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 December 31, ~~2019~~2020

☐ 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)

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 ~~158,035,863~~158,435,893 shares of $0.01 par value common stock of the registrant outstanding at January 31, ~~2020,~~2021, which trade under the ticker symbol MWA on the New York Stock Exchange.

PART I

Item 1. FINANCIAL STATEMENTS

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


							December 31,		September 30,
		December 31,		September 30,			2020		2020
		2019		2019
		(in millions, except share amounts)							(in millions, except share amounts)
Assets:	Assets:					Assets:
Cash and cash equivalents	Cash and cash equivalents	$	136.8	$	176.7	Cash and cash equivalents	$	220.8	$	208.9
Restricted cash						Restricted cash	2.2		0
Receivables, net	Receivables, net	132.1		172.8		Receivables, net	157.4		180.8
Inventories	Inventories	212.9		191.4		Inventories	167.2		162.5
Other current assets	Other current assets	25.7		26.0		Other current assets	30.3		29.0
Total current assets	Total current assets	507.5		566.9		Total current assets	577.9		581.2
Property, plant and equipment, net	Property, plant and equipment, net	224.5		217.1		Property, plant and equipment, net	261.4		253.8
Goodwill	Goodwill	97.5		95.7		Goodwill	101.1		99.8
Intangible assets	Intangible assets	428.0		433.7		Intangible assets	403.8		408.9
Other noncurrent assets	Other noncurrent assets	51.5		23.9		Other noncurrent assets	53.3		51.3
Total assets	Total assets	$	1,309.0	$	1,337.3	Total assets	$	1,397.5	$	1,395.0

Liabilities and equity:	Liabilities and equity:					Liabilities and equity:
Current portion of long-term debt	Current portion of long-term debt	$	0.9	$	0.9	Current portion of long-term debt	$	1.1	$	1.1
Accounts payable	Accounts payable	58.6		84.6		Accounts payable	58.2		67.3
Other current liabilities	Other current liabilities	63.9		93.0		Other current liabilities	77.0		86.6
Total current liabilities	Total current liabilities	123.4		178.5		Total current liabilities	136.3		155.0
Long-term debt	Long-term debt	445.5		445.4		Long-term debt	446.6		446.5
Deferred income taxes	Deferred income taxes	89.5		87.9		Deferred income taxes	99.2		96.5
Other noncurrent liabilities	Other noncurrent liabilities	55.6		33.2		Other noncurrent liabilities	60.2		56.3
Total liabilities	Total liabilities	714.0		745.0		Total liabilities	742.3		754.3

Commitments and contingencies (Note 13.)
Commitments and contingencies (Note 11.)						Commitments and contingencies (Note 11.)

Common stock: 600,000,000 shares authorized; 157,889,045 and 157,462,140 shares outstanding at December 31, 2019 and September 30, 2019, respectively		1.6		1.6
Common stock: 600,000,000 shares authorized; 158,315,601 and 158,064,750 shares outstanding at December 31, 2020 and September 30, 2020, respectively						Common stock: 600,000,000 shares authorized; 158,315,601 and 158,064,750 shares outstanding at December 31, 2020 and September 30, 2020, respectively	1.6		1.6
Additional paid-in capital	Additional paid-in capital	1,401.3		1,410.7		Additional paid-in capital	1,370.9		1,378.0
Accumulated deficit	Accumulated deficit	(775.9)		(786.2)		Accumulated deficit	(697.6)		(714.2)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(32.0)		(36.0)		Accumulated other comprehensive loss	(19.7)		(24.7)
Total Company stockholders’ equity		595.0		590.1
Noncontrolling interest		—		2.2
Total equity		595.0		592.3
Total stockholders’ equity						Total stockholders’ equity	655.2		640.7
Total liabilities and equity	Total liabilities and equity	$	1,309.0	$	1,337.3	Total liabilities and equity	$	1,397.5	$	1,395.0

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

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


							Three months ended
		Three months ended							December 31,
		December 31,							2020		2019
		2019		2018
		(in millions, except per share amounts)							(in millions, except per share amounts)
Net sales	Net sales	$	212.6	$	192.8	Net sales	$	237.4	$	212.6
Cost of sales	Cost of sales	140.0		132.7		Cost of sales	159.0		140.0
Gross profit	Gross profit	72.6		60.1		Gross profit	78.4		72.6
Operating expenses:	Operating expenses:					Operating expenses:
Selling, general and administrative	Selling, general and administrative	49.9		41.0		Selling, general and administrative	49.2		49.9
Strategic reorganization and other charges	Strategic reorganization and other charges	2.4		3.2		Strategic reorganization and other charges	1.4		2.4
Total operating expenses	Total operating expenses	52.3		44.2		Total operating expenses	50.6		52.3
Operating income	Operating income	20.3		15.9		Operating income	27.8		20.3
Other expenses (income):	Other expenses (income):					Other expenses (income):
Pension costs (benefits) other than service		(0.7)		(0.1)
Pension benefit other than service						Pension benefit other than service	(0.8)		(0.7)
Interest expense, net	Interest expense, net	7.4		5.5		Interest expense, net	6.1		7.4
Walter Energy Accrual	Walter Energy Accrual	0.2		37.4		Walter Energy Accrual	0		0.2
Net other expense		6.9		42.8
Income (loss) before income taxes		13.4		(26.9)
Income tax expense (benefit)		3.1		(5.9)
Net income (loss)		$	10.3	$	(21.0)
Net other expenses						Net other expenses	5.3		6.9
Income before income taxes						Income before income taxes	22.5		13.4
Income tax expense						Income tax expense	5.8		3.1
Net income						Net income	$	16.7	$	10.3

Net income (loss) per share:
Net income per share:						Net income per share:
Basic	Basic	$	0.07	$	(0.13)	Basic	$	0.11	$	0.07
Diluted	Diluted	$	0.06	$	(0.13)	Diluted	$	0.11	$	0.06

Weighted average shares outstanding:	Weighted average shares outstanding:					Weighted average shares outstanding:
Basic	Basic	157.7		157.7		Basic	158.1		157.7
Diluted	Diluted	158.7		158.8		Diluted	158.8		158.7

Dividends declared per share	Dividends declared per share	$	0.0525	$	0.0500	Dividends declared per share	$	0.0550	$	0.0525

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

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


		Three months ended							Three months ended
		December 31,							December 31,
		2019		2018			2020		2019
		(in millions)
Net income (loss)		$	10.3	$	(21.0)
							(in millions)
Net income						Net income	$	16.7	$	10.3
Other comprehensive income (loss):	Other comprehensive income (loss):					Other comprehensive income (loss):
Pension	Pension	0.7		0.5		Pension	0.7		0.7
Income tax effects	Income tax effects	(0.2)		(0.1)		Income tax effects	(0.2)		(0.2)
Foreign currency translation	Foreign currency translation	3.5		(1.2)		Foreign currency translation	4.5		3.5
		4.0		(0.8)			5.0		4.0
Comprehensive income (loss)		$	14.3	$	(21.8)
Comprehensive income						Comprehensive income	$	21.7	$	14.3

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

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)


							Three months ended
		Three months ended							December 31,
		December 31,							2020		2019
		2019		2018
		(in millions)							(in millions)
Common stock	Common stock					Common stock
Balance, beginning of period	Balance, beginning of period	$	1.6	$	1.6	Balance, beginning of period	$	1.6	$	1.6
Change in common stock at par value	Change in common stock at par value	—		—		Change in common stock at par value	0		0
Balance, end of period	Balance, end of period	1.6		1.6		Balance, end of period	1.6		1.6

Additional paid-in-capital
Additional paid-in capital						Additional paid-in capital
Balance, beginning of period	Balance, beginning of period	1,410.7		1,444.5		Balance, beginning of period	1,378.0		1,410.7
Dividends declared	Dividends declared	(8.3)		(7.9)		Dividends declared	(8.7)		(8.3)

Buyout of noncontrolling interest	Buyout of noncontrolling interest	(3.2)		—		Buyout of noncontrolling interest	0		(3.2)
Shares retained for employee taxes	Shares retained for employee taxes	(0.7)		(1.2)		Shares retained for employee taxes	(0.9)		(0.7)
Stock-based compensation	Stock-based compensation	1.3		1.7		Stock-based compensation	1.9		1.3
Stock issued under stock compensation plan	Stock issued under stock compensation plan	1.4		3.1		Stock issued under stock compensation plan	0.6		1.4
Balance, end of period	Balance, end of period	1,401.3		1,440.2		Balance, end of period	1,370.9		1,401.3

Accumulated deficit	Accumulated deficit					Accumulated deficit
Balance, beginning of period	Balance, beginning of period	(786.2)		(850.0)		Balance, beginning of period	(714.2)		(786.2)
Net income (loss)		10.3		(21.0)
Net income						Net income	16.7		10.3
Cumulative effect of accounting change						Cumulative effect of accounting change	(0.1)		0
Balance, end of period	Balance, end of period	(775.9)		(871.0)		Balance, end of period	(697.6)		(775.9)

Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)					Accumulated other comprehensive income (loss)
Balance, beginning of period	Balance, beginning of period	(36.0)		(32.8)		Balance, beginning of period	(24.7)		(36.0)
Other comprehensive income (loss)	Other comprehensive income (loss)	4.0		(0.8)		Other comprehensive income (loss)	5.0		4.0
Balance, end of period	Balance, end of period	(32.0)		(33.6)		Balance, end of period	(19.7)		(32.0)

Noncontrolling interest	Noncontrolling interest					Noncontrolling interest
Balance, beginning of period	Balance, beginning of period	2.2		1.5		Balance, beginning of period	0		2.2
Acquisition of joint venture partner’s interest	Acquisition of joint venture partner’s interest	(2.2)		—		Acquisition of joint venture partner’s interest	0		(2.2)
Net income		—		0.2
Balance, end of period	Balance, end of period	—		1.7		Balance, end of period	0		0

Total stockholders' equity	Total stockholders' equity	$	595.0	$	538.9	Total stockholders' equity	$	655.2	$	595.0

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

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


							Three months ended
		Three months ended							December 31,
		December 31,							2020		2019
		2019		2018
		(in millions)							(in millions)
Operating activities:	Operating activities:					Operating activities:
Net income (loss)		$	10.3	$	(21.0)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net income						Net income	$	16.7	$	10.3
Adjustments to reconcile net income to net cash provided by (used in) operating activities:						Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation	Depreciation	7.0		6.1		Depreciation	7.7		7.0
Amortization	Amortization	7.0		6.0		Amortization	7.0		7.0
Stock-based compensation	Stock-based compensation	1.3		1.7		Stock-based compensation	1.9		1.3
Retirement plans	Retirement plans	0.7		0.3		Retirement plans	(0.5)		0.7
Deferred income taxes	Deferred income taxes	1.0		(2.2)		Deferred income taxes	1.6		1.0

Other, net	Other, net	(0.4)		1.2		Other, net	1.4		(0.4)
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Receivables	Receivables	41.0		57.7		Receivables	24.0		41.0
Inventories	Inventories	(21.0)		(21.9)		Inventories	(4.8)		(21.0)
Other assets	Other assets	3.6		(3.5)		Other assets	(1.3)		3.6
Accounts payable	Accounts payable	(26.0)		(32.0)		Accounts payable	(9.4)		(26.0)
Walter Energy Accrual		(22.0)		37.4
Walter Energy accrual						Walter Energy accrual	0		(22.0)
Other current liabilities	Other current liabilities	(12.8)		(12.2)		Other current liabilities	(9.9)		(12.8)
Long-term liabilities		(2.1)		(7.7)
Net cash (used in) provided by operating activities		(12.4)		9.9
Other noncurrent liabilities						Other noncurrent liabilities	(0.3)		(2.1)
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	34.1		(12.4)
Investing activities:	Investing activities:					Investing activities:
Business acquisitions, net of cash received		—		(123.0)
Capital expenditures	Capital expenditures	(15.2)		(15.9)		Capital expenditures	(15.6)		(15.2)
Proceeds from sales of assets	Proceeds from sales of assets	0.1		—		Proceeds from sales of assets	0.1		0.1
Net cash used in investing activities	Net cash used in investing activities	(15.1)		(138.9)		Net cash used in investing activities	(15.5)		(15.1)
Financing activities:	Financing activities:					Financing activities:
Dividends	Dividends	(8.3)		(7.9)		Dividends	(8.7)		(8.3)
Repayment of Krausz debt		—		(13.2)
Acquisition of joint venture partner’s interest	Acquisition of joint venture partner’s interest	(5.2)		—		Acquisition of joint venture partner’s interest	0		(5.2)
Employee taxes related to stock-based compensation	Employee taxes related to stock-based compensation	(0.7)		(1.2)		Employee taxes related to stock-based compensation	(0.9)		(0.7)
Common stock issued	Common stock issued	1.4		3.1		Common stock issued	0.6		1.4
Proceeds from financing transaction						Proceeds from financing transaction	3.9		0
Deferred financing costs paid						Deferred financing costs paid	(0.5)		0

Other	Other	—		0.4		Other	(0.2)		0
Net cash used in financing activities	Net cash used in financing activities	(12.8)		(18.8)		Net cash used in financing activities	(5.8)		(12.8)
Effect of currency exchange rate changes on cash	Effect of currency exchange rate changes on cash	0.4		(0.5)		Effect of currency exchange rate changes on cash	1.3		0.4
Net change in cash and cash equivalents		(39.9)		(148.3)
Cash and cash equivalents at beginning of period		176.7		347.1
Cash and cash equivalents at end of period		$	136.8	$	198.8
Net change in cash, cash equivalents and restricted cash						Net change in cash, cash equivalents and restricted cash	14.1		(39.9)
Cash, cash equivalents and restricted cash at beginning of period						Cash, cash equivalents and restricted cash at beginning of period	208.9		176.7
Cash, cash equivalents and restricted cash at end of period						Cash, cash equivalents and restricted cash at end of period	$	223.0	$	136.8

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

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, ~~2019~~2020

(UNAUDITED)

~~Note 1.~~Note. 1Organization and Basis of Presentation

Mueller Water Products, Inc., a Delaware corporation, together with its consolidated subsidiaries, operates in two business segments: Infrastructure and Technologies. Infrastructure manufactures valves for water and gas systems, including butterfly, iron gate, tapping, check, knife, plug and ball valves, as well as dry-barrel and wet-barrel fire hydrants and a broad line of pipe connection and repair products, such as clamps and couplings used to repair leaks. Technologies offers metering systems, leak detection, pipe condition assessment and other related smart-enabled products and services. The “Company,” “we,” “us” or “our” refer to Mueller Water Products, Inc. and its subsidiaries. With regard to the Company’s segments, “we,” “us” or “our” may also refer to the segment being discussed.

In July 2014, Infrastructure acquired a 49% ownership interest in an industrial valve joint venture for $1.7 million. ~~Due to~~As a result of substantive control features in the operating agreement, all of the joint venture’s assets, liabilities and results of operations were included in our consolidated financial statements. ~~We included an adjustment for the income attributable to the noncontrolling interest in selling, general and administrative expenses.~~ Infrastructure acquired the remaining 51% ownership interest in the business onin October 3, 2019.

~~On December 3, 2018, we completed our acquisition~~We include the financial statements of Krausz Development Ltd. and subsidiaries (“Krausz”)~~. We include the financial statements of Krausz~~ in our consolidated financial statements on a one-month lag. For the quarter ended December 31, 2018, the consolidated statements of operations and of cash flows exclude the results of Krausz’s operations. Refer to Note 2. for additional disclosures related to the acquisition.

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which require us to make certain estimates and assumptions ~~that affect the reported amounts of~~in recording assets, liabilities, sales and expenses and the disclosure of contingent assets and liabilities for the reporting periods. Actual results could differ from those estimates. All significant intercompany balances and transactions have been eliminated. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, ~~2019.~~2020. 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 ~~data~~ at September 30, ~~2019~~2020 was derived from audited financial statements, but it does not include all disclosures required by GAAP.

In preparing these financial statements in conformity with GAAP, we have considered and, where appropriate, reflected the effects of the COVID-19 pandemic on our operations. The pandemic continues to provide significant challenges to the U.S. and global economies.

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

HR-1, commonly referred to as the Tax Cuts and Jobs Act, was enacted on December 22, 2017 and made significant revisions to federal income tax laws, including lowering the corporate income tax rate to 21% from 35%, effective January 1, 2018.

~~In 2014,~~During 2016, the Financial Accounting Standards Board (“FASB”) issued ~~new~~standard ASC 326 - Current Expected Credit Losses to replace the “incurred loss” impairment approach with an “expected loss” approach, which requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We have completed historical and forward-looking analyses for receivables and adopted this guidance ~~for the recognition of revenue and requiring additional financial statement disclosures. On~~effective October 1, ~~2018, we adopted the new guidance related~~2020. Upon adoption, there was no material impact to ~~revenue recognition from contracts with customers using the modified retrospective approach and no transition adjustment was required. See Note 3. for more information regarding~~ our ~~adoption of this guidance~~.financial statements.

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

In October 2018, we announced the move of our Middleborough, Massachusetts research and development facility to Atlanta to consolidate our resources and accelerate product innovation through creation of a research and development center of excellence for software and electronics. In November 2019, we announced the ~~planned move~~purchase of ~~our manufacturing facility in Hammond, Indiana to our~~a new facility in Kimball ~~Tennessee.~~Tennessee to support and enhance our investment in our Chattanooga large casting foundry. As a result, we announced subsequent closures of our facilities in Hammond, Indiana and Woodland, Washington. Expenses incurred for these ~~moves were~~closures are primarily ~~personnel-related~~related to personnel and inventory and are included in ~~strategic~~Strategic reorganization and other ~~charges in the Condensed Consolidated Statements of Operations.~~charges.

