjustments to reconcile to the effective tax rate:
State income taxes, net of federal benefit 4.3
3.9
Valuation allowance adjustment related to stock compensation (5.7 ) —
Excess tax benefits related to stock compensation (2.8 ) (7.6 )
Domestic production activities deduction (1.6 ) (3.3 )
Tax credits (0.9 ) (0.8 )
Other 0.5
0.8
18.3 % 28.0 %
Remeasurement of deferred taxes for change in rates (278.4 )% — %
Effective income tax rate (260.1 )% 28.0 %

Also under this legislation, we are subject to a one-time transition tax on undistributed foreign earnings, but the amount of this tax is not reasonably estimable at this time. Accordingly, no provision for this tax has been recorded, but will be recorded later in 2018.


	Three months ended
	December 31,
	2019		2018
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	4.5		3.3
Excess tax (benefits) related to stock compensation	(1.5)		1.3
Tax credits	(1.1)		0.4
Global Intangible Low-taxed Income	0.1		(0.1)
Foreign income taxes	(0.7)		—
Valuation allowance	(0.7)		—
Other	1.5		(0.3)
	23.1	%	25.6	%
Walter Energy accrual	(0.3)		(5.8)
Transition tax	—		2.1
Effective income tax rate	22.8	%	21.9	%

Net sales for the quarter ended December 31, ~~2017~~2019 increased ~~9.4%~~12.1% to ~~$160.1~~$192.8 million compared to ~~$146.3~~$172.0 million in the prior year period due to the inclusion of Krausz net sales as well as higher pricing and increased shipment volumes.

Gross profit for the quarter ended December 31, 2019 increased to $68.2 million from $56.8 million in the prior year period primarily due to the inclusion of Krausz gross profit and higher ~~shipment volumes, the addition of Singer Valve and favorable~~sales pricing.

Gross ~~profit~~margin was 35.4% for the quarter ended December 31, 2017 increased to $52.5 million from $47.6 million in the prior year period due to increased shipment volumes, improved operating efficiencies and other manufacturing cost savings. Gross margin increased to 32.8% for the quarter ended December 31, 20172019 compared to ~~32.5%~~33.0% in the prior year period.

SG&A for the quarter ended December 31, ~~2017~~2019 increased to ~~$24.4~~$32.5 million from ~~$21.3~~$25.9 million in the prior year period. This increase was primarily due to the inclusion of Krausz’s SG&A ~~was 15.2% and 14.6%~~expenses. SG&A as a percentage of net sales was 16.9% and 15.1% for the quarters ended December 31, ~~2017~~2019 and ~~2016,~~2018, respectively. ~~These increases in SG&A were primarily due to higher personnel-related expenses and the additional SG&A of Singer Valve.~~

Net sales in the quarter ended December 31, ~~2017 declined~~2019 decreased to ~~$18.2~~$19.8 million from ~~$20.9~~$20.8 million in the prior year period, ~~primarily due to~~driven by lower ~~AMI~~ shipment volumes at Metrology, which were partially offset by ~~increased leak detection sales.~~higher volumes at Echologics.

Gross profit in the quarter ended December 31, ~~2017 was $2.9~~2019 increased to $4.4 million compared to ~~$4.2~~$3.3 million in the prior year period. ~~Gross margin declined to 15.9% in the quarter ended December 31, 2017 compared to 20.1% in the prior year period. These declines were primarily due to lower shipment volumes.~~

SG&A ~~increased~~decreased to ~~$7.5~~$6.4 million in the quarter ended December 31, ~~2017~~2019 compared to ~~$6.4~~$7.0 million in the prior year period due to reduced marketing and personnel-related expenses. SG&A ~~increased to 41.2%~~as a percentage of net sales was 32.3% and 33.7% for the ~~quarter~~quarters ended December 31, ~~2017 from 30.6% of net sales in the prior year period.~~2019 and 2018, respectively.

SG&A was ~~$7.9~~$11.0 million in the quarter ended December 31, ~~2017 compared to $8.6~~2019 and was $8.1 million in the prior year period. This increase was primarily due to IT-related activities, personnel-related costs and professional fees.

Liquidity and Capital Resources

We had cash and cash equivalents of ~~$348.3~~$136.8 million at December 31, ~~2017~~2019 and ~~$96.3~~$122.0 million of additional borrowing capacity under our ABL Agreement based on December 31, ~~2017 data, which, along with cash generated by operations, would be our source of incremental liquidity.~~2019 data. Undistributed earnings from our subsidiaries in Canada, China, and ~~China~~Israel are considered to be permanently invested outside the United States. At December 31, ~~2017,~~2019, cash and cash equivalents included $12.1 million, $4.3 million and ~~$7.2~~$17.5 million in Canada, China and ~~China,~~Israel, respectively.

