**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q/A**

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

x        QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe quarterly period ended July 2, 2005.**

**o        TRANSITION REPORT PURSUANT TOSECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**CommissionFile Number 333-117473**

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**MUELLER GROUP, LLC***

(Exact name of registrantas specified in its charter)

| **Delaware**                     |   | **37-1387813**       |
|----------------------------------|--------|----------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer     |
| incorporation or  organization)  |   | identification  No.) |

 

**500 West Eldorado St.Decatur, IL 62522-1808**

(Address of principalexecutive offices)

**(217) 423-4471**

(Registrant’s telephonenumber, including area code)

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

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

| Common Stock | ** ** | **Shares Outstanding As of August 5, 2005** |
|-------------------|------------|---------------------------------------------------------------------------|
| $0.01 Par Value   |       | 100                                                                       |

 

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*       FormerlyMueller Group, Inc.

 

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**Explanatory Note**

The purpose of this Amendment No. 1 to theQuarterly Report on Form 10-Q of Mueller Group, LLC (formerly knownas Mueller Group, Inc.) (the “Company”) is to restate the Company’sconsolidated financial statements as of and for the three and nine months endedJuly 2, 2005. On December 14, 2005, the Company’s management and theAudit Committee of the Board of Directors determined that the financialstatements of the Company for the two years ended September 30, 2004 andinterim periods of fiscal years 2005 and 2004 required restatement.

The 2005 Restatements reflect adjustments to correctcash flow statement errors related to foreign currency translation and bookcash overdrafts, the misclassification of deferred income tax assets betweencurrent and non-current classifications in the balance sheet and themisclassification of depreciation expense between selling, general andadministrative expense and cost of sales. The 2005 Restatements had no impacton the Company’s consolidated net income or the Consolidated Statement of Stockholders’Deficit. The nature and impact of these adjustments are described in Note 2: “Restatements”in this Form 10-Q/A.

For the convenienceof the reader, this Form 10-Q/A sets forth the original Form 10-Qin its entirety. Except for the revision of management’s conclusion regardingthe effectiveness of the Company’s disclosure controls and procedures as of July 2,2005 presented under Part 1, Item 4, the Company has not modified orupdated other disclosures presented in the original report on Form 10-Qexcept for the required effects of the 2005 Restatements. Accordingly, otherthan the items indicated above, this Form 10-Q/A does not reflectevents occurring after the filing of the original Form 10-Q ormodify or update those disclosures. Information not affected by the restatementis unchanged and reflects the disclosure made at the time of the originalfiling of the Form 10-Q with the Securities and Exchange Commissionon August 12, 2005. Accordingly, this Form 10-Q/A should beread in conjunction with the Company’s filings made with the Securities andExchange Commission subsequent to the filing of the original Form 10-Q.The following items have been amended as a result of the restatement:

·       Part I—Item1. Unaudited Financial Statements

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

·       Part I—Item4. Controls and Procedures; and

·       Part II—Item6. Exhibits

i

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**MUELLERGROUP, INC.**

**REPORTON FORM 10-Q**

**FORTHE QUARTERLY PERIOD ENDED JULY 2, 2005**

**TABLE OF CONTENTS**

| PART I—FINANCIAL  INFORMATION                                                             |   | 2  |
|-----------------------------------------------------------------------------------------------------|--------|----|
| Item  1. Unaudited Financial Statements                                                             |   | 2  |
| Condensed Consolidated Balance Sheets                                                               |   | 2  |
| Condensed Consolidated Statements of Operations                                                     |   | 3  |
| Condensed Consolidated Statements of Cash Flows                                                     |   | 4  |
| Notes  to Condensed Consolidated Financial Statements                                               |   | 5  |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations |   | 33 |
| Item 3. Quantitative and Qualitative Disclosures About  Market Risk                                 |   | 48 |
| Item 4. Controls and Procedures                                                                     |   | 49 |
| PART II—OTHER  INFORMATION                                                                |   | 51 |
| Item 6. Exhibits                                                                                    |   | 51 |
| Signatures                                                                                          |   | 52 |

 

1

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**PART I. FINANCIAL INFORMATION**