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

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

~~Note 2. Business Combinations~~

~~Acquisition of Krausz~~

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

We have recognized the assets acquired and liabilities assumed at their estimated acquisition date fair values, with the excess of the purchase price over the estimated fair values of the identifiable net assets acquired recorded as goodwill. The accounting for the business combination is considered final. During the quarter, we reduced property, plant and equipment by $0.3 million, which resulted in an increase in goodwill of $0.3 million.

~~The following is a summary of the fair values of the net assets acquired (in millions):~~


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

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


	Three months ended
	December 31,
	2020		2019

	(in millions)
Beginning balance	$	2.8	$	1.7
Expenses related to personnel and other	0.2		0.4
Amounts paid	(1.1)		(0.5)
Ending balance	$	1.9	$	1.6

New Markets Tax Credit Program-On December 22, 2020, we entered 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. At December 31, 2020, $2.2 million of these restricted proceeds remained, and the restriction on this cash lapsed in January 2021.

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

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

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

Note 3.2. 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

We disaggregate our revenues from contracts with customers by reportable segment ~~(Note 11.~~(see Note 9.) and further by geographical region as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Geographical region represents the location of the customer.

Contract Asset and Liability Balances

The timing of revenue recognition, billings and cash collections results in customer receivables, customer advance payments and billings in excess of revenue recognized. Customer receivables include amounts billed and currently due from customers as well as unbilled amounts (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~~

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

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


							December 31,		September 30,
		December 31,		September 30,			2020		2020
		2019		2019
		(in millions)							(in millions)
Billed receivables	Billed receivables	$	129.2	$	171.0	Billed receivables	$	156.3	$	180.2
Unbilled receivables	Unbilled receivables	5.2		4.5		Unbilled receivables	5.3		4.6
Total customer receivables	Total customer receivables	$	134.4	$	175.5	Total customer receivables	$	161.6	$	184.8

Deferred revenues	Deferred revenues	$	4.4	$	4.7	Deferred revenues	$	5.1	$	5.6

Performance Obligations

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

~~We have elected to use~~Most of our performance obligations are satisfied at a “point in time” for sales of equipment and for provision of one-time services, and we generally recognize such revenue when goods are shipped or when the ~~practical expedient to not adjust~~services are provided. The remainder of our performance obligations are satisfied “over time” for our software hosting and leak detection monitoring services, and we generally recognize such revenue ratably as services are provided over the ~~transaction price of a contract for the effects of a significant financing component if, at the inception~~expected term of the ~~contract, we expect that the period between when we transfer a product or service to a customer and when a customer remits payment will be one year or less.~~

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

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

contract.

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~~Such warranties generally cannot be purchased separately. ~~There was no change to~~We accrue our expected cost of warranty ~~accounting as a result~~at the time of ~~the implementation of the new revenue standard and we will continue to use our current cost accrual method in accordance with GAAP.~~sale.

Costs to Obtain or Fulfill a Contract

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

Note ~~4. Leases~~

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

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

~~Presentation of Leases~~

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

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

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

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

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

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

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

We have certain lease contracts with terms and conditions that provide for variability in the payment amount based on changes in facts or circumstances occurring after the commencement date. These variable lease payments are recognized in our condensed consolidated income statements as the obligation is incurred.

At December 31, 2019, we had no material, legally-binding minimum lease payments for operating leases signed but not yet commenced. We did not have material subleases, leases that imposed significant restrictions or covenants, material related party leases or sale-leaseback arrangements.

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


~~Operating lease cost~~	$	~~1.6~~
~~Finance lease cost~~	~~0.3~~
~~Total lease expense~~	$	~~1.9~~

~~Supplemental information related to leases for the three months ended December 31, 2019 is presented below, in millions.~~


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

~~Supplemental information related to leases as of December 31, 2019 is presented below, in millions.~~


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

~~Additional supplemental information related to leases as of December 31, 2019 is presented below.~~


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

~~Total lease liabilities at December 31, 2019 have scheduled maturities as follows:~~

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

~~Note 5.~~3. Income Taxes

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


		Three months ended							Three months ended
		December 31,							December 31,
		2019		2018			2020		2019
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:					Adjustments to reconcile to the effective tax rate:
State income taxes, net of federal benefit	State income taxes, net of federal benefit	4.5		3.3		State income taxes, net of federal benefit	4.5		4.5
Excess tax (benefits) related to stock compensation		(1.5)		1.3
Excess tax benefits related to stock-based compensation						Excess tax benefits related to stock-based compensation	(0.6)		(1.5)
Tax credits	Tax credits	(1.1)		0.4		Tax credits	(1.4)		(1.1)
Global Intangible Low-taxed Income		0.1		(0.1)
Foreign income taxes		(0.7)		—
Global Intangible Low-Taxed Income						Global Intangible Low-Taxed Income	0.6		0.1
Foreign income tax rate differential						Foreign income tax rate differential	(0.9)		(0.7)
Valuation allowances	Valuation allowances	(0.7)		—		Valuation allowances	1.5		(0.7)
Other	Other	1.5		(0.3)		Other	1.1		1.5
		23.1	%	25.6	%		25.8	%	23.1	%
Walter Energy Accrual		(0.3)		(5.8)
Remeasurement related to tax law changes		—		2.1
Walter Energy accrual						Walter Energy accrual	0		(0.3)

Effective income tax rate	Effective income tax rate	22.8	%	21.9	%	Effective income tax rate	25.8	%	22.8	%

At December 31, ~~2019~~2020 and September 30, ~~2019,~~2020, the gross liabilities for unrecognized income tax benefits were ~~$3.5~~$4.6 million and ~~$3.3~~$4.5 million, ~~respectively.~~respectively, and are reflected in Other noncurrent liabilities.

Note 6.4. Borrowing Arrangements

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


							December 31,		September 30,
		December 31,		September 30,			2020		2020
		2019		2019
		(in millions)							(in millions)
5.5% Senior Notes	5.5% Senior Notes	$	450.0	$	450.0	5.5% Senior Notes	$	450.0	$	450.0
ABL Agreement		—		—

Finance leases	Finance leases	2.0		2.1		Finance leases	2.4		2.5
		452.0		452.1			452.4		452.5
Less deferred financing costs	Less deferred financing costs	5.6		5.8		Less deferred financing costs	4.7		4.9
Less current portion	Less current portion	0.9		0.9		Less current portion	1.1		1.1
Long-term debt	Long-term debt	$	445.5	$	445.4	Long-term debt	$	446.6	$	446.5

5.5% Senior Unsecured Notes. On June 12, 2018, we privately issued $450.0 million of 5.5% Senior Unsecured Notes (“Notes”), which mature in 2026 and bear interest at 5.5%., paid semi-annually. We capitalized $6.6 million of financing costs, which are being amortized over the term of the Notes using the effective interest method. Proceeds from the Notes, along with other cash, were used to repay our Term Loan. Substantially all of our U.S. subsidiaries guarantee the Notes, which are subordinate to borrowings under the ABL. Based on quoted market prices, the outstanding Notes had a fair value of ~~$473.6~~$466.3 million at December 31, ~~2019.~~2020.

ABL Agreement. ~~At December 31, 2019, our~~Our asset based lending agreement (“ABL Agreement”) ~~consisted~~consists of a revolving credit facility for up to ~~$175~~$175.0 million of revolving credit borrowings, swing line loans and letters of credit.

The ABL Agreement permits us to increase the size of the credit facility by an additional ~~$150~~$150.0 million in certain circumstances subject to adequate borrowing base availability. We may borrow up to ~~$25~~$25.0 million through swing line loans and we are permitted to issue up to ~~$60~~$60.0 million of letters of credit.

Borrowings under the ABL Agreement bear interest at a floating rate equal to LIBOR, plus aan applicable margin ranging from ~~125~~200 to ~~150~~225 basis points, or a base rate, as defined in the ABL Agreement, plus aan applicable margin ranging from 25100 to 50125 basis points. At December 31, ~~2019,~~2020, the applicable rate was LIBOR plus ~~125~~200 basis points.

The ABL Agreement terminates on July ~~13, 2021. We pay~~29, 2025 and provides for a commitment fee for any unused borrowing capacity ~~under the ABL Agreement~~ of 2537.5 basis points per annum. Our obligations under the ABL Agreement are secured by a first-priority perfected lien on all of our U.S. receivables and inventories, certain cash and other supporting obligations. Borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $17.5 million and 10% of the Loan Cap as defined in the ABL Agreement. Excess availability based on December 31, ~~2019~~2020 data, as reduced by outstanding letters of credit and accrued fees and expenses of ~~$14.5~~$15.0 million, was ~~$122.0~~$113.4 million.

