UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
☒QUARTERLY REPORT PURSUANT TO SECTION 13 ORor 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2017June 30, 2020
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-32892
MUELLER WATER PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware20-3547095
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
1200 Abernathy Road N.E.N.E
Suite 1200
Atlanta, GA 30328
(Address of principal executive offices)
(770) 206-4200
(Registrant'sRegistrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer  x☒    Accelerated filer   o☐
Non-accelerated filer   o☐   Smaller reporting company  o☐
(Do not check if a smaller reporting company)Emerging growth company ☐



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o☐ Yes x☒No
There were 158,754,223157,815,790 shares of $0.01 par value common stock of the registrant outstanding at JanuaryJuly 31, 2018.
2020, which trade under the ticker symbol MWA on the New York Stock Exchange.





PART I
Item 1.FINANCIAL STATEMENTS
Item 1.  FINANCIAL STATEMENTS
MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 June 30,September 30,
 20202019
 (in millions, except share amounts)
Assets:
Cash and cash equivalents$170.7  $176.7  
Receivables, net155.3  172.8  
Inventories180.3  191.4  
Other current assets28.1  26.0  
Total current assets534.4  566.9  
Property, plant and equipment, net244.9  217.1  
Goodwill96.4  95.7  
Intangible assets413.7  433.7  
Other noncurrent assets51.2  23.9  
Total assets$1,340.6  $1,337.3  
Liabilities and equity:
Current portion of long-term debt$1.2  $0.9  
Accounts payable59.0  84.6  
Other current liabilities84.8  93.0  
Total current liabilities145.0  178.5  
Long-term debt446.4  445.4  
Deferred income taxes89.9  87.9  
Other noncurrent liabilities49.6  33.2  
Total liabilities730.9  745.0  
Commitments and contingencies (Note 13.)
Common stock: 600,000,000 shares authorized; 157,762,860 and 157,462,140 shares outstanding at June 30, 2020 and September 30, 2019, respectively1.6  1.6  
Additional paid-in capital1,383.3  1,410.7  
Accumulated deficit(740.9) (786.2) 
Accumulated other comprehensive loss(34.3) (36.0) 
Total stockholders’ equity609.7  590.1  
Noncontrolling interest—  2.2  
Total equity609.7  592.3  
Total liabilities and equity$1,340.6  $1,337.3  

The accompanying notes are an integral part of the condensed consolidated financial statements.
1
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, net107.4
 145.3
Inventories155.2
 138.9
Other current assets26.5
 24.4
Total current assets637.4
 670.3
Property, plant and equipment, net122.3
 122.3
Intangible assets434.6
 439.3
Other noncurrent assets25.9
 26.4
Total assets$1,220.2
 $1,258.3
    
Liabilities and equity:   
Current portion of long-term debt$5.6
 $5.6
Accounts payable51.3
 82.5
Other current liabilities46.1
 53.5
Total current liabilities103.0
 141.6
Long-term debt474.3
 475.0
Deferred income taxes76.2
 115.1
Other noncurrent liabilities32.4
 37.1
Total liabilities685.9
 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, respectively1.6
 1.6
Additional paid-in capital1,482.4
 1,494.2
Accumulated deficit(900.5) (955.6)
Accumulated other comprehensive loss(50.2) (51.8)
Total Company stockholders’ equity533.3
 488.4
Noncontrolling interest1.0
 1.1
Total equity534.3
 489.5
Total liabilities and equity$1,220.2
 $1,258.3


MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three months endedNine months ended
June 30,June 30,
 2020201920202019
(in millions, except per share amounts)
Net sales$228.5  $274.3  $698.8  $701.1  
Cost of sales152.8  177.1  464.5  469.0  
Gross profit75.7  97.2  234.3  232.1  
Operating expenses:
Selling, general and administrative47.1  47.5  146.3  134.2  
Strategic reorganization and other charges8.6  2.5  11.9  12.6  
Total operating expenses55.7  50.0  158.2  146.8  
Operating income20.0  47.2  76.1  85.3  
Other expenses (income):
Pension costs (benefits) other than service(0.7) (0.1) (2.2) 0.8  
Interest expense, net6.1  4.2  19.5  15.6  
Walter Energy Accrual—  0.5  0.2  38.4  
Net other expense5.4  4.6  17.5  54.8  
Income before income taxes14.6  42.6  58.6  30.5  
Income tax expense3.4  8.9  13.3  6.9  
Net income$11.2  $33.7  $45.3  $23.6  
Net income per share:
Basic$0.07  $0.21  $0.29  $0.15  
Diluted$0.07  $0.21  $0.29  $0.15  
Weighted average shares outstanding:
Basic157.8  157.8  157.8  157.9  
Diluted158.5  158.8  158.6  158.9  
Dividends declared per share$0.0525  $0.0500  $0.1575  $0.1500  

The accompanying notes are an integral part of the condensed consolidated financial statements.
2
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 sales122.9
 115.4
Gross profit55.4
 51.8
Operating expenses:   
Selling, general and administrative39.8
 36.3
Gain on sale of idle property(9.0) —
Strategic reorganization and other charges3.9
 1.3
Total operating expenses34.7
 37.6
Operating income20.7
 14.2
Pension costs other than service0.2
 0.3
Interest expense, net5.2
 6.4
Income before income taxes15.3
 7.5
Income tax expense (benefit)(39.8) 2.1
Income from continuing operations55.1
 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:   
Basic158.5
 161.8
Diluted160.0
 164.6
    
Dividends declared per share$0.04
 $0.03


MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 Three months endedNine months ended
June 30,June 30,
2020201920202019
 (in millions)
Net income$11.2  $33.7  $45.3  $23.6  
Other comprehensive income (loss):
Pension0.7  0.5  2.2  3.2  
Income tax effects(0.2) (0.1) (0.5) (0.9) 
Foreign currency translation(1.7) 0.3  —  3.4  
(1.2) 0.7  1.7  5.7  
Comprehensive income$10.0  $34.4  $47.0  $29.3  

The accompanying notes are an integral part of the condensed consolidated financial statements.
3
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):   
Pension0.8
 1.0
Income tax effects(0.3) (0.4)
Foreign currency translation0.1
 (1.5)
Derivative fair value change1.6
 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 
(UNAUDITED)
Three months endedNine months ended
June 30,June 30,
2020201920202019
(in millions)
Common stock
Balance, beginning of period$1.6  $1.6  $1.6  $1.6  
Change in common stock at par value—  —  —  —  
Balance, end of period1.6  1.6  1.6  1.6  
Additional paid-in capital
Balance, beginning of period1,390.1  1,433.2  1,410.7  1,444.5  
Dividends declared(8.3) (7.9) (24.9) (23.7) 
Shares repurchased under buyback program—  (10.0) (5.0) (10.0) 
Buyout of noncontrolling interest—  —  (3.2) 
Shares retained for employee taxes—  —  (0.7) (1.4) 
Stock-based compensation1.1  1.1  3.8  3.4  
Stock issued under stock compensation plan0.4  0.5  2.6  4.1  
Balance, end of period1,383.3  1,416.9  1,383.3  1,416.9  
Accumulated deficit
Balance, beginning of period(752.1) (860.1) (786.2) (850.0) 
Net income11.2  33.7  45.3  23.6  
Balance, end of period(740.9) (826.4) (740.9) (826.4) 
Accumulated other comprehensive income (loss)
Balance, beginning of period(33.1) (27.8) (36.0) (32.8) 
Other comprehensive income (loss)(1.2) 0.7  1.7  5.7  
Balance, end of period(34.3) (27.1) (34.3) (27.1) 
Noncontrolling interest
Balance, beginning of period—  1.9  2.2  1.5  
Acquisition of joint venture partner’s interest—  —  (2.2) —  
Net income—  0.1  —  0.5  
Balance, end of period—  2.0  —  2.0  
Total stockholders' equity$609.7  $567.0  $609.7  $567.0  

The accompanying notes are an integral part of the condensed consolidated financial statements.
4
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
(UNAUDITED)
 Nine months ended
June 30,
 20202019
 (in millions)
Operating activities:
Net income$45.3  $23.6  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation21.7  19.1  
Amortization21.1  19.7  
Stock-based compensation3.8  3.4  
Retirement plans2.2  3.7  
Deferred income taxes1.4  (2.9) 
Other, net7.2  1.5  
Changes in assets and liabilities:
Receivables17.4  2.9  
Inventories5.0  (23.3) 
Other assets0.7  (16.5) 
Accounts payable(25.6) (25.5) 
Walter Energy Accrual(22.0) 38.4  
Other current liabilities6.0  (15.9) 
Other noncurrent liabilities(6.4) (10.4) 
Net cash provided by operating activities77.8  17.8  
Investing activities:
Business acquisitions, net of cash received—  (127.5) 
Capital expenditures(51.2) (52.9) 
Proceeds from sales of assets0.3  —  
Net cash used in investing activities(50.9) (180.4) 
Financing activities:
Dividends(24.9) (23.7) 
Repayment of Krausz debt—  (13.2) 
Acquisition of joint venture partner’s interest(5.2) —  
Employee taxes related to stock-based compensation(0.7) (1.4) 
Common stock issued2.6  4.1  
Common stock repurchased under buyback program(5.0) (10.0) 
Other0.6  0.3  
Net cash used in financing activities(32.6) (43.9) 
Effect of currency exchange rate changes on cash(0.3) 0.1  
Net change in cash and cash equivalents(6.0) (206.4) 
Cash and cash equivalents at beginning of period176.7  347.1  
Cash and cash equivalents at end of period$170.7  $140.7  

