**UNITED STATES**

 

**SECURITIESAND EXCHANGE COMMISSION**

 

**Washington,D.C. 20549**

 

**FORM10-Q**

 
| **ý** | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE  SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 26, 2004.** |   |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|--------|
|       |       |                                                                                                                                       |   |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                             |   |

 

**Commission File Number 333-116590**

 

**MUELLERHOLDINGS (N.A.), INC.**

(Exactname of registrant as specified in its charter)

 
| **Delaware**                                                   | ** ** | **52-2175259**                       |
|----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) |       | (I.R.S. Employer identification No.) |
|                                                           |       |                                 |
| **500 West Eldorado St.  Decatur, IL  62522-1808**        |       |                                 |
| (Address of principal executive offices)                       |       |                                 |

 

**(217) 423-4471**

(Registrant’stelephone number, including area code)

 

Indicateby check mark whether the Registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes o   No.ý.

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the

ExchangeAct.)  Yes o No ý

 

|    |   | **Common Stock** | ** ** | **Shares Outstanding As of September 10, 2004** |
|---------|--------|------------------|------------|-------------------------------------------------|
|    |   |             |       |                                            |
| Class A |   | $0.01 Par Value  |       | 131,208,998                                     |
| Class B |   | $0.01 Par Value  |       | 89,343,699                                      |

 

 

----

 

MUELLER HOLDINGS (N.A.), INC.

REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 26, 2004

TABLE OF CONTENTS

 
|   | PART I –  FINANCIAL INFORMATION                                                                       |                                                  |
|--------|------------------------------------------------------------------------------------------------------------|-------------------------------------------------------|
|   |                                                                                                       |                                                  |   |
|   | Item  1.  Unaudited Financial Statements                                                              |                                                  |
|   |                                                                                                       |                                                  |   |
|   |                                                                                                       | Condensed Consolidated Balance Sheets                 |   |
|   |                                                                                                       |                                                  |   |
|   |                                                                                                       | Condensed Consolidated Statements of  Operations      |   |
|   |                                                                                                       |                                                  |   |
|   |                                                                                                       | Condensed Consolidated Statements of Cash  Flows      |   |
|   |                                                                                                       |                                                  |   |
|   |                                                                                                       | Notes to Condensed Consolidated Financial  Statements |   |
|   |                                                                                                       |                                                  |   |
|   | Item  2.  Management’s Discussion and  Analysis of Financial Condition and Results of Operations |                                                  |
|   |                                                                                                       |                                                  |   |
|   | Item  3.  Quantitative and Qualitative  Disclosures About Market Risk                                 |                                                  |
|   |                                                                                                       |                                                  |   |
|   | Item  4.  Controls and Procedures                                                                     |                                                  |
|   |                                                                                                       |                                                  |   |
|   | PART II  – OTHER INFORMATION                                                                          |                                                  |
|   |                                                                                                       |                                                  |   |
|   | Item  6.  Exhibits                                                                                    |                                                  |
|   |                                                                                                       |                                                  |   |
|   | Signatures                                                                                                 |                                                  |

 

2

----

 

**PART I****.  FINANCIAL INFORMATION**

**ITEM 1****.  FINANCIAL STATEMENTS**

 

**MUELLER HOLDINGS (N.A.), INC.**

**UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                      | ** ** | **September 30,  2003**   | ** ** | **June 26,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|--------------------|------------|
| ** **                                                                                                      |       | **(unaudited)**           |       |
|                                                                                                            |       | **(dollars in millions)** |       |
| **Assets**                                                                                                      |       |                      |       |               |       |
| Cash and cash equivalents                                                                                       |       | $                         | 71.4       |               | $          | 23.3 |   |
| Receivables, less allowance for doubtful  accounts of $4.9 in September 2003 and $4.4 in June 2004              |       | 137.3                     |       | 155.5              |       |
| Inventories                                                                                                     |       | 240.5                     |       | 260.6              |       |
| Deferred income taxes                                                                                           |       | 5.6                       |       | 7.3                |       |
| Prepaid expenses and other current assets                                                                       |       | 29.8                      |       | 25.9               |       |
| Total current assets                                                                                            |       | 484.6                     |       | 472.6              |       |
| Property, plant and equipment, net                                                                              |       | 208.4                     |       | 192.8              |       |
| Goodwill, net                                                                                                   |       | 163.2                     |       | 163.2              |       |
| Identifiable intangibles, net                                                                                   |       | 63.0                      |       | 57.7               |       |
| Pension intangible                                                                                              |       | 0.9                       |       | 0.9                |       |
| Deferred financing fees, net                                                                                    |       | 12.0                      |       | 37.3               |       |
| Deferred income taxes                                                                                           |       | 18.3                      |       | 26.2               |       |
| Other noncurrent assets                                                                                         |       | 0.2                       |       | 0.3                |       |
| Total assets                                                                                                    |       | $                         | 950.6      |               | $          | 951.0 |   |
|                                                                                                            |       |                      |       |               |       |
| **Liabilities**                                                                                                 |       |                      |       |               |       |
| Accounts payable                                                                                                |       | $                         | 46.7       |               | $          | 55.6 |   |
| Current portion of long-term debt                                                                               |       | 6.2                       |       | 2.4                |       |
| Accrued expenses and other current  liabilities                                                                 |       | 69.2                      |       | 69.2               |       |
| Total current liabilities                                                                                       |       | 122.1                     |       | 127.2              |       |
| Long-term debt, net of current portion                                                                          |       | 569.5                     |       | 1,039.1            |       |
| Accrued pension liability                                                                                       |       | 32.2                      |       | 36.6               |       |
| Other long-term liabilities                                                                                     |       | 17.2                      |       | 6.8                |       |
| Total liabilities                                                                                               |       | 741.0                     |       | 1,209.7            |       |
|                                                                                                            |       |                      |       |               |       |
| Commitments and contingencies (Note 10)                                                                         |       | —                    |       | —             |       |
| Redeemable preferred stock                                                                                      |       | 96.6                      |       | —             |       |
| Redeemable common stock                                                                                         |       | 2.6                       |       | 0.1                |       |
| **Shareholders’ equity**                                                                                   |       |                      |       |               |       |
| Common stock:                                                                                                   |       |                      |       |               |       |
| Class A, $0.01 par value (400,000,000  shares authorized and 131,208,998 issued)                                |       | 1.1                       |       | 1.3                |       |
| Class B, $0.01 par value, convertible,  non-voting (150,000,000 shares authorized and 89,343,699 shares issued) |       | 0.9                       |       | 0.9                |       |
| Additional paid-in capital                                                                                      |       | 142.3                     |       | —             |       |
| Retained deficit                                                                                                |       | (10.6                     | )          | (240.3             | )          |
| Accumulated other comprehensive loss                                                                            |       | (20.5                     | )          | (20.7              | )          |
| Shareholder loans, including interest  receivable                                                               |       | (2.8                      | )          | —             |       |
| Total shareholders’ equity                                                                                 |       | 110.4                     |       | (258.8             | )          |
| Total liabilities and shareholders’ equity                                                                 |       | $                         | 950.6      |               | $          | 951.0 |   |

 

The accompanying notes are an integral partof the financial statements.

 

3

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**MUELLER HOLDINGS (N.A.), INC.**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 
| ** **                                  | ** ** | **Three months ended**    | ** ** |
|---------------------------------------------|------------|---------------------------|------------|
| ** **                                  | ** ** | **June 28,  2003**        | ** ** | **June 26,  2004** | ** ** |
| ** **                                  | ** ** | **(unaudited)**           | ** ** |
| ** **                                  | ** ** | **(dollars in millions)** | ** ** |
| ** **                                  | ** ** | ** **                | ** ** |
|                                        |       |                      |       |   |   |
| Net sales                                   |       | $                         | 232.4      |   | $ | 288.7 |   |
| Cost of sales                               |       | 170.5                     |       | 205.7 |   |
| Gross profit                                |       | 61.9                      |       | 83.0 |   |
| Selling, general and administrative expense |       | 39.2                      |       | 47.6 |   |
| Stock compensation expense                  |       | 0.2                       |       | 15.5 |   |
| Facility rationalization and related costs  |       | 0.2                       |       | — |   |
| Operating income                            |       | 22.3                      |       | 19.9 |   |
| Interest expense and early repayment costs  |       | (9.1                      | )          | (20.8 | ) |
| Interest income                             |       | 0.2                       |       | 0.1 |   |
| Income (loss) before income taxes           |       | 13.4                      |       | (0.8 | ) |
| Income tax expense (benefit)                |       | 5.6                       |       | (3.8 | ) |
| Net income                                  |       | $                         | 7.8        |   | $ | 3.0 |   |

 
| ** **                                  | ** ** | **Nine months ended**     |       |
|---------------------------------------------|------------|---------------------------|------------|
| ** **                                  | ** ** | **June 28, 2003**         | ** ** | **June 26, 2004** |   |
| ** **                                  | ** ** | **(unaudited)**           |       |
|                                        |       | **(dollars in millions)** |       |
|                                        |       | ** **                |       |
| Net sales                                   |       | $                         | 671.4      |   | $ | 743.6 |   |
| Cost of sales                               |       | 495.4                     |       | 533.7 |   |
| Gross profit                                |       | 176.0                     |       | 209.9 |   |
| Selling, general and administrative expense |       | 113.9                     |       | 126.6 |   |
| Stock compensation expense                  |       | 0.5                       |       | 15.8 |   |
| Facility rationalization and related costs  |       | 1.7                       |       | 0.9 |   |
| Operating income                            |       | 59.9                      |       | 66.6 |   |
| Interest expense and early repayment costs  |       | (28.3                     | )          | (42.0 | ) |
| Interest income                             |       | 0.7                       |       | 0.5 |   |
| Income before income taxes                  |       | 32.3                      |       | 25.1 |   |
| Income tax expense                          |       | 13.2                      |       | 6.6 |   |
| Net income                                  |       | $                         | 19.1       |   | $ | 18.5 |   |

 

The accompanying notes are an integral partof the financial statements.

 

4

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**MUELLER HOLDINGS (N.A.), INC.**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                                   | ** ** | **Nine months ended**     | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------|------------|
| ** **                                                                                   | ** ** | **June 28,  2003**        | ** ** | **June 26,  2004** | ** ** |
| ** **                                                                                   | ** ** | **(dollars in millions)** | ** ** |
| **Cash flows from operating activities**                                                     |       |                      |       |   |   |
| Net income                                                                                   |       | $                         | 19.1       |   | $ | 18.5 |   |
| Adjustments to reconcile net income to net  cash provided by (used in) operating activities: |       |                      |       |   |   |
| Depreciation                                                                                 |       | 35.5                      |       | 34.3 |   |
| Amortization of intangibles                                                                  |       | 12.5                      |       | 13.5 |   |
| Amortization of deferred financing fees                                                      |       | 2.1                       |       | 2.1 |   |
| Amortization of tooling                                                                      |       | 1.7                       |       | 1.7 |   |
| Write off of deferred financing fees                                                         |       | —                    |       | 7.0 |   |
| Deferred income taxes                                                                        |       | 4.1                       |       | (9.5 | ) |
| Stock compensation (non-cash amounts)                                                        |       | 0.5                       |       | 3.2 |   |
| Asset impairment                                                                             |       | 1.4                       |       | 0.1 |   |
| Unrealized gain on interest rate swaps                                                       |       | (9.8                      | )          | (10.4 | ) |
| Changes in assets and liabilities, net of  the effects of acquisitions:                      |       |                      |       |   |   |
| Receivables                                                                                  |       | 3.7                       |       | (14.7 | ) |
| Inventories                                                                                  |       | (21.2                     | )          | (9.9 | ) |
| Prepaid expenses and other current assets                                                    |       | (1.0                      | )          | 2.2 |   |
| Pension, net                                                                                 |       | 4.4                       |       | 4.0 |   |
| Accounts payable, accrued expenses and  other current liabilities                            |       | (5.2                      | )          | 5.5 |   |
| Accrued royalty expense                                                                      |       | (13.5                     | )          | — |   |
| Other, net                                                                                   |       | (1.2                      | )          | 2.5 |   |
| Net cash provided by operating activities                                                    |       | 33.1                      |       | 50.2 |   |
| **Cash flows from investing activities**                                                     |       |                      |       |   |   |
| Purchase of property, plant and equipment                                                    |       | (12.6                     | )          | (17.4 | ) |
| Loss on disposal of property, plant and  equipment                                           |       | 0.5                       |       | 0.6 |   |
| Acquisition of businesses, net of cash  acquired                                             |       | (11.2                     | )          | (19.8 | ) |
| Decrease in restricted cash                                                                  |       | 11.6                      |       | — |   |
| Net cash provided by (used in) investing  activities                                         |       | (11.7                     | )          | (36.6 | ) |
| **Cash flows from financing activities**                                                     |       |                      |       |   |   |
| Proceeds from short-term borrowings                                                          |       | —                    |       | 9.2 |   |
| Payment of short-term debt                                                                   |       | —                    |       | (9.2 | ) |
| Proceeds from long-term debt                                                                 |       | —                    |       | 1,070.1 |   |
| Payment of long-term debt                                                                    |       | (2.6                      | )          | (603.4 | ) |
| Redemption of preferred stock                                                                |       | —                    |       | (106.5 | ) |
| Financing of assets through capital leases                                                   |       | (0.8                      | )          | (1.0 | ) |
| Payment of deferred financing fees                                                           |       | —                    |       | (34.5 | ) |
| Dividends paid (excluding amounts paid to  optionholders)                                    |       | —                    |       | (386.6 | ) |
| Contributed capital                                                                          |       | 0.7                       |       | — |   |
| Net cash used in financing activities                                                        |       | (2.7                      | )          | (61.9 | ) |
| Effect of exchange rate changes on cash                                                      |       | 10.7                      |       | 0.2 |   |
| Increase (decrease) in cash and cash  equivalents                                            |       | 29.4                      |       | (48.1 | ) |
| **Cash and cash equivalents**                                                                |       |                      |       |   |   |
| Beginning of period                                                                          |       | 20.9                      |       | 71.4 |   |
| End of period                                                                                |       | $                         | 50.3       |   | $ | 23.3 |   |

 

The accompanying notes are an integral partof the financial statements.

 

5

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**MUELLER HOLDINGS (N.A.), INC.**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**THREE MONTHS ENDED JUNE 28, 2003 AND JUNE 26, 2004**

**(UNAUDITED)**

 

**1.  Basis of Presentation**

 

MuellerHoldings (N.A.), Inc. (“Holdings” or the “Company”) is the parent company ofMueller Group, Inc. (“Group”).  Theaccompanying unaudited condensed consolidated financial statements of MuellerHoldings (N.A.), Inc. have been prepared in accordance with accountingprinciples generally accepted in the United States of America for interimfinancial information. Accordingly, the unaudited condensed consolidatedfinancial statements and notes do not contain certain information included inthe Company’s annual financial statements. In the opinion of management, allnormal and recurring adjustments that are considered necessary for a fairpresentation have been made. Operating results for the three months ended June26, 2004 and the nine months ended June 26, 2004 are not necessarily indicativeof the results that may be expected for the fiscal year endedSeptember 30, 2004. The consolidated financial statements should be readin conjunction with the audited consolidated financial statements for the yearended September 30, 2003 as seen in our registration statement filed onForm S-4.

 

**2. Segment Information**

 

Our operations consist of two operating segments under SFAS No. 131,“Disclosures About Segments of an Enterprise and Related Information”:  Mueller Co. and Anvil.  The operating segments are organized arounddifferences in products and are consistent with how the operating entities arebeing managed, how resources are being allocated, and information used by thechief operating decision maker.  MuellerCo. products consist primarily of hydrants, water and gas valves and relatedproducts used in water, power and gas distribution.  Anvil products consist primarily of pipefittings and couplings, pipe nipples and hangers and purchased products relatedto piping systems used in a variety of applications.

 

The accounting policies of both of the segments are the same as thosedescribed in Note 3.  Intersegment salesand transfers are made at established intersegment selling prices generallyintended 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, interest income and income taxes.  Corporate expenses include costs related tofinancial and administrative matters, treasury, risk management, humanresources, legal counsel, and tax functions. Corporate assets include items booked at the date of the Company’sinception such as step-up on fixed assets and non-compete agreements with thepredecessor parent company, as well as intellectual property.  These assets and any related depreciation oramortization expense have not been pushed down to Mueller Co. and Anvil.  Therefore, segment earnings are notreflective of results on a stand-alone basis.

 

The Company evaluates segment performance based on EBITDA.  EBITDA is defined as income (loss) beforecumulative effect of accounting change plus income tax expense, interestexpense (not net of interest income), depreciation and amortization expense.

