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, 2021
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.
Suite 1200
Atlanta, GA 30328
(Address of principal executive offices)
(770) 206-4200
(Registrant'sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common stock, par value $0.01MWANew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer     x☒                 Accelerated filer         o☐
Non-accelerated filer      o☐                Smaller reporting company     o☐
(DoEmerging growth company    ☐


If an emerging growth company, indicate by check mark if the registrant has elected not check if a smaller reporting company)to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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 158,754,223158,560,235 shares of common stock of the registrant outstanding at JanuaryJuly 31, 2018.
2021.





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,
 20212020
 (in millions, except share amounts)
Assets:
Cash and cash equivalents$228.6 $208.9 
Receivables, net of allowance for credit losses of $3.1 million and $2.5 million200.7 180.8 
Inventories, net176.9 162.5 
Other current assets26.2 29.0 
Total current assets632.4 581.2 
Property, plant and equipment, net275.3 253.8 
Intangible assets402.0 408.9 
Goodwill116.0 99.8 
Other noncurrent assets58.9 51.3 
Total assets$1,484.6 $1,395.0 
Liabilities and equity:
Current portion of long-term debt$1.0 $1.1 
Accounts payable86.6 67.3 
Other current liabilities101.3 86.6 
Total current liabilities188.9 155.0 
Long-term debt445.6 446.5 
Deferred income taxes102.1 96.5 
Other noncurrent liabilities64.8 56.3 
Total liabilities801.4 754.3 
Commitments and contingencies (Note 12.)
Common stock: 600,000,000 shares authorized; 158,527,319 and 158,064,750 shares outstanding at June 30, 2021 and September 30, 2020, respectively1.6 1.6 
Additional paid-in capital1,358.7 1,378.0 
Accumulated deficit(662.3)(714.2)
Accumulated other comprehensive loss(14.8)(24.7)
Total stockholders’ equity683.2 640.7 
Total liabilities and equity$1,484.6 $1,395.0 

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,
 2021202020212020
(in millions, except per share amounts)
Net sales$310.5 $228.5 $815.4 $698.8 
Cost of sales205.1 152.8 543.2 464.5 
Gross profit105.4 75.7 272.2 234.3 
Operating expenses:
Selling, general and administrative58.8 47.1 162.2 146.3 
Strategic reorganization and other charges3.9 8.6 6.1 11.9 
Total operating expenses62.7 55.7 168.3 158.2 
Operating income42.7 20.0 103.9 76.1 
Other expenses (income):
Pension benefit other than service(0.8)(0.7)(2.4)(2.2)
Interest expense, net6.8 6.1 19.0 19.5 
Loss on early extinguishment of debt16.7 0 16.7 0 
Walter Energy Accrual0 0 0 0.2 
Net other expenses22.7 5.4 33.3 17.5 
Income before income taxes20.0 14.6 70.6 58.6 
Income tax expense5.6 3.4 18.6 13.3 
Net income$14.4 $11.2 $52.0 $45.3 
Net income per share:
Basic$0.09 $0.07 $0.33 $0.29 
Diluted$0.09 $0.07 $0.33 $0.29 
Weighted average shares outstanding:
Basic158.5 157.8 158.4 157.8 
Diluted159.3 158.5 159.0 158.6 
Dividends declared per share$0.0550 $0.0525 $0.1650 $0.1575 

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,
2021202020212020
 (in millions)
Net income$14.4 $11.2 $52.0 $45.3 
Other comprehensive income (loss):
Pension0.7 0.7 1.9 2.2 
Income tax effects(0.2)(0.2)(0.5)(0.5)
Foreign currency translation4.4 (1.7)8.5 0 
   Total other comprehensive income (loss), net4.9 (1.2)9.9 1.7 
Total comprehensive income$19.3 $10.0 $61.9 $47.0 

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,
2021202020212020
(in millions)
Common stock
Balance, beginning of period$1.6 $1.6 $1.6 $1.6 
Change in common stock at par value0 0 0 0 
Balance, end of period1.6 1.6 1.6 1.6 
Additional paid-in capital
Balance, beginning of period1,364.2 1,390.1 1,378.0 1,410.7 
Dividends declared(8.7)(8.3)(26.1)(24.9)
Shares repurchased under buyback program0 0 0 (5.0)
Buyout of noncontrolling interest0 0 0 (3.2)
Shares retained for employee taxes0 0 (1.0)(0.7)
Stock-based compensation2.7 1.1 6.3 3.8 
Stock issued under stock compensation plan0.5 0.4 1.5 2.6 
Balance, end of period1,358.7 1,383.3 1,358.7 1,383.3 
Accumulated deficit
Balance, beginning of period(676.7)(752.1)(714.2)(786.2)
Net income14.4 11.2 52.0 45.3 
Cumulative effect of accounting change0 0 (0.1)0 
Balance, end of period(662.3)(740.9)(662.3)(740.9)
Accumulated other comprehensive (loss) income
Balance, beginning of period(19.7)(33.1)(24.7)(36.0)
Other comprehensive (loss) income4.9 (1.2)9.9 1.7 
Balance, end of period(14.8)(34.3)(14.8)(34.3)
Noncontrolling interest
Balance, beginning of period0 0 0 2.2 
Acquisition of joint venture partner’s interest0 0 0 (2.2)
Balance, end of period0 0 0 0 
Total stockholders' equity$683.2 $609.7 $683.2 $609.7 

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,
 20212020
 (in millions)
Operating activities:
Net income$52.0 $45.3 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation23.4 21.7 
Amortization21.2 21.1 
Loss on early debt extinguishment16.7 0 
Stock-based compensation6.3 3.8 
Pension (benefits) costs(1.4)2.2 
Deferred income taxes0.9 1.4 
Inventory reserves provision6.8 5.6 
Other, net1.2 1.6 
Changes in assets and liabilities, net of acquisition:
Receivables, net(18.1)17.4 
Inventories(19.1)5.0 
Other assets0.3 0.7 
Accounts payable18.1 (25.6)
Walter Energy accrual0 (22.0)
Other current liabilities11.3 6.0 
Other noncurrent liabilities3.7 (6.4)
Net cash provided by operating activities123.3 77.8 
Investing activities:
Capital expenditures(46.1)(51.2)
Acquisition, net of cash acquired(19.7)0 
Proceeds from sale of assets0.4 0.3 
Net cash used in investing activities(65.4)(50.9)
Financing activities:
Issuance of debt450.0 0 
Repayment of debt(462.4)0 
Dividends paid(26.1)(24.9)
Deferred financing costs paid(6.0)0 
Proceeds from financing transaction3.9 0 
Acquisition of joint venture partner's interest0 (5.2)
Employee taxes related to stock-based compensation(1.0)(0.7)
Common stock issued1.5 2.6 
Common stock repurchased under buyback program0 (5.0)
Other(0.5)0.6 
Net cash used in financing activities(40.6)(32.6)
Effect of currency exchange rate changes on cash2.4 (0.3)
Net change in cash and cash equivalents19.7 (6.0)
Cash and cash equivalents at beginning of period208.9 176.7 
Cash and cash equivalents at end of period$228.6 $170.7 
Supplemental cash flow information:
Cash paid for interest$25.2 $24.3 
Cash paid for income taxes$12.6 $5.9 
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, 2021
(UNAUDITED)
Note 1.
Organization
Note. 1Organization and Basis of Presentation
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. Due toventure for $1.7 million. As a result of 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. Infrastructure acquired the remaining 51% ownership interest in the business in October 2019.
On June 14, 2021, we acquired all the outstanding capital stock of i2O Water Ltd, a provider of pressure management solutions to more than 100 water companies in 45 countries. i2O Water Ltd is organized under the laws of the United Kingdom. The net loss attributablecondensed consolidated balance sheet at June 30, 2021 includes the preliminary acquisition accounting for i20 Water Ltd. The results of i20 Water Ltd’s operations and cash flows for the period subsequent to noncontrolling interest isthe acquisition are included in selling, generalthe condensed consolidated statement of operations and administrative expenses. Noncontrolling interestcondensed consolidated statement of cash flows, respectively, since the acquisition date. Refer to Note 2 for additional disclosures related to the acquisition.
During the three months ended March 31, 2021, we aligned the consolidation of the financial statements of Krausz Industries Development Ltd. and subsidiaries (“Krausz”) in the Company’s consolidated financial statements, eliminating the previous inclusion of Krausz financial statements with a one-month reporting lag. In accordance with applicable accounting literature, the elimination of the one-month reporting lag is recorded at its carrying value, which approximates fair value.
Unlessconsidered to be a change in accounting principle. We believe this change in accounting principle is preferable as the context indicates otherwise, whenever we referfinancial statements of all of our subsidiaries are now reported on the same basis, providing the most current information available. The effect of the elimination of the reporting lag during the nine months ended June 30, 2021 resulted in an increase of $6.0 million to a particular year, we mean our fiscal year ended or ending September 30 innet sales and an increase of $1.4 million to operating income. We concluded that particular calendar year.the effect of this change is not material to the balance sheets, statements of operations, statements of cash flows, net income and earnings per share and therefore have not retrospectively applied this change.
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 ofin recording assets, liabilities, sales and expenses and the disclosure of contingent assets and liabilities for the reporting periods.liabilities. Actual results could differ from those estimates. All significant intercompany balances and transactions have been eliminated. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2017.2020. 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, 20172020 was derived from audited financial statements, but it does not include all disclosures required by GAAP.
On October 1, 2017, we adopted Financial Accountings Standards Board Accounting Standards Update No. 2017-07, which requires us to exclude fromOur business is seasonal as a result of cold weather conditions. Net sales and operating income the components of net periodic benefit cost other than service cost. Accordingly,have historically been lowest in the Condensed Consolidated Statement of Operations for the three months endedmonth periods ending December 31 2016,and March 31 when the northern United States and all of Canada generally face weather conditions that restrict significant construction activity.
In preparing these financial statements in conformity with GAAP, we have reclassified $0.2 million from selling, generalconsidered and, administrative expenses and $0.1 million from cost of sales to pension costs other than service.
On February 15, 2017, we acquired Singer Valve. Singer had net sales of $3.7 million inwhere appropriate, included 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 discussedthe COVID-19 pandemic on our operations. 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 or ending September 30 in Note 3.that particular calendar year.
In May 2014,Recently Adopted Accounting Guidance
During 2016, the Financial Accounting Standards Board (“FASB”) issued newstandard Accounting Standard Codification (“ASC”) 326 - Current Expected Credit Losses to replace the “incurred loss” impairment approach with an “expected loss”
6

