**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q/A**

**Amendment No. 1 to Form 10-Q**

| x          | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**   |
|------------|----------------------------------------------------------------------------------------------------------|
| ** ** | **For the quarterly period ended January 1,  2005.**                                                |
| o          | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**CommissionFile Number 333-117473**

** **

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**MUELLER GROUP, LLC***

(Exact name of registrantas specified in its charter)

| **Delaware**                                      |   | **37-1387813**                        |
|---------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of incorporation or |   | (I.R.S. Employer  identification No.) |
| organization)                                     |   | ** **                            |
|                                              |   |                                  |
| **500  West Eldorado St.**                        |
| **Decatur,  IL 62522-1808**                       |
| (Address of  principal executive offices)         |

 

**(217) 423-4471**

(Registrant’s telephonenumber, including area code)

Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days. Yes x  No o

Indicateby check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act.) Yes o  No x

|                 | **Common Stock** | ** ** |   | **Shares Outstanding As of March 25, 2005** |
|-----------------|------------------|------------|--------|--------------------------------------------------|
| $0.01 Par Value |             | 100        |

*

*Formerly Mueller Group, Inc.

 

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**Explanatory Note**

The purpose of this Amendment No. 1 to theQuarterly Report on Form 10-Q of Mueller Group, LLC (formerly knownas Mueller Group, Inc.) (the “Company”) is to restate the Company’sconsolidated financial statements as of and for the three months ended Jaunary1, 2005. On December 14, 2005, the Company’s management and the AuditCommittee of the Board of Directors determined that the financial statements ofthe Company for the two years ended September 30, 2004 and interim periodsof fiscal years 2005 and 2004 required restatement.

The 2005 Restatements reflect adjustments to correctcash flow statement errors related to foreign currency translation, disposalsof property, plant and equipment and book cash overdrafts, the misclassificationof deferred income tax assets between current and non-current classificationsin the balance sheet and the misclassification of depreciation expense betweenselling, general and administrative expense and cost of sales. The 2005Restatements had no impact on the Company’s consolidated net income or the ConsolidatedStatement of Stockholders’ Deficit. The nature and impact of these adjustmentsare described in Note 2: “Restatements” in this Form 10-Q/A.

For the convenienceof the reader, this Form 10-Q/A sets forth the original Form 10-Qin its entirety. Except for the revision of management’s conclusion regardingthe effectiveness of the Company’s disclosure controls and procedures as of January 1,2005 presented under Part 1, Item 4, the Company has not modified orupdated other disclosures presented in the original report on Form 10-Qexcept for the required effects of the restatement. Accordingly, other than theitems indicated above, this Form 10-Q/A does not reflect eventsoccurring after the filing of the original Form 10-Q or modify orupdate those disclosures. Information not affected by the restatement isunchanged and reflects the disclosure made at the time of the original filingof the Form 10-Q with the Securities and Exchange Commission on March 31,2005. Accordingly, this Form 10-Q/A should be read in conjunctionwith the Company’s filings made with the Securities and Exchange Commissionsubsequent to the filing of the original Form 10-Q. The followingitems have been amended as a result of the restatement:

·       Part I—Item1. Unaudited Financial Statements

·       Part I—Item2. Management’s Discussion and Analysis of Financial Condition and Results ofOperations

·       Part I—Item4. Controls and Procedures; and

·       Part II—Item6. Exhibits

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**MUELLER GROUP, INC.REPORT ON FORM 10-QFOR THE QUARTERLY PERIOD ENDED JANUARY 1, 2005**

**TABLE OF CONTENTS**
|                                                                                                     | ** ** | **Page** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|----------|------------|
| PART I—FINANCIAL  INFORMATION                                                             |       |     | 3          |   |   |
| Item  1. Unaudited Financial Statements                                                             |       |     | 3          |   |   |
| Condensed Consolidated Balance Sheets                                                               |       |     | 3          |   |   |
| Condensed Consolidated Statements of Operations                                                     |       |     | 4          |   |   |
| Condensed Consolidated Statements of Cash Flows                                                     |       |     | 5          |   |   |
| Notes to Condensed Consolidated Financial Statements                                                |       |     | 6          |   |   |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations |       |     | 26         |   |   |
| Item 3. Quantitative and Qualitative Disclosures About  Market Risk                                 |       |     | 34         |   |   |
| Item  4. Controls and Procedures                                                                    |       |     | 35         |   |   |
| PART II—OTHER INFORMATION                                                                 |       |     | 38         |   |   |
| Item 6. Exhibits                                                                                    |       |     | 38         |   |   |
| Signatures                                                                                          |       |     | 39         |   |   |

 

2

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**PART I.FINANCIAL INFORMATION**

**ITEM 1. FINANCIAL STATEMENTS**

**MUELLERGROUP, INC.UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS**
|                                                                                     | ** ** | **September 30,  2004**                     | ** ** | **January 1,  2005** | ** ** |
|-------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------|------------|
| ** **                                                                          | ** ** | **(restated)**                                   | ** ** | **(restated)**            | ** ** |
| ** **                                                                          | ** ** | **(unaudited)  (dollars in millions)** | ** ** |
| **Assets**                                                                          |       |                                             |       |                      |       |   |   |   |   |
| Cash and cash  equivalents                                                          |       |                                             | $          | 60.5                      |       |   |   | $ | 56.2 |   |   |
| Receivables, net  of allowance for doubtful accounts of $5.1 and $5.2, respectively |       |                                             | 162.0      |                      |       |   | 141.3 |   |   |
| Inventories                                                                         |       |                                             | 260.2      |                      |       |   | 288.1 |   |   |
| Income taxes  receivable                                                            |       |                                             | 4.1        |                      |       |   | 0.4 |   |   |
| Deferred income  taxes                                                              |       |                                             | 21.8       |                      |       |   | 22.5 |   |   |
| Prepaid expenses  and other current assets                                          |       |                                             | 28.9       |                      |       |   | 29.0 |   |   |
| Total current assets                                                                |       |                                             | 537.5      |                      |       |   | 537.5 |   |   |
| Property, plant  and equipment, net                                                 |       |                                             | 186.8      |                      |       |   | 180.6 |   |   |
| Goodwill, net                                                                       |       |                                             | 163.2      |                      |       |   | 163.2 |   |   |
| Identifiable  intangibles, net                                                      |       |                                             | 55.2       |                      |       |   | 54.5 |   |   |
| Pension  intangible                                                                 |       |                                             | 0.8        |                      |       |   | 0.8 |   |   |
| Deferred  financing fees, net                                                       |       |                                             | 33.8       |                      |       |   | 32.7 |   |   |
| Deferred income  taxes                                                              |       |                                             | 6.5        |                      |       |   | 5.1 |   |   |
| Total assets                                                                        |       |                                             | $          | 983.8                     |       |   |   | $ | 974.4 |   |   |
| **Liabilities**                                                                     |       |                                             |       |                      |       |   |   |   |   |
| Accounts payable                                                                    |       |                                             | $          | 57.6                      |       |   |   | $ | 51.9 |   |   |
| Current portion of  long-term debt                                                  |       |                                             | 3.2        |                      |       |   | 3.9 |   |   |
| Accrued expenses  and other current liabilities                                     |       |                                             | 85.5       |                      |       |   | 68.8 |   |   |
| Total current liabilities                                                           |       |                                             | 146.3      |                      |       |   | 124.6 |   |   |
| Long-term  debt, net of current portion                                             |       |                                             | 929.4      |                      |       |   | 928.5 |   |   |
| Accrued pension  liability                                                          |       |                                             | 29.2       |                      |       |   | 30.8 |   |   |
| Other long-term  liabilities                                                        |       |                                             | 7.8        |                      |       |   | 5.5 |   |   |
| Total liabilities                                                                   |       |                                             | 1,112.7    |                      |       |   | 1,089.4 |   |   |
| Commitments and  contingencies (Note 7)                                             |       |                                             | —     |                      |       |   | — |   |   |
| **Shareholders’  equity**                                                      |       |                                             |       |                      |       |   |   |   |   |
| Common  stock—$0.01 par value (100 shares authorized and issued)               |       |                                             | —     |                      |       |   | — |   |   |
| Additional paid-in  capital                                                         |       |                                             | —     |                      |       |   | — |   |   |
| Accumulated  deficit                                                                |       |                                             | (112.9     | )                         |       |   | (103.0 | ) |   |
| Accumulated other  comprehensive loss                                               |       |                                             | (16.0      | )                         |       |   | (12.0 | ) |   |
| Total  shareholders’ equity                                                    |       |                                             | (128.9     | )                         |       |   | (115.0 | ) |   |
| Total liabilities and  shareholders’ equity                                    |       |                                             | $          | 983.8                     |       |   |   | $ | 974.4 |   |   |

 

The accompanyingnotes are an integral part of the financial statements.

3

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**MUELLERGROUP, INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**
|                                                                                          | ** ** | **Three  months ended**           | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                               | ** ** | **December 27,  2003**                      | ** ** | **January 1,  2005** | ** ** |
| ** **                                                                               | ** ** | **(restated)**                                   | ** ** | **(restated)** | ** ** |
| ** **                                                                               | ** ** | **(unaudited)  (dollars in millions)** | ** ** |
| Net sales                                                                                |       |                                             | $          | 220.2 |   |   |   | $ | 256.1 |   |   |
| Cost of sales                                                                            |       |                                             | 163.3      |   |   |   | 181.9 |   |   |
| Gross profit                                                                             |       |                                             | 56.9       |   |   |   | 74.2 |   |   |
| Selling, general  and administrative expense, including stock compensation expense  |       |                                             | 37.0       |   |   |   | 41.8 |   |   |
| Facility  rationalization, restructuring and related costs                               |       |                                             | —     |   |   |   | 0.1 |   |   |
| Operating income                                                                         |       |                                             | 19.9       |   |   |   | 32.3 |   |   |
| Interest expense  and early repayment costs                                              |       |                                             | (13.7      | ) |   |   | (16.5 | ) |   |
| Interest income                                                                          |       |                                             | 0.1        |   |   |   | 0.4 |   |   |
| Income before  income taxes                                                              |       |                                             | 6.3        |   |   |   | 16.2 |   |   |
| Income tax  expense                                                                      |       |                                             | 2.5        |   |   |   | 6.3 |   |   |
| Net income                                                                               |       |                                             | $          | 3.8 |   |   |   | $ | 9.9 |   |   |

 

The accompanying notes are an integral part of thefinancial statements.

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**MUELLERGROUP, INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
|                                                                                              | ** ** | **Three months ended**                 | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **December 27,  2003**                      | ** ** | **January 1,  2005** | ** ** |
| ** **                                                                                   | ** ** | **(restated)**                                   | ** ** | **(restated)** | ** ** |
| ** **                                                                                   | ** ** | **(unaudited)  (dollars in millions)** | ** ** |
| **Cash flows from operating activities**                                                     |       |                                             |       |   |   |   |   |   |   |
| Net income                                                                                   |       |                                             | $          | 3.8 |   |   |   | $ | 9.9 |   |   |
| Adjustments to reconcile  net income to net cash provided by (used in) operating activities: |       |                                             |       |   |   |   |   |   |   |
| Depreciation                                                                                 |       |                                             | 11.7       |   |   |   | 11.2 |   |   |
| Amortization of intangibles                                                                  |       |                                             | 4.3        |   |   |   | 0.8 |   |   |
| Amortization of deferred financing fees                                                      |       |                                             | 0.7        |   |   |   | 1.1 |   |   |
| Amortization of tooling                                                                      |       |                                             | 0.5        |   |   |   | 0.6 |   |   |
| Write off of deferred financing fees                                                         |       |                                             | 0.4        |   |   |   | — |   |   |
| (Gain) loss on disposal of property, plant and  equipment                                    |       |                                             | 0.1        |   |   |   | 0.1 |   |   |
| Deferred income taxes                                                                        |       |                                             | 0.8        |   |   |   | 0.6 |   |   |
| Stock compensation (non-cash amounts)                                                        |       |                                             | 0.1        |   |   |   | — |   |   |
| Unrealized gain on interest rate swaps                                                       |       |                                             | (3.7       | ) |   |   | (2.3 | ) |   |
| Changes in assets and  liabilities, net of the effects of acquisitions:                      |       |                                             |       |   |   |   |   |   |   |
| Receivables                                                                                  |       |                                             | 18.3       |   |   |   | 22.2 |   |   |
| Inventories                                                                                  |       |                                             | (2.5       | ) |   |   | (25.5 | ) |   |
| Income taxes receivable                                                                      |       |                                             | —     |   |   |   | 3.7 |   |   |
| Prepaid expenses and other current assets                                                    |       |                                             | 0.3        |   |   |   | (0.6 | ) |   |
| Pension, net                                                                                 |       |                                             | 1.5        |   |   |   | 1.6 |   |   |
| Accounts payable, accrued expenses and other current  liabilities                            |       |                                             | (19.3      | ) |   |   | (22.6 | ) |   |
| Other, net                                                                                   |       |                                             | —     |   |   |   | (0.3 | ) |   |
| Net cash provided  by (used in) operating activities                                         |       |                                             | 17.0       |   |   |   | 0.5 |   |   |
| **Cash  flows from investing activities**                                                    |       |                                             |       |   |   |   |   |   |   |
| Purchase of  property, plant and equipment                                                   |       |                                             | (4.5       | ) |   |   | (4.7 | ) |   |
| Net cash used in  investing activities                                                       |       |                                             | (4.5       | ) |   |   | (4.7 | ) |   |
| **Cash  flows from financing activities**                                                    |       |                                             |       |   |   |   |   |   |   |
| Book cash overdrafts                                                                         |       |                                             | 0.3        |   |   |   | (0.7 | ) |   |
| Payment of long-term  debt                                                                   |       |                                             | (50.0      | ) |   |   | — |   |   |
| Payment of  deferred financing fees                                                          |       |                                             | (0.8       | ) |   |   | — |   |   |
| Financing of  assets through capital leases                                                  |       |                                             | (0.3       | ) |   |   | (0.3 | ) |   |
| Net cash used in  financing activities                                                       |       |                                             | (50.8      | ) |   |   | (1.0 | ) |   |
| Effect of  exchange rate changes on cash                                                     |       |                                             | 0.5        |   |   |   | 0.9 |   |   |
| Decrease in cash  and cash equivalents                                                       |       |                                             | (37.8      | ) |   |   | (4.3 | ) |   |
| **Cash and cash equivalents**                                                                |       |                                             |       |   |   |   |   |   |   |
| Beginning of  period                                                                         |       |                                             | 73.0       |   |   |   | 60.5 |   |   |
| End of period                                                                                |       |                                             | $          | 35.2 |   |   |   | $ | 56.2 |   |   |

 

The accompanying notesare an integral part of the financial statements.

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**MUELLER GROUP, INC.NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTSTHREE MONTHS ENDED DECEMBER 27, 2003 AND JANUARY 1, 2005(UNAUDITED)**

**1.**                                   Basisof Presentation

The accompanying unauditedcondensed consolidated financial statements of Mueller Group, Inc. (the “Company”)have been prepared in accordance with accounting principles generally acceptedin the United States of America for interim financial information. Accordingly,the unaudited condensed consolidated financial statements and notes do not containcertain information included in the Company’s annual financial statements. Inthe opinion of management, all normal and recurring adjustments that areconsidered necessary for a fair presentation have been made. Operating resultsfor the three months ended January 1, 2005 are not necessarily indicativeof the results that may be expected for the fiscal year ended September 30,2005. The consolidated financial statements should be read in conjunction withthe audited consolidated financial statements for the year ended September 30,2004 as found in the Company’s Annual Report on Form 10-K.

**2.**                                   Restatements

This note is comprised oftwo sections: 2005 Restatements and 2004 Restatements. The 2004 Restatementswere previously reported in the original Form 10-Q.