Note 7.5. Derivative Financial Instruments

In connection with the acquisition of Singer Valve in 2017, we loaned U.S. dollar-denominated funds to one of our Canadian subsidiaries. Although this intercompany loan has no direct effect on our consolidated financial statements, it creates exposure to currency risk for the Canadian subsidiary. To reduce this exposure, we entered into a U.S. dollar-Canadian dollar swap contract with the Canadian subsidiary and an offsetting Canadian dollar-U.S. dollar swap with a domestic bank. We have not designated these swaps as hedges and we include the changes in their fair values ~~are included~~ in earnings ~~where they~~to offset the currency gains and losses associated with the intercompany loan. The values of our currency swap contracts were liabilities of ~~$0.6~~$1.1 million and ~~$0.3~~$0.2 million ~~as of~~at December 31, ~~2019~~2020 and September 30, ~~2019,~~2020, respectively, and are included in ~~other~~Other noncurrent ~~liabilities in our Condensed Consolidated Balance Sheets.~~liabilities.

Note 8.6. Retirement Plans

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


							Three months ended
		Three months ended							December 31,
		December 31,							2020		2019
		2019		2018
		(in millions)							(in millions)
Service cost	Service cost	$	0.4	$	0.4	Service cost	$	0.4	$	0.4
Pension costs (benefits) other than service:	Pension costs (benefits) other than service:					Pension costs (benefits) other than service:
Interest cost	Interest cost	2.8		3.5		Interest cost	2.5		2.8
Expected return on plan assets	Expected return on plan assets	(4.2)		(4.1)		Expected return on plan assets	(3.9)		(4.2)
Amortization of actuarial net loss	Amortization of actuarial net loss	0.7		0.5		Amortization of actuarial net loss	0.6		0.7
Pension costs (benefits) other than service		(0.7)		(0.1)
Net periodic (benefit) cost		$	(0.3)	$	0.3
Pension benefits other than service						Pension benefits other than service	(0.8)		(0.7)
Net periodic benefit						Net periodic benefit	$	(0.4)	$	(0.3)

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

Note 9.7. Stock-based Compensation Plans

We ~~have~~ granted various forms of stock-based compensation, including ~~stock options,~~market-based restricted stock units (“MRSUs”) , restricted stock units, stock options and performance-based restricted stock units (“PRSUs”~~) and market-based restricted stock units (“MRSUs”~~) under our Amended and Restated 2006 Mueller Water Products, Inc. Stock Incentive Plan (the “2006 Stock Plan”)., 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 during the three months ended December 31, 2020 as follows.


	Number granted	Weighted average grant date fair value per instrument		Total grant date fair value (in millions)
Quarter ended December 31, 2020
MRSUs	234,199	15.39		$	3.6
Phantom Plan instruments	180,987	11.86		2.1
Restricted stock units	129,081	$	11.86	1.5
Non-qualified stock options	423,405	3.05		1.3
PRSUs: 2020 award	60,019	11.86		0.7
2019 award	84,483	11.86		1.0
Employee stock purchase plan instruments	40,286	1.92		0.1
				$	10.3

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

Compensation expense attributed to MRSUs is based on the fair value of the awards on their respective grant dates, as determined using a Monte Carlo model. The assumptions used to determine the grant-date fair value are indicated below.


	December 2, 2020
Variables used in determining grant date fair value:
Dividend yield	1.77	%
Risk-free rate	0.21	%
Expected term (in years)	2.83

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

At December 31, 2020, the outstanding Phantom Plan instruments had a fair value of $12.38 per instrument and our liability for Phantom Plan instruments was $1.3 million and is included within current and noncurrent liabilities.

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


	December 2, 2020
Dividend yield	2.01	%
Risk-free rate	0.66	%
Expected term (in years)	6.00

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

A 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 the Company's relative total shareholder return (“TSR”) performance as compared with a selected peer group's total shareholder return. Settlements, in our common shares, will range from 0 to 2 times the number of MRSUs granted, depending on our TSR performance versus the peer group.

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


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

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

We issued ~~93,647 shares and 181,065~~103,058 shares of common stock during the three months ended December 31, ~~2019 and 2018, respectively,~~2020 to settle PRSUs ~~that vested~~ during the ~~periods.~~

~~In addition~~period. Additionally, we issued 125,576 and 63,433 shares of common stock to ~~the PRSU activity, 132,303~~settle restricted stock units vested and stock options exercised, respectively, during the three months ended December 31, ~~2019, respectively.~~

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

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

Number granted Weighted average grant date fair value per instrument Total grant date fair value
(in millions)
Restricted stock units 162,433 $ 11.26 $ 1.8
Employee stock purchase plan instruments 39,492 1.97 0.1
Phantom Plan awards 188,973 11.26 2.1
PRSUs: 2020 award 58,040 11.26 0.7
2019 award 102,203 11.26 1.2
2018 award 44,451 11.26 0.5
MRSUs 147,213 14.94 2.2
$ 8.6
2020.

Operating income included stock-based compensation expense of ~~$1.9~~$2.5 million and ~~$1.7~~$1.9 million during the three months ended December 31, ~~2019~~2020 and ~~2018,~~2019, respectively. At December 31, ~~2019,~~2020, there was approximately ~~$11.8~~$14.1 million of unrecognized compensation expense related to stock-based compensation arrangements and there were ~~218,292~~204,520 PRSUs that have been awarded for the 2021 and 2022 performance periods for which performance ~~goals have not been set.~~goal achievement cannot yet be determined.

We excluded ~~108,976~~258,522 and ~~165,467 of~~108,976 stock-based compensation instruments from the calculations of diluted earnings per share for the ~~quarters~~three months ended December 31, ~~2019~~2020 and ~~2018,~~2019, respectively, since their inclusion would have been antidilutive.

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

Selected supplemental ~~balance sheet~~asset information is presented below.


		December 31,		September 30,			December 31,		September 30,
							2020		2020

							(in millions)
Cash, cash equivalents and restricted cash:						Cash, cash equivalents and restricted cash:
Cash, cash equivalents						Cash, cash equivalents	$	220.8	$	208.9
Restricted cash						Restricted cash	2.2		0
		2019		2019			$	223.0	$	208.9
		(in millions)
Inventories:	Inventories:					Inventories:
Purchased components and raw material	Purchased components and raw material	$	100.2	$	95.2	Purchased components and raw material	$	88.3	$	87.3
Work in process	Work in process	44.1		43.7		Work in process	32.9		32.4
Finished goods	Finished goods	68.6		52.5		Finished goods	46.0		42.8
		$	212.9	$	191.4		$	167.2	$	162.5

Other current assets:	Other current assets:					Other current assets:
Maintenance and repair tooling		$	4.2	$	4.2
Prepaid expenses						Prepaid expenses	$	11.7	$	10.9
Non-trade receivables						Non-trade receivables	9.3		8.5
Maintenance and repair supplies and tooling						Maintenance and repair supplies and tooling	3.5		3.7
Income taxes	Income taxes	3.1		4.7		Income taxes	2.7		5.5
Other	Other	18.4		17.1		Other	3.1		0.4
		$	25.7	$	26.0		$	30.3	$	29.0

Property, plant and equipment:	Property, plant and equipment:					Property, plant and equipment:
Land	Land	$	5.2	$	5.2	Land	$	6.2	$	6.2
Buildings	Buildings	68.8		68.9		Buildings	81.1		80.4
Machinery and equipment	Machinery and equipment	368.8		362.9		Machinery and equipment	411.1		406.3
Construction in progress	Construction in progress	57.0		48.0		Construction in progress	67.5		57.4
		499.8		485.0			565.9		550.3
Accumulated depreciation	Accumulated depreciation	(275.3)		(267.9)		Accumulated depreciation	(304.5)		(296.5)
		$	224.5	$	217.1		$	261.4	$	253.8
Other current liabilities:
Compensation and benefits		$	20.1	$	28.5
Customer rebates		10.6		8.7
Taxes other than income taxes		3.1		3.3
Warranty		6.8		6.5
Income taxes		—		0.6
Environmental		1.2		1.2
Interest		1.1		7.3
Restructuring		1.6		1.7
Walter Energy Accrual		—		22.0

Other noncurrent assets:						Other noncurrent assets:
Operating lease right-of-use asset						Operating lease right-of-use asset	$	25.2	$	25.6
Maintenance and repair supplies and tooling						Maintenance and repair supplies and tooling	18.2		17.5
Workers compensation reimbursement receivable						Workers compensation reimbursement receivable	2.0		2.1
Pension asset						Pension asset	2.0		0.9
Note receivable						Note receivable	1.8		1.8
Deferred financing fees						Deferred financing fees	1.7		0
Other	Other	19.4		13.2		Other	2.4		3.4
		$	63.9	$	93.0		$	53.3	$	51.3

1412

Selected supplemental liability information is presented below.


	December 31,		September 30,
	2020		2020

	(in millions)
Other current liabilities:
Compensation and benefits	$	23.6	$	35.5
Customer rebates	12.1		9.6
Warranty	6.5		7.2
Deferred revenues	5.1		5.6
Refund liability	5.1		4.3
Taxes other than income taxes	4.1		3.9
Operating lease liabilities	3.8		4.0
Accrued settlements	3.8		0.2
CARES Act payroll tax liabilities	3.1		0
Restructuring	1.9		2.8
Environmental	1.2		1.2
Interest	1.1		7.3
Income taxes	0.2		0.2
Other	5.4		4.8
	$	77.0	$	86.6

Other noncurrent liabilities:
Operating lease liabilities	$	23.0	$	23.3
Warranty	6.8		7.2
Transition tax	5.2		5.2
Unrecognized income tax benefits	4.6		4.5
NMTC liability	3.9		0
Workers compensation	3.8		3.8
Asset retirement obligation	3.6		3.5
CARES Act payroll tax liabilities	3.1		3.3
Deferred development grant	2.5		2.5
Other	3.7		3.0
	$	60.2	$	56.3

Goodwill

Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis each September 1st and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

The following table summarizes information concerning our goodwill balance for the three months ended December 31, 2020, in millions.