 

6

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Segment assets consist primarily of accounts receivable, inventories,property, plant and equipment - net, goodwill, and identifiableintangibles.  Summarized financial informationfor our segments follows:

 
| ** **                         | ** ** | **Three months  ended  June 26, 2004** | ** ** | **Three months  ended  June 28, 2003** | ** ** | **Nine months  ended  June 26, 2004** | ** ** | **Nine months  ended  June 28, 2003** | ** ** |
|------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                         | ** ** | **(dollars in millions)**                        | ** ** |
| **Net Sales:**                     |       |                                             |       |                                             |       |                                            |       |                                            |       |
| Mueller Co.                        |       | $                                                | 172.4      |                                             | $          | 136.0                                           |       | $                                               | 432.7      |   | $ | 384.2 |   |
| Anvil                              |       | 116.3                                            |       | 96.4                                             |       | 310.9                                           |       | 287.2                                           |       |
| Consolidated                       |       | 288.7                                            |       | 232.4                                            |       | 743.6                                           |       | 671.4                                           |       |
| **Intersegment sales:**            |       |                                             |       |                                             |       |                                            |       |                                            |       |
| Mueller Co.                        |       | 4.1                                              |       | 3.2                                              |       | 10.1                                            |       | 9.6                                             |       |
| Anvil                              |       | 0.2                                              |       | 0.1                                              |       | 0.5                                             |       | 0.4                                             |       |
| Consolidated                       |       | 4.3                                              |       | 3.3                                              |       | 10.6                                            |       | 10.0                                            |       |
| **EBITDA:**                        |       |                                             |       |                                             |       |                                            |       |                                            |       |
| Mueller Co.                        |       | 45.2                                             |       | 32.9                                             |       | 111.4                                           |       | 94.0                                            |       |
| Anvil                              |       | 10.8                                             |       | 9.0                                              |       | 28.8                                            |       | 23.5                                            |       |
| Corporate                          |       | (19.7                                            | )          | (2.6                                             | )          | (23.6                                           | )          | (7.2                                            | )          |
| Consolidated                       |       | 36.3                                             |       | 39.3                                             |       | 116.6                                           |       | 110.3                                           |       |
| **Depreciation and amortization:** |       |                                             |       |                                             |       |                                            |       |                                            |       |
| Mueller Co.                        |       | 5.7                                              |       | 6.3                                              |       | 17.9                                            |       | 18.2                                            |       |
| Anvil                              |       | 4.3                                              |       | 4.2                                              |       | 12.7                                            |       | 12.5                                            |       |
| Corporate                          |       | 6.3                                              |       | 6.3                                              |       | 18.9                                            |       | 19.0                                            |       |
| Consolidated                       |       | 16.3                                             |       | 16.8                                             |       | 49.5                                            |       | 49.7                                            |       |
| **Impairment charges:**            |       |                                             |       |                                             |       |                                            |       |                                            |       |
| Mueller Co.                        |       | —                                           |       | 0.1                                              |       | —                                          |       | 1.0                                             |       |
| Anvil                              |       | —                                           |       | 0.1                                              |       | 0.1                                             |       | 0.4                                             |       |
| Corporate                          |       | —                                           |       | —                                           |       | —                                          |       | —                                          |       |
| Consolidated                       |       | —                                           |       | 0.2                                              |       | 0.1                                             |       | 1.4                                             |       |
| **Capital expenditures:**          |       |                                             |       |                                             |       |                                            |       |                                            |       |
| Mueller Co.                        |       | 3.1                                              |       | 2.9                                              |       | 9.3                                             |       | 7.8                                             |       |
| Anvil                              |       | 3.3                                              |       | 1.5                                              |       | 8.1                                             |       | 4.8                                             |       |
| Corporate                          |       | —                                           |       | —                                           |       | —                                          |       | —                                          |       |
| Consolidated                       |       | 6.4                                              |       | 4.4                                              |       | 17.4                                            |       | 12.6                                            |       |
|                                    |            |                                                  |            |                                                  |            |                                                 |            |                                                 |            |  |  |  |  |

 

7

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| ** **                    | ** ** | **At June 26, 2004** | ** ** | **At September 30, 2003** | ** ** |
|-------------------------------|------------|----------------------|------------|---------------------------|------------|
| **Total assets:**             |       |                 |       |                      |       |
| Mueller Co.                   |       | $                    | 505.7      |                      | $          | 498.9 |   |
| Anvil                         |       | 301.7                |       | 273.2                     |       |
| Corporate                     |       | 143.6                |       | 178.5                     |       |
| Consolidated                  |       | 951.0                |       | 950.6                     |       |
| **Goodwill:**                 |       |                 |       |                      |       |
| Mueller Co.                   |       | 149.1                |       | 149.2                     |       |
| Anvil                         |       | 14.1                 |       | 14.0                      |       |
| Consolidated                  |       | 163.2                |       | 163.2                     |       |
| **Identifiable intangibles:** |       |                 |       |                      |       |
| Mueller Co.                   |       | 6.6                  |       | 5.7                       |       |
| Anvil                         |       | 7.5                  |       | 1.6                       |       |
| Corporate                     |       | 43.6                 |       | 55.7                      |       |
| Consolidated                  |       | 57.7                 |       | 63.0                      |       |
|                               |            |                      |            |                           |            |  |  |

 

We present EBITDA because we consider it an important supplementalmeasure of our performance.  Areconciliation of consolidated EBITDA to consolidated income before incometaxes follows:

 
| ** **                                 | ** ** | **Three months  ended  June 26, 2004** | ** ** | **Three months  ended  June 28, 2003** | ** ** | **Nine Months  ended  June 26, 2004** | ** ** | **Nine Months  ended  June 28, 2003** | ** ** |
|--------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                 | ** ** | **(dollars in millions)**                   | ** ** |
| Total consolidated EBITDA                  |       | $                                           | 36.3       |                                        | $          | 39.3                                       |       | $                                          | 116.6      |   | $ | 110.3 |   |
| Interest expense and early repayment costs |       | (20.8                                       | )          | (9.1                                        | )          | (42.0                                      | )          | (28.3                                      | )          |
| Depreciation and amortization              |       | (16.3                                       | )          | (16.8                                       | )          | (49.5                                      | )          | (49.7                                      | )          |
| Income (loss) before income taxes          |       | $                                           | (0.8       | )                                      | $          | 13.4                                       |       | $                                          | 25.1       |   | $ | 32.3 |   |

 

Geographical area information with respect to net sales, as determinedby the location of the customer invoiced, and property, plant and equipment –net, as determined by the physical location of the assets, were as follows forthe nine months ended June 26, 2004 and June 28, 2003:

 
| ** **      | ** ** | **Nine months  ended  June 26, 2004** | ** ** | **Nine months  ended  June 28, 2003** | ** ** |
|-----------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **      | ** ** | **(dollars in millions)**                  | ** ** |
| ** **      | ** ** | ** **                                 | ** ** |
| Net sales:      |       |                                       |       |                                       |       |
| United States   |       | $                                          | 618.6      |                                       | $          | 562.7 |   |
| Canada          |       | 116.7                                      |       | 98.7                                       |       |
| Other Countries |       | 8.3                                        |       | 10.0                                       |       |
|            |       | $                                          | 743.6      |                                       | $          | 671.4 |   |

 

8

----

 
| ** **                          | ** ** | **At June 26, 2004** | ** ** | **At September 30, 2003** | ** ** |
|-------------------------------------|------------|----------------------|------------|---------------------------|------------|
| Property, plant and equipment, net: |       |                 |       |                      |       |
| United States                       |       | $                    | 180.1      |                      | $          | 195.1 |   |
| Canada                              |       | 11.4                 |       | 12.4                      |       |
| Other Countries                     |       | 1.3                  |       | 0.9                       |       |
|                                |       | $                    | 192.8      |                      | $          | 208.4 |   |

 

**3.  Summary of SignificantAccounting Policies**

 

Fiscal Year-The Company’s fiscal year ends on September 30. The Company’sthird quarter ends on the Saturday preceding June 30.

 

Inventory-Inventories are recorded at the lower of cost (first-in, first-out) ormarket value. Additionally, the Company evaluates its inventory reserves interms of excess and obsolete exposures. This evaluation includes such factorsas anticipated usage, inventory turnover, inventory levels and ultimate productsales value. As such, these factors may change over time causing the reservelevel to adjust accordingly.

 

Goodwill,Intangible Assets and Other Assets -In accordance with SFASNo. 142, “Goodwill and Other Intangible Assets” the Company no longeramortizes goodwill, but instead tests it for impairment at least annually. Inaddition, the Company no longer amortizes indefinite lived intangibles, such astradenames, but instead tests these assets for impairment in accordance withthe standard until their lives are determined to no longer be indefinite.Recognized intangible assets that have definite lives are amortized over theirrespective estimated useful lives.

 

Identifiableintangible assets consist of the following:

 
| ** **                             | ** ** | **September 30, 2003**      | ** ** | **June 26, 2004**             | ** ** |
|----------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| ** **                             | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
| ** **                             | ** ** | **(dollars in millions)**   | ** ** |
|                                   |       |                        |       |                          |       |   |   |   |   |
| **Amortized intangible assets**        |       |                        |       |                          |       |   |   |   |   |
| Non-compete agreements                 |       | $                           | 82.9       |                          | $          | 67.2 |   | $ | 84.7 |   | $ | 80.0 |   |
| Patents                                |       | 0.5                         |       | 0.1                           |       | 0.5 |   | 0.1 |   |
| Design and engineering drawing rights  |       | 2.9                         |       | 0.6                           |       | 7.3 |   | 0.9 |   |
| Customer relationships                 |       | 2.0                         |       | 0.1                           |       | 4.0 |   | 0.5 |   |
|                                   |       | 88.3                        |       | 68.0                          |       | 96.5 |   | 81.5 |   |
| **Indefinite-lived intangible assets** |       |                        |       |                          |       |   |   |   |   |
| Tradenames                             |       | 42.7                        |       | —                        |       | 42.7 |   | — |   |
|                                   |       | $                           | 131.0      |                          | $          | 68.0 |   | $ | 139.2 |   | $ | 81.5 |   |

 

9

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Aggregatedamortization expense for the nine months ended June 28, 2003 and June 26, 2004was $12.5 million and $13.5 million, respectively. Estimatedamortization for the years ending September 30, 2004, 2005, 2006, 2007 and2008 is $15.0 million, $1.2 million, $1.0 million,$0.4 million and $0.4 million, respectively.  The $13.8 million decrease from 2004 to 2005is due to a non-compete agreement becoming fully amortized in August 2004.

 

The changes invarious amortizable intangible assets’ gross carrying amount for the ninemonths ended June 26, 2004 relate primarily to acquisitions (see Note 4).

 

DeferredFinancing Fees — Deferred costs of debt financing included in other non-currentassets are amortized over the life of the related debt agreements, which rangefrom one to eight years.  Such costs arereassessed when amendments occur, in accordance with Emerging Issues Task Force(EITF) 96-19, “Debtors Accounting for a Modification or Exchange of DebtInstruments”.  During the quarter endedJune 26, 2004, the Company entered into a new senior credit facility and issuednew notes, as described in Note 6.  Thesetransactions resulted in recording $34.5 million of new deferred financingfees, and because the new credit facility represented a partial extinguishmentof the former credit facility, a write-off of $6.6 million of existing deferredfinancing fees.

 

Warranty Costs-The Company accrues for the estimated cost of product warranties atthe time of sale based on historical experience. Adjustments to obligations forwarranties are made as changes in the obligations become reasonably estimable.The following table summarizes information concerning the Company’s productwarranty:

 
| ** **                    | ** ** | **Three months  Ended  June 26, 2004** | ** ** | **Nine months  Ended  June 26, 2004** | ** ** |
|-------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                    | ** ** | **(dollars in millions)**                        | ** ** |
|                          |       |                                             |       |                                            |       |
| Beginning balance             |       | $                                                | 0.9        |                                            | $          | 0.9 |   |
| Accruals for warranties       |       | 2.0                                              |       | 4.5                                             |       |
| Settlement of warranty claims |       | (0.9                                             | )          | (3.4                                            | )          |
|                          |       |                                             |       |                                            |       |
| Accrual at June 26, 2004      |       | $                                                | 2.0        |                                            | $          | 2.0 |   |

 

Income Taxes-The Company’s current estimated effective tax rate for fiscal 2004 is40 percent, excluding discrete items. Discrete third quarter events whichinclude the conclusion of the federal tax examination, the conclusion ofcertain state tax examinations and expiration of certain state statutes oflimitation allowed the Company to adjust tax accruals by approximately $6.4million.  Additional third quarterfinancing is expected to inhibit the Company’s ability to realize deferred taxassets related to Foreign Tax Credits. Therefore, the Company has recorded afull valuation allowance against such assets equal to $0.5 million.  Additionally, a deduction of Foreign TaxCredits of approximately $2.3 million was claimed in the third quarter,reducing the previously expected benefit by $1.4 million.

 

Areconciliation of tax expense at the current estimated effective tax rate of40% to the total recorded income tax expense for the quarter and nine monthsended June 26, 2004 is as follows:

 

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| ** **                                                                                          | ** ** | **Three months  Ended  June 26, 2004** | ** ** | **Nine months  Ended  June 26, 2004** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                          | ** ** | **(dollars in millions)**                        | ** ** |
|                                                                                                |       |                                             |       |                                            |       |
| Tax expense at current estimated effective  rate                                                    |       | $                                                | 0.3        |                                            | $          | 10.7 |   |
| Adjustment of tax accruals for conclusion  of examinations and expiration of certain state statutes |       | (6.4                                             | )          | (6.4                                            | )          |
| Deduction of Foreign Tax Credits                                                                    |       | 1.4                                              |       | 1.4                                             |       |
| Creation of valuation allowance related to  Foreign Tax Credits                                     |       | 0.5                                              |       | 0.5                                             |       |
| Other, including the effect on prior period  deferred tax balances of change in effective rate      |       | 0.4                                              |       | 0.4                                             |       |
|                                                                                                |       |                                             |       |                                            |       |
| Tax expense (benefit) for period ended June  26, 2004                                               |       | $                                                | (3.8       | )                                               | $          | 6.6 |   |

 

ComprehensiveIncome -The Company’s comprehensive income for the three and the ninemonths ended June 26, 2004 consisted of foreign currency adjustments of$(1.1) million and $0.2 million, respectively, and minimum pensionliability adjustments of $(0.4) million for both periods.

 

Related PartyTransactions -In April 2004, the Company paid Credit Suisse FirstBoston, LLC (“CSFB”), an affiliate of the DLJ Merchant Banking funds (aprincipal stockholder of Mueller Holdings (N.A.), Inc.), fees and expenses of$24.5 million in connection with the arrangement and syndication of our seniorcredit facility, the arrangement as sole lead bookrunning manager for ourSecond Priority Senior Secured Floating Rate notes due 2011, our 10% SeniorSubordinated Notes due 2012 and our Senior Discount Notes due 2014.  The Company also paid CSFB a management feeof $0.1 million for each of the three month periods ended June 28, 2003 andJune 26, 2004.

 

Stock-BasedCompensation -The Company accounts for its stock-based compensationplan under Accounting Principles Board Opinion No. 25 (“APB No. 25”),“Accounting for Stock Issued to Employees,” which requires recognizingcompensation costs based upon the intrinsic value of the equity instrument atthe grant date. The FASB issued SFAS No. 123, “Accounting for Stock-BasedCompensation,” which encourages companies to recognize compensation costs basedupon the fair value of the equity instrument at the grant date. However, SFASNo. 123 allows companies to continue to apply the provisions of APBNo. 25 and make pro forma disclosures assuming a hypothetical fair valueapplication. The Company has adopted the pro forma disclosure provisions ofSFAS No. 123.

 

The Companyrecognizes compensation cost for stock-based compensation arrangements equal tothe difference, if any, between the quoted market price of the stock option andthe exercise price at the date of the grant in accordance with the provisionsof APB No. 25. All options granted under the Management Incentive Planwere issued at quoted market prices at the date of grant.

 

The followingtable illustrates the effect on net income if the Company had applied the fairvalue recognition provisions of SFAS No. 123, “Accounting for Stock-BasedCompensation,” as amended by SFAS No. 148 “Accounting for Stock-BasedCompensation -Transition and Disclosure,” to stock-based employeecompensation.

 

11

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| ** **                                                                                                                                    | ** ** | **Three months  ended  June 28, 2003** | ** ** | **Three months  ended  June 26, 2004** | ** ** | **Nine months  ended  June 28,2003** | ** ** | **Nine months  ended  June 26, 2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                                                                    | ** ** | **(dollars in millions)**                        | ** ** |
|                                                                                                                                          |       |                                             |       |                                             |       |                                           |       |                                            |       |
| Net income, as reported                                                                                                                       |       | $                                                | 7.8        |                                             | $          | 3.0                                            |       | $                                               | 19.1       |   | $ | 18.5 |   |
| Deduct: Total stock-based employee compensation  expense determined under fair value based method for all awards, net of  related tax effects |       | (0.1                                             | )          | ——                                     |       | (0.3                                           | )          | (0.2                                            | )          |
| Pro forma net income                                                                                                                          |       | $                                                | 7.7        |                                             | $          | 3.0                                            |       | $                                               | 18.8       |   | $ | 18.3 |   |

 

Use ofEstimates -The preparation of financial statements in accordance withaccounting principles generally accepted in the United States of Americarequires management to make extensive use of certain estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reported periods.Significant estimates in these financial statements include allowances fordoubtful accounts receivable, estimates of future cash flows associated withassets, asset impairments, useful lives for depreciation and amortization, losscontingencies, net realizable value of inventories, income taxes and taxvaluation reserves and the determination of discount and other rate assumptionsfor pension and post-retirement employee benefit expenses. Actual results coulddiffer from those estimates.

 

**4. Acquisitions**

 

EffectiveJanuary 15, 2004, the Company acquired certain assets of STAR Pipe, Inc.(“STAR”).  The acquisition is beingaccounted for in accordance with SFAS No. 141 and the operating results havebeen included in the consolidated results since the date of acquisition.  STAR is a leading distributor offoreign-sourced cast and grooved fittings and couplings.  The STAR acquisition provides an entry intothe foreign-sourced product marketplace. The acquisition’s purchase price is $17 million, and was paid in cash.

 

The following summary presents the preliminary estimated fair values ofthe assets and liabilities assumed as of January 15, 2004:

 

(dollars in millions)

 
| Current assets                  |   | $   | 13.5   |   |
|---------------------------------|--------|-----|--------|--------|
| Property, plant & equipment |   | 0.4 |   |
| Intangible assets               |   | 6.7 |   |
| Total assets                    |   | $   | 20.6   |   |
| Current liabilities             |   | 3.6 |   |
| Net assets acquired             |   | $   | 17.0   |   |

 

As part of the acquisition, the Company has agreed to a future paymentto be made to the seller to the extent that the gross profit of the acquiredbusiness exceeds a targeted gross profit. The maximum potential deferred payment amount is $23 million.  Management currently estimates the

 

12

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deferred payment could total approximately $11 to $13 million for thedeferred payment period which begins February 1, 2004 and ends January 31,2007.  The deferred payment amountindicated above is based on management’s best estimate, but the actualadjustment could be materially different. The liability for such deferred payment will be recorded at the end ofeach deferred payment period, in accordance with the purchase agreement.

