UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30,~~December 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-32892

MUELLER WATER PRODUCTS, INC.

(Exact name of registrant as specified in its charter)


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

1200 Abernathy Road N.E.

Suite 1200

Atlanta, GA 30328

(Address of principal executive offices)

(770) 206-4200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☒ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

There were ~~156,485,455~~156,177,315 shares of common stock of the registrant outstanding at ~~July 31, 2023.~~February 5, 2024.

TABLE OF CONTENTS



ITEM		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets - ~~June 30,~~December 31, 2023 and September 30, ~~2022~~2023	3
	Unaudited Condensed Consolidated Statements of Operations - Three ~~and Nine~~ Months Ended ~~June 30,~~December 31, 2023 and 2022	4
	Unaudited Condensed Consolidated Statements of Comprehensive Income - Three ~~and Nine~~ Months Ended ~~June 30,~~December 31, 2023 and 2022	5
	Unaudited Condensed Consolidated Statements of Stockholders' Equity - Three ~~and Nine~~ Months Ended ~~June 30,~~December 31, 2023 and 2022	6
	Unaudited Condensed Consolidated Statements of Cash Flows - ~~Nine~~Three Months Ended ~~June 30,~~December 31, 2023 and 2022	87
	Notes to the Unaudited Condensed Consolidated Financial Statements	109
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2422
Item 4.	Controls and Procedures	3429

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	3531
Item 1A.	Risk Factors	3531
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3531
I tem 5.	O ther Information	31
Item 6.	Exhibits	3532
	Signatures	3532

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PART I

Item 1. FINANCIAL STATEMENTS

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


		June 30,		September 30,		December 31,	September 30,
		2023		2022		2023	2023
		(in millions, except share amounts)				(in millions, except share amounts)
Assets:	Assets:
Cash and cash equivalents	Cash and cash equivalents	$	141.2	$	146.5
Receivables, net of allowance for credit losses of $6.4 million and $5.6 million		210.3		228.0
Cash and cash equivalents
Cash and cash equivalents
Receivables, net of allowance for credit losses of $7.5 million and $7.3 million
Inventories, net	Inventories, net	312.7		278.7
Other current assets	Other current assets	27.2		26.8
Total current assets	Total current assets	691.4		680.0
Property, plant and equipment, net	Property, plant and equipment, net	306.9		301.6
Intangible assets, net	Intangible assets, net	341.9		361.2
Goodwill, net	Goodwill, net	97.0		98.6
Other noncurrent assets	Other noncurrent assets	56.1		56.7
Total assets	Total assets	$	1,493.3	$	1,498.1

Liabilities and stockholders’ equity:	Liabilities and stockholders’ equity:
Liabilities and stockholders’ equity:
Liabilities and stockholders’ equity:
Current portion of long-term debt
Current portion of long-term debt
Current portion of long-term debt	Current portion of long-term debt	$	0.8	$	0.8
Accounts payable	Accounts payable	101.0		122.8
Other current liabilities	Other current liabilities	98.1		117.4
Total current liabilities	Total current liabilities	199.9		241.0
Long-term debt	Long-term debt	446.7		446.1
Deferred income taxes	Deferred income taxes	80.0		86.3
Other noncurrent liabilities	Other noncurrent liabilities	52.5		55.4
Total liabilities	Total liabilities	779.1		828.8

Commitments and contingencies (Note 10.)	Commitments and contingencies (Note 10.)
Commitments and contingencies (Note 10.)
Commitments and contingencies (Note 10.)

Preferred stock: par value $0.01 per share; 60,000,000 shares authorized; none outstanding at June 30, 2023, and September 30, 2022		—		—
Common stock: par value $0.01 per share; 600,000,000 shares authorized; 156,424,123 and 155,844,138 shares outstanding at June 30, 2023, and September 30, 2022, respectively		1.6		1.6
Preferred stock: par value $0.01 per share; 60,000,000 shares authorized; none outstanding at December 31, 2023, and September 30, 2023
Preferred stock: par value $0.01 per share; 60,000,000 shares authorized; none outstanding at December 31, 2023, and September 30, 2023
Preferred stock: par value $0.01 per share; 60,000,000 shares authorized; none outstanding at December 31, 2023, and September 30, 2023
Common stock: par value $0.01 per share; 600,000,000 shares authorized; 156,112,060 and 155,871,932 shares outstanding at December 31, 2023, and September 30, 2023, respectively
Additional paid-in capital	Additional paid-in capital	1,257.2		1,279.6
Accumulated deficit	Accumulated deficit	(499.0)		(567.3)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(45.6)		(44.6)
Total stockholders' equity	Total stockholders' equity	714.2		669.3
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	1,493.3	$	1,498.1

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

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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


		Three months ended				Nine months ended				Three months ended
	December 31,											December 31,
		June 30,				June 30,				2023	2022
		2023		2022		2023		2022

		(in millions, except per share amounts)
		(in millions, except per share amounts)
		(in millions, except per share amounts)
		(in millions, except per share amounts)
Net sales	Net sales	$	326.6	$	333.2	$	974.3	$	916.0
Cost of sales	Cost of sales	226.5		234.9		683.2		637.3
Gross profit	Gross profit	100.1		98.3		291.1		278.7
Operating expenses:	Operating expenses:
Selling, general and administrative	Selling, general and administrative	60.6		60.8		187.7		175.1
Strategic reorganization and other charges		3.9		0.6		0.9		3.6
Selling, general and administrative
Selling, general and administrative
Strategic reorganization and other charges (benefits)
Total operating expenses	Total operating expenses	64.5		61.4		188.6		178.7
Operating income	Operating income	35.6		36.9		102.5		100.0
Other expenses (income):
Pension expense (benefit) other than service		0.9		(0.9)		2.8		(2.9)
Other expenses:
Pension expense other than service
Pension expense other than service
Pension expense other than service
Interest expense, net	Interest expense, net	3.8		4.2		11.4		13.0
Net other expenses		4.7		3.3		14.2		10.1
Other expense
Total other expenses, net
Income before income taxes	Income before income taxes	30.9		33.6		88.3		89.9
Income tax expense	Income tax expense	6.4		7.1		20.0		20.4
Net income	Net income	$	24.5	$	26.5	$	68.3	$	69.5

Net income per share:	Net income per share:
Net income per share:
Net income per share:
Basic
Basic
Basic	Basic	$	0.16	$	0.17	$	0.44	$	0.44
Diluted	Diluted	$	0.16	$	0.17	$	0.44	$	0.44

Weighted average shares outstanding:	Weighted average shares outstanding:
Weighted average shares outstanding:
Weighted average shares outstanding:
Basic
Basic
Basic	Basic	156.4		157.0		156.2		157.6
Diluted	Diluted	157.2		157.6		156.8		158.3

Dividends declared per share	Dividends declared per share	$	0.061	$	0.058	$	0.183	$	0.174
Dividends declared per share
Dividends declared per share

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

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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


		Three months ended				Nine months ended					Three months ended
	December 31,												December 31,
	2023											2023		2022
		June 30,				June 30,
		2023		2022		2023		2022

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

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

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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)


		Common stock
		Common stock
		Common stock											Additional paid-in capital	Accumulated deficit	Accumulated other comprehensive (loss) income	Total
		Common stock		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive (loss) income		Total		(in millions)
		(in millions)
Balance at September 30, 2022		$	1.6	$	1,279.6	$	(567.3)	$	(44.6)	$	669.3
Balance at September 30, 2023
Net income	Net income	—		—		22.5		—		22.5
Dividends declared	Dividends declared	—		(9.5)		—		—		(9.5)
Stock-based compensation	Stock-based compensation	—		1.8		—		—		1.8
Shares retained for employee taxes	Shares retained for employee taxes	—		(1.5)		—		—		(1.5)
Common stock issued	Common stock issued	—		0.6		—		—		0.6

Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—		—		4.6		4.6
Balance at December 31, 2022		$	1.6	$	1,271.0	$	(544.8)	$	(40.0)	$	687.8
Net income		—		—		21.3		—		21.3
Dividends declared		—		(9.5)		—		—		(9.5)
Stock-based compensation		—		2.4		—		—		2.4
Other comprehensive income, net of tax
Other comprehensive income, net of tax
Balance at December 31, 2023

Common stock issued		—		0.4		—		—		0.4

Other comprehensive loss, net of tax		—		—		—		(1.5)		(1.5)
Balance at March 31, 2023		$	1.6	$	1,264.3	$	(523.5)	$	(41.5)	$	700.9
Net income		—		—		24.5		—		24.5
Dividends declared		—		(9.6)		—		—		(9.6)
Stock-based compensation		—		1.7		—		—		1.7
Shares retained for employee taxes		—		(0.1)		—		—		(0.1)
Common stock issued		—		0.9		—		—		0.9

Other comprehensive loss, net of tax		—		—		—		(4.1)		(4.1)
Balance at June 30, 2023		$	1.6	$	1,257.2	$	(499.0)	$	(45.6)	$	714.2


	Common stock		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive (loss) income		Total
	(in millions)
Balance at September 30, 2022	$	1.6	$	1,279.6	$	(567.3)	$	(44.6)	$	669.3
Net income	—		—		22.5		—		22.5
Dividends declared	—		(9.5)		—		—		(9.5)
Stock-based compensation	—		1.8		—		—		1.8
Shares retained for employee taxes	—		(1.5)		—		—		(1.5)

Common stock issued	—		0.6		—		—		0.6
Other comprehensive income, net of tax	—		—		—		4.6		4.6
Balance at December 31, 2022	$	1.6	$	1,271.0	$	(544.8)	$	(40.0)	$	687.8

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

~~Table of Contents~~

~~MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(UNAUDITED)~~

Common
stock Additional
paid-in
capital Accumulated
deficit Accumulated
other
comprehensive
(loss) income Total
(in millions)
Balance at September 30, 2021 $ 1.6 $ 1,342.2 $ (643.9) $ (5.0) $ 694.9
Net income — — 19.4 — 19.4
Dividends declared — (9.2) — — (9.2)
Stock-based compensation — 2.0 — — 2.0
Shares retained for employee taxes — (1.9) — — (1.9)
Stock repurchased under buyback program — (20.0) — — (20.0)
Common stock issued — 0.7 — — 0.7
Other comprehensive income, net of tax — — — 6.0 6.0
Balance at December 31, 2021 $ 1.6 $ 1,313.8 $ (624.5) $ 1.0 $ 691.9
Net income — — 23.6 — 23.6
Dividends declared — (9.1) — — (9.1)
Stock-based compensation — 2.4 — — 2.4
Shares retained for employee taxes — 0.1 — — 0.1
Common stock issued — 0.4 — — 0.4
Other comprehensive loss, net of tax — — — (3.2) (3.2)
Balance at March 31, 2022 $ 1.6 $ 1,307.6 $ (600.9) $ (2.2) $ 706.1
Net income — — 26.5 — 26.5
Dividends declared — (9.1) — — (9.1)
Stock-based compensation — 2.2 — — 2.2
Shares retained for employee taxes — (0.1) — — (0.1)
Stock repurchased under buyback program — (5.0) — — (5.0)
Common stock issued — 0.5 — — 0.5
Other comprehensive income, net of tax — — — (17.3) (17.3)
Balance at June 30, 2022 $ 1.6 $ 1,296.1 $ (574.4) $ (19.5) $ 703.8

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

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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