Balance at September 30, 2020	$	99.8
Effects of changes in foreign currency exchange rates	1.3
Balance at December 31, 2020	$	101.1

Note ~~11.~~9. Segment Information

Summarized financial information for our segments is presented below. Net sales and operating income associated with certain products have been reclassified as Technologies segment items to confirm to the current period presentation.


							Three months ended
		Three months ended							December 31,
		December 31,							2020		2019
		2019		2018
		(in millions)							(in millions)
Net sales, excluding intercompany:	Net sales, excluding intercompany:					Net sales, excluding intercompany:
Infrastructure	Infrastructure	$	192.8	$	172.0	Infrastructure	$	215.9	$	192.3
Technologies	Technologies	19.8		20.8		Technologies	21.5		20.3
		$	212.6	$	192.8		$	237.4	$	212.6
Operating income (loss):	Operating income (loss):					Operating income (loss):
Infrastructure	Infrastructure	$	35.7	$	30.9	Infrastructure	$	41.6	$	35.5
Technologies	Technologies	(2.0)		(3.7)		Technologies	(1.5)		(1.8)
Corporate	Corporate	(13.4)		(11.3)		Corporate	(12.3)		(13.4)
		$	20.3	$	15.9		$	27.8	$	20.3
Depreciation and amortization:	Depreciation and amortization:					Depreciation and amortization:
Infrastructure	Infrastructure	$	12.0	$	10.1	Infrastructure	$	12.5	$	12.0
Technologies	Technologies	2.0		2.0		Technologies	2.1		2.0
Corporate	Corporate	—		—		Corporate	0.1		0
		$	14.0	$	12.1		$	14.7	$	14.0
Strategic reorganization and other charges:	Strategic reorganization and other charges:					Strategic reorganization and other charges:
Infrastructure	Infrastructure	$	—	$	—	Infrastructure	$	0.1	$	0
Technologies	Technologies	—		—		Technologies	0		0
Corporate	Corporate	2.4		3.2		Corporate	1.3		2.4
		$	2.4	$	3.2		$	1.4	$	2.4
Capital expenditures:	Capital expenditures:					Capital expenditures:
Infrastructure	Infrastructure	$	14.5	$	14.8	Infrastructure	$	14.7	$	14.5
Technologies	Technologies	0.6		1.1		Technologies	0.8		0.6
Corporate	Corporate	0.1		—		Corporate	0.1		0.1
		$	15.2	$	15.9		$	15.6	$	15.2
Infrastructure disaggregated net revenues:	Infrastructure disaggregated net revenues:					Infrastructure disaggregated net revenues:
Central	Central	$	46.5	$	40.3	Central	$	56.9	$	46.4
Northeast	Northeast	41.9		37.9		Northeast	45.8		41.7
Southeast	Southeast	39.6		34.7		Southeast	38.4		39.4
West	West	46.0		44.8		West	53.4		46.0
United States	United States	174.0		157.7		United States	194.5		173.5
Canada	Canada	11.6		9.9		Canada	12.1		11.6
Other international locations	Other international locations	7.2		4.4		Other international locations	9.3		7.2
		$	192.8	$	172.0		$	215.9	$	192.3
Technologies disaggregated net revenues:	Technologies disaggregated net revenues:					Technologies disaggregated net revenues:
Central	Central	$	4.7	$	6.5	Central	$	4.9	$	4.8
Northeast	Northeast	6.1		3.4		Northeast	3.5		6.3
Southeast	Southeast	5.8		6.8		Southeast	7.3		6.0
West	West	2.0		2.7		West	5.0		2.0
United States	United States	18.6		19.4		United States	20.7		19.1
Canada	Canada	0.6		0.2		Canada	0.3		0.6
Other international locations	Other international locations	0.6		1.2		Other international locations	0.5		0.6
		$	19.8	$	20.8		$	21.5	$	20.3

1514

Note ~~12.~~10. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss is presented below.

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


	Pension, net of tax		Foreign currency translation		Total

	(in millions)
Balance at September 30, 2020	$	(32.7)	$	8.0	$	(24.7)
Current period other comprehensive income	0.5		4.5		$	5.0
Balance at December 31, 2020	$	(32.2)	$	12.5	$	(19.7)

Note ~~13.~~11. Commitments and Contingencies

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

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

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

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

The purchaser of U.S. Pipe has been identified as a “potentially responsible party” (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act in connection with a former manufacturing facility operated by U.S. Pipe that was in the vicinity of a proposed Superfund site located in North Birmingham, Alabama. Under the terms of the acquisition agreement relating to our sale of U.S. Pipe, we agreed to indemnify the purchaser for certain environmental liabilities, including those arising out of the former manufacturing site in North Birmingham. Accordingly, the purchaser tendered the matter to us for indemnification, which we accepted. Ultimate liability for the site will depend on many factors that have not yet been determined, including the determination of EPA’s remediation costs, the number and financial viability of the other PRPs (there are four other PRPs currently) and the determination of the final allocation of the costs among the PRPs. ~~Accordingly, because~~Since the ~~amount~~amounts of such costs cannot be reasonably estimated at this time, no amounts have been accrued for this matter at December 31, ~~2019.~~2020.

Walter Energy. On November 18, 2019, we paid approximately $22.2 million to the IRS in final settlement of a tax dispute related to our former parent company, Walter Energy, Inc.

1615

~~Walter Energy~~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 ~~were a member~~have taken and continue to counter such disruption and work to protect the safety of our production workers as essential workers at our various manufacturing plants, distribution centers and R&D centers. We are uncertain of the Walter Energy, Inc (“Walter Energy”) federal tax consolidated group through December 14, 2006, at which time the Company was spun-off from Walter Energy. Until our spin-off from Walter Energy, we joined in the filing of Walter Energy’s consolidated federal income tax return for each taxable year during which we were a memberpotential full magnitude or duration of the ~~consolidated group. As a result, we were jointly~~business and ~~severally liable for~~economic impacts from the ~~federal income tax liability, if any,~~unprecedented public health effort to contain and combat the spread of COVID-19, and while the ~~consolidated group for each of those years. In July 2015, Walter Energy filed for bankruptcy protection under Chapter 11 of~~extent to which the ~~U.S. Bankruptcy Code in~~pandemic affects our results will depend on future developments, the Northern District of Alabama (“Bankruptcy Case”). The Internal Revenue Service (“IRS”) alleged that Walter Energy owed substantial amounts (“Walter Tax Liability”), and on January 11, 2016, the IRS filed a proof of claim in the Bankruptcy Case, alleging that Walter Energy owed taxes, interest and penalties in an aggregate amount of $554.3 million. In the proof of claim, the IRS included an alternative calculation in an aggregate amount of $860.4 million.

On November 5, 2019, we agreed to be bound by a settlement agreement between the bankruptcy trustee in the Bankruptcy Case and the IRS to resolve the Walter Tax Liability. On November 18, 2019, the settlement agreement was approved by the U.S. Bankruptcy Court in the Northern District of Alabama. Under the terms of the settlement agreement, we contributed approximately $22.2 million to the settlement. All appeal periods have expired, and our liabilities with respect to the Walter Tax Liability have been fully resolved.

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

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

Mass Shooting Event at our Henry Pratt Facility in Aurora, Illinois. On February 15, 2019, we experienced a mass shooting event at our Henry Pratt facility in Aurora, Illinois, in which five employees were killed and one employee and six law enforcement officers were injured. Various workers’ compensation claims arising from the event have been made 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 material adverse effect on our results of operations or cash flows. However, the possibility of other legal proceedings, and any related effects, arising from this event cannot be predicted with certainty.

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

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

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

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

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

Note ~~14.~~12. Subsequent Events

On January ~~30, 2020,~~27, 2021, our ~~board~~Board of ~~directors~~Directors declared a dividend of ~~$0.0525~~$0.0550 per share on our common stock, payable on ~~or about~~ February ~~20, 2020~~22, 2021 to stockholders of record at the close of business on February 10, ~~2020.~~

2021.