***2005 Restatements***

In the course offinalizing the September 30, 2005 financial statements, the Companydetermined that certain items included in the Statements of Consolidated CashFlows, the Consolidated Statements of Operations and the Consolidated BalanceSheets were not properly classified in annual and interim periods. The interimfinancial statements for the three months ended December 27, 2004 and January 1,2005, respectively, were restated for the following items:

*Effect of exchangerate changes on cash*

In interim periods duringfiscal 2004 and 2005, the Company presented the entire change related toforeign currency translation in the “Effect of exchange rate changes on cash”line item in the Statements of Consolidated Cash Flows. The portion of cashflow changes related to increases or decreases in assets and liabilitiesassociated with operating, investing and financing activities did not considerthe amount of the change related to foreign currency translation.

*Disposals ofproperty, plant and equipment*

In the first quarter offiscal 2004, the Company presented disposals of property, plant and equipmentas an investing activity in error, when it should have been presented as anadjustment in determining cash flows provided by operating activities.

*Book cashoverdrafts*

In interim periods duringfiscal 2004 and 2005, cash accounts in book cash overdraft positions werenetted with accounts where legal right of offset did not exist. On theConsolidated Balance Sheets, cash and cash equivalents should have increasedand a liability recorded with respect to such book cash overdrafts bycomparable amounts. The change in the book cash overdraft should have beenreflected as a 

6

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financingactivity in the Statements of Consolidated Cash Flows and should have beenincluded in accounts payable and as an increase in cash and cash equivalents inthe Consolidated Balance Sheets as of January 1, 2005.

*Current andNon-current deferred income taxes*

In interim periods duringfiscal 2004 and 2005, the Company should have classified certain deferredincome tax assets as current in the Consolidated Balance Sheets, based on thenature of the underlying temporary difference, but included such temporarydifferences incorrectly as non-current.

*Misclassificationof depreciation expense*

In interim periods during fiscal 2004 and 2005, theCompany incorrectly classified certain depreciation expense amounts as selling,general and administrative expense in the Consolidated Statements of Operationswhen it should have been reported as cost of sales.

The 2005 Restatements hadno impact on the Company’s consolidated net income or the Consolidated Statementof Stockholders’ Deficit for any of the prior periods presented.

***2004 Restatements***

In November 2004, our Audit Committee wasnotified of alleged potential accounting improprieties concerning ouraccounting for inventory reserves and certain questions concerning revenuerecognition. The Audit Committee appointed an independent law firm toinvestigate the allegations. The report identified several areas requiringfinancial review by the Company principally concerning accounting for excessand obsolete (E&O) inventory, the capitalization of costs relating to aproject that should have been expensed in prior periods, the accrual ofreserves for this project without identifying support for such accruals and thetiming of recognition of revenue with regard to full truckload shipments thatwere not immediately dispatched to customers by certain freight carriers usedby the Company. The Company also identified some additional annual and interimitems recorded in incorrect periods in the course of finalizing the 2004financial statements. In addition, the Company determined that the value itassigned to stock compensation in connection with our April 2004recapitalization should be revised. As a result of these findings, the Companyhas restated its annual and interim financial statements.

Theinterim financial statements for the periods noted below have been restated forthe following items:

*Research anddevelopment costs*

The Company purchasedcertain inventory and tooling for a development project that was initiallyrecorded in inventory and capitalized to the extent such cost related totooling. As there were no alternative future uses for these items, they shouldhave been recorded as an expense as they were incurred and no expense shouldhave been recorded in 2004 interim periods. The interim financial statementshave been restated to reflect this as a research and development expense(Selling, General & Administrative) in the proper periods.

*Revenue recognitionadjustments*

Revenues related tocertain full-truckload customer shipments which were not immediately dispatchedto customers by certain freight carriers used by the Company originallyrecognized should have been deferred until such time as the trucks weredispatched and the products delivered to the customer. The interim financialstatements have been restated to reflect the recognition of revenue in theproper periods.

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*Inventory journalentries*

Unauthorized journalentries were recorded at a piping systems segment plant, which increased thevalue of inventory inappropriately. The interim financial statements have beenrestated to reduce the inventory value and increase cost of goods sold.

*Intercompany profitelimination*

There was an error, whicharose primarily in the first quarter of 2004, in the estimated amount ofintercompany profit elimination recorded during the interim periods in the yearended September 30, 2004 related to the piping systems segment.

*Deferred financingfees*

Previously expensedfinancing fees associated with an amendment to our senior credit facility inthe first quarter of 2004 which were expensed should have been capitalized andamortized over the remaining term of the facility.

*Income tax effectof adjustments*

As a result of the aforementioned adjustments, theinterim income tax provisions were also revised.

Thefollowing tables set forth the effects of the 2005 and 2004 Restatementsdiscussed above on the financial statements as of January 1, 2005 and forthe three months ended December 27, 2003 and January 1, 2005 asfollows:

**ConsolidatedStatement of Operations**

| ** **                                                                         | ** ** | **Three months ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **December 27, 2003**  | ** ** |
| ** **                                                                         | ** ** | ** **                       | ** ** | **as restated** | ** ** | **as restated** | ** ** |
| ** **                                                                         | ** ** | **as originally**           | ** ** | **for 2004** | ** ** | **for 2005** | ** ** |
| **(dollars in millions)**                                                | ** ** | **reported (A)**            | ** ** | **Restatements (B)** | ** ** | **Restatements** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**                  | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| Net sales                                                                          |       |                             | $          | 218.0 |   |   |   | $ | 220.2 |   |   |   | $ | 220.2 |   |   |
| Cost of sales                                                                      |       |                             | 158.6      |   |   |   | 161.5 |   |   |   | 163.3 |   |   |
| Gross profit                                                                       |       |                             | 59.4       |   |   |   | 58.7 |   |   |   | 56.9 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       |                             | 39.1       |   |   |   | 38.8 |   |   |   | 37.0 |   |   |
| Facility  rationalization and related costs                                        |       |                             | —     |   |   |   | — |   |   |   | — |   |   |
| Operating income                                                                   |       |                             | 20.3       |   |   |   | 19.9 |   |   |   | 19.9 |   |   |
| Interest expense  and early repayment costs                                        |       |                             | (14.5      | ) |   |   | (13.7 | ) |   |   | (13.7 | ) |   |
| Interest income                                                                    |       |                             | 0.1        |   |   |   | 0.1 |   |   |   | 0.1 |   |   |
| Income before  income taxes                                                        |       |                             | 5.9        |   |   |   | 6.3 |   |   |   | 6.3 |   |   |
| Income tax  expense                                                                |       |                             | 2.4        |   |   |   | 2.5 |   |   |   | 2.5 |   |   |
| Net income                                                                         |       |                             | $          | 3.5 |   |   |   | $ | 3.8 |   |   |   | $ | 3.8 |   |   |

 

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Thefollowing table shows the effects of the various 2004 Restatements on netincome. The 2005 Restatements had no impact on the Company’s consolidated net income.

| ** **                              | ** ** | **Three months**           | ** ** |
|-----------------------------------------|------------|---------------------------------|------------|
| ** **                              | ** ** | **ended**                       | ** ** |
| **(dollars in millions)**     | ** ** | **December 27, 2003** | ** ** |
| ** **                              | ** ** | **(unaudited)**                 | ** ** |
| Net income, as  originally reported (A) |       |                            | $          | 3.5 |   |   |
| Increased  (decreased) pretax earnings: |       |                            |       |   |   |
| Research & development costs   |       |                            | 0.3        |   |   |
| Revenue recognition adjustments         |       |                            | 0.7        |   |   |
| Inventory journal entries               |       |                            | (0.2       | ) |   |
| Intercompany profit elimination         |       |                            | (1.2       | ) |   |
| Deferred financing fees                 |       |                            | 0.8        |   |   |
| Total pre-tax  adjustments              |       |                            | 0.4        |   |   |
| Income tax effect  of adjustments       |       |                            | (0.1       | ) |   |
| Net income, as restated  (B)            |       |                            | $          | 3.8 |   |   |

 

| ** **                                                                         | ** ** | **Three months ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **January 1, 2005**    | ** ** |
| ** **                                                                         | ** ** | ** **                       | ** ** | **as restated** | ** ** |
| ** **                                                                         | ** ** | **as originally**           | ** ** | **for 2005** | ** ** |
| **(dollars in millions)**                                                | ** ** | **reported (C)**            | ** ** | **Restatements** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**                  | ** ** | **(unaudited)** | ** ** |
| Cost of sales                                                                      |       |                             | $          | 180.2 |   |   |   | $ | 181.9 |   |   |
| Gross profit                                                                       |       |                             | $          | 75.9 |   |   |   | 74.2 |   |   |
| Selling, general and  administrative expense, including stock compensation expense |       |                             | $          | 43.5 |   |   |   | $ | 41.8 |   |   |

 

**ConsolidatedBalance Sheets**

| ** **                                  | ** ** | **September 30, 2004** | ** ** | **January 1, 2005** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|-------------------------------|------------|
| ** **                                  | ** ** | ** **                       | ** ** | **as restated**          | ** ** | ** ** | ** ** | **as restated** | ** ** |
| ** **                                  | ** ** | **as originally**           | ** ** | **for 2005**             | ** ** | **as originally** | ** ** | **for 2005** | ** ** |
| ** **                                  | ** ** | **reported (C)**            | ** ** | **Restatements**              | ** ** | **reported (C)** | ** ** | **Restatements** | ** ** |
| **(dollars in millions)**         | ** ** | **(unaudited)**                  | ** ** | **(unaudited)**               | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| Cash and cash  equivalents                  |       |                             | $          | 55.6                          |       |   |   | $ | 60.5 |   |   |   | $ | 52.0 |   |   |   | $ | 56.2 |   |   |
| Deferred income  taxes—current         |       |                             | $          | 9.0                           |       |   |   | $ | 21.8 |   |   |   | $ | 9.0 |   |   |   | $ | 22.5 |   |   |
| Current assets                              |       |                             | $          | 519.8                         |       |   |   | $ | 537.5 |   |   |   | $ | 519.8 |   |   |   | $ | 537.5 |   |   |
| Deferred income  taxes—non-current     |       |                             | $          | 19.3                          |       |   |   | $ | 6.5 |   |   |   | $ | 18.6 |   |   |   | $ | 5.1 |   |   |
| Total assets                                |       |                             | $          | 978.9                         |       |   |   | $ | 983.8 |   |   |   | $ | 970.2 |   |   |   | $ | 974.4 |   |   |
| Accounts payable                            |       |                             | $          | 52.7                          |       |   |   | $ | 57.6 |   |   |   | $ | 47.7 |   |   |   | $ | 51.9 |   |   |
| Total current  liabilities                  |       |                             | $          | 141.4                         |       |   |   | $ | 146.3 |   |   |   | $ | 120.4 |   |   |   | $ | 124.6 |   |   |
| Total liabilities                           |       |                             | $          | 1,107.8                       |       |   |   | $ | 1,112.7 |   |   |   | $ | 1,085.2 |   |   |   | $ | 1,089.4 |   |   |
| Total liabilities and  shareholders deficit |       |                             | $          | 978.9                         |       |   |   | $ | 983.8 |   |   |   | $ | 970.2 |   |   |   | $ | 974.4 |   |   |

 

9

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**Statementsof Consolidated Cash Flows**
|                                                                   | ** ** | **Three months ended  December 27, 2003** | ** ** | **Three months ended  January 1, 2005** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| **(dollars in millions)**                               | ** ** | **as originally  reported (A)**                     | ** ** | **as restated  for 2004  Restatements (B)**  | ** ** | **as restated  for 2005  Restatements** | ** ** | **as originally  reported (C)** | ** ** | **as restated  for 2005  Restatements** | ** ** |
| ** **                                                        | ** ** | **(unaudited)**                                               | ** ** | **(unaudited)**                                             | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| **Cash  flows from operating activities:**                        |       |                                                          |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gain (loss) on disposal of property, plant and  equipment         |       |                                                          | $          | —                                                      |       |   |   | $ | — |   |   |   | $ | 0.1 |   |   |   | $ | — |   |   |   | $ | 0.1 |   |   |
| Deferred income taxes                                             |       |                                                          | $          | 1.0                                                         |       |   |   | $ | 0.8 |   |   |   | $ | 0.8 |   |   |   | $ | 0.7 |   |   |   | $ | 0.6 |   |   |
| Receivables                                                       |       |                                                          | $          | 19.7                                                        |       |   |   | $ | 17.6 |   |   |   | $ | 18.3 |   |   |   | $ | 20.7 |   |   |   | $ | 22.2 |   |   |
| Inventories                                                       |       |                                                          | $          | (6.6                                                        | )          |   |   | $ | (3.7 | ) |   |   | $ | (2.5 | ) |   |   | $ | (27.9 | ) |   |   | $ | (25.5 | ) |   |
| Accounts payable, accrued expenses and other current  liabilities |       |                                                          | $          | (18.5                                                       | )          |   |   | $ | (18.8 | ) |   |   | $ | (19.3 | ) |   |   | $ | (21.7 | ) |   |   | $ | (22.6 | ) |   |
| Other, net                                                        |       |                                                          | $          | (0.3                                                        | )          |   |   | $ | (0.1 | ) |   |   | $ | — |   |   |   | $ | (0.4 | ) |   |   | $ | (0.3 | ) |   |
| Cash flows provided by (used in) operating  activities            |       |                                                          | $          | 14.5                                                        |       |   |   | $ | 15.3 |   |   |   | $ | 17.0 |   |   |   | $ | (2.7 | ) |   |   | $ | 0.5 |   |   |
| **Cash  flows used in investing activities:**                     |       |                                                          |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gain (loss) on disposal of property, plant and  equipment         |       |                                                          | $          | 0.1                                                         |       |   |   | $ | 0.1 |   |   |   | $ | — |   |   |   | $ | 0.1 |   |   |   | $ | — |   |   |
| Cash flows used in investing activities                           |       |                                                          | $          | (4.4                                                        | )          |   |   | $ | (4.4 | ) |   |   | $ | (4.5 | ) |   |   | $ | (4.6 | ) |   |   | $ | (4.7 | ) |   |
| **Cash  flows used in financing activities:**                     |       |                                                          |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Book cash overdrafts                                              |       |                                                          | $          | —                                                      |       |   |   | $ | — |   |   |   | $ | 0.3 |   |   |   | $ | — |   |   |   | $ | (0.7 | ) |   |
| Cash flows used in financing activities                           |       |                                                          | $          | (50.3                                                       | )          |   |   | $ | (51.1 | ) |   |   | $ | (50.8 | ) |   |   | $ | (0.3 | ) |   |   | $ | (1.0 | ) |   |
| **Effect  of exchange rate changes on cash**                      |       |                                                          | $          | 2.1                                                         |       |   |   | $ | 2.1 |   |   |   | $ | 0.5 |   |   |   | $ | 4.0 |   |   |   | $ | 0.9 |   |   |
| **Increase  (decrease) in cash and cash equivalents**             |       |                                                          | $          | (38.1                                                       | )          |   |   | $ | (38.1 | ) |   |   | $ | (37.8 | ) |   |   | $ | (3.6 | ) |   |   | $ | (4.3 | ) |   |
| **Cash  and cash equivalents**—**beginning of period**       |       |                                                          | $          | 71.4                                                        |       |   |   | $ | 71.4 |   |   |   | $ | 73.0 |   |   |   | $ | 55.6 |   |   |   | $ | 60.5 |   |   |
| **Cash and cash equivalents**—**end of period**              |       |                                                          | $          | 33.3                                                        |       |   |   | $ | 33.3 |   |   |   | $ | 35.2 |   |   |   | $ | 52.0 |   |   |   | $ | 56.2 |   |   |

 

