MUELLER WATER PRODUCTS, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K)

The following discussion should be read in conjunction with the consolidated
financial statements and related notes included in Item 8. "Financial Statements
and Supplementary Data" of this Annual Report. This discussion and analysis
contains forward-looking statements that involve risks, uncertainties and other
factors that may cause actual results to differ materially from those projected
in any forward-looking statements, as discussed in "Disclosure Regarding
Forward-Looking Statements." These risks and uncertainties include but are not
limited to those set forth in "Item 1A. RISK FACTORS".

Insight

Company

We adopted a new management structure effective October 1, 2021 which resulted
in a change to our reportable segments. Under this new structure, we operate our
business through two segments, Water Flow Solutions and Water Management
Solutions.

We estimate that approximately 60% to 65% of the Company’s net sales in 2022 were associated with repairs and replacements directly related to municipal water infrastructure spending, approximately 25% to 30% were related to business residential construction and less than 10% were related to natural gas. utilities.

After experiencing challenges in 2020 and 2021 resulting from the pandemic,
municipal spending in 2022 recovered during the fiscal year as compared with the
prior year. According to the United States Department of Labor, the trailing
twelve-month average consumer price index for water and sewerage rates at
September 30, 2022 increased 4.7%. While the economic effects of the pandemic
have impacted revenues for some water utilities in the United States, water
utilities were generally able to maintain repair and replacement activities.

We expect the operating environment during fiscal year 2023 to be very
challenging as a result of the inflationary environment, labor challenges and
potential recession. We anticipate healthy demand in the municipal repair and
replacement market due to favorable budgets, especially at larger
municipalities. While demand from the new residential construction end market
has been at healthy levels during fiscal 2022, especially for lot and land
development activity, we anticipate that activity levels will slow during fiscal
2023 based on higher interest rates leading to a decrease in demand for new
residential housing. In November 2022, Blue Chip Economic Indicators forecasted
a 12.3% decrease in housing starts for the calendar year 2023 compared to the
calendar year 2022.

Consolidated

For our fiscal year 2023, we anticipate that consolidated net sales will be 6%
to 8% higher than our fiscal year 2022 primarily driven by the benefits of
higher pricing. In 2022, we encountered increased material costs as a result of
higher raw material prices, particularly brass ingot and scrap steel, as well as
higher purchased parts, freight, labor costs and energy expenses. In 2023, we
anticipate that inflation will continue to increase material and other costs.

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Financial statement index



Results of Operations

Year ended September 30, 2022 Compared to the year ended September 30, 2021

                                                       Year ended September 30, 2022
                                                          Water
                                      Water Flow       Management
                                       Solutions        Solutions       Corporate       Consolidated
                                                               (in millions)
Net sales                            $     714.1      $     533.3      $        -      $     1,247.4
Gross profit                               212.4            151.9               -      $       364.3
Operating expenses:
Selling, general and administrative         87.1            102.8            48.8              238.7
Strategic reorganization and other
charges                                      0.2              0.4             6.6                7.2
Goodwill impairment                          6.8                -               -                6.8
Total operating expenses                    94.1            103.2            55.4              252.7
Operating income (loss)              $     118.3      $      48.7      $    (55.4)             111.6
Pension benefit other than service                                                              (3.9)
Interest expense, net                                                                           16.9
Income before income taxes                                                                      98.6
Income tax expense                                                                              22.0
Net income                                                                             $        76.6

                                                       Year ended September 30, 2021
                                                          Water
                                      Water Flow       Management
                                       Solutions        Solutions       Corporate       Consolidated
                                                               (in millions)
Net sales                            $     617.8      $     493.2      $        -      $     1,111.0
Gross profit                         $     202.8      $     155.7      $        -      $       358.5
Operating expenses:
Selling, general and administrative         81.8             85.8            51.2              218.8
Strategic reorganization and other
charges (benefits)                           0.1             (0.4)            8.3                8.0
Total operating expenses                    81.9             85.4            59.5              226.8
Operating income (loss)              $     120.9      $      70.3      $    (59.5)             131.7
Pension benefit other than service                                                              (3.3)
Interest expense, net                                                                           23.4
Loss on early extinguishment of debt                                                            16.7
Income before income taxes                                                                      94.9
Income tax expense                                                                              24.5
Net income                                                                             $        70.4



Consolidated Analysis

Net sales for 2022 increased $136.4 millioni.e. 12.3%, at $1,247.4 million of
$1,111.0 million the previous year, mainly due to higher prices in most of our product lines, in addition to increased volumes.