 

The final purchase price allocation is subject to completion of certainasset valuations, which the Company is in the process of finalizing.  The preliminary allocation of purchase pricecould change based upon completion of these valuations.  Additionally, to the extent the fair value ofassets acquired exceeds purchase price, a deferred credit will be recorded asthe purchase agreement contains a provision for future contingent consideration(deferred payment).

 

The preliminary intangible assets acquired include trademarks, customerrelationships and a non-compete agreement with the former owners.  These intangibles are being amortized overtheir estimated useful lives of ten years, three years and five years,respectively.

 

Also effective January 15, 2004, the Company acquired certain assets ofModern Molded Products (“Modern Molded”). The acquisition is being accounted for in accordance with SFAS No. 141and the operating results have been included in the consolidated results since thedate of acquisition.  The purchase of theassets and technology of Modern Molded will allow the company to internallyproduce parts that we previously purchased. The acquisition will allow the Company to reduce spending as well as toincrease product supply line predictability. The acquisition’s purchase priceis $2.8 million and was paid in cash.

 

The following summary presents the preliminary estimated fair values ofthe assets and liabilities assumed as of January 15, 2004:

 

(dollars in millions)

 
| Current assets                  |   | $      | 0.2    |   |
|---------------------------------|--------|--------|--------|--------|
| Property, plant & equipment |   | 0.7    |   |
| Intangible assets               |   | 1.9    |   |
|                            |   |   |   |
| Net assets acquired             |   | $      | 2.8    |   |

 

The intangible assets acquired include a non-compete agreement with theformer owners and purchased technology. These intangibles are being amortized over their estimated useful livesof five years.

 

The following unaudited pro forma summary presents the consolidatedresults of operations for the quarter and nine months ended June 28, 2003 andJune 26, 2004 as if the acquisitions of STAR and Modern Molded had occurred asof October 1, 2002:

 
| ** ** | ** ** | **Three months ended**    | ** ** | **Nine months ended** | ** ** |
|------------|------------|---------------------------|------------|-----------------------|------------|
| ** ** | ** ** | **June 28, 2003**         | ** ** | **June 26, 2004**     | ** ** | **June 28, 2003** | ** ** | **June 26, 2004** | ** ** |
| ** ** | ** ** | **(dollars in millions)** | ** ** |
| Net Sales  |       | $                         | 238.5      |                  | $          | 288.7 |   | $ | 688.4 |   | $ | 751.2 |   |
| Net income |       | 8.2                       |       | 3.0                   |       | 20.0 |   | 18.8 |   |
|            |            |                           |            |                       |            |  |  |  |  |  |  |  |  |

 

13

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The unaudited consolidated pro forma information is not necessarilyindicative of the combined results that would have occurred had theacquisitions occurred on that date, nor is it indicative of the results thatmay occur in the future.

 

**5.  New Accounting Pronouncements**

 

InApril 2003, the Financial Accounting Standards Board (FASB) issued SFASNo. 149, “Amendment of Statement 133 on Derivative Instruments and HedgingActivities.” SFAS No. 149 amends and clarifies financial accounting andreporting for derivative instruments, including certain derivative instrumentsembedded in other contracts (collectively referred to as derivatives) and forhedging activities under SFAS No. 133, “Accounting for DerivativeInstruments and Hedging Activities.” SFAS No. 149 is effective forcontracts entered into or modified after June 30, 2003, except for certainhedging relationships designated after June 30, 2003. The adoption of thisstatement did not have any impact on the Company’s financial condition orresults of operations.

 

OnDecember 24, 2003, the FASB issued a revision to Staff Interpretation(FIN) No. 46 (revised 2003), which clarified some of the provisions of theoriginal Interpretation No. 46 “Consolidation of Variable InterestEntities,” and exempted certain entities from its requirements. The applicationof revised FIN 46 is required in financial statements of public entities thathave interests in variable interest entities commonly referred to asspecial-purpose entities for periods ending after December 15, 2003.Application by public entities, other than small business entities, for allother types of entities is required in financial statements for periods endingMarch 15, 2004. The Company does not believe the revised FIN No. 46will have a material effect on its financial condition or results of operationsand the Company will provide the disclosures, where appropriate, as providedfor in revised FIN No. 46.  At June26, 2004 the Company did not have any entities that would be consideredvariable interest entities.

 

OnDecember 23, 2003, the FASB issued SFAS No. 132 (revised 2003),“Employers’ Disclosures about Pensions and Other Postretirement Benefits.” SFASNo. 132 retains the disclosures required by the original StatementNo. 132, which standardized the disclosure requirements for pensions andother postretirement benefits to the extent practicable and required additionalinformation on changes in the benefit obligations and fair values of planassets. Additional disclosures have been added in response to concernsexpressed by users of financial statements. Those disclosures includeinformation describing the types of plan assets, investment strategy,measurement date(s), plan obligations, cash flows, and components of netperiodic benefit cost recognized during interim periods. The provisions ofStatement 132 remain in effect until the provisions of the revised Statement132 are adopted. This revised Statement is effective for financial statementswith fiscal years ending after December 15, 2003. The interim-perioddisclosures required by this revised Statement are effective for interimperiods beginning after December 15, 2003. The Company has provided theadditional required disclosure information.

 

OnDecember 17, 2003, the Securities and Exchange Commission (SEC) issuedStaff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition, whichsupercedes SAB 101, Revenue Recognition in Financial Statements. SAB 104’sprimary purpose is to rescind accounting guidance contained in SAB 101 relatedto multiple element revenue arrangements, superceded as a result of theissuance of Emerging Issues Task Force (EITF) 00-21, “Accounting for RevenueArrangements with Multiple Deliverables.” Additionally, SAB 104 rescinds theSEC’s Revenue

 

14

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Recognition in FinancialStatements Frequently Asked Questions and Answers issued with SAB 101 that hadbeen codified in SEC Topic 13, Revenue Recognition. The adoption of thisbulletin did not have an impact on the Company’s financial condition or resultsof operations.

 

InMay 2003, the FASB issued SFAS No. 150, “Accounting for CertainFinancial Instruments With Characteristics of Both Liabilities and Equity.”SFAS 150 establishes standards for how a company classifies and measurescertain financial instruments with characteristics of both liabilities andequity. It requires that a company classify a financial instrument that iswithin its scope as a liability (or an asset in some circumstances). Asdiscussed in Note 7, Holdings issued 16% Senior Exchangeable PreferredStock in connection with the formation of the Company which would be subject toSFAS 150 for the fiscal year beginning October 1, 2004.  The preferred stock was redeemed by Holdingson April 23, 2004 (see Note 6). Therefore, the adoption of this statement will not have any impact onthe Company’s financial condition or result of operations.

 

**6.  Borrowing Arrangements andRecapitalization**

 

Long-TermDebt: 

 
| ** **                           | ** ** | **September 30,  2003**   | ** ** | **June 26  2004** | ** ** |
|--------------------------------------|------------|---------------------------|------------|-------------------|------------|
| ** **                           | ** ** | **(dollars in millions)** | ** ** |
|                                 |       |                      |       |              |       |
| Credit facility                      |       |                      |       |              |       |
| Term loans                           |       | $                         | 523.4      |              | $          | 515.0 |   |
| Senior subordinated notes            |       | 50.0                      |       | —            |       |
| Second Priority Senior Secured Notes |       | —                    |       | 100.0             |       |
| 10% Senior Subordinated Notes        |       | —                    |       | 315.0             |       |
| 14 3⁄4% Senior discount notes (1) |       | —                    |       | 109.0             |       |
| Capital lease obligations            |       | 2.3                       |       | 2.5               |       |
|                                 |       |                      |       |              |       |
|                                 |       | 575.7                     |       | 1,041.5           |       |
| Less current portion                 |       | (6.2                      | )          | (2.4              | )          |
|                                 |       | $                         | 569.5      |              | $          | 1,039.1 |   |

----

(1) The accreted value of the notes is reduced by $3.7 million toreflect the fair market value assigned to the warrants sold as units with thenotes.  The fair market value assigned tothe warrants is reflected in stockholders’ equity.

 

A schedule of debt maturities as of June 26, 2004 is as follows:

 
| ** **                           | ** ** | **Less than  1  year** | ** ** | **1 -3  years** | ** ** | **4 - 5  years** | ** ** | **After 5  years** | ** ** | **Total** | ** ** |
|--------------------------------------|------------|-----------------------------|------------|-----------------|------------|------------------|------------|--------------------|------------|-----------|------------|
| ** **                           | ** ** | **(dollars in millions)**   | ** ** |
|                                 |       | ** **                  |       |            |       |             |       |               |       |      |       |
| Term loans                           |       | $                           | 1.4        |            | $          | 10.9             |       | $                  | 10.9       |      | $          | 491.8 |   | $ | 515.0 |   |
| Second Priority Senior Secured Notes |       | —                      |       | —          |       | —           |       | 100.0              |       | 100.0     |       |
| 10% Senior Subordinated Notes        |       | —                      |       | —          |       | —           |       | 315.0              |       | 315.0     |       |
| 14 3⁄4% Senior Discount Notes     |       | —                      |       | —          |       | —           |       | 109.0              |       | 109.0     |       |
| Capital lease obligations            |       | 1.0                         |       | 1.5             |       | —           |       | —             |       | 2.5       |       |
| Total debt maturities                |       | $                           | 2.4        |            | $          | 12.4             |       | $                  | 10.9       |      | $          | 906.8 |   | $ | 1,041.5 |   |

 

15

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**Recapitalization and refinancing**

 

At April 23,2004 Group completed a refinancing of existing term loans, issuance of $415million of new notes and payment of a dividend to Holdings.  Existing ownership of the Company wasunchanged as a result of these transactions. The transactions are described further as follows:

 

*Second Priority Senior Secured Floating Rate Notes:*  Group issued $100 million of such notes.  Interest on the secured notes is payable at arate equal to the three-month reserve-adjusted London-interbank offered rate,or LIBOR, which is reset quarterly, plus 4.75% on February 1, May 1, August 1and November 1 of each year, beginning on August 1, 2004.  The interest rate for the first interestperiod ending August 1, 2004 was 5.89% per annum.  The secured notes mature in 2011 and areguaranteed by each of the existing domestic restricted subsidiaries and securedby second-priority liens on the assets securing the senior credit facility (otherthan certain subsidiary stock and assets of Holdings). The secured notescontain customary covenants and events of default, including covenants thatlimit Group’s ability to incur debt, pay dividends and make investments andalso include a maintenance covenant limiting Group’s senior total leverage as amultiple of EBITDA, as defined in the indenture.

 

*10% Senior**Subordinated Notes:* Group issued $315 million of such notes.  Interest on the subordinated notes is payableat an annual rate of 10% on May 1 and November 1 of each year, beginning onNovember 1, 2004.  The subordinated notesmature in 2012 and are guaranteed by each of Group’s existing domesticrestricted subsidiaries. The subordinated notes contain customary covenants andevents of default, including covenants that limit Group’s ability to incurdebt, pay dividends and make investments.

 

*Senior Credit Facility:*  Group entered into a new senior creditfacility, which includes a $545 million amortizing term loan maturingseven years after closing and an $80.0 million revolving credit facilitythat will terminate five years after closing. The revolving credit facilityand/or the term loan facility are expected to be subject to a potential,although uncommitted, increase of up to an aggregate of $50.0 million atGroup’s request at any time prior to maturity. In addition, althoughuncommitted, a foreign currency sub-facility may be made available to one ormore of Group’s restricted foreign subsidiaries in an aggregate principalamount of up to the U.S. dollar equivalent of $30.0 million. This increaseand the additional foreign currency sub-facility will only be available if oneor more financial institutions agree to provide them.

 

Borrowingsunder the senior credit facility are generally expected to bear interest basedon a margin over, at Group’s option, the base rate or LIBOR. The applicablemargin is 3.25% over LIBOR and 2.00% over the base rate for borrowings underthe revolving senior credit facility and 3.25% over LIBOR and 2.00% over thebase rate for term loans. Beginning at a time set forth in the senior creditfacility, the applicable margin for revolving credit loans varies based uponthe ratio of consolidated debt to EBITDA, as defined in the senior creditfacility. Group’s obligations under the senior credit facility are guaranteedby Holdings and all of Group’s existing or future domestic restrictedsubsidiaries and is secured by substantially all of the assets of Group and itssubsidiary guarantors, including a pledge of the capital stock of all Group’sexisting and future domestic subsidiaries, a pledge of no more than 65.0% ofthe voting stock of any of Group’s foreign subsidiaries, a pledge of allintercompany indebtedness in favor of Group and its domestic restrictedsubsidiaries, and a

 

16

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pledge of Group’s capital stockby Holdings. The senior credit facility contains customary covenants, includingcovenants that limit Group’s ability to incur debt and liens, pay dividends andmake investments and capital expenditures, and events of default.

 

*Senior Discount Notes: *AtApril 29, 2004, Holdings issued 223,000 units, each consisting of $1,000principal amount at maturity of 143⁄4% Senior Discount Notes due 2014 and onewarrant to purchase 109.80889 shares of Class A common stock, par value $0.01per share, of the Company. After the separation date, the notes and thewarrants are separately transferable. The notes are the Company’s senior unsecured obligations and rankequally with all of its existing and future senior indebtedness. The notes areeffectively subordinated to all of its existing and future secured debt and toall indebtedness and other liabilities of its subsidiaries, includingGroup.  The Company used the proceeds topay an additional dividend to its equityholders.

 

At June 26,2004, Group and Holdings were in compliance with all restrictive covenants.

 

**Use of proceeds from recapitalization and refinancing**

 

The Company used the net proceeds from these offerings and the creditfacility borrowings to repay all existing loans under Group’s existing creditfacility together with accrued interest and a 1.0% prepayment premium thereonand to pay a dividend to our equityholders, which was used to (i) redeem thepreferred stock at a price equal to liquidation preference ($105.5 million atApril 23, 2004) plus a 1.0% premium thereon, (ii) pay a dividend to its commonstockholders of $1.91 per share, or approximately $386.6 million in theaggregate and (iii) make a payment to its employee optionholders of the excessof the per share dividend to our common stockholders over the exercise price oftheir options, or $12.6 million in the aggregate. Group retained approximately$10.0 million of proceeds from its offerings to be used for general corporatepurposes.

 

**Senior Subordinated Debt** -The seniorsubordinated debt at September 30, 2003 consisted of promissory notes witha principal amount of $50.0 million. A majority of these notes were ownedor held by an owner of the Company. These notes accrued interest at a rate of14.0% per annum, payable semi-annually.

 

OnNovember 14, 2003, Group redeemed the notes in full, along with accruedand unpaid interest of $0.3 million and early redemption penalty of$7.0 million. Additionally, $0.4 million of deferred financing feeswere written off.

 

**Interest Rate Swap** - Group has entered intointerest rate swap agreements in order to reduce interest rate risks and manageinterest expense. As of June 26, 2004, a notional principal amount of$150 million in swap agreements is still outstanding and scheduled tomature between July 2004 and July 2005. The swap agreementseffectively convert floating-rate debt into fixed-rate debt and carry anaverage fixed interest rate of 7.55% at June 26, 2004. Interestdifferentials to be paid or received because of swap agreements are reflectedas an adjustment to interest expense over the related debt period. While Groupis exposed to credit loss on its interest rate swaps in the event ofnon-performance by the counterparties to such swaps, management believes suchnonperformance is unlikely to occur given the financial resources of thecounterparties.

 

**Distributions to Holdings –** Holdings has nomaterial assets other than its ownership of Group’s capital stock andaccordingly depends upon distributions from Group to satisfy its cashneeds.  The Company’s principal cashneeds will be debt service on its Senior Discount Notes due 2014.  These notes do not require cash interestpayments until 2009 and contain restrictive covenants that will, among otherthings, limit the ability of the Company and its subsidiaries (including Group)to incur

 

17

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debt, pay dividends and make investments.  Neither Group nor any of its subsidiariesguarantee these notes.  The Company, however,is a holding company and its ability to pay interest on the notes will bedependent upon the receipt of dividends from its subsidiaries. Group iscurrently Holdings’ only direct subsidiary. However, the terms of Group’s borrowing arrangements significantlyrestrict its ability to pay dividends to Holdings.