**ITEM 1. FINANCIAL STATEMENTS**

**MUELLER GROUP, INC.UNAUDITED CONDENSEDCONSOLIDATED BALANCE SHEETS**

| ** **                                                                          | ** ** | **September 30,  2004  (restated)** | ** ** | **July 2,  2005  (restated)** | ** ** |
|-------------------------------------------------------------------------------------|------------|------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                          | ** ** | **(unaudited)**                          | ** ** |
| ** **                                                                          | ** ** | **(dollars in millions)**      | ** ** |
| **Assets**                                                                          | ** ** |                                     | ** ** |                               |       |   |   |
| Cash and cash  equivalents                                                          |       |                                     | $          | 60.5                               |       |   | $ | 74.3 |   |
| Receivables, net  of allowance for doubtful accounts of $5.1 and $5.3, respectively |       |                                     | 162.0      |                               |       | 160.9 |   |
| Inventories                                                                         |       |                                     | 260.2      |                               |       | 309.7 |   |
| Income taxes  receivable                                                            |       |                                     | 4.1        |                               |       | 0.5 |   |
| Deferred income  taxes                                                              |       |                                     | 21.8       |                               |       | 23.9 |   |
| Prepaid expenses  and other current assets                                          |       |                                     | 28.9       |                               |       | 26.3 |   |
| Total current assets                                                                |       |                                     | 537.5      |                               |       | 595.6 |   |
| Property, plant  and equipment, net                                                 |       |                                     | 186.8      |                               |       | 173.5 |   |
| Goodwill, net                                                                       |       |                                     | 163.2      |                               |       | 163.2 |   |
| Identifiable  intangibles, net                                                      |       |                                     | 55.2       |                               |       | 53.1 |   |
| Pension  intangible                                                                 |       |                                     | 0.8        |                               |       | 0.8 |   |
| Deferred  financing fees, net                                                       |       |                                     | 33.8       |                               |       | 30.2 |   |
| Deferred income  taxes                                                              |       |                                     | 6.5        |                               |       | 9.4 |   |
| Total assets                                                                        |       |                                     | $          | 983.8                              |       |   | $ | 1,025.8 |   |
| **Liabilities**                                                                     |       |                                     |       |                               |       |   |   |
| Accounts payable                                                                    |       |                                     | $          | 57.6                               |       |   | $ | 58.7 |   |
| Current portion  of long-term debt                                                  |       |                                     | 3.2        |                               |       | 3.9 |   |
| Accrued expenses  and other current liabilities                                     |       |                                     | 85.5       |                               |       | 83.6 |   |
| Total current liabilities                                                           |       |                                     | 146.3      |                               |       | 146.2 |   |
| Long-term debt,  net of current portion                                             |       |                                     | 929.4      |                               |       | 926.9 |   |
| Accrued pension  liability                                                          |       |                                     | 29.2       |                               |       | 33.7 |   |
| Other long-term  liabilities                                                        |       |                                     | 7.8        |                               |       | 3.6 |   |
| Total liabilities                                                                   |       |                                     | 1,112.7    |                               |       | 1,110.4 |   |
| Commitments and  contingencies (Note 8)                                             |       |                                     | —     |                               |       | — |   |
| **Shareholder’s equity**                                                       |       |                                     |       |                               |       |   |   |
| Common  stock—$0.01 par value (100 shares authorized and issued)               |       |                                     | —     |                               |       | — |   |
| Additional  paid-in capital                                                         |       |                                     | —     |                               |       | — |   |
| Accumulated  deficit                                                                |       |                                     | (112.9     | )                                  |       | (70.8 | ) |
| Accumulated other  comprehensive loss                                               |       |                                     | (16.0      | )                                  |       | (13.8 | ) |
| Total  shareholder’s equity                                                    |       |                                     | (128.9     | )                                  |       | (84.6 | ) |
| Total liabilities and  shareholder’s equity                                    |       |                                     | $          | 983.8                              |       |   | $ | 1,025.8 |   |

 

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

2

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**MUELLER GROUP, INC.UNAUDITED CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

| ** **                                                                         | ** ** | **Three months ended**                 | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                         | ** ** | **June 26, 2004**                      | ** ** | **July 2, 2005** | ** ** |
| ** **                                                                         | ** ** | **(restated)**                                   | ** ** | **(restated)** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)  (dollars in millions)** | ** ** |
| Net sales                                                                          |       |                                             | $          | 289.1 |   |   |   | $ | 296.9 |   |   |
| Cost of sales                                                                      |       |                                             | 206.3      |   |   |   | 202.1 |   |   |
| Gross profit                                                                       |       |                                             | 82.8       |   |   |   | 94.8 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       |                                             | 65.8       |   |   |   | 45.9 |   |   |
| Facility  rationalization, restructuring and related costs                         |       |                                             | —     |   |   |   | — |   |   |
| Operating income                                                                   |       |                                             | 17.0       |   |   |   | 48.9 |   |   |
| Interest expense  and early repayment costs                                        |       |                                             | (18.9      | ) |   |   | (18.5 | ) |   |
| Interest income                                                                    |       |                                             | 0.1        |   |   |   | 0.4 |   |   |
| Income before  income taxes                                                        |       |                                             | (1.8       | ) |   |   | 30.8 |   |   |
| Income tax  expense                                                                |       |                                             | (4.6       | ) |   |   | 11.0 |   |   |
| Net income                                                                         |       |                                             | $          | 2.8 |   |   |   | $ | 19.8 |   |   |