Gross profit increased $5.8 million, or 1.6%, to $364.3 million for 2022
compared with $358.5 million in the prior year. This increase was primarily a
result of higher pricing and increased volumes which were partially offset by
higher cost of sales

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associated with inflation, adverse manufacturing performance including labor issues and supply chain disruptions. Gross margin decreased to 29.2% in 2022 from 32.3% the previous year.

Selling, general and administrative expenses ("SG&A") increased 9.1% to $238.7
million for 2022 from $218.8 million in the prior year. The increase in SG&A was
primarily a result of higher travel and trade show expenditures, higher costs
associated with inflation, investments in research and development as well as
information technology, and the inclusion of i2O Water, partially offset by
lower incentive compensation in personnel-related expenses and foreign exchange
gains. As a percentage of net sales, SG&A decreased 60 basis points to 19.1% of
net sales from 19.7% in the prior year.

Strategic reorganization and other charges for 2022 of $7.2 million primarily
consisted of certain transaction-related costs, expenses associated with our
ongoing restructuring activities, and the Albertville tragedy. For the fiscal
year 2021, Strategic reorganization and other charges of $8.0 million primarily
relate to termination benefits associated with our plant closures in Aurora,
Illinois and Surrey, British Columbia, Canada, the Albertville tragedy, and
certain transaction-related costs, partially offset by a one-time settlement
gain in connection with an indemnification of a previously owned property.

During the year ended September 30, 2022we incurred a non-cash impairment charge on our goodwill of $6.8 million within the Water Flow Solutions segment.

Interest expense, net down $6.5 million in 2022 compared to the prior year primarily due to the repayment of our 5.5% senior unsecured notes (“5.5% Senior Notes”), which were replaced by unsecured notes 4.0% Senior Notes (“4.0% Senior Notes”) as well as increased capitalized interest on our major capital projects and increased interest income.

                                            2022         2021
                                              (in millions)
5.5% Senior Notes                         $     -      $ 17.6
4.0% Senior Notes                            18.0         6.2
Deferred financing costs amortization         1.0         1.1
ABL Agreement                                 0.9         0.9
Capitalized interest                         (2.6)       (2.3)
Other interest expense                        0.3         0.3
Total interest expense                       17.6        23.8
Interest income                              (0.7)       (0.4)
Total interest expense, net               $  16.9      $ 23.4



Income tax expense of $22.0 million in 2022 resulted in an effective income tax
rate of 22.3%, which was lower than the 25.8% rate in the prior year reflecting
benefits from research and development tax credits and lower foreign tax rates.

Segment Analysis

Water Flow Solutions

Net sales for 2022 increased $96.3 million, or 15.6%, to $714.1 million from
$617.8 million in the prior year. Net sales increased primarily as a result of
higher pricing and increased volumes across most of the Water Flow Solutions
segment's product lines.

Gross profit for 2022 increased $9.6 million, or 4.7%, to $212.4 million from
$202.8 million in the prior year primarily as a result of higher pricing and
increased volumes across most product lines except for service brass products,
partially offset by higher cost of sales associated with inflation and
unfavorable manufacturing performance, primarily at our brass foundry. Gross
margin was 29.7% in 2022, as compared with 32.8% in the prior year.

SG&A in 2022 increased 6.5% to $87.1 million from $81.8 million in the prior
year primarily as a result of increased travel and trade show expenditures,
higher costs associated with inflation, and investments in research and
development and information technology. SG&A as a percentage of net sales was
12.2% and 13.2% for 2022 and 2021, respectively.

During the year ended September 30, 2022Water Flow Solutions recorded a non-cash goodwill impairment charge of $6.8 million.

