mwa-20221231

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, 2022

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

Commission File Number 001-32892

MUELLER WATER PRODUCTS, INC.

(Exact name of registrant as specified in its charter)


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

1200 Abernathy Road N.E.

Suite 1200

Atlanta, GA 30328

(Address of principal executive offices)

(770) 206-4200

(Registrant’s telephone number, including area code)

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


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

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

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

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

Large accelerated filer ☒ Accelerated filer ☐

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

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

There were 156,264,139 shares of common stock of the registrant outstanding at January 31, 2023.

TABLE OF CONTENTS



ITEM		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets - December 3 1 , 2022 and September 30, 2022	3
	Unaudited Condensed Consolidated Statements of Operations - Three Months Ended December 3 1 , 2022 and 2021	4
	Unaudited Condensed Consolidated Statements of Comprehensive Income - Three Months Ended December 3 1 , 2022 and 2021	5
	Unaudited Condensed Consolidated Statements of Equity - Three Months Ended December 3 1 , 2022 and 2021	6
	Unaudited Condensed Consolidated Statements of Cash Flows - Three Months Ended December 3 1 , 2022 and 2021	7
	Notes to the Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 4.	Controls and Procedures	28

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 6.	Exhibits	29
	Signatures	29

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PART I

Item 1. FINANCIAL STATEMENTS

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	December 31,		September 30,
	2022		2022
	(in millions, except share amounts)
Assets:
Cash and cash equivalents	$	125.6	$	146.5
Receivables, net of allowance for credit losses of $6.1 million and $5.6 million	201.9		228.0
Inventories, net	314.0		278.7
Other current assets	30.4		26.8
Total current assets	671.9		680.0
Property, plant and equipment, net	302.9		301.6
Intangible assets, net	355.6		361.2
Goodwill	100.0		98.6
Other noncurrent assets	56.2		56.7
Total assets	$	1,486.6	$	1,498.1

Liabilities and stockholders’ equity:
Current portion of long-term debt	$	0.9	$	0.8
Accounts payable	103.5		122.8
Other current liabilities	109.2		117.4
Total current liabilities	213.6		241.0
Long-term debt	446.1		446.1
Deferred income taxes	85.8		86.3
Other noncurrent liabilities	53.3		55.4
Total liabilities	798.8		828.8

Commitments and contingencies (Note 10.)

Common stock: 600,000,000 shares authorized; 156,208,077 and 155,844,138 shares outstanding at December 31, 2022, and September 30, 2022, respectively	1.6		1.6
Additional paid-in capital	1,271.0		1,279.6
Accumulated deficit	(544.8)		(567.3)
Accumulated other comprehensive loss	(40.0)		(44.6)
Total stockholders’ equity	687.8		669.3
Total liabilities and stockholders’ equity	$	1,486.6	$	1,498.1

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

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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three months ended
	December 31,
		2022		2021

		(in millions, except per share amounts)
Net sales		$	314.8	$	272.3
Cost of sales		221.6		184.7
Gross profit		93.2		87.6
Operating expenses:
Selling, general and administrative		62.9		56.3
Strategic reorganization and other (benefits) charges		(3.7)		2.4
Total operating expenses		59.2		58.7
Operating income		34.0		28.9
Other expenses (income):
Pension expense (benefit) other than service		0.9		(1.0)
Interest expense, net		3.7		4.3
Net other expenses		4.6		3.3
Income before income taxes		29.4		25.6
Income tax expense		6.9		6.2
Net income		$	22.5	$	19.4

Net income per share:
Basic		$	0.14	$	0.12
Diluted		$	0.14	$	0.12

Weighted average shares outstanding:
Basic		156.4		158.0
Diluted		157.0		158.9

Dividends declared per share		$	0.061	$	0.058

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

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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three months ended
	December 31,
		2022		2021

		(in millions)
Net income		$	22.5	$	19.4
Other comprehensive income (loss) :
Pension benefit adjustments		0.9		0.4
Income tax effects		(0.3)		(0.1)
Foreign currency translation		4.0		5.7
Total other comprehensive income, net		4.6		6.0
Comprehensive income		$	27.1	$	25.4

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

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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)


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

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


	Common stock		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive (loss) income		Total
	(in millions)
Balance at September 30, 2021	$	1.6	$	1,342.2	$	(643.9)	$	(5.0)	$	694.9
Net income	—		—		19.4		—		19.4
Dividends declared	—		(9.2)		—		—		(9.2)
Stock-based compensation	—		2.0		—		—		2.0
Shares retained for employee taxes	—		(1.9)		—		—		(1.9)
Stock repurchased under buyback program			(20.0)		—		—		(20.0)
Common stock issued	—		0.7		—		—		0.7
Other comprehensive income, net of tax	—		—		—		6.0		6.0
Balance at December 31, 2021	$	1.6	$	1,313.8	$	(624.5)	$	1.0	$	691.9

