0001350593-20-000049.txt : 20200806 0001350593-20-000049.hdr.sgml : 20200806 20200806160254 ACCESSION NUMBER: 0001350593-20-000049 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 71 CONFORMED PERIOD OF REPORT: 20200630 FILED AS OF DATE: 20200806 DATE AS OF CHANGE: 20200806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Mueller Water Products, Inc. CENTRAL INDEX KEY: 0001350593 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 203547095 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-32892 FILM NUMBER: 201081481 BUSINESS ADDRESS: STREET 1: 1200 ABERNATHY RD, NE STREET 2: SUITE 1200 CITY: ATLANTA STATE: GA ZIP: 30328 BUSINESS PHONE: 770-206-4200 MAIL ADDRESS: STREET 1: 1200 ABERNATHY RD, NE STREET 2: SUITE 1200 CITY: ATLANTA STATE: GA ZIP: 30328 FORMER COMPANY: FORMER CONFORMED NAME: Mueller Holding Company, Inc. DATE OF NAME CHANGE: 20060123 10-Q 1 mwa-20200630.htm 10-Q mwa-20200630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

 QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 157,815,790 shares of $0.01 par value common stock of the registrant outstanding at July 31, 2020, 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)
 June 30,September 30,
 20202019
 (in millions, except share amounts)
Assets:
Cash and cash equivalents$170.7  $176.7  
Receivables, net155.3  172.8  
Inventories180.3  191.4  
Other current assets28.1  26.0  
Total current assets534.4  566.9  
Property, plant and equipment, net244.9  217.1  
Goodwill96.4  95.7  
Intangible assets413.7  433.7  
Other noncurrent assets51.2  23.9  
Total assets$1,340.6  $1,337.3  
Liabilities and equity:
Current portion of long-term debt$1.2  $0.9  
Accounts payable
59.0  84.6  
Other current liabilities84.8  93.0  
Total current liabilities145.0  178.5  
Long-term debt446.4  445.4  
Deferred income taxes89.9  87.9  
Other noncurrent liabilities49.6  33.2  
Total liabilities730.9  745.0  
Commitments and contingencies (Note 13.)
Common stock: 600,000,000 shares authorized; 157,762,860 and 157,462,140 shares outstanding at June 30, 2020 and September 30, 2019, respectively1.6  1.6  
Additional paid-in capital1,383.3  1,410.7  
Accumulated deficit(740.9) (786.2) 
Accumulated other comprehensive loss(34.3) (36.0) 
Total stockholders’ equity609.7  590.1  
Noncontrolling interest  2.2  
Total equity609.7  592.3  
Total liabilities and equity$1,340.6  $1,337.3  

The accompanying notes are an integral part of the condensed consolidated financial statements.
1


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

The accompanying notes are an integral part of the condensed consolidated financial statements.
2


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

The accompanying notes are an integral part of the condensed consolidated financial statements.
3


MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY 
(UNAUDITED)
Three months endedNine months ended
June 30,June 30,
2020201920202019
(in millions)
Common stock
Balance, beginning of period$1.6  $1.6  $1.6  $1.6  
Change in common stock at par value        
Balance, end of period1.6  1.6  1.6  1.6  
Additional paid-in capital
Balance, beginning of period1,390.1  1,433.2  1,410.7  1,444.5  
Dividends declared(8.3) (7.9) (24.9) (23.7) 
Shares repurchased under buyback program  (10.0) (5.0) (10.0) 
Buyout of noncontrolling interest    (3.2) 
Shares retained for employee taxes    (0.7) (1.4) 
Stock-based compensation1.1  1.1  3.8  3.4  
Stock issued under stock compensation plan0.4  0.5  2.6  4.1  
Balance, end of period1,383.3  1,416.9  1,383.3  1,416.9  
Accumulated deficit
Balance, beginning of period(752.1) (860.1) (786.2) (850.0) 
Net income11.2  33.7  45.3  23.6  
Balance, end of period(740.9) (826.4) (740.9) (826.4) 
Accumulated other comprehensive income (loss)
Balance, beginning of period(33.1) (27.8) (36.0) (32.8) 
Other comprehensive income (loss)(1.2) 0.7  1.7  5.7  
Balance, end of period(34.3) (27.1) (34.3) (27.1) 
Noncontrolling interest
Balance, beginning of period  1.9  2.2  1.5  
Acquisition of joint venture partner’s interest    (2.2)   
Net income  0.1    0.5  
Balance, end of period  2.0    2.0  
Total stockholders' equity$609.7  $567.0  $609.7  $567.0  