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Water Management Solutions

Net sales in 2022 increased by 8.1% to reach $533.3 million of $493.2 million in the prior year, primarily due to higher pricing across most of the Water Management Solutions product lines and higher volumes for hydrants, natural gas and repair and installation product lines.

Gross profit in 2022 decreased $3.8 million to $151.9 million from $155.7
million in the prior year. Gross margin decreased to 28.5% in 2022 from 31.6% in
the prior year primarily as a result of higher cost of sales associated with
inflation, and unfavorable manufacturing performance, partially offset by higher
pricing and increased volumes.

SG&A increased 19.8% to $102.8 million in 2022 from $85.8 million in the prior
year primarily as a result of investments in research and development, the
inclusion of i2O Water, increased travel and trade show expenditures, and higher
costs associated with inflation, partially offset by foreign exchange gains.
SG&A as a percentage of net sales was 19.3% for 2022 and 17.4% in the prior
year.

Company

SG&A decreased by $2.4 million from $51.2 million in 2021 to $48.8 million in
2022 as a result of lower personnel-related expenses partially offset by higher
costs associated with inflation.


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Financial statement index

Year ended September 30, 2021 Compared to the year ended September 30, 2020

                                                       Year ended September 30, 2021
                                                          Water
                                      Water Flow       Management
                                       Solutions        Solutions       Corporate       Consolidated
                                                               (in millions)
Net sales                            $     617.8      $     493.2      $        -      $     1,111.0
Gross profit                         $     202.8      $     155.7      $        -      $       358.5
Operating expenses:
Selling, general and administrative         81.8             85.8            51.2              218.8
Strategic reorganization and other
(benefits) charges                           0.1             (0.4)            8.3                8.0
Total operating expenses                    81.9             85.4            59.5              226.8
Operating income (loss)              $     120.9      $      70.3      $    (59.5)             131.7
Pension benefit other than service                                                              (3.3)
Interest expense, net                                                                           23.4
Loss on early extinguishment of debt                                                            16.7
Income before income taxes                                                                      94.9
Income tax expense                                                                              24.5
Net income                                                                             $        70.4

                                                       Year ended September 30, 2020
                                                          Water
                                      Water Flow       Management
                                       Solutions        Solutions       Corporate       Consolidated
                                                               (in millions)
Net sales                            $     532.2      $     431.9      $        -      $       964.1
Gross profit                         $     180.0      $     148.2      $        -      $       328.2
Operating expenses:
Selling, general and administrative         75.1             78.8            44.5              198.4
Strategic reorganization and other
charges                                        -              0.7            12.3               13.0
Total operating expenses                    75.1             79.5            56.8              211.4
Operating income (loss)              $     104.9      $      68.7      $    (56.8)             116.8
Pension benefit other than service                                                              (3.0)
Interest expense, net                                                                           25.5
Walter Energy accrual                                                                            0.2
Income before income taxes                                                                      94.1
Income tax expense                                                                              22.1
Net income                                                                             $        72.0



Consolidated Analysis

Net sales for 2021 increased 15.2% to $1,111.0 million from $964.1 million in
the prior year primarily as a result of higher volume across most of our product
lines and higher pricing. Additionally, net sales benefited as a result of $6.0
million of Krausz sales from the elimination of the one-month reporting lag.

Gross profit increased $30.3 million to $358.5 million for 2021 compared with
$328.2 million in the prior year. This increase was primarily a result of
increased volume and higher pricing, partially offset by higher manufacturing
costs as a result of inflation, higher labor costs, and a $2.4 million inventory
write-off associated with the announcement of our plant closures in

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Aurora, Illinois and Surrey, British Columbia, Canada. Gross margin decreased to 32.3% in 2021 from 34.0% the previous year.

SG&A increased 10.3% to $218.8 million for 2021 from $198.4 million in the prior
year. As a percentage of net sales, SG&A decreased 90 basis points to 19.7% of
net sales from 20.6% in the prior year. The increase in SG&A was primarily a
result of increased personnel-related expenses, including incentive
compensation, sales commissions associated with higher net sales and orders, and
stock-based compensation. Additional SG&A increases were a result of inflation,
new product development and information technology spending. Fiscal year 2020
SG&A included pandemic-driven benefits from temporarily reduced travel, trade
show and event spending as well as temporary employee furloughs and temporary
salary reductions.