1816

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

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto that appear elsewhere in this report. This report contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements that address activities, events or developments that ~~we intend, expect, plan, project, believe~~the Company intends, expects, plans, projects, believes or ~~anticipate~~anticipates will or may occur in the future are forward-looking ~~statements.~~statements, including, without limitation, statements regarding outlooks, projections, forecasts, trend descriptions, the COVID-19 pandemic, go-to-market strategies, operational excellence, acceleration of new product development, end market performance, net sales performance, adjusted operating income and adjusted EBITDA performance, margins, capital expenditure plans, litigation outcomes, capital allocation and growth strategies, and future warranty charges. Forward-looking statements are based on certain assumptions and assessments made by usthe Company in light of ~~our~~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 the extent, duration and severity of the impact of the pandemic on the Company’s operations and results, including effects on the financial health of customers (including collections), the Company and the financial/capital markets, government-mandated facility closures, COVID-19 related facility closures and other manufacturing restrictions, logistical challenges and supply chain interruptions, potential litigation and claims emanating from the COVID-19 pandemic, and health, safety and employee/labor issues in Company facilities around the world; unexpected or greater than expected increases in costs of raw materials; regional, national or global political, economic, ~~business, competitive,~~ market and competitive conditions; cyclical and changing demand in core markets such as municipal spending; government monetary or fiscal policies; residential and nonresidential construction, and natural gas distribution; manufacturing and product performance; expectations for changes in volumes, continued execution of cost productivity initiatives and improved pricing; warranty exposures (including the adequacy of warranty reserves); the Company’s ability to successfully resolve significant legal proceedings, claims, lawsuits or government investigations; compliance with environmental, trade and anti-corruption laws and regulations; changing regulatory, ~~conditions~~trade and tariff conditions; failure to achieve expected cost savings, net sales expectations, profitability expectations and manufacturing efficiencies from our large capital investments in Chattanooga and Kimball, Tennessee and Decatur, Illinois; the failure to integrate and/or realize any of the anticipated benefits of recent acquisitions or divestitures; and other factors that are described ~~under~~in the section entitled “RISK FACTORS” in Item ~~1A.~~1A of ~~our~~the Company’s most recently filed Annual Report on Form 10-K ~~for the year ended September 30, 2019~~ and in this Quarterly Report on Form ~~10-Q.~~10-Q (all of which risks may be amplified by the pandemic). Forward-looking statements do not guarantee future performance and are only as of the date they are made. The Company undertakes no duty to update its forward-looking statements except as required by law. Undue reliance should not be placed on any forward-looking statements. ~~The~~You are advised to review any further disclosures the Company ~~does not have any intention or obligation to update forward-looking statements, except as required by law.~~

~~Unless~~makes on related subjects in subsequent Forms 10-K, 10-Q, 8-K and other reports filed with the ~~context indicates otherwise, whenever we refer to a particular year, we mean our fiscal year ended or ending September 30 in that particular calendar year. We manage our businesses~~U.S. Securities and ~~report operations through two business segments, Infrastructure and Technologies, based largely on the products sold and the customers served.~~Exchange Commission.

Overview

Organization

On October 3, 2005, Walter Energy, Inc (“Walter Energy”) acquired all outstanding shares of capital stock representing the Mueller Co. and Anvil businesses and contributed them to its U.S. Pipe business to form Mueller Water Products, Inc. (“Mueller” or the “Company”). In June 2006, we completed an initial public offering of 28,750,000 shares of Series A common stock and in December 2006, Walter Energy distributed to its shareholders all of its equity interests in Mueller, completing our spin-off. We subsequently sold our U.S. Pipe and Anvil businesses in 2012 and 2017, respectively.

Business

We estimate approximately 60-65% of our ~~2019~~2020 net sales were for repair and replacement directly related to municipal water infrastructure spending, approximately 25-30% were related to residential construction activity and less than 10% were related to natural gas ~~utilities.~~utilities spending.

We expect the operating environment during our ~~two primary end markets, repair~~fiscal year 2021 to continue to be very challenging due to the uncertainty around the depth and ~~replacement~~duration of ~~water infrastructure, driven by municipal spending, and new water infrastructure installation, driven by~~the pandemic. We anticipate that growth in the residential construction ~~to grow~~end market will help offset anticipated challenges in the ~~low single digits during 2020.~~project-related portion of the municipal market. In January ~~2020,~~2021, Blue Chip Economic Indicators forecasted a 4%7% increase in housing starts for calendar ~~2020~~2021 compared to the prior ~~year.~~year primarily due to the low interest rate environment in the United States.

We have continued to incur additional costs to address the pandemic as discussed herein, including costs associated with unfavorable volume variances, voluntary emergency paid leave, additional cleaning, disinfectants and sanitation materials for our employees and at our facilities. We expect to continue to incur such costs, which may be significant, as we continue to implement operational changes in response to this pandemic. All of our facilities are operational and our teams have worked effectively to address the few temporary closures we have experienced. The pandemic also caused supply chain disruption that has resulted in higher costs in the manufacture of our products. We expect these conditions to persist in the near term and may worsen until the pandemic abates.

Infrastructure

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

OnIn October 3, 2019, we acquired the noncontrolling interest of our previously existing joint venture operation for a negotiated purchase price of $5.4 million.

Technologies

The municipal market is the key end market for Technologies. The businesses in Technologies are project-oriented and depend on customer adoption of their technology-based products and services.

Results of Operations

Three Months Ended December 31, ~~2019~~2020 Compared to Three Months Ended December 31, ~~2018~~2019


											Three months ended December 31, 2020
		Three months ended December 31, 2019															Infrastructure		Technologies	Corporate	Total
		Infrastructure		Technologies		Corporate		Total
		(in millions)															(in millions)
Net sales	Net sales	$	192.8	$	19.8	$	—	$	212.6	Net sales	$	215.9	$	21.5	$	—	$	237.4
Gross profit	Gross profit	$	68.2	$	4.4	$	—	$	72.6	Gross profit	73.7		4.7		—		$	78.4
Operating expenses:	Operating expenses:									Operating expenses:
Selling, general and administrative	Selling, general and administrative	32.5		6.4		11.0		49.9		Selling, general and administrative	32.0		6.2		11.0		49.2
Strategic reorganization and other charges	Strategic reorganization and other charges	—		—		2.4		2.4		Strategic reorganization and other charges	0.1		—		1.3		1.4
		32.5		6.4		13.4		52.3			32.1		6.2		12.3		50.6
Operating income (loss)	Operating income (loss)	$	35.7	$	(2.0)	$	(13.4)	20.3		Operating income (loss)	$	41.6	$	(1.5)	$	(12.3)	27.8
Non-operating expenses:	Non-operating expenses:									Non-operating expenses:
Pension costs (benefits) other than service								(0.7)
Pension benefit other than service										Pension benefit other than service							(0.8)
Interest expense, net	Interest expense, net							7.4		Interest expense, net							6.1
Walter Energy Accrual								0.2
Income before income taxes	Income before income taxes							13.4		Income before income taxes							22.5
Income tax expense	Income tax expense							3.1		Income tax expense							5.8
Net income	Net income							$	10.3	Net income							$	16.7

											Three months ended December 31, 2019(1)
		Three months ended December 31, 2018															Infrastructure		Technologies	Corporate	Total
		Infrastructure		Technologies		Corporate		Total
		(in millions)															(in millions)
Net sales	Net sales	$	172.0	$	20.8	$	—	$	192.8	Net sales	$	192.3	$	20.3	$	—	$	212.6
Gross profit	Gross profit	$	56.8	$	3.3	$	—	$	60.1	Gross profit	68.0		4.6		—		$	72.6
Operating expenses:	Operating expenses:									Operating expenses:
Selling, general and administrative	Selling, general and administrative	25.9		7.0		8.1		41.0		Selling, general and administrative	32.5		6.4		11.0		49.9
Strategic reorganization and other charges	Strategic reorganization and other charges	—		—		3.2		3.2		Strategic reorganization and other charges	—		—		2.4		2.4
		25.9		7.0		11.3		44.2			32.5		6.4		13.4		52.3
Operating income (loss)	Operating income (loss)	$	30.9	$	(3.7)	$	(11.3)	15.9		Operating income (loss)	$	35.5	$	(1.8)	$	(13.4)	20.3
Pension costs (benefits) other than service								(0.1)
Pension benefit other than service										Pension benefit other than service							(0.7)
Interest expense, net	Interest expense, net							5.5		Interest expense, net							7.4
Walter Energy Accrual								37.4
Loss before income taxes								(26.9)
Income tax benefit								(5.9)
Net loss								$	(21.0)
Walter Energy accrual										Walter Energy accrual							0.2
Income before income taxes										Income before income taxes							13.4
Income tax expense										Income tax expense							3.1
Net income										Net income							$	10.3
(1) Net sales, gross profit, and SG&A expenses associated with certain products have been reclassified as Technologies segment items to conform to the current period presentation.										(1) Net sales, gross profit, and SG&A expenses associated with certain products have been reclassified as Technologies segment items to conform to the current period presentation.

Consolidated Analysis

Net sales for the ~~quarter~~three months ended December 31, ~~2019~~2020 increased ~~10.3%~~11.7 percent or ~~$19.8~~$24.8 million to ~~$212.6~~$237.4 million from ~~$192.8~~$212.6 million primarily due to ~~Krausz sales, as well as higher pricing and~~increased shipment volumes ~~at Infrastructure.~~across most of our product lines and higher pricing.