		Nine months ended				Three months ended
		June 30,
	December 31,							December 31,
		2023		2022		2023	2022
		(in millions)				(in millions)
Operating activities:	Operating activities:
Net income	Net income	$	68.3	$	69.5
Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition:
Net income
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation
Depreciation
Depreciation	Depreciation	25.1		23.8
Amortization	Amortization	21.0		21.1
Gain on sale of assets	Gain on sale of assets	(3.7)		—
Stock-based compensation	Stock-based compensation	5.9		6.6
Pension net periodic cost (benefit)		3.4		(1.9)
Pension cost
Deferred income taxes	Deferred income taxes	(6.7)		1.8
Inventory reserves provision		0.4		3.9
Inventory reserve provision
Other, net	Other, net	0.7		0.7
Changes in assets and liabilities, net of acquisition:
Changes in assets and liabilities:
Receivables, net
Receivables, net
Receivables, net	Receivables, net	18.2		(10.6)
Inventories	Inventories	(34.1)		(71.3)
Other assets	Other assets	(2.0)		(5.5)
Accounts payable	Accounts payable	(21.8)		6.7
Other current liabilities	Other current liabilities	(19.4)		(23.1)
Other noncurrent liabilities	Other noncurrent liabilities	(2.8)		(1.2)
Net cash provided by operating activities		52.5		20.5
Net cash provided by (used in) operating activities
Investing activities:	Investing activities:
Capital expenditures	Capital expenditures	(32.4)		(36.7)
Acquisition purchase price adjustment		—		0.2
Capital expenditures
Capital expenditures

Proceeds from sale of assets
Proceeds from sale of assets
Proceeds from sale of assets	Proceeds from sale of assets	5.1		—
Net cash used in investing activities	Net cash used in investing activities	(27.3)		(36.5)
Financing activities:	Financing activities:

Dividends paid	Dividends paid	(28.6)		(27.4)

Dividends paid

Dividends paid
Employee taxes related to stock-based compensation	Employee taxes related to stock-based compensation	(1.6)		(1.9)
Common stock issued	Common stock issued	1.9		1.6

Common stock repurchased under buyback program		—		(25.0)

Payments for finance lease obligations

Payments for finance lease obligations

Payments for finance lease obligations	Payments for finance lease obligations	(0.9)		(0.4)
Net cash used in financing activities	Net cash used in financing activities	(29.2)		(53.1)
Effect of currency exchange rate changes on cash	Effect of currency exchange rate changes on cash	(1.3)		(3.5)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	(5.3)		(72.6)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	146.5		227.5
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	141.2	$	154.9

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

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	Three months ended
	December 31,
	2023		2022

	(in millions)
Supplemental cash flow information:
Cash paid for interest, net	$	7.6	$	8.6
Cash paid for income taxes, net	$	0.8	$	0.2

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

~~Table of Contents~~

Nine months ended
June 30,
2023 2022
(in millions)
Supplemental cash flow information:
Cash paid for interest, net $ 16.5 $ 19.3
Cash paid for income taxes, net $ 27.5 $ 22.2

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

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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~JUNE 30,~~DECEMBER 31, 2023

(UNAUDITED)

Note 1. Organization and Basis of Presentation

Mueller Water Products, Inc., a Delaware corporation, together with its consolidated subsidiaries, operates in two business segments: Water Flow Solutions and Water Management Solutions. ~~These segments are based on a management reorganization that became effective October 1, 2021.~~ Water Flow Solutions’ portfolio includes iron gate valves, specialty valves and service brass products. Water Management Solutions’ portfolio includes fire hydrants, repair and installation, natural gas, metering, leak detection, and pressure ~~control~~management and ~~software~~control products and ~~services.~~solutions. The “Company,” “we,” “us” or “our” refer to Mueller Water Products, Inc. and its subsidiaries. With regard to the Company’s segments, “we,” “us” or “our” may also refer to the segment being discussed.

On June 14, 2021, we acquired all the outstanding capital stock of i2O Water Ltd (“i2O”), a provider of pressure management solutions to more than 100 water companies in 45 countries. During the three months ended December 31, 2021, we recorded a purchase price adjustment of $0.2 million, resulting in a final purchase price of $19.5 million.

Our condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which require us to make certain estimates and assumptions ~~in recording~~that affect the reported amounts of assets, liabilities, sales and expenses as well as in the disclosure of contingent assets and ~~liabilities.~~liabilities for the reporting periods. Actual results could differ from those estimates. All significant intercompany balances and transactions have been eliminated. These condensed consolidated financial statements do not include all information required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, ~~2022.~~2023. In our opinion, all normal and recurring adjustments that we consider necessary for a fair financial statement presentation have been made. The condensed consolidated balance sheet at September 30, ~~2022~~2023 was derived from our audited financial ~~statements, but it does not include all disclosures required by GAAP.~~statements.

Our business is seasonal as a result of the impact of cold weather conditions. Net sales and operating income historically have been lowest in the three-month periods ending December 31 and March 31 when the northern United States and ~~all~~most of Canada generally face weather conditions that restrict significant construction activity. Therefore, the results of operations for the three months ending December 31, 2023 are not necessarily indicative of operating results that may be achieved for any other interim period or the full year.

Unless the context indicates otherwise, whenever we refer to a particular year, we mean our fiscal year ended or ending September 30 in that particular calendar year.

~~Recently Adopted~~ Accounting Pronouncements Not Yet Adopted

In ~~December 2022,~~November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ~~2022-06, “Reference Rate Reform~~2023-07 “Segment Reporting (Topic ~~848)~~280): ~~Deferral of the Sunset Date of Topic 848”~~Improvements to Reportable Segment Disclosures” (“ASU ~~2022-06”~~2023-07”). ASU ~~2022-06 defers~~2023-07 requires public business entities that disclose information on their reportable segments to provide additional information on their significant expense categories and “other segment items,” which represent the ~~sunset date~~difference between segment revenue less significant segment expense and a segment’s measure of profit or loss. A description of “other segment items” is also required. Further, certain segment related disclosures that were limited to annual disclosure are now required for ~~applying~~interim periods. Finally, public business entities are required to disclose the ~~reference rate reform relief in Accounting Standards Codification~~title and position of their Chief Operating Decision Maker (“~~ASC”~~CODM”) ~~848~~and explain how the CODM uses the reported measures of profit or loss to December 31, 2024 from December 31, 2022. ASU 2022-06 became effective immediately upon issuance. In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (“ASU 2020-04”).assess segment performance. This guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Inter Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. ASU 2020-04 is effective from March 12, 2020, but may be adopted prospectively from a date within an interim period subsequent to March 12, 2020. We evaluated our contracts and the optional expedients provided by ASU 2020-04. We adopted ASU 2020-04 on October 1, 2021 and there was no material impact to our financial statements.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by clarifying and amending existing guidance related to the recognition of franchise tax, the evaluation of a step up in the tax basis of goodwill, and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. ASU 2019-12 was effective for public business entities for fiscal years beginning after December 15, ~~2020, including~~2023, and interim periods within ~~that~~ fiscal years beginning after December 15, 2024. Upon adoption, ASU 2023-07 should be applied retrospectively to all prior periods. We do not expect ASU 2023-07 to have a material impact on our financial statements and related disclosures.

In December 2023, the FASB issued ASU No 2023-09 “Income Taxes (Topic 740): Improvements to Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 requires public business entities to disclose a tabular rate reconciliation utilizing percentages and reporting currency amounts in specific categories with certain reconciling items at or above the specified 5% threshold to improve the transparency and comparability of disclosures. Additionally, entities are required to disclose the year to date amount of income taxes paid, net of refunds received, disaggregated by federal (national), state, and foreign jurisdictions. Disclosure of all individual jurisdictions where income taxes paid, net of refunds received, is 5% or more of the total is also required. This guidance is effective for fiscal years beginning after December 15, 2024 with early adoption permitted. Upon adoption, ASU 2023-09 should be applied on a prospective basis while retrospective application is permitted. We ~~adopted this standard on October 1, 2021 and there was no~~do not expect ASU 2023-09 to have a material impact toon our financial ~~statements.~~

statements and our related disclosures.

109

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~~Restructuring~~Strategic Reorganization and Other Charges

Between November 2019 and March 2021, we announced the purchase and closure of several facilities. We purchased a new facility in Kimball, Tennessee to support and enhance our investment in our Chattanooga, Tennessee large casting foundry and closed our facilities in Hammond, Indiana; Woodland, Washington; and Surrey, British Columbia, Canada. We also completed the closure of our facility in Aurora, Illinois during our fiscal year 2022. The majority of the activities from these plants were transferred to our Kimball, Tennessee facility. Additionally, during our fiscal year 2023, we incurred severance costs related to a reorganization of our sales force. In connection with these reorganizations, we recognized certain restructuring costs.

During the ~~nine~~three months ended ~~June 30,~~December 31, 2023, we recorded ~~amounts~~approximately $6.6 million in Strategic reorganization and other charges, primarily consisting of $1.5 million of expenses related to ~~severance and~~the cybersecurity incidents, expenses associated with our previously announced leadership transition as well as other transaction-related ~~costs partially offset by~~expenses. During the three months ended December 31, 2022, we recorded a $4.0 million gain, before tax, on the sale of the Aurora, Illinois ~~facility.~~facility which was partially offset by transaction-related costs. Activity in accrued ~~restructuring,~~strategic reorganization and other charges, reported as part of Other current liabilities, is presented below:


		Nine months ended
		June 30,
		2023		2022
		(in millions)
	Three months ended						Three months ended
	December 31,						December 31,
	2023					2023		2022
	(in millions)						(in millions)
Beginning balance	Beginning balance	$	3.3	$	3.1
Amounts accrued	Amounts accrued	0.9		0.4
Amounts paid		(2.0)		(3.0)
Amounts (paid) received, net
Ending balance	Ending balance	$	2.2	$	0.5

New Markets Tax Credit Program

On December 22, 2020, we entered into a financing transaction with Wells Fargo Community Investment Holdings, LLC (“Wells Fargo”) related to our brass foundry construction project in Decatur, Illinois under a qualified New Markets Tax Credit program (“NMTC”). The NMTC is a federal program intended to encourage capital investment in qualified lower income communities. Under the NMTC, investors claim federal income tax credits over a period of seven years in connection with qualified investments in the equity of community development entities (“CDE”s), which are privately managed investment institutions that are certified to make qualified low-income community investments, such as in our foundry project.

Under the NMTC, Wells Fargo contributed capital of $4.8 million to an investment fund and we loaned $12.2 million to the fund. Wells Fargo is entitled to the associated tax credits, which are subject to 100% recapture if we do not comply with various regulations and contractual provisions surrounding the foundry project. We have indemnified Wells Fargo for any loss or recapture of tax credits related to the transaction until the seven-year period elapses. We do not anticipate any credit recaptures will be required in connection with this arrangement.

The investment fund contributed $16.5 million cash for a 99.99% stake in a joint venture (“Sub-CDE”) with a CDE. The Sub-CDE then loaned $16.2 million to us, with the use of the loan proceeds restricted to foundry project expenditures. This transaction also includes a put/call provision under which we may be obligated or entitled to repurchase Wells Fargo’s interest in the investment fund. We believe that Wells Fargo will exercise its put option in December 2027 for nominal consideration, resulting in our becoming the sole owner of the investment fund, cancelling the related loans, and recognizing an estimated gain of $3.9 million.