10

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**Segment Information**

| ** **                          | ** ** | **Three months ended** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **December 27, 2003**  | ** ** |
| ** **                          | ** ** | ** **                       | ** ** | **as restated** | ** ** |
| ** **                          | ** ** | **as originally**           | ** ** | **for 2004** | ** ** |
| **(dollars in millions)** | ** ** | **reported (A)**            | ** ** | **Restatements (B)** | ** ** |
| ** **                          | ** ** | **(unaudited)**                  | ** ** | **(unaudited)** | ** ** |
| Net sales:                          |       |                             |       |   |   |   |   |   |   |
| Water infrastructure                |       |                             | $          | 122.5 |   |   |   | $ | 124.7 |   |   |
| Piping systems                      |       |                             | 95.5       |   |   |   | 95.5 |   |   |
| Consolidated                        |       |                             | $          | 218.0 |   |   |   | $ | 220.2 |   |   |
| Segment EBITDA:                     |       |                             |       |   |   |   |   |   |   |
| Water infrastructure                |       |                             | $          | 29.6 |   |   |   | $ | 30.6 |   |   |
| Piping systems                      |       |                             | 9.2        |   |   |   | 7.8 |   |   |
| Total segment EBITDA                |       |                             | $          | 38.8 |   |   |   | $ | 38.4 |   |   |
| Operating income:                   |       |                             |       |   |   |   |   |   |   |
| Water infrastructure                |       |                             | $          | 23.5 |   |   |   | $ | 24.5 |   |   |
| Piping systems                      |       |                             | 5.1        |   |   |   | 3.7 |   |   |
| Corporate                           |       |                             | (8.3       | ) |   |   | (8.3 | ) |   |
| Consolidated                        |       |                             | $          | 20.3 |   |   |   | $ | 19.9 |   |   |

 

| ** **                          | ** ** | **At September 30, 2004** | ** ** | **At January 1, 2005** | ** ** |
|-------------------------------------|------------|------------------------------------------|------------|---------------------------------------|------------|
| ** **                          | ** ** | ** **                               | ** ** | **as restated**                  | ** ** | ** ** | ** ** | **as restated** | ** ** |
| ** **                          | ** ** | **as originally**                   | ** ** | **for 2005**                     | ** ** | **as originally** | ** ** | **for 2005** | ** ** |
| **(dollars in millions)** | ** ** | **reported (C)**                    | ** ** | **Restatements**                      | ** ** | **reported (C)** | ** ** | **Restatements** | ** ** |
| ** **                          | ** ** | **(unaudited)**                          | ** ** | **(unaudited)**                       | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| Total assets:                       |       |                                     |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Water infrastructure                |       |                                     | $          | 500.0                                 |       |   |   | $ | 500.0 |   |   |   | $ | 488.8 |   |   |   | $ | 488.8 |   |   |
| Piping systems                      |       |                                     | 307.9      |                                  |       |   | 307.9 |   |   |   | 318.2 |   |   |   | 318.2 |   |   |
| Corporate                           |       |                                     | 171.0      |                                  |       |   | 175.9 |   |   |   | 163.2 |   |   |   | 167.4 |   |   |
| Consolidated                        |       |                                     | $          | 978.9                                 |       |   |   | $ | 983.8 |   |   |   | $ | 970.2 |   |   |   | $ | 974.4 |   |   |

 

(A)  Representsthe amounts originally reported before the 2004 and 2005 Restatements describedherein.

(B)        The 2004 Restatements wereinitially presented in the original fiscal year 2005 Form 10-Q filings. Noprevious Form 10-Q/A’s were filed for the 2004 Restatements.

(C)        Represents the amountsoriginally reported in the Form 10-Q in fiscal year 2005.

11

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**3.**                                   SegmentInformation

Our operations consist of two operating segments:water infrastructure products and piping systems products. Water infrastructureproducts consist primarily of hydrants, water and gas valves and relatedproducts used in water, power and gas distribution. Piping systems productsconsist primarily of pipe fittings and couplings, pipe nipples and hangers andpurchased products related to piping systems used in a variety of applications.

Intersegment sales and transfers are made at establishedintersegment selling prices generally intended to cover costs. Ourdetermination of segment earnings does not reflect allocations of certaincorporate expenses not attributable to segment operations and intersegmenteliminations, which we designate as Corporate in the segment presentation, andis before interest expense and early debt repayment costs, interest income andincome taxes. Corporate expenses include costs related to financial andadministrative matters, treasury, risk management, human resources, legalcounsel, and tax functions. Corporate assets include items booked at the dateof the Company’s inception in 1999 related to purchase accounting valuationadjustments associated with property, plant and equipment and non-competeagreements with the predecessor parent company, as well as intangiblesassociated with intellectual property. These assets and any relateddepreciation or amortization expense have not been pushed down to our waterinfrastructure products and piping systems products segments and are maintainedas Corporate items. Therefore, segment earnings are not reflective of resultson a stand-alone basis.

12

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The Company evaluatessegment performance based on segment EBITDA. Segment EBITDA is defined as netincome plus income tax expense, interest expense (not net of interest income),depreciation and amortization expense. Segment assets consist primarily ofaccounts receivable, inventories, property, plant and equipment—net, goodwill,and identifiable intangibles. Summarized financial information for our segmentsfollows:
|                                     | ** ** | **Three months  ended  December 27, 2003** | ** ** | **Three months  ended  January 1, 2005** | ** ** |
|-------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                          | ** ** | **(restated)**                                            | ** ** | ** **                                              | ** ** |
| **Net Sales:**                      |       |                                                      |       |                                                    |       |   |   |   |   |
| Water  infrastructure               |       |                                                      | $          | 124.7                                                   |       |   |   | $ | 138.6 |   |   |
| Piping systems                      |       |                                                      | 95.5       |                                                    |       |   | 117.5 |   |   |
| Consolidated                        |       |                                                      | 220.2      |                                                    |       |   | 256.1 |   |   |
| **Intersegment  sales:**            |       |                                                      |       |                                                    |       |   |   |   |   |
| Water  infrastructure               |       |                                                      | 3.0        |                                                    |       |   | 3.4 |   |   |
| Piping systems                      |       |                                                      | 0.1        |                                                    |       |   | 0.2 |   |   |
| Consolidated                        |       |                                                      | 3.1        |                                                    |       |   | 3.6 |   |   |
| **Segment  EBITDA:**                |       |                                                      |       |                                                    |       |   |   |   |   |
| Water  infrastructure               |       |                                                      | 30.6       |                                                    |       |   | 34.8 |   |   |
| Piping systems                      |       |                                                      | 7.8        |                                                    |       |   | 16.1 |   |   |
| Total segment  EBITDA               |       |                                                      | 38.4       |                                                    |       |   | 50.9 |   |   |
| **Depreciation  and amortization:** |       |                                                      |       |                                                    |       |   |   |   |   |
| Water  infrastructure               |       |                                                      | 6.1        |                                                    |       |   | 6.0 |   |   |
| Piping systems                      |       |                                                      | 4.1        |                                                    |       |   | 4.3 |   |   |
| Corporate                           |       |                                                      | 6.3        |                                                    |       |   | 2.3 |   |   |
| Consolidated                        |       |                                                      | 16.5       |                                                    |       |   | 12.6 |   |   |
| **Capital  expenditures:**          |       |                                                      |       |                                                    |       |   |   |   |   |
| Water  infrastructure               |       |                                                      | 2.6        |                                                    |       |   | 2.8 |   |   |
| Piping systems                      |       |                                                      | 1.9        |                                                    |       |   | 1.8 |   |   |
| Corporate                           |       |                                                      | —     |                                                    |       |   | 0.1 |   |   |
| Consolidated                        |       |                                                      | 4.5        |                                                    |       |   | 4.7 |   |   |
|                                     |            |                                                           |            |                                                         |            |  |  |  |  |  |  |

 

13

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|                                | ** ** | **At  September 30, 2004** | ** ** | **At  January 1, 2005** | ** ** |
|--------------------------------|------------|--------------------------------------|------------|-----------------------------------|------------|
| ** **                     | ** ** | **(restated)**                       | ** ** | **(restated)**                    | ** ** |
| **Total assets:**              |       |                                 |       |                              |       |   |   |   |   |
| Water infrastructure           |       |                                 | $          | 500.0                             |       |   |   | $ | 488.8 |   |   |
| Piping systems                 |       |                                 | 307.9      |                              |       |   | 318.2 |   |   |
| Corporate                      |       |                                 | 175.9      |                              |       |   | 167.4 |   |   |
| Consolidated                   |       |                                 | 983.8      |                              |       |   | 974.4 |   |   |
| **Goodwill:**                  |       |                                 |       |                              |       |   |   |   |   |
| Water  infrastructure          |       |                                 | 149.1      |                              |       |   | 149.1 |   |   |
| Piping systems                 |       |                                 | 14.1       |                              |       |   | 14.1 |   |   |
| Consolidated                   |       |                                 | 163.2      |                              |       |   | 163.2 |   |   |
| **Identifiable  intangibles:** |       |                                 |       |                              |       |   |   |   |   |
| Water  infrastructure          |       |                                 | 5.3        |                              |       |   | 5.2 |   |   |
| Piping systems                 |       |                                 | 7.2        |                              |       |   | 6.6 |   |   |
| Corporate                      |       |                                 | 42.7       |                              |       |   | 42.7 |   |   |
| Consolidated                   |       |                                 | 55.2       |                              |       |   | 54.5 |   |   |
|                                |            |                                      |            |                                   |            |  |  |  |  |  |  |

 

TheCompany evaluates segment performance based on segment EBITDA. A reconciliationof segment EBITDA to consolidated income before income taxes follows:
|                                             | ** ** | **Three months  ended  December 27, 2003** | ** ** | **Three months  ended  January 1, 2005** | ** ** |
|---------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                  | ** ** | **(restated)**                                            | ** ** | ** **                                              | ** ** |
| Total segment  EBITDA                       |       |                                                      | $          | 38.4                                                    |       |   |   | $ | 50.9 |   |   |
| Unallocated  corporate costs                |       |                                                      | (1.9       | )                                                       |       |   | (5.6 | ) |   |
| Interest expense  and early repayment costs |       |                                                      | (13.7      | )                                                       |       |   | (16.5 | ) |   |
| Depreciation and  amortization              |       |                                                      | (16.5      | )                                                       |       |   | (12.6 | ) |   |
| Income before income  taxes                 |       |                                                      | $          | 6.3                                                     |       |   |   | $ | 16.2 |   |   |

 

Geographicalarea information with respect to net sales, as determined by the location ofthe customer invoiced, and property, plant and equipment—net, as determined bythe physical location of the assets, were as follows for the three months endedDecember 27, 2003 and January 1, 2005:
|                 | ** ** | **Three months  ended  December 27, 2003** | ** ** | **Three months  ended  January 1, 2005** | ** ** |
|-----------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **      | ** ** | **(restated)**                                            | ** ** | ** **                                              | ** ** |
| ** **      | ** ** | **(dollars in millions)**                       | ** ** |
| Net sales:      |       |                                                      |       |                                                    |       |   |   |   |   |
| United States   |       |                                                      | $          | 186.3                                                   |       |   |   | $ | 210.4 |   |   |
| Canada          |       |                                                      | 31.9       |                                                    |       |   | 44.4 |   |   |
| Other Countries |       |                                                      | 2.0        |                                                    |       |   | 1.3 |   |   |
|            |       |                                                      | $          | 220.2                                                   |       |   |   | $ | 256.1 |   |   |

 
|                                      | ** ** | **At  September 30, 2004** | ** ** | **At  January 1, 2005** | ** ** |
|--------------------------------------|------------|--------------------------------------|------------|-----------------------------------|------------|
| Property, plant and  equipment, net: |       |                                 |       |                              |       |   |   |   |   |
| United States                        |       |                                 | $          | 173.7                             |       |   |   | $ | 167.2 |   |   |
| Canada                               |       |                                 | 11.7       |                              |       |   | 12.0 |   |   |
| Other Countries                      |       |                                 | 1.4        |                              |       |   | 1.4 |   |   |
|                                 |       |                                 | $          | 186.8                             |       |   |   | $ | 180.6 |   |   |

 

14

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**4.**                                   Summaryof Significant Accounting Policies

Fiscal Year—The Company’s fiscal year ends onSeptember 30. The Company’s first quarter ends on the Saturday closest toDecember 31.

Inventory—Inventoriesare recorded at the lower of cost (first-in, first-out) or market value.Additionally, the Company evaluates its inventory reserves in terms of excessand obsolete exposures. This evaluation includes such factors as anticipatedusage, inventory turnover, inventory levels and ultimate product sales value.As such, these factors may change over time causing the reserve level to adjustaccordingly. Warranty Costs—The Company accrues for the estimated cost ofproduct warranties at the time of sale based on historical experience.Adjustments to obligations for warranties are made as changes in theobligations become reasonably estimable. The following table summarizesinformation concerning the Company’s product warranty:
|                                 | ** ** | **Three months ended** | ** ** |
|---------------------------------|------------|----------------------------------|------------|
| ** **                      | ** ** | **December 27, 2003**  | ** ** | **January 1, 2005** | ** ** |
| Balance at  beginning of period |       |                             | $          | 0.9 |   |   |   | $ | 1.6 |   |   |
| Accruals for  warranties        |       |                             | 0.8        |   |   |   | 0.6 |   |   |
| Settlement of  warranty claims  |       |                             | (0.5       | ) |   |   | (0.9 | ) |   |
| Balance at end of period        |       |                             | $          | 1.2 |   |   |   | $ | 1.3 |   |   |

 

Comprehensive Income—The Company’s comprehensiveincome for the three months ended December 27, 2003, and January 1,2005 includes foreign currency translation adjustments of $2.1 million and$4.0 million, respectively.

Related Party Transactions—TheCompany paid $0.4 million to Credit Suisse First Boston for the threemonths ended December 27, 2003 for management advisory services and creditarranger fees. The Company paid $0.1 million to Credit Suisse First Bostonfor the three months ended January 1, 2005 for management advisoryservices.

**5.**                                   NewAccounting Pronouncements

In December 2004, the Financial AccountingStandards Board issued SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R) replacesSFAS No. 123, “Accounting for Stock-Based Compensation,” andsupersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.”SFAS No. 123(R) requires compensation costs related to share-basedpayment transactions to be recognized in the financial statements over theperiod that an employee provides service in exchange for the award. Publiccompanies are required to adopt the new standard using a modified prospectivemethod and may elect to restate prior periods using the modified retrospectivemethod. Under the modified prospective method, companies are required to recordcompensation cost for new and modified awards over the related vesting periodof such awards prospectively and record compensation cost prospectively for theunvested portion, at the date of adoption, of previously issued and outstandingawards over the remaining vesting period of such awards. No change to priorperiods presented is permitted under the modified prospective method. Under themodified retrospective method, companies record compensation costs for priorperiods retroactively through restatement of such periods using the exact proforma amounts disclosed in the companies’ footnotes. Also, in the period ofadoption and after, companies record compensation based on the modifiedprospective method. SFAS No. 123(R) is effective for periodsbeginning after June 15, 2005. The Company plans to adopt SFAS No. 123(R) asof July 3, 2005, the beginning of its fourth fiscal quarter and to use themodified prospective method. The adoption of SFAS 123(R) is notexpected to have a material impact on the Company’s financial statements forthe year ended September 30, 2005, as all options previously outstandinghave been cancelled as part of the April 2004 recapitalization.

15

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In November 2004, the Financial AccountingStandards Board issued SFAS No. 151, “Inventory Costs.” SFAS No. 151amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” toclarify the 

accounting for abnormalamounts of idle facility expense, freight, handling costs, and wasted material.This Statement requires that those items be recognized as current-periodcharges regardless of whether they meet the criterion of “so abnormal.” Inaddition, this Statement requires that allocation of fixed production overheadsto the costs of conversion be based on the normal capacity of the productionfacilities. SFAS No. 151 is effective for fiscal years beginning after June 15,2005. The Company intends to adopt SFAS No. 151 on October 1, 2005,the beginning of its 2006 fiscal year. The adoption of SFAS No. 151 is notexpected to have a material impact on the Company’s financial statements.