The accompanying notes are an integral part of the condensed consolidated financial statements.
5
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 operations55.1
 5.4
Adjustments to reconcile income from continuing operations to net cash provided by (used in) operating activities:   
Depreciation4.9
 4.9
Amortization5.7
 5.4
Stock-based compensation2.0
 1.8
Retirement plans0.7
 0.8
Deferred income taxes(39.7) (2.1)
Gain on sale of idle property(9.0) —
Other, net0.7
 0.3
Changes in assets and liabilities:   
Receivables38.4
 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 operations0.5
 (19.9)
Investing activities:   
Capital expenditures(6.4) (4.2)
Proceeds from sales of assets7.4
 —
Net cash provided by (used in) investing activities of continuing operations1.0
 (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 issued4.3
 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 cash0.1
 (0.7)
Net change in cash and cash equivalents(13.4) (22.7)
Cash and cash equivalents at beginning of period361.7
 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 AND NINE MONTHS ENDED DECEMBER 31, 2017JUNE 30, 2020
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 ownsacquired 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'sventure’s assets, liabilities and results of operations arewere included in our consolidated financial statements. The net lossWe included an adjustment for the income attributable to the noncontrolling interest is included in selling, general and administrative expenses. NoncontrollingInfrastructure acquired the remaining 51% interest is recorded at its carrying value, which approximates fair value.in the business in October 2019.
UnlessOn December 3, 2018, we completed our acquisition of Krausz Development Ltd. and subsidiaries (“Krausz”). We include the context indicates otherwise, whenever we referfinancial statements of Krausz in our consolidated financial statements on a one-month lag. 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, 20172019 was derived from audited financial statements, but it does not include all disclosures required by GAAP.
On October 1, 2017,In preparing these financial statements in conformity with GAAP, we adopted Financial Accountings Standards Board Accounting Standards Update No. 2017-07, which requires us to exclude from operating incomehave considered and, where appropriate, reflected the componentseffects of net periodic benefit cost other than service cost. Accordingly,the COVID-19 pandemic on our operations. As of June 30, 2020, such effects did not result in the Condensed Consolidated Statementimpairment of Operations for the three monthscarrying value of our assets. The pandemic continues to provide significant challenges to the U.S. and global economies.
Unless the context indicates otherwise, whenever we refer to a particular year, we mean our fiscal year ended 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 millionor ending September 30 in the quarter ended December 31, 2017 and is included in Infrastructure.
HR-1, formerly 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.that particular calendar year.
In May 2014, the2016, Financial Accounting Standards Board (“FASB”) issued new guidance for the recognition of revenuelease assets and lease liabilities for those leases referred to as operating leases and requiring additional financial statement disclosures. We planOn October 1, 2019, we adopted the new guidance related to adopt this guidanceleases using the modified retrospective transition methodmethod. See Note 4. for more information regarding our adoption of this guidance.
In 2016, FASB issued new guidance to introduce a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. We will adopt this guidance and apply it to our accounts receivable beginning in the first quarter of fiscal 2019. We have completed our initial scoping2021, and are implementing a project plan to evaluate revenue recognition practices for each revenue stream against the new requirements, to consider changes to the terms of our sales contracts, and to design and implement processes to quantify the effects of necessary changes. This work is ongoing, but at this time, we do not expect the new guidance to materially impactbelieve it will have a material effect on our stockholders' equity, net sales or operating income.consolidated financial statements.
On September 7, 2017,
6

In October 2018, we announced a strategic reorganization plan designedthe move of our Middleborough, Massachusetts research and development operations to Atlanta to consolidate our resources and to accelerate our product innovation through the creation of a research and revenue growth. We have adopted a matrix management structure, where business teams have linedevelopment center of excellence for software and cross-functional responsibilityelectronics. In November 2019, we announced the planned move of our manufacturing operations in Hammond, Indiana to our new facility in Kimball, Tennessee. Expenses incurred for managing distinct product portfolios,these moves were primarily related to personnel and engineering, operations, salesinventory 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,were included in strategic reorganization and other charges were primarily personnel-related.

6
Tablein 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.
Nine months ended
June 30,
20202019
(in millions)
Beginning balance$1.7  $0.9  
Expenses related to personnel and other1.7  5.5  
Expenses related to inventory1.4  —  
Amounts paid(1.5) (4.6) 
Ending balance$3.3  $1.8  

Note 2.  Business Combinations
 Three months ended
 December 31, 2017
 (in millions)
Beginning balance$3.3
Expense2.3
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 propertycompleted our acquisition of Krausz, a manufacturer of pipe couplings, grips and clamps with operations in Burlington, New Jersey that had previously been a plant in our former U.S. Pipe segmentthe 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 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 of $0.4 million, and the buyer assumed related environmental liabilities with a carrying value of $1.2 million.as goodwill.
On January 6, 2017, we sold our former Anvil segment to affiliates of One Equity Partners. The table below presentsfollowing is a summary of the operating results forfair values of the Anvil discontinued operations during the quarter ended December 31, 2016. These operating results do not reflect what they would have been had Anvil not been sold.net assets acquired (in millions):
 Three months ended
 December 31, 2016
 (in millions)
Net sales$83.1
Cost of sales62.8
Gross profit20.3
Operating expenses: 
Selling, general and administrative18.3
Other charges0.2
Total operating expenses18.5
Operating income1.8
Income tax expense0.5
Income from discontinued operations$1.3
Note 3.Assets, net of cash:Income Taxes
Receivables$6.9 
Inventories17.0 
Other current assets0.2 
Property, plant and equipment8.1 
Other noncurrent assets1.7 
Identified intangible assets:
  Patents32.1 
  Customer relationships8.7 
  Tradenames4.6 
  Favorable leasehold interests2.3 
  Goodwill80.4 
Liabilities:
Accounts payable(5.5)
Other current liabilities(2.9)
Deferred income taxes(11.2)
Other noncurrent liabilities(1.7)
Fair value of assets acquired, net of liabilities assumed140.7 
Repayment of Krausz debt(13.2)
Consideration paid to seller$127.5 
On December 22, 2017, HR-1, formerly referred
7

The goodwill above is attributable to as the Tax Cutsstrategic opportunities and Jobs Act (“Act”), was enacted, which made significant revisionssynergies that we expect to federalarise from the acquisition of Krausz and the value of its workforce. The goodwill is nondeductible for income tax laws, including loweringpurposes. The amortizable intangible assets acquired have a weighted average useful life of approximately 12 years.

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 corporate income tax rateconsideration to 21%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 35% effective January 1, 2018, overhaulingboth parties, the taxationrights of income earned outside the United Statesparties are identified, the payment terms are identified, the contract has commercial substance and eliminatingcollectability 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 limiting certain deductions.arrangement with a customer.
OurDisaggregation of Revenue
We disaggregate our revenues from contracts with customers by reportable segment (see 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 tax assets and liabilities are provided atrevenue, the enacted tax rates in effectmajority 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.
June 30,September 30,
20202019
(in millions)
Billed receivables$153.7  $171.0  
Unbilled receivables4.5  4.5  
Total customer receivables$158.2  $175.5  
Deferred revenues$5.4  $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 tax expensesto sales of equipment or benefits. The averageover time as related to our software hosting and leak detection monitoring services. Performance obligations are supported by customer contracts, which provide frameworks for the nature of these rates varies slightlythe 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.
8

Revenues from yearproducts and services transferred to year but historically has been approximately 39%. With the legislation changing enacted rates taking placecustomers at a point in time represented 99% of our revenues in the current quarter, we have remeasurednine months ended both June 30, 2020 and 2019. The revenues recognized at a point in time related to the sale of our deferred tax items at an average rateproducts was recognized when the obligations of approximately 25%. This resultedthe 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 1% of our revenues in the nine months ended both June 30, 2020 and 2019.
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 provisional income tax benefitresult of $42.6 million, which is subject to change, if necessary, asthe implementation of the new revenue standard and we continue to analyzeuse our current cost accrual method.
Costs to Obtain or Fulfill a Contract
We incur certain aspectsincremental 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 Actproduct sold and refine our calculations. Webenefits received, we have applied a practical expedient and therefore do not expectcapitalize 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
We lease 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 this14 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.
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 statements of operations on a straight-line basis over the lease term.
Our short-term lease expense for the three and nine months ended June 30, 2020 and short-term lease commitments at June 30, 2020 are immaterial.
9

We have certain lease contracts with terms and conditions that provide for variability in the payment amount to be material.based on changes in facts or circumstances occurring after the commencement date. These variable lease payments are recognized in our condensed consolidated statements of operations as the obligation is incurred.
At June 30, 2020, any legally-binding minimum lease payments for operating leases signed but not yet commenced, subleases, leases that imposed significant restrictions or covenants, related party leases or sale-leaseback arrangements were immaterial.
The Act also imposes a one-time transition tax oncomponents of lease cost are presented below.
Three months endedNine months ended
June 30, 2020June 30, 2020
(in millions)
Operating lease cost1.6  4.7  
Finance lease cost0.3  1.0  
Total lease expense$1.9  $5.7  
Supplemental cash flow information related to leases for the undistributed, non-previously taxed, post-1986 foreign “earningsnine months ended June 30, 2020 is presented below, in millions.
Operating cash flows used in operating leases$4.5 
Financing cash flows used in finance leases$1.0 
Supplemental information describing where lease-related assets 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. Weliabilities 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.