Strategic reorganization and other charges of $8.0 million for 2021 primarily
related to termination benefits associated with our plant closures in Aurora,
Illinois and Surrey, British Columbia, Canada, the Albertville tragedy, and
certain transaction-related costs, partially offset by a one-time settlement
gain in connection with an indemnification of a previously owned property. In
2020, Strategic reorganization and other charges of $13.0 million primarily
related to a legal settlement, facility closure costs, transaction costs
associated with the acquisition of Krausz, and personnel matters.

Interest expense, net down $2.1 million in 2021 compared to the prior year, primarily due to an increase in capitalized interest on our large capital projects and the repayment of our 5.5% senior unsecured notes (“Senior 5.5%”), which were replaced by 4.0% senior unsecured notes (“4.0% Senior Notes”), partially offset by lower interest income.

                                            2021         2020
                                              (in millions)
5.5% Senior Notes                         $  17.6      $ 24.8
4.0% Senior Notes                             6.2           -
Deferred financing costs amortization         1.1         1.2
ABL Agreement                                 0.9         0.6
Capitalized interest                         (2.3)       (0.3)
Other interest expense                        0.3         0.3
Total interest expense                       23.8        26.6
Interest income                              (0.4)       (1.1)
Total interest expense, net               $  23.4      $ 25.5


Income tax expense of $24.5 million in 2021 resulted in an effective tax rate of 25.8%, which was higher than the rate of 23.5% the previous year.

Sector analysis

Waterflow Solutions

Net sales for 2021 increased $85.6 million, or 16.1%, to $617.8 million from
$532.2 million in the prior year. Net sales increased primarily as a result of
increased volume, and favorable pricing. The increased volume was a result of
strong demand driven by both residential construction and municipal repair and
replacement activity.

Gross profit for 2021 increased $22.8 million, or 12.7%, to $202.8 million from
$180.0 million in the prior year primarily as a result of increased volume.
These increases were partially offset by higher material and other costs
associated with inflation, specifically related to brass ingot, scrap steel and
purchased parts, a $2.4 million inventory write-off associated with the
announcement of the closure of our Aurora, Illinois and Surrey, British
Columbia, Canada facilities and certain expenses related to the pandemic,
including voluntary emergency paid leave and other employee costs as well as
additional sanitation and cleaning expenses. Gross margin was 32.8% in 2021, a
100 basis point decrease compared with 33.8% in the prior year.

SG&A in 2021 increased $6.7 million, or 8.9% to $81.8 million from $75.1 million
in the prior year primarily as a result of increased personnel-related costs
including higher sales commissions associated with higher net sales and orders,
inflation, information technology spending, and new product development. Fiscal
year 2020 SG&A included pandemic-driven benefits resulting from temporarily
reduced travel, trade show and event spending as well as temporary employee
furloughs and temporary salary reductions. SG&A was 13.2% and 14.1% of net sales
for 2021 and 2020, respectively.

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Water Management Solutions

Net sales in 2021 increased 14.2% to $493.2 million from $431.9 million in the
prior year primarily as a result of higher volumes, $6.0 million in Krausz net
sales as a result of the elimination of the one-month reporting lag, and the
acquisition of i2O.

Gross profit in 2021 increased $7.5 million at $155.7 million of $148.2 million the previous year due to higher volumes partially offset by higher inflation. Gross margin decreased to 31.6% in 2021 from 34.3% the previous year.

SG&A increased to $85.8 million in 2021 from $78.8 million in the prior year
primarily as a result of personnel-related expenses and information technology
spending. Fiscal year 2020 SG&A included pandemic-driven benefits resulting from
temporarily reduced travel, trade show and event spending as well as temporary
employee furloughs and temporary salary reductions. SG&A as a percentage of net
sales was 17.4% for 2021 and 18.2% in the prior year.