We determined that the investment fund and the Sub-CDE are variable interest entities (“VIEs”) and that we are the primary beneficiary of the VIEs. The ongoing activities of the VIEs, namely collecting and remitting interest and fees and administering NMTC compliance, were contemplated in the initial design of the transaction and are not expected to significantly affect economic performance throughout the life of the VIEs. Additionally, we are obligated to deliver tax benefits and provide various other guarantees to Wells Fargo and to absorb the losses of the VIEs. Wells Fargo does not have a material interest in the underlying economics of the project. Consequently, we have included the financial statements of the VIEs in our consolidated financial statements.

Intercompany transactions between us and the VIEs have been eliminated in consolidation. Wells Fargo’s contribution to the investment fund is consolidated in our financial statements within Other noncurrent liabilities as a result of its redemption features.

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Direct costs associated with Wells Fargo’s capital contribution were netted against the recorded proceeds, resulting in a net cash contribution of $3.9 million. Other direct costs associated with the transaction were capitalized and are being recognized as interest expense over the seven-year tax credit period. Incremental costs to maintain the structure during the compliance period ~~are~~were expensed as ~~incurred.~~incurred and were immaterial to the financial statements.

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Note 2. Revenue from Contracts with Customers

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

Disaggregation of Revenue

Refer to Note 8. for disaggregation of our revenues from contracts with customers by reportable segment and by geographical region, which we believe best depicts how the nature, amount, timing and ~~uncertainty~~certainty of our revenue and cash flows are affected by economic factors. Geographical region represents the location of the customer.

Contract Asset and Liability Balances

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

Advance payments and billings in excess of revenue are recognized and recorded as deferred revenue, the majority of which is classified as current based on the timing of when we expect to recognize revenue. We include current deferred revenue within Other current liabilities in the accompanying condensed consolidated balance sheets. Deferred revenue represents contract liabilities and is recorded when customers remit cash payments in advance of our satisfaction of performance obligations pursuant to contractual arrangements. Contract liabilities are reversed when the performance obligation is satisfied and revenue is recognized.

The table below represents the balances of our customer receivables and deferred revenue:


	December 31,					December 31,		September 30,
	2023						2023
		June 30,		September 30,
		2023		2022

		(in millions)
		(in millions)
		(in millions)
		(in millions)
Billed receivables	Billed receivables	$	211.2	$	230.5
Unbilled receivables	Unbilled receivables	5.5		3.1
Gross customer receivables	Gross customer receivables	216.7		233.6
Allowance for credit losses	Allowance for credit losses	(6.4)		(5.6)
Receivables, net	Receivables, net	$	210.3	$	228.0

Deferred revenue	Deferred revenue	$	8.7	$	8.1
Deferred revenue
Deferred revenue

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Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. Our performance obligations are satisfied at a point in time for sales of equipment and products or ~~product and~~ over time for our software hosting and leak detection monitoring services. Performance obligations are supported by customer contracts, which provide frameworks for the nature of the distinct products or services. The transaction price is adjusted for our estimate of variable consideration which may include discounts and rebates. To estimate variable consideration, we apply the expected value or the most likely amount method, based on whichever method most appropriately predicts the amount of consideration we expect to receive. The method applied is typically based on historical experience and known trends. We constrain the amounts of variable consideration that are included in the transaction price, to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when uncertainties around the variable consideration are resolved.

We exclude from the measurement of the transaction price all taxes assessed by a governmental authority.

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

Revenue for the sale of our products is recognized when the obligations of the terms of our contract are satisfied, which is when the customer is able to direct the use of and obtain substantially all of the benefits from the product, which generally occurs upon shipment when control of the product transfers to the customer.

We offer warranties to our customers in the form of assurance-type warranties, which provide assurance that the products provided will function as intended and comply with any agreed-upon specifications. These warranties cannot be purchased separately from our products. On limited products, we offer extended warranties which may be purchased separately.

Costs to Obtain or Fulfill a Contract

Shipping and handling costs associated with freight activities after the customer has obtained control of a product are ~~included in cost~~accounted for as fulfillment costs and are expensed to Cost of sales within our condensed consolidated statement of operations at the time the related revenue is recognized.

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

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Note 3. Income Taxes

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


		Three months ended				Nine months ended					Three months ended
		June 30,				June 30,
		2023		2022		2023		2022
	December 31,														December 31,
	2023												2023			2022
U.S. federal statutory income tax rate	U.S. federal statutory income tax rate	21.0	%	21.0	%	21.0	%	21.0	%	U.S. federal statutory income tax rate	21.0	%		21.0	%
Adjustments to reconcile to the effective tax rate:	Adjustments to reconcile to the effective tax rate:
State income taxes, net of federal benefit	State income taxes, net of federal benefit	3.2		3.3		3.2		3.3
Excess tax benefits related to stock-based compensation		—		—		0.2		(0.3)
State income taxes, net of federal benefit
State income taxes, net of federal benefit
Excess tax deficit related to stock-based compensation
Tax credits	Tax credits	(3.5)		(3.0)		(2.8)		(3.0)
Global Intangible Low-Taxed Income	Global Intangible Low-Taxed Income	1.1		1.1		1.1		1.1
Foreign income tax rate differential	Foreign income tax rate differential	(2.2)		(1.7)		(2.2)		(1.7)
Nondeductible compensation	Nondeductible compensation	0.9		0.9		0.9		0.9
Basis difference in foreign investment		—		(0.1)		—		(0.1)
Uncertain tax positions
Valuation allowances	Valuation allowances	—		—		—		0.3
Other	Other	0.2		(0.4)		1.3		1.2

Effective income tax rate	Effective income tax rate	20.7	%	21.1	%	22.7	%	22.7	%
Effective income tax rate
Effective income tax rate											15.4	%		23.5	%

At ~~June 30,~~December 31, 2023 and September 30, ~~2022,~~2023, the gross liabilities for unrecognized income tax benefits were ~~$5.3~~$3.7 million and ~~$4.7~~$5.0 million, respectively, and are included in Other noncurrent liabilities.

During the three months ended December 31, 2023, we recorded $1.6 million in income tax benefits due to the release of an uncertain tax position that expired on December 31, 2023.

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Note 4. Borrowing Arrangements

The components of our long-term debt are as follows:


							December 31,	September 30,
							2023	2023
		June 30,		September 30,
		2023		2022

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

ABL Agreement. Our asset-based lending agreement, as amended, (“ABL”) is provided by a syndicate of banking institutions and consists of a revolving credit facility for up to $175.0 million in ~~borrowing~~borrowings that expires on July 29, 2025. The ABL allows up to $25.0 million of swing line loans and up to $60.0 million of letters of credit. The ABL permits us to increase the size of the credit facility by an additional $150.0 million in certain circumstances subject to adequate borrowing base availability.

~~On April 5,~~In December 2023, we ~~amended~~obtained a waiver under our ABL (“ABL Waiver”) to provide for additional time associated with certain technical reporting requirements that were delayed as a result of the ~~ABL. This amendment replaced LIBOR-based loans with Secured Overnight Financing Rate (“SOFR”) based loans plus an adjustment~~cybersecurity incident announced on October 28, 2023. Under the ABL Waiver, the maximum aggregate amount of ~~10 basis points, among~~borrowings and other ~~immaterial modifications.~~credit extensions under the ABL was limited to $50.0 million at any time outstanding until all of the required reports were delivered. During our first fiscal quarter of 2024, we delivered the required reports and on February 6, 2024, the ABL Waiver was terminated. Accordingly, we are no longer subject to any additional restrictions or borrowing limitations under the ABL including the $50.0 million temporary limit on credit extensions.

Borrowings under the ABL bear interest at a floating rate equal to ~~SOFR~~the Secured Overnight Financing Rate (“SOFR”) plus an adjustment of 10 basis points plus an applicable margin range of 200 to 225 basis points, or a base rate, as defined in the ABL, plus an applicable margin range of ~~from~~ 100 to 125 basis points. At ~~June 30,~~December 31, 2023 the applicable margin for SOFR-based loans was 200 basis points and for base rate loans was 100 basis points.

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The ABL is subject to mandatory prepayments if total outstanding borrowings under the ABL are greater than the aggregate commitments under the revolving credit facility or if we dispose of overdue accounts receivable in certain circumstances. The borrowing base under the ABL is equal to the sum of (a) 85% of the value of eligible accounts receivable and (b) the lesser of (i) 70% of the value of eligible inventory or (ii) 85% of the net orderly liquidation value of eligible inventory, less certain reserves. Prepayments can be made at any time without penalty.

Substantially all of our United States subsidiaries are borrowers under the ABL and are jointly and severally liable for outstanding borrowings. Our obligations under the ABL are secured by a first-priority perfected lien on all of our United States inventory, accounts receivable, certain cash balances and other supporting assets.

The ABL includes a commitment fee for any unused borrowing capacity of 37.5 basis points per annum. Borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $17.5 million and 10% of the Loan Cap as defined in the ABL. Excess availability based on ~~June 30,~~December 31, 2023 data was ~~$162.3~~$162.4 million, as reduced by ~~$12.5~~$12.4 million of outstanding letters of credit and $0.2 million of accrued fees and expenses. However, during the waiver period, credit extensions were temporarily limited to $50.0 million as set forth in the waiver.

4.0% Senior Unsecured Notes. On May 28, 2021, we privately issued $450.0 million of 4.0% Senior Unsecured Notes (“4.0% Senior Notes”), which mature on June 15, 2029 and bear interest at 4.0%, paid semi-annually in June and December. We capitalized $5.5 million of financing costs which are being amortized over the term of the 4.0% Senior Notes using the effective interest method. ~~Proceeds from the 4.0% Senior Notes, along with cash on hand, were used to redeem our previously existing 5.5% Unsecured Senior Notes.~~ Substantially all of our United States subsidiaries guarantee the 4.0% Senior Notes, which are subordinate to borrowings under our ABL. Based on quoted market prices, which is a Level 1 measurement, the outstanding 4.0% Senior Notes had a fair value of ~~$400.7~~$413.0 million at ~~June 30,~~December 31, 2023.

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An indenture governing the 4.0% Senior Notes (“Indenture”) contains customary covenants and events of default, including covenants that limit our ability to incur certain debt and liens. There are no financial maintenance covenants associated with the Indenture. We believe we were in compliance with these covenants at ~~June 30,~~December 31, 2023.

~~As set forth in the Indenture, we~~We may redeem some or all of the 4.0% Senior Notes at any time prior to June 15, 2024 at certain “make-whole” redemption prices and on or after June 15, 2024 at specified redemption prices. Additionally, we may redeem up to 40% of the aggregate principal amount of the 4.0% Senior Notes at any time prior to June 15, 2024 with the net proceeds of specified equity offerings at specified redemption ~~prices.~~prices as set forth in the Indenture. Upon a change of control, as defined in the Indenture, we would be required to offer to purchase the 4.0% Senior Notes at a price equal to 101% of the outstanding principal amount.

Note 5. Retirement ~~Plans~~Plan

We have a defined benefit plan (“Pension Plan”) that we fund in accordance with its requirements in amounts sufficient to satisfy the minimum funding requirements of applicable laws. The Pension Plan provides benefits based on years of service and compensation or at stated amounts for each year of service with an annual measurement date of September 30.