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 reductionreflected in the ActCondensed Consolidated Balance Sheet at June 30, 2020 is effective on January 1, 2018. presented below, in millions.
Right of use assets:
Operating leasesOther noncurrent assets$26.3 
Finance leasesPlant, property and equipment2.6 
Total right of use assets$28.9 
Lease liabilities:
Operating leases - currentOther current liabilities$4.2 
Operating leases - noncurrentOther noncurrent liabilities23.8 
Finance leases - currentCurrent portion of long-term debt1.2 
Finance leases - noncurrentLong-term debt1.6 
Total lease liabilities$30.8 
Supplemental information related to lease terms and discount rates at June 30, 2020 is presented below.
Weighted-average remaining lease term (years):
Operating leases7.99
Finance leases2.63
Weighted-average interest rate:
Operating leases5.65 %
Finance leases5.03 %
10

Total lease liabilities at June 30, 2020 have scheduled maturities as follows:
Operating LeasesFinance Leases
(in millions)
2020$1.6  $0.4  
20215.5  1.2  
20224.7  0.8  
20234.3  0.5  
20244.1  0.1  
Thereafter16.1  —  
Total lease payments36.3  3.0  
Less: imputed interest8.3  0.2  
Present value of lease liabilities$28.0  $2.8  

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 endedNine months ended
December 31,June 30,June 30,
2017 20162020201920202019
U.S. federal statutory income tax rate24.5 % 35.0 %U.S. federal statutory income tax rate21.0 %21.0 %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 benefit4.3
 3.9
State income taxes, net of federal benefit4.5  4.5  4.5  5.6  
Valuation allowance adjustment related to stock compensation(5.7) —
Excess tax benefits related to stock compensation(2.8) (7.6)Excess tax benefits related to stock compensation—  (0.3) (0.6) (1.4) 
Domestic production activities deduction(1.6) (3.3)
Tax credits(0.9) (0.8)Tax credits(1.7) (1.2) (2.6) (2.7) 
Global Intangible Low-Taxed IncomeGlobal Intangible Low-Taxed Income(0.2) 0.6  (0.1) 1.2  
Foreign income taxesForeign income taxes(0.5) —  (0.6) —  
Valuation allowancesValuation allowances(0.3) —  (0.5) —  
Reversal of uncertain tax positionsReversal of uncertain tax positions(2.1) (5.2) (0.5) (7.2) 
Other0.5
 0.8
Other2.6  1.9  2.0  3.6  
18.3 % 28.0 %23.3 %21.3 %22.6 %20.0 %
Remeasurement of deferred taxes for change in rates(278.4) —
Walter Energy AccrualWalter Energy Accrual—  (0.4) —  4.6  
Transition taxTransition tax—  —  —  (1.9) 
Effective income tax rate(260.1)% 28.0 %Effective income tax rate23.3 %20.9 %22.6 %22.7 %
At December 31, 2017June 30, 2020 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.
11
Note 4.

Note 6. Borrowing Arrangements
The components of our long-term debt are presented below.
 June 30,September 30,
 20202019
 (in millions)
5.5% Senior Notes$450.0  $450.0  
ABL Agreement—  —  
Finance leases2.8  2.1  
452.8  452.1  
Less deferred financing costs5.1  5.8  
Less current portion1.2  0.9  
Long-term debt$446.4  $445.4  
 December 31, September 30,
 2017 2017
 (in millions)
ABL Agreement$—
 $—
Term Loan483.7
 484.8
Other1.7
 1.7
 485.4
 486.5
Less deferred financing costs5.5
 5.9
Less current portion5.6
 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 $460.1 million at June 30, 2020.
ABL Agreement. At December 31, 2017, ourOur asset based lending agreement (“ABL Agreement”) consistedconsists of a revolving credit facility for up to $225$175 million of revolving credit borrowings, swing line loans and letters of credit. On July 30, 2020, we amended the ABL Agreement (See Note 14). This amendment, among other things, (i) extended the termination date of the facility, (ii) established a LIBOR “floor” of 75 basis points, (iii) increased interest rates on borrowings, (iv) increased the rate of the unused commitment fee, and (v) increased our ability to pay cash dividends.
The amended 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 havewe are permitted to issue up to $60 million of letters of credit outstanding.credit.
Borrowings under the amended ABL Agreement bear interest at a floating rate equal to LIBOR, plus a margin ranging from 125200 to 150225 basis points, or a base rate, as defined in the ABL Agreement, plus a margin ranging from 25100 to 50125 basis points. At DecemberJuly 31, 2017,2020, the applicable rate was LIBOR plus 125200 basis points.
The amended ABL Agreement terminates on July 13, 2021. We pay29, 2025 and provides for a commitment fee for any unused borrowing capacity under the ABL Agreement of 2537.5 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, 2017June 30, 2020 data, as reduced by outstanding letters of credit swap contract liabilities and accrued fees and expenses of $19.8$13.9 million, was $96.3$116.1 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 fromU.S. dollar-Canadian dollar swap contract with the Term Loan, alongCanadian 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.
Note 5.
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 contractsthese 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 reportedwere an asset of $0.1 million and a liability $0.3 million as a component of other comprehensive lossJune 30, 2020 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.
The fair values of the swap contracts are presented below.
 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 liabilities0.2
 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 currentother noncurrent assets 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 ratesliabilities, respectively, in effect at the settlement dates and may differ significantly from amounts shown above.our Condensed Consolidated Balance Sheets.

12
Note 6.

Note 8. Retirement Plans
The components of net periodic benefit cost for our pension plans are presented below.
Three months endedNine months ended
Three months endedJune 30,June 30,
December 31, 2020201920202019
2017 2016
(in millions) (in millions)
Service cost$0.5
 $0.5
Service cost$0.4  $0.4  $1.2  $1.2  
Pension costs other than service:   
Pension costs (benefits) other than service:Pension costs (benefits) other than service:
Interest cost3.6
 3.6
Interest cost2.8  3.5  8.4  10.5  
Expected return on plan assets(4.2) (4.3)Expected return on plan assets(4.2) (4.1) (12.6) (12.2) 
Amortization of actuarial net loss0.8
 1.0
Amortization of actuarial net loss0.7  0.5  2.0  1.5  
0.2
 0.3
Net periodic benefit cost$0.7
 $0.8
Curtailment/special settlement lossCurtailment/special settlement loss—  —  —  1.0  
Pension costs (benefits) other than servicePension costs (benefits) other than service(0.7) (0.1) (2.2) 0.8  
Net periodic (benefit) costNet periodic (benefit) cost$(0.3) $0.3  $(1.0) $2.0  
The amortization of actuarial losses, net of tax, is recorded as a component of other comprehensive loss.
During the quarter ended March 31, 2019, we settled our obligation to our Canadian pension plan participants through a combination of lump sum payments and purchases of annuities. We made a contribution to the plans of $1.0 million, which was included in pension costs other than service, to fund these settlements.
Note 7.
Also during the quarter ended March 31, 2019, we recorded an estimated settlement liability for our exiting a multi-employer pension plan at one of our manufacturing locations, which resulted in an expense of $1.1 million that we included in strategic reorganization and other charges. We subsequently paid the liability in May 2019.
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 representsconsists 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 determineestablish 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. SettlementSettlements, in our common shares, will range from zero0 to two2 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 dateend of a three-year award PRSUs may settlecycle based on a calculation of the Company's relative total shareholder return (“TSR”) performance as compared with a selected peer group's TSR. 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 table below provides information regarding MRSU awards, which were valued using Monte Carlo simulations on the dates the units were granted.
December 3, 2019January 28, 2020February 24, 2020
Fair Value at grant date$14.94  $16.76  $18.17  
Units granted147,213  2,763  7,498  
Variables used in determining grant date fair value:
Dividend yield1.87 %1.76 %1.73 %
Risk-free rate1.53 %1.44 %1.23 %
Expected term (in years)2.832.672.60
13

We awarded 171,288209,966 stock-settled PRSUs and 157,474 MRSUs in the quarternine months ended December 31, 2017June 30, 2020 that are scheduled to settle in three years.
We issued 146,06193,647 shares and 263,410181,065 shares of common stock during the quartersnine months ended December 31, 2017June 30, 2020 and 2016,2019, respectively, to settle PRSUs.PRSUs that vested during those periods.
In addition to the PRSU activity, 213,532we issued 1,618 and 248,612 shares of common stock for restricted stock units vested during the quarterthree and nine months ended December 31, 2017.June 30, 2020, respectively.
We have granted cash-settled Phantom Plan instruments under the Mueller Water Products, Inc. Phantom Plan (“Phantom Plan”). At December 31, 2017,June 30, 2020, the outstanding Phantom Plan instruments had a fair value of $12.53$9.43 per instrument and our liability for Phantom Plan instruments was $1.2$1.6 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 threenine months ended December 31, 2017June 30, 2020 as follows.
Number grantedWeighted average grant date fair value per instrumentTotal grant date fair value
(in millions)
Quarter ended December 31, 2019
    Restricted stock units162,433  $11.26  $1.8  
    Employee stock purchase plan instruments39,492  1.97  0.1  
    Phantom Plan awards188,973  11.26  2.1  
    PRSUs: 2020 award65,428  11.26  0.7  
    2019 award102,203  11.26  1.2  
    2018 award44,451  11.26  0.5  
    MRSUs147,213  14.94  2.2  
Quarter ended March 31, 2020
    Restricted stock units118,684  12.14  1.4  
    Employee stock purchase plan instruments53,876  2.09  0.1  
    PRSUs: 2020 award13,682  12.09  0.2  
    MRSUs10,261  17.79  0.2  
Quarter ended June 30, 2020:
    Restricted stock units2,118  9.20  —  
    Employee stock purchase plan instruments48,282  3.64  0.2  
$10.7  
  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 operationsOperating income included stock-based compensation expense of $2.4$1.8 million and $2.7$1.4 million during the three months ended December 31, 2017June 30, 2020 and 2016,2019, respectively and $5.0 million and $4.2 million during the nine months ended June 30, 2020 and 2019, respectively. At December 31, 2017,June 30, 2020, there was approximately $8.9 million of unrecognized compensation expense related to stock-based compensation arrangements and 185,270there were 218,966 PRSUs that have been awarded for the 20192021 and 20202022 performance periods for which performance goals have not been set.
We excluded 70,996474,423 and 323,010202,245 of stock-based compensation instruments from the calculations of diluted earnings per share for the quarters ended December 31, 2017June 30, 2020 and 2016,2019, respectively, and 274,009 and 167,775 for the nine months ended June 30, 2020 and 2019, respectively, since their inclusion would have been antidilutive.
14
Note 8.