approach, which requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We have completed historical and forward-looking analyses for receivables and adopted this guidance effective October 1, 2020. Upon adoption, there was no material impact to our financial statements.
Recent Accounting Guidance Not Yet Adopted
In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by clarifying and amending existing guidance related to the recognition of revenuefranchise tax, the evaluation of a step up in the tax basis of goodwill, and requiring additional financial statement disclosures.the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year, with early adoption permitted. We plan to adopt this guidance using the modified retrospective transition method beginning in the first quarter of fiscal 2019. We have completed our initial scopingstandard on October 1, 2021 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 it to have a material impact on our financial statements.
In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (“ASU 2020-04”). The new guidance provides optional expedients and exceptions for applying GAAP to materiallycontracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Inter Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. ASU 2020-04 is effective from March 12, 2020, but can be adopted prospectively from a date within an interim period subsequent to March 12, 2020. We are currently evaluating our contracts and the optional expedients provided by ASU 2020-04. We plan to adopt this standard on October 1, 2021 and do not expect it to have a material impact on our stockholders' equity, net sales or operating income.financial statements.
On September 7, 2017,Restructuring
In November 2019, we announced the purchase of a strategicnew facility in Kimball, Tennessee to support and enhance our investment in our Chattanooga, Tennessee large casting foundry. As a result, we announced subsequent closures of our facilities in Hammond, Indiana and Woodland, Washington. Expenses incurred for these closures were primarily related to personnel and inventory and are included in Strategic reorganization plan designed to accelerate our product innovation and revenue growth. We have adopted a matrix management structure, where business teams have line and cross-functional responsibility for managing distinct product portfolios, and engineering, operations, sales and marketing and other functionscharges.
In March 2021, we announced the planned closures of our facilities in Aurora, Illinois and Surrey, British Columbia, Canada. Most of the activities from these plants will be transferred to our Kimball, Tennessee facility. We expect to substantially complete these facility closures by the third quarter of our fiscal year 2022 and expect to incur total expenses related to this restructuring of approximately $14.0 million, including termination benefit costs of approximately $4.8 million and other associated costs of $9.2 million. Of the total $14.0 million estimated costs, approximately $3.6 million are centralizedexpected to better align with business needs and generate greater efficiencies. Costs and expenses inbe non-cash charges. Expenses incurred during the quarternine months ended December 31, 2017 for this plan,June 30, 2021 were approximately $4.2 million, including approximately $1.8 million of termination benefit costs which are included in strategicStrategic reorganization and other charges were primarily personnel-related.and approximately $2.4 million in inventory write-downs which are included in Cost of sales.

6
Table of Contents
Index to Financial Statements


Activity in accrued restructuring, reported as part of other current liabilities, is presented below.
Nine months ended
June 30,
20212020
(in millions)
Beginning balance$2.8 $1.7 
Expenses incurred2.0 3.1 
Amounts paid(2.2)(1.5)
Ending balance$2.6 $3.3 

 Three months ended
 December 31, 2017
 (in millions)
Beginning balance$3.3
Expense2.3
Payments(1.4)
Ending balance$4.2
New Markets Tax Credit Program
Note 2.Discontinued Operations and Divestitures
On December 4, 2017,22, 2020, we sold an idle propertyentered into a financing transaction with Wells Fargo Community Investment Holdings, LLC (“Wells Fargo”) related to our brass foundry construction project in Burlington,Decatur, Illinois under a qualified New JerseyMarkets Tax Credit program (“NMTC”). The NMTC is a federal program intended to encourage capital investment in qualified lower income communities. Under the NMTC, investors claim federal income tax credits over a period of seven years in connection with qualified investments in the equity of community development entities (“CDE”s), which are privately managed investment institutions that had previously been a plantare certified to make qualified low-income community investments, such as in our former U.S. Pipe segmentfoundry project.
Under the NMTC, Wells Fargo contributed capital of $4.8 million to an investment fund and recordedwe loaned $12.2 million to the fund. Wells Fargo is entitled to the associated tax credits, which are subject to 100% recapture if we do not comply with
7

various regulations and contractual provisions surrounding the foundry project. We have indemnified Wells Fargo for any loss or recapture of tax credits related to the transaction until the seven-year period lapses. We do not anticipate any credit recaptures will be required in connection with this arrangement.
The investment fund contributed $16.5 million cash for a 99.99% stake in a joint venture (“Sub-CDE”) with a CDE. The Sub-CDE then loaned $16.2 million to us, with the use of the loan proceeds restricted to foundry project expenditures.
This transaction also includes a put/call provision under which we may be obligated or entitled to repurchase Wells Fargo’s interest in the investment fund. We believe that Wells Fargo will exercise its put option in December 2027 for nominal consideration, resulting in our becoming the sole owner of the investment fund, cancelling the related loans, and recognizing an estimated gain of $9.0$3.9 million.
We have determined that the investment fund and the Sub-CDE are variable interest entities (“VIEs”) and that we are the primary beneficiary of the VIEs. The ongoing activities of the VIEs, namely collecting and remitting interest and fees and administering NMTC compliance, were contemplated in the initial design of the transaction and are not expected to significantly affect economic performance throughout the life of the VIEs. Additionally, we are obligated to deliver tax benefits and provide various other guarantees to Wells Fargo and to absorb the losses of the VIEs. Wells Fargo does not have a material interest in the underling economics of the project. Consequently, we have included the financial statements of the VIEs in our consolidated financial statements.
Intercompany transactions between us and the VIEs have been eliminated in consolidation. Wells Fargo’s contribution to the investment fund is included in our financial statements within Other noncurrent liabilities as a result of its redemption features.
Direct costs associated with Wells Fargo’s capital contribution have been netted against the recorded proceeds, resulting in a net cash contribution to us of $3.9 million. Other direct costs incurred associated with executing the transaction were capitalized and will be recognized as interest expense over the seven-year tax credit period. Incremental costs to maintain the structure during the compliance period will be expensed as incurred.

Note 2.    Business Combination
Acquisition of i20 Water Ltd
On June 14, 2021, we acquired all the outstanding capital stock of i20 Water Ltd for $19.7 million, net of cash acquired. The purchase agreement provides for customary final adjustments, including a net working capital adjustment, which we expect to occur in calendar 2021.
We have recognized the assets acquired and liabilities assumed at their estimated acquisition date fair values, with the excess of the consideration paid over the estimated fair values of the identifiable net assets acquired recorded as goodwill. The accounting for the business combination is based on currently available information and is considered preliminary. We have retained a third-party valuation specialist to assist in our Corporate segment.estimate of the fair value of acquired intangible assets. We have not yet received $7.4 million in cash, recorded neta final valuation report for acquired intangible assets and we are also still gathering information about income taxes, deferred taxes and current assets of $0.8 million and conveyed plant, property and equipment with a net carrying value of $0.4 million, andliabilities. The final accounting for the buyer assumed related environmental liabilities with a carrying value of $1.2 million.business combination may differ materially from that presented in these unaudited consolidated statements.
On January 6, 2017, we sold our former Anvil segment to affiliates of One Equity Partners.
8

The table below presentsfollowing is a summary of the operating results forestimated fair 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$0.5 
Inventories0.6 
Other current assets0.9 
  Tradename2.0 
  Customer relationships2.1 
  Non-compete agreements0.4 
  Developed technology5.9 
  Goodwill13.6 
Liabilities:
Accounts payable(0.8)
Other current liabilities(2.9)
Deferred income taxes(2.6)
Fair value of net assets acquired, net of cash$19.7 
On December 22, 2017, HR-1, formerly referredThe preliminary estimated 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 i20 Water Ltd and the workforce of the acquired business. The goodwill is nondeductible for income tax laws, including loweringpurposes.