The components of net periodic ~~costs (benefits)~~cost for our ~~pension plans~~Pension Plan are presented below:


		Three months ended				Nine months ended
		June 30,				June 30,
	Three months ended											Three months ended
	December 31,											December 31,
		2023		2022		2023		2022		2023	2022
		(in millions)								(in millions)
Service cost	Service cost	$	0.2	$	0.3	$	0.6	$	0.9
Pension costs (benefits) other than service:
Pension expense other than service:
Interest cost
Interest cost
Interest cost	Interest cost	3.4		2.5		10.4		7.3
Expected return on plan assets	Expected return on plan assets	(3.5)		(3.8)		(10.4)		(11.4)
Amortization of actuarial net loss	Amortization of actuarial net loss	1.0		0.4		2.8		1.2
Pension costs (benefits) other than service		0.9		(0.9)		2.8		(2.9)
Net periodic costs (benefits)		$	1.1	$	(0.6)	$	3.4	$	(2.0)
Pension expense other than service
Net periodic cost

The amortization of actuarial losses, net of income tax, is recorded as a component of ~~other~~Other comprehensive ~~loss.~~income. For ~~each of~~ the three months ended ~~June 30,~~December 31, 2023 and 2022, the amortization of actuarial net loss is shown net of income tax of $0.2 million ~~in the condensed consolidated statements of comprehensive income. For the nine months ended June 30, 2023 and 2022, the amortization of actuarial loss is shown net of income tax of $0.8 million~~ and $0.3 million, respectively, in the condensed consolidated statements of comprehensive income.

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Note 6. Stock-based Compensation Plans

We grant various forms of stock-based compensation, including market-based restricted stock units (“MRSUs”), restricted stock units, stock options and performance-based restricted stock units (“PRSUs”) under our Amended and Restated 2006 Mueller Water Products, Inc. Stock Incentive Plan (the “2006 Stock Plan”), Phantom Plan instruments under our Mueller Water Products, Inc. 2012 Phantom Plan, and Employee stock purchase plan instruments under our 2006 Employee Stock Purchase Plan. Grants issued during the ~~nine~~three months ended ~~June 30,~~December 31, 2023 are as follows:


		Number granted	Weighted average grant date fair value per instrument		Total grant date fair value (in millions)
Quarter ended December 31, 2022
	Number granted						Number granted	Weighted average grant date fair value per instrument	Total grant date fair value (in millions)
Quarter ended December 31, 2023
MRSUs
MRSUs
MRSUs	MRSUs	166,284	$	15.08	$	2.5
PRSUs	PRSUs	166,284	11.41		1.9
Restricted stock units	Restricted stock units	228,692	11.39		2.6
Phantom Plan instruments	Phantom Plan instruments	267,093	11.41		3.0
Non-qualified stock options	Non-qualified stock options	573,279	3.31		1.9
Employee stock purchase plan instruments	Employee stock purchase plan instruments	47,463	$	2.56	0.1
Total - Quarter ended December 31, 2022					$	12.0
Total - Quarter ended December 31, 2023

Quarter ended March 31, 2023
Restricted stock units		82,769	$	13.89	$	1.1
Phantom Plan instruments		8,367	13.42		0.1
Employee stock purchase plan instruments		56,066	$	2.21	0.1
Total - Quarter ended March 31, 2023					$	1.3

Quarter ended June 30, 2023
Phantom Plan instruments		7,176	$	13.93	$	0.1
Employee stock purchase plan instruments		45,860	$	2.28	0.1
Total - Quarter ended June 30, 2023					0.2
Total - Year to date ended June 30, 2023					$	13.5

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An MRSU award represents a target number of units that may be paid out at the end of a three-year award cycle based on a calculation of our relative total shareholder return (“TSR”) performance as compared with the TSR of a selected peer group. Settlements, in our common shares, will range from zero to two times the number of MRSUs granted, depending on our TSR performance relative to that of the peer group.

Compensation expense attributed to MRSUs is based on the fair value of the awards on their respective grant dates, as determined using a Monte Carlo model. For these awards, compensation expense is recognized even if the awards are not earned or vested. The assumptions used to determine the grant date fair value are indicated below for awards granted to date during the current fiscal year.


						November ~~29, 2022~~28, 2023
Variables used in determining grant date fair value:
Dividend yield						~~2.20%~~2.00%
Risk-free rate						~~4.20%~~4.50%
Expected term (in years)						~~2.83~~2.84

The expected dividend yield is based on our estimated annual dividend and our stock price history at the grant date. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield in effect at the grant date with a term equal to the expected term. The expected term represents the average period of time the units are expected to be outstanding.

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At ~~June 30,~~December 31, 2023, the outstanding Phantom Plan instruments had a fair value of ~~$16.23~~$14.40 per instrument and our liability for Phantom Plan instruments was ~~$3.5~~$2.0 million and is included within Other current and Other noncurrent liabilities.

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


			November ~~29, 2022~~28, 2023
Variables used in determining grant date fair value:
Dividend yield			~~1.80%~~1.94%
Risk-free rate			~~3.89%~~4.33%
Expected term (in years)			6.00

A PRSU award consists of a target number of units that may be paid out at the end of a three-year award cycle. Settlements, in our common shares, will range from zero to two times the number of PRSUs granted, depending on our financial performance relative to the targets.

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

Employee stock purchase plan instruments are shares of our common stock purchased by employees under the Mueller Water Products Inc. 2006 Employee Stock Purchase Plan (“ESPP”). Generally, all full-time, active employees are eligible to participate in the ESPP, subject to certain restrictions. Employee purchases are funded through payroll deductions, and excess payroll withholdings are returned to the employee. The price for the shares purchased under the ESPP is 85% of the lower of the closing price on the first day or the last day of the offering period.

We issued ~~282,472~~168,897 shares of common stock to settle PRSUs vested during the ~~nine months ended June 30, 2023; no shares of common stock were issued to settle PRSUs vested during the~~ three months ended ~~June 30,~~December 31, 2023.

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Additionally, we issued ~~2,098 and 218,121~~146,760 shares of common stock to settle restricted stock units vested during the three ~~and nine~~ months ended ~~June 30, 2023, respectively.~~December 31, 2023. Finally, we issued ~~2,896 and 64,847~~3,582 shares of common stock to settle stock options exercised during the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023. Common shares totaling ~~1,589 and 138,525~~109,961 were surrendered to us to pay the applicable tax withholding obligations of equity award participants for the three ~~and nine~~ months ended ~~June 30, 2023, respectively.~~December 31, 2023.

Operating income included stock-based compensation expense of ~~$2.7~~$2.6 million and ~~$2.5~~$2.7 million during the three months ended ~~June 30, 2023 and 2022, respectively. Operating income included stock-based compensation expense of $8.8 million and $7.6 million during the nine months ended June 30,~~December 31, 2023 and 2022, respectively. At ~~June 30,~~December 31, 2023, there was approximately ~~$11.9~~$16.8 million of unrecognized compensation expense related to stock-based compensation arrangements, which will be expensed through ~~February~~December 2026.

We excluded ~~249,933~~712,164 and ~~892,662~~1,274,371 stock-based compensation instruments from the calculations of diluted earnings per share in the three months ended ~~June 30, 2023 and 2022, respectively, and 1,156,428 and 750,343 for the nine months ended June 30,~~December 31, 2023 and 2022, respectively, since their inclusion would have been antidilutive.

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Note 7. Supplemental Balance Sheet Information

Selected supplemental asset information is presented below:


							December 31,	September 30,
							2023	2023
		June 30,		September 30,
		2023		2022

		(in millions)				(in millions)
Inventories:	Inventories:
Purchased components and raw materials	Purchased components and raw materials	$	180.2	$	181.8
Purchased components and raw materials
Purchased components and raw materials
Work in process, net	Work in process, net	64.9		56.8
Finished goods, net	Finished goods, net	67.6		40.1
Inventories, net	Inventories, net	$	312.7	$	278.7

Other current assets:	Other current assets:
Other current assets:
Other current assets:
Prepaid expenses
Prepaid expenses
Prepaid expenses	Prepaid expenses	$	15.6	$	14.6
Non-trade receivables	Non-trade receivables	1.7		1.6
Maintenance and repair supplies and tooling	Maintenance and repair supplies and tooling	3.9		2.8
Income taxes	Income taxes	0.8		0.8
Workers' compensation reimbursement receivable	Workers' compensation reimbursement receivable	1.5		2.6
Other current assets	Other current assets	3.7		4.4
Total other current assets	Total other current assets	$	27.2	$	26.8

Property, plant and equipment:	Property, plant and equipment:
Property, plant and equipment:
Property, plant and equipment:
Land
Land
Land	Land	$	6.6	$	5.7
Buildings	Buildings	104.0		87.6
Machinery and equipment	Machinery and equipment	505.7		456.0
Construction in progress	Construction in progress	59.4		104.7
Total property, plant and equipment	Total property, plant and equipment	675.7		654.0
Accumulated depreciation	Accumulated depreciation	(368.8)		(352.4)
Property, plant and equipment, net	Property, plant and equipment, net	$	306.9	$	301.6

Other noncurrent assets:	Other noncurrent assets:
Other noncurrent assets:
Other noncurrent assets:
Operating lease right-of-use assets
Operating lease right-of-use assets
Operating lease right-of-use assets	Operating lease right-of-use assets	$	25.2	$	26.0
Maintenance and repair supplies and tooling	Maintenance and repair supplies and tooling	21.6		20.4
Workers' compensation reimbursement receivable	Workers' compensation reimbursement receivable	3.1		3.6
Pension asset	Pension asset	0.1		0.6
Note receivable	Note receivable	1.8		1.7
Deferred financing fees	Deferred financing fees	0.8		1.0
Other noncurrent assets	Other noncurrent assets	3.5		3.4
Total other noncurrent assets	Total other noncurrent assets	$	56.1	$	56.7

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Selected supplemental liability information is presented below:


							December 31,	September 30,
							2023	2023
		June 30,		September 30,
		2023		2022

		(in millions)				(in millions)
Other current liabilities:	Other current liabilities:
Compensation and benefits
Compensation and benefits
Compensation and benefits	Compensation and benefits	$	33.6	$	40.2
Customer rebates	Customer rebates	12.7		16.2
Income taxes payable	Income taxes payable	6.4		7.5
Warranty accrual	Warranty accrual	7.9		6.5
Deferred revenue	Deferred revenue	8.7		8.1
Returned goods accrual	Returned goods accrual	5.7		4.2
Taxes other than income taxes	Taxes other than income taxes	2.7		4.4
Operating lease liabilities	Operating lease liabilities	5.1		4.4
Workers' compensation accrual	Workers' compensation accrual	3.1		4.6
CARES Act payroll tax liabilities		—		4.4
Restructuring liabilities		2.2		3.3
Environmental liabilities		0.7		0.7
Strategic reorganization and other charges liabilities
Interest payable	Interest payable	0.8		5.3
Other current liabilities	Other current liabilities	8.5		7.6
Total other current liabilities	Total other current liabilities	$	98.1	$	117.4

Other noncurrent liabilities:	Other noncurrent liabilities:
Other noncurrent liabilities:
Other noncurrent liabilities:
Operating lease liabilities
Operating lease liabilities
Operating lease liabilities	Operating lease liabilities	$	21.2	$	22.4
Warranty accrual	Warranty accrual	3.1		4.2
Transition tax liability	Transition tax liability	3.1		4.1
Uncertain tax position liability	Uncertain tax position liability	5.3		4.7
NMTC liability	NMTC liability	3.9		3.9
Workers' compensation accrual	Workers' compensation accrual	6.1		6.5
Environmental liabilities		3.6		3.6
Asset retirement obligation

Deferred development grant
Deferred development grant
Deferred development grant	Deferred development grant	2.5		2.5
Other noncurrent liabilities	Other noncurrent liabilities	3.7		3.5
Total other noncurrent liabilities	Total other noncurrent liabilities	$	52.5	$	55.4