The accompanying notes are an integral part of the condensed consolidated financial statements.
4


MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine months ended
June 30,
 20202019
 (in millions)
Operating activities:
Net income$45.3  $23.6  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation21.7  19.1  
Amortization21.1  19.7  
Stock-based compensation3.8  3.4  
Retirement plans2.2  3.7  
Deferred income taxes1.4  (2.9) 
Other, net7.2  1.5  
Changes in assets and liabilities:
Receivables17.4  2.9  
Inventories5.0  (23.3) 
Other assets0.7  (16.5) 
Accounts payable(25.6) (25.5) 
Walter Energy Accrual(22.0) 38.4  
Other current liabilities6.0  (15.9) 
Other noncurrent liabilities(6.4) (10.4) 
Net cash provided by operating activities
77.8  17.8  
Investing activities:
Business acquisitions, net of cash received  (127.5) 
Capital expenditures(51.2) (52.9) 
Proceeds from sales of assets0.3    
Net cash used in investing activities
(50.9) (180.4) 
Financing activities:
Dividends(24.9) (23.7) 
Repayment of Krausz debt  (13.2) 
Acquisition of joint venture partner’s interest(5.2)   
Employee taxes related to stock-based compensation(0.7) (1.4) 
Common stock issued2.6  4.1  
Common stock repurchased under buyback program(5.0) (10.0) 
Other0.6  0.3  
Net cash used in financing activities
(32.6) (43.9) 
Effect of currency exchange rate changes on cash(0.3) 0.1  
Net change in cash and cash equivalents(6.0) (206.4) 
Cash and cash equivalents at beginning of period176.7  347.1  
Cash and cash equivalents at end of period$170.7  $140.7  

The accompanying notes are an integral part of the condensed consolidated financial statements.
5


MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2020
Note 1.Organization
Mueller Water Products, Inc., a Delaware corporation, together with its consolidated subsidiaries, operates in two business segments: Infrastructure and Technologies. Infrastructure manufactures valves for water and gas systems, including butterfly, iron gate, tapping, check, knife, plug and ball valves, as well as dry-barrel and wet-barrel fire hydrants 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 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% interest in the business in October 2019.
On December 3, 2018, we completed our acquisition of Krausz Development Ltd. and subsidiaries (“Krausz”). We include the financial statements of Krausz in our consolidated financial statements on a one-month lag. 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 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. 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 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. As of June 30, 2020, such effects did not result in the impairment of the carrying value of our assets. The pandemic continues to provide significant challenges to the U.S. and global economies.
Unless the context indicates otherwise, whenever we refer to a particular year, we mean our fiscal year ended or ending September 30 in that particular calendar year.
In 2016, Financial Accounting Standards Board (“FASB”) issued new guidance for the recognition of lease assets and lease liabilities for those leases 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 2016, FASB issued new guidance to introduce a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. We will adopt this guidance and apply it to our accounts receivable beginning in the first quarter of fiscal 2021, and we do not believe it will have a material effect on our consolidated financial statements.
6


In October 2018, we announced the move of our Middleborough, Massachusetts research and development operations to Atlanta to consolidate our resources and to accelerate product innovation through the creation of a research and development center of excellence for software and electronics. In November 2019, we announced the planned move of our manufacturing operations in Hammond, Indiana to our new facility in Kimball, Tennessee. Expenses incurred for these moves were primarily related to personnel and inventory and were included in strategic reorganization and other charges in the Condensed Consolidated Statements of Operations.
Activity in accrued restructuring, reported as part of other current liabilities, is presented below.
Nine months ended
June 30,
20202019
(in millions)
Beginning balance$1.7  $0.9  
Expenses related to personnel and other1.7  5.5  
Expenses related to inventory1.4    
Amounts paid(1.5) (4.6) 
Ending balance$3.3  $1.8  

Note 2.  Business Combinations
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 following is a summary of the fair values of the net assets acquired (in millions):
Assets, net of cash:
Receivables$6.9  
Inventories17.0  
Other current assets0.2  
Property, plant and equipment8.1  
Other noncurrent assets1.7  
Identified intangible assets:
  Patents32.1  
  Customer relationships8.7  
  Tradenames4.6  
  Favorable leasehold interests2.3  
  Goodwill80.4  
Liabilities:
Accounts payable(5.5) 
Other current liabilities(2.9) 
Deferred income taxes(11.2) 
Other noncurrent liabilities(1.7) 
Fair value of assets acquired, net of liabilities assumed140.7  
Repayment of Krausz debt(13.2) 
Consideration paid to seller$127.5  
7


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 amortizable intangible assets acquired have a weighted average useful life of approximately 12 years.