Company

SG&A increased by $6.7 million from $44.5 million in 2020 to $51.2 million in
2021 as a result of increased personnel-related expenses and inflation. Fiscal
year 2020 SG&A included pandemic-driven benefits resulting from temporary
reductions in travel, trade show and event spending as well as temporary
employee furloughs and temporary salary reductions.


Financial condition

Cash and cash equivalents were $146.5 million at September 30, 2022 and $227.5
million at September 30, 2021. Cash and cash equivalents decreased during 2022
as a result of capital expenditures of $54.7 million, dividend payments of $36.5
million, $35.0 million in share repurchases, and $6.4 million in effect of
currency exchange rate changes on cash, partially offset by $52.3 million in
cash provided by operating activities.

Receivables, net were $228.0 million at September 30, 2022 and $212.2 million at
September 30, 2021. This increase was primarily a result of the increase in net
sales year over year.

Inventories, net were $278.7 million at September 30, 2022 and $184.7 million at
September 30, 2021. Inventories increased during 2022 as a result of increased
volume, inflationary costs, and inventory management due to supply chain issues.

Property, plant and equipment, net was $301.6 million at September 30, 2022 and
$283.4 million at September 30, 2021. Property, plant and equipment increased
primarily as a result of our previously-announced capital expansion projects in
Kimball, Tennessee and Decatur, Illinois. Capital expenditures were $54.7
million in 2022. Depreciation expense was $32.0 million in 2022 compared with
$31.4 million in 2021 as a result of generally higher level of capital
expenditures over the last three years.

Intangible assets were $361.2 million at September 30, 2022 and $392.5 million
at September 30, 2021. Finite-lived intangible assets, net totaling $88.5
million at September 30, 2022, are amortized over their estimated useful lives.
Amortization expense was $28.5 million in 2022 and $28.2 million in 2021. We
expect amortization expense for these assets to be approximately $28 million and
$27 million in the next two years with a decrease to approximately $8 million in
fiscal 2025, approximately $6 million in fiscal 2026 and approximately $5
million in fiscal 2027. Indefinite-lived intangible assets, $272.7 million at
September 30, 2022, are not amortized but are tested for possible impairment at
least annually.

Accounts payable and other current liabilities were $240.2 million at September
30, 2022 and $219.1 million at September 30, 2021. Accounts payable increased
during 2022 as a result of increased production volume and the impact of higher
inventory costs. Other current liabilities decreased during 2022 primarily as a
result of lower personnel-related expenses, including incentive compensation and
sales commissions, as well as customer rebates and income taxes.

The total outstanding debt was $446.9 million of the September 30, 2022 and
September 30, 2021.

Deferred income taxes were net liabilities of $86.3 million at September 30,
2022 and $94.8 million at September 30, 2021, primarily related to intangible
assets. The $8.5 million decrease in the net liability was primarily a result of
reductions in intangible assets.

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Cash and capital resources

We had cash and cash equivalents of $146.5 million at September 30, 2022 and
approximately $160.7 million of additional borrowing capacity under our
asset-based lending arrangement (the "ABL") based on September 30, 2022 data.
Undistributed earnings from our subsidiaries in Israel, Canada and China are
considered to be permanently invested outside of the United States. At September
30, 2022, cash and cash equivalents included $40.5 million, $18.9 million, and
$5.2 million in Israel, Canada and China, respectively.

We declared a quarterly dividend of $0.061 per share on October 21, 2022payable on or about November 21, 2022 to file holders from November 10, 2022which will result in an estimate $9.5 million cash disbursement.

We repurchased $35.0 million of our outstanding common stock during the fiscal
year ended September 30, 2022 and had $100.0 million remaining under our share
repurchase authorization as of September 30, 2022.

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

Collections from customers were higher during the fiscal year ended September
30, 2022 as compared with the prior year period primarily as a result of net
sales growth. Inventory purchases increased during the fiscal year ended
September 30, 2022 as compared with the fiscal year ended September 30, 2021 as
a result of inflation, increased sales, and inventory management due to supply
chain factors. Other current liabilities and other noncurrent liabilities
decreased as a result of employee incentive payouts, income tax payments, the
repayment of the CARES Act employer payroll tax deferral and the payment of
customer rebates.