 

**7. Shareholders’ Equity**

 

A summary of the changes in the components of Shareholders’ Equitysince September 30, 2003 is as follows:
| ** **                                         | ** ** | **Class A  Common  Stock** | ** ** | **Class B  Common  Stock** | ** ** | **Add’l  Paid-In  Capital** | ** ** | **Retained  Deficit** | ** ** | **Accum.  Other  Compre-  hensive  Loss** | ** ** | **Shareholder  Loans** | ** ** | **Total** | ** ** | **Redeem-  able Preferred  Stock** | ** ** | **Redeem-  able Common Stock** | ** ** |
|----------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------------|------------|-----------------------|------------|-------------------------------------------|------------|------------------------|------------|-----------|------------|------------------------------------|------------|--------------------------------|------------|
| ** **                                         | ** ** | **(dollars in millions)**  | ** ** |
|                                               |       |                       |       |                       |       |                             |       |                  |       |                                      |       |                   |       |      |       |                               |       |                           |       |
| Balance at September 30, 2003                      |       | 1.1                        |       | 0.9                        |       | 142.3                            |       | (10.6                 | )          | (20.5                                     | )          | (2.8                   | )          | 110.4     |       | 96.6                               |       | 2.6                            |       |
| Issuance of stock                                  |       | 0.2                        |       |                       |       | (0.2                             | )          |                  |       |                                      |       |                   |       | —    |       |                               |       |                           |       |
| Employee stock compensation                        |       |                       |       |                       |       | 15.8                             |       |                  |       |                                      |       |                   |       | 15.8      |       |                               |       |                           |       |
| Fair market value of warrants                      |       |                       |       |                       |       | 3.7                              |       |                  |       |                                      |       |                   |       | 3.7       |       |                               |       |                           |       |
| Accretion of redeemable preferred stock            |       |                       |       |                       |       | (9.9                             | )          |                  |       |                                      |       |                   |       | (9.9      | )          | 9.9                                |       |                           |       |
| Retirement of preferred stock                      |       |                       |       |                       |       |                             |       |                  |       |                                      |       |                   |       | —    |       | (106.5                             | )          |                           |       |
| Interest on shareholder loans                      |       |                       |       |                       |       |                             |       |                  |       |                                      |       | (0.2                   | )          | (0.2      | )          |                               |       | (0.2                           | )          |
| Repayment of shareholder loans, including interest |       |                       |       |                       |       |                             |       | (6.2                  | )          |                                      |       | 3.0                    |       | (3.2      | )          |                               |       | 3.2                            |       |
| Dividends paid                                     |       |                       |       |                       |       | (151.7                           | )          | (242.0                | )          |                                      |       |                   |       | (393.7    | )          |                               |       | (5.5                           | )          |
| Net income                                         |       |                       |       |                       |       |                             |       | 18.5                  |       |                                      |       |                   |       | 18.5      |       |                               |       |                           |       |
| Change in foreign currency translation adjustment  |       |                       |       |                       |       |                             |       |                  |       | 0.2                                       |       |                   |       | 0.2       |       |                               |       |                           |       |
| Additional minimum pension liability, net of tax   |       |                       |       |                       |       |                             |       |                  |       | (0.4                                      | )          |                   |       | (0.4      | )          |                               |       |                           |       |
| Balance at June 26, 2004                           |       | 1.3                        |       | 0.9                        |       | —                           |       | (240.3                | )          | (20.7                                     | )          | —                 |       | (258.8    | )          | —                             |       | 0.1                            |       |

 

As of June 26, 2004, there were 131,208,998 shares of Class A commonstock and 89,343,699 shares of Class B common stock outstanding.

 

**8. Redeemable Preferred Stock**

 

*RedeemablePreferred Stock* -In connection with theCompany’s formation in 1999, Holdings issued two million shares of 16% SeniorExchangeable Preferred Stock, due August 15, 2010, par value $0.01 pershare (“preferred stock”). The preferred stock bears dividends at a rate of 16%per annum, which dividends will accrue or be payable in cash, at Holdings’option until August 2006 and must be paid in cash thereafter when and ifdeclared by Holdings’ board out of funds legally available therefor. Theliquidation value on any future date is the sum of $25 per share plus thedividend accretion since issuance.

 

Upon a changeof control or upon the payment by the Company of certain types of restrictedpayments, including payment of dividends on the common stock of the Company,the preferred stock is subject to redemption at the holder’s option at 101% ofits liquidation preference. Additionally, the stock is subject to mandatoryredemption for cash in August 2010 out of funds legally availabletherefor. Group’s credit facility imposes restrictions upon its ability to makedistributions to the Company. A failure by the Company to pay dividends orredeem such stock

 

18

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when required or a breach ofcertain covenants would entitle the holders to two directors on the Company’sboard.

 

The Company may at its option redeem the preferred stock at thefollowing liquidation values: 

 
| **Year beginning August 15,** | ** ** | **Percentage  liquidation value** | ** ** |
|-------------------------------|------------|-----------------------------------|------------|
|                          |       |                              |       |
| 2004                          |       | 108.000                           | %          |
| 2005                          |       | 105.333                           | %          |
| 2006                          |       | 102.667                           | %          |
| 2007 and thereafter           |       | 100.000                           | %          |

 

The preferredstock, in certain circumstances, is exchangeable at the option of the Companyfor 16% Senior Subordinated Exchange Debentures due 2010.

 

The accretionof dividends of $1.9 million and $9.9 million for the three monthsand the nine months ended June 26, 2004, respectively, was accounted for as anon-cash transaction.  The accretionreduces the net income available to common shareholders.  As described in Note 6, the preferred stockwas redeemed by the Company on April 23, 2004.

 

*RedeemableCommon Stock –*Group has entered into an employmentagreement with Dale Smith, Group’s president and Chief Executive Officer.  This agreement, in certain circumstances,gives Mr. Smith the right to sell to the Company, at a price equal to the fairmarket value of his equity interests as of the date of such sale or purchase,his shares of common stock.  The Companyhas classified an amount representing the initial fair value of the redeemableshares of common stock owned by Mr. Smith outside of permanent equity. AtSeptember 30, 2003 and June 26, 2004 there were 5.5 million Class A commonshares outstanding.  Shareholder loansand interest receivable associated with these shares at September 30, 2003 wereapproximately $3.2 million.  The loansand all related interest receivable were paid in full by Mr. Smith, inconnection with the recapitalization of the Company during the third quarter of2004.  Therefore, there were no loans andinterest outstanding at June 26, 2004. These shares of common stock have not been marked-to-market as thecircumstances that would give rise to Mr. Smith’s right to sell, and theCompany’s obligation to purchase Mr. Smith’s shares of common stock , areconsidered remote currently.

 

**9.  Derivative Instruments**

 

Changes in thefair value of derivatives are recorded each period in earnings or AccumulatedOther Comprehensive Income (Loss), depending on whether a derivative isdesignated and effective as part of a hedge transaction and, if it is, the typeof hedge transaction. Any gains and losses on derivative instruments that arereported in Accumulated Other Comprehensive Income (Loss) are included inearnings in the periods in which earnings are affected by the hedged item. Allgains or losses on interest rate swaps since the adoption of SFAS No. 133have been included in earnings and have not been included in Accumulated OtherComprehensive Income (Loss) as the Company has not treated these instruments ashedges under SFAS 133.

 

For aderivative to qualify as a hedge at inception and throughout the hedge period,the Company must formally document the nature and relationships between thehedging instruments and hedged items, as well as its risk-managementobjectives, strategies for undertaking the various hedge transactions andmethod of assessing hedge effectiveness. Any financial instruments

 

19

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qualifying for hedge accountingmust maintain a specified level of effectiveness between the hedging instrumentand the item being hedged, both at inception and throughout the hedged period.

 

Interest RateSwaps -At June 26, 2004 and September 30, 2003 the fair value ofinterest rate swaps was a liability of $6.8 million and$17.2 million, respectively, and has been recorded in Other Long-TermLiabilities on the Consolidated Balance Sheets.

 

**10.  Commitments andContingencies**

 

The Company issubject to retention on certain contracts, with the retention portion of theamount receivable paid upon project completion.

 

In the normalcourse of business, the Company incurs claims with respect to productliability. Such claims are insured up to certain limits, with such policiescontaining certain self-insured retention limits. Prior to August 1999,product liability and environmental claims that occurred are subject toindemnification by Tyco, based on the provisions of the acquisition agreement.

 

Workerscompensation claims are self-insured by the Company to the extent of stop losscoverage per claim. The claim liability is recorded based on an actuariallydetermined estimate of the present value of the obligation outstanding atyear-end. The recorded reserve at September 30, 2003 and June 26,2004 was approximately $7.2 million and $8.0 million, respectively.

 

The Company issubject to warranty claims related to sales of water meters that can be read remotelyby hand-held or drive-by electronic readers. Radio transmitters purchased fromone of its third party vendors have demonstrated a high failure rate andactions to correct the issue have been only partially effective. To date, thethird party vendor has taken financial responsibility with respect to thismatter and the Company has incurred insignificant costs. However, should thethird party vendor be unable to correct the issue or be unable to meet itswarranty obligations with respect to this matter, the Company may find itnecessary to replace the third party vendors’ radio transmitters, which is notexpected to exceed $3 million. The Company has estimated that it willincur costs of approximately $1 million related to the warranty claims.  The Company has accrued $1 million as of June26, 2004.

 

Certain of ourproducts contain lead. Environmental advocacy groups, relying on standardsestablished by California’s Proposition 65, are seeking to eliminate or reducethe content of lead in some of our products offered for sale in California. Incertain cases, we have entered into settlement agreements with theseenvironmental advocacy groups to modify our products or offer substitutes. TheCompany may incur additional costs to implement the provisions under thesesettlement agreements. Further, similar issues may be raised by other advocacygroups in other jurisdictions under Proposition 65.

 

The Companyexpects to incur costs at its steel and iron foundries to comply with theUnited States Environmental Protection Agency’s National Emissions Standardsfor Hazardous Air Pollutants which were issued April 22, 2004.  The Company is in the process of performingan analysis to assess the impact of these standards on the financial results ofthe Company.

 

James JonesCompany and its former parent company are defendants in a false claims lawsuitin which a former James Jones Company employee is suing on behalf of cities,water districts and municipalities. The employee alleges that the defendantssold allegedly non-conforming public water system parts to various governmententities. The lawsuit seeks

 

20

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consequential damages,penalties and punitive damages. 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.

 

OnMarch 31, 2004, Anvil International entered into a consent order with theGeorgia Department of Natural Resources regarding various alleged hazardouswaste violations at Anvil’s formerly operated Statesboro, Georgia site.Pursuant to the consent order, Anvil has agreed to pay a settlement amount of$100,000, comprised of a $50,000 monetary fine and $50,000 towards asupplemental environmental project. Anvil has also agreed to perform variousinvestigatory and remedial actions at the site and its landfill. While theultimate investigatory and remedial costs are currently unknown, the totalcosts are estimated to be between $0.3 million and $0.5 million.  The Company has accrued $0.3 million as ofJune 26, 2004.

 

In the opinionof management, 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.

 

**11. Net Periodic Benefit Cost – Defined Benefit Plans**

 

For a detailed disclosure on the Company’s pension and employeebenefits plans, please refer to Note 11 of the Company’s Audited ConsolidatedFinancial Statements for the year ended September 30, 2003, as found in ourregistration statement filed on Form S-4 (File No. 333-116590).

 

The following sets forth the components of net periodic benefit cost ofthe domestic non-contributory defined benefit plans for the three months andthe nine months ended June 26, 2004:

 
| ** **                            | ** ** | **Three months ended  June 26, 2004** | ** ** | **Nine months ended  June 26, 2004** | ** ** |
|---------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                            | ** ** | **(dollars in millions)**             | ** ** |
| Service cost                          |       | $                                     | 0.5        |                                 | $          | 1.5 |   |
| Interest cost                         |       | 1.4                                   |       | 4.2                                  |       |
| Expected return (loss) on plan assets |       | (1.1                                  | )          | (3.4                                 | )          |
| Amortization of loss                  |       | 0.6                                   |       | 2.0                                  |       |
| Net periodic cost                     |       | $                                     | 1.4        |                                 | $          | 4.3 |   |

 

**Employer Contributions**

 

As of June 26, 2004, no contributions have been made and there are noanticipated statutory funding requirements for the remainder of 2004.

 

21

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**12.  Supplementary Balance Sheet Information**

 

Selectedsupplementary balance sheet information is presented below:

 
| ** **                                 | ** ** | **September 30,   2003**  | ** ** | **June 26,   2004** | ** ** |
|--------------------------------------------|------------|---------------------------|------------|---------------------|------------|
| ** **                                 | ** ** | **(dollars in millions)** | ** ** |                |
|                                       |       |                      |       |                |       |   |
| **Inventories**                            |       |                      |       |                |       |   |
| Purchased materials and manufactured parts |       | $                         | 46.3       |                | $          | 43.7 |   |   |
| Work in  process                           |       | 65.6                      |       | 71.9                |       |   |
| Finished  goods                            |       | 128.6                     |       | 145.0               |       |   |
|                                       |       |                      |       |                |       |   |
|                                       |       | $                         | 240.5      |                | $          | 260.6 |   |   |
|                                            |            |                           |            |                     |            |  |  |  |  |  |  |  |  |

 

**13.  Supplementary Income Statement Information**

 

The componentsof interest expense are presented below:

 
| ** **                                         | ** ** | **Three months ended**    | ** ** | **Nine months ended** | ** ** |
|----------------------------------------------------|------------|---------------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **June 28,   2003**       | ** ** | **June 26,   2004**   | ** ** | **June 28,   2003** | ** ** | **June 26,   2004** | ** ** |
| ** **                                         | ** ** | **(dollars in millions)** | ** ** |
|                                               |       |                      |       |                  |       |   |   |   |   |
| **Interest expense and early repayment costs:**    |       |                      |       |                  |       |   |   |   |   |
| Contractual interest expense                       |       | $                         | 11.4       |                  | $          | 17.3 |   | $ | 36.0 |   | $ | 36.2 |   |
| Deferred financing fee amortization                |       | 0.7                       |       | 1.0                   |       | 2.1 |   | 2.2 |   |
| Senior subordinated debt early redemption  penalty |       | —                    |       | —                |       | — |   | 7.0 |   |
| Write off of deferred financing fees               |       | —                    |       | 6.6                   |       | — |   | 7.0 |   |
| Interest rate swap gains                           |       | (3.0                      | )          | (4.1                  | )          | (9.8 | ) | (10.4 | ) |
|                                               |       |                      |       |                  |       |   |   |   |   |
| Total interest expense and early repayment  costs  |       | $                         | 9.1        |                  | $          | 20.8 |   | $ | 28.3 |   | $ | 42.0 |   |

 

A reconciliation of net incometo income available to common shareholders is as follows:

 
| ** **                                  | ** ** | **Three months ended**    | ** ** | **Nine months ended** | ** ** |
|---------------------------------------------|------------|---------------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **June 28,   2003**       | ** ** | **June 26,   2004**   | ** ** | **June 28,   2003** | ** ** | **June 26,   2004** | ** ** |
|                                        |       | **(dollars in millions)** |       |
|                                        |       |                      |       |                  |       |   |   |   |   |
| Net income                                  |       | $                         | 7.8        |                  | $          | 3.0 |   | $ | 19.1 |   | $ | 18.5 |   |
| Less preferred share accretion              |       | (3.6                      | )          | (1.3                  | )          | (10.4 | ) | (9.3 | ) |
|                                        |       |                      |       |                  |       |   |   |   |   |
| Net income available to common shareholders |       | $                         | 4.2        |                  | $          | 1.7 |   | $ | 8.7 |   | $ | 9.2 |   |

 

**14.  Stock Plans**

** **

EffectiveAugust 31, 2000, Holdings implemented its Management Incentive Plan andits Direct Investment Program. These stock plans were created with the purposeof attracting, retaining and motivating key employees of the Company. Prior toAugust 31, 2000, the Company did not have an employee stock option plan ora stock purchase plan; however, certain employees of the Company had beengranted stock and stock options under Tyco’s stock award plans.

 

*DirectInvestment Program* -Under the DirectInvestment Program, certain employees are allowed to purchase a specific numberof shares of Holdings, at a price equal to fair value at the 

 

22

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time of the purchase. Under theplan, Holdings will loan the employee up to 50% of the total purchase price ona non-recourse basis. However, all shares of the plan are pledged ascollateral. Holdings is authorized to grant 10 million shares under theplan and issued approximately 9.5 million shares at a purchase price of$1.00 per share and 0.5 million shares at a purchase price of $1.50 pershare as of September 30, 2003. The Company recorded non-cash compensationexpense of $1.0 million for the nine months ended June 26, 2004, related to theloan portion of the shares purchased pursuant to the Direct Investment Program.

 

During 2003,the Company’s chief executive officer purchased 476,244 shares of Holdingsstock at $1.50 per share under the Direct Investment Program. As a result, theCompany increased paid in capital by approximately $0.7 million in 2003.

 

In connectionwith the recapitalization completed in April 2004, all outstanding employeeloans were repaid in full by the employees. There are no remaining shares available for purchase as of June 26,2004.

 

*ManagementIncentive Plan*-Under the Management IncentivePlan, Holdings is authorized to grant stock options to key individuals of theCompany. The options are granted to purchase common shares of Holdings atprices equal to the fair value of the common shares on the date the options aregranted. The options become fully vested and exercisable on the eighthanniversary of the date of grant, provided that the individual is in theemployment of the Company at all times during the vesting period. The agreementprovides for accelerated vesting if certain milestones are achieved. Theoptions expire on the tenth anniversary of the grant date.

 

Holdings isauthorized to grant options for 15 million shares. All options grantedhave an exercise price equal to the fair value at the date of grant. As ofresult, no compensation expense was required to be recognized prior to therefinancing discussed in Note 6.

 

In connectionwith the refinancing, Holdings modified these stock option awards to acceleratevesting upon completion of a refinancing. A portion of the dividend distribution to Holdings was used to make apayment to its employee optionholders of the excess of the per share dividendto its common stockholders over the exercise price of their options, orapproximately $12.6 million in the aggregate, and the options werecancelled.  The option buyout resulted inan additional charge of approximately $14.8 million ($12.6 million cash chargeand $2.2 million non-cash charge) upon completion of the refinancing in thequarter ending June 26, 2004. Additionally, the Company has recorded a non-cash compensation charge ofapproximately $0.7 million related to the loan portion of the shares purchasedpursuant to the Direct Investment Program.