~~Table of Contents~~

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~~on September 1st ~~and between annual tests~~ of each fiscal year or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

The following table summarizes information concerning our goodwill, all of which is within our Water Management Solutions segment, during the ~~nine~~three months ended ~~June 30,~~December 31, 2023, in millions:


Balance at September 30, ~~2022:~~2023:
Goodwill	$	~~822.7~~817.8
Accumulated impairment	(724.1)
Goodwill, net	~~98.6~~93.7
Activity during the ~~nine~~three months ended ~~June 30,~~December 31, 2023:
Change in foreign currency exchange rates	~~(1.6)~~4.6
Balance at ~~June 30,~~December 31, 2023	$	~~97.0~~98.3

2018

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Note 8. Segment Information

We have two reportable segments, Water Flow Solutions and Water Management Solutions. Water Flow Solutions’ portfolio includes iron gate valves, specialty valves and service brass products. Water Management Solutions’ portfolio includes fire hydrants, repair and installation, natural gas, metering, leak detection, and pressure ~~control~~management and ~~software~~control products and ~~services.~~solutions. Summarized financial information for our segments is presented below:


	Three months ended											Three months ended
	December 31,											December 31,
	2023										2023		2022

		Three months ended				Nine months ended
		June 30,				June 30,
		2023		2022		2023		2022		(in millions)

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

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Note 9. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) is as follows:

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


	Pension actuarial amortization, net of income tax		Foreign currency translation, net of income tax		Total

	(in millions)
Balance at September 30, 2023	$	(28.5)	$	(20.2)	$	(48.7)
Current period other comprehensive income	0.6		13.3		13.9
Balance at December 31, 2023	$	(27.9)	$	(6.9)	$	(34.8)

For the ~~nine~~three months ended ~~June 30,~~December 31, 2023, pension actuarial amortization included in the condensed consolidated statements of comprehensive income as a component of pension expense other than service was ~~$2.8~~$0.8 million, net of income tax of ~~$0.8~~$0.2 million. Refer to Note 5. Retirement Plans for further information. For the ~~nine~~three months ended ~~June 30,~~December 31, 2023, foreign currency translation included in the condensed consolidated statements of comprehensive income was ~~$3.0~~$13.3 million, net of $0no income tax.

Note 10. Commitments and Contingencies

We are involved in various legal proceedings that have arisen in the normal course of operations, including the proceedings summarized below. We provide for costs relating to these matters when a loss is probable and the amount is reasonably estimable. Legal and administrative costs related to these matters are expensed as incurred. The effect of the outcome of these matters on our financial statements cannot be predicted with certainty as any such effect depends on the amount and timing of the resolution of such matters. Other than the litigation described below, we do not believe that any of our outstanding litigation would have a materially adverse effect on our financial position, results of operations, cash flows or liquidity.

Environmental. We are subject to a wide variety of laws and regulations concerning the protection of the environment, both with respect to the operations at many of our properties and with respect to remediating environmental conditions that may exist at our own or other properties. We accrue for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and reasonably estimable.

In the acquisition agreement pursuant to which a predecessor to Tyco International plc, now Johnson Controls International plc (“Tyco”), sold our businesses to a previous owner in August 1999, Tyco agreed to indemnify us and our affiliates, among other things, for all “Excluded Liabilities.” Excluded Liabilities include, among other things, substantially all liabilities relating to the time prior to August 1999, including environmental liabilities. The indemnity survives indefinitely. Tyco’s indemnity does not cover liabilities to the extent caused by us or the operation of our businesses after August 1999, nor does it cover liabilities arising with respect to businesses or sites acquired after August 1999. Since 2007, Tyco has engaged in multiple corporate restructurings, split-offs and divestitures. While none of these transactions directly affects the indemnification obligations of the Tyco indemnitors under the 1999 acquisition agreement, the result of such transactions is that the assets of, and control over, such Tyco indemnitors has changed. Should any of these Tyco indemnitors become financially unable or fail to comply with the terms of the indemnity, we may be responsible for such obligations or liabilities.

The purchaser of U.S. Pipe has been identified as a “potentially responsible party” (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act in connection with a former manufacturing facility operated by U.S. Pipe that was in the vicinity of a proposed Superfund site located in North Birmingham, Alabama. Under the terms of the acquisition agreement relating to our sale of U.S. Pipe, we agreed to indemnify the purchaser for certain environmental liabilities, including those arising out of the former manufacturing site in North Birmingham. Accordingly, the purchaser tendered the matter to us for indemnification, which we accepted. Ultimate liability for the site will depend on many factors that have not yet been determined, including the determination of the Environmental Protection Agency’s remediation costs, the number and financial viability of the other PRPs (there are four other PRPs currently) and the determination of the final allocation of the costs among the PRPs. Since the amounts of such costs cannot be reasonably estimated at this time, no amounts have been accrued for this matter at ~~June 30,~~December 31, 2023.

~~Table of Contents~~

~~The COVID-19 Pandemic.~~ The pandemic has caused, and is likely to continue to cause, severe economic, market and other disruptions to the U.S. and global economies. We have taken action and continue to counter such disruption, and work to protect the safety of our employees. While the extent to which the pandemic continues to affect our results will depend on future developments, the pandemic could result in material effects to our future financial position, results of operations, cash flows and liquidity.

~~Mass Shooting Event at our Mueller Co. Facility in Albertville, Alabama.~~ On June 15, 2021, we experienced a mass shooting event at our Mueller Co. facility in Albertville, Alabama. Various claims arising from the event have been filed to date, and we anticipate that additional claims may be made and that liability under such claims, if any, is not expected to have a materially adverse effect on our results of operations or cash flows. However, the outcome of these claims, or legal proceedings, and related effects arising from this event cannot be predicted with certainty.

~~Indemnification~~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 ~~unless~~until events arise

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that would trigger a liability under the indemnities.

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

Indemnities related to the pre-closing operations of sold assets or businesses normally do not represent additional liabilities to us, but simply serve to protect these parties from potential liability associated with our obligations existing at the time of the sale. ~~As with any liability, we~~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 offer warranties on many of our products, including products related to our metrology business line, which carry an extended warranty in many instances. Our products are often utilized in harsh environmental conditions and are exposed to water and other exogenous factors such as flooding and other environmental conditions that are beyond our control. We periodically monitor and analyze our warranty experience and ~~costs periodically and~~costs. Accordingly, should specific events or issues occur, additional warranty accruals may ~~revise our accruals as necessary. Critical factors~~also be made relating to those issues or events. Factors considered in our analyses include warranty terms, specific claim situations, general incurred and projected failure rates, the nature of product failures, product and labor costs, and general business conditions.

We are party to a number of lawsuits arising in the ordinary course of business, including product liability cases for products manufactured by us or third parties. While the results of litigation cannot be predicted with certainty, we believe that the final outcome of such other litigation is not likely to have a materially adverse effect on our financial position, results of operations, cash flows or liquidity.

Note 11. Subsequent Events

On ~~July 26, 2023,~~January 25, 2024, our Board of Directors declared a dividend of ~~$0.061~~$0.064 per share on our common stock, payable on or about ~~August 21, 2023~~February 20, 2024 to stockholders of record at the close of business on ~~August 10, 2023.~~February 9, 2024.

As of February 6, 2024, we were in compliance with the required deliverables under the ABL and the waiver period terminated including the $50.0 million temporary limit on credit extensions. See Note 4.

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

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes thereto that appear elsewhere in this report. This report contains certain statements that may be deemed “forward-looking statements” within the meaning of the federal securities laws. All statements that address activities, events or developments that the Company intends, expects, plans, projects, believes or anticipates will or may occur in the future are forward-looking statements, including, without limitation, statements regarding outlooks, projections, forecasts, expectations, commitments, trend descriptions and the ability to capitalize on trends, value creation, Board of Directors and committee composition plans, long-term strategies and the execution or acceleration thereof, operational improvements, inventory positions, the benefits of capital investments, financial or operating performance including improving sales growth and driving increased margins, capital allocation and growth strategy plans, the Company’s product portfolio positioning and the demand for the Company’s products. Forward-looking statements are based on certain assumptions and assessments made by the Company in light of the Company’s experience and perception of historical trends, current conditions and expected future developments.

Actual results and the timing of events may differ materially from those contemplated by the forward-looking statements due to a number of factors, including, without limitation, ~~including~~legal, reputational, audit and financial risks resulting from previously reported cybersecurity incidents and possible future cybersecurity incidents, the ~~future impact~~effectiveness of the ~~COVID-19 pandemic on~~Company’s business continuity plans related thereto, and the Company’s ~~operations and results, including effects on the financial health of customers (including collections and inventory positions);~~ability to recover under its cybersecurity insurance policies; logistical challenges and supply chain disruptions, geopolitical conditions, including the Israel-Hamas war, public health crises, or other events; inventory and in-stock positions of our distributors and end customers; an inability to realize the anticipated benefits from our operational initiatives, including our large capital investments in Chattanooga and Kimball, Tennessee, and Decatur, Illinois, plant closures, and ~~our~~ reorganization and related strategic realignment activities; an inability to attract or retain a skilled and diverse workforce, including executive officers, increased competition related to the workforce and labor markets; an inability to protect the Company’s information systems against further service interruption, misappropriation of data or breaches of security; failure to comply with personal data protection and privacy laws; cyclical and changing demand in core markets such as municipal spending, residential construction, and natural gas distribution; government monetary or fiscal policies; the impact of adverse weather conditions; the impact of manufacturing and product performance; the impact of wage, commodity and materials price inflation; foreign exchange rate fluctuations; the impact of warranty ~~claims;~~charges and claims, and related accommodations; the strength of our brands and reputation; an inability to successfully resolve significant legal proceedings or government investigations; compliance with environmental, trade and anti-corruption laws and regulations; climate change and legal or regulatory responses thereto; changing regulatory, trade and tariff conditions; the failure to integrate and/or realize any of the anticipated benefits of ~~recent~~ acquisitions or divestitures; an inability to achieve some or all of our Environmental, Social, and Governance goals; and other factors that are described in the section entitled “RISK FACTORS” in Item 1A of the Company’s most recent Annual Report on Form 10-K and later filings on Form 10-Q, as applicable.

Forward-looking statements do not guarantee future performance and are only as of the date they are made. The Company undertakes no duty to update its forward-looking statements except as required by law. Undue reliance should not be placed on any forward-looking statements. You are advised to review any further disclosures the Company makes on related subjects in subsequent Forms 10-K, 10-Q, 8-K and other reports filed with the U.S. Securities and Exchange Commission.

Overview

Business

Approximately 60% to 65% of our 2022 net sales were associated with repair and replacement directly related to municipal water infrastructure spending, approximately 25% to 30% of net sales were related to residential construction activity and less than 10% of net sales were related to natural gas utilities spending.

We have experienced a variety of external challenges in 2023 including inflation, raw material availability and supply chain disruptions, including from the war in Ukraine and labor challenges. Additionally, due to ongoing inventory destocking by our distribution partners, lead times returning to pre-pandemic levels for most of our products and end markets adjusting to higher interest rates, especially new residential construction, we are seeing lower order rates for many products compared with the prior year. In July 2023, Blue Chip Economic Indicators forecasted an 11.6% decrease in housing starts for the calendar year 2023 as compared to the calendar year 2022. In addition to experiencing lower production volumes at many of our facilities, we continue to incur additional costs at our facilities associated with unfavorable manufacturing performance and labor which have contributed to higher costs to manufacture our products and in our capital expenditures. We expect challenging demand conditions to persist during the balance of our fiscal year 2023. We will continue to closely monitor the challenging market conditions discussed above and the related uncertainties and risks on our business.