Gross profit for the ~~quarter~~three months ended December 31, ~~2019~~2020 increased ~~$12.5~~$5.8 million to ~~$72.6~~$78.4 million from ~~$60.1~~$72.6 million in the prior year period, primarily due to increased shipment volumes and higher pricing, ~~product mix~~which were offset by $1.5 million of expenses related to the pandemic, including certain unfavorable volume variances treated as period costs, voluntary emergency paid leave for employees and ~~the addition of Krausz, which was partially offset by~~additional sanitation and cleaning fees, and higher costs associated with ~~tariffs and~~ inflation. Gross margin was ~~34.1%~~33.0% for the ~~quarter~~three months ended December 31, ~~2019~~2020 compared to ~~31.2%~~34.1% in the prior year period.

Selling, general and administrative expenses (“SG&A”) for the ~~quarter~~three months ended December 31, ~~2019 increased~~2020 decreased to ~~$49.9~~$49.2 million from ~~$41.0~~$49.9 million in the prior year period due primarily to temporary expense reductions related to the ~~inclusion of Krausz’s SG&A expenses as well as IT-related activities,~~pandemic, including reduced travel, trade shows and events. These benefits were partially offset by increases in other personnel-related ~~costs and professional fees.~~expenses. SG&A as a percentage of net sales was ~~23.5%~~20.7% and ~~21.3%~~23.5% in the ~~quarters~~three months ended December 31, 2020 and 2019, ~~and 2018,~~ respectively. ~~Krausz related expenses accounted for approximately half of the increase.~~

Strategic reorganization and other charges ~~were $2.4 million~~ in the ~~quarter~~three months ended December 31, ~~2019~~2020 were $1.4 million, which primarily related to legal and professional service expenses, and were ~~$3.2~~$2.4 million in the prior year period.

Interest expense, net ~~increased $1.9~~declined $1.3 million in the ~~quarter~~three months ended December 31, ~~2019~~2020 compared to the prior year period primarily due to a non-cash adjustment to capitalized interest in the ~~quarter and decreased interest income.~~prior year. The components of net interest expense ~~net~~ are provided below.


							Three months ended
		Three months ended							December 31,
		December 31,							2020		2019
		2019		2018
		(in millions)							(in millions)
Notes	Notes	$	6.2	$	6.2	Notes	$	6.2	$	6.2
Deferred financing costs amortization	Deferred financing costs amortization	0.3		0.3		Deferred financing costs amortization	0.3		0.3
ABL Agreement	ABL Agreement	0.1		0.1		ABL Agreement	0.2		0.1
Capitalized interest, including adjustment		1.3		—
Other interest expense		—		0.3
Capitalized interest						Capitalized interest	(0.6)		1.3
Other interest cost						Other interest cost	0.2		—
		7.9		6.9			6.3		7.9
Interest income	Interest income	(0.5)		(1.4)		Interest income	(0.2)		(0.5)
Interest expense, net	Interest expense, net	$	7.4	$	5.5	Interest expense, net	$	6.1	$	7.4

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


		Three months ended							Three months ended
		December 31,							December 31,
		2019		2018			2020		2019
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:					Adjustments to reconcile to the effective tax rate:
State income taxes, net of federal benefit	State income taxes, net of federal benefit	4.5		3.3		State income taxes, net of federal benefit	4.5		4.5
Excess tax (benefits) related to stock compensation		(1.5)		1.3
Excess tax benefits related to stock-based compensation						Excess tax benefits related to stock-based compensation	(0.6)		(1.5)
Tax credits	Tax credits	(1.1)		0.4		Tax credits	(1.4)		(1.1)
Global Intangible Low-taxed Income	Global Intangible Low-taxed Income	0.1		(0.1)		Global Intangible Low-taxed Income	0.6		0.1
Foreign income taxes		(0.7)		—
Foreign income tax rate differential						Foreign income tax rate differential	(0.9)		(0.7)
Valuation allowance	Valuation allowance	(0.7)		—		Valuation allowance	1.5		(0.7)
Other	Other	1.5		(0.3)		Other	1.1		1.5
		23.1	%	25.6	%		25.8	%	23.1	%
Walter Energy accrual	Walter Energy accrual	(0.3)		(5.8)		Walter Energy accrual	—		(0.3)	%
Transition tax		—		2.1
Effective income tax rate	Effective income tax rate	22.8	%	21.9	%	Effective income tax rate	25.8	%	22.8	%

Segment Analysis

Infrastructure

Net sales for the ~~quarter~~three months ended December 31, ~~2019~~2020 increased ~~12.1%~~12.3 percent to ~~$192.8~~$215.9 million compared to ~~$172.0 million in the prior year period due to the inclusion of Krausz net sales as well as higher pricing and increased shipment volumes.~~

~~Gross profit for the quarter ended December 31, 2019 increased to $68.2 million from $56.8~~$192.3 million in the prior year period primarily due to higher shipment volumes across most of our product lines as well as higher pricing.

Gross profit for the ~~inclusion~~three months ended December 31, 2020 increased to $73.7 million from $68.0 million in the prior year period primarily due to increased shipment volumes, partially offset by $1.4 million of ~~Krausz gross profit~~expenses related to the pandemic, including certain unfavorable volume variances treated as period costs, and higher ~~sales pricing.~~costs associated with inflation. Gross margin was ~~35.4%~~34.1% for the ~~quarter~~three months ended December 31, ~~2019 compared to 33.0%~~2020 and was 35.4% in the prior year period.

SG&A for the ~~quarter~~three months ended December 31, ~~2019 increased~~2020 decreased to ~~$32.5~~$32.0 million from ~~$25.9~~$32.5 million in the prior year period. This ~~increase~~decrease was due primarily ~~due~~to temporary expense reductions of $1.4 million related to the ~~inclusion of Krausz’s SG&A expenses. SG&A as a percentage of net sales was 16.9%~~pandemic, including reduced travel, trade shows and ~~15.1% for the quarters ended December 31, 2019 and 2018, respectively.~~

~~Technologies~~

~~Net sales in the quarter ended December 31, 2019 decreased to $19.8 million from $20.8 million in the prior year period, driven by lower shipment volumes at Metrology, which were~~events, partially offset by ~~higher volumes at Echologics.~~

~~Gross profit~~increases in ~~the quarter ended December 31, 2019 increased to $4.4 million compared to $3.3 million in the prior year period.~~

~~SG&A decreased to $6.4 million in the quarter ended December 31, 2019 compared to $7.0 million in the prior year period due to reduced marketing and~~other personnel-related expenses. SG&A as a percentage of net sales was ~~32.3%~~14.8% and ~~33.7%~~16.9% for the ~~quarters~~three months ended December 31, 2020 and 2019, respectively.

Technologies

Net sales in the three months ended December 31, 2020 increased to $21.5 million from $20.3 million in the prior year period, primarily due to higher shipment volumes of our metering and ~~2018,~~leak detection-related products.

Gross profit in the three months ended December 31, 2020 was $4.7 million and was $4.6 million in the prior year period.

SG&A decreased to $6.2 million from $6.4 million in the prior year period primarily due to temporary expense reductions related to the pandemic, including reduced travel, trade shows and events. SG&A as a percentage of net sales was 28.8% and 31.5% for the three months ended December 31, 2020 and 2019, respectively.

Corporate

SG&A was $11.0 million in each of the ~~quarter~~three months ended December 31, ~~2019~~2020 and ~~was $8.1 million in the prior year period. This increase was primarily due to IT-related activities, personnel-related costs and professional fees.~~2019.

Liquidity and Capital Resources

We had cash, ~~and~~ cash equivalents and restricted cash on hand of ~~$136.8~~$223.0 million at December 31, ~~2019~~2020 and ~~$122.0~~$113.4 million of additional borrowing capacity under our ABL Agreement based on December 31, ~~2019~~2020 data. Undistributed earnings from our subsidiaries in Canada, China, and Israel are considered to be permanently invested outside the United States. At December 31, ~~2019,~~2020, cash and cash equivalents included ~~$12.1~~$13.1 million, ~~$4.3~~$6.7 million and ~~$17.5~~$21.7 million in Canada, China and Israel, respectively.

We declared a quarterly dividend of $0.055 per share on January 28, 2021, payable on February 22, 2021, which will result in an estimated $8.7 million cash outlay.

We did not repurchase any shares of our outstanding common stock during the ~~quarter~~three months ended December 31, ~~2019~~2020 and ~~have $150~~had $145.0 million remaining on our share repurchase authorization.

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

Cash flows from operating activities are categorized below.