Note 10. Supplemental Balance Sheet Information
Selected supplemental balance sheetasset information is presented below.
 June 30,September 30,
 20202019
 (in millions)
Inventories:
Purchased components and raw material$97.8  $95.2  
Work in process32.9  43.7  
Finished goods49.6  52.5  
$180.3  $191.4  
Other current assets:
Prepaid expenses$11.1  $9.6  
Non-trade receivables12.2  6.3  
Maintenance and repair supplies and tooling3.9  4.2  
Income taxes0.2  4.7  
Other0.7  1.2  
$28.1  $26.0  
Property, plant and equipment:
Land$6.5  $5.2  
Buildings77.0  68.9  
Machinery and equipment396.2  362.9  
Construction in progress54.5  48.0  
534.2  485.0  
Accumulated depreciation(289.3) (267.9) 
$244.9  $217.1  
Other noncurrent assets:
Operating lease right of use asset$26.3  $—  
Maintenance and repair supplies and tooling17.5  16.4  
Workers compensation reimbursement receivable3.1  3.1  
Note receivable1.8  1.8  
Other2.5  2.6  
$51.2  $23.9  

15

 December 31, September 30,
 2017 2017
 (in millions)
Inventories:   
Purchased components and raw material$74.3
 $67.7
Work in process37.8
 35.6
Finished goods43.1
 35.6
 $155.2
 $138.9
    
Other current assets:   
Maintenance and repair tooling$3.2
 $3.3
Income taxes11.9
 10.9
Other11.4
 10.2
 $26.5
 $24.4
    
Property, plant and equipment:   
Land$5.5
 $5.6
Buildings51.4
 53.4
Machinery and equipment270.0
 266.7
Construction in progress25.2
 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 rebates8.1
 6.5
Taxes other than income taxes2.4
 3.2
Warranty3.7
 3.5
Income taxes0.8
 0.9
Environmental1.2
 1.3
Interest0.7
 0.6
Restructuring4.2
 3.3
Other6.8
 7.3
 $46.1
 $53.5
Selected supplemental liability information is presented below.

 June 30,September 30,
 20202019
 (in millions)
Other current liabilities:
Compensation and benefits$29.1  $28.5  
Customer rebates8.5  8.7  
Taxes other than income taxes3.6  3.3  
Warranty6.7  6.5  
Income taxes4.4  0.6  
Environmental1.2  1.2  
Interest1.1  7.3  
Restructuring1.9  1.7  
Walter Energy Accrual—  22.0  
Operating lease liabilities4.2  —  
Deferred revenues5.4  4.7  
Refund liability4.8  3.3  
Accrued settlements10.1  0.2  
Other3.8  5.0  
$84.8  $93.0  
Other noncurrent liabilities:
Operating lease liabilities$23.8  $—  
Warranty8.5  10.7  
Transition tax4.1  5.8  
Unrecognized income tax benefits3.5  3.3  
Asset retirement obligation3.3  3.6  
Pension1.8  5.0  
Workers compensation1.2  1.9  
 Other3.4  2.9  
$49.6  $33.2  

16

Goodwill
Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis each September 1st and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. During the second quarter ended March 31, 2020, we performed an interim assessment for Krausz, both qualitative and quantitative and determined Krausz’s goodwill and indefinite-lived assets were not impaired. However, the excess of the fair value over the carrying value was not significant.
With our third quarter results and amid the continued pandemic, we reviewed our previous assumptions, our revised expectations and determined it was not more-likely-than-not that the goodwill and indefinite-lived intangibles were impaired as of June 30, 2020. However, with continued uncertainty related to the pandemic, we cannot provide assurance that our estimates will be realized.
The following table summarizes information concerning our goodwill balance for the nine months ended June 30, 2020, in millions.
Note 9.Balance at beginning of year
Segment Information
$		95.7 
   Purchase accounting adjustments0.3 
   Change in foreign currency exchange rates0.4 
Balance as of June 30, 2020$96.4 

17

Note 11. Segment Information
Summarized financial information for our segments is presented below.
Three months endedNine months ended
June 30,June 30,
2020201920202019
 (in millions)
Net sales, excluding intercompany:
Infrastructure$209.9  $250.2  $643.0  $636.3  
Technologies18.6  24.1  55.8  64.8  
$228.5  $274.3  $698.8  $701.1  
Operating income (loss):
Infrastructure$43.8  $60.6  $129.9  $131.6  
Technologies(3.8) (2.2) (10.5) (9.5) 
Corporate(20.0) (11.2) (43.3) (36.8) 
$20.0  $47.2  $76.1  $85.3  
Depreciation and amortization:
Infrastructure$12.2  $11.3  $36.3  $32.8  
Technologies2.3  2.0  6.4  5.9  
Corporate—  —  0.1  0.1  
$14.5  $13.3  $42.8  $38.8  
Strategic reorganization and other charges:
Infrastructure$—  $—  $0.4  $1.1  
Technologies—  —  —  —  
Corporate8.6  2.5  11.5  11.5  
$8.6  $2.5  $11.9  $12.6  
Capital expenditures:
Infrastructure$13.4  $18.9  $49.1  $46.7  
Technologies0.5  1.8  1.8  4.5  
Corporate—  1.7  0.3  1.7  
$13.9  $22.4  $51.2  $52.9  
Infrastructure disaggregated net revenues:
Central$57.5  $58.8  $163.9  $154.1  
Northeast38.8  52.0  135.7  134.8  
Southeast35.7  41.3  120.3  117.2  
West50.8  63.8  154.5  159.1  
United States182.8  215.9  574.4  565.2  
Canada20.7  24.1  47.3  49.3  
Other international locations6.4  10.2  21.3  21.8  
$209.9  $250.2  $643.0  $636.3  
Technologies disaggregated net revenues:
Central$5.0  $6.6  $13.3  $20.5  
Northeast4.0  5.5  14.6  12.3  
Southeast5.1  8.0  16.1  21.7  
West3.6  2.3  8.7  6.6  
United States17.7  22.4  52.7  61.1  
Canada0.3  0.5  1.2  0.8  
Other international locations0.6  1.2  1.9  2.9  
$18.6  $24.1  $55.8  $64.8  
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 Three months ended
 December 31,
 2017 2016
 (in millions)
Net sales, excluding intercompany:   
Infrastructure$160.1
 $146.3
Technologies18.2
 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
Technologies1.4
 1.2
Corporate0.1
 0.1
 $10.6
 $10.3
Strategic reorganization and other charges:   
Infrastructure$—
 $0.1
Technologies0.1
 —
Corporate3.8
 1.2
 $3.9
 $1.3
Capital expenditures:   
Infrastructure$4.8
 $3.0
Technologies1.5
 1.1
Corporate0.1
 0.1
 $6.4
 $4.2

Note 10.
Note 12. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is presented below.
  Pension, net of taxForeign currency translationTotal
(in millions)
Balance at September 30, 2019$(36.0) $—  $(36.0) 
Current period other comprehensive income1.7  —  $1.7  
Balance at June 30, 2020$(34.3) $—  $(34.3) 

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)

Note 11.
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, becauseSince the amountamounts of such costs cannot be reasonably estimated at this time, no amounts hadhave been accrued for this matter at DecemberJune 30, 2020.
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Walter Energy. On November 18, 2019, we paid approximately $22.2 million to the IRS in final settlement of a tax dispute related to our former parent company, Walter Energy, Inc., as described more fully in Note 17. to our Form 10-K for the year ended September 30, 2019.
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.
Walter Energy 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 “Court”). Each memberThe 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 Walter Energy consolidated group, which included us throughfederal 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. 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 14, 2006, is jointly24, 2019) on January 31, 2020. On June 11, 2020, the Court granted Defendants’ motion to dismiss and severally liabledismissed the action with prejudice. The time period for appealing the Court’s decision has expired.
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 advanced metering infrastructure (“AMI”) products and services to Siemens as part of Siemens’ project for the federal income tax liabilityCity of eachJackson, MS (the “City”). This project included products and services, which were provided by parties other memberthan Mueller Systems, for the City’s water treatment plants, sewer lines and billing system (the “Project”).On June 11, 2018, the City filed a lawsuit against Siemens and several of its contractors (excluding Mueller Systems) for multiple claims related to the consolidated groupProject, including claims for any yearfraud, negligence, breach of 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 which it isexcess of $450.0 million.On November 12, 2019, the City filed an amended complaint, adding Mueller Systems as a member of the group at any time during such year. Accordingly, we could be liabledefendant in the event any such federal income tax liability is incurred, and not discharged, by any other member ofSiemens Lawsuit.
In February 2020, the Walter Energy consolidated group for any period during which we were includedCity dismissed all claims against Mueller Systems in the Walter Energy consolidated group.
Walter Energy effectively controlled all of our tax decisions for periods during which we wereSiemens Lawsuit. On March 27, 2020, the City and Siemens executed a member ofsettlement agreement whereby Siemens agreed to pay the Walter Energy consolidated group for federal income tax purposes and certain combined, consolidated or unitary state and local income tax groups. UnderCity $89.8 million (“Settlement Amount”) in order to settle 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)Siemens Lawsuit (the “Settlement”). 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.