FASB Staff Position (FSP) No. FAS 109-1and 109-2 were issued in December 2004, providing guidance onforeign earnings repatriation and qualified production activities of theAmerican Jobs Creation Act (AJCA) that was enacted on October 22, 2004.The AJCA created a temporary incentive for United States multinationals torepatriate accumulated earnings outside the United States by providing an85 percent dividends received deduction for certain qualifying earningsrepatriations in either fiscal 2005 or in fiscal 2006. As of January 1,2005, the Company has not provided deferred taxes on foreign earnings becauseany taxes on dividends would be substantially offset by foreign tax credits orbecause the Company intends to reinvest those earnings indefinitely. Due to thecomplexity of the repatriation provision, the Company is still evaluating theeffects of this provision on its plan for repatriation of foreign earnings anddoes not expect to be able to complete this evaluation until after Congress orthe Treasury Department provides additional guidance clarifying key elements ofthe provision.

**6.**                                   Long-TermDebt
|                                      | ** ** | **September 30, 2004**    | ** ** | **January 1, 2005** | ** ** |
|--------------------------------------|------------|-------------------------------------|------------|-------------------------------|------------|
| ** **                           | ** ** | **(dollars in millions)** | ** ** |
| Credit facility                      |       |                                |       |                          |       |   |   |   |   |
| Term loans                           |       |                                | $          | 515.0                         |       |   |   | 515.0 |   |   |
| Second Priority Senior Secured Notes |       |                                | 100.0      |                          |       |   | 100.0 |   |   |
| 10% Senior Subordinated Notes        |       |                                | 315.0      |                          |       |   | 315.0 |   |   |
| Capital lease  obligations           |       |                                | 2.6        |                          |       |   | 2.4 |   |   |
|                                 |       |                                | 932.6      |                          |       |   | 932.4 |   |   |
| Less current  portion                |       |                                | (3.2       | )                             |       |   | (3.9 | ) |   |
|                                 |       |                                | $          | 929.4                         |       |   |   | $ | 928.5 |   |   |
|                                      |            |                                     |            |                               |            |  |  |  |  |  |  |

 

Interest Rate Swaps—The Company has entered intointerest rate swap agreements in order to reduce interest rate risks and manageinterest expense. As of January 1, 2005, a notional principal amount of$100.0 million in swap agreements was still outstanding and scheduled tomature between May 2005 and July 2005. The swap agreementseffectively convert floating-rate debt into fixed-rate debt and carry anaverage fixed interest rate of 7.52% at January 1, 2005. Interestdifferentials to be paid or received because of swap agreements are reflectedas an adjustment to interest expense over the related debt period. At January 1,2005 and September 30, 2004, the fair value of interest rate swaps was aliability of $2.4 million and $4.7 million, respectively, and has beenrecorded in Other Long-Term Liabilities on the Consolidated Balance Sheets.

See Note 12 regardingdefaults, and a waiver obtained under the credit agreement subsequent to January 1,2005 related to untimely filing of annual and quarterly reports.

**7.**                                   Commitmentsand Contingencies

The Company is subject to retention on certaincontracts, with the retention portion of the amount receivable paid uponproject completion.

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In the normal course of business, the Company incursclaims with respect to product liability. Such claims are insured up to certainlimits, with such policies containing certain self-insured retention limits.Product liability claims for product manufactured or sold prior to August 1999,and environmental claims relating to property owned in August 1999 andbefore, arising out of events occurring prior to that date, are subject toindemnification by Tyco, based on the provisions of the August 1999acquisition agreement whereby the Company was acquired from Tyco.

Certain of our products contain lead. Environmental advocacygroups, relying on standards established by California’s Proposition 65, areseeking to eliminate or reduce the content of lead in some of our productsoffered for sale in California. In certain cases, we have entered intosettlement agreements with these environmental advocacy groups to modify ourproducts or offer substitutes. Further, similar issues may be raised by otheradvocacy groups in other jurisdictions under Proposition 65.

The Company is subject to warranty claims related tosales of water meters that can be read remotely by hand-held or drive-byelectronic readers. Radio transmitters purchased from one of the Company’sthird party vendors have demonstrated a high failure rate and the Company hastaken actions to correct the issue. Initially, the third party vendor had takenfinancial responsibility with respect to this matter. The third party vendor isno longer able to fulfill its warranty obligations and the Company has takencorrective action. In fiscal year 2004, the Company incurred $1.9 millionof cost to replace defective radio transmitters. If the Company finds itnecessary to replace all of the remaining affected third party vendors’ radiotransmitters still in service, the additional future exposure is not expectedto exceed $0.1 million. The Company has a reserve of $0.1 million asof January 1, 2005.

Over the next two to three years, the Company expectsto incur between $2.0 million and $6.0 million of capital costs at its steeland iron foundries to comply with the United States Environmental ProtectionAgency’s National Emissions Standards for Hazardous Air Pollutants which wereissued April 22, 2004. The Company is in the process of performing ananalysis to assess the impact of these standards on the financial results ofthe Company.

The Company’s subsidiary, James Jones Company, and itsformer parent company are defendants in a false claims lawsuit in which aformer James Jones Company employee is suing on behalf of cities, waterdistricts and municipalities. The employee alleges that the defendants soldallegedly non-conforming public water system parts to various governmententities. The lawsuit seeks consequential damages, penalties and punitivedamages. The Company’s subsidiary, Mueller Co., which had also been named as adefendant, brought a summary judgment motion and was dismissed from thislitigation in January 2004. Any liability associated with the lawsuit iscovered by an indemnification from our previous owner.

On March 31, 2004, the Company’s subsidiary,Anvil International, entered into a consent order with the Georgia Departmentof Natural Resources regarding various alleged hazardous waste violations atthe Statesboro, Georgia site formerly operated by Anvil. Pursuant to theconsent order, Anvil has agreed to pay a settlement amount of $100,000,comprised of a $50,000 monetary fine and $50,000 towards a supplementalenvironmental project. Anvil has also agreed to perform various investigatoryand remedial actions at the site and its landfill. While the ultimate investigatoryand remedial costs are currently unknown, the total costs are estimated to bebetween $0.8 million and $1.0 million. The Company maintains anadequate reserve to cover these estimated costs.

In November 2003, Beck Manufacturing, a divisionof Anvil International, closed its manufacturing facility in Kearny, NJ,withdrew from the Teamsters Local 11 Pension Fund (“Teamsters” or “Fund”).Anvil has established an accrual of $0.2 million for any withdrawalliability. On July 19, 2004, the Fund Trustees issued notice to Anvil thatpursuant to ERISA Sections 4202 and 4219(b)(1), Anvil owed approximately$1.2 million in withdrawal liability to the Fund. On October 5, 2004,Anvil sent notice to the 

17

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Teamsters contesting theamount of the withdrawal liability. The Teamsters gave notice of their plan toappeal and pursue arbitration under the guidelines set out in the TeamstersTrust Agreement. Anvil intends to vigorously defend its position that asubstantially lower withdrawal liability is appropriate.

As part of the Star acquisition, the Company hasagreed to a future payment to be made to the seller to the extent that thegross profit of the acquired business exceeds a targeted gross profit. Themaximum potential deferred payment amount is $23 million. Managementcurrently estimates the deferred payment could total approximately $3 to $6million for the deferred payment period that begins February 1, 2004 andends January 31, 2007. The deferred payment amount indicated above isbased on management’s best estimate, but the annual adjustment could bematerially different. The liability for such deferred payment will be recordedat the end of each deferred payment period, in accordance with the purchaseagreement. No deferred payment was earned for the year ended September 30,2004.

In the opinion ofmanagement, accruals associated with contingencies incurred in the normalcourse of business are sufficient. Resolution of existing known contingenciesis not expected to significantly affect the Company’s financial position andresult of operations.

**8.**                                   NetPeriodic Benefit Cost—Defined Benefit Plans

For a detailed disclosure on the Company’s pension andemployee benefits plans, please refer to Note 13 of the Company’s AuditedConsolidated Financial Statements for the year ended September 30, 2004,as found on Form 10-K (File No. 333-117473).

Thefollowing sets forth the components of net periodic benefit cost of thedomestic non-contributory defined benefit plans for the three months ended January 1,2005:
|                                     | ** ** | **Three months ended**    | ** ** |
|-------------------------------------|------------|-------------------------------------|------------|
| ** **                          | ** ** | **December 27,  2003**         | ** ** | **January 1,  2005** | ** ** |
| ** **                          | ** ** | **(dollars in millions)** | ** ** |
| Service cost                        |       |                                | $          | 0.5 |   |   |   | $ | 0.8 |   |   |
| Interest cost                       |       |                                | 1.4        |   |   |   | 1.3 |   |   |
| Expected return on  plan assets     |       |                                | (1.1       | ) |   |   | (1.3 | ) |   |
| Amortization of  prior service cost |       |                                | —     |   |   |   | 0.1 |   |   |
| Amortization of  net actuarial loss |       |                                | 0.6        |   |   |   | 0.7 |   |   |
| Net periodic benefit cost           |       |                                | $          | 1.4 |   |   |   | 1.6 |   |   |

 

The Company previouslydisclosed in its financial statements for the year ended September 30,2004, that it was required to contribute $0.1 million to its pension plansin 2005. As of January 1, 2005, no contributions have been made. TheCompany presently anticipates contributing $0.1 million to fund itspension plans in 2005 and may make further discretionary payments.

**9.**                                   SupplementaryBalance Sheet Information

Selectedsupplementary balance sheet information is presented below:
|                                             | ** ** | **September 30,  2004**        | ** ** | **January 1,  2005** | ** ** |
|---------------------------------------------|------------|-------------------------------------|------------|---------------------------|------------|
| ** **                                  | ** ** | **(dollars in millions)** | ** ** |
| **Inventories**                             | ** ** |                                | ** ** | ** **                |       |   | ** ** | ** ** |   |
| Purchased  materials and manufactured parts |       |                                | $          | 41.1                      | ** ** |   |   | $ | 47.1 | ** ** |   |
| Work in process                             |       |                                | 67.3       | ** **                |       |   | 78.0 | ** ** |   |
| Finished goods                              |       |                                | 151.8      | ** **                |       |   | 163.0 | ** ** |   |
|                                        |       |                                | $          | 260.2                     | ** ** |   |   | $ | 288.1 | ** ** |   |

 

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**10.**                            SupplementaryIncome Statement Information

Thecomponents of interest expense are presented below:
|                                                   | ** ** | **Three months ended** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|
| ** **                                        | ** ** | **December 27,  2003**      | ** ** | **January 1,  2005** | ** ** |
| **Interest expense and early  repayment costs:**  | ** ** |                             | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Contractual interest expense                      |       |                             | $          | 9.3 |   |   |   | $ | 17.7 |   |   |
| Deferred financing fee amortization               |       |                             | 0.7        |   |   |   | 1.1 |   |   |
| Senior subordinated debt early redemption penalty |       |                             | 7.0        |   |   |   | — |   |   |
| Write off of deferred financing fees              |       |                             | 0.4        |   |   |   | — |   |   |
| Interest rate swap gains                          |       |                             | (3.7       | ) |   |   | (2.3 | ) |   |
| Total interest expense  and early repayment costs |       |                             | $          | 13.7 |   |   |   | $ | 16.5 |   |   |

 

Areconciliation of net income available to the common shareholder is as follows:
|                                                                                                   | ** ** | **Three months ended**    | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                        | ** ** | **December 27, 2003**     | ** ** | **January 1, 2005** | ** ** |
| ** **                                                                                        | ** ** | **(restated)**                      | ** ** | ** ** | ** ** |
| ** **                                                                                        | ** ** | **(dollars in millions)** | ** ** |
| Net income                                                                                        |       |                                | $          | 3.8 |   |   |   | $ | 9.9 |   |   |
| Less preferred  share accretion related to redeemable preferred stock retired in  April 2004 |       |                                | (3.9       | ) |   |   | — |   |   |
| Net income available to  the common shareholder                                                   |       |                                | $          | (0.1 | ) |   |   | $ | 9.9 |   |   |

 

**11.**                            FacilityRationalization, Restructuring and Related Costs

In the first quarter offiscal 2005, the Company announced that it will cease manufacturing and beginoutsourcing a product line it currently produces at its water infrastructureplant in Colorado. A restructuring charge of $0.1 million related toseverance was reflected in the first quarter of fiscal 2005. An additionalcharge of $1.5 million is related primarily to the termination ofoperating leases for the building and machinery and will be reflected in thesecond quarter of fiscal 2005.

**12.**                            SubsequentEvent

The Company failed to file its Annual Reports on Form 10-Kfor the year ended September 30, 2004 and Quarterly Reports on 10-Qfor the quarter ended January 1, 2005 by the prescribed dates under theindentures governing the Company’s outstanding senior and senior subordinatednotes and our senior credit facility. The failures by the Company to timely filethese annual and quarterly reports constitute a default under each of theCompany’s indentures. If these defaults are not remedied after delivery ofnotice of default and a lapse of the relevant 60-day grace period, theholders of the Company’s notes would be able to declare the notes immediatelydue and payable, and the lenders of our senior credit facility would be able todeclare the loans immediately due. The Company has obtained a waiver under itssenior credit facility until March 31, 2005 to file its annual andquarterly reports. No notice of default has been delivered under theindentures. Any default relating to the late filing of the Company’s annual orquarterly reports is cured by the filing of this quarterly report for thequarter ended January 1, 2005 and the same-day filings of the Company’sAnnual Report on Form 10-K for the year ended September 30,2004.

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**13.**                               ConsolidatingGuarantor and Non-Guarantor Financial Information

The following tables setforth the consolidating statements of operations and cash flows for each of thethree-month periods ended December 27, 2003 and January 1, 2005and the consolidating balance sheets as of September 30, 2004 and January 1,2005. Amounts have been restated to reflect the impact of items discussed inNote 2. The following information is included as a result of the guaranteeby certain of the Company’s wholly owned U.S. subsidiaries (“GuarantorCompanies”) of the second priority senior secured notes and senior subordinatednotes issued by the Company. None of the Company’s other subsidiaries guaranteethe debt. Each of the guarantees is joint and several and full and unconditional.“Mueller Group, Inc.” (“Issuer”) includes the consolidated financialresults of Mueller Group, Inc. with all of its wholly-ownedsubsidiaries accounted for under the equity method.