 

| ** **                                                                         | ** ** | **Nine months ended**                  | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                         | ** ** | **June 26, 2004**                      | ** ** | **July 2, 2005** | ** ** |
| ** **                                                                         | ** ** | **(restated)**                                   | ** ** | **(restated)** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)  (dollars in millions)** | ** ** |
| Net sales                                                                          |       |                                             | $          | 745.6 |   |   |   | $ | 838.2 |   |   |
| Cost of sales                                                                      |       |                                             | 541.0      |   |   |   | 583.0 |   |   |
| Gross profit                                                                       |       |                                             | 204.6      |   |   |   | 255.2 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       |                                             | 141.2      |   |   |   | 133.8 |   |   |
| Facility  rationalization, restructuring and related costs                         |       |                                             | 0.9        |   |   |   | 1.6 |   |   |
| Operating income                                                                   |       |                                             | 62.5       |   |   |   | 119.8 |   |   |
| Interest expense  and early repayment costs                                        |       |                                             | (39.3      | ) |   |   | (53.6 | ) |   |
| Interest income                                                                    |       |                                             | 0.3        |   |   |   | 1.0 |   |   |
| Income before income  taxes                                                        |       |                                             | 23.5       |   |   |   | 67.2 |   |   |
| Income tax  expense                                                                |       |                                             | 5.5        |   |   |   | 25.1 |   |   |
| Net income                                                                         |       |                                             | $          | 18.0 |   |   |   | $ | 42.1 |   |   |

 

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

3

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**MUELLER GROUP, INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

| ** **                                                                         | ** ** | **Nine months ended**     | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                         | ** ** | **June 26,  2004**             | ** ** | **July 2,  2005** | ** ** |
| ** **                                                                         | ** ** | **(restated)**                      | ** ** | **(restated)** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**                     | ** ** |
| ** **                                                                         | ** ** | **(dollars in millions)** | ** ** |
| **Cash flows from operating  activities**                                          |       |                                |       |   |   |   |   |   |   |
| Net income                                                                         |       |                                | $          | 18.0 |   |   |   | $ | 42.1 |   |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                                |       |   |   |   |   |   |   |
| Depreciation                                                                       |       |                                | 34.3       |   |   |   | 32.7 |   |   |
| Amortization of intangibles and tooling                                            |       |                                | 15.2       |   |   |   | 4.1 |   |   |
| Unrealized gain on interest rate swaps                                             |       |                                | (10.4      | ) |   |   | (4.2 | ) |   |
| Write off of deferred financing fees                                               |       |                                | 7.0        |   |   |   | — |   |   |
| All other adjustments                                                              |       |                                | 7.2        |   |   |   | (0.5 | ) |   |
| Changes in assets and  liabilities, net of the effects of acquisitions:            |       |                                |       |   |   |   |   |   |   |
| Receivables                                                                        |       |                                | (16.8      | ) |   |   | 1.6 |   |   |
| Inventories                                                                        |       |                                | (9.2       | ) |   |   | (48.8 | ) |   |
| Accounts payable and accrued expenses                                              |       |                                | 4.8        |   |   |   | (4.8 | ) |   |
| All other changes, net                                                             |       |                                | 1.5        |   |   |   | 10.9 |   |   |
| Net cash provided  by operating activities                                         |       |                                | 51.6       |   |   |   | 33.1 |   |   |
| **Cash flows from investing  activities**                                          |       |                                |       |   |   |   |   |   |   |
| Purchase of  property, plant and equipment                                         |       |                                | (17.4      | ) |   |   | (20.8 | ) |   |
| Acquisition of  businesses, net of cash acquired                                   |       |                                | (19.8      | ) |   |   | — |   |   |
| Net cash used in  investing activities                                             |       |                                | (37.2      | ) |   |   | (20.8 | ) |   |
| **Cash flows from financing  activities**                                          |       |                                |       |   |   |   |   |   |   |
| Book cash  overdrafts                                                              |       |                                | 7.9        |   |   |   | 3.6 |   |   |
| Proceeds from  short-term borrowings                                               |       |                                | 9.2        |   |   |   | — |   |   |
| Payment of  short-term borrowings                                                  |       |                                | (9.2       | ) |   |   | — |   |   |
| Proceeds of  long-term debt                                                        |       |                                | 960.0      |   |   |   | — |   |   |
| Payment of  long-term debt, including capital lease obligations                    |       |                                | (604.4     | ) |   |   | (2.4 | ) |   |
| Payment of  deferred financing fees                                                |       |                                | (30.8      | ) |   |   | — |   |   |
| Dividends paid  (excluding amounts paid to optionholders)                          |       |                                | (387.3     | ) |   |   | — |   |   |
| Net cash provided by (used in) financing activities                                |       |                                | (54.6      | ) |   |   | 1.2 |   |   |
| Effect of  exchange rate changes on cash                                           |       |                                | —     |   |   |   | 0.3 |   |   |
| Increase  (decrease) in cash and cash equivalents                                  |       |                                | (40.2      | ) |   |   | 13.8 |   |   |
| **Cash and cash equivalents**                                                      |       |                                |       |   |   |   |   |   |   |
| Beginning of period                                                                |       |                                | 73.0       |   |   |   | 60.5 |   |   |
| End of period                                                                      |       |                                | $          | 32.8 |   |   |   | $ | 74.3 |   |   |

 

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

4

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**1.**   Basisof Presentation

The accompanying unauditedcondensed consolidated financial statements of Mueller Group, Inc. (the “Company”)have been prepared in accordance with accounting principles generally acceptedin the United States of America for interim financial information. Accordingly,the unaudited condensed consolidated financial statements and notes do notcontain certain information included in the Company’s annual financialstatements. In the opinion of management, all normal and recurring adjustmentsthat are considered necessary for a fair financial statement presentation havebeen made. Operating results for the three and nine months ended July 2,2005 are not necessarily indicative of the results that may be expected for thefiscal year ended September 30, 2005. The consolidated financialstatements should be read in conjunction with the audited consolidatedfinancial statements for the year ended September 30, 2004 as found in theCompany’s Annual Report on Form 10-K.