In July 2015, Walter Energy filed a petition for reorganization under Chapter 11result of the U.S. Bankruptcy Code before the Bankruptcy Court for the Northern District of Alabama (“Chapter 11 Case”). During the pendency of the Chapter 11 Case, we monitored the proceedingSettlement, Siemens is seeking to determine whether we could be liable for all orrecover a portion of the Settlement Amount from Mueller Systems, and the parties are in negotiations to resolve this federal income taxmatter on reasonable terms, conditions and amounts. At June 30, 2020, we have accrued a liability if it is incurred, and not discharged, for any period during which we were included in the Walter Energy consolidated group. On January 11, 2016, the IRS filed a proof of claim in the Chapter 11 Case, alleging that Walter Energy owes taxes, interest and penalties for the years 1983-1994, 2000-2002 and 2005 in an aggregate amount of $554.3$10.0 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 proceedingthis matter and have also recorded an asset for related insurance proceeds of $5.0 million. However, the settlement agreement is not final and the ultimate loss could materially differ from this amount. Should settlement negotiations fail and a legal action ultimately arise against us in this matter, we intend to vigorously defend against such legal action. However, the United States Bankruptcy Court foroutcome of a legal action in this matter, if any, cannot be predicted with certainty.
The COVID-19 Pandemic. The pandemic has caused, and is likely to continue to cause, severe economic, market and other disruptions to the Middle District of Florida.  In the proof of claim, the IRS included an alternative calculation in the event the alleged settlementU.S. and global economies. As a result of the prior bankruptcy court is foundpandemic, we experienced adverse business conditions during our third quarter. We have taken and continue to be non-binding, which providestake steps to maximize liquidity by limiting cash expenditures, including furloughing significant numbers of our employees, implementing temporary shutdowns of our manufacturing facilities or portions of our manufacturing facilities, implementing temporary salary reductions for a claim byour senior leadership team, deferral of capital expenditures, reduced fees for our Board of Directors and aggressively reducing general and administrative spending. We are uncertain of the IRS in an aggregate amountpotential full magnitude or duration of $860.4 million ($535.3 millionthe business and economic impacts from the unprecedented public health effort to contain and combat the spread of COVID-19, and while the extent to which the IRS claims is entitledpandemic affects our results will depend on future developments, the outbreak could result in material effects to priority status in the Chapter 11 Case).
According to a quarterly report on Form 10-Q filed by Walter Energy with the SEC on November 5, 2015 (“Walter November 2015 Filing”), at September 30, 2015, Walter Energy had $33.0 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 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’sour future financial position, but such potential difference could be material to its results of operations, cash flows and liquidity.
20

Mass Shooting Event at our Henry Pratt Facility 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 options with respect to the wind down of its remaining assets.  The asset sale did not impact the IRS’ proof of claim filed in the bankruptcy cases and the proof of claim, as well as the alleged tax liability thereunder, remain unresolved.
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 Caseevent have been made to a liquidation proceedingdate, 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 respectis 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 12.
Note 14. Subsequent Events
On January 24, 2018,July 28, 2020, our board of directors declared a dividend of $0.05$0.0525 per share on our common stock, payable on or about FebruaryAugust 20, 20182020 to stockholders of record at the close of business on February 9, 2018.August 10, 2020.

On July 30, 2020, we amended our ABL Agreement. This amendment, among other things, (i) extended the termination date of the revolving credit facility to July 29, 2025, (ii) established a LIBOR “floor” of 75 basis points, (iii) increased the margin applying to LIBOR-based loans to a range between 200 to 225 basis points, and the margin applying to base rate loans to a range between 100 to 125 basis points, (iv) increased the commitment fee applicable to unused amounts under the revolving credit commitment to 37.5 basis points and (v) increased our ability to issue cash dividends.
On August 5, 2020, we announced the closure of our Woodland, Washington knife gate manufacturing operations, which will be relocated to our new facility in Kimball, Tennessee.
21

Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, believethe Company intends, expects, plans, projects, believes or anticipateanticipates will or may occur in the future are forward-looking statements.statements, including, without limitation, statements regarding outlooks, projections, forecasts, trend descriptions, the COVID-19 pandemic, go-to-market strategies, operational excellence, acceleration of new product development, end market performance, net sales performance, adjusted operating income and adjusted EBITDA performance, margins, capital expenditure plans, litigation outcomes, capital allocation and growth strategies, and future warranty charges. Forward-looking statements are based on certain assumptions and assessments made by usthe Company in light of ourthe Company’s experience and perception of historical trends, current conditions and expected future developments.
Actual results and the timing of events may differ materially from those contemplated by the forward-looking statements due to a number of factors, including the extent, duration and severity of the impact of the pandemic on the Company’s operations and results, including effects on the financial health of customers (including collections), the Company and the financial/capital markets, government-mandated facility closures, COVID-19 related facility closures and other manufacturing restrictions, logistical challenges and supply chain interruptions, potential litigation and claims emanating from the COVID-19 pandemic, and health, safety and employee/labor issues in Company facilities around the world; regional, national or global political, economic, business, competitive, market and competitive conditions; cyclical and changing demand in core markets such as municipal spending; government monetary or fiscal policies; residential and nonresidential construction, and natural gas distribution; manufacturing and product performance; expectations for changes in volumes, continued execution of cost productivity initiatives and improved pricing; warranty exposures (including the adequacy of warranty reserves); the Company’s ability to successfully resolve significant legal proceedings, claims, lawsuits or government investigations; compliance with environmental, trade and anti-corruption laws and regulations; changing regulatory, conditionstrade and tariff conditions; failure to achieve expected cost savings, net sales expectations, profitability expectations and manufacturing efficiencies from our large capital investments in Chattanooga and Kimball, Tennessee and Decatur, Illinois; the failure to integrate and/or realize any of the anticipated benefits of recent acquisitions or divestitures; and other factors that are described underin the section entitled “RISK FACTORS” in Item 1A.1A of our annual reportthe Company’s most recently filed Annual Report on Form 10-K forand in this Quarterly Report on Form 10-Q (all of which risks may be amplified by the year ended September 30, 2017 (“Annual Report”)pandemic). Forward-looking statements do not guarantee future performance and are only as of the date they are made. The Company undertakes no duty to update its forward-looking statements except as required by law. Undue reliance should not be placed on any forward-looking statements. You are advised to review any further disclosures the Company makes on related subjects in subsequent Forms 10-K, 10-Q, 8-K and other reports filed with the U.S. Securities and Exchange Commission.
Overview
COVID-19 Pandemic
On March 11, 2020 the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. Since March 31, 2020, the COVID-19 pandemic has continued to spread and various state and local governments have issued or extended “shelter-in-place” orders which have impacted and restricted various aspects of our business.
We continue to closely monitor the effects of the pandemic on all aspects of our business, including how it will impact our employees, the municipalities and the residential and non-residential industries we serve, our communities, our customers and our suppliers. The Company doespandemic had a material negative effect on our fiscal third quarter operations and affected our financial results to date. However, the full financial effect of the pandemic cannot be reasonably estimated at this time due to the uncertainties relating to the pandemic, its severity, and its duration.These uncertainties include the severity of the pandemic, the duration of the outbreak, governmental, municipality, business or other actions in response to the pandemic, the effect on customer demand and our customers’ ability to pay for our products and services, and changes to our operations caused by the pandemic. The health of our workforce and our ability to manage our operations and other critical functions cannot be predicted and are vital to our operations.
22

To mitigate the negative financial impact of the pandemic, we have taken steps to maximize liquidity by limiting cash expenditures, including temporary furloughing of significant numbers of our employees, implementing temporary shutdowns of our manufacturing facilities or portions of our manufacturing facilities, implementing temporary salary reductions for our senior leadership team, deferring some capital expenditures, temporarily reducing fees for our Board of Directors and aggressively reducing general and administrative spending. Some of these steps are continuing into the fourth quarter.
Further, global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, as well as other unanticipated consequences, remain unknown. For further information regarding the effects of the pandemic on our business, please see item 1A. Risk Factors in this report, which is incorporated herein by reference. Additionally, we have incurred incremental costs to address the pandemic, including costs associated with voluntary emergency paid leave, additional cleaning, disinfectants and sanitation materials to help keep our employees safe and to protect the communities that we serve as well as costs associated with a closure of a manufacturing facility in China and inefficiencies in certain other facilities. The pandemic has also caused supply chain disruptions that have resulted in higher costs in the manufacture of our products.
We continue to operate as an essential business, providing products and services to our customers that they need to manage and maintain our nation’s critical water infrastructure. We have implemented preparedness plans to keep our team safe while we work, including new physical distancing processes and procedures and the use of additional personal protective equipment. All of our facilities are operational and able to fill orders at August 6, 2020, and our teams have worked effectively to address the few temporary closures we have experienced. We continue to proactively monitor our supply chain and have not experienced any material supply chain issues since the temporary closure of our Jingmen facility, which is located near Wuhan in the Hubei Province and partially reopened on March 15, 2020.
We continue to prioritize returning cash to our shareholders through our quarterly dividend, as we declared our quarterly dividend on July 28, 2020. However, we have any intention or obligationtemporarily suspended our share repurchase program to update forward-looking statements, except as required by law.provide additional financial flexibility.
UnlessWe have experienced and expect to continue to experience a material slowdown in our end markets for the context indicates otherwise, whenever we refer to a particular year, we meansecond half of our fiscal year, ended or ending September 30especially in residential construction, and our net sales decreased 16.7% in our third quarter as compared with the prior year period. Our municipal market end users provide critical water, energy and public works infrastructure services and continue to operate during this crisis, but they have reduced and may continue to reduce discretionary spending. We are hopeful that particular calendar year.our end markets will recover swiftly from the impact of the pandemic. However, the timing and magnitude of any recovery remain highly uncertain. We manageare reviewing all aspects of our businessesbusiness and report operations through twotaking action as needed, including adjusting our production capacity to preserve liquidity and cash flow during this difficult period. In addition to eliminating non-critical business segments, Infrastructure and Technologies, based largely on the products sold and the customers served.
Overviewexpenses, we are evaluating further actions as changes in market demand evolve.
Organization
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, weMueller, completing our spin-off. We subsequently sold our formerU.S. Pipe and Anvil segment. Amounts applicable to Anvil have been classified as discontinued operations.businesses in 2012 and 2017, respectively.
Business
We expectestimate approximately 60-65% of our 2019 net sales were for repair and replacement directly related to municipal water infrastructure spending, approximately 25-30% were related to residential construction activity and less than 10% were related to natural gas utilities.
Prior to the pandemic, we expected 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.the low single digits during 2020. We continue to expect a slowdown in our end markets for the remainder of our fiscal year as a result of the economic effects of the pandemic, but residential construction markethas improved at a faster pace than anticipated. In July 2020, Blue Chip Economic Indicators forecasted a 8% decrease in housing starts for calendar 2020 compared to grow faster than municipal spending.the prior year primarily due to pandemic effects.
23