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 10.) 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, customer advance payments and billings in excess of revenue recognized. Customer receivables include amounts billed and currently due from customers as well as unbilled amounts. Amounts are billed in accordance with contractual terms and unbilled amounts arise when the timing of billing differs from the timing of revenue recognized.
Customer 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 of when we expect to recognize revenue. We reverse these contract liabilities and recognize revenue when we satisfy the related tax expensesperformance obligations. We include current deferred revenue within Other current liabilities.
9

The table below represents the balances of our customer receivables and deferred revenues.
June 30,September 30,
20212020
(in millions)
Billed receivables$199.9 $180.3 
Unbilled receivables7.2 5.3 
Total customer receivables$207.1 $185.6 
Deferred revenues$7.4 $5.6 

Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or benefits.service to the customer. Performance obligations are supported by customer contracts which provide frameworks for the nature of the distinct products or services. We allocate the transaction price of each contract to the performance obligations on the basis of standalone selling price and recognize revenue when, or as, control of the performance obligation transfers to the customer.
Most of our performance obligations are satisfied at a “point in time” for sales of equipment and for provision of one-time services, and we generally recognize such revenue when goods are shipped or when the services are provided. The averageremainder of these rates varies slightly from yearour performance obligations are satisfied “over time” for our software hosting and leak detection monitoring services, and we generally recognize such revenue ratably as services are provided over the expected term of the contract.
We offer warranties to year but historically has been approximately 39%. With the legislation changing enacted rates taking placeour customers in the current quarter,form of assurance-type warranties, which provide assurance that the products provided will function as intended and comply with any agreed-upon specifications. Such warranties generally cannot be purchased separately. We accrue our expected warranty obligations at the time of sale.
Costs to Obtain or Fulfill a Contract
We incur certain incremental costs to obtain a contract, which primarily relate to sales commissions. Our commissions are paid based on either orders or shipments, and we have remeasured our deferred tax items at an average ratereserve the right to claw back any commission in the event of approximately 25%. This resulted in a provisional income taxproduct returns or lost collections. Since the expected benefit of $42.6 million, whichassociated with these incremental costs is subject to change, if necessary, as we continue to analyze certain aspectsone year or less based on the nature of the Actproducts sold and refine our calculations. We do not expect changes to this amount to be material.services provided, we expense such costs as incurred.
The Act also imposes a one-time transition tax on the undistributed, non-previously taxed, post-1986 foreign “earnings and profits” (as defined by the IRS) of certain U.S.-owned corporations. Determination of our transition tax liability requires us to calculate foreign earnings and profits going back to 1992, which in many cases requires information that is not readily available, and then to assess our historical overall foreign loss position and the applicability of certain foreign tax credits. We are gathering this information and completing these calculations, but we are unable at this time to reasonably estimate our transition tax liability, and therefore we have not recorded any amount for this tax at December 31, 2017.

Note 4. Income Taxes
In addition to the deferred tax remeasurement item discussed above, our income tax benefit includes federal income tax expense on our current period earnings at a full-year blended rate of 24.5%, since the rate reduction in the Act is effective on January 1, 2018. The reconciliation between the U.S. federal statutory income tax rate and the effective income tax rate is presented below.
 Three months endedNine months ended
June 30,June 30,
2021202020212020
U.S. federal statutory income tax rate21.0 %21.0 %21.0 %21.0 %
Adjustments to reconcile to the effective tax rate:
State income taxes, net of federal benefit4.2 4.5 4.2 4.5 
Excess tax (benefits) related to stock-based compensation0 0 (0.3)(0.6)
Tax credits(1.7)(1.7)(1.7)(2.6)
Global Intangible Low-Taxed Income0.5 (0.2)0.5 (0.1)
Foreign income tax rate differential(0.4)(0.5)(0.4)(0.6)
Nondeductible compensation0.6 1.0 0.6 0.6 
Basis difference in foreign investment1.2 0.3 1.2 0 
Valuation allowances0 (0.3)0.7 (0.5)
Reversal of uncertain tax positions0 (2.1)0 (0.5)
Other2.6 1.3 0.5 1.5 
Effective income tax rate28.0 %23.3 %26.3 %22.7 %
 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 %

At December 31, 2017June 30, 2021 and September 30, 2017,2020, the gross liabilities for unrecognized incomeuncertain tax benefitspositions were $3.1$5.0 million and $3.0$4.5 million, respectively.respectively, and are included within Other noncurrent liabilities.
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Note 4.
Borrowing Arrangements

Note 5. Borrowing Arrangements
The components of our long-term debt are presented below.
 June 30,September 30,
 20212020
 (in millions)
4.0% Senior Notes$450.0 $0 
5.5% Senior Notes0 450.0 
Finance leases2.1 2.5 
452.1 452.5 
Less deferred financing costs(5.5)(4.9)
Less current portion(1.0)(1.1)
Long-term debt$445.6 $446.5 

 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
ABL Agreement4.0% Senior Unsecured Notes. On May 28, 2021, we privately issued $450.0 million of 4.0% Senior Unsecured Notes (“Notes”), which mature on June 15, 2029 and bear interest at 4.0%, paid semi-annually on June 15th and December 15th. We capitalized $5.5 million of debt issuance costs, which are being amortized over the term of the Notes using the effective interest method. Proceeds from the Notes, along with cash on hand were used to redeem our previously existing 5.5% Senior Unsecured Notes (“5.5% Notes”). At December 31, 2017,Substantially all of our asset basedU.S. subsidiaries guarantee the Notes, which are subordinate to borrowings under our asset-based lending agreement (“ABL Agreement”) consisted. Based on quoted market prices, which is a Level 1 measurement, the outstanding Notes had a fair value of $461.3 million as of June 30, 2021.
An indenture securing the Notes (“Indenture”) contains customary covenants and events of default, including covenants that limit our ability to incur certain debt and liens. There are no financial maintenance covenants associated with the Indenture. We believe we were in compliance with these covenants at June 30, 2021.

We may redeem some or all of the Notes at any time or from time to time prior to June 15, 2024 at certain “make-whole” redemption prices (as set forth in the Indenture) and on or after June 15, 2024 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, 2024 with the net proceeds of specified equity offerings at specified redemption prices (as set forth in the Indenture). Upon a change in control (as defined in the Indenture), we would be required to offer to purchase the Notes at a price equal to 101% of the outstanding principal amount of the Notes.

5.5% Senior Unsecured Notes. On June 12, 2018, we privately issued $450.0 million of 5.5% Notes which were set to mature in 2026 and bore interest at 5.5%, paid semi-annually. We called the 5.5% Notes effective June 17, 2021 and redeemed the 5.5% Notes with proceeds from the issuance of the Notes and cash on hand. As a result, we incurred $16.7 million in loss on extinguishment of debt, comprised of a $12.4 million call premium and a $4.3 million write-off of the remaining deferred debt issuance costs.

ABL Agreement. The ABL Agreement consists of a $175.0 million revolving credit facility forthat includes up to $225$25.0 million of revolving credit borrowings,in swing line loans and up to $60.0 million of letters of credit. The ABL Agreementcredit and permits us to increase the size of the credit facility by an additional $150$150.0 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.
Borrowings under the ABL Agreement bear interest at a floating rate equal to the LIBOR, plus aan applicable margin ranging from 125200 to 150225 basis points, or a base rate, as defined in the ABL Agreement, plus aan applicable margin ranging from 25100 to 50125 basis points. At December 31, 2017,June 30, 2021, the applicable rate was LIBOR plus 125200 basis points.
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 eligible inventories, less certain reserves. Prepayments may be made at any time with no penalty.

11

The ABL Agreement terminates on July 13, 2021. We pay29, 2025 and includes 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, 2021 data was $145.1 million as reduced by outstanding letters of credit swap contract liabilitiesof $15.0 million and accrued fees and expenses of $19.8 million, was $96.3$1.7 million.

Term Loan. On November 25, 2014,Note 6. Derivative Financial Instruments
In connection with the acquisition of Singer Valve in 2017, we loaned U.S. dollar-denominated 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”).U.S. dollar-Canadian dollar swap contract with the Canadian subsidiary and an offsetting Canadian dollar-U.S. dollar swap with a domestic bank. The proceeds from the Term Loan, along 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 ratecurrency 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.
expire in February 2022. We have not designated our interest rate swap contractsthese swaps as cash flow hedges of our future interest payments and electedthus we include the changes in their fair values in earnings to applyoffset the “shortcut” method of assessing hedge effectiveness. As a result, thecurrency gains and losses onassociated with the intercompany loan. The values of our currency swap contracts are reported as a componentwere liabilities of other comprehensive loss$1.6 million and $0.2 million at June 30, 2021 and September 30, 2020, respectively, and are reclassified into interest expense as the related interest payments are made. During the quarters ended December 31, 2017included in Other current liabilities and December 31, 2016, we included $0.4 million and $0.6 million of such interest expense in income from continuing operations,Other noncurrent liabilities, respectively.
The fair values of the swap contracts are presented below.
Note 7. Retirement Plans
 December 31, September 30,
 2017 2017
 (in millions)
Interest rate swap contracts, designated as cash flow hedges:   
Other current liabilities$0.7
 $1.2
Other noncurrent 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 current and noncurrent portions are based on calculated cash flows using publicly available interest rate forward rate yield curve information, but amounts due at the actual settlement dates are dependent on actual rates in effect at the settlement dates and may differ significantly from amounts shown above.