**ConsolidatingStatement of OperationsFor the Three Months Ended December 27, 2003**
|                                                                                    | ** ** | **Issuer**     | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminating** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------|------------|-----------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------|------------|
| ** **                                                                         | ** ** | **(restated)** | ** ** | **(restated)**              | ** ** | ** **                   | ** ** | **(restated)**                 | ** ** | **(restated)**   | ** ** |
| Net sales                                                                          |       |           | $          | —                      |       |                         |       | $                              | 186.2      |             |       |   | $ | 34.0 |   |   |   | $ | — |   |   |   | $ | 220.2 |   |   |
| Cost of sales                                                                      |       |           | —     |                        |       |                         | 137.0      |                           |       |             | 26.3       |   |   |   | — |   |   |   | 163.3 |   |   |
| Royalty expense                                                                    |       |           | —     |                        |       |                         | (0.4       | )                              |       |             | 0.4        |   |   |   | — |   |   |   | — |   |   |
| Gross profit                                                                       |       |           | —     |                        |       |                         | 49.6       |                           |       |             | 7.3        |   |   |   | — |   |   |   | 56.9 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       |           | 2.2        |                        |       |                         | 30.2       |                           |       |             | 4.6        |   |   |   | — |   |   |   | 37.0 |   |   |
| Facility  rationalization and related costs                                        |       |           | —     |                        |       |                         | —     |                           |       |             | —     |   |   |   | — |   |   |   | — |   |   |
| Operating income  (loss)                                                           |       |           | (2.2       | )                           |       |                         | 19.4       |                           |       |             | 2.7        |   |   |   | — |   |   |   | 19.9 |   |   |
| Interest expense                                                                   |       |           | (13.7      | )                           |       |                         | 0.9        |                           |       |             | (0.9       | ) |   |   | — |   |   |   | (13.7 | ) |   |
| Interest income                                                                    |       |           | —     |                        |       |                         | —     |                           |       |             | 0.1        |   |   |   | — |   |   |   | 0.1 |   |   |
| Income (loss)  before income taxes                                                 |       |           | (15.9      | )                           |       |                         | 20.3       |                           |       |             | 1.9        |   |   |   | — |   |   |   | 6.3 |   |   |
| Income tax  expense (benefit)                                                      |       |           | (6.4       | )                           |       |                         | 8.1        |                           |       |             | 0.8        |   |   |   | — |   |   |   | 2.5 |   |   |
| Equity income  from subsidiaries                                                   |       |           | 13.3       |                        |       |                         | 1.1        |                           |       |             | —     |   |   |   | (14.4 | ) |   |   | — |   |   |
| Net income                                                                         |       |           | $          | 3.8                         |       |                         |       | $                              | 13.3       |             |       |   | $ | 1.1 |   |   |   | $ | (14.4 | ) |   |   | $ | 3.8 |   |   |

 

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**ConsolidatingStatement of OperationsFor the Three Months Ended January 1, 2005**
|                                                                                    | ** ** | **Issuer** | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminating** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------|------------|------------|------------|-----------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------|------------|
| ** **                                                                         | ** ** | ** ** | ** ** | **(restated)**              | ** ** | ** **                   | ** ** | ** **                     | ** ** | **(restated)**   | ** ** |
| Net sales                                                                          |       | $          | —     |                        |       | $                            | 202.7      |                           |       |             | $          | 53.4 |   |   |   | $ | — |   |   |   | $ | 256.1 |   |   |
| Cost of sales                                                                      |       | —     |       |                        | 139.6      |                         |       |                           | 42.3       |             |       |   | — |   |   |   | 181.9 |   |   |
| Royalty expense                                                                    |       | —     |       |                        | —     |                         |       |                           | —     |             |       |   | — |   |   |   | — |   |   |
| Gross profit                                                                       |       | —     |       |                        | 63.1       |                         |       |                           | 11.1       |             |       |   | — |   |   |   | 74.2 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       | 2.9        |       |                        | 31.4       |                         |       |                           | 7.5        |             |       |   | — |   |   |   | 41.8 |   |   |
| Facility  rationalization and related costs                                        |       | —     |       |                        | 0.1        |                         |       |                           | —     |             |       |   | — |   |   |   | 0.1 |   |   |
| Operating income  (loss)                                                           |       | (2.9       | )          |                        | 31.6       |                         |       |                           | 3.6        |             |       |   | — |   |   |   | 32.3 |   |   |
| Interest expense                                                                   |       | (16.5      | )          |                        | (0.1       | )                            |       |                           | —     |             |       |   | 0.1 |   |   |   | (16.5 | ) |   |
| Interest income                                                                    |       | 0.3        |       |                        | 0.1        |                         |       |                           | 0.1        |             |       |   | (0.1 | ) |   |   | 0.4 |   |   |
| Income (loss)  before income taxes                                                 |       | (19.1      | )          |                        | 31.6       |                         |       |                           | 3.7        |             |       |   | — |   |   |   | 16.2 |   |   |
| Income tax  expense (benefit)                                                      |       | (7.4       | )          |                        | 12.4       |                         |       |                           | 1.3        |             |       |   | — |   |   |   | 6.3 |   |   |
| Equity income  from subsidiaries                                                   |       | 21.6       |       |                        | 2.4        |                         |       |                           | —     |             |       |   | (24.0 | ) |   |   | — |   |   |
| Net income                                                                         |       | $          | 9.9        |                        |       | $                            | 21.6       |                           |       |             | $          | 2.4 |   |   |   | $ | (24.0 | ) |   |   | $ | 9.9 |   |   |

 

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**ConsolidatingBalance SheetSeptember 30, 2004**
|                                                            | ** ** | **Issuer**     | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|----------------|------------|-----------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **(restated)** | ** ** | **(restated)**              | ** ** | ** **                     | ** ** | ** **                      | ** ** | **(restated)**   | ** ** |
| **Assets**                                                 |       |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                                 |       | $              | 49.8       |                        |       | $                              | (7.9       | )                               |       |             | $          | 18.6 |   |   |   | $ | — |   |   |   | $ | 60.5 |   |   |
| Receivables, net                                           |       | —         |       |                        | 134.5      |                           |       |                            | 27.5       |             |       |   | — |   |   |   | 162.0 |   |   |
| Inventories                                                |       | —         |       |                        | 211.9      |                           |       |                            | 48.3       |             |       |   | — |   |   |   | 260.2 |   |   |
| Income taxes  receivable                                   |       | 6.5            |       |                        | 0.1        |                           |       |                            | (2.5       | )                |       |   | — |   |   |   | 4.1 |   |   |
| Deferred income  taxes                                     |       | —         |       |                        | 21.8       |                           |       |                            | —     |             |       |   | — |   |   |   | 21.8 |   |   |
| Prepaid expenses  and other current assets                 |       | —         |       |                        | 26.8       |                           |       |                            | 2.1        |             |       |   | — |   |   |   | 28.9 |   |   |
| Total current  assets                                      |       | 56.3           |       |                        | 387.2      |                           |       |                            | 94.0       |             |       |   | — |   |   |   | 537.5 |   |   |
| Property, plant  and equipment, net                        |       | 0.7            |       |                        | 173.3      |                           |       |                            | 12.8       |             |       |   | — |   |   |   | 186.8 |   |   |
| Goodwill, net                                              |       | —         |       |                        | 163.1      |                           |       |                            | 0.1        |             |       |   | — |   |   |   | 163.2 |   |   |
| Identifiable  intangibles, net                             |       | —         |       |                        | 55.2       |                           |       |                            | —     |             |       |   | — |   |   |   | 55.2 |   |   |
| Pension  intangible                                        |       | —         |       |                        | 0.8        |                           |       |                            | —     |             |       |   | — |   |   |   | 0.8 |   |   |
| Investment in  subsidiaries                                |       | 981.3          |       |                        | 26.1       |                           |       |                            | —     |             |       |   | (1,007.4 | ) |   |   | — |   |   |
| Deferred  financing fees, net                              |       | 33.8           |       |                        | —     |                           |       |                            | —     |             |       |   | — |   |   |   | 33.8 |   |   |
| Deferred income  taxes                                     |       | (3.0           | )          |                        | 10.0       |                           |       |                            | (0.5       | )                |       |   | — |   |   |   | 6.5 |   |   |
| Total assets                                               |       | $              | 1,069.1    |                        |       | $                              | 815.7      |                            |       |             | $          | 106.4 |   |   |   | $ | (1,007.4 | ) |   |   | $ | 983.8 |   |   |
| **Liabilities**                                            | ** ** | ** **     | ** ** |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Accounts payable                                           |       | $              | 7.2        |                        |       | $                              | 38.4       |                            |       |             | $          | 12.0 |   |   |   | $ | — |   |   |   | $ | 57.6 |   |   |
| Current portion  of long-term debt                         |       | 2.2            |       |                        | 1.0        |                           |       |                            | —     |             |       |   | — |   |   |   | 3.2 |   |   |
| Accrued expenses  and other current liabilities            |       | 17.6           |       |                        | 61.9       |                           |       |                            | 6.0        |             |       |   | — |   |   |   | 85.5 |   |   |
| Total current  liabilities                                 |       | 27.0           |       |                        | 101.3      |                           |       |                            | 18.0       |             |       |   | — |   |   |   | 146.3 |   |   |
| Intercompany  accounts                                     |       | 236.9          |       |                        | (297.8     | )                              |       |                            | 60.9       |             |       |   | — |   |   |   | — |   |   |
| Long-term  debt, net of current portion                    |       | 927.9          |       |                        | 1.5        |                           |       |                            | —     |             |       |   | — |   |   |   | 929.4 |   |   |
| Accrued pension  liability                                 |       | 0.0            |       |                        | 29.4       |                           |       |                            | (0.2       | )                |       |   | — |   |   |   | 29.2 |   |   |
| Other long-term  liabilities                               |       | 6.2            |       |                        | —     |                           |       |                            | 1.6        |             |       |   | — |   |   |   | 7.8 |   |   |
| Total liabilities                                          |       | 1,198.0        |       |                        | (165.6     | )                              |       |                            | 80.3       |             |       |   | — |   |   |   | 1,112.7 |   |   |
| **Shareholders’ equity (deficit)**                    | ** ** | ** **     | ** ** |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Total  shareholders’ equity (deficit)                 |       | (128.9         | )          |                        | 981.3      |                           |       |                            | 26.1       |             |       |   | (1,007.4 | ) |   |   | (128.9 | ) |   |
| Total liabilities  and shareholders’ equity (deficit) |       | $              | 1,069.1    |                        |       | $                              | 815.7      |                            |       |             | $          | 106.4 |   |   |   | $ | (1,007.4 | ) |   |   | $ | 983.8 |   |   |

 

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**ConsolidatingBalance SheetJanuary 1, 2005**
|                                                            | ** ** | **Issuer**     | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|----------------|------------|-----------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **(restated)** | ** ** | **(restated)**              | ** ** | ** **                     | ** ** | ** **                      | ** ** | **(restated)**   | ** ** |
| **Assets**                                                 |       |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                                 |       | $              | 47.2       |                        |       | $                              | (5.7       | )                               |       |             | $          | 14.7 |   |   |   | $ | — |   |   |   | $ | 56.2 |   |   |
| Receivables, net                                           |       | —         |       |                        | 115.8      |                           |       |                            | 25.5       |             |       |   | — |   |   |   | 141.3 |   |   |
| Inventories                                                |       | —         |       |                        | 233.7      |                           |       |                            | 54.4       |             |       |   | — |   |   |   | 288.1 |   |   |
| Income taxes  receivable                                   |       | (0.1           | )          |                        | —     |                           |       |                            | 0.5        |             |       |   | — |   |   |   | 0.4 |   |   |
| Deferred income taxes                                      |       | —         |       |                        | 22.5       |                           |       |                            | —     |             |       |   | — |   |   |   | 22.5 |   |   |
| Prepaid expenses  and other current assets                 |       | —         |       |                        | 26.7       |                           |       |                            | 2.3        |             |       |   | — |   |   |   | 29.0 |   |   |
| Total current  assets                                      |       | 47.1           |       |                        | 393.0      |                           |       |                            | 97.4       |             |       |   | — |   |   |   | 537.5 |   |   |
| Property, plant  and equipment, net                        |       | —         |       |                        | 167.3      |                           |       |                            | 13.3       |             |       |   | — |   |   |   | 180.6 |   |   |
| Goodwill, net                                              |       | —         |       |                        | 163.2      |                           |       |                            | —     |             |       |   | — |   |   |   | 163.2 |   |   |
| Identifiable  intangibles, net                             |       | —         |       |                        | 54.4       |                           |       |                            | 0.1        |             |       |   | — |   |   |   | 54.5 |   |   |
| Pension  intangible                                        |       | —         |       |                        | 0.8        |                           |       |                            | —     |             |       |   | — |   |   |   | 0.8 |   |   |
| Investment in  subsidiaries                                |       | 1,026.5        |       |                        | 32.7       |                           |       |                            | —     |             |       |   | (1,059.2 | ) |   |   | — |   |   |
| Deferred  financing fees, net                              |       | 32.7           |       |                        | —     |                           |       |                            | —     |             |       |   | — |   |   |   | 32.7 |   |   |
| Deferred income  taxes                                     |       | (3.9           | )          |                        | 9.5        |                           |       |                            | (0.5       | )                |       |   | — |   |   |   | 5.1 |   |   |
| Total assets                                               |       | $              | 1,102.4    |                        |       | $                              | 820.9      |                            |       |             | $          | 110.3 |   |   |   | $ | (1,059.2 | ) |   |   | $ | 974.4 |   |   |
| **Liabilities**                                            | ** ** | ** **     | ** ** |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Accounts payable                                           |       | $              | 5.3        |                        |       | $                              | 37.5       |                            |       |             | $          | 9.1 |   |   |   | $ | — |   |   |   | $ | 51.9 |   |   |
| Current portion  of long-term debt                         |       | 2.9            |       |                        | 1.0        |                           |       |                            | —     |             |       |   | — |   |   |   | 3.9 |   |   |
| Accrued expenses  and other current liabilities            |       | 12.3           |       |                        | 51.3       |                           |       |                            | 5.2        |             |       |   | — |   |   |   | 68.8 |   |   |
| Total current  liabilities                                 |       | 20.5           |       |                        | 89.8       |                           |       |                            | 14.3       |             |       |   | — |   |   |   | 124.6 |   |   |
| Intercompany  accounts                                     |       | 264.3          |       |                        | (327.6     | )                              |       |                            | 63.3       |             |       |   | — |   |   |   | — |   |   |
| Long-term  debt, net of current portion                    |       | 927.1          |       |                        | 1.4        |                           |       |                            | —     |             |       |   | — |   |   |   | 928.5 |   |   |
| Accrued pension  liability                                 |       | —         |       |                        | 30.8       |                           |       |                            | —     |             |       |   | — |   |   |   | 30.8 |   |   |
| Other long-term  liabilities                               |       | 5.5            |       |                        | —     |                           |       |                            | —     |             |       |   | — |   |   |   | 5.5 |   |   |
| Total liabilities                                          |       | 1,217.4        |       |                        | (205.6     | )                              |       |                            | 77.6       |             |       |   | — |   |   |   | 1,089.4 |   |   |
| **Shareholders’ equity (deficit)**                    | ** ** | ** **     | ** ** |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Total  shareholders’ equity (deficit)                 |       | (115.0         | )          |                        | 1,026.5    |                           |       |                            | 32.7       |             |       |   | (1,059.2 | ) |   |   | (115.0 | ) |   |
| Total liabilities and  shareholders’ equity (deficit) |       | $              | 1,102.4    |                        |       | $                              | 820.9      |                            |       |             | $          | 110.3 |   |   |   | $ | (1,059.2 | ) |   |   | $ | 974.4 |   |   |

 

23

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**ConsolidatingStatement of Cash FlowsFor the Three Months Ended December 27, 2003**
|                                                      | ** ** | **Issuer**     | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|----------------|------------|-----------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                           | ** ** | **(restated)** | ** ** | **(restated)**              | ** ** | **(restated)**                 | ** ** | ** **                      | ** ** | **(restated)**   | ** ** |
| Net cash provided  by operating activities           |       |           | $          | (46.2                       | )          |                           |       | $                               | 63.6       |             |       |   | $ | (0.4 | ) |   |   | — |   |   |   | $ | 17.0 |   |   |
| **Cash flows from investing  activities**            | ** ** |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Capital  expenditures                                |       |           | —     |                        |       |                           | (4.5       | )                               |       |             | —     |   |   |   | — |   |   |   | (4.5 | ) |   |
| Net cash provided  by (used in) investing activities |       |           | —     |                        |       |                           | (4.5       | )                               |       |             | —     |   |   |   | — |   |   |   | (4.5 | ) |   |
| **Cash flows from financing  activities**            | ** ** |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Book cash overdrafts                                 |       |           | 0.3        |                        |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | 0.3 |   |   |
| Intercompany  change                                 |       |           | 58.0       |                        |       |                           | (57.9      | )                               |       |             | (0.1       | ) |   |   | — |   |   |   | — |   |   |
| Payment of long-term  debt                           |       |           | (50.0      | )                           |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | (50.0 | ) |   |
| Financing of  assets through capital leases          |       |           | —     |                        |       |                           | (0.3       | )                               |       |             | —     |   |   |   | — |   |   |   | (0.3 | ) |   |
| Payment of  deferred financing fees                  |       |           | (0.8       | )                           |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | (0.8 | ) |   |
| Net cash used in  financing activities               |       |           | 7.5        |                        |       |                           | (58.2      | )                               |       |             | (0.1       | ) |   |   | — |   |   |   | (50.8 | ) |   |
| Effect of exchange  rate changes on cash        |       |           | —     |                        |       |                           | —     |                            |       |             | 0.5        |   |   |   | — |   |   |   | 0.5 |   |   |
| Increase  (decrease) in cash                         |       |           | (38.7      | )                           |       |                           | 0.9        |                            |       |             | —     |   |   |   | — |   |   |   | (37.8 | ) |   |
| **Cash and cash equivalents**                        | ** ** |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Beginning of  period                                 |       |           | 54.9       |                        |       |                           | 1.6        |                            |       |             | 16.5       |   |   |   | — |   |   |   | 73.0 |   |   |
| End of period                                        |       |           | $          | 16.2                        |       |                           |       | $                               | 2.5        |             |       |   | $ | 16.5 |   |   |   | — |   |   |   | $ | 35.2 |   |   |