Infrastructure
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 wereKrausz in our consolidated financial statements on a one-month lag.
In October 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 announceda 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.
Technologies
The municipal market is the key end market for Technologies. TheseThe 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,
Critical Accounting Policies and its growth strategy is focusedEstimates
Accounting for Goodwill
At March 31, 2020, in connection with pandemic-related disruptions on the AMI segmentoverall market and our business, we performed a quantitative goodwill impairment assessment of our Krausz reporting unit. The Krausz reporting unit had $85.9 million of goodwill at March 31, 2020. We used a discounted cash flow model to determine the estimated fair value of the market. Mueller Systems’ 2018 firstreporting unit. We made estimates and assumptions regarding future revenue, cash flows, discount rates, and long-term growth rates to estimate the Krausz reporting unit’s fair value.
These assumptions represented our best estimates and we believe they were reasonable and appropriate. However, they are forecasts in the midst of a complex and still-developing situation with the pandemic, and as such they involve a high degree of uncertainty.
•The discount rate in the model, which includes a forecast-risk factor, was 12.8 percent.
•Long-term growth of revenue in the model beyond 2025 was 3 percent.
•Long term growth of free cash flow in the model beyond 2025 growth was 5 percent.
The results of the quantitative impairment assessment indicated that the Krausz reporting unit’s fair value exceeded its carrying value. However, the excess of the fair value over the carrying value was not significant.
During the third quarter AMI backlogwe assessed for impairment indicators of the Krausz reporting unit and determined that it was lower at December 31, 2017 than at December 31, 2016. Echologics had a greater numbernot more-likely-than-not that the goodwill was impaired as of projects under contract at at December 31, 2017 than at December 31, 2016.June 30, 2020.

The continuation of pandemic-related effects on our business and the overall market could potentially materially change the key assumptions and lead to future impairment charges.
24

Results of Operations
Three Months Ended December 31, 2017June 30, 2020 Compared to Three Months Ended December 31, 2016June 30, 2019
Three months ended June 30, 2020
Three months ended December 31, 2017 InfrastructureTechnologiesCorporate  Total    
Infrastructure Technologies Corporate   Total    
(in millions) (in millions)
Net sales$160.1
 $18.2
 $—
 $178.3
Net sales$209.9  $18.6  $—  $228.5  
Gross profit$52.5
 $2.9
 $—
 $55.4
Gross profit73.5  2.2  —  $75.7  
Operating expenses:       Operating expenses:
Selling, general and administrative24.4
 7.5
 7.9
 39.8
Selling, general and administrative29.7  6.0  11.4  47.1  
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—  —  8.6  8.6  
24.4
 7.6
 2.7
 34.7
29.7  6.0  20.0  55.7  
Operating income (loss)$28.1
 $(4.7) $(2.7) 20.7
Operating income (loss)$43.8  $(3.8) $(20.0) 20.0  
Pension costs other than service      0.2
Non-operating expenses:Non-operating expenses:
Pension benefit other than servicePension benefit other than service(0.7) 
Interest expense, net      5.2
Interest expense, net6.1  
Income before income taxes      15.3
Income before income taxes14.6  
Income tax benefit      (39.8)
Income from continuing operations      $55.1
Income tax expenseIncome tax expense3.4  
Net incomeNet income$11.2  
        Three months ended June 30, 2019
Three months ended December 31, 2016 InfrastructureTechnologiesCorporateTotal
Infrastructure Technologies Corporate Total
(in millions) (in millions)
Net sales$146.3
 $20.9
 $—
 $167.2
Net sales$250.2  $24.1  $—  $274.3  
Gross profit$47.6
 $4.2
 $—
 $51.8
Gross profit92.7  4.5  —  $97.2  
Operating expenses:       Operating expenses:
Selling, general and administrative21.3
 6.4
 8.6
 36.3
Selling, general and administrative32.1  6.7  8.7  47.5  
Other charges0.1
 —
 1.2
 1.3
Strategic reorganization and other chargesStrategic reorganization and other charges—  —  2.5  2.5  
21.4
 6.4
 9.8
 37.6
32.1  6.7  11.2  50.0  
Operating income (loss)$26.2
 $(2.2) $(9.8) 14.2
Operating income (loss)$60.6  $(2.2) $(11.2) 47.2  
Pension costs other than service      0.3
Pension benefit other than servicePension benefit other than service(0.1) 
Interest expense, net      6.4
Interest expense, net4.2  
Walter Energy AccrualWalter Energy Accrual0.5  
Income before income taxes      7.5
Income before income taxes42.6  
Income tax expense      2.1
Income tax expense8.9  
Income from continuing operations      $5.4
Net incomeNet income$33.7  
Consolidated Analysis
Net sales for the quarter ended December 31, 2017 increased $11.1June 30, 2020 decreased 16.7 percent or $45.8 million to $178.3$228.5 million from $167.2$274.3 million primarily due primarily to increasedreduced shipment volumes includingin both segments due to the additioneffects of Singer Valve, and improved pricing at Infrastructure,the pandemic, which were partially offset by volume decline at Technologies.higher pricing.
Gross profit for the quarter ended December 31, 2017 increased $3.6June 30, 2020 decreased $21.5 million to $55.4$75.7 million from $51.8$97.2 million in the prior year period, primarily due to increaseddecreased shipment volumes, improved pricing and Infrastructure's improved operating efficiencies$5.2 million of expenses related to the pandemic, including certain unfavorable volume variances treated as period costs, voluntary emergency paid leave for employees and other manufacturing cost savings, partially offset by increased material costs.additional sanitation and cleaning fees. Cost of sales in the prior year quarter included $2.3 million of costs associated with the Krausz acquisition. Gross margin increased to 31.1%was 33.1% for the quarter ended December 31, 2017June 30, 2020 compared to 31.0%35.4% in the prior year period.
25

Selling, general and administrative expenses (“SG&A”&A”) for the quarter ended December 31, 2017 increasedJune 30, 2020 decreased to $39.8$47.1 million from $36.3$47.5 million in the prior year period due primarily to temporary expense reductions related to the acquisition of Singer Valve during the second quarter of last yearpandemic, including reduced travel, trade shows and higherevents as well as temporary furloughs and pay reductions for employees. These benefits were partially offset by increases in other personnel-related expenses.expenses and professional fees. SG&A as a percentage of net sales was 22.3%20.6% and 17.3% in the quarters ended June 30, 2020 and 2019, respectively.
Strategic reorganization and other charges in the quarter ended December 31, 2017June 30, 2020, were $8.6 million, which primarily relate to an accrual related to a potential settlement with Siemens, facility relocation expenses and 21.7%senior executive severance costs, and were $2.5 million in the prior year period.

Interest expense, net declined $1.2increased $1.9 million in the quarter ended December 31, 2017June 30, 2020 compared to the prior year period.period primarily due to decreased interest income and capitalized interest. The components of interest expense, net are provided below.
Three months ended
June 30,
20202019
 (in millions)
Notes$6.2  $6.2  
Deferred financing costs amortization0.2  0.3  
ABL Agreement0.2  0.1  
Capitalized interest(0.5) (1.2) 
Other interest cost (benefit)0.1  (0.6) 
6.2  4.8  
Interest income(0.1) (0.6) 
Interest expense, net$6.1  $4.2  
 Three months ended
 December 31,
 2017 2016
 (in millions)
Term Loan$4.8
 $5.1
Interest rate swap contracts0.4
 0.6
Deferred financing costs amortization0.5
 0.4
ABL Agreement0.2
 0.2
Other interest expense0.1
 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 rate24.5 % 35.0 %
Adjustments to reconcile to the effective tax rate:   
State income taxes, net of federal benefit4.3
 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)
Other0.5
 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
June 30,
20202019
U.S. federal statutory income tax rate21.0 %21.0 %
Adjustments to reconcile to the effective tax rate:
State income taxes, net of federal benefit4.5  4.5  
Excess tax benefits related to stock compensation—  (0.3) 
Tax credits(1.7) (1.2) 
Global Intangible Low-taxed Income(0.1) 0.6  
Foreign income taxes(0.5) —  
Valuation allowance(0.3) —  
Reversal of uncertain tax positions(1.6) (5.2) 
Other2.6  1.9  
23.3 %21.3 %
Walter Energy Accrual—  (0.4)%
Effective income tax rate23.3 %20.9 %
Segment Analysis
Infrastructure
Net sales for the quarter ended December 31, 2017 increased 9.4%June 30, 2020 decreased 16.1 percent to $160.1$209.9 million compared to $146.3$250.2 million in the prior year period due to decreased shipment volumes due to the effects of the pandemic, which were partially offset by higher pricing.
26

Gross profit for the quarter ended June 30, 2020 decreased to $73.5 million from $92.7 million in the prior year period primarily due to decreased shipment volumes and $4.5 million of expenses related to the pandemic, including certain unfavorable volume variances treated as period costs, voluntary emergency paid leave for employees and additional sanitation and cleaning fees. The prior year period included $2.3 million of costs related to the Krausz acquisition. Gross margin was 35.0% for the quarter ended June 30, 2020 compared to 37.1% in the prior year period.
SG&A for the quarter ended June 30, 2020 decreased to $29.7 million from $32.1 million in the prior year period. This decrease was primarily due to decreased personnel related costs from temporary cost savings initiatives related to the pandemic. SG&A as a percentage of net sales was 14.1% and 12.8% for the quarters ended June 30, 2020 and 2019, respectively.
Technologies
Net sales in the quarter ended June 30, 2020 decreased to $18.6 million from $24.1 million in the prior year period, due to lower shipment volumes. We experienced a decline during the quarter as projects were delayed because of shelter-in-place restrictions.
Gross profit in the quarter ended June 30, 2020 was $2.2 million and was $4.5 million in the prior year period. The decline in gross profit was primarily due to the decline in net sales. Expenses related directly to the pandemic totaled $0.7 million.
SG&A decreased to $6.0 million from $6.7 million in the prior year period. SG&A as a percentage of net sales was 32.3% and 27.8% for the quarters ended June 30, 2020 and 2019, respectively.
Corporate
SG&A was $11.4 million in the quarter ended June 30, 2020 and was $8.7 million in the prior year period. This increase was primarily due to information technology-related activities, personnel-related costs and professional fees.
27