 

Informationwith respect to stock option activity under the Company’s plan is as follows: 

 
| ** **         | ** ** | **Number of   Common    Shares** | ** ** | **Option Price   Per Share** | ** ** | **Weighted   Average   Exercise Price** | ** ** |
|--------------------|------------|---------------------------------------|------------|------------------------------|------------|-----------------------------------------|------------|
|               |       |                                  |       |                         |       |                                    |       |
| September 30, 2001 |       | 12,968,875                            |       | 1.00                         |       | 1.00                                    |       |
|               |       |                                  |       |                         |       |                                    |       |
| Granted            |       | 370,000                               |       | 1.19                         |       | 1.19                                    |       |
| Cancelled          |       | (106,900                              | )          | 1.00                         |       | 1.00                                    |       |
|               |       |                                  |       |                         |       |                                    |       |
| September 30, 2002 |       | 13,231,975                            |       | $1.00 to $1.19               |       | $                                       | 1.01       |   |
|               |       |                                  |       |                         |       |                                    |       |
| Granted            |       | 1,700,000                             |       | 1.50                         |       | 1.50                                    |       |
| Cancelled          |       | (203,550                              | )          | 1.00                         |       | 1.00                                    |       |
|               |       |                                  |       |                         |       |                                    |       |
| September 30, 2003 |       | 14,728,425                            |       | $1.00 to $1.50               |       | $                                       | 1.06       |   |
|               |       |                                  |       |                         |       |                                    |       |
| Cancelled          |       | (120,656                              | )          | $1.00 to $1.50               |       | $                                       | 1.12       |   |
|               |       |                                  |       |                         |       |                                    |       |
| March 27, 2004     |       | 14,607,769                            |       | $1.00 to $1.50               |       | $                                       | 1.06       |   |
| Exercised          |       | (14,607,769                           | )          | $1.00 to $1.50               |       | $                                       | 1.06       |   |
|               |       |                                  |       |                         |       |                                    |       |   |
| June 26, 2004      |       | 0                                     |       |                         |       |                                    |       |

 

There were nooptions authorized, granted, or outstanding on June 26, 2004.

 

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**15.  Facility Rationalization and Related Costs**

** **

During thethree months and nine months ended June 28, 2003, the Company continuedits efforts to reduce operating costs. After reviewing its facility utilizationand associated assets, the Company recorded charges of $0.2 million and$1.7 million, respectively, related to asset impairment.

 

For the threemonths ended June 26, 2004, the Company recorded no charge.  For the nine months ended June 26, 2004, theCompany recorded $0.9 million, related to asset impairment, environmentalissues at a closed facility in Statesboro, GA (see note 10) and lease expenseat a closed and vacated facility.

 

**16.  Subsequent Event**

 

On August 26, 2004, Groupentered into a First Amendment to its Second Amended and Restated CreditAgreement, dated as of April 23, 2004 (the “Credit Agreement”).

 

The Firstamendment provides for, among other things. (1) the reduction of the term loan pricing for LIBOR-based loans toLIBOR plus 2.75% and for Base Rate Loans to the Base Rate plus 1.50%, and (2)the ability to use certain available cash to retire junior debt subject to amaximum Leverage Ratio and maximum annual basket amounts.

 

**ITEM 2****. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS**

** **

Certaininformation included or incorporated by reference in this document may bedeemed to be “forward looking statements” within the meaning of the federalsecurities laws.  All statements otherthan statements of historical fact are statements that could be deemed forwardlooking statements, including projections of revenue, gross margin, expenses,  earnings or losses from operations, synergiesor other financial items; any statements of the plans, strategies andobjectives of management for future operations; any statement concerningdevelopments, performance or industry rankings relating to products orservices; any statements regarding future economic conditions or performance;any statements of assumptions underlying any of the foregoing; and any otherstatements that address activities, events or developments that MuellerHoldings (N.A.), Inc. (“Holdings”, the “Company”, “we”, “us”, “our”) intends,expects, projects, believes or anticipates will or may occur in thefuture.  Forward looking statements maybe characterized by terminology such as “believe”, “anticipate”, “should”,“intend”, “plan”, “will”, “expects”, “estimates”, “projects”, “positioned”,“strategy”, and similar expressions. These statements are based on assumptions and assessments made by theCompany’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 a number of risks anduncertainties, including but not limited to:

 

•                  The Company’sability to continue long-standing relationships with major customers;

 

24

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•                  Increasedcompetition;

•                  Demand for andmarket acceptance of new and existing products, including changes inregulations (particularly environmental regulations) which could affect demandfor products;

•                  Adverse changesin currency exchange rates or raw material prices, specifically steel scrap,steel pipe and brass ingot;

•                  Unanticipateddevelopments that could occur with respect to contingencies such as litigation,product liability exposures and environmental matters;

•                  Risks related toterrorist activities and the U.S. and international response thereto;

•                  The Company’sability to integrate acquired businesses into its operations, realize plannedsynergies and operate such businesses profitably in accordance withexpectations;

•                  Assumptionsrelating to pension costs;

•                  The Company’sability to achieve projected levels of efficiencies and cost reductionmeasures; and

•                  Other risks anduncertainties that affect the manufacturing sector generally including, but notlimited to, economic, political, governmental and technological factorsaffecting the Company’s operations, markets, products, services and prices.

 

Any suchforward looking statements are not guarantees of future performances and actualresults, developments and business decisions may differ from those envisaged bysuch forward looking statements.  Theseforward looking statements speak only as of the 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 aleading North American manufacturer of a broad range of flow control productsfor use in water distribution, water and wastewater treatment facilities, gasdistribution systems and piping systems and maintain a large installed base ofproducts. We are comprised of two segments: Mueller Company (“Mueller Co.”), aleading manufacturer of hydrants, valves and other products for use in waterand gas distribution systems; and Anvil International (“Anvil”), a leadingmanufacturer of fittings, pipe hangers and other products for use in pipingsystem applications.

 

Our productsare sold to a wide variety of end-users, including municipalities, publicly andprivately owned water and wastewater utilities, gas utilities and constructioncontractors. We believe that our sales are substantially driven by newresidential and non-residential construction and by infrastructure replacement,repair and upgrades. Even though our products are generally sold throughdistributors to contractors, for most of our Mueller Co. products it is theend-user who either chooses the brand to be used or specifies the qualitiesthat the required product must have, including approvals from industry standard-settingbodies. We believe that, because of our reputation for quality and our largeinstalled base of products, our products are specified more often than thosemade by our competitors, which provides us with a competitive advantage andhelps ensure that our market share will remain strong.

 

Our MuellerCo. segment has benefited from the relatively stable residential constructionmarket in the United States in recent years, as well as new productintroductions and, to a lesser extent, acquisitions, partially offset by a slowdown in state and local government spending to upgrade, repair and replacewater and waste water distribution infrastructure due to budgetary constraintsresulting from recent adverse economic conditions. We expect spending on 

 

25

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infrastructure to increase asthe economy continues to improve.

 

Overall demandfor Anvil’s products is primarily driven by non-residential construction in theUnited States and Canada which has been impacted during the recent downturn inthe economy. Anvil competes in the market for piping component products whichare principally used in mechanical applications, such as HVAC systems, and fireprotection applications, such as sprinkler systems. We estimate that 70% ofAnvil’s products are used in mechanical applications and the remainder in fireprotection systems. Anvil has been adversely impacted by increased foreigncompetition with respect to fire protection products. These products competeprimarily on price and are sold at lower prices by foreign manufacturers.Although imported products have been accepted in certain applications, manymunicipalities, end-users, and contractors require the use of domesticallymanufactured products in their projects. For example, Pennsylvania requiresthat all state-funded projects use domestically manufactured steelproducts. However, as part of our strategy to complement Anvil’s existingproduct offerings, we recently acquired the business and assets of theconstruction division of STAR, an importer of iron and grooved fittingsproduced in China, India and Malaysia. We believe that our acquisition of STARwill allow Anvil to enter the market for lower cost, foreign-producedfire-protection products and grow Anvil’s overall market share. Anvil has alsoreduced the amount of purchased products that it sells, which are generallylower-margin, which has reduced its revenues while improving itsprofitability. We expect to benefit from improvements in economic conditionsthat have a positive impact on non-residential construction.

 

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**Results ofOperations**

 

##### ***Three Months Ended June 26, 2004 AsCompared to the Three Months Ended June 28, 2003***

 
| ** **                                        | ** ** | **Three months ended**    | ** ** | ** **                          | ** ** | **FY04 Q3 vs. FY03 Q3** | ** ** |
|---------------------------------------------------|------------|---------------------------|------------|-------------------------------------|------------|-------------------------|------------|
| ** **                                        | ** ** | **June 26, 2004**         | ** ** | ** **                          | ** ** | **June 28, 2003**       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                        | ** ** | ** **                | ** ** | **Percentage   of net sales   (2)** | ** ** | ** **              | ** ** | **Percentage   of net sales   (2)** | ** ** | **Increase / (decrease)** | ** ** | **Change in   percentage   of   net sales** | ** ** |
| ** **                                        | ** ** | **(dollars in millions)** | ** ** |
|                                              |       |                      |       |                                |       |                    |       |   |   |   |   |   |   |
| **Net sales**                                     |       |                      |       |                                |       |                    |       |   |   |   |   |   |   |
| Mueller Co.                                       |       | $                         | 172.4      |                                | 59.7       | %                       | $          | 136.0 |   | 58.5 | % | $ | 36.4 |   | 1.2 | % |
| Anvil                                             |       | 116.3                     |       | 40.3                                |       | 96.4                    |       | 41.5 |   | 19.9 |   | (1.2 | ) |
| Consolidated                                      |       | 288.7                     |       | 100.0                               |       | 232.4                   |       | 100.0 |   | 56.3 |   | — |   |
|                                              |       |                      |       |                                |       |                    |       |   |   |   |   |   |   |
| **Gross profit**                                  |       |                      |       |                                |       |                    |       |   |   |   |   |   |   |
| Mueller Co.                                       |       | 56.6                      |       | 32.8                                |       | 41.5                    |       | 30.5 |   | 15.1 |   | 2.3 |   |
| Anvil                                             |       | 26.4                      |       | 22.7                                |       | 20.4                    |       | 21.2 |   | 6.0 |   | 1.5 |   |
| Consolidated                                      |       | 83.0                      |       | 28.7                                |       | 61.9                    |       | 26.6 |   | 21.1 |   | 2.1 |   |
|                                              |       |                      |       |                                |       |                    |       |   |   |   |   |   |   |
| **Selling, general and administrative  expenses** |       |                      |       |                                |       |                    |       |   |   |   |   |   |   |
| Mueller Co.                                       |       | 17.1                      |       | 9.9                                 |       | 14.8                    |       | 10.9 |   | 2.3 |   | (1.0 | ) |
| Anvil                                             |       | 19.9                      |       | 17.1                                |       | 15.5                    |       | 16.1 |   | 4.4 |   | 1.0 |   |
| Corporate                                         |       | 10.6                      |       | 3.7                                 |       | 8.9                     |       | 3.8 |   | 1.7 |   | (0.1 | ) |
| Consolidated                                      |       | 47.6                      |       | 16.5                                |       | 39.2                    |       | 16.9 |   | 8.4 |   | (0.4 | ) |
|                                              |       |                      |       |                                |       |                    |       |   |   |   |   |   |   |
| **Stock compensation expense**                    |       |                      |       |                                |       |                    |       |   |   |   |   |   |   |
| Corporate                                         |       | 15.5                      |       | 5.4                                 |       | 0.2                     |       | 0.1 |   | 15.3 |   | 5.3 |   |
| **Facility rationalization and related costs**    |       |                      |       |                                |       |                    |       |   |   |   |   |   |   |
| Mueller Co.                                       |       | —                    |       | —                              |       | 0.1                     |       | 0.6 |   | (0.1 | ) | (0.6 | ) |
| Anvil                                             |       | —                    |       | —                              |       | 0.1                     |       | 1.1 |   | (0.1 | ) | (1.1 | ) |
| Consolidated                                      |       | —                    |       | —                              |       | 0.2                     |       | 0.5 |   | (0.2 | ) | (0.5 | ) |
|                                              |       |                      |       |                                |       |                    |       |   |   |   |   |   |   |
| **Operating Profit**                              |       |                      |       |                                |       |                    |       |   |   |   |   |   |   |
| Mueller Co.                                       |       | 39.5                      |       | 22.9                                |       | 26.6                    |       | 19.6 |   | 12.9 |   | 3.3 |   |
| Anvil                                             |       | 6.5                       |       | 5.6                                 |       | 4.8                     |       | 5.0 |   | 1.7 |   | 0.6 |   |
| Corporate                                         |       | (26.1                     | )          | (9.0                                | )          | (9.1                    | )          | (3.9 | ) | (17.0 | ) | (5.1 | ) |
| Consolidated                                      |       | 19.9                      |       | 6.9                                 |       | 22.3                    |       | 9.6 |   | (2.4 | ) | (2.7 | ) |
| Interest expense                                  |       | (20.8                     | )          | (7.2                                | )          | (9.1                    | )          | (3.9 | ) | (11.7 | ) | (3.3 | ) |
| Interest income                                   |       | 0.1                       |       | —                              |       | 0.2                     |       | — |   | (0.1 | ) | — |   |
| Income before inc taxes                           |       | (0.8                      | )          | (0.2                                | )          | 13.4                    |       | 5.8 |   | (14.2 | ) | (6.0 | ) |
| Income tax expense                                |       | (3.8                      | )          | (1.3                                | )          | 5.6                     |       | 2.4 |   | (9.4 | ) | (3.7 | ) |
| Net income                                        |       | $                         | 3.0        |                                | 1.0        | %                       | $          | 7.8 |   | 3.4 | % | $ | (4.8 | ) | (2.4 | ) |
|                                              |       |                      |       |                                |       |                    |       |   |   |   |   |   |   |
| **EBITDA (1)**                                    |       |                      |       |                                |       |                    |       |   |   |   |   |   |   |
| Mueller Co.                                       |       | 45.2                      |       | 26.2                                |       | 32.9                    |       | 24.2 |   | 12.3 |   | 2.0 |   |
| Anvil                                             |       | 10.8                      |       | 9.3                                 |       | 9.0                     |       | 9.3 |   | 1.8 |   | — |   |
| Corporate                                         |       | (19.7                     | )          | (6.8                                | )          | (2.6                    | )          | (1.1 | ) | (16.9 | ) | (5.7 | ) |
| Consolidated                                      |       | $                         | 36.3       |                                | 12.6       | %                       | $          | 39.3 |   | 16.9 | % | $ | (2.8 | ) | (4.3 | )% |

 

----

(1)                                  EBITDAis defined as income (loss) before cumulative effect of accounting change plusincome tax expense, interest expense (not net of interest income), depreciationand amortization expense.

 

(2)                                  Percentagesare by segment, if applicable.

 

* Net Sales.*  Net sales for the three months ended June 26,2004 were $288.7 million, or a 24.2% increase from $232.4 million forthe three months ended June 28, 2003.

 

Mueller Co.net sales for the three months ended June 26, 2004 were $172.4 million, ora 26.8% increase from $136.0 million for the three months ended June 28,2003. The increase in net sales was primarily driven by volume growth, as wellas increased selling prices, particularly in iron fire hydrants, water valveproducts and brass water products. Volume growth for these products was approximately $32.5 million and wasdriven by strong residential construction, favorable weather conditions andimproved general economic conditions. Increased prices were due to a price increase announced by the companyin February.

 

Anvil netsales for the three months ended June 26, 2004 were $116.3 million, or a20.6% increase from $96.4 million for the three months ended June 28,2003. The acquisition of STAR accounted for $6.2 million of this increase.  The remaining increase in Anvil net sales wasprimarily driven by continued improvement in the non-residential constructionmarkets, as well as a sales price increase announced in the second quarter.

 

27

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 *Gross Profit.*  Gross profit for the three months ended June26, 2004 was $83.0 million, or a 34.1% increase from $61.9 millionfor the three months ended June 28, 2003. Gross profit, as a percentage of netsales, or gross margin, increased from 26.6% in 2003 to 28.7% in 2004.

 

Mueller Co.gross profit for the three months ended June 26, 2004 was $56.6 million,or a 36.4% increase from $41.5 million for the three months ended June 28,2003. Gross margin increased 2.3% from 30.5% in 2003 to 32.8% in 2004. Theincrease in Mueller Co. gross profit was primarily driven by increased sellingprices on iron water valves, hydrants, and brass water products, increasedsales volume, increased fixed overhead absorption due to higher productionlevels, and a favorable product mix. These positive factors were partly offset by increased warranty expenseand continued high raw material prices.

 

Anvil grossprofit for the three months ended June 26, 2004 was $26.4 million, or a29.4% increase from $20.4 million for the three months ended June 28,2003. Gross margin increased 1.5% from 21.2% to 22.7%.  The acquisition of STAR contributed $1.0million.  The remaining increase wasprimarily due to the impact of the price and volume increases discussed in NetSales, partially offset by increased manufacturing costs, most notably steelpipe and steel scrap costs.

 

 *Selling,General & Administrative Expense.*  Selling, General and Administrative expenses(“SG&A”) for the three months ended June 26, 2004 were $47.6 million,or a 21.4% increase from $39.2 million for the three months ended June 28,2003. As a percentage of net sales, SG&A decreased from 16.9% in 2003 to16.5% in 2004.

 

Mueller Co.SG&A for the three months ended June 26, 2004 was $17.1 million,or a 15.5% increase from $14.8 million for the three months ended June 28,2003. As a percentage of net sales, SG&A decreased from 10.9% in 2003 to9.9% in 2004. The increase in SG&A costs are mainly attributable to $0.6million increase in amortization expense related to intangibles acquired in2003 and 2004, maintenance and tooling assets, increased product redesign costsof $0.9 million and increased compensation expense.

 

Anvil SG&Afor the three months ended June 26, 2004 was $19.9 million, or a 28.4%increase from $15.5 million for the three months ended June 28, 2003. As apercentage of net sales, SG&A increased from 16.1% in 2003 to 17.1% in2004.  The STAR acquisition contributed$1.1 million of new selling expense and $0.3 million in amortizationexpense.  Increased compensation expenseand sales and warehousing costs associated with increased sales volumeaccounted for the remainder of the increase.

 

Corporateexpenses for the three months ended June 26, 2004 were $10.6 million ascompared to $8.9 million for the three months ended June 28, 2003, anincrease of $1.7 million.  This wasprimarily due to legal and accounting fees incurred in 2004 in connection withthe recapitalization of the Company, and increased compensation costs.  Corporate expenses consist primarily ofcorporate staff, benefits, legal and facility costs.

 

*StockCompensation Expense. *Corporatestock compensation expense for the three months ended June 26, 2004 was $15.5million as compared to $0.2 million for the three months ended June 28,2003.  This was primarily due to $15.5million of compensation charges ($12.6 million cash and $2.9 million non-cash)for employee optionholders made in connection with the recapitalization of theCompany during the third quarter of 2004.