**2.**   Restatements

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

***2005 Restatements***

In the course offinalizing the September 30, 2005 financial statements, the Company determinedthat certain items included in the Statements of Consolidated Cash Flows, theConsolidated Statements of Operations and the Consolidated Balance Sheets were notproperly classified in annual and interim periods. The interim financialstatements for the three and nine months ended June 26, 2004 and July 2,2005, respectively, were restated for the following items:

*Effect of exchangerate changes on cash*

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

*Book cash overdrafts*

In interim periods duringfiscal 2004 and 2005, cash accounts in book cash overdraft positions werenetted with accounts where legal right of offset did not exist. On the ConsolidatedBalance Sheets, cash and cash equivalents should have increased and a liabilityrecorded with respect to such book cash overdrafts by comparable amounts. Thechange in the book cash overdraft should have been reflected as a financingactivity in the Statements of Consolidated Cash Flows and should have beenincluded in accounts payable and as an increase in cash and cash equivalents inthe Consolidated Balance Sheet as of July 2, 2005.

5

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**2. Restatements(Continued)**

*Current andNon-current deferred income taxes*

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

*Misclassificationof depreciation expense*

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

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

***2004 Restatements***

In November 2004, the Company’s Audit Committeewas notified of alleged potential accounting improprieties concerning theCompany’s accounting for inventory reserves and certain questions concerningrevenue recognition. The Audit Committee appointed an independent law firm toinvestigate the allegations. The law firm delivered a report that identifiedseveral areas requiring financial review by the Company principally concerningaccounting for excess and obsolete (E&O) inventory, the capitalization ofcosts relating to a project that should have been expensed in prior periods,the accrual of reserves for this project without identifying support for suchaccruals and the timing of recognition of revenue with regard to full truckloadshipments that were not immediately dispatched to customers by certain freightcarriers used by the Company. The Company also identified some additionalannual and interim items recorded in incorrect periods in the course offinalizing the 2004 financial statements. In addition, the Company determinedthat the value it assigned to stock compensation in connection with its April 2004recapitalization should be revised. As a result of these findings, the Companyrestated its annual and interim financial statements.

The interim financialstatements for the three and nine months ended June 26, 2004 were restatedfor the following items:

*Inventory valuationadjustments*

The Company determinedthat certain reports utilized in the assessment and establishment of excess andobsolete provisions were inaccurate and that certain items were erroneouslyeliminated from the provision. The interim financial statements were restatedto reflect the decrease in inventory value and increase in cost of goods soldto reflect an adjustment to properly record the provision for excess andobsolete inventory reserves.

6

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**2. Restatements(Continued)**

*Research anddevelopment costs*

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

*Revenue recognitionadjustments*

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

*Inventory journalentries*

Unauthorized journalentries were recorded, which increased the value of inventory inappropriately.The interim financial statements were restated to reduce the inventory valueand increase cost of goods sold.

*Stock-basedcompensation*

The Company determinedthat the compensation expense recorded in April 2004 in connection withthe Company’s recapitalization did not properly reflect the current fair valueof Mueller Water’s common stock. The financial statements for the three monthsand nine months ended June 26, 2004 were restated to record stockcompensation expense based on the fair value of the common stock issued.

*Intercompany profitelimination*

There was an error, whichinitially arose in the first quarter of 2004, in the estimated amount ofintercompany profit elimination recorded during the interim periods in the yearended September 30, 2004.

*Deferred financingfees*

Previously expensedfinancing fees associated with an amendment to our senior credit facility inthe first quarter of 2004 should have been capitalized and amortized over theremaining term of the facility.

*Income tax effectof adjustments*

As a result of the aforementioned adjustments, theincome tax provisions in the interim financial statements for fiscal 2004 werealso revised. Additionally, the Company changed the classification of 

7

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**2. Restatements (Continued)**

$3.7 million of taxobligations previously presented as part of non-current deferred tax assets asother long-term liabilities on the June 26, 2004 balance sheet.