Note 6.
Retirement Plans
The components of net periodic benefit cost for our pension plans are presented below.
Three months endedNine months ended
June 30,June 30,
 2021202020212020
 (in millions)
Service cost$0.4 $0.4 $1.2 $1.2 
Pension costs (benefits) other than service:
Interest cost2.5 2.8 7.5 8.4 
Expected return on plan assets(3.9)(4.2)(11.7)(12.6)
Amortization of actuarial net loss0.6 0.7 1.8 2.0 
Pension benefits other than service(0.8)(0.7)(2.4)(2.2)
Net periodic benefit$(0.4)$(0.3)$(1.2)$(1.0)
 Three months ended
 December 31,
 2017 2016
 (in millions)
Service cost$0.5
 $0.5
Pension costs other than service:   
Interest cost3.6
 3.6
Expected return on plan assets(4.2) (4.3)
Amortization of actuarial net loss0.8
 1.0
 0.2
 0.3
Net periodic benefit cost$0.7
 $0.8

The amortization of actuarial losses, net of tax, is recorded as a component of other comprehensive loss.
12
Note 7.

Note 8. Stock-based Compensation Plans
We have grantedgrant various forms of stock-based compensation, including stock options,market-based restricted stock units (“MRSUs”), restricted stock units, stock options and both cash-settled and stock-settled performance-based restricted stock units (“PRSUs”) under our Amended and Restated 2006 Mueller Water Products, Inc. Stock Incentive Plan (the “2006 Stock Plan”)., Phantom Plan instruments under our Mueller Water Products, Inc. 2012 Phantom Plan, and Employee stock purchase plan instruments under our 2006 Employee Stock Purchase Plan. Grants during the nine months ended June 30, 2021 are as follows:
A PRSU
Units grantedWeighted average grant date fair value per instrumentTotal grant date fair value
(in millions)
Quarter ended December 31, 2020
    MRSUs234,199 $15.39 $3.6 
    Phantom Plan instruments180,987 11.86 2.1 
    Restricted stock units129,081 11.86 1.5 
    Non-qualified stock options423,405 3.05 1.3 
    PRSUs: 2020 award60,019 11.86 0.7 
                  2019 award84,483 11.86 1.0 
    Employee stock purchase plan instruments40,286 1.92 0.1 
Quarter ended March 31, 2021
    MRSUs4,187 $14.26 $0.1 
    Phantom Plan instruments1,254 11.94 0 
    Restricted stock units82,565 12.81 1.1 
    Non-qualified stock options8,115 3.08 0 
    Employee stock purchase plan instruments35,325 2.24 0.1 
Quarter ended June 30, 2021
    Phantom Plan instruments3,567 $14.29 $0.1 
    Restricted stock units7,127 13.32 0.1 
    Employee stock purchase plan instruments32,916 2.52 0.1 
$11.9 

An MRSU award represents a target number of units that may be paid out at the end of a multi-yearthree-year award cycle based on a calculation of our relative total shareholder return (“TSR”) performance as compared with a selected peer group's TSR. Settlements, in our common shares, will range from 0 to 2 times the number of MRSUs granted, depending on our TSR performance relative to that of the peer group.
Compensation expense attributable to MRSUs is based on the fair value of the awards on their respective grant dates, as determined using a Monte Carlo model. The assumptions used to determine the grant date fair value are indicated below.
January 27, 2021December 2, 2020
Variables used in determining grant date fair value:
Dividend yield1.84 %1.77 %
Risk-free rate0.16 %0.21 %
Expected term (in years)2.672.83

The expected dividend yield is based on our estimated annual dividend and our stock price history at the grant date. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield in effect at the grant date with a term equal to the expected term. The expected term represents the average period of time the units are expected to be outstanding.
At June 30, 2021, the outstanding Phantom Plan instruments had a fair value of $14.42 per instrument and our liability for Phantom Plan instruments was $2.7 million and is included within Other current liabilities and Other noncurrent liabilities.
13

Stock options generally vest on each anniversary date of the original grant ratably over three years. Compensation expense attributed to stock options is based on the fair value of the awards on their respective grant dates, as determined using a Black-Scholes model. The assumptions used to determine the grant date fair value are indicated below.
January 27, 2021December 2, 2020
Variables used in determining grant date fair value:
Dividend yield2.01 %2.01 %
Risk-free rate0.66 %0.66 %
Expected term (in years)6.006.00

The expected dividend yield is based on our estimated annual dividend and our stock price history at the grant date. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield in effect at the grant date with a term equal to the expected term. The expected term represents the average period of time the options are expected to be outstanding.
A PRSU award consists of a number of units that may be paid out at the end of a three-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 designatedtwo following years. SettlementSettlements, in our common shares, will range from zero0 to two2 times the number of PRSUs granted, depending on our financial performance againstrelative to the targets. As determined at the date of award, PRSUs may settle in cash-value equivalent of, or directly in, shares of our common stock.
We awarded 171,288 stock-settled PRSUs in the quarter ended December 31, 2017 scheduled to settle in three years.
We issued 146,061 shares and 263,410did not issue any shares of common stock during the quartersthree months ended December 31, 2017 and 2016, respectively,June 30, 2021. We issued 103,058 shares of common stock during the nine months ended June 30, 2021 to settle PRSUs.
In additionPRSUs during the period. Additionally, we issued 2,324 and 221,873 shares of common stock to the PRSU activity, 213,532settle restricted stock units vested during the quarter ended December 31, 2017.
We have granted cash-settled Phantom Plan instruments under the Mueller Water Products, Inc. Phantom Plan (“Phantom Plan”). At December 31, 2017, the outstanding Phantom Plan instruments had a fair valueand issued 0 and 108,950 shares of $12.53 per instrument and our liability for Phantom Plan instruments was $1.2 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 Plancommon stock to settle stock options exercised during the three and nine months ended December 31, 2017 as follows.June 30, 2021, respectively.
  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$3.4 million and $2.7$1.8 million during the three months ended December 31, 2017June 30, 2021 and 2016,2020, respectively, and $8.4 million and $5.0 million during the nine months ended June 30, 2021 and 2020, respectively. At December 31, 2017,June 30, 2021, there was approximately $8.9$11.5 million of unrecognized compensation expense related to stock-based compensation arrangements and 185,270there were 199,994 PRSUs that have been awarded for the 20192021 and 20202022 performance periods for which performance goals have not been set.goal achievement cannot yet be determined.
We excluded 70,996131,178 and 323,010 of474,423 stock-based compensation instruments from the calculations of diluted earnings per share for the quartersthree months ended December 31, 2017June 30, 2021 and 2016,2020, respectively, and 566,666 and 274,009 for the nine months ended June 30, 2021 and 2020, respectively, since their inclusion would have been antidilutive.
14

Note 9. Supplemental Balance Sheet Information
Selected supplemental asset information is presented below.
 June 30,September 30,
 20212020
 (in millions)
Inventories, net:
Purchased components and raw material$102.2 $87.3 
Work in process31.2 32.4 
Finished goods43.5 42.8 
       Total inventories, net$176.9 $162.5 
Other current assets:
Prepaid expenses$10.7 $10.9 
Non-trade receivables7.1 8.5 
Workers’ compensation reimbursement receivable1.1 0 
Maintenance and repair supplies and tooling2.7 3.7 
Income taxes0.6 5.5 
Other current assets4.0 0.4 
       Total other current assets$26.2 $29.0 
Property, plant and equipment, net:
Land$6.1 $6.2 
Buildings81.6 80.4 
Machinery and equipment428.4 406.3 
Construction in progress76.0 57.4 
     Total property, plant and equipment592.1 550.3 
Accumulated depreciation(316.8)(296.5)
     Total property, plant and equipment, net$275.3 $253.8 
Other noncurrent assets:
Operating lease right-of-use assets$24.0 $25.6 
Maintenance and repair supplies and tooling19.1 17.5 
Workers’ compensation reimbursement receivable3.2 0 
Pension assets4.2 0.9 
Note receivable1.8 1.8 
Deferred financing fees1.4 1.3 
Other noncurrent assets5.2 4.2 
     Total other noncurrent assets$58.9 $51.3 

15

Selected supplemental liability information is presented below.
 June 30,September 30,
 20212020
 (in millions)
Other current liabilities:
Compensation and benefits$38.9 $32.8 
Customer rebates16.0 9.6 
Warranty accrual3.1 7.2 
Deferred revenues7.4 5.6 
Refund liability5.5 4.3 
Taxes other than income taxes4.7 3.9 
Operating lease liabilities3.8 4.0 
Workers’ compensation accrual3.6 2.7 
CARES Act payroll tax liabilities3.6 0 
Restructuring liabilities2.6 2.8 
Environmental liabilities1.2 1.2 
Interest payable1.7 7.3 
Income taxes payable0 0.2 
Other9.2 5.0 
     Total other current liabilities$101.3 $86.6 
Other noncurrent liabilities:
Operating lease liabilities$21.8 $23.3 
Warranty accrual8.0 7.2 
Transition tax liability4.7 5.2 
Uncertain tax position liability5.0 4.5 
NMTC liability3.9 0 
Workers’ compensation accrual8.5 3.8 
Asset retirement obligation3.6 3.5 
CARES Act payroll tax liabilities3.6 3.3 
Deferred development grant2.5 2.5 
Other3.2 3.0 
     Total other noncurrent liabilities$64.8 $56.3 

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.
The following table summarizes information concerning our goodwill balance for the nine months ended June 30, 2021, in millions.