							Three months ended
		Three months ended							December 31,
		December 31,							2020		2019
		2019		2018
		(in millions)							(in millions)
Collections from customers	Collections from customers	$	253.6	$	242.3	Collections from customers	$	261.5	$	253.6
Disbursements, other than interest and income taxes	Disbursements, other than interest and income taxes	(231.4)		(220.4)		Disbursements, other than interest and income taxes	(214.3)		(231.4)
Walter Tax accrual payment		(22.2)		—
Walter Energy payment						Walter Energy payment	—		(22.2)
Interest payments, net	Interest payments, net	(12.0)		(11.7)		Interest payments, net	(12.4)		(12.0)
Income tax payments, net	Income tax payments, net	(0.4)		(0.3)		Income tax payments, net	(0.7)		(0.4)
Cash (used in) provided by operating activities		$	(12.4)	$	9.9
Cash provided by operating activities						Cash provided by operating activities	$	34.1	$	(12.4)

Collections from customers were higher during the three months ended December 31, ~~2019~~2020 compared to the prior year period primarily due to ~~increased~~net sales ~~as well as collections of acquired Krausz receivables.~~growth.

~~Increased~~Decreased disbursements, other than interest and income taxes, during the three months ended December 31, ~~2019~~2020 primarily reflect ~~increased expenses, differences~~the results of improvements in ~~the timing of expenditures and payments of acquired Krausz payables.~~working capital management. Additionally, we disbursed $22.2 million related to the final settlement of the Walter ~~Tax.~~tax matter in the prior year period.

Capital expenditures were ~~$15.2~~$15.6 million in the three months ended December 31, ~~2019 compared to $15.9~~2020 and were $15.2 million in the prior year period. These expenditures were primarily ~~investment in announced~~associated with previously-announced large capital projects. ~~We estimate 2020~~For fiscal 2021, we have provided guidance that our capital expenditures ~~will~~are expected to be between ~~$80~~$80.0 million and ~~$90~~$90.0 million.

We anticipate that our existing cash, cash equivalents and borrowing capacity combined with our expected operating cash flows will be sufficient to meet our anticipated operating expenses, income tax payments, capital expenditures and debt service obligations as they become due through December 31, ~~2020. However,~~2021.

We believe that additional borrowings through various financing alternatives remain available if required. The future effects of the pandemic cannot be predicted with certainty and may increase our ~~ability to make these payments will depend partly upon our future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business~~borrowing costs and other ~~factors beyond~~costs of capital or otherwise adversely affect our ~~control.~~financial condition and liquidity, and we cannot guarantee that we will have access to external financing at times and on terms we consider acceptable, or at all, or that we will not experience other liquidity issues going forward.

ABL Agreement

At December 31, ~~2019,~~2020, the ABL Agreement consisted of a revolving credit facility for up to ~~$175~~$175.0 million of revolving credit borrowings, swing line loans and letters of credit. The ABL Agreement permits us to increase the size of the credit facility by an additional ~~$150~~$150.0 million in certain circumstances subject to adequate borrowing base availability. We may borrow up to ~~$25~~$25.0 million through swing line loans and may have up to ~~$60~~$60.0 million of letters of credit outstanding.

~~Borrowings~~In July 2020, the maturity of the ABL Agreement was extended to July 29, 2025 and borrowings under the amended ABL Agreement bear interest at a floating rate equal to LIBOR, plus aan applicable margin ranging from ~~125~~200 to ~~150~~225 basis points, or a base rate, as defined in the ABL Agreement, plus a margin ranging from 25100 to 50125 basis points. At December 31, ~~2019,~~2020, the applicable LIBOR-based margin was ~~125~~200 basis points.

The amended ABL ~~Agreement terminates on July 13, 2021. We pay~~agreement also calls for a commitment fee ~~for any unused borrowing capacity under the ABL Agreement~~ of 2537.5 basis points, ~~per annum.~~annually, on undrawn amounts.

The ABL Agreement is subject to mandatory prepayments if total outstanding borrowings under the ABL Agreement are greater than the aggregate commitments under the revolving credit facility or if we dispose of overdue accounts receivable in certain circumstances. The borrowing base under the ABL Agreement is equal to the sum of (a) 85% of the value of eligible accounts receivable and (b) the lesser of (i) 70% of the value of eligible inventories or (ii) 85% of the net orderly liquidation value of the value of eligible inventories, less certain reserves. Prepayments can be made at any time with no penalty.

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

Borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $17.5 million and 10% of the Loan Cap under the ABL Agreement.

5.5% Senior Unsecured Notes

On June 12, 2018, we privately issued $450.0 million of Senior Unsecured Notes (“Notes”), which mature in June 2026 and bear interest at 5.5%, paid semi-annually. Substantially all of our U.S. subsidiaries guarantee the Notes, which are subordinate to borrowings under the ABL. Based on quoted market prices, the outstanding Notes had a fair value of ~~$473.6~~$466.3 million at December 31, ~~2019.~~2020.

An indenture securing the Notes (“Indenture”) contains customary covenants and events of default, including covenants that limit our ability to incur certain debt and liens, pay dividends and certain other restricted payments and make investments. There are no financial maintenance covenants associated with the Indenture. We believe we were compliant with these covenants at ~~December 31, 2019 and expect to remain in compliance through~~ December 31, 2020.

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

Our corporate credit rating and the credit rating for our debt are presented below. These ratings are not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agencies.

Moody’s

Standard & Poor’s

Moody’s

Standard & Poor’s

December 31,

September 30,

December 31,

September 30,

December 31,

September 30,

December 31,

September 30,

2019

2020

Corporate credit rating

Ba2

Corporate credit rating

Ba2

ABL Agreement

Not rated

ABL Agreement

Not rated

Notes

Ba3

Notes

Ba3

Outlook

Stable

Outlook

Stable

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as “structured ~~finance~~”finance” or “special ~~purpose~~”purpose” entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, at December 31, ~~2019~~2020 we did not have any undisclosed borrowings, debt, derivative contracts or synthetic leases. Therefore, we were not exposed to any financing, liquidity, market or credit risk that could have arisen had we engaged in such relationships.

We use letters of credit and surety bonds in the ordinary course of business to ensure the performance of contractual obligations. At December 31, ~~2019,~~2020, we had $13.8 million of letters of credit and ~~$22.7~~$42.7 million of surety bonds outstanding.

Seasonality

Our business ~~is dependent upon the construction industry, which~~ is seasonal due to the impact of cold weather conditions. Net sales and operating income have historically been lowest in the ~~quarterly~~three month periods ending December 31 and March 31 when the northern United States and all of Canada generally face weather conditions that restrict significant construction activity.

Item 4. CONTROLS AND PROCEDURES

During the ~~quarter~~three months ended December 31, ~~2019,~~2020, we continued our multi-year implementation of upgrades to our enterprise resource planning (ERP) system and the implementation of a new information technology system for processing of payroll and employee-related transactions.

Aside from the above, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As a result of the COVID-19 pandemic, many of our employees began working remotely in March 2020 and continued to do so as of the date of this filing. This change to our working environment has not had a material effect on our internal control over financial reporting. We will continue monitoring and assessing any impacts from the pandemic on our internal controls.

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

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

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

PART II OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Refer to the information provided in Note ~~13.~~12. 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 Annual Report, , each of which could materially affect our business, financial condition or operating results. These described risks are not the only risks facing us. Additional risks and uncertainties not known to us or that we deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

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

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

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

During the ~~quarter~~three months ended December 31, ~~2019,~~2020, shares were surrendered to us to pay the tax withholding obligations of participants in connection with the lapsing of restrictions on restricted stock units as follows:

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


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, 2020	—	$	—	—	$	145.0
November 1-30, 2020	23,867	12.13		—	145.0
December 1-31, 2020	54,956	11.84		—	145.0
Total	78,823	$	—	—	145.0

We did not repurchase shares of our common stock during the ~~quarter~~three months ended December 31, ~~2019~~2020 under our share repurchase authorization, and we ~~have $150~~had $145 million remaining under this authorization.

Item 6. EXHIBITS


Exhibit No.						Document
~~10.1~~						~~Agreement of~~ ~~Walter~~ T ax ~~Settlement, dated November 5, 2019~~, ~~between Mueller Water Products, Inc, and New WEI. Incorporated by reference to Exhibit 10.1 to Mueller Water Products, Inc. Form 8-K (File no 001-32982) filed on December 18, 2019.~~
~~10.20.4~~						~~Amendment, datedMay 5, 2017, to Executive Employment Agreement, dated December 1, 2009,~~ ~~between Mueller Water Products, Inc.~~ ~~and Gregory Rogowski. Incorporated by reference to Exhibit 10.20.4 to~~ ~~Mueller~~ ~~Water Products, Inc.~~ ~~Form 10-Q (File~~ ~~no. 001-32982) filed on~~ ~~May 9, 2017.~~
31.1*						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*						The following financial information from the Quarterly Report on Form 10-Q for the quarter ended December 31, ~~2019,~~2020, formatted in XBRL (Extensible Business Reporting Language), (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Other Comprehensive Loss, (iv) the Condensed Consolidated Statements of Stockholders' Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Condensed Consolidated Financial Statements.
104*						Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its iXBRL tags are embedded within the Inline XBRL document.

* Filed with this quarterly report

SIGNATURES

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

MUELLER WATER PRODUCTS, INC.

Date:

February ~~5, 2020~~4, 2021

By:

/s/ Michael S. Nancarrow

Michael S. Nancarrow

Chief Accounting Officer

2624


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