 

 *Facility Rationalizationand Related Costs.*  There wereno facility rationalization costs for the 

 

28

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three months endedJune 26, 2004, as compared to $0.2 million for the three months endedJune 28, 2003.

 

 *Interest Expense.*  Interest expense for the three months endedJune 26, 2004 was $20.8 million, or an $11.7 million increase from$9.1 million for the three months ended June 28, 2003. This was primarilydue to $6.6 million of deferred financing fees written off for the partialextinguishment of term debt and $6.7 million of interest expense on the newlyissued $315.0 million and $100.0 million of subordinated notes and $2.7 millionaccretion on discount notes..  This wasoffset by $1.7 million of interest expense in 2003 on $50.0 million ofsubordinated notes which were retired in November 2003, and an additional $1.0million reduction in interest expense in 2004 related to the valuation ofinterest rate swaps.

 

 *Income Tax Expense.*  The effective tax rates, excluding discretethird quarter items, for the three months ended June 26, 2004 and for thethree months ended June 28, 2003 were 40% and 41%, respectively. Discrete thirdquarter events which include the conclusion of the federal and certain statetax examinations and expiration of certain state statutes of limitation allowedthe Company to adjust tax accruals of approximately $6.4 million.  Partially offsetting these items were $2.3million of charges related to Foreign Tax Credits and the effects of otheritems, including changes in the effective rate on prior period deferred taxbalances.

 

 *EBITDA.*  EBITDA for the three months endedJune 26, 2004 was $36.3 million, or a 7.1% decrease from$39.3 million for the three months ended June 28, 2003. EBITDA margindecreased from 16.9% to 12.6%.

 

Mueller Co.EBITDA for the three months ended June 26, 2004 was $45.2 million, which was$12.3 million or 37.4% higher than the $32.9 million for the three months endedJune 28, 2003.  This increase was drivenby improved sales volume and price and increased production as describedabove.  This was partially offset byincreased manufacturing costs, most notably steel scrap and brass ingot.

 

Anvil EBITDAwas $10.8 million for the three months ended June 26, 2004, which was $1.8million higher than the $9.0 million reported for the three months ended June28, 2003.  The acquisition of STARcontributed $0.2 million, with the remainder of the increase being driven byprice and volume increases as described in the Net Sales section.  These increases were partially offset byincreased manufacturing costs, most notably steel pipe and steel scrap costs.

 

CorporateEBITDA was $(19.7) million for the three months ended June 26, 2004 compared to$(2.6) million for the prior year period. This increased expense was primarily driven by compensation charges foremployee optionholders and fees related to the recapitalization of the companyand increased compensation costs as described in the SG&A and stockcompensation expense sections above.

 

29

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***Nine Months Ended June 26, 2004 As Comparedto Nine Months Ended June 28, 2003***

 
| ** **                                        | ** ** | **Nine months ended**     | ** ** | **2004 vs. 2003**                   | ** ** |
|---------------------------------------------------|------------|---------------------------|------------|-------------------------------------|------------|
| ** **                                        | ** ** | **June 26, 2004**         | ** ** | **June 28, 2003**                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                        | ** ** | ** **                | ** ** | **Percentage   of net sales   (2)** | ** ** | ** ** | ** ** | **Percentage   of net sales   (2)** | ** ** | **Increase /   (decrease)** | ** ** | **Change in percentage   of   net sales** | ** ** |
| ** **                                        | ** ** | **(dollars in millions)** | ** ** |
|                                              |       |                      |       |                                |       |   |   |   |   |   |   |   |   |
| **Net sales**                                     |       |                      |       |                                |       |   |   |   |   |   |   |   |   |
| Mueller Co.                                       |       | $                         | 432.7      |                                | 58.2       | % | $ | 384.2 |   | 57.2 | % | $ | 48.5 |   | 1.0 | % |
| Anvil                                             |       | 310.9                     |       | 41.8                                |       | 287.2 |   | 42.8 |   | 23.7 |   | (1.0 | ) |
| Consolidated                                      |       | 743.6                     |       | 100.0                               |       | 671.4 |   | 100.0 |   | 72.2 |   | — |   |
|                                              |       |                      |       |                                |       |   |   |   |   |   |   |   |   |
| **Gross profit**                                  |       |                      |       |                                |       |   |   |   |   |   |   |   |   |
| Mueller Co.                                       |       | 139.5                     |       | 32.2                                |       | 114.3 |   | 29.8 |   | 25.2 |   | 2.4 |   |
| Anvil                                             |       | 70.4                      |       | 22.6                                |       | 61.7 |   | 21.5 |   | 8.7 |   | 1.1 |   |
| Consolidated                                      |       | 209.9                     |       | 28.2                                |       | 176.0 |   | 26.2 |   | 33.9 |   | 2.0 |   |
|                                              |       |                      |       |                                |       |   |   |   |   |   |   |   |   |
| **Selling, general and administrative  expenses** |       |                      |       |                                |       |   |   |   |   |   |   |   |   |
| Mueller Co.                                       |       | 46.0                      |       | 10.6                                |       | 37.5 |   | 9.8 |   | 8.5 |   | 0.8 |   |
| Anvil                                             |       | 53.4                      |       | 17.2                                |       | 50.0 |   | 17.4 |   | 3.4 |   | (0.2 | ) |
| Corporate                                         |       | 27.2                      |       | 3.7                                 |       | 26.4 |   | 3.9 |   | 0.8 |   | (0.2 | ) |
| Consolidated                                      |       | 126.6                     |       | 17.0                                |       | 113.9 |   | 17.0 |   | 12.7 |   | — |   |
|                                              |       |                      |       |                                |       |   |   |   |   |   |   |   |   |
| **Stock compensation expense**                    |       |                      |       |                                |       |   |   |   |   |   |   |   |   |
| Corporate                                         |       | 15.8                      |       | 2.1                                 |       | 0.5 |   | 0.1 |   | 15.3 |   | 2.0 |   |
| **Facility rationalization and related costs**    |       |                      |       |                                |       |   |   |   |   |   |   |   |   |
| Mueller Co.                                       |       | —                    |       | —                              |       | 1.0 |   | 0.3 |   | (1.0 | ) | (0.3 | ) |
| Anvil                                             |       | 0.9                       |       | 0.3                                 |       | 0.7 |   | 0.2 |   | 0.2 |   | 0.1 |   |
| Consolidated                                      |       | 0.9                       |       | 0.1                                 |       | 1.7 |   | 0.3 |   | (0.8 | ) | (0.2 | ) |
|                                              |       |                      |       |                                |       |   |   |   |   |   |   |   |   |
| **Operating Profit**                              |       |                      |       |                                |       |   |   |   |   |   |   |   |   |
| Mueller Co.                                       |       | 93.5                      |       | 21.6                                |       | 75.8 |   | 19.7 |   | 17.7 |   | 1.9 |   |
| Anvil                                             |       | 16.1                      |       | 5.2                                 |       | 11.0 |   | 3.8 |   | 5.1 |   | 1.4 |   |
| Corporate                                         |       | (43.0                     | )          | (5.8                                | )          | (26.9 | ) | (4.0 | ) | (16.1 | ) | (1.8 | ) |
| Consolidated                                      |       | 66.6                      |       | 9.0                                 |       | 59.9 |   | 8.9 |   | 6.7 |   | 0.1 |   |
| Interest expense                                  |       | (42.0                     | )          | (5.6                                | )          | (28.3 | ) | (4.2 | ) | (13.7 | ) | (1.4 | ) |
| Interest income                                   |       | 0.5                       |       | —                              |       | 0.7 |   | 0.1 |   | (0.2 | ) | (0.1 | ) |
| Income before inc taxes                           |       | 25.1                      |       | 3.4                                 |       | 32.3 |   | 4.8 |   | (7.2 | ) | (1.4 | ) |
| Income tax expense                                |       | 6.6                       |       | 0.9                                 |       | 13.2 |   | 2.0 |   | (6.6 | ) | (1.1 | ) |
| Net income                                        |       | $                         | 18.5       |                                | 2.5        | % | $ | 19.1 |   | 2.8 | % | ($0.6 | ) | (0.3 | )% |
|                                              |       |                      |       |                                |       |   |   |   |   |   |   |   |   |
| **EBITDA (1)**                                    |       |                      |       |                                |       |   |   |   |   |   |   |   |   |
| Mueller Co.                                       |       | 111.4                     |       | 25.7                                |       | 94.0 |   | 24.5 |   | 17.4 |   | 1.2 |   |
| Anvil                                             |       | 28.8                      |       | 9.3                                 |       | 23.5 |   | 8.2 |   | 5.3 |   | 1.1 |   |
| Corporate                                         |       | (23.6                     | )          | (3.2                                | )          | (7.2 | ) | (1.1 | ) | (16.4 | ) | (2.1 | ) |
| Consolidated                                      |       | $                         | 116.6      |                                | 15.7       | % | $ | 110.3 |   | 16.4 | % | $ | 6.3 |   | (0.7 | )% |

 

----

(1)          EBITDAis defined as income (loss) before cumulative effect of accounting change plusincome tax expense, interest expense (not net of interest income), depreciationand amortization expense.

 

(2)          Percentagesare by segment, if applicable.

 

 *Net Sales.*  Net sales for the nine months ended June 26,2004 increased by $72.2 million, or 

 

30

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10.8%, from $671.4 millionin 2003 to $743.6 million in 2004.

 

Mueller Co.net sales for the nine months ended June 26, 2004 increased by $48.5 million,or 12.6%, from $384.2 million in 2003 to $432.7 million in 2004. Theincrease in net sales was primarily driven by volume and pricing growth,particularly in iron fire hydrants, water valve and brass water products.  This growth was driven by the continuedstrength in the residential construction market, favorable weather conditionsand improved general economic conditions. Increased prices were due to a price increase announced by the companyin February. The Milliken Valve acquisition, completed in January 2003,contributed $3.6 million.

 

Anvil netsales for the nine months ended June 26, 2004 increased by $23.7 million,or 8.3%, from $287.2 million in 2003 to $310.9 million in 2004. TheSTAR acquisition accounted for $11.4 million of increased sales.  The US non-residential construction marketexperienced increased activity which as led to increased sales volume offset bysoftening of power plant construction. In addition, sales price increases contributed to the revenue growth.

 

 *Gross Profit.*  Gross profit for the nine months ended June26, 2004 increased $33.9 million, from $176.0 million in 2003 to$209.9 million in 2004. Gross margin increased from 26.2% to 28.2%.

 

Mueller Co.gross profit for the nine months ended June 26, 2004 increased$25.2 million, from $114.3 million in 2003 to $139.5 million in2004. Gross margin increased from 29.8% in 2003 to 32.2% in 2004. The increasein gross profit was primarily driven by increased selling prices and volumes oniron fire hydrants, water valves and brass water products, favorable productmix, increase fixed overhead absorption due to higher production levels, theacquisition of Milliken Valve (which contributed $1.2 million), focused effortsto reduce spending, and the strength of the Canadian dollar (relative to the USdollar).

 

Anvil grossprofit for the nine months ended June 26, 2004 increased $8.7 million,from $61.7 million in 2003 to $70.4 million in 2004. Gross marginincreased 1.1% from 21.5% to 22.6%. The STAR acquisition contributed $2.0million.  The remaining increase wasprimarily driven by price increases announced in the second quarter of fiscalyear 2004 and the strength of the Canadian dollar relative to the US dollar.  This was partially offset by increased rawmaterial costs.

 

 *Selling,General & Administrative Expense.*  SG&A for the nine months ended June 26,2004 increased $12.7 million, from $113.9 million in 2003 to$126.6 million in 2004. As a percentage of net sales, SG&A remainedstable at 17.0%.

 

Mueller Co.SG&A for the nine months ended June 26, 2004 was $46.0 million, or a 22.7%increase from $37.5 million for the nine months ended June 28, 2003.  As a percentage of net sales, SG&Aincreased from 9.8% in 2003 to 10.6% in 2004. This increase in SG&A expenseas a percentage of net sales was driven in part by the Milliken acquisition,which contributed $0.7 million of new expense. Excluding the impact of theMilliken acquisitions, SG&A expense increased $7.0 million, driven by a$1.9 million increase in amortization expense related to intangibles acquiredin 2003 and 2004 and maintenance and tooling inventory, higher sales commissionand other compensation costs, the addition of sales personnel and a new localsales office, increased provisions for doubtful accounts due to higher salesvolumes, increased product redesign costs of $0.4 million, and higheryear-over-year group medical costs due to an increase in claims activity.

 

Anvil SG&Afor the nine months ended June 26, 2004 increased $3.4 million, or 6.8%,from $50.0 million in 2003 to $53.4 million in 2004. As a percentageof net sales, SG&A decreased

 

31

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from 17.4% in 2003 to 17.2% in2004.  The STAR acquisition added $2.1million of new expense.  The remainingincrease was driven by increased compensation expense and sales and warehousingcosts associated with higher sales. These increases were offset by continued cost reductions and facilityrationalization related to Anvil’s US distribution network, a decrease in severancecosts paid as part of Anvil’s facility rationalization and other costs incurredwith a fire loss in Columbia in the first quarter of fiscal year 2003.

 

Corporateexpenses for the nine months ended June 26, 2004 were $27.2 million ascompared to $26.4 million in 2003, an increase of $0.8 millionprimarily due to increased compensation charges and legal and accounting feesrelated to the recapitalization of the Company in 2004.

 

*StockCompensation Expense. *Corporatestock compensation expense for the nine months ended June 26, 2004 was $15.8million, an increase of $15.3 million from 2003.  This was due to a $15.5 million charge ($12.6million cash and $2.9 million non-cash) for employee optionholders in connectionwith the recapitalization of the Company.

 

 *Facility rationalizationand related costs.*  MuellerCo. facility rationalization costs decreased $1.0 million in 2004 ascompared to 2003, reflecting lower asset impairment charges. Anvil costsincreased $0.2 million in 2004 as compared to 2003, reflecting higherfacility consolidation and cost reduction activity.

 

 *Interest Expense.*  Interest expense for the nine months endedJune 26, 2004 was $42.0 million, or a 48.4% increase from$28.3 million for 2003.  In November2003, $50.0 million of senior subordinated notes due 2009 were redeemed.  As a result, interest expense for the ninemonths ending June 26, 2004 increased relative to the prior period due to a$7.0 million prepayment premium and a $0.4 million write-off of deferredfinancing fees.  This was partiallyoffset by a $4.4 million reduction in interest expense as a result of theredemption of our senior subordinated notes due 2009.  Also, in April 2004 the term debt wasrefinanced and new bonds for $315.0 million and $100.0 million were issued plusthe discount notes.  This resulted in anadditional write-off of term debt deferred financing fees of $6.6 million, $6.7million of interest expense on the new bonds, $2.6 million of accretion on thediscount notes and $1.3 million of increased amortization on a larger balanceof deferred financing fees.  Theseincreases were partly offset by a $5.1 million decrease in term debt interestexpense due to lower interest rates.

 

 *Income Tax Expense.*  Income tax expense for the nine months endedJune 26, 2004 was $6.6 million as compared to $13.2 million in 2003.The effective tax rate, excluding discrete items in 2004, was 40% in bothyears.  Discrete third quarter eventsallowed the Company to adjust tax accruals, as described in the quarterlycomparison section.

 

 *EBITDA.*  EBITDA for the nine months ended June 26,2004 increased by $6.3 million, or 5.7%, from $110.3 million in 2003to $116.6 million in 2004. EBITDA margin decreased from 16.4% in 2003 to15.7% in 2004.

 

Mueller Co.EBITDA for the nine months ended June 26, 2004 was $111.4 million, a $17.4million increase over the $94.0 million of EBITDA reported for the nine monthsended June 28, 2003.  This increase wasprimarily driven by increased sales volumes and selling prices on water valvesand hydrants, increased absorption of fixed overhead costs due to higherproduction volumes, the strength of the Canadian dollar relative to the USdollar and the acquisition of Milliken Valve (contributing $0.5 million).  These increases were partially offset byhigher raw material prices (brass ingot and steel scrap) and selling, generaland administrative expenses as described in 

 

32

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the Mueller Co. SG&Asection above.

 

Anvil EBITDAincreased $5.3 million to $28.8 million for the nine months ended June 26,2004.  This is a 22.6% increase over the$23.5 million of EBITDA for the same period in 2003.  This increase was primarily driven byincreased selling prices in the second quarter of fiscal 2004, the strength ofthe Canadian dollar relative to the US dollar, and the acquisition ofSTAR.  These increases were partiallyoffset by rising raw material prices and weaker sales volumes in the firstquarter of fiscal 2004.

 

CorporateEBITDA changed by $(16.4) million from $(7.2) million for the nine months endedJune 28, 2003 to $(23.6) million for the nine months ended June 26, 2004.  This was primarily due to compensationcharges as described in the Corporate Stock Compensation Expense section above.

 

**Liquidity and Capital Resources**

** **

We are a holding company and have no direct material operations.  Our only material asset is our ownership ofGroup, and our only material liabilities are the notes, our guarantee of thesenior credit facility and our potential obligation to repurchase Dale Smith’sequity interest (see note 8).  Ourprincipal source of liquidity has been and is expected to be dividends fromGroup and our principal use of cash will be for debt service beginning in 2009.