Nine Months Ended June 30, 2020 Compared to Nine Months Ended June 30, 2019
 Nine months ended June 30, 2020
 InfrastructureTechnologiesCorporate  Total    
 (in millions)
Net sales$643.0  $55.8  $—  $698.8  
Gross profit225.9  8.4  —  $234.3  
Operating expenses:
Selling, general and administrative95.6  18.9  31.8  146.3  
Strategic reorganization and other charges0.4  —  11.5  11.9  
96.0  18.9  43.3  158.2  
Operating income (loss)$129.9  $(10.5) $(43.3) 76.1  
Non-operating expenses:
Pension benefit other than service(2.2) 
Interest expense, net19.5  
Walter Energy Accrual0.2  
Income before income taxes58.6  
Income tax expense13.3  
Net income$45.3  
 Nine months ended June 30, 2019
 InfrastructureTechnologiesCorporateTotal
 (in millions)
Net sales$636.3  $64.8  $—  $701.1  
Gross profit221.4  10.7  —  $232.1  
Operating expenses:
Selling, general and administrative88.7  20.2  25.3  134.2  
Strategic reorganization and other charges1.1  —  11.5  12.6  
89.8  20.2  36.8  146.8  
Operating income (loss)$131.6  $(9.5) $(36.8) 85.3  
Pension costs other than service0.8  
Interest expense, net15.6  
Walter Energy Accrual38.4  
Loss before income taxes30.5  
Income tax benefit6.9  
Net income$23.6  
Consolidated Analysis
Net sales for the nine months ended June 30, 2020 decreased 0.3% or $2.3 million to $698.8 million from $701.1 million in the prior year period primarily due to decreased shipment volumes in both segments due to the pandemic, which was offset by the addition of Krausz sales in the first quarter, and higher pricing.
Gross profit for the nine months ended June 30, 2020 increased $2.2 million to $234.3 million from $232.1 million in the prior year period, primarily due to higher shipment volumes,pricing, improved product mix and the addition of Singer ValveKrausz, which was partially offset by decreased shipments and favorable pricing.
pandemic-related expenses. The prior year period included $4.5 million of expenses related to the Krausz inventory step-up. Gross profitmargin was 33.5% for the quarternine months ended December 31, 2017June 30, 2020 compared to 33.1% in the prior year period.
28

Selling, general and administrative expenses (“SG&A”) for the nine months ended June 30, 2020 increased to $52.5$146.3 million from $47.6$134.2 million in the prior year period due primarily to the inclusion of Krausz’s SG&A expenses in the first quarter as well as information technology related activities, personnel-related costs and professional fees. SG&A as a percentage of net sales was 20.9% and 19.1% in the nine months ended June 30, 2020 and 2019, respectively.
Strategic reorganization and other charges were $11.9 million in the nine months ended June 30, 2020 and were $12.6 million in the prior year period.
Interest expense, net increased $3.9 million in the nine months ended June 30, 2020 compared to the prior year period primarily due to decreased interest income and a non-cash adjustment to capitalized interest in the first quarter of the current period. The components of interest expense, net are provided below.
Nine months ended
June 30,
20202019
 (in millions)
Notes$18.6  $18.6  
Deferred financing costs amortization0.9  0.9  
ABL Agreement0.4  0.4  
Capitalized interest, including adjustment0.2  (1.2) 
Other interest expense0.3  (0.3) 
20.5  18.4  
Interest income$(1.0) $(2.8) 
Interest expense, net$19.5  $15.6  
The reconciliation between the U.S. federal statutory income tax rate and the effective tax rate is presented below.
 Nine months ended
June 30,
20202019
U.S. federal statutory income tax rate21.0 %21.0 %
Adjustments to reconcile to the effective tax rate:
State income taxes, net of federal benefit4.5  5.6  
Excess tax benefits related to stock compensation(0.6) (1.4) 
Tax credits(2.6) (2.7) 
Global Intangible Low-taxed Income(0.1) 1.2  
Foreign income taxes(0.6) —  
Valuation allowance(0.5) —  
Reversal of uncertain tax positions(0.5) (7.2) 
Other2.0  3.6  
22.6 %20.0 %
Walter Energy Accrual—  4.6  
Transition tax benefit—  (1.9) 
Effective income tax rate22.6 %22.7 %
Segment Analysis
Infrastructure
Net sales for the nine months ended June 30, 2020 increased 1.1% to $643.0 million compared to $636.3 million in the prior year period due to increased shipment volumes, improved operating efficienciesthe inclusion of Krausz in the first quarter and other manufacturing cost savings. higher pricing, partially offset by declines in volume associated with the pandemic.
29

Gross marginprofit for the nine months ended June 30, 2020 increased to 32.8% for the quarter ended December 31, 2017 compared to 32.5% in the prior year period.

SG&A for the quarter ended December 31, 2017 increased to $24.4$225.9 million from $21.3 million in the prior year period. SG&A was 15.2% and 14.6% of net sales for the quarters ended December 31, 2017 and 2016, respectively. These increases in SG&A were primarily due to higher personnel-related expenses and the additional SG&A of Singer Valve.
Technologies
Net sales in the quarter ended December 31, 2017 declined to $18.2 million from $20.9$221.4 million in the prior year period primarily due to lower AMI shipment volumes,the inclusion of Krausz and higher sales pricing, partially offset by increased leak detection sales.
declines in volume and recognition of certain manufacturing variances as period costs and other expenses associated with the pandemic. The prior year period included $4.5 million of expenses related to the Krausz inventory step-up. Gross profitmargin was 35.1% for the nine months ended June 30, 2020 compared to 34.8% in the quarterprior year period.
SG&A for the nine months ended December 31, 2017 was $2.9June 30, 2020 increased to $95.6 million compared to $4.2from $88.7 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 wereThis increase was primarily due to lower shipment volumes.
the inclusion of Krausz, which was offset by cost reduction measures we have taken related to the pandemic. SG&A increased to $7.5 millionas a percentage of net sales was 14.9% and 13.9% for the nine months ended June 30, 2020 and 2019, respectively.
Technologies
Net sales in the quarternine months ended December 31, 2017 comparedJune 30, 2020 decreased to $6.4$55.8 million from $64.8 million in the prior year period, driven by lower shipment volumes from our metering products and reduced volume of leak-detection services performed due to personnel-related expenses. SG&A increased to 41.2% of net sales for the quarter ended December 31, 2017 from 30.6% of net sales in the prior year period.pandemic, which was offset by higher pricing.
Corporate
SG&AGross profit was $7.9$8.4 million in the quarter ended December 31, 2017 compared to $8.6$10.7 million in the prior year period.
SG&A decreased to $18.9 million in the nine months ended June 30, 2020 compared to $20.2 million in the prior year period primarily due to reduced marketing and personnel-related expenses, including those cost reduction measures related to the pandemic. SG&A as a percentage of net sales was 33.9% and 31.2% for the nine months ended June 30, 2020 and 2019, respectively.
Corporate
SG&A was $31.8 million in the nine months ended June 30, 2020 and was $25.3 million in the prior year period. This increase was primarily due to IT-related activities, personnel-related costs and professional fees, which were offset by cost reduction measures we have taken related to the pandemic.
Liquidity and Capital Resources
We had cash and cash equivalents of $348.3$170.7 million at December 31, 2017June 30, 2020 and $96.3$116.1 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.June 30, 2020 data. Undistributed earnings from our subsidiaries in Canada, China, and ChinaIsrael are considered to be permanently invested outside the United States. At December 31, 2017,June 30, 2020, cash and cash equivalents included $12.1$8.3 million, $5.4 million and $7.2$17.6 million in Canada, China and China,Israel, respectively. As of August 6, 2020, we have no plans to repatriate cash.
We expect the recently enacted tax law changes to benefit our liquidity through reductiondeclared a quarterly dividend of $0.0525 per share on July 28, 2020, payable on August 20, 2020, which will result 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 do not expect any payments to have a material liquidity impact in any particular year.an estimated $8.3 million cash outlay.
We repurchaseddid not purchase any shares of our common stock for $10 million during the quarter ended December 31, 2017,June 30, 2020 and we had $180have $145 million remaining on our share repurchase authorizationauthorization. To enhance our liquidity position in response to the pandemic, we elected to temporarily suspend share repurchases under our existing share repurchase program. The program remains authorized by the Board of Directors and we may resume share repurchases in the future at that date.any time, depending upon market conditions, our capital needs and other factors.
The ABL Agreement and Term LoanNotes 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.
30

Cash flows from operating activities of continuing operations are categorized below.
Nine months ended
Three months endedJune 30,
December 31,20202019
2017 2016
(in millions) (in millions)
Collections from customers$216.1
 $194.6
Collections from customers$716.2  $704.0  
Disbursements, other than interest and income taxes(211.3) (203.5)Disbursements, other than interest and income taxes(586.0) (635.6) 
Walter tax matter paymentWalter tax matter payment(22.2) —  
Interest payments, net(4.4) (5.6)Interest payments, net(24.3) (23.2) 
Income tax refunds (payments), net0.1
 (5.4)
Cash provided by (used in) operating activities$0.5
 $(19.9)
Income tax payments, netIncome tax payments, net(5.9) (27.4) 
Cash provided by operating activitiesCash provided by operating activities$77.8  $17.8  
Collections from customers were higher during the threenine months ended December 31, 2017June 30, 2020 compared to the prior year period primarily due to the timinginclusion of cash receipts and net sales growth.Krausz in our consolidated results.
IncreasedDecreased disbursements, other than interest and income taxes, during the threenine months ended December 31, 2017June 30, 2020 primarily reflect higher purchasing activity, higher costs for raw materials, and differences in the timingresults of expenditures.
Income tax payments were lowercost containment actions we have taken during the three months ended December 31, 2017 comparedpandemic. Additionally we disbursed $22.2 million related to the prior year period because we beganfinal settlement of the current year quarter with U.S. federal income taxes prepaid.