Thefollowing tables set forth the effects of the 2005 and 2004 Restatementsdiscussed above on the financial statements as of July 2, 2005 and for thethree and nine months ended June 26, 2004 and July 2, 2005 asfollows:

**ConsolidatedStatement of Operations**

| ** **                                                                         | ** ** | **Three months ended  June 26, 2004** | ** ** | **Nine months ended  June 26, 2004** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                         | ** ** | ** **                                                | ** ** | **As restated**                                     | ** ** | **As restated** | ** ** | ** ** | ** ** | **As restated** | ** ** | **As restated** | ** ** |
| ** **                                                                         | ** ** | **As originally**                                    | ** ** | **for 2004**                                        | ** ** | **for 2005** | ** ** | **As originally** | ** ** | **for 2004** | ** ** | **for 2005** | ** ** |
| ** **                                                                         | ** ** | **reported (A)**                                     | ** ** | **Restatements (B)**                                | ** ** | **Restatements** | ** ** | **reported (A)** | ** ** | **Restatements (B)** | ** ** | **Restatements** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**                                           | ** ** | **(unaudited)**                                          | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| ** **                                                                         | ** ** | **(dollars in millions)**                       | ** ** |
| Net sales                                                                          |       |                                                      | $          | 288.7                                                    |       |   |   | $ | 289.1 |   |   |   | $ | 289.1 |   |   |   | $ | 743.6 |   |   |   | $ | 745.6 |   |   |   | $ | 745.6 |   |   |
| Cost of sales                                                                      |       |                                                      | 205.7      |                                                     |       |   | 204.5 |   |   |   | 206.3 |   |   |   | 533.7 |   |   |   | 535.7 |   |   |   | 541.0 |   |   |
| Gross profit                                                                       |       |                                                      | 83.0       |                                                     |       |   | 84.6 |   |   |   | 82.8 |   |   |   | 209.9 |   |   |   | 209.9 |   |   |   | 204.6 |   |   |
| Selling, general and administrative expense, including  stock compensation expense |       |                                                      | 63.0       |                                                     |       |   | 67.6 |   |   |   | 65.8 |   |   |   | 142.3 |   |   |   | 146.5 |   |   |   | 141.2 |   |   |
| Facility rationalization and related costs                                         |       |                                                      | —     |                                                     |       |   | — |   |   |   | — |   |   |   | 0.9 |   |   |   | 0.9 |   |   |   | 0.9 |   |   |
| Operating income                                                                   |       |                                                      | 20.0       |                                                     |       |   | 17.0 |   |   |   | 17.0 |   |   |   | 66.7 |   |   |   | 62.5 |   |   |   | 62.5 |   |   |
| Interest expense and early repayment costs                                         |       |                                                      | (18.1      | )                                                        |       |   | (18.9 | ) |   |   | (18.9 | ) |   |   | (39.3 | ) |   |   | (39.3 | ) |   |   | (39.3 | ) |   |
| Interest income                                                                    |       |                                                      | 0.1        |                                                     |       |   | 0.1 |   |   |   | 0.1 |   |   |   | 0.3 |   |   |   | 0.3 |   |   |   | 0.3 |   |   |
| Income before income taxes                                                         |       |                                                      | 2.0        |                                                     |       |   | (1.8 | ) |   |   | (1.8 | ) |   |   | 27.7 |   |   |   | 23.5 |   |   |   | 23.5 |   |   |
| Income tax expense                                                                 |       |                                                      | (3.2       | )                                                        |       |   | (4.6 | ) |   |   | (4.6 | ) |   |   | 7.1 |   |   |   | 5.5 |   |   |   | 5.5 |   |   |
| Net income                                                                         |       |                                                      | $          | 5.2                                                      |       |   |   | $ | 2.8 |   |   |   | $ | 2.8 |   |   |   | $ | 20.6 |   |   |   | $ | 18.0 |   |   |   | $ | 18.0 |   |   |

 

8

----

**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**2. Restatements (Continued)**

The following table showsthe effects of the various 2004 Restatements on net income.  The 2005 Restatements had no impact on the Company's consolidated net income.

| ** **                              | ** ** | **Three months**               | ** ** | **Nine months**        | ** ** |
|-----------------------------------------|------------|-------------------------------------|------------|-----------------------------|------------|
| ** **                              | ** ** | **ended**                           | ** ** | **ended**                   | ** ** |
| ** **                              | ** ** | **June 26, 2004**         | ** ** | **June 26, 2004** | ** ** |
| ** **                              | ** ** | **(unaudited)**                     | ** ** | **(unaudited)**             | ** ** |
| ** **                              | ** ** | **(dollars in millions)** | ** ** |
| Net income, as  originally reported (A) |       |                                | $          | 5.2                         |       |   |   | $ | 20.6 |   |   |
| Increased (decreased)  pretax earnings: |       |                                |       |                        |       |   |   |   |   |
| Inventory valuation adjustments         |       |                                | (0.1       | )                           |       |   | (0.2 | ) |   |
| Research & development costs        |       |                                | 0.8        |                        |       |   | 1.2 |   |   |
| Revenue recognition adjustments         |       |                                | 0.1        |                        |       |   | 0.6 |   |   |
| Inventory journal entries               |       |                                | 1.1        |                        |       |   | 0.9 |   |   |
| Stock-based compensation                |       |                                | (5.4       | )                           |       |   | (5.4 | ) |   |
| Intercompany profit elimination         |       |                                | 0.5        |                        |       |   | (1.3 | ) |   |
| Deferred financing fees                 |       |                                | (0.8       | )                           |       |   | — |   |   |
| Total pre-tax  adjustments              |       |                                | (3.8       | )                           |       |   | (4.2 | ) |   |
| Income tax effect  of adjustments       |       |                                | 1.4        |                        |       |   | 1.6 |   |   |
| Net income, as restated  (B)            |       |                                | $          | 2.8                         |       |   |   | $ | 18.0 |   |   |