 

The senior credit facility, secured notes and subordinated notesdescribed below are obligations of Group and impose limitations on its abilityto pay dividends to us.  For example, thesecured notes and subordinated notes limit the amount of “restricted payments”(including dividends) that Group can make.  Generally, Group can make dividends only if its fixed charge coverageratio (as defined) is 2.5 to 1 or better and only from an amount equal to 50%of its cumulative net income (as defined) since January 1, 2004, subject tocertain exceptions.  The senior creditfacility generally prohibits “restricted payments”, including dividends, byGroup, subject to certain exceptions, including payments for overhead expenses(including advisory fees to Credit Suisse First Boston LLC under the financialadvisory agreement), taxes, the repurchase or redemption of our capital stockheld by employees of Group (subject to certain conditions and limitations), andmandatory payments of interest under the notes (so long as there is no defaultor event of default).  Group’s ability togenerate net income will depend upon various factors that may be beyond ourcontrol.  Accordingly, Group may notgenerate sufficient cash flow or be permitted by the terms of its debtinstruments to pay dividends or distributions to us in amounts sufficient toallow it to pay cash interest on the notes. We would then be required to secure alternate financing, which may notbe available on acceptable terms, or at all.

 

Group’s principal sources of liquidity have been and are expected to becash flow from operations and borrowings under the senior credit facility.  Its principal uses of cash will be debtservice requirements as described below, capital expenditures, working capitalrequirements, dividends to us to finance our cash needs and possibleacquisitions.

 

*Debt Service*

 

As of June 26, 2004 we had: (a) total indebtedness ofapproximately $1,041.5 million; and (b) approximately $61.0 millionof borrowings available under our senior credit facility, subject to customaryconditions. As of June 26, 2004 we had obtained $18.9 million in letters ofcredit, which reduces availability for borrowings thereunder. Our significantdebt service obligations could have material consequences to our securityholders.  Our key financial covenants aredependent on attaining certain levels of EBITDA, as defined in the respectivedebt arrangements.  The most restrictivecovenant in effect at June 26, 2004 related to our leverage ratio, as definedin the debt arrangements, which required approximately $155 million of EBITDAover the trailing twelve months, based on our net debt outstanding.  Our EBITDA, as defined in the agreements,exceeded $190 million over the trailing twelve months.

 

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*Senior CreditFacility.*  The senior credit facility includes a$545.0 million amortizing term loan maturing April 22, 2011 and an$80.0 million revolving credit facility that will terminate April 22,2009. The revolving credit facility and/or the term loan facility is subject toa potential, although uncommitted, increase of up to an aggregate of$50.0 million at our request at any time prior to maturity. In addition,although uncommitted, a sub-facility may be made available to one or more ofour restricted foreign subsidiaries in an aggregate principal amount of up to$30.0 million or the foreign currency equivalent of thereof. This increase andthe additional foreign currency sub-facility will only be available if one ormore financial institutions agree to provide them.

 

Borrowings under the senior credit facility bear interest based on amargin over, at our option, the base rate or the reserve-adjusted London-interbankoffered rate, or LIBOR. The applicable margin will be 3.25% over LIBOR and2.00% over the base rate for borrowings under the revolving senior creditfacility and 3.25% over LIBOR and 2.00% over the base rate for term loans.Beginning at a time set forth in the senior credit facility, the applicablemargin for revolving credit loans is expected to vary based upon Group’s ratioof consolidated debt to EBITDA, as defined in the senior credit facility.Group’s obligations under the senior credit facility are guaranteed by us andall of Group’s existing or future domestic restricted subsidiaries and are securedby substantially all of the assets of Group and the subsidiary guarantors,including a pledge of the capital stock of all our existing and future domesticsubsidiaries, a pledge of no more than 65.0% of the voting stock of any foreignsubsidiary, a pledge of all intercompany indebtedness in favor of Group and itsdomestic restricted subsidiaries, and a pledge of Group’s capital stock by us.The senior credit facility contains customary covenants, including covenantsthat limit Group’s ability to incur debt and liens, pay dividends and makeinvestments and capital expenditures, and events of default.

 

*Senior Discount Notes*. The notes will mature in 2014.  Nocash interest will accrue on the notes prior to April 15, 2009.  The notes had an initial accreted value of$493.596 per $1,000 principal amount at maturity of notes on April 29,2004.  The accreted value of each notewill increase from the date of issuance until April 15, 2009, at a rate of14.75% per annum, compounded semi-annually such that the accreted value willequal the principal amount at maturity on April 15, 2009.  Thereafter, cash interest on the notes willaccrue and be payable semi-annually in arrears on April 15 and October 15 ofeach year, commencing on October 15, 2009 at a rate of 14.75% per annum.  The notes contain customary covenants andevents of default, including covenants that limit our ability to incur debt,pay dividends and make investments.

 

*SecuredNotes.*  The secured notes will mature in 2011 and areguaranteed by each of Group’s existing domestic restricted subsidiaries andsecured by second-priority liens on the assets securing Group’s seniorcredit facility (other than certain subsidiary stock and our assets). Intereston the secured notes will be payable quarterly in cash at a rate equal tothree-month LIBOR plus 4.75%. The secured notes contain customary covenants andevents of default, including covenants that limit our ability to incur debt,pay dividends and make investments and also include a maintenance covenant limitingGroup’s senior total leverage as a multiple of EBITDA, as defined in theindenture.

 

*SubordinatedNotes.*  The subordinated notes will mature in 2012and are guaranteed by each of Group’s existing domestic restrictedsubsidiaries. Interest on the subordinated notes is payable semi-annually incash. The subordinated notes contain customary covenants and events of default,including covenants that limit Group’s ability to incur debt, pay dividends andmake investments.

 

*CapitalExpenditures*

 

The senior credit facility contains restrictions on our ability to makecapital expenditures. Based on current estimates, management believes that theamount of capital expenditures permitted to be made under the senior creditfacility will be adequate to maintain the properties and business of ourcontinuing operations.

 

*Sources ofFunds*

* *

We anticipate that our operating cash flow, together with permittedborrowings under the senior credit facility, will be sufficient to meet ouranticipated future operating expenses, capital expenditures and debt 

 

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serviceobligations as they become due for at least the next twelve months. However,our ability to make scheduled payments of principal of, to pay interest on orto refinance our indebtedness and to satisfy our other debt obligations willdepend upon our future operating performance, which will be affected by generaleconomic, financial, competitive, legislative, regulatory, business and otherfactors beyond our control.

 

From time to time we may explore additional financing methods and othermeans to lower our cost of capital, which could include stock issuance or debtfinancing and the application of the proceeds therefrom to the repayment ofbank debt or other indebtedness. In addition, in connection with any futureacquisitions, we may require additional funding which may be provided in theform of additional debt or equity financing or a combination thereof. There canbe no assurance that any additional financing will be available to us onacceptable terms.

 

***Historical***

*** ***

Historically,our financing requirements have been funded primarily through cash generated byoperating activities and borrowings under our revolving credit facility.  From time to time, we have also raisedadditional funds through term debt offerings.

* *

*Cash flowsfrom operating activities.*  Net cash provided by operations was$50.2 million for the first nine months of 2004, an increase of$17.1 million compared to the first nine months of 2003. The improvementwas primarily the result of increased earnings before depreciation,amortization and non-cash charges, and a rise in accounts payable caused byincreased production to meet demand. This was partially offset by increases in accounts receivable due tohigher sales in the third quarter of fiscal 2004.

 

 *Cash flows used ininvesting activities.*  In thefirst nine months of 2004 we had net cash used in investing activities of$36.6 million compared to net cash used in the first nine months of 2003of $11.7 million. This was primarily due to the decrease in restrictedcash of $11.6 million in the first nine months of 2003 as the finalroyalty payment was made to Tyco. Also, cash paid for acquired companiesincreased from $11.2 million in 2003 to $19.8 million in 2004, and capitalexpenditures were $4.8 million higher in 2004.

 

 *Cash flows from financingactivities.*  Cash flows usedin financing activities increased from $2.7 million in the first nine months of2003 to $61.9 million in the first nine months of 2004. This was primarily dueto early payment of $50 million of subordinated notes due 2009 and $30.0million of early payments on our senior credit facility term debt.

 

**Off-Balance Sheet Arrangements**

 

We do not have any relationships with unconsolidated entities orfinancial partnerships, such as entities often referred to as structuredfinance or special purpose entities, which would have been established for thepurpose of facilitating off-balance sheet arrangements or other contractuallynarrow or limited purposes. In addition, we do not have any undisclosedborrowings or debt, and we have not entered into any derivative contracts(other than those described in “—Qualitative and Quantitative Disclosure AboutMarket Risk—Interest Rate Risk”) or synthetic leases. We are, therefore, notmaterially exposed to any financing, liquidity, market or credit risk thatcould arise if we had engaged in such relationships.

 

We utilize letters of credit and surety bonds in the ordinary course ofbusiness to ensure our performance of contractual obligations. As of June 26,2004, we had $18.9 million of letters of credit and $10.9 million ofsurety bonds outstanding.

 

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**ContractualObligations**

** **

Our contractual obligations as of June 26, 2004:

 

**Payments Dueby Period**

** **
| **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            |       | $                            | 1.4        |               | $          | 10.9               |       | $                 | 10.9       |      | $          | 1,013.2 |   | $ | 1,036.4 |   |
| Interest on long-term debt(1)          |       | 60.4                         |       | 120.8              |       | 120.8              |       | 432.1             |       | 734.1     |       |
| Capital lease obligations              |       | 1.0                          |       | 1.5                |       | —             |       | —            |       | 2.5       |       |
| Operating leases                       |       | 8.2                          |       | 12.2               |       | 5.4                |       | 2.2               |       | 28.0      |       |
| Unconditional purchase  obligations(2) |       | 8.0                          |       | —             |       | —             |       | —            |       | 8.0       |       |
| Other long-term  obligations(3)        |       | —                       |       | —             |       | —             |       | —            |       | —    |       |
| Total contractual cash  obligations    |       | $                            | 79.0       |               | $          | 145.4              |       | $                 | 137.1      |      | $          | 1,447.5 |   | $ | 1,809.0 |   |

 

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(1)                                  Interest on the senior credit facilityand secured notes is calculated using LIBOR of 1.34%, the rate in effect onJune 26, 2004. Each increase or decrease in LIBOR of 0.125% would result in anincrease or decrease in annual interest on the senior credit facility andsecured notes of $0.8 million. Because the interest rate under the seniorcredit facility and secured notes will be variable, actual payments may differ.Interest does not include payments that could be required under our interest-rateswap agreements, which payments will depend upon movements in interest ratesand could vary significantly.

 

(2)                                  Includes contractual obligations forpurchases of raw materials and capital expenditures.

 

(3)                                  Excludes the deferred payment portion ofthe purchase price for Star. The Star purchase price is subject to adjustmentto reflect, among other things, a deferred payment to be made by us to theextent that the gross profit of the business exceeds the target gross profitfrom February 1, 2004 to January 31, 2007. Although the maximumamount payable is $23 million, we estimate that the total deferred payment willbe approximately $11.0 to $13.0 million. This calculation of the potentialStar purchase price adjustment is based on management’s best estimate; however,the actual adjustment may be materially different.

 

###### **Effect ofInflation; Seasonality**

** **

We do notbelieve that general inflation has had a material impact on our financialposition or results of operations, with the exception of recent increases inthe cost of our raw materials.

 

Our businessis dependent upon the construction industry, which is very seasonal due to theimpact of winter or wet weather conditions. Our net sales and operating incomehave historically been lowest, and our working capital needs have been highest,in the three month periods ending December 31 and March 31, when thenorthern United States and all of Canada generally face weather that restrictssignificant construction activity and we build working capital in anticipationof the peak construction season, during which time our working capital tends tobe reduced.

 

###### **CriticalAccounting Policies**

** **

Oursignificant accounting policies are described in our audited consolidatedfinancial statements for the year ended September 30, 2003 as found in ourregistration statement filed on Form S-4 (File No. 333-116590). While allsignificant accounting policies are important to our consolidated financialstatements, some of these policies may be viewed as being critical. Suchpolicies 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 

 

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uponour historical experience and on various other assumptions that we believe tobe reasonable under the circumstances. Our actual results may differ from theseestimates under different assumptions or conditions. An update of certain ofour most critical accounting policies since September 30, 2003 is as follows:

 

***Pensions***

** **

We sponsor a number of defined benefit retirement plans. Theliabilities and annual income or expense of our plans is determined usingmethodologies that involve several actuarial assumptions, the most significantof which are the discount rate and the long-term rate of asset return.

 

In developing the expected long-term rate of return assumption forpension fund assets, we evaluated input from our actuaries, including theirreview of asset class return expectations as well as long-term inflationassumptions. Projected returns are based on historical returns of broad equityand bond indices. We also considered our historical 10-year compound returns. Weanticipate that, as the economy recovers, our investment managers will continueto generate long-term rates of return of 7.9%. Our expected long-term rate ofreturn is based on an assumed asset allocation of 65% equity funds and 35%fixed-income funds.

 

The discount rate that we utilize for determining future pensionobligations is based on a review of long-term bonds that receive one of the twohighest ratings given by a recognized rating agency. The discount ratedetermined on this basis has decreased to 6.0% at September 30, 2003 from6.8% at September 30, 2002.

 

Lowering the expected long-term rate of return by 0.5% (from 7.9% to7.4%) would have increased our pension expense for the year endedSeptember 30, 2003 by approximately $0.3 million. Lowering thediscount rate assumptions by 0.5% would have increased our pension expense forthe year ended September 30, 2003 by approximately $0.4 million. 

 

***RevenueRecognition***

** **

Revenue is recognized when title and risk of loss is transferred to thecustomer, which is generally upon receipt of the product by the customer.Revenue is reduced at the time of sale for cash discounts and rebates. Wereview cash discounts and rebates, sales returns and bad debts and maintainreserves based on the historical trends. If cash discounts and rebates, returnsor bad debts were to increase, additional reserves could be required.

 

***Inventories***

 

Inventories are recorded at the lower of cost (first-in, first-out) ormarket value. We maintain a reserve for potential losses on the disposal of ourobsolete and slow moving inventory based on regular analysis of our historicalusage levels. If our evaluation is incorrect, we could be required to takelarger reserves.

 

***Income Taxes***

** **

Deferred tax liabilities and assets are recognized for the expectedfuture tax consequences of events that have been included in the financialstatements or tax returns. Deferred tax liabilities and assets are determinedbased on the differences between the financial statements and the tax basis ofassets and liabilities, using tax rates in effect for the years in which thedifferences are expected to reverse. A valuation allowance is provided tooffset any net deferred tax assets if, based upon the available evidence, it ismore likely than not that some or all of the deferred tax assets will not berealized. If we were to reduce our estimates of future taxable income, we couldbe required to record a valuation allowance against our deferred tax assets.

 

The Company has recorded provisions associated with income taxexposures.  Such provisions requiresignificant judgment and are adjusted when events or circumstances occur thatwould require a change in the estimated accrual.

 

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***Impairment ofLong-Lived Assets***

** **

We evaluate our long-lived assets, including intangible assets, forimpairments whenever events or changes in circumstances indicate that thecarrying amounts of these assets may not be recoverable, and, in any event, atleast annually. We consider the carrying value of a long-lived asset to havebeen impaired if the anticipated undiscounted cash flows from such an asset isless than its carrying value. If our operating performance declinessignificantly, we may need to record impairment charges to reduce the carryingvalue of our long-lived assets. Effective October 1, 2001, the Companyadopted SFAS No. 142, which requires that goodwill no longer be amortized,but instead be tested for impairment at least annually and also allowsindefinite lived intangibles, such as tradenames, to no longer be amortized.SFAS No. 142 also requires recognized intangible assets to be amortizedover their respective estimated useful lives and reviewed for impairment. Anyrecognized intangible asset determined to have an indefinite useful life willnot be amortized, but instead tested for impairment in accordance with thestandard until its life is determined to no longer be indefinite. Goodwill istested for impairment at least annually, using both a discounted cash flowmethod and a market comparable method. As of October 1, 2001,September 30, 2002 and 2003, no impairment was indicated.

 

***Stock-BasedCompensation***

** **

We account for our stock-based compensation plan under AccountingPrinciples Board Opinion No. 25 (“APB No. 25”), “Accounting for StockIssued to Employees,” which requires recognizing compensation costs based uponthe intrinsic value of the equity instrument at the grant date. The FASB issuedSFAS No. 123, “Accounting for Stock-Based Compensation,” whichencourages companies to recognize compensation costs based upon the fair valueof the equity instrument at the grant date. However, SFAS No. 123 allowscompanies to continue to apply the provisions of APB No. 25 and make proforma disclosures assuming a hypothetical fair value application. We haveadopted the pro forma disclosure provisions of SFAS No. 123.

 

We recognize compensation cost for stock-based compensationarrangements equal to the difference, if any, between the fair value of thestock option and the exercise price at the date of the grant in accordance withthe provisions of APB No. 25. All options granted under the ManagementIncentive Plan were issued at fair value at the date of grant. Fair value isdetermined by a committee of the board of Mueller Holdings (or the board ofMueller Holdings as a whole, if no committee is constituted), which will takeinto account as appropriate recent sales of shares of Mueller Holdings’ commonstock, recent valuations of such shares, any discount associated with the absenceof a public market for such shares and such other factors as the committee (orthe board, as the case may be) deems relevant or appropriate in its discretion.

 

Certain of our employees held options in Mueller Holdings shares. Inconnection with the refinancing, Mueller Holdings modified these stock optionawards to accelerate vesting upon completion of a refinancing. A portion of thedividend distribution to Mueller Holdings was used to make a payment to itsemployee optionholders of the excess of the per share dividend to MuellerHoldings’ common stockholders over the exercise price of their options, orapproximately $12.6 million in the aggregate, and the options were cancelled.The option buy-out resulted in an additional charge of approximately $14.8 million($12.6 million cash charge and $2.2 million non-cash charge) in the thirdquarter of 2004.  Additionally, MuellerHoldings recorded a non-cash compensation charge of approximately $0.7 millionrelated to the loan portion of the shares purchased pursuant to the MuellerHoldings’ Direct Investment Program. These charges total $15.5 million.