Note 8.Balance at September 30, 2020
Supplemental Balance Sheet Information
$
Selected supplemental balance sheet information is presented below.
 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

99.8 
Note 9.Acquisition of i2O Water Ltd
Segment Information
13.6 
Effects of changes in foreign currency exchange rates2.6 
Balance at June 30, 2021$116.0 

16

Note 10. Segment Information
Summarized financial information for our segments is presented below. Net sales and operating income associated with certain products have been reclassified as Technologies segment items to conform to the current period presentation.
Three months endedNine months ended
June 30,June 30,
2021202020212020
 (in millions)
Net sales, excluding intercompany:
Infrastructure$287.3 $209.4 $750.1 $641.6 
Technologies23.2 19.1 65.3 57.2 
$310.5 $228.5 $815.4 $698.8 
Operating income (loss):
Infrastructure$64.0 $43.6 $158.2 $129.4 
Technologies(2.7)(3.6)(8.8)(10.0)
Corporate(18.6)(20.0)(45.5)(43.3)
$42.7 $20.0 $103.9 $76.1 
Depreciation and amortization:
Infrastructure$13.0 12.2 $38.2 $36.3 
Technologies2.1 2.3 6.2 6.4 
Corporate0.1 0 0.2 0.1 
$15.2 $14.5 $44.6 $42.8 
Strategic reorganization and other (credits) charges:
Infrastructure$0.2 $0 $(0.4)$0.4 
Technologies0 0 0 0 
Corporate3.7 8.6 6.5 11.5 
$3.9 $8.6 $6.1 $11.9 
Capital expenditures:
Infrastructure$13.8 $13.4 $43.3 $49.1 
Technologies1.2 0.5 2.7 1.8 
Corporate0 0 0.1 0.3 
$15.0 $13.9 $46.1 $51.2 
Infrastructure disaggregated net revenues:
Central$71.1 $57.4 $192.1 $163.6 
Northeast52.9 38.7 141.8 135.3 
Southeast57.6 35.6 144.1 119.8 
West71.2 50.7 188.1 154.3 
United States252.9 182.4 666.2 573.0 
Canada27.9 20.7 60.4 47.3 
Other international locations6.5 6.3 23.5 21.3 
$287.3 $209.4 $750.1 $641.6 
Technologies disaggregated net revenues:
Central$5.7 $5.1 $17.3 $13.6 
Northeast3.0 4.1 10.0 15.0 
Southeast8.5 5.2 22.3 16.6 
West4.8 3.7 12.7 8.9 
United States22.0 18.1 62.2 54.1 
Canada0.5 0.3 0.9 1.2 
Other international locations0.7 0.7 2.3 1.9 
$23.2 $19.1 $65.3 $57.2 

17
 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 11. Accumulated Other Comprehensive Loss
Note 10.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is presented below.
  Pension, net of taxForeign currency translationTotal
(in millions)
Balance at September 30, 2020$(32.7)$8.0 $(24.7)
Current period other comprehensive income1.4 8.5 9.9 
Balance at June 30, 2021$(31.3)$16.5 $(14.8)

Note 12. 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.matters, unless otherwise indicated below. 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 (“JCI”), sold our businesses to a previous owner in August 1999, TycoJCI 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’sJCI’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, TycoJCI has engaged in multiple corporate restructurings, split-offs and divestitures. While none of these transactions directly affects the indemnification obligations of the TycoJCI indemnitors under the 1999 acquisition agreement, the result of such transactions is that the assets of, and control over, such TycoJCI indemnitors has changed. Should any of these TycoJCI 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 a 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, which was sold in 2012, 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’sthe Environmental Protection Agency’s remediation costs, the number and financial viability of the other PRPs (there are four other PRPs currently) and the determination of the final allocation of the costs among the PRPs. Accordingly, becauseSince the amountamounts of such costs cannot be reasonably estimated at this time, no amounts hadhave been accrued for this matter at December 31, 2017.June 30, 2021.
18

Walter Energy. Each memberOn November 18, 2019, we paid approximately $22.2 million to the Internal Revenue Service in final settlement of thea tax dispute related to our former parent company, Walter Energy, consolidated group, which included us through December 14, 2006, is jointly and severally liable for the federal income tax liability of each other member of the consolidated group for any yearInc.
Mass Shooting Event at our Mueller Co. Facility in Albertville, Alabama. On June 15, 2021, we experienced a mass shooting event at our Mueller Co. facility in Albertville, Alabama, in which it is a member of the group at any time during such year. Accordingly, we could be liable intwo employees were killed and two employees were injured. Various workers’ compensation claims arising from the event anyhave been made to date, and we anticipate that additional claims may be made, and that liability under such federal income tax liability is incurred, and not discharged, by any other member of the Walter Energy consolidated group for any period during which we were included in the Walter Energy consolidated group.
Walter Energy effectively controlled all of our tax decisions for periods during which we were a member of the Walter Energy consolidated group for federal income tax purposes and certain combined, consolidated or unitary state and local income tax groups. Under the terms of an income tax allocation agreement between us and Walter Energy, dated May 26, 2006, we generally compute our tax liability on a stand-alone basis, but Walter Energy has sole authority to respond to and conduct all tax proceedings (including tax audits) relating to our federal income and combined state tax returns, to file all such tax returns on our behalf and to determine the amount of our liability to (or entitlement to payment from) Walter Energy for such previous periods.
As described further below, the IRS is currently alleging that Walter Energy owes substantial amounts for prior taxable periods (specifically, 1983-1994, 2000-2002 and 2005). As a matter of law, we are jointly and severally liable for any final tax determination, which means we would be liable in the event Walter Energy is unable to pay any amounts owed.

In July 2015, Walter Energy filed a petition for reorganization under Chapter 11 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 proceeding to determine whether we could be liable for all or a portion of this federal income tax liability if it is incurred, and not discharged, for any period during which we were included in 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 million ($229.1 million of which the IRS claims, is entitled to priority status in the Chapter 11 Case).  The IRS asserts that its claim is based on an alleged settlement of Walter Energy’s tax liability for the 1983-1995 taxable periods in connection with Walter Energy’s prior bankruptcy proceeding in the United States Bankruptcy Court for the Middle District of Florida.  In the proof of claim, the IRS included an alternative calculation in the event the alleged settlement of the prior bankruptcy court is found to be non-binding, which provides for a claim by the IRS in an aggregate amount of $860.4 million ($535.3 million of which the IRS claims is entitled 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’s financial position, but such potential difference could be material to its results of operations in a future reporting period.
According to a Form 8-K filed by Walter Energy with the SEC on April 1, 2016 (“Walter April 2016 Filing”), on March 31, 2016, Walter Energy closed on the sale of substantially all of Walter Energy’s Alabama assets pursuant to the provisions of Sections 105, 363 and 365 of the Bankruptcy Code.  The Walter April 2016 Filing further stated that Walter Energy would have no further material business operations after April 1, 2016 and Walter Energy was evaluating its 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.
On February 2, 2017, at the request of Walter Energy, the Bankruptcy Court for the Northern District of Alabama signed an order converting the Chapter 11 Case to a liquidation proceeding 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, 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.
The COVID-19 Pandemic. The pandemic has caused, and is likely to continue to cause, severe economic, market and other disruptions to the U.S. and global economies. We have taken action and continue to counter such disruption and work to protect the safety of our production workers as essential workers at our various manufacturing plants, distribution centers and research and development centers. We are uncertain of the potential magnitude or duration of the 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 pandemic affects our results will depend on future developments, including COVID-19 variants, the outbreak could result in material effects to our future financial position, results of operations, cash flows and liquidity.
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 saledivestitures of assets and the divestiture of businesses, such as the divestitures ofsubsidiaries, 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 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 businessfinancial position, results of operations, cash flows or prospects.liquidity.
Note 12.
Note 13. Subsequent Events
On January 24, 2018,July 29, 2021, our boardBoard of directorsDirectors declared a dividend of $0.05$0.0550 per share on our common stock, payable on or about FebruaryAugust 20, 20182021 to stockholders of record at the close of business on February 9, 2018.August 10, 2021.