Capital expenditures were $54.7 million for 2022 compared with $62.7 million for
2021. Capital expenditures decreased primarily as a result of lower expenditures
associated with the new Decatur foundry as compared with the prior year period.
We estimate 2023 capital expenditures will be between $70.0 million and $80.0
million.

Income tax payments were higher in 2022 compared to the prior year, primarily due to the timing of certain federal and state extension payments. We expect the effective tax rate in 2023 to be between 23% and 25%.

Our stock repurchase program allows us to repurchase up to $250.0 million of our
common stock, of which we had remaining authorization of $100.0 million as of
September 30, 2022. The program does not commit us to any particular timing or
quantity of purchases, and we may suspend or discontinue the program at any
time. We acquired 2,654,254 and 651,271 shares of our common stock in 2022 and
2021, respectively.

We use letters of credit and surety bonds in the ordinary course of business to
ensure the performance of contractual obligations. As of September 30, 2022, we
had $14.1 million of letters of credit and $31.1 million of surety bonds
outstanding.

We anticipate our existing cash, cash equivalents and borrowing capacity
combined with our expected operating cash flows will be sufficient to meet our
anticipated operating needs, income tax payments, capital expenditures and debt
service obligations as they become due through September 30, 2023. However, our
ability to make these payments will depend largely on our future operating
performance, which may be affected by general economic, financial, competitive,
legislative, regulatory, business and other factors beyond our control.

ABL agreement

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

Borrowings under the ABL bear interest at a floating rate equal to the London
Inter Bank Offered Rate ("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
of 100 to 125 basis points. At September 30, 2022, the applicable margin was 200
basis points for LIBOR-based loans and 100 basis points for base rate loans.

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

Substantially all of our United States subsidiaries are borrowers under the ABL
and are jointly and severally liable for any 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 obligations.

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
September 30, 2022 data was $160.7 million, as reduced by $14.1 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 previously existing 5.5% Senior
Notes. Substantially all of our U.S. subsidiaries guarantee the 4.0% Senior
Notes, which are subordinate to borrowings under our ABL. Based on quoted market
prices the outstanding 4.0% Senior Notes had a fair value of $382.1 million at
September 30, 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. We believe we were in compliance with these
covenants at September 30, 2022. There are no financial maintenance covenants
associated with the Indenture.

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 as set forth in the
Indenture. Upon a change of control as defined in the Indenture, we would be
required to offer to purchase the 4.0% Senior Notes at a price equal to 101% of
the outstanding principal amount of the 4.0% Senior Notes.

5.5% Senior Unsecured Notes

On June 12, 2018, we privately issued $450.0 million of 5.5% Senior Unsecured
Notes ("5.5% Senior Notes"), which were set to mature in 2026 and bore interest
at 5.5%, paid semi-annually. We called the 5.5% Senior Notes effective June 17,
2021 and settled with proceeds from the issuance of the 4.0% Senior Notes and
cash on hand. As a result, we incurred $16.7 million in loss on early
extinguishment of debt, comprised of a $12.4 million call premium and a $4.3
million write-off of the remaining deferred debt issuance costs associated with
the retirement of the 5.5% Senior Notes.

Credit ratings

Our corporate credit rating and the credit ratings for our debt and outlook are
presented below.
                                      Moody's                        Standard & Poor's
                                   September 30,                       September 30,
                             2022                 2021           2022                 2021
Corporate credit rating       Ba1                  Ba1            BB                   BB
ABL Agreement              Not rated            Not rated      Not rated            Not rated
4.0% Senior Notes             Ba1                  Ba1            BB                   BB
Outlook                     Stable               Stable         Stable               Stable



Effect of Inflation

We experience changing price levels primarily related to purchased components
and raw materials. During the fiscal year 2022, we experienced a 40% increase in
the average cost per ton of scrap steel and a 20% increase in the average cost
of brass as compared to 2021. We anticipate inflation in raw and other material
costs in 2023, which may have an adverse effect on our margins to the extent we
are unable to pass on such higher costs to our customers.