 

**ConsolidatingStatement of Cash FlowsFor the Three Months Ended January 1, 2005**
|                                                      | ** ** | **Issuer**     | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|----------------|------------|-----------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                           | ** ** | **(restated)** | ** ** | **(restated)**              | ** ** | **(restated)**                 | ** ** | ** **                      | ** ** | **(restated)**   | ** ** |
| Net cash provided  by operating activities           |       |           | $          | (11.9                       | )          |                           |       | $                               | 17.2       |             |       |   | $ | (4.8 | ) |   |   | — |   |   |   | $ | 0.5 |   |   |
| **Cash flows from investing  activities**            | ** ** |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Capital  expenditures                                |       |           | —     |                        |       |                           | (4.2       | )                               |       |             | (0.5       | ) |   |   | — |   |   |   | (4.7 | ) |   |
| Net cash provided  by (used in) investing activities |       |           | —     |                        |       |                           | (4.2       | )                               |       |             | (0.5       | ) |   |   | — |   |   |   | (4.7 | ) |   |
| **Cash flows from financing  activities**            | ** ** |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Book cash overdrafts                                 |       |           | (0.7       | )                           |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | (0.7 | ) |   |
| Intercompany  change                                 |       |           | 10.0       |                        |       |                           | (10.5      | )                               |       |             | 0.5        |   |   |   | — |   |   |   | — |   |   |
| Financing assets  through capital leases             |       |           | —     |                        |       |                           | (0.3       | )                               |       |             | —     |   |   |   | — |   |   |   | (0.3 | ) |   |
| Net cash used in  financing activities               |       |           | 9.3        |                        |       |                           | (10.8      | )                               |       |             | 0.5        |   |   |   | — |   |   |   | (1.0 | ) |   |
| Effect of  exchange rate changes on cash             |       |           | —     |                        |       |                           | —     |                            |       |             | 0.9        |   |   |   | — |   |   |   | 0.9 |   |   |
| Increase  (decrease) in cash                         |       |           | (2.6       | )                           |       |                           | 2.2        |                            |       |             | (3.9       | ) |   |   | — |   |   |   | (4.3 | ) |   |
| **Cash and cash equivalents**                        | ** ** |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Beginning of  period                                 |       |           | 49.8       |                        |       |                           | (7.9       | )                               |       |             | 18.6       |   |   |   | — |   |   |   | 60.5 |   |   |
| End of period                                        |       |           | $          | 47.2                        |       |                           |       | $                               | (5.7       | )                |       |   | $ | 14.7 |   |   |   | — |   |   |   | $ | 56.2 |   |   |

 

24

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(1)          Guarantorsinclude the accounts of the following direct and indirect subsidiaries ofMueller Group, Inc.:
| Name                                      | ** ** | ** ** | ** ** | **State of Incorporation** |
|-------------------------------------------|------------|------------|------------|----------------------------|
| AnvilStar, LLC                            |       | Delaware   |
| Anvil  International, Inc.           |       | Delaware   |
| Henry Pratt Company                       |       | Delaware   |
| Henry Pratt  International Ltd            |       | Delaware   |
| Hersey Meters Co.                         |       | Delaware   |
| Hydro Gate Acquisition  Corp.             |       | Delaware   |
| James Jones Company                       |       | California |
| J.B. Smith Mfg. Co.                       |       | Oklahoma   |
| Mueller Co.                               |       | Illinois   |
| Mueller Service Co.                       |       | Delaware   |
| Milliken Acquisition  Corp.               |       | Delaware   |
| Mueller  International, Inc.         |       | Delaware   |
| Mueller International,  LLC               |       | Delaware   |
| Mueller International  Finance, Inc. |       | Delaware   |
| Mueller International Finance, LLC        |       | Delaware   |

 

25

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**ITEM 2.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

**RESULTS OFOPERATIONS**

In this report, each of the terms “Mueller Group,” the“Company,” “we,” “us” or “our” refers to Mueller Group, Inc. and itssubsidiaries, except where the context makes clear that the reference is onlyto Mueller Group, Inc. itself, and is not inclusive of its subsidiaries.

Except as otherwise noted, we present all financialand operating data on a fiscal year and fiscal quarter basis. Our fiscal yearends on September 30, and our first fiscal quarter ends on the Saturdayclosest to December 31.

Certain information included or incorporated byreference in this document may be deemed to be “forward looking statements”within the meaning of the federal securities laws. All statements other thanstatements of historical fact are statements that could be deemed forwardlooking statements. In this context, forward-looking statements oftenaddress our future business and financial performance, and may be characterizedby terminology such as “believe”, “anticipate”, “should”, “intend”, “plan”, “will”,“expects”, “estimates”, “projects”, “positioned”, “strategy”, and similarexpressions. These statements are based on assumptions and assessments made bythe Company’s management in light of its experience and its perception ofhistorical trends, current conditions, expected future developments and otherfactors it believes to be appropriate.

These forward looking statements are subject to anumber of risks and uncertainties, including but not limited to: the Company’sability to continue long-standing relationships with major customers; increasedcompetition; demand for and market acceptance of new and existing products inthe markets we serve; adverse changes in currency exchange rates or rawmaterial prices, specifically steel scrap, steel pipe and brass ingot;unanticipated developments that could occur with respect to contingencies suchas litigation, product liability exposures and environmental matters; theCompany’s ability to integrate acquired businesses into its operations; andother risks and uncertainties that affect the manufacturing sector generallyincluding, but not limited to, economic, political, governmental andtechnological factors affecting the Company’s operations, markets, products,services and prices.

Any such forward lookingstatements are not guarantees of future performances and actual results,developments and business decisions may differ from those envisaged by suchforward looking statements. These forward looking statements speak only as ofthe date of this Quarterly Report. The Company disclaims any duty to update anyforward looking statement, all of which are expressly qualified by theforegoing.

**Overview**

We are a leading North American manufacturer of abroad range of flow control products for use in water distribution, water andwastewater treatment facilities, gas distribution systems and piping systemsand maintain a large installed base of products. We are comprised of twosegments: water infrastructure, a leading manufacturer of hydrants, valves andother products for use in water and gas distribution systems; and pipingsystems, a leading manufacturer of fittings, pipe hangers and other productsfor use in piping system applications.

Our business strategy continues to be focused onsustaining our market leadership and competitive differentiation, while growingrevenues and enhancing profitability.

Results for the first quarter of 2005 reflectedcontinued strong performance in the residential construction market, as well asthe full effect of the pricing increases implemented in the second half of 2004and early 2005. Both our water infrastructure and piping systems segmentsreported improvements in net sales, gross profit and operating income in thethree months ended January 1, 2005 as compared to the three months ended December 27,2003.

26

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Major changes in financialposition resulted from the Company’s recapitalization in April 2004, andthe $406.9 million of additional net debt added $8.8 million ofinterest expense and amortization of deferred financing fees in the firstquarter of 2005 as compared to the first quarter of 2004.

**Restatements**

Thissection is comprised of two parts: 2005 Restatements and 2004 Restatements.   The 2004 Restatements were previouslyreported in the original Form 10-Q. The previous Management’sDiscussion and Analysis of Financial Conditions and Results of Operations hasbeen appropriately updated to reflect the 2005 and 2004 Restatements.

***2005Restatements***

In the course offinalizing the September 30, 2005 financial statements, the Companydetermined that certain items included in the Statements of Consolidated CashFlows, the Consolidated Statements of Operations and the Consolidated BalanceSheets were not properly classified in annual and interim periods. As a resultof these findings, the Company has restated its financial statements in this Form 10-Q/A.See Note 2 to the Consolidated Financial Statements. The 2005 Restatements hadno impact on the Company’s consolidated net income or the Consolidated Statementof Stockholders’ Deficit for any of the prior periods presented.

***2004Restatements***

In November 2004, ourAudit Committee was notified of alleged potential accounting improprietiesconcerning our accounting for inventory reserves and certain questionsconcerning revenue recognition. The Audit Committee appointed an independentlaw firm to investigate the allegations. The report identified several areasrequiring financial review by the Company principally concerning accounting forexcess and obsolete (E&O) inventory, the capitalization of costs relatingto a project that should have been expensed in prior periods, the accrual ofreserves for this project without identifying support for such accruals and thetiming of recognition of revenue with regard to full truckload shipments thatwere not immediately dispatched to customers by certain freight carriers usedby the Company. The Company also identified some additional annual and interimitems recorded in incorrect periods in the course of finalizing the 2004financial statements. In addition, the Company determined that the value itassigned to stock compensation in connection with our April 2004recapitalization should be revised. As a result of these findings, the Companyhas restated its annual and interim financial statements.

27

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**Results ofOperations**

***Three Months Ended January 1,2005 As Compared to the Three Months Ended December 27, 2003***

| ** **                                                                              | ** ** | **Three months ended**    | ** ** | ** **                                  | ** ** | **FY05 Q1 vs. FY04 Q1** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                              | ** ** | **January 1,  2005**           | ** ** | **Percentage  of net sales  (2)** | ** ** | **December 27,  2003**                 | ** ** | **Percentage  of net sales  (2)** | ** ** | **Increase/  (decrease)** | ** ** | **Change in  percentage  of  net sales** | ** ** |
| ** **                                                                              | ** ** | **(restated)**                      | ** ** | ** **                                  | ** ** | **(restated)**                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                              | ** ** | **(dollars in millions)** | ** ** |
| **Net sales**                                                                           | ** ** |                                | ** ** | ** **                                  |       |                                        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | $          | 138.6                                       |       |                                        |       | 54.1 | % |   |   | $ | 124.7 |   |   |   | 56.6 | % |   |   | $ | 13.9 |   |   |   | (2.5 | )% |   |
| Piping systems                                                                          |       |                                | 117.5      |                                        |       |                                        | 45.9       |   |   |   | 95.5 |   |   |   | 43.4 |   |   |   | 22.0 |   |   |   | 2.5 |   |   |
| Consolidated                                                                            |       |                                | 256.1      |                                        |       |                                        | 100.0      |   |   |   | 220.2 |   |   |   | 100.0 |   |   |   | 35.9 |   |   |   | — |   |   |
| **Gross  profit**                                                                       | ** ** |                                | ** ** | ** **                                  |       |                                        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 44.8       |                                        |       |                                        | 32.3       |   |   |   | 39.1 |   |   |   | 31.4 |   |   |   | 5.7 |   |   |   | 0.9 |   |   |
| Piping systems                                                                          |       |                                | 31.1       |                                        |       |                                        | 26.5       |   |   |   | 19.6 |   |   |   | 20.5 |   |   |   | 11.5 |   |   |   | 6.0 |   |   |
| Depreciation expense not allocated to segments                                          |       |                                | (1.7       | )                                           |       |                                        | (0.7       | ) |   |   | (1.8 | ) |   |   | (0.8 | ) |   |   | 0.1 |   |   |   | 0.1 |   |   |
| Consolidated                                                                            |       |                                | 74.2       |                                        |       |                                        | 29.0       |   |   |   | 56.9 |   |   |   | 25.8 |   |   |   | 17.3 |   |   |   | 3.2 |   |   |
| **Selling,  general and administrative expenses, including stock compensation expense** | ** ** |                                | ** ** | ** **                                  |       |                                        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 15.9       |                                        |       |                                        | 11.5       |   |   |   | 14.6 |   |   |   | 11.7 |   |   |   | 1.3 |   |   |   | (0.2 | ) |   |
| Piping systems                                                                          |       |                                | 19.3       |                                        |       |                                        | 16.4       |   |   |   | 15.9 |   |   |   | 16.6 |   |   |   | 3.4 |   |   |   | (0.2 | ) |   |
| Corporate                                                                               |       |                                | 6.6        |                                        |       |                                        | 2.6        |   |   |   | 6.5 |   |   |   | 3.0 |   |   |   | 0.1 |   |   |   | (0.4 | ) |   |
| Consolidated                                                                            |       |                                | 41.8       |                                        |       |                                        | 16.3       |   |   |   | 37.0 |   |   |   | 16.8 |   |   |   | 4.8 |   |   |   | (0.5 | ) |   |
| **Facility  rationalization, restructuring and related costs**                          | ** ** |                                | ** ** | ** **                                  |       |                                        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 0.1        |                                        |       |                                        | 0.5        |   |   |   | — |   |   |   | — |   |   |   | 0.1 |   |   |   | 0.5 |   |   |
| Piping systems                                                                          |       |                                | —     |                                        |       |                                        | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Consolidated                                                                            |       |                                | 0.1        |                                        |       |                                        | 0.2        |   |   |   | — |   |   |   | — |   |   |   | 0.1 |   |   |   | 0.2 |   |   |
| **Operating  income**                                                                   | ** ** |                                | ** ** | ** **                                  |       |                                        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 28.8       |                                        |       |                                        | 20.8       |   |   |   | 24.5 |   |   |   | 19.6 |   |   |   | 4.3 |   |   |   | 1.2 |   |   |
| Piping systems                                                                          |       |                                | 11.8       |                                        |       |                                        | 10.0       |   |   |   | 3.7 |   |   |   | 3.9 |   |   |   | 8.1 |   |   |   | 6.1 |   |   |
| Corporate                                                                               |       |                                | (8.3       | )                                           |       |                                        | (3.2       | ) |   |   | (8.3 | ) |   |   | (3.8 | ) |   |   | — |   |   |   | 0.6 |   |   |
| Consolidated                                                                            |       |                                | 32.3       |                                        |       |                                        | 12.6       |   |   |   | 19.9 |   |   |   | 9.0 |   |   |   | 12.4 |   |   |   | 3.6 |   |   |
| Interest expense                                                                        |       |                                | (16.5      | )                                           |       |                                        | (6.4       | ) |   |   | (13.7 | ) |   |   | (6.2 | ) |   |   | (2.8 | ) |   |   | (0.2 | ) |   |
| Interest income                                                                         |       |                                | 0.4        |                                        |       |                                        | 0.2        |   |   |   | 0.1 |   |   |   | — |   |   |   | 0.3 |   |   |   | 0.2 |   |   |
| Income before income taxes                                                              |       |                                | 16.2       |                                        |       |                                        | 6.3        |   |   |   | 6.3 |   |   |   | 2.9 |   |   |   | 9.9 |   |   |   | 3.4 |   |   |
| Income tax expense                                                                      |       |                                | 6.3        |                                        |       |                                        | 2.5        |   |   |   | 2.5 |   |   |   | 1.1 |   |   |   | 3.8 |   |   |   | 1.4 |   |   |
| Net income                                                                              |       |                                | $          | 9.9                                         |       |                                        |       | 3.9 | % |   |   | $ | 3.8 |   |   |   | 1.7 | % |   |   | $ | 6.1 |   |   |   | 2.2 |   |   |
| **Segment  EBITDA(1)**                                                                  | ** ** |                                | ** ** | ** **                                  |       |                                        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 34.8       |                                        |       |                                        | 25.1       |   |   |   | 30.6 |   |   |   | 24.5 |   |   |   | 4.2 |   |   |   | 0.6 |   |   |
| Piping systems                                                                          |       |                                | 16.1       |                                        |       |                                        | 13.7       |   |   |   | 7.8 |   |   |   | 8.2 |   |   |   | 8.3 |   |   |   | 5.5 |   |   |
| Total segment  EBITDA                                                                   |       |                                | $          | 50.9                                        |       |                                        |       | 19.9 |   |   |   | $ | 38.4 |   |   |   | 17.4 |   |   |   | $ | 12.5 |   |   |   | 32.6 |   |   |

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(1)           Segment EBITDA is defined as net income plus income taxexpense, interest expense (not net of interest income), depreciation andamortization expense. This performance measure may not be comparable to EBITDAas reported by other companies.