19

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, restructuring efficiencies and warranty charges. Forward-looking statements are based on certain assumptions and assessments made by us in light of ourthe Company based on 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 COVID-19 pandemic on the Company’s operations and results, including effects on the financial health of customers (including collections), 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; unexpected or greater than expected increases in costs of raw materials and purchased components; 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 restructuring and consolidation activities and 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; as well as 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 are only as of the date they are made and do not guarantee future performance. 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. TheYou are advised to review any further disclosures the Company does not have any intention or obligation to update forward-looking statements, except as required by law.makes in subsequent Forms 10-K, 10-Q, 8-K and other reports filed with the U.S. Securities and Exchange Commission.
Unless the context indicates otherwise, whenever we refer to a particular year, we mean our fiscal year ended or ending September 30 in that particular calendar year. We manage our businesses and report operations through two business segments, Infrastructure and Technologies, based largely on the products sold and the customers served.
Overview
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 expect our two primary end markets, repair and replacement of water infrastructure driven by municipal spending and new water infrastructure installation driven by residential construction to grow in 2018. We expect the residential construction market to grow faster than municipal spending.
Infrastructure
We estimate approximately 60%60-65% of Infrastructure’s 2017our 2020 net sales were for repair and replacement directly related to municipal water infrastructure spending, approximately 30%25-30% were related to residential construction activity and approximatelyless than 10% were related to natural gas utilities.utilities spending.
Infrastructure announced 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 priorexpect the operating environment during the remainder of our fiscal year 2021 to continue to be very challenging due to the effective dateuncertainty around the depth and duration of the price increases.pandemic, which has accelerated and may continue to accelerate inflation and global supply chain disruptions. We anticipate that growth in the residential construction end market will continue to help offset anticipated challenges in the project-related portion of the municipal market. In July 2021, Blue Chip Economic Indicators forecasted a 16% increase in housing starts for calendar 2021 compared to the prior year primarily due to the low interest rate environment in the United States.
20

We have continued to incur additional costs to address the pandemic as discussed herein, 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 respond to the pandemic. All of our facilities are operational and our teams have worked effectively to address the few temporary closures we have experienced due to the pandemic. The last such closure was in August 2020. The pandemic also caused supply chain disruption that has resulted in higher costs in the manufacture of our products. We expect these conditions to persist in the near term and may worsen until the pandemic abates.
Infrastructure
In December 2018, we completed our acquisition of Krausz Industries Development Ltd. and subsidiaries (“Krausz”), a manufacturer of pipe couplings, grips and clamps with operations in the United States and Israel. During the three months ended March 31, 2021, we aligned the consolidation of Krausz in the consolidated financial statements which previously included results on a one-month reporting lag. The impact of the elimination of the reporting lag during the nine months ended June 30, 2021 resulted in an increase of $6.0 million to net sales and $1.4 million in operating income.
In July 2014, Infrastructure acquired a 49% ownership interest in an industrial valve joint venture for $1.7 million. As a result of substantive control features in the operating agreement, all of the joint venture’s assets, liabilities and results of operations were included in our consolidated financial statements. Infrastructure acquired the remaining 51% ownership interest in the business in October 2019.
Technologies
The municipal market is the key end market for Technologies. These businesses areOur Technologies segment is typically project-oriented and dependdependent on customerour customers’ adoption of theirour technology-based products and services. Mueller Systems
On June 14, 2021, we acquired all the outstanding capital stock of i20 Water Ltd, a provider of pressure management solutions to more than 100 water companies in 45 countries for $19.7 million, net of cash acquired. i2O Water Ltd is benefiting from its recent introduction of new, longer-range radio capabilities, and its growth strategy is focused onorganized under the AMI segmentlaws of the market. Mueller Systems’ 2018 first quarter AMI backlog was lower at December 31, 2017 than at December 31, 2016. Echologics hadUnited Kingdom. The purchase agreement provides for customary final adjustments, including a greater number of projects under contract at at December 31, 2017 than at December 31, 2016.net working capital adjustment, which we expect to occur in 2021.

21

Results of Operations
Three Months Ended December 31, 2017June 30, 2021 Compared to Three Months Ended December 31, 2016
 Three months ended December 31, 2017
 Infrastructure Technologies Corporate   Total    
 (in millions)
Net sales$160.1
 $18.2
 $—
 $178.3
Gross profit$52.5
 $2.9
 $—
 $55.4
Operating expenses:       
Selling, general and administrative24.4
 7.5
 7.9
 39.8
Gain on sale of idle property—
 —
 (9.0) (9.0)
Strategic reorganization and other charges—
 0.1
 3.8
 3.9
 24.4
 7.6
 2.7
 34.7
Operating income (loss)$28.1
 $(4.7) $(2.7) 20.7
Pension costs other than service      0.2
Interest expense, net      5.2
Income before income taxes      15.3
Income tax benefit      (39.8)
Income from continuing operations      $55.1
        
 Three months ended December 31, 2016
 Infrastructure Technologies Corporate Total
 (in millions)
Net sales$146.3
 $20.9
 $—
 $167.2
Gross profit$47.6
 $4.2
 $—
 $51.8
Operating expenses:       
Selling, general and administrative21.3
 6.4
 8.6
 36.3
Other charges0.1
 —
 1.2
 1.3
 21.4
 6.4
 9.8
 37.6
Operating income (loss)$26.2
 $(2.2) $(9.8) 14.2
Pension costs other than service      0.3
Interest expense, net      6.4
Income before income taxes      7.5
Income tax expense      2.1
Income from continuing operations      $5.4
June 30, 2020
 Three months ended June 30, 2021
 InfrastructureTechnologiesCorporate  Total    
 (in millions)
Net sales$287.3 $23.2 $— $310.5 
Gross profit101.1 4.3 — $105.4 
Operating expenses:
Selling, general and administrative36.9 7.0 14.9 58.8 
Strategic reorganization and other charges0.2 — 3.7 3.9 
       Total operating expenses37.1 7.0 18.6 62.7 
Operating income (loss)$64.0 $(2.7)$(18.6)42.7 
Other expenses (income):
Loss on early extinguishment of debt16.7 
Pension benefit other than service(0.8)
Interest expense, net6.8 
Income before income taxes20.0 
Income tax expense5.6 
Net income$14.4 
 Three months ended June 30, 2020
 InfrastructureTechnologiesCorporateTotal
 (in millions)
Net sales$209.4 $19.1 $— $228.5 
Gross profit73.3 2.4 — $75.7 
Operating expenses:
Selling, general and administrative29.7 6.0 11.4 47.1 
Strategic reorganization and other charges— — 8.6 8.6 
        Total operating expenses29.7 6.0 20.0 55.7 
Operating income (loss)$43.6 $(3.6)$(20.0)20.0 
Other expenses (income):
Pension benefit other than service(0.7)
Interest expense, net6.1 
Income before income taxes14.6 
Income tax expense3.4 
Net income$11.2 
Consolidated Analysis
Net sales for the quarterthree months ended December 31, 2017June 30, 2021 increased $11.1$82.0 million or 35.9 percent to $178.3$310.5 million from $167.2$228.5 million duein the comparable prior year period. This increase was primarily toa result of increased shipment volumes includingat both Infrastructure and Technologies compared to the addition of Singer Valve,prior year and improvedhigher pricing at Infrastructure, which were partially offset by volume decline at Technologies.Infrastructure.
Gross profit for the quarterthree months ended December 31, 2017June 30, 2021 increased $3.6$29.7 million to $55.4$105.4 million from $51.8$75.7 million in the prior year period. Gross profit increased primarily as a result of increased volumes and higher pricing. Partially offsetting the increase in gross profit were higher manufacturing costs due to inflation. Gross margin was 33.9% for the three months ended June 30, 2021 and improved 80 basis points compared to 33.1% in the prior year period.
22

Selling, general and administrative expenses (“SG&A”) for the three months ended June 30, 2021 increased $11.7 million to $58.8 million from $47.1 million in the prior year period primarily as a result of new product development and information technology expenses, higher personnel-related expenses including sales commissions associated with higher net sales and orders, incentive compensation and stock-based compensation. Additionally, travel and entertainment expenses were higher in the current year period, and we benefited from temporary reduction in personnel expenses due to increased shipment volumes, improved pricingfurloughs and Infrastructure's improved operating efficiencies and other manufacturing cost savings, partially offset by increased material costs. Gross margin increased to 31.1% for the quarter ended December 31, 2017 compared to 31.0%temporary pay cuts in the prior year period.
Selling, general and administrative expenses (“SG&A”) for the quarter ended December 31, 2017 increased to $39.8 million from $36.3 million in the prior year period due primarily to the acquisition of Singer Valve during the second quarter of last year and higher personnel-related expenses. SG&A as a percentage of net sales was 22.3%18.9% and 20.6% in the quarterthree months ended December 31, 2017June 30, 2021 and 21.7%2020, respectively.
Strategic reorganization and other charges for the three months ended June 30, 2021 were $3.9 million, which primarily consisted of expenses associated with the Albertville tragedy, as well as termination benefits associated with the previously announced closures of our facilities in Aurora, Illinois and Surrey, British Columbia, Canada and acquisition transaction costs. Strategic reorganization and other charges for the prior year period.three months ended June 30, 2020 of $8.6 million included an accrual related to a litigation settlement, facility relocation expenses and senior executive severance costs.