~~Table of Contents~~

We have two reportable segments: Water Flow Solutions and Water Management Solutions. Water Flow Solutions’ portfolio includes iron gate valves, specialty valves and service brass products. Water Flow Solutions represented ~~57%~~50% of our fiscal ~~2022~~2023 net sales. Water Management Solutions’ portfolio includes fire hydrants, repair and installation, natural gas, metering, leak detection, and pressure ~~control~~management and ~~software~~control products and ~~services.~~solutions. Water Management Solutions represented ~~43%~~50% of our fiscal ~~2022~~2023 net sales.

Approximately 60% to 65% of our 2023 net sales were associated with the repair and replacement of municipal water infrastructure, approximately 25% to 30% were related to residential construction activity and approximately 5% to 10% of net sales were related to natural gas utilities and industrial applications.

In October 2023, the Israel-Hamas war caused a temporary shutdown of our facility in Ariel, Israel. While we have reopened the facility, the war increases the likelihood of supply interruptions and may hinder our ability to acquire the necessary materials we need to make our products. Supply disruptions from lack of access to materials have impacted, and continue to

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impact, our ability to produce and deliver our products from our facility in Ariel, Israel. Additionally, production has been impacted by labor availability.

As announced on October 28, 2023, we identified a cybersecurity incident impacting certain internal operations and information technology systems. Based on the information reviewed to date, we believe the unauthorized activity has been contained. All of our facilities are operational and have returned to normalized operations.

The cybersecurity incident consisted of unauthorized access and deployment of ransomware by a third party to a portion of our internal information infrastructure. The incident caused temporary disruptions and limitations of access to portions of our business applications supporting aspects of our operations including shipping, receiving and payment functions. Operational delays and investigation and remediation costs in connection with the incident adversely impacted our results for the first quarter of 2024. We have restored the impacted applications and systems. As reported on November 29, 2023, we identified a separate cybersecurity incident, which primarily related to a system that was at the end of its useful life and was already in the process of being replaced in the ordinary course of business.

In the first quarter of fiscal 2024, we incurred approximately $1.5 million of expenses related to the cybersecurity incidents. We continue to analyze and remediate the impacts of the cybersecurity incidents, including making enhancements to our cybersecurity processes and analyzing the data accessed, exfiltrated or otherwise impacted in connection with the cybersecurity incidents.

Although we believe that our channel and customer inventory levels normalized during the first quarter of 2024, the external operating environment remains uncertain. We expect to continue to face challenges emanating from the higher interest rate environment, the Israel-Hamas war, and labor inflation and availability. From a comparable perspective, in fiscal 2023, we benefited from fulfilling an elevated backlog for certain products, which has now become more normalized at lower levels with respect to many of our product lines as we have reduced short-cycle backlog across our portfolio, particularly with regard to iron gate valves and hydrant products. For our fiscal year 2024, we anticipate that consolidated net sales will decrease between 2 and 6 percent as compared with our fiscal year 2023. We anticipate stable demand in the municipal repair and replacement end market despite budgetary pressures on municipalities driven by the aging water infrastructure. Additionally, we anticipate that new residential construction activity will stabilize relative to the challenges in the preceding year where total housing starts decreased 12.9% in fiscal 2023 compared with the prior year according to Census data. In January 2024, Blue Chip Economic Indicators forecasted a 1.5% increase in housing starts for the calendar year 2024 as compared to the calendar year 2023. Finally, we anticipate that high interest rates will continue to impact new lot and land development, depending on the geography.

For the remainder of fiscal 2024, we anticipate that inflation will continue leading to a modest increase in manufacturing costs. We expect external challenges to persist during the balance of our fiscal year 2024. We will continue to monitor the market and economic conditions impacting our business and to take appropriate actions related thereto.

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Results of Operations

Three Months Ended ~~June 30,~~December 31, 2023 Compared to Three Months Ended ~~June 30,~~December 31, 2022


											Three months ended December 31, 2023
											Water Flow Solutions	Water Management Solutions	Corporate	Total
		Three months ended June 30, 2023
		Water Flow Solutions		Water Management Solutions		Corporate		Total

		(in millions)								(in millions)
Net sales	Net sales	$	150.1	$	176.5	$	—	$	326.6
Gross profit	Gross profit	$	33.6	$	66.5	$	—	$	100.1
Operating expenses:	Operating expenses:
Selling, general and administrative	Selling, general and administrative	20.9		26.5		13.2		60.6
Selling, general and administrative
Selling, general and administrative
Strategic reorganization and other charges	Strategic reorganization and other charges	0.1		1.0		2.8		3.9
Total operating expenses	Total operating expenses	21.0		27.5		16.0		64.5
Operating income (loss)	Operating income (loss)	$	12.6	$	39.0	$	(16.0)	35.6
Non-operating expenses:	Non-operating expenses:
Pension expense other than service	Pension expense other than service							0.9
Pension expense other than service
Pension expense other than service
Interest expense, net	Interest expense, net							3.8
Other expense
Income before income taxes	Income before income taxes							30.9
Income tax expense	Income tax expense							6.4
Net income	Net income							$	24.5



											Three months ended December 31, 2022
											Water Flow Solutions	Water Management Solutions	Corporate	Total
		Three months ended June 30, 2022
		Water Flow Solutions		Water Management Solutions		Corporate		Total

		(in millions)								(in millions)
Net sales	Net sales	$	195.9	$	137.3	$	—	$	333.2
Gross profit	Gross profit	$	60.8	$	37.5	$	—	$	98.3
Operating expenses:	Operating expenses:
Selling, general and administrative	Selling, general and administrative	22.7		25.5		12.6		60.8
Strategic reorganization and other charges		—		—		0.6		0.6
Selling, general and administrative
Selling, general and administrative
Strategic reorganization and other benefits
Total operating expenses	Total operating expenses	22.7		25.5		13.2		61.4
Operating income (loss)	Operating income (loss)	$	38.1	$	12.0	$	(13.2)	36.9
Non-operating expenses:	Non-operating expenses:

Pension benefit other than service

Pension benefit other than service

Pension benefit other than service	Pension benefit other than service							(0.9)
Interest expense, net	Interest expense, net							4.2
Income before income taxes	Income before income taxes							33.6
Income tax expense	Income tax expense							7.1
Net income	Net income							$	26.5

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Consolidated Analysis

Net sales in the three months ended ~~June 30,~~December 31, 2023 decreased ~~$6.6~~$58.4 million or ~~2.0%~~18.6% to ~~$326.6~~$256.4 million as compared with ~~$333.2~~$314.8 million in the prior year period primarily as a result of a decrease in ~~volume~~volumes in ~~our~~both Water Flow Solutions ~~segment,~~and Water Management Solutions, which were partially offset by higher pricing across most product lines.

Gross profit in the three months ended December 31, 2023 decreased $6.9 million or 7.4% to $86.3 million from $93.2 million in the prior year period primarily as a result of lower volumes in both Water Flow Solutions and Water Management Solutions. This decrease was partially offset by higher pricing across most of our product lines, infavorable manufacturing performance within both of our ~~Water Flow Solutions and Water Management Solutions~~ segments as well as ~~an increase in volume in our Water Management Solutions segment.~~

lower manufacturing and supply chain costs. As a result, Gross ~~profit~~margin was 33.7% in the three months ended June 30, 2023 increased $1.8 million or 1.8% to $100.1 million from $98.3 million in the prior year period primarily as a result of higher pricing across most of our product lines. This increase was partially offset by overall lower net volume, unfavorable manufacturing performance predominately in Water Flow Solutions as well as inflation. The unfavorable manufacturing performance was due to outsourcing costs, product mix, supply chain disruption and machine downtime mainly in our foundry operations. Additionally, we incurred a $4.5 million warranty accrual charge in the prior year. Gross margin was 30.6% in the three months ended June 30,December 31, 2023 as compared with ~~29.5%~~29.6% in the prior year period.

Selling, general and administrative expenses (“SG&A”) in the three months ended ~~June 30,~~December 31, 2023 decreased ~~$0.2~~$6.0 million or ~~0.3%~~9.5% to ~~$60.6~~$56.9 million from ~~$60.8~~$62.9 million in the prior year period primarily due to a decrease in personnel expense and ~~software licensing~~sales commission expense, partially offset by foreign exchange effects and higher ~~inflation and foreign exchange.~~costs associated with inflation. SG&A as a percentage of net sales was ~~18.6%~~22.2% and ~~18.2%~~20.0% for the three months ended ~~June 30,~~December 31, 2023 and ~~June 30,~~December 31, 2022, respectively.

Strategic reorganization and other charges in the three months ended ~~June 30,~~December 31, 2023 was ~~$3.9~~$6.6 million which primarily consisted of ~~severance~~expenses associated with our previously announced leadership transition, approximately $1.5 million of expenses related to the cybersecurity incidents, and certain transaction-related expenses. Strategic reorganization and other charges for the three months ended ~~June 30,~~December 31, 2022 was ~~$0.6~~a benefit of $3.7 million, which primarily consisted of ~~costs associated with~~a $4.0 million gain, before tax, on the ~~closures~~sale of ~~our facilities in~~the Aurora, Illinois ~~and Surrey, British Columbia, Canada.~~facility, which was partially offset by certain transaction-related expenses.

Net interest expense in the three months ended ~~June 30,~~December 31, 2023 declined $0.4 million or ~~9.5%~~10.8% to ~~$3.8~~$3.3 million as compared with ~~$4.2~~$3.7 million in the prior year period primarily due to higher interest income as a result of higher interest ~~rates.~~rates, partially offset by lower capitalized interest. The components of net interest expense are provided below:


		Three months ended
	Three months ended							Three months ended
	December 31,							December 31,
	2023						2023		2022
		June 30,
		2023		2022

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

Other expense in the three months ended December 31, 2023 was $1.6 million from the release of an indemnification receivable related to an expired uncertain tax position. There was no Other expense in the three months ended December 31, 2022.

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


		Three months ended					Three months ended
		June 30,
		2023		2022
	December 31,										December 31,
	2023								2023			2022
U.S. federal statutory income tax rate	U.S. federal statutory income tax rate	21.0	%	21.0	%	U.S. federal statutory income tax rate	21.0	%		21.0	%
Adjustments to reconcile to the effective tax rate:	Adjustments to reconcile to the effective tax rate:
State income taxes, net of federal benefit	State income taxes, net of federal benefit	3.2		3.3
State income taxes, net of federal benefit
State income taxes, net of federal benefit
Excess tax deficit related to stock-based compensation
Tax credits	Tax credits	(3.5)		(3.0)
Global Intangible Low-Taxed Income	Global Intangible Low-Taxed Income	1.1		1.1
Foreign income tax rate differential	Foreign income tax rate differential	(2.2)		(1.7)
Nondeductible compensation	Nondeductible compensation	0.9		0.9
Basis difference in foreign investment		—		(0.1)
Uncertain tax positions
Valuation allowances
Other	Other	0.2		(0.4)
Effective income tax rate	Effective income tax rate	20.7	%	21.1	%	Effective income tax rate	15.4	%		23.5	%

During the three months ended December 31, 2023, we recorded $1.6 million in income tax benefits due to the release of an uncertain tax position that expired on December 31, 2023.