 

| ** **                                                                         | ** ** | **Three months ended  July 2, 2005** | ** ** | **Nine months ended  July 2, 2005** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                         | ** ** | ** **                                               | ** ** | **As restated**                                    | ** ** | ** ** | ** ** | **As restated** | ** ** |
| ** **                                                                         | ** ** | **As originally**                                   | ** ** | **for 2005**                                       | ** ** | **As originally** | ** ** | **for 2005** | ** ** |
| ** **                                                                         | ** ** | **reported (C)**                                    | ** ** | **Restatements**                                        | ** ** | **reported (C)** | ** ** | **Restatements** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**                                          | ** ** | **(unaudited)**                                         | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| ** **                                                                         | ** ** | **(dollars in millions)**                      | ** ** |
| Cost of sales                                                                      |       |                                                     | $          | 200.2                                                   |       |   |   | $ | 202.1 |   |   |   | $ | 577.7 |   |   |   | $ | 583.0 |   |   |
| Gross profit                                                                       |       |                                                     | $          | 96.7                                                    |       |   |   | $ | 94.8 |   |   |   | $ | 260.5 |   |   |   | $ | 255.2 |   |   |
| Selling, general and  administrative expense, including stock compensation expense |       |                                                     | $          | 47.8                                                    |       |   |   | $ | 45.9 |   |   |   | $ | 139.1 |   |   |   | $ | 133.8 |   |   |

 

9

----

**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**2. Restatements (Continued)**

**ConsolidatedBalance Sheets**

| ** **                                        | ** ** | **September 30, 2004**    | ** ** | **July 2, 2005** | ** ** |                   |
|---------------------------------------------------|------------|-------------------------------------|------------|----------------------------|------------|------------------------|
| ** **                                        | ** ** | ** **                          | ** ** | **As restated**       | ** ** | ** **             | ** ** | **As restated** | ** ** |
| ** **                                        | ** ** | **As originally**              | ** ** | **for 2005**          | ** ** | **As originally** | ** ** | **for 2005** | ** ** |
| ** **                                        | ** ** | **reported (C)**               | ** ** | **Restatements**           | ** ** | **reported (C)**  | ** ** | **Restatements** | ** ** |
| ** **                                        | ** ** | **(unaudited)**                     | ** ** | **(unaudited)**            | ** ** | **(unaudited)**        | ** ** | **(unaudited)** | ** ** |
| ** **                                        | ** ** | **(dollars in millions)** | ** ** |
| Cash and cash  equivalents                        |       |                                | $          | 55.6                       |       |                   |   | $ | 60.5 |   |   |   | $ | 65.8 |   |   |   | $ | 74.3 |   |   |   |
| Deferred income  taxes—current               |       |                                | $          | 9.0                        |       |                   |   | $ | 21.8 |   |   |   | $ | 10.1 |   |   |   | $ | 23.9 |   |   |   |
| Current assets                                    |       |                                | $          | 519.8                      |       |                   |   | $ | 537.5 |   |   |   | $ | 573.3 |   |   |   | $ | 595.6 |   |   |   |
| Deferred income  taxes—non-current           |       |                                | $          | 19.3                       |       |                   |   | $ | 6.5 |   |   |   | $ | 23.2 |   |   |   | $ | 9.4 |   |   |   |
| Total assets                                      |       |                                | $          | 978.9                      |       |                   |   | $ | 983.8 |   |   |   | $ | 1,017.3 |   |   |   | $ | 1,025.8 |   |   |   |
| Accounts payable                                  |       |                                | $          | 52.7                       |       |                   |   | $ | 57.6 |   |   |   | $ | 50.2 |   |   |   | $ | 58.7 |   |   |   |
| Total current  liabilities                        |       |                                | $          | 141.4                      |       |                   |   | $ | 146.3 |   |   |   | $ | 137.7 |   |   |   | $ | 146.2 |   |   |   |
| Total liabilities                                 |       |                                | $          | 1,107.8                    |       |                   |   | $ | 1,112.7 |   |   |   | $ | 1,101.9 |   |   |   | $ | 1,110.4 |   |   |   |
| Total liabilities and  shareholders’ deficit |       |                                | $          | 978.9                      |       |                   |   | $ | 983.8 |   |   |   | $ | 1,017.3 |   |   |   | $ | 1,025.8 |   |   |   |

 