Interest expense, net declined $1.2increased $0.7 million in the quarterthree months ended December 31, 2017June 30, 2021 compared to the prior year period.period primarily as a result of the timing of the issuance of the 4.0% Senior Notes and the extinguishment of the 5.5% Senior Notes. The components of interest expense, net are provided below.
Three months ended
June 30,
20212020
 (in millions)
5.5% Notes$5.2 $6.2 
4.0% Notes1.7 — 
Deferred financing costs amortization0.3 0.2 
ABL Agreement0.2 0.2 
Capitalized interest(0.6)(0.5)
Other interest cost0.1 0.1 
6.9 6.2 
Interest income(0.1)(0.1)
Interest expense, net$6.8 $6.1 

 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 income tax rate is presented below.
 Three months ended
June 30,
20212020
U.S. federal statutory income tax rate21.0 %21.0 %
Adjustments to reconcile to the effective tax rate:
State income taxes, net of federal benefit4.2 4.5 
Tax credits(1.7)(1.7)
Global Intangible Low-taxed Income0.5 (0.2)
Foreign income tax rate differential(0.4)(0.5)
Nondeductible compensation0.6 1.0 
Basis difference in foreign investment1.2 0.3 
Valuation allowance— (0.3)
Reversal of uncertain tax positions— (2.1)
Other2.6 1.3 
Effective income tax rate28.0 %23.3 %
 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.
Segment Analysis
Infrastructure
Net sales for the quarterthree months ended December 31, 2017June 30, 2021 increased 9.4%$77.9 million or 37.2 percent to $160.1$287.3 million compared to $209.4 million in the prior year period. This increase was primarily a result of increased shipment volume and higher pricing across most of our Infrastructure product lines.
23

Gross profit for the three months ended June 30, 2021 increased to $101.1 million from $73.3 million in the prior year period primarily due to increased volumes and higher pricing, which were partially offset by inflation effecting Cost of sales. Gross margin was 35.2% for the three months ended June 30, 2021 and was 35.0% in the prior year period.
SG&A for the three months ended June 30, 2021 increased to $36.9 million from $29.7 million in the prior year period. This increase was primarily the result of higher personnel-related expenses, including sales commissions associated with higher net sales and orders, and incentive compensation, as well as information technology spending. Additionally, travel and entertainment expenses were higher in the current year period, and we benefited from the temporary reduction in personnel expenses due to furloughs and temporary pay reductions in the prior year period. SG&A as a percentage of net sales was 12.8% and 14.2%, respectively, for the three months ended June 30, 2021 and 2020.
Technologies
Net sales for the three months ended June 30, 2021 increased $4.1 million or 21.5% to $23.2 million from $19.1 million in the prior year period, primarily due to increased shipment volumes of our metering products.
Gross profit for the three months ended June 30, 2021 was $4.3 million compared to $2.4 million in the prior year period. Gross margin percentage was 18.5% and 12.6%, in the three months ended June 30, 2021 and 2020, respectively.
SG&A increased to $7.0 million from $6.0 million in the prior year period primarily due to increased new product development costs. SG&A as a percentage of net sales was 30.2% and 31.4% for the three months ended June 30, 2021 and 2020, respectively.
Corporate
SG&A was $14.9 million and $11.4 million in the three months ended June 30, 2021 and 2020, respectively, which was primarily the result of personnel-related expenses including stock-based compensation and incentive compensation. Additionally, travel and entertainment expenses were higher in the current year period as we benefited from the temporary reduction in personnel expenses due to furloughs and temporary pay cuts in the prior year period.

24

Nine Months Ended June 30, 2021 Compared to Nine Months Ended June 30, 2020
 Nine months ended June 30, 2021
 InfrastructureTechnologiesCorporate  Total    
 (in millions)
Net sales$750.1 $65.3 $— $815.4 
Gross profit261.1 11.1 — $272.2 
Operating expenses:
Selling, general and administrative103.3 19.9 39.0 162.2 
Strategic reorganization and other (credits) charges(0.4)— 6.5 6.1 
         Total operating expenses102.9 19.9 45.5 168.3 
Operating income (loss)$158.2 $(8.8)$(45.5)103.9 
Other expenses (income):
Loss on early extinguishment of debt16.7 
Pension benefit other than service(2.4)
Interest expense, net19.0 
Income before income taxes70.6 
Income tax expense18.6 
Net income$52.0 
 Nine months ended June 30, 2020
 InfrastructureTechnologiesCorporateTotal
 (in millions)
Net sales$641.6 $57.2 $— $698.8 
Gross profit225.4 8.9 — $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 
         Total operating expenses96.0 18.9 43.3 158.2 
Operating income (loss)$129.4 $(10.0)$(43.3)76.1 
Other expenses (income):
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 
Consolidated Analysis
Net sales for the nine months ended June 30, 2021 increased $116.6 million or 16.7 percent to $815.4 million from $698.8 million primarily due to increased shipment volumes across most of our product lines, higher pricing and a result of $6.0 million in Krausz sales recorded during the three months ended March 31, 2021 by eliminating the one-month reporting lag.
Gross profit for the nine months ended June 30, 2021 increased $37.9 million to $272.2 million from $234.3 million in the prior year period, primarily due to increased shipment volumes and higher pricing. These increases were partially offset by inflation and lesser expenditures associated with the pandemic, including voluntary emergency paid leave and other employee costs as well as additional sanitation and cleaning fees, and a $2.4 million inventory write-off recorded during the nine months ended June 30, 2021 associated with the announcement of our plant closures in Aurora, Illinois and Surrey, British Columbia, Canada. Gross margin was 33.4% for the nine months ended June 30, 2021 compared to 33.5% in the prior year period.
25

Selling, general and administrative expenses (“SG&A”) for the nine months ended June 30, 2021 increased to $162.2 million from $146.3 million in the prior year period primarily due to an increase in personnel-related expenses, including incentive compensation, an increase in sales commissions associated with higher net sales and orders, and stock-based compensation. Additionally, SG&A increased as a result of inflation and new product development and information technology spending. SG&A as a percentage of net sales was 19.9% and 20.9% in the nine months ended June 30, 2021 and 2020, respectively.
Strategic reorganization and other charges for the nine months ended June 30, 2021 were $6.1 million, which primarily related to the Albertville tragedy, and termination benefits associated with our announced plan closures in Aurora, Illinois and Surrey, British Columbia, Canada, as well as, legal and professional service expenses, partially offset by a one-time settlement gain in connection with an indemnification from a previously owned property. Strategic reorganization and other charges for the nine months ended June 30, 2020 were $11.9 million primarily related to a litigation settlement accrual, previously announced facility closures and legal and professional service expenses.
26

Interest expense, net declined $0.5 million in the nine months ended June 30, 2021 compared to the prior year period primarily due to an increase in capitalized interest, partially offset by an increase in interest expense as a result of the timing of the redemption of the 5.5% Notes and the issuance of the 4.0% Notes, as well as a decline in interest income. The components of net interest expense are provided below.

Nine months ended
June 30,
20212020
 (in millions)
5.5% Notes$17.6 $18.6 
4.0% Notes1.7 — 
Deferred financing costs amortization0.8 0.9 
ABL Agreement0.7 0.4 
Capitalized interest(1.7)0.2 
Other interest cost0.3 0.4 
   Interest expense19.4 20.5 
Interest income(0.3)(1.0)
Interest expense, net$19.0 $19.5 

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

 Nine months ended
June 30,
20212020
U.S. federal statutory income tax rate21.0 %21.0 %
Adjustments to reconcile to the effective tax rate:
State income taxes, net of federal benefit4.2 4.5 
Excess tax (benefits) related to stock-based compensation(0.3)(0.6)
Tax credits(1.7)(2.6)
Global Intangible Low-taxed Income0.5 (0.1)
Foreign income tax rate differential(0.4)(0.6)
Nondeductible compensation0.6 0.6 
Basis difference in foreign investment1.2 — 
Valuation allowance0.7 (0.5)
Reversal of uncertain tax positions— (0.5)
Other0.5 1.5 
Effective income tax rate26.3 %22.7 %

Segment Analysis
Infrastructure
Net sales for the nine months ended June 30, 2021 increased $108.5 million or 16.9 percent to $750.1 million compared to $641.6 million in the prior year period primarily due to higher shipment volumes across most of our product lines, higher pricing and the additionresult of Singer Valve and favorable pricing.$6.0 million in Krausz sales recorded during the three months ended March 31, 2021 by eliminating the one-month reporting lag.
Gross profit for the quarternine months ended December 31, 2017June 30, 2021 increased $35.7 million to $52.5$261.1 million from $47.6 million in the prior year period due to increased shipment volumes, improved operating efficiencies and other manufacturing cost savings. Gross margin increased to 32.8% for the quarter ended December 31, 2017 compared to 32.5% in the prior year period.