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

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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three months ended
	December 31,
	2022		2021

	(in millions)
Operating activities:
Net income	$	22.5	$	19.4
Adjustments to reconcile net income to net cash (used in) provided by operating activities, net of acquisition:
Depreciation	7.8		8.0
Amortization	7.0		7.2
Gain on sale of assets	(4.0)		—
Stock-based compensation	1.8		2.0
Pension expense (benefit)	1.1		(0.7)
Deferred income taxes	(0.9)		3.6
Inventory reserves provision	1.2		3.5
Other, net	0.5		1.0
Changes in assets and liabilities, net of acquisition:
Receivables, net	26.4		31.9
Inventories	(36.1)		(28.3)
Other assets	(3.6)		(0.8)
Accounts payable	(19.6)		(8.4)
Other current liabilities	(8.4)		(12.8)
Other noncurrent liabilities	(2.2)		(5.8)
Net cash (used in) provided by operating activities	(6.5)		19.8
Investing activities:
Capital expenditures	(9.9)		(11.0)
Acquisition, net of cash acquired	—		0.2
Proceeds from sale of assets	5.1		—
Net cash used in investing activities	(4.8)		(10.8)
Financing activities:


Dividends paid	(9.5)		(9.2)
Employee taxes related to stock-based compensation	(1.5)		(1.9)
Common stock issued	0.6		0.7

Common stock repurchased under buyback program	—		(20.0)

Financing leases	(0.1)		(0.1)
Net cash used in financing activities	(10.5)		(30.5)
Effect of currency exchange rate changes on cash	0.9		1.3
Net change in cash and cash equivalents	(20.9)		(20.2)
Cash and cash equivalents at beginning of period	146.5		227.5
Cash and cash equivalents at end of period	$	125.6	$	207.3

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

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	Three months ended
	December 31,
	2022		2021

	(in millions)
Supplemental cash flow information:
Cash paid for interest, net	$	8.6	$	10.0
Cash paid for income taxes, net	$	0.2	$	0.4

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

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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2022

(UNAUDITED)

Note 1. Organization and Basis of Presentation

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

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

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

Our business is seasonal as a result of the impact of cold weather conditions. Net sales and operating income historically have been lowest in the three month periods ending December 31 and March 31 when the northern United States and all of Canada generally face weather conditions that restrict significant construction activity.

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

Recently Adopted Accounting Pronouncements

In December 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848” (“ASU 2022-06”). ASU 2022-06 defers the sunset date for applying the reference rate reform relief in ASC 848 to December 31, 2024 from December 31, 2022. ASU 2022-06 became effective immediately upon issuance. In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (“ASU 2020-04”). This guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Inter Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. ASU 2020-04 is effective from March 12, 2020, but may be adopted prospectively from a date within an interim period subsequent to March 12, 2020. We evaluated our contracts and the optional expedients provided by ASU 2020-04. We adopted this standard on October 1, 2021 and there was no material impact to our financial statements.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by clarifying and amending existing guidance related to the recognition of franchise tax, the evaluation of a step up in the tax basis of goodwill, and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. ASU 2019-12 was effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year, with early adoption permitted. We adopted this standard on October 1, 2021 and there was no material impact to our financial statements.

Restructuring

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Between November 2019 and March 2021, we announced the purchase and closure of several facilities. We purchased a new facility in Kimball, Tennessee to support and enhance our investment in our Chattanooga, Tennessee large casting foundry and closed our facilities in Hammond, Indiana, Woodland, Washington and Surrey, British Columbia, Canada. We also completed the closure of our facility in Aurora, Illinois during our fiscal year 2022. The majority of the activities from these plants were transferred to our Kimball, Tennessee facility. In connection with these reorganizations, we recognized certain restructuring costs. During the three months ended December 31, 2022, we recorded a $4.0 million gain, before tax, on the sale of the Aurora, Illinois facility. The restructuring accrual amounts as of December 31, 2022 and December 31, 2021 were immaterial.

New Markets Tax Credit Program

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

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

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

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

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

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

Note 2. Revenue from Contracts with Customers

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

Disaggregation of Revenue

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

Contract Asset and Liability Balances

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

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

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


	December 31,		September 30,
	2022		2022

	(in millions)
Billed receivables	$	203.5	$	230.5
Unbilled receivables	4.5		3.1
Gross customer receivables	208.0		233.6
Allowance for credit losses	(6.1)		(5.6)
Receivables, net	$	201.9	$	228.0

Deferred revenue	$	8.4	$	8.1

Performance Obligations

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

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

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

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

We offer warranties to our customers which provide assurance that the products provided will function as intended and comply with any agreed-upon specifications. These warranties cannot be purchased separately from us.