 

***DerivativeInstruments and Hedging Activities***

** **

We currently use interest rate swaps as required in our existing seniorcredit facility to reduce the risk of interest rate volatility. The amount tobe paid or received from interest rate swaps is charged or credited to interestexpense over the lives of the interest rate swap agreements. Changes in thefair value of derivatives are recorded each period in earnings or AccumulatedOther Comprehensive Income (Loss), depending on whether a derivative isdesignated and effective as part of a hedge transaction and meets theapplicable requirements associated with SFAS No. 133. All gains orlosses since the adoption of SFAS 

 

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No. 133associated with interest rate swaps have been included in earnings and notAccumulated Other Comprehensive Income (Loss).

 

For a derivative to qualify as a hedge at inception and throughout thehedge period, we must formally document the nature and relationships betweenthe hedging instruments and hedged items, as well as its risk-managementobjectives, strategies for undertaking the various hedge transactions andmethod of assessing hedge effectiveness. Any financial instruments qualifyingfor hedge accounting must maintain a specified level of effectiveness betweenthe hedging instrument and the item being hedged, both at inception andthroughout the hedged period.

 

Additionally, we utilize forward contracts to mitigate our exposure tochanges in foreign currency exchange rates from third-party andintercompany forecasted transactions. The primary currency to which we areexposed and as to which we seek to hedge our exposure is the Canadian Dollar.The effective portion of unrealized gains and losses associated with forwardcontracts are deferred as a component of Accumulated Other Comprehensive Income(Loss) until the underlying hedged transactions are reported in ourconsolidated statement of earnings.  Asof June 26, 2004, we had forward foreign exchange contracts outstanding with anotional principal amount of $3.0 million to hedge our Canadian operations’exposure to currency fluctuations on products purchased from U.S. suppliers.

 

**Recently Issued Accounting Standards**

** **

In January 2003, the FASB issued Interpretation No. 46,“Consolidation of Variable Interest Entities.” Interpretation No. 46requires a variable interest entity to be consolidated by a company if thatcompany is subject to a majority of the risk of loss from the variable interestentity’s activities or is entitled to receive a majority of the entity’sresidual return or both. Interpretation No. 46 also provides criteria fordetermining whether an entity is a variable interest entity subject toconsolidation. Interpretation No. 46 requires immediate consolidation ofvariable interest entities created after January 31, 2003. For variableinterest entities created prior to February 1, 2003, consolidation isrequired on July 1, 2003. Interpretation No. 46 did not have amaterial impact on our consolidated financial statements at the date ofadoption or at September 30, 2003. On December 24, 2003, the FASB issued a revision to Staff Interpretation(FIN) No. 46 (revised 2003), which clarified some of the provisions of theoriginal Interpretation No. 46 and exempted certain entities from itsrequirements. The application of revised FIN 46 is required in financialstatements of public entities that have interests in variable interest entitiescommonly referred to as special purpose entities for periods ending afterDecember 15, 2003. Application by public entities, other than small businessentities, for all other types of entities is required in financial statementsfor periods ending March 15, 2004. We do not believe the revised FIN No. 46will have a material effect on our financial condition or results of operationsand we will provide the disclosures, where appropriate, as provided for inrevised FIN No. 46.  At June 26, 2004 wedid not have any entities that would be considered variable interest entities.

 

On December 23, 2003, the FASB issued SFAS No. 132 (revised2003), “Employers’ Disclosures about Pensions and Other PostretirementBenefits.” SFAS No. 132 retains the disclosures required by the originalStatement No. 132, which standardized the disclosure requirements forpensions and other postretirement benefits to the extent practicable andrequired additional information on changes in the benefit obligations and fairvalues of plan assets. Additional disclosures have been added in response toconcerns expressed by users of financial statements. Those disclosures includeinformation describing the types of plan assets, investment strategy,measurement date(s), plan obligations, cash flows, and components of netperiodic benefit cost recognized during interim periods. The provisions ofStatement 132 remain in effect until the provisions of the revised Statement132 are adopted. This revised Statement is effective for financial statementswith fiscal years ending after December 15, 2003. The interim-perioddisclosures required by this revised Statement are effective for interimperiods beginning after December 15, 2003. We have provided the additionalrequired disclosure information.

 

On December 17, 2003, the Securities and Exchange Commissionissued Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition,which supercedes SAB 101, Revenue Recognition in Financial Statements. SAB104’s primary purpose is to rescind accounting guidance contained in SAB 101related to multiple element revenue arrangements, superceded as a result of theissuance of Emerging Issues Task 

 

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Force(EITF) 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.”Additionally, SAB 104 rescinds the SEC’s Revenue Recognition in FinancialStatements Frequently Asked Questions and Answers issued with SAB 101 that hadbeen codified in SEC Topic 13, Revenue Recognition. The adoption of this bulletindid not have an impact on our financial condition or results of operations.

 

In May 2003, the FASB issued SFAS No. 150, “Accounting forCertain Financial Instruments With Characteristics of Both Liabilities andEquity.” SFAS 150 establishes standards for how a company classifies andmeasures certain financial instruments with characteristics of both liabilitiesand equity. It requires that a company classify a financial instrument that iswithin its scope as a liability (or an asset in some circumstances). MuellerHoldings issued 16% Senior Exchangeable Preferred Stock in connection with itsformation which would be subject to SFAS 150 for the fiscal year beginningOctober 1, 2004.  The preferredstock was redeemed by Mueller Holdings on April 23, 2004.  Therefore, the adoption of this statement willnot have any impact on our financial condition or result of operations.

 

**ITEM 3****. QUALITATIVE ANDQUANTITATIVE DISCLOSURE ABOUT MARKET RISK**

** **

We are exposed to various market risks, which are potential losses arisingfrom adverse changes in market rates and prices, such as interest rates andforeign exchange fluctuations. We do not enter into derivatives or otherfinancial instruments for trading or speculative purposes.

 

Our primary financial instruments are cash and cash equivalents. Thisincludes cash in banks and highly rated, liquid money market investments andU.S. government securities. We believe that those instruments are not subjectto material potential near-term losses in future earnings from reasonablypossible near-term changes in market rates or prices.

 

***Interest RateRisk***

** **

At June 26, 2004 we had fixed rate debt of $426.5 million andvariable rate debt of $615.0 million. The pre-tax earnings and cash flowsimpact resulting from a 100 basis point increase in interest rates on variablerate debt, holding other variables constant and excluding the impact of thehedging agreements described below, would be approximately $6.2 millionper year.

 

We have entered into interest rate swap agreements with a notionalprincipal amount of $150.0 million in order to reduce interest rate risksand manage interest expense. The swap agreements, which mature betweenJuly 2004 and July 2005, effectively convert floating rate debt underour credit facility into fixed-rate debt and carry an average fixed interestrate of 7.55% at June 26, 2004. We plan to retain these interest rate swaps andintend to enter into additional interest rate swaps or other interest ratehedging instruments to protect against interest rate fluctuations on our newfloating rate debt.

 

The senior credit facility requires us to enter into interest rateprotection agreements no later than January 23, 2005 that have the effect ofcausing the interest on at least half of our total long-term, non-revolvingdebt to be fixed.

 

***Currency Risk***

** **

Outside of the United States, we maintain assets and operations inCanada and, to a much lesser extent, China. The results of operations andfinancial position of our foreign operations are principally measured in theirrespective currency and translated into U.S. dollars. As a result, exposure toforeign currency gains and losses exists. The reported income of thesesubsidiaries will be higher or lower depending on a weakening or strengtheningof the U.S. dollar against the respective foreign currency. Our subsidiariesand affiliates also purchase and sell products and services in variouscurrencies. As a result, we may be exposed to cost increases relative to thelocal currencies in the markets in which we sell. Because a differentpercentage of our revenues is in foreign currency than our costs, a change inthe relative value of the U.S. dollar could have a disproportionate impact onour revenues compared to our cost, which could impact our margins.

 

A portion of our assets are based in our foreign locations and aretranslated into U.S. dollars at foreign currency exchange rates in effect as ofthe end of each period, with the effect of such translation reflected 

 

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inother comprehensive income (loss). Accordingly, our consolidated stockholder’sequity will fluctuate depending upon the weakening or strengthening of the U.S.dollar against the respective foreign currency.

 

Our strategy for management of currency risk relies primarily onconducting our operations in a country’s respective currency and may, from timeto time, involve currency derivatives, primarily forward foreign exchangecontracts, to reduce our exposure to currency fluctuations. As of June 26,2004, we had forward foreign exchange contracts outstanding with a notionalprincipal amount of $3.0 million to hedge our Canadian operations’exposure to currency fluctuations on products purchased from U.S. suppliers.

 

***Raw MaterialsRisk***

** **

Our products are made from several basic raw materials, including sand,resin, brass ingot, steel pipe, and scrap steel and iron, whose pricesfluctuate as market supply and demand change. Accordingly, product margins andthe level of profitability can fluctuate if we are not able to pass rawmaterial costs on to our customers. Historically, we have been able to obtainan adequate supply of raw materials and do not anticipate any shortage of thesematerials. We generally purchase raw materials at spot prices but may, fromtime to time, enter into commodity derivatives to reduce our exposure tofluctuation in the price of raw materials. As of June 26, 2004, we had no opencontracts to hedge our exposure to price changes of raw materials.

 

**ITEM4. CONTROLS AND PROCEDURES**

 

We became subject to therequirements of the Exchange Act and the rules promulgated thereunder on August10, 2004.  As part of the process ofcomplying with applicable laws and rules, we performed an evaluation of ourdisclosure controls and procedures as of June 26, 2004.  In August 2004, we advised our AuditCommittee that a significant deficiency in internal controls had been notedrelated to unauthorized journal entries found at one of our Anvil facilitiestotaling $1.1 million made in fiscal 2003 and 2004.  Additionally, in August 2004, we advised theAudit Committee of a material weakness related to the subsequent revision ofinterim financial statements that we provided to our note holders under theindenture agreement prior to the filing of the Form 10-Q.

 

Regarding the significantdeficiency, we conducted an in-depth investigation of the circumstancesunderlying the unauthorized journal entries and took appropriate remedialactions.  Our principal executive officerand principal financial officer believe that procedures we performed providereasonable assurance that the identified deficiency did not lead to materialmisstatements in the company’s consolidated financial statements for the thirdquarter of 2004 Form 10-Q or any prior period.

 

The material weakness relatedto the timely and accurate preparation of the interim financialstatements.  The financial statementsprovided to note holders on August 10, 2004 were subsequently revised primarilyto increase income tax expense by $5.1 million, upon completion of the thirdquarter interim review procedures by PricewaterhouseCoopers (PwC).  At this time, we are taking additional stepsto implement an internal control structure and procedures for financialreporting, including those contemplated by Section 404 of the Sarbanes-OxleyAct, that would allow us to produce financial statements and related disclosurewithin the time periods and in the form required under the Exchange Act,including on a quarterly basis.  In orderto comply with these requirements, we are in the process of hiring additionalaccounting and finance staff and implementing new financial systems andprocedures.

 

Other than the changesdescribed in this Item 4, there has been no change in our internal control overfinancial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) identified inconnection with the evaluation by our CEO and CFO during the quarter ended June26, 2004 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.  The company will continue to improve itsprocesses and procedures as appropriate in order to monitor and support itsfinancial reporting and internal control procedures.

 

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Our Chief Executive Officer andChief Financial Officer, based on the evaluation of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d -15(e) of the Securities andExchange Act of 1934, as amended) required by paragraph (b) of Rule 13a-15 orRule 15d-15, as of June 26, 2004, and taking into account the matters discussedabove, including the analysis and testing we have performed, have concludedthat the Company’s disclosure controls and procedures were effective (except asdescribed above) to ensure the timely collection, evaluation and disclosure ofinformation relating to the company that is required to be disclosed under theSecurities Exchange Act of 1934, as amended, and the rules and regulationspromulgated thereunder.

 

The effectiveness of any systemof disclosure controls and procedures is subject to various inherentlimitations, including judgments used in decision making, assumptions about thelikelihood of future events, the soundness of internal controls, and fraud.  Due to such inherent limitations, there canbe no assurance that any system of disclosure controls and procedures will besuccessful in preventing all errors or fraud, or in making all materialinformation known in a timely manner to the appropriate levels of management.

 

**PART II****OTHER INFORMATION**

 

**Item 6****.Exhibits and Reports on Form 8-K**

 

(a)  **Exhibits**

 
| 3.1    |   | Certificate of Incorporation of Mueller Holdings (N.A.), Inc.  (formerly Hydrant Acquisition Corp.) is incorporated herein by reference to  Exhibit 3.1 to our Registration Statement on Form S-1 as filed with the  Commission on June 17, 2004 (No. 333-116590).                                                                                                                        |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.2    |   | By-Laws of Mueller Holdings (N.A.), Inc. (formerly Hydrant  Acquisition Corp.) is incorporated herein by reference to Exhibit 3.2 to our  Amendment No. 1 on Form S-4 to Form S-1 as filed with the Commission on  August 6, 2004 (333-116590).                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.1    |   | Indenture, dated as of April 29, 2004, between Mueller Holdings  (N.A.), Inc. and Law Debenture Trust Company of New York for the 14.75%  Senior Discount Notes due 2014 is incorporated herein by reference to Exhibit  4.1 to our Registration Statement of Form S-1 as filed with the Commission on  June 17, 2004  (No. 333-116590).                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.2    |   | Indenture, dated as of April 23, 2004, among Mueller Group, Inc., the  Guarantors party thereto and Law Debenture Trust Company of New York for the  Second Priority Senior Secured Floating Rate Notes due 2011 is incorporated  herein by reference to Exhibit 4.2 to our Registration Statement of Form S-1  as filed with the Commission on June 17, 2004 (No. 333-116590).           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.3    |   | Indenture, dated as of April 23, 2004, among Mueller Group, Inc., the  Guarantors party thereto and Law Debenture Trust Company of New York for the  10% Senior Subordinated Notes due 2012 is incorporated herein by reference to  Exhibit 4.3 to our Registration Statement of Form S-1 as filed with the  Commission on June 17, 2004 (No. 333-116590).                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.4    |   | Stockholders Agreement, dated as of August 16, 1999, among Mueller  Holdings (N.A.) Inc. and certain other stockholders named therein is incorporated  herein by reference to Exhibit 4.4 to our Registration Statement of Form S-1  as filed with the Commission on June 17, 2004 (No. 333-116590).                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.5    |   | Amendment No. 1 to the Stockholders Agreement dated as of May 5,  2000 is incorporated herein by reference to Exhibit 4.5 to our Registration  Statement of Form S-1 as filed with the Commission on June 17, 2004 (No.  333-116590).                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.1   |   | Amended and Restated Mueller Holdings (N.A.), Inc. Management  Incentive Plan effective as of February 10, 2003 is incorporated herein by  reference to Exhibit 10.1 to our Registration Statement of Form S-1 as filed  with the Commission on June 17, 2004 (No. 333-116590).                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.2   |   | Mueller Holdings (N.A.), Inc. Direct Investment Program, effective as  of August 31, 2000 is incorporated herein by reference to Exhibit 10.2 to our  Registration Statement of Form S-1 as filed with the Commission on June 17,  2004 (No. 333-116590).                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.3   |   | Second Amended and Restated Credit Agreement, dated as of April 23,  2004, among the Mueller Group, Inc., the Guarantors party thereto and the  lenders party thereto is incorporated herein by reference to Exhibit 10.3 to  our Registration Statement of Form S-1 as filed with the Commission on June  17, 2004 (No. 333-116590).                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.4   |   | Executive Employment Agreement, dated August 16, 1999, between  Mueller Group, Inc. and Dale B. Smith is incorporated herein by reference to  Exhibit 10.4 to our Registration Statement of Form S-1 as filed with the  Commission on June 17, 2004  (No.  333-116590).                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.5   |   | Employment Agreement, dated February 1, 2003, between Mueller Group,  Inc. and George P. Bukuras is incorporated herein by reference to Exhibit  10.5 to our Registration Statement of Form S-1 as filed with the Commission  on June 17, 2004 (No. 333-116590).                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.6   |   | Mueller Group, Inc. Key Employee Severance Plan, effective as of  March 1, 2003 is incorporated herein by reference to Exhibit 10.6 to our  Registration Statement of Form S-1 as filed with the Commission on June 17,  2004 (No. 333-116590).                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.7   |   | Financial Advisory Agreement, dated July 23, 1999, between Hydrant  Acquisition Corp., Mueller Group, Inc. and Credit Suisse First Boston LLC (as  successor to Donaldson, Lufkin & Jenrette Securities Corporation) is  incorporated herein by reference to Exhibit 10.7 to our Registration  Statement of Form S-1 as filed with the Commission on June 17, 2004 (No.  333-116590). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.7.1 |   | Assignment of Financial Advisory Agreement, dated April 27, 2004,  between Hydrant Acquisition Corp, Credit Suisse First Boston LLC and DLJ  Merchant Banking II, Inc. is incorporated herein by reference to Exhibit  10.7.1 to our Registration Statement of Form S-1 as filed with the Commission  on June 17, 2004 (No. 333-116590).                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 31.1   |   | Certification of Chief  Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the  Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 31.2   |   | Certification of Chief  Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities  Exchange Act of 1934, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 32.1   |   | Certification of Chief  Executive  Officer pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 32.2   |   | Certification of Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                      |

 

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**SIGNATURES**

 

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

 
|                           | MUELLER  HOLDINGS (N.A.), INC. |                                        |
|--------------------------------|--------------------------------|---------------------------------------------|
|                           |                           |                                        |   |
| Date:  September 10, 2004 | By:                            | /s/ Dale B.  Smith                          |   |
|                           |                           |                                        |   |
|                           |                           |                                        |   |
|                           |                           | Dale B.  Smith                              |   |
|                           |                           | President  and Chief Executive Officer      |
|                           |                           |                                        |   |
| Date:  September 10, 2004 | By:                            | /s/ Darrell  M. Jean                        |   |
|                           |                           |                                        |   |
|                           |                           |                                        |   |
|                           |                           | Darrell M.  Jean                            |   |
|                           |                           | Vice  President and Chief Financial Officer |
|                                |                                |                                             |  |  |

 

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