SG&A for the quarter ended December 31, 2017 increased to $24.4 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$225.4 million in the prior year period primarily due to lower AMIincreased shipment volumes, higher pricing, improved manufacturing performance and the benefit from the elimination of the Krausz one-month reporting lag. These increases were partially offset by higher costs associated with inflation, a $2.4 million Inventory write-off associated with the announcement of the closure of our Aurora, Illinois and Surrey, British Columbia, Canada facilities and $2.9 million in expenses related to the pandemic, including voluntary emergency paid leave and other employee costs as well as additional sanitation and cleaning fees. Gross margin was 34.8% for the nine months ended June 30, 2021 and was 35.1% in the prior year period.
27

SG&A for the nine months ended June 30, 2021 increased to $103.3 million from $95.6 million in the prior year period. This increase was primarily a result of an increase in personnel-related expenses, including higher sales commissions as a result of higher net sales and orders, incentive compensation and stock-based compensation. Additionally, SG&A increased as a result of inflation, information technology spending and new product development. Partially offsetting these increases was a temporary expense reduction of $2.9 million related to the pandemic, including reduced travel, trade shows and events. SG&A as a percentage of net sales was 13.8% and 14.9% for the nine months ended June 30, 2021 and 2020, respectively.
Technologies
Net sales for the nine months ended June 30, 2021 increased $8.1 million or 14.2% to $65.3 million from $57.2 million in the prior year period, primarily due to higher shipment volumes of our metering and leak detection sales.detection-related products.
Gross profit infor the quarternine months ended December 31, 2017June 30, 2021 was $2.9$11.1 million compared to $4.2$8.9 million in the prior year period. Gross margin declined to 15.9%percentage was 17.0% and 15.6% in the quarternine months ended December 31, 2017 compared to 20.1% in the prior year period. These declines were primarily due to lower shipment volumes.June 30, 2021 and 2020, respectively.
SG&A increased to $7.5was $19.9 million and $18.9 million in the quarter ended December 31, 2017 compared to $6.4 million in thecurrent and prior year period due to personnel-related expenses.periods, respectively. The increase was primarily as a result of new product development. SG&A increased to 41.2%as a percentage of net sales was 30.5% and 33.0% for the quarternine months ended December 31, 2017 from 30.6% of net sales in the prior year period.June 30, 2021 and 2020, respectively.
Corporate
SG&A was $7.9$39.0 million and $31.8 million in the quarternine months ended December 31, 2017 compared to $8.6 million in the prior year period.June 30, 2021 and 2020, respectively. The increase was primarily as a result of higher personnel-related expenses including incentive compensation and stock-based compensation expense.
Liquidity and Capital Resources
We had cash and cash equivalents on hand of $348.3$228.6 million at December 31, 2017June 30, 2021 and $96.3$145.1 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, 2021 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, 2021, cash and cash equivalents included $12.1$31.1 million, $11.7 million and $7.2$6.3 million in Israel, Canada and China, respectively.
We expect the recently enacted tax law changes to benefit our liquidity through reductionOn July 29, 2021, we declared a quarterly dividend of $0.0550 per share, payable on or about August 20, 2021, 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 $8.7 million cash outlay.
We repurchaseddid not repurchase any shares of our outstanding common stock for $10 million during the quarter ended December 31, 2017, and we had $180 million remaining onunder our share repurchase authorization at that date.program during the three and nine months ended June 30, 2021 and had $145.0 million remaining under our share repurchase authorization.
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.
Cash flows from operating activities of continuing operations are categorized below.
Nine months ended
June 30,
20212020
 (in millions)
Collections from customers$797.4 $716.2 
Disbursements, other than interest and income taxes(636.3)(586.0)
Walter Energy payment— (22.2)
Interest payments, net(25.2)(24.3)
Income tax payments, net(12.6)(5.9)
Cash provided by operating activities$123.3 $77.8 
 Three months ended
 December 31,
 2017 2016
 (in millions)
Collections from customers$216.1
 $194.6
Disbursements, other than interest and income taxes(211.3) (203.5)
Interest payments, net(4.4) (5.6)
Income tax refunds (payments), net0.1
 (5.4)
Cash provided by (used in) operating activities$0.5
 $(19.9)

Collections from customers were higher during the threenine months ended December 31, 2017June 30, 2021 compared to the prior year period primarily due to the timing of cash receipts and net sales growth.
Increased disbursements, other than interest and income taxes, during the threenine months ended December 31, 2017 reflect higher purchasing activity,June 30, 2021 primarily relate to higher costs for raw materials, and differencesexpenses associated with increased sales. Additionally, we disbursed $22.0 million related to the final settlement of the Walter tax matter in the timing of expenditures.
Income tax payments were lower during the three months ended December 31, 2017 compared to the prior year period because we began the current year quarter with U.S. federal income taxes prepaid.period.

28

Capital expenditures were $6.4$46.1 million in the threenine months ended December 31, 2017 compared to $4.2June 30, 2021 and $51.2 million in the prior year period. We estimate 2018These expenditures were primarily associated with previously announced large capital projects. For fiscal 2021, we have provided guidance that our capital expenditures willare expected to be between $40$75.0 million and $48 million, although we are also evaluating possibilities for additional capital expenditures in 2018.$80.0 million.
We anticipate that our existing cash, cash equivalents and borrowing capacity combined with our expected operating cash flows will be sufficient to meet our anticipated operating expenses, income tax payments, capital expenditures and debt service obligations as they become due through December 31, 2018. However,June 30, 2022.
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 in the future.
ABL Agreement
At December 31, 2017,June 30, 2021, the ABL Agreement consisted of a $175.0 million revolving credit facility forthat includes up to $225$25.0 million of revolving credit borrowings,through swing line loans and may have up to $60.0 million of letters of credit. The ABL Agreement permits us to increase the size of the credit facility by an additional $150$150.0 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.
Borrowings under the ABL Agreement bear interest at a floating rate equal to LIBOR, plus aan applicable margin ranging from 125200 to 150225 basis points, or a base rate, as defined in the ABL Agreement, plus aan applicable margin ranging from 25100 to 50125 basis points. At December 31, 2017,June 30, 2021, the applicable LIBOR-based marginrate was 125LIBOR plus 200 basis points.
The ABL Agreement terminates on July 13, 2021. We pay a commitment fee for any unused borrowing capacity under the ABL Agreement of 25 basis points per annum.
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 canmay 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.
The ABL Agreement terminates on July 29, 2025 and includes a commitment fee for any unused borrowing capacity of 37.5 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 underas defined in the ABL Agreement. Excess availability based on June 30, 2021 data was $145.1 million, as reduced by $15.0 million of outstanding letters of credit and $1.7 million of accrued fees and expenses.
Term Loan4.0% Senior Unsecured Notes
We had $485.1On May 28, 2021, we privately issued $450.0 million face value outstanding under the Term Loan atof 4.0% Senior Unsecured Notes (“Notes”), which mature in December 31, 2017. Term Loan borrowings accrue2029 and bear interest at a floating rate equal to LIBOR, subject to a floor4.0%, paid semi-annually in June and December. We capitalized $5.5 million of 0.75%, plus 250 basis points. We may voluntarily repay amounts borrowed underfinancing costs, which are being amortized over the Term Loan at any time. The principal amountterm of the Term Loan is requiredNotes using the effective interest method. Proceeds from the Notes, along with cash on hand were used to be repaid in quarterly installments of $1.225 million. The Term Loan matures on November 25, 2021. The Term Loan is guaranteed by substantiallyredeem previously existing 5.5% Notes. Substantially all of our U.S. subsidiaries guarantee the Notes, which are subordinate to borrowings under our ABL Agreement.
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. There are no financial maintenance covenants associated with the Indenture. We believe we were in compliance with these covenants at June 30, 2021.

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, 2024 at certain “make-whole” redemption prices (as set forth in the Indenture) and on or after June 15, 2024 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, 2024 with the net proceeds of specified equity offerings at specified redemption prices (as set forth in the Indenture). Upon a senior claimchange in control (as defined in the Indenture), we would be required to offer to purchase the Notes at a price equal to 101% of the outstanding principal amount of the Notes.

29

5.5% Senior Unsecured Notes
On June 12, 2018, we privately issued $450.0 million of 5.5% Notes, which were set to mature in 2026 and bore interest at 5.5%, paid semi-annually. We called the 5.5% Notes effective June 17, 2021 and settled with proceeds from the issuance of the Notes and cash on certain collateral securing borrowings thereunder.hand. As a result, we incurred $16.7 million in loss on extinguishment of debt, comprised of a $12.4 million call premium and a $4.3 million write-off of the remaining deferred debt issuance costs associated with the retirement of the 5.5% 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 agencies.
 Moody’s  Standard & Poor’s
June 30,September 30,June 30,September 30,
2021202020212020
Corporate credit ratingBa1Ba2BBBB
ABL AgreementNot ratedNot ratedNot ratedNot rated
4.0% NotesBa1N/ABBN/A
5.5% NotesN/ABa3N/ABB
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 off-balance sheet arrangements, including 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, 2021 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, 2021, we had $17.5$15.0 million of letters of credit and $35.6$36.7 million of surety bonds outstanding.
Seasonality
Our business is dependent upon the construction industry, which is seasonal due to the impactas a result of cold weather conditions. Net sales and operating income have historically been lowest in the quarterlythree month periods ending December 31 and March 31 when the northern United States and all of Canada generally face weather conditions that restrict significant construction activity.
Item 4.CONTROLS AND PROCEDURES
Item 4.    CONTROLS AND PROCEDURES
During the quarterthree months ended December 31, 2017,June 30, 2021, 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 has not had a material effect on our internal control over financial reporting. 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.
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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 11.12. 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.
Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Item 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarterthree months ended December 31, 2017, we repurchasedJune 30, 2021, 781 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.units.

We did not repurchase any shares of our common stock during the three months ended June 30, 2021, and we had $145.0 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
3.131.1*

10.20.5**
Amendment to Executive Change -In-Control Severance Agreement, dated January 11, 2018, by and between Mueller Water Products and Gregory S. Rogowski. Incorporated by reference to Exhibit 10.2 to Mueller Water Products, Inc. Form 8-K (File No. 001-32892) filed on January 12, 2018.

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 or furnished as applicable 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 5, 2021By:/s/ Michael S. NancarrowSuzanne G. Smith
Michael S. NancarrowSuzanne G. Smith
Chief Accounting Officer


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