Note 3. Revenue from Contracts with Customers
We recognize revenue when control of promised products or services is transferred to our customers, in amounts that reflect the 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 (see Note 11.) and further by geographical region as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Geographical region represents the location of the customer.
Contract Asset and Liability Balances
The timing of revenue recognition, billings and cash collections results in customer receivables, advance payments and billings in excess of revenue recognized. Customer receivables include amounts billed and currently due from customers as well as unbilled amounts (contract assets). Amounts are billed in accordance with contractual terms and unbilled amounts arise when the timing of billing differs from the timing of revenue recognized.
Advance payments and billings in excess of revenue are recognized and recorded as deferred revenue, the majority of which is classified as current based on the timing when we expect to recognize revenue. We include current deferred revenue as part of our accrued expenses. Deferred revenues represent contract liabilities and are recorded when customers remit contractual cash payments in advance of us satisfying performance obligations under contractual arrangements. Contract liabilities are reversed when the performance obligation is satisfied and revenue is recognized.
The table below represents the balances of our customer receivables and deferred revenues.
June 30,September 30,
20202019
(in millions)
Billed receivables$153.7  $171.0  
Unbilled receivables4.5  4.5  
Total customer receivables$158.2  $175.5  
Deferred revenues$5.4  $4.7  
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. Our performance obligations are satisfied at a point in time as related 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 the practical expedient to not adjust the transaction price of a contract for the effects of a significant financing component if, at the inception of the contract, we expect that the period between when we transfer a product or service to a customer and when a customer remits payment will be one year or less.
8


Revenues from products and services transferred to customers at a point in time represented 99% of our revenues in the nine months ended both June 30, 2020 and 2019. 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 1% of our revenues in the nine months ended both June 30, 2020 and 2019.
We offer warranties to our customers in the form of assurance-type warranties, which provide assurance that the products provided will function as intended and comply with any agreed-upon specifications. These cannot be purchased separately. There was no change to our warranty accounting as a result of the implementation of the new revenue standard and we continue to use our current cost accrual method.
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 orders and shipments and we reserve the right to claw back any commissions in case of product returns or lost collections. As the expected benefit associated with these incremental costs is one year or less based on the nature of the product sold and benefits received, we have applied a practical expedient and therefore do not capitalize the related costs and expense them as incurred, consistent with our previous accounting treatment.
Note 4. Leases
We adopted the new leasing standard utilizing the modified retrospective approach on October 1, 2019. Adoption of the new standard resulted in an increase to total assets and liabilities due to the recording of lease right-of-use assets (“ROU”) and lease liabilities related to our operating lease portfolio.
We elected the package of three practical expedients for transition, which include the carry forward of our leases without reassessing whether any contracts are leases or contain leases, lease classification and initial direct costs and applying hindsight when determining the lease term and when assessing impairment of right-of-use assets at the adoption date. This allows us to update our assessments according to new information and changes in facts and circumstances that have occurred since lease inception.
Presentation of Leases
We lease certain office, warehouse, manufacturing, distribution, and research and development facilities and equipment under operating leases.
Our leases have remaining lease terms of 1 year to 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.
For all classes of leased assets, we have applied an accounting policy election to exclude short-term leases from recognition in our condensed consolidated balance sheets. A short-term lease has a lease term of 12 months or less at the commencement date and does not include a purchase option that is reasonably certain of exercise. We recognize short-term lease expense in our condensed consolidated statements of operations on a straight-line basis over the lease term.
Our short-term lease expense for the three and nine months ended June 30, 2020 and short-term lease commitments at June 30, 2020 are immaterial.
9