10

----

**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**2. Restatements (Continued)**

**Statementsof Consolidated Cash Flows**

| ** **                                                        | ** ** | ** **                          | ** ** | **Nine months ended  June 26, 2004** | ** ** | ** **           | ** ** | **Nine months ended  July 2, 2005** | ** ** |                 |
|-------------------------------------------------------------------|------------|-------------------------------------|------------|----------------------------------------------------------|------------|----------------------|------------|---------------------------------------------------------|------------|----------------------|
| ** **                                                        | ** ** | ** **                          | ** ** | **As restated**                                     | ** ** | **As restated** | ** ** | ** **                                              | ** ** | **As restated** | ** ** |   |
| ** **                                                        | ** ** | **As originally**              | ** ** | **for 2004**                                        | ** ** | **for 2005**    | ** ** | **As originally**                                  | ** ** | **for 2005**    | ** ** |   |
| ** **                                                        | ** ** | **reported(A)**                     | ** ** | **Restatements(B)**                                      | ** ** | **Restatements**     | ** ** | **reported (C)**                                   | ** ** | **Restatements**     | ** ** |   |
| ** **                                                        | ** ** | **(unaudited)**                     | ** ** | **(unaudited)**                                          | ** ** | **(unaudited)**      | ** ** | **(unaudited)**                                         | ** ** | **(unaudited)**      | ** ** |   |
| ** **                                                        | ** ** | **(dollars in millions)** | ** ** |                                                     |
| **Cash  flows from operating activities:**                        |       |                                |       |                                                     |       |                 |       |                                                    |       |                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Receivables                                                       |       |                                | $          | (14.7                                                    | )          |                 |       | $                                                       | (16.7      | )                    |   |   | $ | (16.8 | ) |   |   | $ | 1.1 |   |   |   | $ | 1.6 |   |   |   |
| Inventories                                                       |       |                                | $          | (9.9                                                     | )          |                 |       | $                                                       | (9.1       | )                    |   |   | $ | (9.2 | ) |   |   | $ | (49.5 | ) |   |   | $ | (48.8 | ) |   |
| Accounts payable, accrued expenses and other current  liabilities |       |                                | $          | 6.1                                                      |       |                 |       | $                                                       | 4.8        |                 |   |   | $ | 4.8 |   |   |   | $ | (4.4 | ) |   |   | $ | (4.8 | ) |   |   |
| Other, net                                                        |       |                                | $          | 0.5                                                      |       |                 |       | $                                                       | 1.1        |                 |   |   | $ | 1.5 |   |   |   | $ | 9.8 |   |   |   | $ | 10.9 |   |   |   |
| Cash flows provided by operating activities                       |       |                                | $          | 50.7                                                     |       |                 |       | $                                                       | 51.4       |                 |   |   | $ | 51.6 |   |   |   | $ | 31.2 |   |   |   | $ | 33.1 |   |   |   |
| **Cash flows from financing activities:**                         |       |                                |       |                                                     |       |                 |       |                                                    |       |                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Book cash overdrafts                                              |       |                                | $          | —                                                   |       |                 |       | $                                                       | —     |                 |   |   | $ | 7.9 |   |   |   | $ | — |   |   |   | $ | 3.6 |   |   |   |
| Cash flows used in financing activities                           |       |                                | $          | (62.4                                                    | )          |                 |       | $                                                       | (62.5      | )                    |   |   | $ | (54.6 | ) |   |   | $ | (2.4 | ) |   |   | $ | 1.2 |   |   |   |
| **Effect of exchange rate changes on cash**                       |       |                                | $          | 0.2                                                      |       |                 |       | $                                                       | 0.2        |                 |   |   | $ | — |   |   |   | $ | 2.2 |   |   |   | $ | 0.3 |   |   |   |
| **Increase (decrease) in cash and cash equivalents**              |       |                                | $          | (48.1                                                    | )          |                 |       | $                                                       | (48.1      | )                    |   |   | $ | (40.2 | ) |   |   | $ | 10.2 |   |   |   | $ | 13.8 |   |   |   |
| **Cash and  cash equivalents—beginning of period**           |       |                                | $          | 71.4                                                     |       |                 |       | $                                                       | 71.4       |                 |   |   | $ | 73.0 |   |   |   | $ | 55.6 |   |   |   | $ | 60.5 |   |   |   |
| **Cash and cash equivalents—end  of period**                 |       |                                | $          | 23.3                                                     |       |                 |       | $                                                       | 23.3       |                 |   |   | $ | 32.8 |   |   |   | $ | 65.8 |   |   |   | $ | 74.3 |   |   |   |
|                                                                   |            |                                     |            |                                                          |            |                      |            |                                                         |            |                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