We expect the recently enacted tax law changes to benefit our liquidity through reduction in overall income tax liability and through provisions allowing immediate deductibility for capital assets placed in service in the next five years. This benefit will be partially offset by payment of the transition tax discussed above. However, the transition tax may be paid over eight years, and we dodid not ~~expect any payments to have a material liquidity impact in any particular year.~~

~~We repurchased~~repurchase shares of our common stock ~~for $10 million~~ during the quarter ended December 31, ~~2017,~~2019 and ~~we had $180~~have $150 million remaining on our share repurchase ~~authorization at that date.~~authorization.

The ABL Agreement and ~~Term Loan~~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.

Cash flows from operating activities ~~of continuing operations~~ are categorized below.

Collections from customers were higher during the three months ended December 31, ~~2017~~2019 compared to the prior year period primarily due to ~~the timing~~increased sales as well as collections of ~~cash receipts and net sales growth.~~acquired Krausz receivables.

Increased disbursements, other than interest and income taxes, during the three months ended December 31, ~~2017~~2019 reflect ~~higher purchasing activity, higher costs for raw materials, and~~increased expenses, differences in the timing of ~~expenditures.~~

~~Income tax~~expenditures and payments ~~were lower during the three months ended December 31, 2017 compared~~of acquired Krausz payables. Additionally we disbursed $22.2 million related to the ~~prior year period because we began the current year quarter with U.S. federal income taxes prepaid.~~

final settlement of Walter Tax.

Capital expenditures were ~~$6.4~~$15.2 million in the three months ended December 31, ~~2017~~2019 compared to ~~$4.2~~$15.9 million in the prior year period. These expenditures were primarily investment in announced large capital projects. We estimate ~~2018~~2020 capital expenditures will be between ~~$40 million~~$80 and ~~$48 million, although we are also evaluating possibilities for additional capital expenditures in 2018.~~$90 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 December 31, ~~2018.~~2020. However, our ability to make these payments will depend partly upon our future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control.

At December 31, ~~2017,~~2019, the ABL Agreement consisted of a revolving credit facility for up to ~~$225~~$175 million of revolving credit borrowings, swing line loans and letters of credit. The ABL Agreement permits us to increase the size of the credit facility by an additional $150 million in certain circumstances subject to adequate borrowing base availability. We may borrow up to $25 million through swing line loans and may have up to $60 million of letters of credit outstanding.

The ABL Agreement terminates on July 13, 2021. We pay a commitment fee for any unused borrowing capacity under the ABL Agreement of 25 basis points per annum.

The ABL Agreement is subject to mandatory prepayments if total outstanding borrowings under the ABL Agreement are greater than the aggregate commitments under the revolving credit facility or if we dispose of overdue accounts receivable in certain circumstances. The borrowing base under the ABL Agreement is equal to the sum of (a) 85% of the value of eligible accounts receivable and (b) the lesser of (i) 70% of the value of eligible inventories or (ii) 85% of the net orderly liquidation value of the value of eligible inventories, 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 Agreement and are jointly and severally liable for any outstanding borrowings. Our obligations under the ABL Agreement are secured by a first-priority perfected lien on all of our U.S. inventories, accounts receivable, certain cash and other supporting obligations.

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 under the ABL Agreement.

~~Term Loan~~5.5% Senior Unsecured Notes

~~We had $485.1~~On June 12, 2018, we privately issued $450.0 million ~~face value outstanding under the Term Loan at December 31, 2017. Term Loan borrowings accrue~~of Senior Unsecured Notes (“Notes”), which mature in June 2026 and bear interest at ~~a floating rate equal to LIBOR, subject to a floor of 0.75%~~5.5%, plus 250 basis points. We may voluntarily repay amounts borrowed under the Term Loan at any time. The principal amount of the Term Loan is required to be repaid in quarterly installments of $1.225 million. The Term Loan matures on November 25, 2021. The Term Loan is guaranteed by substantiallypaid semi-annually. Substantially all of our U.S. subsidiaries guarantee the Notes, which are subordinate to borrowings under the ABL. Based on quoted market prices, the outstanding Notes had a fair value of $473.6 million at December 31, 2019.

An indenture securing the Notes (“Indenture”) contains customary covenants and ~~secured by essentially~~events of default, including covenants that limit our ability to incur debt, pay dividends and make investments. We believe we were compliant with these covenants at December 31, 2019 and expect to remain in compliance through December 31, 2020.