We have certain lease contracts with terms and conditions that provide for variability in the payment amount based on changes in facts or circumstances occurring after the commencement date. These variable lease payments are recognized in our condensed consolidated statements of operations as the obligation is incurred.
At June 30, 2020, any legally-binding minimum lease payments for operating leases signed but not yet commenced, subleases, leases that imposed significant restrictions or covenants, related party leases or sale-leaseback arrangements were immaterial.
The components of lease cost are presented below.
Three months endedNine months ended
June 30, 2020June 30, 2020
(in millions)
Operating lease cost1.6  4.7  
Finance lease cost0.3  1.0  
Total lease expense$1.9  $5.7  
Supplemental cash flow information related to leases for the nine months ended June 30, 2020 is presented below, in millions.
Operating cash flows used in operating leases$4.5  
Financing cash flows used in finance leases$1.0  
Supplemental information describing where lease-related assets and liabilities are reflected in the Condensed Consolidated Balance Sheet at June 30, 2020 is presented below, in millions.
Right of use assets:
Operating leasesOther noncurrent assets$26.3  
Finance leasesPlant, property and equipment2.6  
Total right of use assets $28.9  
Lease liabilities:
Operating leases - currentOther current liabilities$4.2  
Operating leases - noncurrentOther noncurrent liabilities23.8  
Finance leases - currentCurrent portion of long-term debt1.2  
Finance leases - noncurrentLong-term debt1.6  
Total lease liabilities$30.8  
Supplemental information related to lease terms and discount rates at June 30, 2020 is presented below.
Weighted-average remaining lease term (years):
Operating leases7.99
Finance leases2.63
Weighted-average interest rate:
Operating leases5.65 %
Finance leases5.03 %
10


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

Note 5. Income Taxes
The reconciliation between the U.S. federal statutory income tax rate and the effective tax rate is presented below.
 Three months endedNine months ended
June 30,June 30,
2020201920202019
U.S. federal statutory income tax rate21.0 %21.0 %21.0 %21.0 %
Adjustments to reconcile to the effective tax rate:
State income taxes, net of federal benefit4.5  4.5  4.5  5.6  
Excess tax benefits related to stock compensation  (0.3) (0.6) (1.4) 
Tax credits(1.7) (1.2) (2.6) (2.7) 
Global Intangible Low-Taxed Income(0.2) 0.6  (0.1) 1.2  
Foreign income taxes(0.5)   (0.6)   
Valuation allowances(0.3)   (0.5)   
Reversal of uncertain tax positions(2.1) (5.2) (0.5) (7.2) 
Other2.6  1.9  2.0  3.6  
23.3 %21.3 %22.6 %20.0 %
Walter Energy Accrual  (0.4)   4.6  
Transition tax      (1.9) 
Effective income tax rate23.3 %20.9 %22.6 %22.7 %
At June 30, 2020 and September 30, 2019, the gross liabilities for unrecognized income tax benefits were $3.5 million and $3.3 million, respectively.
11


Note 6. Borrowing Arrangements
The components of our long-term debt are presented below.
 June 30,September 30,
 20202019
 (in millions)
5.5% Senior Notes$450.0  $450.0  
ABL Agreement    
Finance leases2.8  2.1  
452.8  452.1  
Less deferred financing costs5.1  5.8  
Less current portion1.2  0.9  
Long-term debt$446.4  $445.4  
5.5% Senior Unsecured Notes. On June 12, 2018, we privately issued $450.0 million of 5.5% Senior Unsecured Notes (“Notes”), which mature in 2026 and bear interest at 5.5%. We capitalized $6.6 million of financing costs, which are being amortized over the term of the Notes using the effective interest method. Proceeds from the Notes, along with other cash, were used to repay our Term Loan. Substantially all of our U.S. subsidiaries guarantee the Notes, which are subordinate to borrowings under the ABL. Based on quoted market prices, the outstanding Notes had a fair value of $460.1 million at June 30, 2020.
ABL Agreement. Our asset based lending agreement (“ABL Agreement”) consists of a revolving credit facility for up to $175 million of revolving credit borrowings, swing line loans and letters of credit. On July 30, 2020, we amended the ABL Agreement (See Note 14). This amendment, among other things, (i) extended the termination date of the facility, (ii) established a LIBOR “floor” of 75 basis points, (iii) increased interest rates on borrowings, (iv) increased the rate of the unused commitment fee, and (v) increased our ability to pay cash dividends.
The amended ABL Agreement permits us to increase the size of the credit facility by an additional $150 million in certain circumstances subject to adequate borrowing base availability. We may borrow up to $25 million through swing line loans and we are permitted to issue up to $60 million of letters of credit.
Borrowings under the amended ABL Agreement bear interest at a floating rate equal to LIBOR, plus a margin ranging from 200 to 225 basis points, or a base rate, as defined in the ABL Agreement, plus a margin ranging from 100 to 125 basis points. At July 31, 2020, the applicable rate was LIBOR plus 200 basis points.
The amended ABL Agreement terminates on July 29, 2025 and provides for a commitment fee for any unused borrowing capacity of 37.5 basis points per annum. Our obligations under the ABL Agreement are secured by a first-priority perfected lien on all of our U.S. receivables and inventories, certain cash and other supporting obligations. Borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $17.5 million and 10% of the Loan Cap as defined in the ABL Agreement. Excess availability based on June 30, 2020 data, as reduced by outstanding letters of credit and accrued fees and expenses of $13.9 million, was $116.1 million.
Note 7. Derivative Financial Instruments
In connection with the acquisition of Singer Valve in 2017, we loaned funds to one of our Canadian subsidiaries. Although this intercompany loan has no direct effect on our consolidated financial statements, it creates exposure to currency risk for the Canadian subsidiary. To reduce this exposure, we entered into a 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 the changes in their fair values are included in earnings, where they offset the currency gains and losses associated with the intercompany loan. The values of our currency swap contracts were an asset of $0.1 million and a liability $0.3 million as of June 30, 2020 and September 30, 2019, respectively, and are included in other noncurrent assets and noncurrent liabilities, respectively, in our Condensed Consolidated Balance Sheets.
12