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Index to Financial Statements




Material Cash Requirements

We enter into a variety of contractual obligations as part of our normal
operations in addition to capital expenditures. As of September 30, 2022, we
have (i) debt obligations related to our $450.0 million 4.0% Senior Notes which
mature in 2029 and include cash interest payments of $18.0 million in 2023
annually through 2029; (ii) cumulative cash obligations of $32.6 million for
operating leases through 2033 and $1.7 million for finance leases through 2026;
and (iii) purchase obligations for raw materials and other purchased parts of
approximately $155.1 million which we will incur during 2023. We expect to fund
these cash requirements from cash on hand and cash generated from operations.


Seasonality

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. See "Item 1A. RISK FACTORS-Seasonal demand for certain of
our products and services may adversely affect our financial results."


Critical accounting estimates

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States ("GAAP") requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosure of contingent assets and liabilities. These
estimates are based upon experience and on various other assumptions we believe
to be reasonable under the circumstances. Actual results may differ from these
estimates. We consider an accounting estimate to be critical if changes in the
estimate that are reasonably likely to occur over time or the use of reasonably
different estimates could have a material impact on our financial condition or
results of operations. Our critical accounting estimates include the below
items.

Revenue recognition

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. See Note 3. for more information regarding our revenues.

Inventories, net

We record inventories at the lower of first-in, first-out method cost or
estimated net realizable value. Inventory cost includes an overhead component
that can be affected by levels of production and actual costs incurred. We
evaluate the need to record adjustments for impairment of inventory at least
quarterly. This evaluation includes such factors as anticipated usage, inventory
levels and ultimate product sales value. If in our judgment persuasive evidence
exists that the net realizable value of inventory is lower than its cost, the
inventory value is written-down to its estimated net realizable value.
Significant judgments regarding future events and market conditions must be made
when estimating net realizable value.

Income taxes

We recognize deferred tax liabilities and deferred tax assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax liabilities and assets are determined
based on the differences between the financial statements and the tax basis of
assets and liabilities, using enacted tax rates in effect for the years in which
the differences are expected to reverse. A valuation allowance is provided to
offset any net deferred tax assets when, based upon the available evidence, it
is more likely than not that some or all of the deferred tax assets will not be
realized. Our deferred tax liabilities and assets are based on our expectations
of future operating performance, reversal of taxable temporary differences, tax
planning strategies, interpretation of the tax regulations currently enacted and
rulings in numerous tax jurisdictions.

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Index to Financial Statements



We only record tax benefits for positions that we believe are more likely than
not of being sustained under audit examination based solely on the technical
merits of the associated tax position. The amount of tax benefit recognized for
any position that meets the more-likely-than-not threshold is the largest amount
of the tax benefit that we believe is greater than 50% likely of being realized.

Recognition of the impairment of Good will and Indefinite life intangible assets

We test goodwill and indefinite-lived intangible assets for impairment annually
or more frequently if events or circumstances indicate possible impairment. We
performed this annual impairment testing at September 1, 2022, using standard
valuation methodologies and rates that we considered reasonable and appropriate.

We evaluate goodwill for impairment using a quantitative analysis. The carrying
value of the reporting unit, including goodwill, is compared with the estimated
fair value of the reporting unit utilizing a combination of the income and
market approaches. The income approach, which is a level 3 fair value
measurement, is based on projected debt-free cash flow which is discounted to
the present value using discount rates that consider the timing and risk of the
cash flows. The market approach is based on the guideline public company method,
which uses market multiples to value our reporting units. We weight the income
and market approaches in a manner considering the risks of the underlying cash
flows.

This income approach is dependent on management's best estimates of future
operating results, including forecasted revenues, earnings before interest,
taxes, depreciation and amortization ("EBITDA") margins and the selection of
discount rates. There are inherent uncertainties related to the assumptions used
and to management's application of these assumptions.

We test our trade name indefinite-lived intangible assets for impairment using a
"royalty savings method," which is a variation of the discounted cash flow
method. This method estimates a fair value by calculating an estimated
discounted future cash flow stream from the hypothetical licensing of the
indefinite-lived intangible assets. If this estimated fair value exceeds the
carrying value, no impairment is indicated. This analysis is dependent on
management's best estimates of future operating results and the selection of
reasonable discount rates and hypothetical royalty rates.