We may redeem some or all of ~~our assets, although~~ the ~~ABL Agreement has~~Notes at any time or from time to time prior to June 15, 2021 at certain “make-whole” redemption prices (as set forth in the Indenture) and on or after June 15, 2021 at specified redemption prices (as set forth in the Indenture). Additionally, we may redeem up to 40% of the aggregate principal amount of the Notes at any time or from time to time prior to June 15, 2021 with the net proceeds of specified equity offerings at specified redemption prices (as set forth in the Indenture). Upon a ~~senior claim on certain collateral securing borrowings thereunder.~~change in control (as defined in the Indenture), we will be required to offer to purchase the Notes at a price equal to 101% of the outstanding principal amount of the Notes.

Our corporate credit rating and the credit rating for our debt are presented below.

Moody’s

Standard & Poor’s

December 31,

September 30,

December 31,

September 30,

2019

Corporate credit rating

Ba2

ABL Agreement

Not rated

Notes

Ba3

Outlook

Stable

Moody’s Standard & Poor's
December 31, September 30, December 31, September 30,
2017 2017 2017 2017
Corporate credit rating Ba3 Ba3 BB- BB-
ABL Agreement Not rated Not rated Not rated Not rated
Term Loan Ba3 Ba3 BB BB
Outlook Stable Stable Stable Stable

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 December 31, ~~2017~~2019 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 December 31, ~~2017,~~2019, we had ~~$17.5~~$13.8 million of letters of credit and ~~$35.6~~$22.7 million of surety bonds outstanding.

Our business is dependent upon the construction industry, which is seasonal due to the impact of cold weather conditions. Net sales and operating income have historically been lowest in the quarterly 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.

Item 4. CONTROLS AND PROCEDURES

During the quarter ended December 31, ~~2017,~~2019, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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 the Chief Executive Officer and 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.

PART II OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Refer to the information provided in Note ~~11.~~13. to the Notes to the Condensed Consolidated Financial Statements presented in Item 11. of Part I of this report.

Item 1A. RISK FACTORS

~~Recent changes in U.S. tax law may have a significant impact on our Company~~

On December 22, 2017, HR-1, formerly referred to as the Tax Cuts and Jobs Act, (“Act”) was signed into law, significantly impacting several sections of the Internal Revenue Code. The Act, among other things, reduces the corporate tax rate to 21% from 35%, limits the deductibility of interest expense and executive compensation and implements a modified territorial tax system which includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. The Act requires complex computations to be performed that were not previously required in U.S. tax law, judgments to be made in interpretation of the provisions of the Act and estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. We are continuing to examine the impact of the Act, including certain provisions that will become applicable to us in fiscal year 2019 related to base erosion anti-abuse tax (“BEAT”), global intangible low-taxed income (“GILTI”), and other provisions that could adversely affect our effective tax rate in the future. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the Act will be applied or otherwise administered that is different from our interpretation. Furthermore, because there may be additional state income tax implications, we will continue to monitor changes in state and local tax laws to determine if state and local taxing authorities intend to conform or deviate from changes to U.S. federal tax legislation as a result of the Act.

In addition to the ~~risk factor above and~~ 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.

Our operations and results may be negatively impacted by the coronavirus outbreak

We operate two facilities in China – one in Jingmen and the other in Taicang. Our Jingmen facility is located in the Hubei Province, where the coronavirus is believed to have originated. The World Health Organization has declared the coronavirus outbreak a “Public Health Emergency of International Concern” and the U.S. Department of State has instructed travelers to avoid all nonessential travel to China. As a result of these measures, and after consultation with governmental and health authorities, we have temporarily closed our facilities in Jingmen and Taicang. Although there are still too many variables and uncertainties regarding the coronavirus outbreak to fully assess the potential impact on our business, we believe that our existing inventory levels and other operations will be able to meet customer commitments and demand for the next few months. However, a prolonged shutdown of our Chinese operations, or other facilities in China that are engaged directly or indirectly in our supply chain, could have a negative effect on our results and supply chain, and broader global effects of potentially reduced consumer confidence and other macro issues could also have a negative effect on our overall business.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the quarter ended December 31, ~~2017, we repurchased~~2019, shares ~~of our common stock, including shares repurchased under our existing share repurchase authorization and shares~~were surrendered to us to pay the tax withholding obligations of participants in connection with the lapsing of restrictions on restricted stock units as ~~follows.~~follows:


Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum dollar value of shares that may yet be purchased under the plans or programs (in millions)
October 1-31, 2019	—	$	—	—	—
November 1-30, 2019	31,656	11.25		—	—
December 1-31, 2019	32,037	11.26		—	—
Total	63,693	$	—	—	—

We did not repurchase shares of our common stock during the quarter ended December 31, 2019 under our share repurchase authorization, and we have $150 million remaining under this authorization.