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TheCompany evaluates segment performance based on segment EBITDA. A reconciliationof segment EBITDA to consolidated income before income taxes follows:

| ** **                                  | ** ** | **Three months ended** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **January 1, 2005**    | ** ** | **December 27, 2003** | ** ** |
| ** **                                  | ** ** | **(as restated)(3)**        | ** ** | **(as restated)(3)** | ** ** |
| Total segment  EBITDA                       |       |                             | $          | 50.9 |   |   |   | $ | 38.4 |   |   |
| Unallocated  corporate costs                |       |                             | (5.6       | ) |   |   | (1.9 | ) |   |
| Interest expense  and early repayment costs |       |                             | (16.5      | ) |   |   | (13.7 | ) |   |
| Depreciation and  amortization              |       |                             | (12.6      | ) |   |   | (16.5 | ) |   |
| Income before income  taxes                 |       |                             | $          | 16.2 |   |   |   | $ | 6.3 |   |   |

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(2)          Percentages are bysegment, if applicable.

(3)          See Note 2 for adiscussion of the restatement.

*NetSales.**  *Netsales for the three months ended January 1, 2005 were $256.1 million, or a16.3% increase as compared to $220.2 million for the three months ended December 27,2003.

Water infrastructure net sales for the three monthsended January 1, 2005 were $138.6 million, or an 11.1% increase ascompared to $124.7 million for the three months ended December 27,2003. This increase was driven primarily by price increases combined with thecontinued strong performance of the residential construction market.

Piping systems net sales for the three months ended January 1,2005 were $117.5 million, or a 23.0% increase as compared to $95.5 millionfor the three months ended December 27, 2003. This increase was drivenprimarily by price increases and $5.8 million of additional sales of Starproducts. We acquired the Star business in January 2004.

*GrossProfit.**  *Grossprofit for the three months ended January 1, 2005 was $74.2 million,or a 30.4% increase as compared to $56.9 million for the three monthsended December 27, 2003. Gross profit, as a percentage of net sales, orgross margin, increased from 25.8% for our first quarter of 2004 to 29.0% forour first quarter of 2005.

Water infrastructure gross profit for the three monthsended January 1, 2005 was $44.8 million, or a 14.6% increase ascompared to $39.1 million for the three months ended December 27,2003. Gross profit increased from 31.4% for our first quarter of 2004 to 32.3% forour first quarter of 2005. The increase in gross profit was primarily driven byprice increases and the continued strong performance of the residentialconstruction market. Partially offsetting the higher prices were higher rawmaterial costs (most notably brass ingot and scrap steel) due to worldwidesupply and demand issues. We cannot be certain that any future increases in rawmaterial costs can be passed to our customers.

Piping systems gross profit for the three months endedJanuary 1, 2005 was $31.1 million, or a 58.7% increase as compared to$19.6 million for the three months ended December 27, 2003. Grossprofit increased from 20.5% to 26.5%. The increase in gross profit wasprimarily driven by price increases and additional Star gross margins of$1.0 million. Increased raw material costs partially offset the favorablepricing and increased Star margins. The price increases realized in the quarterwere the culmination of increases implemented primarily in the second half of2004 and in 2005. We cannot be certain we can continue to pass on costincreases to our customers.

*Selling,General & Administrative Expense.**  *Selling, General and Administrative expenses (“SG&A”)for the three months ended January 1, 2005 were $41.8 million, or a13.0% increase as compared to $37.0 million for the three months ended December 27,2003. As a percentage of net sales, SG&A decreased from 16.8% for our firstquarter of 2004 to 16.3% for our first quarter of 2005.

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Water infrastructureSG&A for the three months ended January 1, 2005 was $15.9 million, ora 8.9% increase as compared to $14.6 million for the three months endedDecember 27, 2003. As a percentage of net sales, SG&A decreased from11.7% for our first quarter of 2004 to 11.5% for our first quarter of 2005. Theincrease in cost was primarily due to amortization expense for intangibleassets acquired in the second quarter of 2004, increased sales commissionsrelated to higher sales, and compensation and benefit costs for additionalpersonnel.

Piping systems SG&Afor the three months ended January 1, 2005 was $19.3 million, or a 21.4%increase as compared to $15.9 million for the three months ended December 27,2003. As a percentage of net sales, SG&A decreased from 16.6% for our firstquarter of 2004 to 16.4% for our first quarter of 2005. This increase wasprimarily due to increased sales commissions and incentive compensation of$1.3 million, additional costs related to the Star product line of $0.6 million,and increases related to medical benefit costs.

Corporate expenses for thethree months ended January 1, 2005 were $6.6 million as compared to$6.5 million for the three months ended December 27, 2003.Significant items included in expenses for the first quarter of 2005 were:legal fees of $2.3 million related to internal investigations (seeNote 2), accounting and legal fees of $0.6 million related to SECfiling matters, consulting fees of $0.1 million related to efforts tobecome compliant with public company reporting and Sarbanes-Oxleyinternal control requirements, increased incentive compensation costs of$0.4 million, and increased salary and benefit costs of $0.3 millionassociated with additional accounting and legal staffing. These items areoffset by a $4.0 million reduction in amortization expense for the firstquarter of 2005 as compared to the first quarter of 2004 due to an intangibleasset becoming fully amortized during the fourth quarter of 2004. Corporateexpenses consist primarily of corporate staff, benefits, legal and facilitycosts.

*Facility Rationalization,Restructuring and Related Costs.**  *Therewas $0.1 million of restructuring costs for the three months ended January 1,2005 related to severance for a manufacturing facility in Colorado which isceasing production of a product line. An additional charge of $1.5 millionis related primarily to the termination of operating leases for the buildingand machinery and will be reflected in the second quarter of fiscal 2005.

*Interest Expense.**  *Interest expense for the three months ended January 1,2005 was $16.5 million, or a $2.8 million increase from$13.7 million for the three months ended December 27, 2003. Interestexpense for the three months ended January 1, 2005, includes$8.8 million of additional interest expense and amortization of deferredfinancing fees on $406.9 of net additional debt resulting from the Company’srecapitalization in April 2004. In the quarter ended December 27,2003, interest expense included a $7.0 million early redemption penalty,and a write-off of $0.4 million in deferred financing fees related to theearly redemption of $50.0 million of senior subordinated debt in November 2003.Also, gains recorded on interest rate swaps were $1.4 million lower in2005 than in 2004 as more swap agreements expired and were not renewed.

*Income Tax Expense.**  *The effective tax rates for the three months ended January 1,2005 and for the three months ended December 27, 2003 were 38.9% and39.7%, respectively.

*Segment EBITDA.**  *Water infrastructure EBITDA for the three monthsended January 1, 2005 was $34.8 million, which was $4.2 millionor 13.7% higher than the $30.6 million for the three months ended December 27,2003. The increased EBITDA resulted primarily from increased prices, offset byadditional SG&A spending as discussed above.

Piping systems EBITDA was$16.1 million for the three months ended January 1, 2005, which was $8.3million higher than the $7.8 million reported for the three months ended December 27,2003. The increased EBITDA resulted primarily from increased prices andadditional Star gross profit, offset by additional SG&A spending asdiscussed above.

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**Liquidity and Capital Resources**

Our principal sources ofliquidity have been and are expected to be cash flow from operations andborrowings under the senior credit facility. Our principal uses of cash will bedebt service requirements as described below, capital expenditures, workingcapital requirements, dividends to our parent company and possibleacquisitions.

*Debt Service*

As of January 1, 2005 we had: (a) totalindebtedness of approximately $932.4 million; and (b) approximately$57.6 million of borrowings available under our senior revolving creditfacility, subject to customary conditions. As of January 1, 2005, we hadobtained $22.4 million in letters of credit under the senior revolvingcredit facility, which reduced availability for borrowings thereunder. Oursignificant debt service obligations could have material consequences to oursecurity holders. Our key financial covenants are dependent on attainingcertain levels of EBITDA, as defined in the respective debt arrangements. Themost restrictive covenant in effect at January 1, 2005 related to ourleverage ratio, as defined in the debt arrangements, which requiredapproximately $150 million of EBITDA over the trailing twelve months,based on our net debt outstanding. Our EBITDA, as defined in the agreements,exceeded $200 million over the trailing twelve months ended January 1,2005.

As previously announcedand disclosed elsewhere in this document, we have been delayed in filing withthe SEC our annual report on Form 10-K for our fiscal year ended September 30,2004 and our quarterly report on Form 10-Q for our fiscal quarterended January 1, 2005. Although we obtained a waiver under the seniorcredit facility allowing us until March 31, 2005 to file these reports andwith respect to our restatement of prior period financial statements, there canbe no assurance that similar waivers will be available in the future.

*CapitalExpenditures*

The senior credit facilitycontains restrictions on our ability to make capital expenditures. Based oncurrent estimates, management believes that the amount of capital expenditurespermitted to be made under the senior credit facility will be adequate tomaintain the properties and business of our continuing operations.

*Distributions toour Parent Company*

Our parent company has nomaterial assets other than its ownership of our capital stock and, accordingly,depends upon distributions from us to satisfy its cash needs. Our parentcompany’s principal cash needs will be debt service on its Senior DiscountNotes due 2014. The parent company notes do not require cash interest paymentsuntil 2009 and contain restrictive covenants that will, among other things,limit the ability of Mueller Water Products, Inc. (“Mueller Water”) andits subsidiaries (including us) to incur debt, pay dividends and makeinvestments. Neither we nor any of our subsidiaries guarantee the parentcompany notes. Mueller Water, however, is a holding company and its ability topay interest on the parent company notes will be dependent upon the receipt ofdividends from its subsidiaries. We are currently Mueller Water’s only directsubsidiary.

*Sources of Funds*

We anticipate that our operating cash flow, togetherwith permitted borrowings under the senior credit facility, will be sufficientto meet our anticipated future operating expenses, capital expenditures anddebt service obligations as they become due for at least the next twelvemonths. However, our ability to make scheduled payments of principal of, to payinterest on or to refinance our indebtedness and to satisfy our other debtobligations will depend upon our future operating performance, which will beaffected by 

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general economic,financial, competitive, legislative, regulatory, business and other factorsbeyond our control.

From time to time we mayexplore additional financing methods and other means to lower our cost ofcapital, which could include stock issuance or debt financing and theapplication of the proceeds therefrom to the repayment of bank debt or otherindebtedness. In addition, in connection with any future acquisitions, we mayrequire additional funding which may be provided in the form of additional debtor equity financing or a combination thereof. There can be no assurance thatany additional financing will be available to us on acceptable terms.

***Historical***

Historically, our financing requirements have beenfunded primarily through cash generated by operating activities and borrowingsunder our revolving credit facility. From time to time, we have also raisedadditional funds through term debt offerings.

*Cashflows from operating activities.**  *Netcash provided by operations was $0.5 million for the first three months of2005, compared to net cash provided of $17.0 million for the first threemonths of 2004. The difference was due primarily to a $25.5 millionincrease in inventories in the first quarter of 2005. Water infrastructureinventories increased $15.3 million during the three months ended January 1,2005. This was largely due to a planned seasonal inventory build. Approximately$5.0 million of the total increase was due primarily to higher rawmaterial costs. Piping systems inventories increased $12.6 million duringthe three months ended January 1, 2005. A planned inventory buildaccounted for approximately $6 million of this increase, while about$3 million was due to higher raw material and other manufacturing costs.

*Cashflows used in investing activities.**  *In the first three months of 2005 we had net cashused in investing activities of $4.7 million compared to net cash used inthe first three months of 2004 of $4.5 million. The primary investingactivity in both periods was capital spending.

*Cash flows from financingactivities.**  *Cashflows used in financing activities decreased from $50.8 million in thefirst three months of 2004 to $1.0 million in the first three months of2005. This was primarily due to early payment of $50 million ofsubordinated notes due 2009 in the first quarter of 2004.

**Off-Balance Sheet Arrangements**

We do not have any relationships with unconsolidatedentities or financial partnerships, such as entities often referred to asstructured finance or special purpose entities, which would have beenestablished for the purpose of facilitating off-balance sheet arrangements orother contractually narrow or limited purposes. In addition, we do not have anyundisclosed borrowings or debt, and we have not entered into any derivativecontracts (other than those described in “—Qualitative and Quantitative DisclosureAbout Market Risk—Interest Rate Risk”) or synthetic leases. We are, therefore,not materially exposed to any financing, liquidity, market or credit risk thatcould arise if we had engaged in such relationships.

We utilize letters ofcredit and surety bonds in the ordinary course of business to ensure ourperformance of contractual obligations. As of January 1, 2005, we had$22.4 million of letters of credit and $14.1 million of surety bondsoutstanding.

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**Contractual Obligations**

Our contractual obligations as of January 1,2005:

**Payments Due byPeriod**

| **Contractual Obligations**       | ** ** | ** **                          | ** ** | **Less than  1 Year** | ** ** | **1-3 Years** | ** ** | **4-5 Years** | ** ** | **After 5 Years** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|--------------------|------------|--------------------|------------|-----------------------------|------------|-----------|------------|
| ** **                             | ** ** | **(dollars in millions)** | ** ** |
| Long-term  debt                        |       |                                |       |                            |       |               |       |               |       |                        |       |      |       |   |   |   |   |   |   |
| Principal on long-term debt            |       |                                | $          | 2.9                             |       |               |       | 5.8                |       |                        |       | 5.8       |       |   |   | 915.5 |   |   | 930.0 |   |
| Interest on long-term debt(1)          |       |                                | 66.1       |                            |       |               | 131.7      |               |       |                        | 131.0      |      |       |   | 126.6 |   |   | 455.4 |   |
| Capital lease  obligations             |       |                                | 1.0        |                            |       |               | 1.3        |               |       |                        | 0.1        |      |       |   | — |   |   | 2.4 |   |
| Operating leases                       |       |                                | 8.5        |                            |       |               | 11.2       |               |       |                        | 4.2        |      |       |   | 3.5 |   |   | 27.4 |   |
| Unconditional  purchase obligations(2) |       |                                | 13.6       |                            |       |               | —     |               |       |                        | —     |      |       |   | — |   |   | 13.6 |   |
| Other long-term  obligations(3)        |       |                                | —     |                            |       |               | —     |               |       |                        | —     |      |       |   | — |   |   | — |   |
| Total contractual  cash obligations    |       |                                | $          | 92.1                            |       |               |       | 150.0              |       |                        |       | 141.1     |       |   |   | 1,045.6 |   |   | 1,428.8 |   |

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(1)           Interest on the senior credit facility and securednotes is calculated using LIBOR of 2.54% and 2.16% repectively, the rates ineffect on January 1, 2005. Each increase or decrease in LIBOR of 0.125%would result in an increase or decrease in annual interest on the senior creditfacility and secured notes of $0.8 million. Because the interest rateunder the senior credit facility and secured notes will be variable, actualpayments may differ. Interest does not include payments that could be requiredunder our interest-rate swap agreements, which payments will depend uponmovements in interest rates and could vary significantly. The payments due onthe existing interest rate swaps expiring in May and July 2005 areestimated to be approximately $3.8 million.

(2)           Includes contractual obligations for purchases of rawmaterials and capital expenditures.

(3)           Excludes the deferred payment portion of the purchaseprice for Star. The Star purchase price is subject to adjustment to reflect,among other things, a deferred payment to be made by us to the extent that thegross profit of the business exceeds the target gross profit from February 1,2004 to January 31, 2007. Although the maximum amount payable is$23 million, we estimate that the total deferred payment will beapproximately $3.0 to $6.0 million. This calculation of the potential Starpurchase price adjustment is based on management’s best estimate; however, theactual adjustment may be materially different.

**Effectof Inflation; Seasonality**

We do not believe thatgeneral inflation has had a material impact on our financial position orresults of operations, with the exception of recent increases in the cost ofour raw materials.