Segment Analysis

Water Flow Solutions

Net sales in the three months ended ~~June 30,~~December 31, 2023 decreased ~~$45.8~~$24.3 million or ~~23.4%~~14.7% to ~~$150.1~~$141.3 million as compared with ~~$195.9~~$165.6 million in the prior year period primarily as a result of lower volumes for ~~iron gate valve and service brass products~~most product lines partially offset by higher pricing across most product ~~lines and volume growth in specialty valve products.~~lines.

Gross profit in the three months ended ~~June 30,~~December 31, 2023 ~~decreased $27.2~~remained unchanged at $46.6 million ~~or 44.7% to $33.6 million from $60.8 million~~as compared with the prior year period. Gross margin was 33.0% in the three months ended December 31, 2023 and 28.1% in the prior year period. This ~~decrease~~increase was primarily a result of ~~lower volume, unfavorable sales mix and~~ higher ~~cost of sales associated with unfavorable~~pricing across most product lines, favorable manufacturing performance ~~including inefficiencies~~driven by overhead, material and ~~start-up~~labor efficiencies, as well as lower manufacturing and supply chain costs, ~~for the new brass foundry, and inflation,~~ which were partially offset by ~~higher pricing. Gross margin was 22.4% in the three months ended June 30, 2023 and 31.0% in the prior year period.~~lower volumes across most product lines.

SG&A in the three months ended ~~June 30,~~December 31, 2023 decreased ~~$1.8~~$3.2 million to ~~$20.9~~$19.2 million from ~~$22.7~~$22.4 million in the prior year period primarily as a result of lower personnel expenses and ~~software licensing~~sales commission expense partially offset by higher costs associated with inflation. SG&A as a percentage of net sales was ~~13.9%~~13.6% and ~~11.6%~~13.5% in the three months ended ~~June 30,~~December 31, 2023 and 2022, respectively.

Water Management Solutions

Net sales in the three months ended ~~June 30,~~December 31, 2023 ~~increased $39.2~~decreased $34.1 million or ~~28.6%~~22.9% to ~~$176.5~~$115.1 million as compared with ~~$137.3~~$149.2 million in the prior year period primarily as a result of lower volumes in certain product lines partially offset by higher pricing across most product lines and an increase in volumes in gas products.

Gross profit in the three months ended December 31, 2023 was $39.7 million as compared with $46.6 million in the prior year period. Gross margin increased to 34.5% in the three months ended December 31, 2023 as compared with 31.2% in the prior year period primarily as a result of higher pricing across most ~~product~~products lines, favorable manufacturing performance driven by labor and ~~increased volumes mainly in hydrant~~overhead efficiencies, as well as lower manufacturing and ~~water management applications products.~~

Gross profit in the three months ended June 30, 2023 was $66.5 million as compared with $37.5 million in the prior year period. Gross margin increased to 37.7% in the three months ended June 30, 2023 as compared with 27.3% in the prior year period primarily as a result of higher pricing and increased volumes,supply chain costs, which were partially offset by ~~higher cost of sales associated with unfavorable manufacturing performance, largely due to higher costs as a result of outsourcing, as well as inflation.~~lower volumes across most product lines.

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SG&A in the three months ended ~~June 30,~~December 31, 2023 ~~increased $1.0~~decreased $2.4 million to ~~$26.5~~$24.6 million from ~~$25.5~~$27.0 million in the prior year period primarily due to ~~inflation~~lower personnel expenses, engineering fees, and sales commission expenses, which were partially offset by unfavorable foreign currency fluctuation ~~which was partially offset by lower personnel expenses.~~and higher costs associated with inflation. SG&A as a percentage of net sales was ~~15.0%~~21.4% and ~~18.6%~~18.1% in the three months ended ~~June 30,~~December 31, 2023 and 2022, respectively.

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Corporate

SG&A ~~increased $0.6~~decreased $0.4 million to ~~$13.2~~$13.1 million in the three months ended ~~June 30,~~December 31, 2023 as compared with ~~$12.6~~$13.5 million in the three months ended ~~June 30,~~December 31, 2022 primarily as a result of ~~inflation and unfavorable foreign currency fluctuation partially offset by~~ lower personnel ~~expenses.~~

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~~Nine Months Ended June 30, 2023 Compared to Nine Months Ended June 30, 2022~~

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

~~Consolidated Analysis~~

Net sales in the nine months ended June 30, 2023 increased $58.3 million or 6.4% to $974.3 million as compared with $916.0 million in the prior period as a result of higher pricing across most product lines and an increase in Water Management Solutions’ volume, partially offset by a decrease in volumes in our Water Flow Solutions segment.

Gross profit in the nine months ended June 30, 2023 increased $12.4 million or 4.4% to $291.1 million from $278.7 million in the prior year period primarily as a result of higher pricing across most product lines, partially offset by net overall lower

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volume, unfavorable manufacturing performance, including outsourcing costs, and inflation. Additionally, we incurred a $4.5 million warranty accrual charge in the prior year. Gross margin was 29.9% in the nine months ended June 30, 2023 as compared with 30.4% in the prior year period.

SG&A in the nine months ended June 30, 2023 increased $12.6 million or 7.2% to $187.7 million from $175.1 million in the prior year period primarily as a result of higher personnel expenses, inflation, professional fees and increased travel and entertainment expenses partially offset by ~~lower software licensing expense. SG&A as a percentage of net sales was 19.3%~~unfavorable foreign currency fluctuations, and ~~19.1% for the nine months ended June 30, 2023 and 2022, respectively.~~higher costs associated with inflation.

Strategic reorganization and other charges in the nine months ended June 30, 2023 was $0.9 million which primarily related to severance and certain transaction-related expenses partially offset from a gain on the sale of our Aurora, Illinois facility. Strategic reorganization and other charges in the nine months ended June 30, 2022 was $3.6 million, which primarily related to the Albertville tragedy and termination benefits associated with our facility closures in Aurora, Illinois and Surrey, British Columbia, Canada.

Net interest expense in the nine months ended June 30, 2023 decreased $1.6 million or 12.3% to $11.4 million as compared with the prior year period of $13.0 million primarily as a result of increased interest income associated with higher interest rates. The components of net interest expense are provided below:

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

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

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

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~~Segment Analysis~~

~~Water Flow Solutions~~

Net sales in the nine months ended June 30, 2023 decreased $61.8 million or 11.6% to $472.9 million as compared with $534.7 million in the prior year period primarily as a result of lower sales volume of iron gate valve products partially offset by increased pricing across most product lines.

Gross profit in the nine months ended June 30, 2023 decreased $52.5 million or 30.9% to $117.4 million from $169.9 million in the prior year period. The decrease was primarily a result of lower volumes, higher cost of sales associated with unfavorable manufacturing performance, including inefficiencies and start-up costs for the new brass foundry and inflation which were partially offset by higher pricing. Gross margin was 24.8% in the nine months ended June 30, 2023 and 31.8% in the prior year period.

SG&A in the nine months ended June 30, 2023 increased $0.2 million or 0.3% to $65.3 million from $65.1 million in the prior year period primarily as a result of inflation partially offset by lower personnel expenses. SG&A as a percentage of net sales was 13.8% and 12.2% in the nine months ended June 30, 2023 and 2022, respectively.

~~Water Management Solutions~~

Net sales in the nine months ended June 30, 2023 increased $120.1 million or 31.5% to $501.4 million as compared with $381.3 million in the prior year period primarily as a result of higher pricing across most of the segment’s product lines and increased volumes, mainly in our hydrant products.

Gross profit in the nine months ended June 30, 2023 increased $64.9 million or 59.7% to $173.7 million as compared with $108.8 million in the prior year period. Gross margin increased to 34.6% in the nine months ended June 30, 2023 as compared with 28.5% in the prior year period primarily as a result of higher pricing and higher volumes partially offset by unfavorable manufacturing performance and inflation.

SG&A increased $8.7 million or 11.8% to $82.2 million from $73.5 million in the prior year period primarily as a result of professional fees, inflation, and increased personnel expenses. SG&A as a percentage of net sales was 16.4% and 19.3% in the nine months ended June 30, 2023 and 2022, respectively.

~~Corporate~~

SG&A increased $3.7 million or 10.1% to $40.2 million in the nine months ended June 30, 2023 as compared with $36.5 million in the nine months ended June 30, 2022 primarily as a result of inflation and higher personnel expenses.

Liquidity and Capital Resources

We had cash and cash equivalents on hand of ~~$141.2~~$216.7 million at ~~June 30,~~December 31, 2023 and ~~$162.3~~$162.4 million of additional borrowing capacity under our ABL based on ~~June 30,~~December 31, 2023 data. ~~Undistributed earnings from our subsidiaries in Israel, Canada, and China are considered~~However, during the waiver period, as described more fully below, credit extensions were temporarily limited to ~~be permanently invested outside the United States.~~$50.0 million. At ~~June 30,~~December 31, 2023, cash and cash equivalents included ~~$59.7~~$78.5 million, ~~$7.5~~$9.2 million, and ~~$11.1~~$6.8 million in Israel, Canada, and China, respectively.

We declared a quarterly dividend of ~~$0.061~~$0.064 per share on ~~July 26, 2023,~~January 25, 2024, payable on or about ~~August 21, 2023~~February 20, 2024 to stockholders of record as of ~~August 10, 2023,~~February 9, 2024, which will result in an estimated ~~$9.5~~$10.0 million cash outlay.

We did not repurchase any of our outstanding common stock during the ~~nine~~three months ended ~~June 30,~~December 31, 2023 under our publicly announced program and had ~~$100.0~~$90.0 million remaining ofunder our share repurchase authorization.

The ABL and 4.0% Senior Notes contain customary representations and warranties, covenants and provisions governing an event of default. The covenants restrict our ability to engage in certain specified activities, including but not limited to the payment of dividends and the redemption of our common stock.

Net cash provided by operating activities was ~~$52.5~~$67.9 million during the ~~nine~~three months ended ~~June 30,~~December 31, 2023 as compared with net cash ~~provided by~~used in operating activities of ~~$20.5~~$6.5 million in the prior year period. The increase in net operating cash flow was primarily driven by improvements in working capital compared with the prior year ~~period, including~~period. These included a ~~lesser~~smaller increase in Inventories, ~~and~~ higher Receivables collections, ~~partially offset by higher~~and lower Accounts payable ~~turnover.~~turnover partially as a result of payment delays associated with the cybersecurity incidents.

Capital expenditures were ~~$32.4~~$5.7 million in the ~~nine~~three months ended ~~June 30,~~December 31, 2023 as compared with ~~$36.7~~$9.9 million in the prior year period. Capital expenditures decreased primarily as a result of lower expenditures associated with the new Decatur foundry

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as compared with the prior year period. For fiscal year ~~2023,~~2024, we have provided guidance that our capital expenditures are expected to be between ~~$50.0~~$45.0 million and ~~$55.0~~$50.0 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,~~needs, income tax payments, capital expenditures and debt service obligations as they become due through the twelve months from the date of this filing. However, our ability to make these payments will depend largely on our future operating performance, which may be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control.

ABL Agreement

Our ABL is provided by a syndicate of banking institutions and consists of a revolving credit facility ~~for up to~~of $175.0 million in ~~borrowings~~borrowing capacity that expires on July ~~28,~~29, 2025. ~~The~~Included in the ABL ~~permits us~~is the ability to borrow up to $25.0 million of swing line loans and up to $60.0 million of letters of credit. The ABL permits us to increase the size of the credit facility by an additional $150.0 million in certain circumstances subject to adequate borrowing base availability.