We performed our annual impairment testing at September 1, 2022. As a result of
this quantitative testing, we recognized a $6.8 million goodwill impairment
charge for a reporting unit within our Water Flow Solutions segment as the
carrying value exceeded its fair value. Our determination of the estimated fair
value was based on a combination of the discounted cash flow method and the
guideline public company method. Our testing indicated no other impairment.

Warranty cost

We accrue for warranty expenses that can include customer costs of repair and/or
replacement, including labor, materials, equipment, freight and reasonable
overhead costs. We accrue for the estimated cost of product warranties at the
time of sale if such costs are determined to be reasonably estimable at that
time. Warranty cost estimates are revised throughout applicable warranty periods
as better information regarding warranty costs becomes available. 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. These estimates are
inherently uncertain as they are based on historical data. If warranty claims
are made in the current period for issues that have not historically been the
subject of warranty claims and were not taken into consideration in establishing
the accrual or if claims for issues already considered in establishing the
accrual exceed expectations, warranty expense may exceed the accrual for that
particular product. Additionally, a significant increase in costs of repair or
replacement could require additional warranty expense. We monitor and analyze
our warranty experience and costs periodically and revise our warranty accrual
as necessary. However, as we cannot predict actual future claims, the potential
exists for the difference in any one reporting period to be material.


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Contents

Financial statement index

Contingencies

We are involved in litigation, investigations and claims arising in the normal
course of business. We estimate and accrue liabilities resulting from such
matters based on a variety of factors, including outstanding legal claims and
proposed settlements; assessments by counsel of pending or threatened
litigation; and assessments of potential environmental liabilities and
remediation costs. We believe we have adequately accrued for these potential
liabilities; however, facts and circumstances may change and could cause the
actual liability to exceed the estimates, or may require adjustments to the
recorded liability balances in the future. As we learn new facts concerning
contingencies, we reassess our position both with respect to accrued liabilities
and other potential exposures. Estimates particularly sensitive to future
changes include liabilities recorded for environmental remediation, tax and
legal matters. Estimated future environmental remediation costs are subject to
change as a result of such factors as the uncertain magnitude of cleanup costs,
the unknown time and extent of such remedial actions that may be required, and
the determination of our liability in proportion to that of other responsible
parties. Estimated future costs related to tax and legal matters are subject to
change as events evolve and as additional information becomes available during
the administrative and litigation processes. For more information on these and
other contingencies, see Note 17. of the Notes to Consolidated Financial
Statements. See also "Item 1. BUSINESS - Regulatory and Environmental Matters,"
"Item 1A. RISK FACTORS".

Workers’ compensation, defined benefit pension plans, environmental liability and other long-term liabilities

We are obligated for various liabilities that ultimately will be determined over
what could be very long future time periods. We established the recorded
liabilities for such items at September 30, 2022 using estimates for when such
amounts will be paid and what the amounts of such payments will be. These
estimates are subject to change based on numerous factors including, among
others, regulatory changes, technology changes, the investment performance of
related assets, longevity of participants, the discount rate used and changes to
plan designs.

Business Combinations

We recognize assets acquired and liabilities assumed at their estimated
acquisition date fair values, with the excess of purchase price over the
estimated fair values of identifiable net assets recorded as goodwill. Assigning
fair values requires us to make significant estimates and assumptions regarding
the fair value of identifiable intangible assets. We may refine these estimates
if necessary over a period not to exceed one year by taking into consideration
new information that, if known at the acquisition date, would have affected the
fair values recognized for assets acquired and liabilities assumed.

Significant estimates and assumptions are used in estimating the value of
acquired identifiable intangible assets, including estimating future cash flows
based on forecasted revenues and EBITDA margins that we expect to generate
following the acquisition, selecting an applicable royalty rate where needed,
applying an appropriate discount rate to estimate a present value of those cash
flows and determining their useful lives. These assumptions are forward-looking
and could be affected by future economic and market conditions.

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