Walter tax matter.
Capital expenditures were $6.4$51.2 million in the threenine months ended December 31, 2017June 30, 2020 compared to $4.2$52.9 million in the prior year period. We estimate 2018These expenditures were primarily in previously announced large capital projects. For the full-year 2020, we have reduced our plans for capital expenditures willand now expect spending to be between $40$71 million and $48$75 million although we are also evaluating possibilities for additional capital expenditures in 2018.as compared with our prior guidance range of between $80 million and $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. However,June 30, 2021.
We believe that additional borrowings through various financing alternatives remain available if required. The future effects of the pandemic cannot be predicted with certainty and may increase 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, businessborrowing costs and other factors beyondcosts of capital or otherwise adversely affect our control.financial condition and liquidity, and we cannot guarantee that we will have access to external financing at times and on terms we consider acceptable, or at all, or that we will not experience other liquidity issues going forward.
ABL Agreement
At December 31, 2017,June 30, 2020, 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.
BorrowingsAt July 30, 2020, the maturity of the ABL Agreement was extended to July 29, 2025 and borrowings under the amended ABL Agreement bear interest at a floating rate equal to LIBOR, plus a margin ranging from 125200 to 150225 basis points, or a base rate, as defined in the ABL Agreement, plus a margin ranging from 25100 to 50125 basis points. At DecemberJuly 31, 2017,2020, the applicable LIBOR-based margin was 125200 basis points.
The amended ABL Agreement terminates on July 13, 2021. We payagreement also calls for a commitment fee for any unused borrowing capacity under the ABL Agreement of 2537.5 basis points, per annum.annually, on undrawn amounts.
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.
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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 Loan5.5% Senior Unsecured Notes
We had $485.1On June 12, 2018, we privately issued $450.0 million face value outstanding under the Term Loan at December 31, 2017. Term Loan borrowings accrueof 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 $460.1 million at June 30, 2020.
An indenture securing the Notes (“Indenture”) contains customary covenants and secured by essentiallyevents of default, including covenants that limit our ability to incur certain debt and liens, pay dividends and certain other restricted payments and make investments. There are no financial maintenance covenants associated with the Indenture. We believe we were compliant with these covenants at June 30, 2020.
We may redeem some or all of our assets, although the ABL Agreement hasNotes 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. These ratings are not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency.
 Moody’s  Standard & Poor’s
June 30,September 30,June 30,September 30,
2020201920202019
Corporate credit ratingBa2Ba2BBBB
ABL AgreementNot ratedNot ratedNot ratedNot rated
NotesBa3Ba3BBBB
OutlookStableStableStableStable
 Moody’s   Standard & Poor's
 December 31, September 30, December 31, September 30,
 2017 2017 2017 2017
Corporate credit ratingBa3 Ba3 BB- BB-
ABL AgreementNot rated Not rated Not rated Not rated
Term LoanBa3 Ba3 BB BB
OutlookStable 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”finance” or “special purpose”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, 2017June 30, 2020 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,June 30, 2020, we had $17.5$13.8 million of letters of credit and $35.6$37.7 million of surety bonds outstanding.
Seasonality
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.
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Item 4.CONTROLS AND PROCEDURES
Item 4. CONTROLS AND PROCEDURES
During the quarter ended December 31, 2017,June 30, 2020, we continued our multi-year implementation of upgrades to our enterprise resource planning (ERP) system and the implementation of a new information technology system for processing of payroll and employee-related transactions.
Aside from the above, 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.
As a result of the COVID-19 pandemic, many of our employees began working remotely in March 2020 and continued to do so as of the date of this filing. This change to our working environment did not have a material effect on our internal control over financial reporting during the most recent quarter. We will continue monitoring and assessing any impacts from the pandemic on our internal controls.
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.

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PART II OTHER INFORMATION
Item 1.LEGAL PROCEEDINGS
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.
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.
The negative impact of the COVID-19 pandemic on our operations may increase
The outbreak of COVID-19 is impacting cities, states and countries around the world and is temporarily changing the way we live and work. The pandemic has also caused a shift in how we manage our business, think about work and how our work gets done. Businesses as well as federal, state and local governments have implemented significant measures to attempt to mitigate this public health crisis and may continue to take additional actions. Although the ultimate severity and duration of the pandemic is uncertain at this time, the pandemic is having meaningful adverse impacts on our financial condition and results of operations as discussed in PART I, “Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.”. As the impact of the pandemic continues, we may continue to experience additional plant closures, illness or quarantine of our employees, supply chain disruptions, transportation delays, cost increases, more extensive travel restrictions, closures or disruptions of businesses and facilities, or social, economic, political or labor instability in the affected areas. These same factors may continue to impact our suppliers, customers and distributors and the severity of such impacts could increase. We have implemented significant changes to the way we work in an attempt to enhance and secure the health and safety of our workforce and the communities in which they operate. However, the health implications of the pandemic are extensive and the extent, duration and severity of the pandemic are highly uncertain. It is also uncertain whether the measures we have taken — and additional measures we may undertake in the future — and the actions taken by governmental agencies will be successful. Accordingly, should there be unexpected health implications for our employees, communities or others, we could face litigation or other claims and we could suffer damage to our reputation, brand and operations, which could adversely affect our business.
We have incurred additional costs to address the pandemic as discussed in PART I, “Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,”, including costs associated with unfavorable volume variances, voluntary emergency paid leave, additional cleaning, disinfectants and sanitation materials for our employees and at our facilities. We expect to continue to incur such costs, which may be significant, as we continue to implement operational changes in response to this pandemic. All of our facilities were operational and able to fill orders on August 6, 2020, and our teams have worked effectively to address the few temporary closures we have experienced. The pandemic has also caused supply chain disruption that has resulted in higher costs in the manufacture of our products. We expect these conditions to persist for the near term and may worsen until the pandemic abates.
Continued disruptions in our markets and the global economy may cause us to have to assess impairments of our assets and cause us to incur and record non-cash impairment charges.
Further, our management is focused on mitigating the impact of the pandemic on our operations, which has required, and will continue to require, a large investment of time and resources across our business and may delay other strategic initiatives and large capital projects that are important to the business. Additionally, many of our employees are working remotely. An extended period of remote work arrangements could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business.
The extent to which the pandemic impacts us will depend on a number of factors and developments that we are not able to predict or control, including, among others: the severity of the virus; the duration of the outbreak; governmental, business and other actions (which could include limits on funding for our products or services); the health of and the effect on our workforce; and the potential effects on our internal controls including those over financial reporting and information technology as a result of changes in working environments such as shelter-in-place and similar orders that are applicable to our employees, including management. In addition, if the pandemic continues to create disruptions or turmoil in the credit or financial markets, it could adversely affect our ability to access capital on favorable terms and continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted.
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We also cannot predict the impact that the pandemic will have on third parties with which we do business, and each of their financial conditions, including their viability and ability to pay for our products and services; however, any material effect on these parties could adversely impact us. The extent of the impact of the pandemic on our operations and financial results depends on future developments and is highly uncertain. The situation is changing rapidly and future impacts may materialize that are not yet known.
Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter ended December 31, 2017, we repurchasedJune 30, 2020, shares of our common stock, including shares repurchased under our existing share repurchase authorization and shareswere 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:
PeriodTotal number of shares purchasedAverage price paid per shareTotal number of shares purchased as part of publicly announced plans or programsMaximum dollar value of shares that may yet be purchased under the plans or programs (in millions)
April 1-30, 2020—  $—  —  $145.0  
May 1-31, 2020—  —  —  145.0  
June 1-30, 2020529  9.70  —  145.0  
Total529  $—  —  145.0  
We have temporarily suspended our share repurchase program due to COVID-19. We have $145 million remaining under our share repurchase authorization.
Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publically announced plans or programs 
Maximum dollar value of shares that may yet be purchased under the plans or programs
 (in millions)
October 1-31, 2017 —
 $—
 —
 $—
November 1-30, 2017 845,390
 12.15
 823,739
 —
December 1-31, 2017 122,753
 12.35
 —
 —
Total 968,143
 $12.17
 823,739
 $—

Item 6. EXHIBITS
Item 6.EXHIBITS
Exhibit No.Document
3.110.1*

10.20.5**31.1*

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 by reference to Exhibit 10.1 to Mueller Water Products, Inc. Form 8-K (File No. 001-32892) filed on December 28, 2017.

10.29.3**
Amendment to Executive Change -In-Control Severance Agreement, dated January 11, 2018, by and between Mueller Water Products and Marietta Edmunds Zakas. Incorporated by reference to Exhibit 10.1 to Mueller Water Products, Inc. Form 8-K (File No. 001-32892) filed on January 12, 2018.

10.30.2**
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*
32.1*
32.2*
101*
104*Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its iXBRL tags are embedded within the Inline XBRL document.
*  Filed with this quarterly report
**     Management compensatory plan, contract, or arrangement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MUELLER WATER PRODUCTS, INC.
Date:February 8, 2018August 6, 2020By:/s/ Michael S. Nancarrow
Michael S. Nancarrow
Chief Accounting Officer


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