	Three months ended							Three months ended
	December 31,							December 31,
	2017			2016				2019		2018
	(in millions)							(in millions)
Collections from customers	$	216.1		$	194.6		Collections from customers	$	253.6	$	242.3
Disbursements, other than interest and income taxes	(211.3		)	(203.5		)	Disbursements, other than interest and income taxes	(231.4)		(220.4)
Walter Tax accrual payment							Walter Tax accrual payment	(22.2)		—
Interest payments, net	(4.4		)	(5.6		)	Interest payments, net	(12.0)		(11.7)
Income tax refunds (payments), net	0.1			(5.4		)
Cash provided by (used in) operating activities	$	0.5		$	(19.9	)
Income tax payments, net							Income tax payments, net	(0.4)		(0.3)
Cash (used in) provided by operating activities							Cash (used in) provided by operating activities	$	(12.4)	$	9.9



Exhibit No.		Document
~~3.1~~10.1		~~Amended and Restated By-laws~~Agreemen t of ~~Mueller Water Products, Inc. Incorporated by reference to Exhibit 3.1 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on December 4, 2017.~~
10.20.5**	~~Amendment to Executive Change -In-Control Severance Agreement,~~Walter T ax Settlement , dated ~~January 11, 2018, by and~~ November 5, 2019 , between Mueller Water Products , Inc, and ~~Gregory S. Rogowski. Incorporated by reference to Exhibit 10.2 to Mueller Water Products, Inc. Form 8-K (File No. 001-32892) filed on January 12, 2018.~~New WEI. Inco
10.22.2**	Amendment to Executive Change -In-Control Severance Agreement, dated December 12, 2017, by and between Mueller Water Products and Keith L. Belknap. Incorporated by reference to Exhibit 10.2 to Mueller Water Products, Inc. Form 8-K (File No. 001-32892) filed on December 13, 2017.
10.29.2**	~~Fourth Amendment to Employment Agreement, dated December 27, 2017, between Mueller Water Products, Inc. and Marietta Edmunds Zakas. Incorporated~~rporated by reference to Exhibit 10.1 to Mueller Water Products, Inc. Form 8-K (File ~~No. 001-32892)~~no 001-32982) filed on December ~~28, 2017.~~18, 2019.
10.29.3**10.20.4		Amendment , dated May 5, 2017 , to Executive ~~Change -In-Control Severance~~Employment Agreement, ~~dated January 11, 2018, by~~da ted December 1, 2009, between Mu eller Water P roducts, Inc. and ~~between Mueller Water Products and Marietta Edmunds Zakas.~~Gregory Rogows ki. Incorporated by ~~reference~~refere nce to Exhibit ~~10.1~~10.20.4 to Mueller Water Products, Inc. Form ~~8-K~~10-Q (File ~~No. 001-32892)~~no. 001-32982) filed on ~~January 12, 2018.~~ May 9, 2017.
10.30.2*31.1		Amendment to Executive Change -In-Control Severance Agreement, dated December 12, 2017, by and between Mueller Water Products and J. Scott Hall. Incorporated by reference to Exhibit 10.1 to Mueller Water Products, Inc. Form 8-K (File No. 001-32892) filed on December 13, 2017.
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 December 31, ~~2016,~~2019, formatted in XBRL (Extensible Business Reporting Language), (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Other Comprehensive Loss, (iv) the Condensed Consolidated Statements of Stockholders' Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Condensed Consolidated Financial Statements.

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF EQUITY THREE MONTHS ENDED DECEMBER 31, 2017 (UNAUDITED)

	Common stock		Additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss			Non-controlling interest			Total
	(in millions)
Balance at September 30, 2017	$	1.6	$	1,494.2		$	(955.6	)	$	(51.8	)	$	1.1		$	489.5
Net income (loss)	—		—			55.1			—			(0.1		)	55.0
Dividends declared	—		(6.3		)	—			—			—			(6.3		)
Stock repurchased under buyback program	—		(10.0		)	—			—			—			(10.0		)
Shares retained for employee taxes	—		(1.8		)	—			—			—			(1.8		)
Stock-based compensation	—		2.0			—			—			—			2.0
Common stock issued	—		4.3			—			—			—			4.3
Other comprehensive income, net of tax	—		—			—			1.6			—			1.6
Balance at December 31, 2017	$	1.6	$	1,482.4		$	(900.5	)	$	(50.2	)	$	1.0		$	534.3