~~On April 5,~~In December 2023, we ~~amended~~obtained a waiver under our ABL (“ABL Waiver”) to provide for additional time associated with certain technical reporting requirements that were delayed as a result of the ~~ABL. This amendment replaced LIBOR-based loans with SOFR-based loans plus an adjustment~~cybersecurity incident announced on October 28, 2023. Under the ABL Waiver, the maximum aggregate amount of ~~10 basis points, among~~borrowings and other ~~immaterial modifications.~~credit extensions under the ABL was limited to $50.0 million at any time outstanding until all of the required reports were delivered. During our first fiscal quarter of 2024, we delivered the required reports and on February 6, 2024, the ABL Waiver was terminated. Accordingly, we are no longer subject to any additional restrictions or borrowing limitations under the ABL, including the $50.0 million temporary limit on credit extensions.

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Borrowings under the ABL bear interest at a floating rate equal to ~~SOFR~~the Secured Overnight Financing Rate (“SOFR”) plus an adjustment of 10 basis points plus an applicable margin ranging from 200 to 225 basis points, or a base rate, as defined in the ABL, plus an applicable margin range from 100 to 125 basis points. At ~~June 30,~~December 31, 2023, the applicable margin was 200 basis points for SOFR-based loans, and 100 basis points for base rate loans.

The ABL is subject to mandatory prepayments if total outstanding borrowings under the ABL are greater than the aggregate commitments under the revolving credit facility or if we dispose of overdue accounts receivable in certain circumstances. The borrowing base under the ABL is equal to the sum of (a) 85% of the value of eligible accounts receivable and (b) the lesser of (i) 70% of the value of eligible inventories or (ii) 85% of the net orderly liquidation value of eligible inventory, less certain reserves. Prepayments can be made at any time ~~with no~~without penalty.

Substantially all of our U.S. subsidiaries are borrowers under the ABL and are jointly and severally liable for outstanding borrowings. Our obligations under the ABL are secured by a first-priority perfected lien on all of our U.S. inventories, accounts receivable, certain cash and other related assets.

4.0% Senior Unsecured Notes

On May 28, 2021, we privately issued $450.0 million of 4.0% Senior Unsecured Notes (“4.0% Senior Notes”), which mature on June 15, 2029 and bear interest at 4.0%, paid semi-annually in June and December. We capitalized $5.5 million of financing costs, which are being amortized over the term of the 4.0% Senior Notes using the effective interest method. ~~Proceeds from the 4.0% Senior Notes, along with cash on hand, were used to redeem previously existing 5.5% Unsecured Senior Notes.~~ Substantially all of our U.S. subsidiaries guarantee the 4.0% Senior Notes, which are subordinate to borrowings under our ABL. Based on quoted market prices, which is a Level 1 measurement, the outstanding 4.0% Senior Notes had a fair value of ~~$400.7~~$413.0 million at ~~June 30,~~December 31, 2023.

An indenture governing the 4.0% Senior Notes (“Indenture”) contains customary covenants and events of default, including covenants that limit our ability to incur certain debt and liens. ~~There are no financial maintenance covenants associated with the Indenture.~~ We believe we were in compliance with these covenants at ~~June 30,~~December 31, 2023. There are no financial maintenance covenants associated with the Indenture.

~~As set forth in the Indenture, we~~We may redeem some or all of the 4.0% Senior Notes at any time prior to June 15, 2024 at certain “make-whole” redemption prices and on or after June 15, 2024 at specified redemption prices. Additionally, we may redeem up to 40% of the aggregate principal amount of the 4.0% Senior Notes at any time prior to June 15, 2024 with the net proceeds of specified equity offerings at specified redemption ~~prices.~~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 4.0% Senior Notes at a price equal to 101% of the outstanding principal amount.

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

Moody’s

Standard & Poor’s

Moody’s

Standard & Poor’s

June 30,

September 30,

June 30,

September 30,

2023

2022

2023

2022

December 31,

September 30,

December 31,

September 30,

2023

Corporate credit rating

Ba1

Corporate credit rating

Ba1

ABL Agreement

Not rated

ABL Agreement

Not rated

4.0% Senior Notes

Ba1

4.0% Senior Notes

Ba1

Outlook

Stable

Outlook

Stable

These ratings are not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agencies.

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Material Cash Requirements

We enter into a variety of contractual obligations as part of our normal operations in addition to capital expenditures. As of ~~June 30,~~December 31, 2023, we have (i) debt obligations related to our $450.0 million 4.0% Senior Notes which mature in 2029 and include annual cash interest payments of $18.0 million in ~~2023 annually~~2024 through 2029, (ii) cumulative cash obligations of ~~$30.8~~$37.4 million for operating leases through 2033 and ~~$1.6~~$1.1 million for finance leases through ~~2027,~~2028, and (iii) purchase obligations for raw materials and other parts of approximately ~~$89.6~~$107.4 million which we expect to incur during the next 12 ~~months.~~months and $2.0 million beyond December 31, 2024. Additionally, we may continue to strengthen our systems, cybersecurity training, policies, programs, response plans and other similar measures as a result of the cybersecurity incidents. We expect to fund these cash requirements from cash on hand and cash generated from operations.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as “structured finance” or “special purpose” entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, at ~~June 30,~~December 31, 2023 we did not have any undisclosed borrowings, debt, derivative contracts or synthetic leases. Therefore, we were not exposed to any financing, liquidity, market or credit risk that could have arisen had we engaged in such relationships.

We use letters of credit and surety bonds in the ordinary course of business to ensure the performance of contractual obligations. At ~~June 30,~~December 31, 2023, we had ~~$12.5~~$12.4 million of letters of credit and ~~$20.4~~$13.7 million of surety bonds outstanding.

Seasonality

Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. These estimates are based upon experience and on various other assumptions we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We consider an accounting estimate to be critical if changes in the estimate that are reasonably likely to occur over time or the use of reasonably different estimates could have a material impact on our financial condition or results of operations. Our critical accounting estimates can be found in the “Critical Accounting Estimates” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s ~~2022~~2023 Annual Report on Form 10-K. There have been no changes in the Company’s determination of critical accounting ~~policies and~~ estimates since September 30, ~~2022.~~2023.

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Item 4. CONTROLS AND PROCEDURES

There have been no changes in our internal control over financial reporting which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended ~~June 30,~~December 31, 2023.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

Our Chief Executive Officer and our Chief Financial Officer have concluded, based on an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) by our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, that such disclosure controls and procedures were effective as of the end of the period covered by this report.

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Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls can prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations in all control systems, including the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of one or more persons. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and, while our disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to operate effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.

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PART II OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Refer to the information provided in Note 10. to the Notes to the Condensed Consolidated Financial Statements presented in Item 1. of Part I of this report.

Item 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in PART I, “Item 1A. RISK FACTORS” in our 2023 Annual Report on Form 10-K, each of which could materially affect our business, financial condition or operating results. These described risks are not the only risks facing us. Additional risks and uncertainties not known to us or that we deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

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

~~During the three months ended June 30, 2023, 1,589 shares were surrendered to us to pay the tax withholding obligations of participants in connection with the vesting of equity awards.~~

In 2015, we announced the authorization of a stock repurchase program for up to $50.0 million of our common stock. The program does not commit us to a particular timing or quantity of purchases, and we may suspend or discontinue the program at any time. In 2017, we announced an increase to the authorized amount of this program to $250.0 million.

We did not repurchase any shares of our common stock during the three months ended ~~June 30,~~December 31, 2023 pursuant to this authorization, and we had ~~$100.0~~$90.0 million remaining under our share repurchase authorization.

During the three months ended December 31, 2023, 109,961 shares were surrendered to us to pay the tax withholding obligations of participants in connection with the vesting of equity awards.


Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum dollar value of shares that may yet be purchased under the plans or programs (in millions)
October 1-31, 2023	129	$	12.58	—	$	90.0
November 1-30, 2023	95,288	13.24		—	90.0
December 1-31, 2023	14,544	13.69		—	$	90.0
Total	109,961	$	13.30	—

Item 5. OTHER INFORMATION

(a) In December 2023, we obtained a waiver under our ABL (“ABL Waiver”) to provide for additional time associated with certain technical reporting requirements that were delayed as a result of the cybersecurity incident announced on October 28, 2023. Under the ABL Waiver, the maximum aggregate amount of borrowings and other credit extensions under the ABL was limited to $50.0 million at any time outstanding until all of the required reports were delivered. During our first fiscal quarter of 2024, we delivered the required reports and on February 6, 2024, the ABL Waiver was terminated. Accordingly, we are no longer subject to any additional restrictions or borrowing limitations under the ABL including the $50.0 million temporary limit on credit extensions.

(c) No officers or directors, as defined in Rule 16a-1(f), adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as defined in Regulation S-K Item 408, during the first quarter of fiscal 2024.

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Item 6. EXHIBITS


Exhibit No.						Document
10.1						~~Sixth Amendment~~Limited Waiver Agreement to Credit Agreement, Dated December 11, 2023, Incorporated by reference to Exhibit 10.19.7 to Mueller Water Products, inc. Form 10-K (File no. 001-32892) filed on December 14, 2023.
10.2*						Notice of Early Termination of Waiver Period, dated ~~April 5, 2023~~February 6, 2024.
31.1*						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*						The following financial information from the Quarterly Report on Form 10-Q for the quarter ended ~~June 30,~~December 31, 2023, formatted in XBRL (Extensible Business Reporting Language), (i) the Unaudited Condensed Consolidated Balance Sheets, (ii) the Unaudited Condensed Consolidated Statements of Operations, (iii) the Unaudited Condensed Consolidated Statements of Comprehensive Income, (iv) the Unaudited Condensed Consolidated Statements of Stockholders' Equity, (v) the Unaudited Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Unaudited Condensed Consolidated Financial Statements.
104*						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed or furnished with this quarterly report

SIGNATURES

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


		MUELLER WATER PRODUCTS, INC.
Date:	~~August 4, 2023~~February 9, 2024	By:	/s/ Suzanne G. Smith
			Suzanne G. Smith
			Chief Accounting Officer

3532


	Nine months ended June 30, 2023
	Water Flow Solutions		Water Management Solutions		Corporate		Total

	(in millions)
Net sales	$	472.9	$	501.4	$	—	$	974.3
Gross profit	117.4		173.7		—		$	291.1
Operating expenses:
Selling, general and administrative	65.3		82.2		40.2		187.7
Strategic reorganization and other charges (benefits)	0.1		1.2		(0.4)		0.9
Total operating expenses	65.4		83.4		39.8		188.6
Operating income (loss)	$	52.0	$	90.3	$	(39.8)	102.5
Non-operating expenses:
Pension expense other than service							2.8
Interest expense, net							11.4
Income before income taxes							88.3
Income tax expense							20.0
Net income							$	68.3

	Nine months ended June 30, 2022
	Water Flow Solutions		Water Management Solutions		Corporate		Total

	(in millions)
Net sales	$	534.7	$	381.3	$	—	$	916.0
Gross profit	169.9		108.8		—		$	278.7
Operating expenses:
Selling, general and administrative	65.1		73.5		36.5		175.1
Strategic reorganization and other charges	—		0.2		3.4		3.6
Total operating expenses	65.1		73.7		39.9		178.7
Operating income (loss)	$	104.8	$	35.1	$	(39.9)	100.0
Non-operating expenses:
Pension benefit other than service							(2.9)
Interest expense, net							13.0
Income before income taxes							89.9
Income tax expense							20.4
Net income							$	69.5