Our business is dependentupon the construction industry, which is very seasonal due to the impact ofwinter or wet weather conditions. Our net sales and operating income havehistorically been lowest, and our working capital needs have been highest, inthe three month periods ending around December 31 and March 31, whenthe northern United States and all of Canada generally face weather thatrestricts significant construction activity and we build working capital inanticipation of the peak construction season, during which time our workingcapital tends to be reduced.

**Critical Accounting Policies**

Our significant accountingpolicies are described in our audited consolidated financial statements for theyear ended September 30, 2004 as found on Form 10-K (File No. 333-117473).While all significant accounting policies are important to our consolidatedfinancial statements, some of these policies may be viewed as being critical.Such policies are those that are both most important to the portrayal of ourfinancial condition and require our most difficult, subjective and complexestimates and assumptions that affect the reported amounts of assets,liabilities, revenues, expenses and related disclosure of contingent assets andliabilities. These estimates are based upon our historical experience and onvarious other assumptions that we believe to be reasonable under thecircumstances. Our actual results may differ from these estimates underdifferent assumptions or conditions.

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**Recently Issued Accounting Standards**

In December 2004, the Financial AccountingStandards Board issued SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R) replacesSFAS No. 123, “Accounting for Stock-Based Compensation,” andsupersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.”SFAS No. 123(R) requires compensation costs related to share-basedpayment transactions to be recognized in the financial statements over theperiod that an employee provides service in exchange for the award. Publiccompanies are required to adopt the new standard using a modified prospectivemethod and may elect to restate prior periods using the modified retrospectivemethod. Under the modified prospective method, companies are required to recordcompensation cost for new and modified awards over the related vesting periodof such awards prospectively and record compensation cost prospectively for theunvested portion, at the date of adoption, of previously issued and outstandingawards over the remaining vesting period of such awards. No change to priorperiods presented is permitted under the modified prospective method. Under themodified retrospective method, companies record compensation costs for priorperiods retroactively through restatement of such periods using the exact proforma amounts disclosed in the companies’ footnotes. Also, in the period ofadoption and after, companies record compensation based on the modifiedprospective method. SFAS No. 123(R) is effective for periodsbeginning after June 15, 2005. The Company plans to adopt SFAS No. 123(R) inJuly 2005, the beginning of its fourth fiscal quarter and to use themodified prospective method. The adoption of SFAS 123(R) is notexpected to have a material impact on the Company’s financial statements forthe year ended September 30, 2005.

In November 2004, the Financial AccountingStandards Board issued SFAS No. 151, “Inventory Costs.” SFAS No. 151amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” toclarify the accounting for abnormal amounts of idle facility expense, freight,handling costs, and wasted material. This Statement requires that those itemsbe recognized as current-period charges regardless of whether they meetthe criterion of “so abnormal.” In addition, this Statement requires thatallocation of fixed production overheads to the costs of conversion be based onthe normal capacity of the production facilities. SFAS No. 151 iseffective for fiscal years beginning after June 15, 2005. The Companyintends to adopt SFAS No. 151 on October 1, 2005, the beginning ofits 2006 fiscal year. The adoption of SFAS No. 151 is not expected to havea material impact on the Company’s financial statements.

FASB Staff Position (FSP) No. FAS 109-1and 109-2 were issued in December 2004, providing guidance onforeign earnings repatriation and qualified production activities of theAmerican Jobs Creation Act (AJCA) that was enacted on October 22, 2004.The AJCA created a temporary incentive for United States multinationals torepatriate accumulated earnings outside the United States by providing an85 percent dividends received deduction for certain qualifying earningsrepatriations in either fiscal 2005 or in fiscal 2006. As of January 1,2005, the Company has not provided deferred taxes on foreign earnings becauseany taxes on dividends would be substantially offset by foreign tax credits orbecause the Company intends to reinvest those earnings indefinitely. Due to thecomplexity of the repatriation provision, the Company is still evaluating theeffects of this provision on its plan for repatriation of foreign earnings anddoes not expect to be able to complete this evaluation until after Congress orthe Treasury Department provides additional guidance clarifying key elements ofthe provision.

**ITEM3.**                QUALITATIVE ANDQUANTITATIVE DISCLOSURE ABOUT MARKET RISK

The nature of market risks faced by the Company atJanuary 1, 2005 are the same as disclosed in the Company’s Annual Reporton Form 10-K for the year ended September 30, 2004. We areexposed to various market risks, which are potential losses arising fromadverse changes in market rates and prices, such as interest rates, foreignexchange fluctuations and raw materials. We do not enter into derivatives orother financial instruments for trading or speculative purposes.

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We have entered intointerest rate swap agreements with a notional principal amount of$100.0 million in order to reduce interest rate risks and manage interestexpense. The swap agreements, which mature by July 2005, effectivelyconvert floating rate debt under our credit facility into fixed-rate debt andcarry an average fixed interest rate of 7.52% at January 1, 2005. We planto retain these interest rate swaps and intend to replace them upon maturityand consider entering into additional interest rate swaps or other interestrate hedging instruments to protect against interest rate fluctuations on ournew floating rate debt.

**ITEM 4.**                CONTROLSAND PROCEDURES

This Item 4 disclosure hasbeen updated from what was originally reported for the quarter ended January 1,2005 to reflect the results of the Company’s evaluation of the effectiveness ofthe design and operation of the Company’s disclosure controls and procedures asof September 30, 2005, which identified a material weakness thateffectively led to the restatement of the previously issued financialstatements for the years ended September 30, 2004 and 2003, the firstthree quarters of fiscal 2005 and all interim periods of fiscal 2004.

***Restatement of Previously Issued ConsolidatedFinancial Statements***

As described in Note 2 to the financial statements,the Company identified errors in the presentation in the Company’s previouslyissued consolidated financial statements: (i) the effect of foreigncurrency exchange rate changes on cash balances; (ii) disposals ofproperty, plant and equipment; (iii) book cash overdrafts; (iv) themisclassification of deferred income tax assets between the current andnon-current classifications in the balance sheet and (v) themisclassification of depreciation expense. As a result of these errors, theCompany has restated its consolidated financial statements for the years ended September 30,2004 and 2003, the first three quarters of fiscal 2005 and all interim periodsof fiscal 2004.

The 2005 Restatement hadno effect on the Company’s consolidated net income or the Consolidated Statementof Stockholders’ Deficit for the two fiscal years ended September 30, 2004and the first three quarters of fiscal 2005 and all interim periods of fiscal2004, including our quarter ended January 1, 2005.

***Evaluation of our Disclosure Controls and Procedures.***

As of the end of the period covered by this report, weevaluated the effectiveness of the design and operation of our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act’’)). Thisevaluation was done under the supervision and with the participation ofmanagement, including Dale B. Smith, President and Chief Executive Officer(“CEO’’),and Jeffery W. Sprick, Chief Financial Officer (“CFO’’). It should be notedthat any system of controls, however, well designed and operated, can provideonly reasonable, and not absolute, assurance that the objectives of the systemare met.

Based on this evaluationand because of the material weakness described below, our CEO and CFO haveconcluded that our disclosure controls and procedures were not effective, atthe reasonable assurance level, to enable us to record, process, summarize, andreport information required to be included in our periodic SEC filings withinthe required time period or to ensure that information required to be disclosedby the Company in the reports that it files or submits under the SecuritiesExchange Act is accumulated and communicated to the Company’s management,including its principal executive and principal financial officers, asappropriate to allow timely decisions regarding required disclosure. Notwithstandingthis material weakness, our management has concluded that the financialstatements included in this Form 10-Q/A fairly present in allmaterial respects the Company’s financial position, results of operations andcash flows for the periods presented in conformity with generally acceptedaccounting principles.

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***Material Weaknessin Internal Control over Financial Reporting***

A material weakness is acontrol deficiency or a combination of control deficiencies that results inmore than a remote likelihood that a material misstatement of the annual orinterim consolidated financial statements will not be prevented or detected. Asof January 1, 2005, the Company did not maintain effective controls overthe preparation, review and presentation and disclosure of the Company’sconsolidated financial statements. Specifically, the Company’s controls failedto prevent or detect the incorrect presentation of the following: (i) cashflows from the effect of exchange rate changes on cash balances; (ii) cashflows from the disposals of property, plant and equipment; (iii) cashflows and balance sheet presentation of book cash overdrafts; (iv) thepresentation of current and non-current deferred income tax assets in theCompany’s Consolidated Balance Sheets; and (v) classification of certaindepreciation expense as selling, general and administrative expense instead ofcost of sales in the Company’s Consolidated Statements of Operations. Thiscontrol deficiency resulted in the restatement of our annual consolidatedfinancial statements for fiscal 2004 and 2003 and our interim consolidatedfinancial statements for the first three quarters of fiscal 2005, all interimperiods of fiscal 2004 and audit adjustments to our 2005 annual consolidatedfinancial statements. Additionally, this control deficiency could result in a misstatementof the presentation and disclosure of the Company’s consolidated financialstatements that would result in a material misstatement in the annual orinterim financial statements that would not be prevented or detected.Accordingly, management has determined that this control deficiency constitutesa material weakness.

***Previous Disclosure About Our  Material Weakness in Internal Control overFinancial Reporting***

As of September 30,2004, and all interim periods through July 2, 2005, including our quarterended January 1, 2005, we reported the following control deficiencies that, inthe aggregate, constituted a material weakness in internal control overpreparation, review and presentation and disclosure of the Company’sconsolidated financial statements. Specifically our control deficienciesincluded: (i) a lack of personnel with experience in financial reportingand control procedures necessary for SEC registrants; (ii) a lack ofsufficient controls to prevent or detect, on a timely basis, unauthorizedjournal entries; (iii) a lack of sufficient controls over informationtechnology data conversion and program changes; (iv) a lack of sufficientcontrols over the development and communication of income tax provisions; (v) alack of effective controls surrounding “whistleblower” hotline complaints andinternal certifications to ensure that issues were communicated on a moretimely basis by management to the audit committee and the independentregistered public accounting firm; (vi) a lack of effective controls overrevenue recognition associated with full truckload shipments not immediatelydispatched by freight carriers; and (vii) a lack of formal controls andprocedures regarding assessment of financial exposures and transactions,including consideration of accounting implications under generally acceptedaccounting principles. These control deficiencies resulted in audit adjustmentsto the consolidated financial statements for the year ended September 30,2004. Additionally, these control deficiencies, in the aggregate, could resultin a misstatement to accounts and disclosures that would result in a materialmisstatement to the annual or interim financial statements that would not beprevented or detected. Accordingly, management determined that these controldeficiencies in the aggregate constituted a material weakness.

We reported in our Form 10-Qfor all interim periods in fiscal 2005 that we had taken steps to remediatethis material weakness. We: (i) reassigned our Chief Financial Officer,appointed an Interim Chief Financial Officer and hired additional accountingand finance staff; (ii) introduced increased training for our existingfinancial and accounting and other staff; (iii) retained third-partyconsultants with significant SEC financial reporting experience to provideassistance in complying with SEC reporting requirements; (iv) formed adisclosure committee to supervise the preparation of our Exchange Act Reportsand other public communications; (v) improved our controls over, and begandeveloping written policies and procedures that cover all of our significantaccounting processes, including journal entries, the development andcommunication of income tax provisions, information data conversion issues and 

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programchanges, revenue recognition and assessing financial exposures; (vi) improvedand centralized our controls over our information technology; and (vii) implementedglobal compliance initiatives under the direction of our Chief ComplianceOfficer. These improvement efforts continued to progress during our firstquarter ended January 1, 2005. While significant improvements have beenimplemented throughout the year, management believes that additionalremediation is needed and will require changes in personnel, processes andprocedures to ensure timely and accurate financial reporting on a sustainablebasis.

***Changes in InternalControl Over Financial Reporting***

There have been no changesin our internal control over financial reporting during the three months ended January 1,2005 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting other than as describedabove.

***Changes in InternalControl Over Financial Reporting Subsequent to September 30, 2005***

Subsequent to September 30, 2005, management hastaken steps to remediate the material weakness described above. These stepsinclude a thorough review, on a quarterly basis, of foreign currencytranslation cash flow statement effects, book overdrafts and transactionsrelated to property, plant and equipment and an additional review, on aquarterly basis, of the classification requirements of each component line itemand the individual elements that comprise each line item of the statement ofcash flows, in accordance with Statement of Financial Accounting Standards, No. 95,“Statement of Cash Flows.’’ Additionally, the classification of deferred incometax items in the balance sheet and cash flow statement, as well as depreciationin the statement of operations, will be evaluated quarterly. Managementbelieves the additional control procedures designed, when implemented, willfully remediate this material weakness.

In addition,subsequent to September 30, 2005, the Company has made the followingchanges in internal controls to improve financial reporting accuracy:

·       Hireda full time Chief Financial Officer, Jeffery W. Sprick, and a CorporateController with SEC financial reporting experience;

·       Hiredadditional finance and accounting personnel at the Company’s Pratt and MuellerChattanooga facilities;

·       Designatedthe Walter Industries Inc. Audit Committee, which is fully independent underNew York Stock Exchange listing rules and the rules of the SEC, asits audit committee; and

·       Beganto develop an internal quarterly review plan to review higher risk areas infinancial reporting, such as revenue recognition and inventory valuation.

Another significant remedial action underway orplanned to commence in fiscal year 2006, not specifically related to the previouslyidentified material weakness, includes the issuance of a code of conduct to allemployees. In fiscal 2006, we will be subject to the Sarbanes-Oxley internalcontrol reporting requirements and in 2006 we will be testing key internalcontrols for all significant business units and business processes.

The Company continues to upgrade the knowledge of ourfinance staff by implementing on-going United States generally acceptedaccounting principles training programs, consisting of providing appropriatetechnical resources to our finance team and training on the use of suchresources, conducting a series of training sessions for plant controllers,periodic distribution of information regarding changes in accounting andreporting standards, and issuance of Company accounting policy statements.Additionally, the Company terminated the prior Chief Compliance Officer andreassigned those duties to the Director of Internal Audit.

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**PART II OTHER INFORMATION**

**Item 6. Exhibits**

**(a)**                            Exhibits
| 3.1  |   | Certificate of  Incorporation of Mueller Group, Inc.                                                                                                                                                                        |   |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 3.2  |   | By-Laws of Mueller  Group, Inc.(1)                                                                                                                                                                                          |   |
| 10.1 |   | Waiver dated as of  February 4, 2005 under the Second Amended and Restated Credit Agreement  dated as of April 23, 2004 among Mueller Group, Inc., the  Guarantors party thereto and the Lenders party thereto(2) |   |
| 10.2 |   | Employment Agreement,  dated as of February 18, 2005, between Mueller Group, Inc. and Darrell  Jean(3)                                                                                                                 |   |
| 31.1 |   | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.*                                                                                                                      |   |
| 31.2 |   | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.*                                                                                                                      |   |
| 32.1 |   | Certification of Chief  Executive Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.*                                                                                                                      |   |
| 32.2 |   | Certification of Chief Financial Officer pursuant to Section 906  of the Sarbanes-Oxley Act of 2002.*                                                                                                                       |   |

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(1)          Previously filed as Exhibit 3.1to our Registration Statement on Form S-1 as filed with theSecurities and Exchange Commission (SEC) on June 17, 2004.

(2)          Previously filed as an Exhibit tothe Current Report on Form 8-K of Mueller Group, Inc. as filedwith the SEC on February 7, 2005.

(3)          Previously filed as an Exhibit tothe Current Report on Form 8-K of Mueller Group, Inc. as filedwith the SEC on February 24, 2005.

*                    Filedherewith.

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                              |   | MUELLER WATER PRODUCTS, INC. |
|------------------------------|--------|------------------------------|
| Date: February 2,  2006 |   | By:                          |   | /s/ DALE B. SMITH |
|                         |   |                         |   | Dale B. Smith  President and Chief Executive Officer |
| Date: February 2,  2006 |   | By:                          |   | /s/ JEFFERY W. SPRICK |
|                         |   |                         |   | Jeffery W. Sprick  Chief Financial Officer |

 

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