	Three months ended
	December 31, 2017
	(in millions)
Beginning balance	$	3.3
Expense	2.3
Payments	(1.4		)
Ending balance	$	4.2



	Three months ended
	December 31, 2016
	(in millions)
Net sales	$	83.1
Cost of sales	62.8
Gross profit	20.3
Operating expenses:
Selling, general and administrative	18.3
Other charges	0.2
Total operating expenses	18.5
Operating income	1.8
Income tax expense	0.5
Income from discontinued operations	$	1.3


~~Note 8.~~	13 Note 10. Supplemental Balance Sheet Information



	Pension, net of tax			Foreign currency translation			Derivative instruments, net of tax			Total

Balance at September 30, 2017	$	(47.0	)	$	(3.3	)	$	(1.5	)	$	(51.8	)
Current period other comprehensive income (loss)	0.5			0.1			1.0			1.6
Balance at December 31, 2017	$	(46.5	)	$	(3.2	)	$	(0.5	)	$	(50.2	)


~~Item 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~


	Three months ended December 31, 2017												Three months ended December 31, 2019
	Infrastructure		Technologies			Corporate			Total				Infrastructure		Technologies		Corporate		Total
	(in millions)												(in millions)
Net sales	$	160.1	$	18.2		$	—		$	178.3		Net sales	$	192.8	$	19.8	$	—	$	212.6
Gross profit	$	52.5	$	2.9		$	—		$	55.4		Gross profit	$	68.2	$	4.4	$	—	$	72.6
Operating expenses:												Operating expenses:
Selling, general and administrative	24.4		7.5			7.9			39.8			Selling, general and administrative	32.5		6.4		11.0		49.9
Gain on sale of idle property	—		—			(9.0		)	(9.0		)
Strategic reorganization and other charges	—		0.1			3.8			3.9			Strategic reorganization and other charges	—		—		2.4		2.4
	24.4		7.6			2.7			34.7				32.5		6.4		13.4		52.3
Operating income (loss)	$	28.1	$	(4.7	)	$	(2.7	)	20.7			Operating income (loss)	$	35.7	$	(2.0)	$	(13.4)	20.3
Pension costs other than service									0.2
Non-operating expenses:												Non-operating expenses:
Pension costs (benefits) other than service												Pension costs (benefits) other than service							(0.7)
Interest expense, net									5.2			Interest expense, net							7.4
Walter Energy Accrual												Walter Energy Accrual							0.2
Income before income taxes									15.3			Income before income taxes							13.4
Income tax benefit									(39.8		)
Income from continuing operations									$	55.1
Income tax expense												Income tax expense							3.1
Net income												Net income							$	10.3

	Three months ended December 31, 2016												Three months ended December 31, 2018
	Infrastructure		Technologies			Corporate			Total				Infrastructure		Technologies		Corporate		Total
	(in millions)												(in millions)
Net sales	$	146.3	$	20.9		$	—		$	167.2		Net sales	$	172.0	$	20.8	$	—	$	192.8
Gross profit	$	47.6	$	4.2		$	—		$	51.8		Gross profit	$	56.8	$	3.3	$	—	$	60.1
Operating expenses:												Operating expenses:
Selling, general and administrative	21.3		6.4			8.6			36.3			Selling, general and administrative	25.9		7.0		8.1		41.0
Other charges	0.1		—			1.2			1.3
Strategic reorganization and other charges												Strategic reorganization and other charges	—		—		3.2		3.2
	21.4		6.4			9.8			37.6				25.9		7.0		11.3		44.2
Operating income (loss)	$	26.2	$	(2.2	)	$	(9.8	)	14.2			Operating income (loss)	$	30.9	$	(3.7)	$	(11.3)	15.9
Pension costs other than service									0.3
Pension costs (benefits) other than service												Pension costs (benefits) other than service							(0.1)
Interest expense, net									6.4			Interest expense, net							5.5
Income before income taxes									7.5
Income tax expense									2.1
Income from continuing operations									$	5.4
Walter Energy Accrual												Walter Energy Accrual							37.4
Loss before income taxes												Loss before income taxes							(26.9)
Income tax benefit												Income tax benefit							(5.9)
Net loss												Net loss							$	(21.0)



	Moody’s		Standard & Poor's
	December 31,	September 30,	December 31,	September 30,
	2017	2017	2017	2017
Corporate credit rating	Ba3	Ba3	BB-	BB-
ABL Agreement	Not rated	Not rated	Not rated	Not rated
Term Loan	Ba3	Ba3	BB	BB
Outlook	Stable	Stable	Stable	Stable


~~Item 2.~~	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~


~~Item 1.~~	~~FINANCIAL STATEMENTS~~