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Costs to Obtain or Fulfill a Contract

Shipping and handling costs associated with freight activities after the customer has obtained control of a product are included in cost of sales at the time the related revenue is recognized.

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

Note 3. Income Taxes

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


	Three months ended
	December 31,
		2022		2021
U.S. federal statutory income tax rate		21.0	%	21.0	%
Adjustments to reconcile to the effective tax rate:
State income taxes, net of federal benefit		3.4		3.9
Excess tax benefits related to stock-based compensation		0.7		(1.0)
Tax credits		(1.6)		(1.2)
Global Intangible Low-Taxed Income		0.8		0.3
Foreign income tax rate differential		(1.6)		(0.7)
Nondeductible compensation		0.5		—
Valuation allowances		(0.2)		1.4
Other		0.5		0.5

Effective income tax rate		23.5	%	24.2	%

At December 31, 2022 and September 30, 2022, the gross liabilities for unrecognized income tax benefits were $4.8 million and $4.7 million, respectively, and are included in Other noncurrent liabilities.

Note 4. Borrowing Arrangements

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


	December 31,		September 30,
	2022		2022

	(in millions)
4.0% Senior Notes	$	450.0	$	450.0
Finance leases	1.4		1.6
Total borrowings	451.4		451.6
Less: deferred financing costs	(4.4)		(4.7)
Less: current portion	(0.9)		(0.8)
Long-term debt	$	446.1	$	446.1

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

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Borrowings under the ABL bear interest at a floating rate equal to LIBOR plus an applicable margin range of 200 to 225 basis points, or a base rate, as defined in the ABL, plus an applicable margin range of from 100 to 125 basis points. At December 31, 2022 the applicable margin for LIBOR based loans was 200 basis points and for base rate loans was 100 basis points.

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

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

The ABL includes a commitment fee for any unused borrowing capacity of 37.5 basis points per annum. Borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $17.5 million and 10% of the Loan Cap as defined in the ABL. Excess availability based on December 31, 2022 data was $162.4 million, as reduced by $12.4 million of outstanding letters of credit and $0.2 million of accrued fees and expenses.

4.0% Senior Unsecured Notes. On May 28, 2021, we privately issued $450.0 million of 4.0% Senior Unsecured Notes (“4.0% Senior Notes”), which mature on June 15, 2029 and bear interest at 4.0%, paid semi-annually in June and December. We capitalized $5.5 million of financing costs which are being amortized over the term of the 4.0% Senior Notes using the effective interest method. Proceeds from the 4.0% Senior Notes, along with cash on hand, were used to redeem our previously existing 5.5% Senior Notes. Substantially all of our United States subsidiaries guarantee the 4.0% Senior Notes, which are subordinate to borrowings under our ABL. Based on quoted market prices, which is a Level 1 measurement, the outstanding 4.0% Senior Notes had a fair value of $395.8 million at December 31, 2022.

An indenture securing the 4.0% Senior Notes (“Indenture”) contains customary covenants and events of default, including covenants that limit our ability to incur certain debt and liens. There are no financial maintenance covenants associated with the Indenture. We believe we were in compliance with these covenants at December 31, 2022.

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

Note 5. Retirement Plans

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


	Three months ended
	December 31,
		2022		2021
		(in millions)
Service cost		$	0.2	$	0.3
Pension costs (benefits) other than service:
Interest cost		3.5		2.4
Expected return on plan assets		(3.5)		(3.8)
Amortization of actuarial net loss		0.9		0.4
Pension costs (benefits) other than service		0.9		(1.0)
Net periodic costs (benefits)		$	1.1	$	(0.7)

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

Table of Contents

Note 6. Stock-based Compensation Plans

We grant various forms of stock-based compensation, including market-based restricted stock units (“MRSUs”), restricted stock units, stock options and performance-based restricted stock units (“PRSUs”) under our Amended and Restated 2006 Mueller Water Products, Inc. Stock Incentive Plan (the “2006 Stock Plan”), Phantom Plan instruments under our Mueller Water Products, Inc. 2012 Phantom Plan, and Employee stock purchase plan instruments under our 2006 Employee Stock Purchase Plan. Grants issued during the three months ended December 31, 2022 are as follows:


	Number granted	Weighted average grant date fair value per instrument		Total grant date fair value (in millions)












Quarter ended December 31, 2022
MRSUs	166,284	$	15.08	$	2.5
PRSUs	166,284	$	11.41	$	1.9
Restricted stock units	228,692	$	11.39	$	2.6
Phantom Plan instruments	267,093	$	11.41	$	3.0
Non-qualified stock options

SEC Form 10-Q filed by MUELLER WATER PRODUCTS