Note 8. Retirement Plans
The components of net periodic benefit cost for our pension plans are presented below.
Three months endedNine months ended
June 30,June 30,
 2020201920202019
 (in millions)
Service cost$0.4  $0.4  $1.2  $1.2  
Pension costs (benefits) other than service:
Interest cost2.8  3.5  8.4  10.5  
Expected return on plan assets(4.2) (4.1) (12.6) (12.2) 
Amortization of actuarial net loss0.7  0.5  2.0  1.5  
Curtailment/special settlement loss      1.0  
Pension costs (benefits) other than service(0.7) (0.1) (2.2) 0.8  
Net periodic (benefit) cost$(0.3) $0.3  $(1.0) $2.0  
The amortization of actuarial losses, net of tax, is recorded as a component of other comprehensive loss.
During the quarter ended March 31, 2019, we settled our obligation to our Canadian pension plan participants through a combination of lump sum payments and purchases of annuities. We made a contribution to the plans of $1.0 million, which was included in pension costs other than service, to fund these settlements.
Also during the quarter ended March 31, 2019, we recorded an estimated settlement liability for our exiting a multi-employer pension plan at one of our manufacturing locations, which resulted in an expense of $1.1 million that we included in strategic reorganization and other charges. We subsequently paid the liability in May 2019.
Note 9. Stock-based Compensation Plans
We have granted various forms of stock-based compensation, including stock options, restricted stock units, performance-based restricted stock units (“PRSUs”) and market-based restricted stock units (“MRSUs”) under our Amended and Restated 2006 Mueller Water Products, Inc. Stock Incentive Plan (the “2006 Stock Plan”).
A PRSU award consists of a number of units that may be paid out at the end of a multi-year award cycle consisting of a series of annual performance periods coinciding with our fiscal years. After we 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 following years. Settlements, in our common shares, will range from zero to two times the number of PRSUs granted, depending on our financial performance against 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 TSR. Settlements, in our common shares, will range from zero to two times the number of MRSUs granted, depending on our TSR performance versus the peer group.
The table below provides information regarding MRSU awards, which were valued using Monte Carlo simulations on the dates the units were granted.
December 3, 2019January 28, 2020February 24, 2020
Fair Value at grant date$14.94  $16.76  $18.17  
Units granted147,213  2,763  7,498  
Variables used in determining grant date fair value:
Dividend yield1.87 %1.76 %1.73 %
Risk-free rate1.53 %1.44 %1.23 %
Expected term (in years)2.832.672.60
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We awarded 209,966 stock-settled PRSUs and 157,474 MRSUs in the nine months ended June 30, 2020 that are scheduled to settle in three years.
We issued 93,647 shares and 181,065 shares of common stock during the nine months ended June 30, 2020 and 2019, respectively, to settle PRSUs that vested during those periods.
In addition to the PRSU activity, we issued 1,618 and 248,612 shares of common stock for restricted stock units vested during the three and nine months ended June 30, 2020, respectively.
We have granted cash-settled Phantom Plan instruments under the Mueller Water Products, Inc. Phantom Plan (“Phantom Plan”). At June 30, 2020, the outstanding Phantom Plan instruments had a fair value of $9.43 per instrument and our liability for Phantom Plan instruments was $1.6 million.
We granted stock-based compensation awards under the 2006 Stock Plan, the Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan, and the Phantom Plan during the nine months ended June 30, 2020 as follows.
Number grantedWeighted average grant date fair value per instrumentTotal grant date fair value
(in millions)
Quarter ended December 31, 2019
    Restricted stock units162,433  $11.26  $1.8  
    Employee stock purchase plan instruments39,492  1.97  0.1  
    Phantom Plan awards188,973  11.26  2.1  
    PRSUs: 2020 award