11

----

**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**2. Restatements(Continued)**

**SegmentInformation**

| ** **           | ** ** | **Three months ended**    | ** ** | **Nine months ended** | ** ** |
|----------------------|------------|-------------------------------------|------------|---------------------------------|------------|
| ** **           | ** ** | **June 26, 2004**         | ** ** | **June 26, 2004**     | ** ** |
| ** **           | ** ** | ** **                          | ** ** | **As restated**            | ** ** | ** ** | ** ** | **As restated** | ** ** |
| ** **           | ** ** | **As originally**              | ** ** | **for 2004**               | ** ** | **As originally** | ** ** | **for 2004** | ** ** |
| ** **           | ** ** | **reported(A)**                     | ** ** | **Restatements(B)**             | ** ** | **reported(A)** | ** ** | **Restatements(B)** | ** ** |
| ** **           | ** ** | **(unaudited)**                     | ** ** | **(unaudited)**                 | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| ** **           | ** ** | **(dollars in millions)** | ** ** |
| Net sales:           |       |                                |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Water infrastructure |       |                                | $          | 172.4                           |       |   |   | $ | 172.8 |   |   |   | $ | 432.7 |   |   |   | $ | 434.7 |   |   |
| Piping systems       |       |                                | 116.3      |                            |       |   | 116.3 |   |   |   | 310.9 |   |   |   | 310.9 |   |   |
| Consolidated         |       |                                | 288.7      |                            |       |   | 289.1 |   |   |   | 743.6 |   |   |   | 745.6 |   |   |
| Segment EBITDA:      |       |                                |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Water infrastructure |       |                                | 45.2       |                            |       |   | 46.0 |   |   |   | 111.4 |   |   |   | 113.0 |   |   |
| Piping systems       |       |                                | 10.8       |                            |       |   | 12.4 |   |   |   | 28.8 |   |   |   | 28.4 |   |   |
| Total segment EBITDA |       |                                | 56.0       |                            |       |   | 58.4 |   |   |   | 140.2 |   |   |   | 141.4 |   |   |
| Operating income:    |       |                                |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Water infrastructure |       |                                | 39.5       |                            |       |   | 40.3 |   |   |   | 93.5 |   |   |   | 95.1 |   |   |
| Piping systems       |       |                                | 6.5        |                            |       |   | 8.1 |   |   |   | 16.1 |   |   |   | 15.7 |   |   |
| Corporate            |       |                                | (26.0      | )                               |       |   | (31.4 | ) |   |   | (42.9 | ) |   |   | (48.3 | ) |   |
| Consolidated         |       |                                | 20.0       |                            |       |   | 17.0 |   |   |   | 66.7 |   |   |   | 62.5 |   |   |
|                      |            |                                     |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **           | ** ** | **At September 30, 2004** | ** ** | **At July 2, 2005** | ** ** |
|----------------------|------------|------------------------------------------|------------|------------------------------------|------------|
| ** **           | ** ** | ** **                               | ** ** | **As restated**               | ** ** | ** ** | ** ** | **As restated** | ** ** |
| ** **           | ** ** | **As originally**                   | ** ** | **for 2005**                  | ** ** | **As originally** | ** ** | **for 2005** | ** ** |
| ** **           | ** ** | **reported (C)**                    | ** ** | **Restatements**                   | ** ** | **reported (C)** | ** ** | **Restatements** | ** ** |
| ** **           | ** ** | **(unaudited)**                          | ** ** | **(unaudited)**                    | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| ** **           | ** ** | **(dollars in millions)**      | ** ** |
| Total assets:        |       |                                     |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Water infrastructure |       |                                     | $          | 500.0                              |       |   |   | $ | 500.0 |   |   |   | $ | 507.4 |   |   |   | $ | 507.4 |   |   |
| Piping systems       |       |                                     | 307.9      |                               |       |   | 307.9 |   |   |   | 336.2 |   |   |   | 336.2 |   |   |
| Corporate            |       |                                     | 171.0      |                               |       |   | 175.9 |   |   |   | 173.7 |   |   |   | 182.2 |   |   |
| Consolidated         |       |                                     | $          | 978.9                              |       |   |   | $ | 983.8 |   |   |   | $ | 1,017.3 |   |   |   | $ | 1,025.8 |   |   |

----

(A)       Represents the amountsoriginally reported before the 2004 and 2005 Restatements described herein.

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

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

12

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**3.**   SegmentInformation

Our operations consist of two operating segments:water infrastructure and piping systems. Water infrastructure products consistprimarily of hydrants, water and gas valves and related products used in water,power and gas distribution. Piping systems products consist primarily of pipefittings and couplings, pipe nipples and hangers and purchased products relatedto piping systems used in a variety of applications.

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

13

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**3. Segment Information (Continued)**

The Company evaluatessegment performance based on segment EBITDA. Segment EBITDA is defined as netincome plus income tax expense, interest expense (not net of interest income),depreciation and amortization expense. Segment assets consist primarily ofaccounts receivable, inventories, property, plant and equipment—net, goodwill,and identifiable intangibles. Summarized financial information for our segmentsfollows:

| ** **                         | ** ** | **Three months  ended  June 26, 2004** | ** ** | **Three months  ended  July 2, 2005** | ** ** | **Nine months  ended  June 26, 2004** | ** ** | **Nine months  ended  July 2, 2005** | ** ** |
|------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                         | ** ** | **(restated)**                                        | ** ** | ** **                                           | ** ** | **(restated)**                                       | ** ** | ** **                                          | ** ** |
| **Net Sales:**                     |       |                                                  |       |                                                 |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Water  infrastructure              |       |                                                  | $          | 172.8                                                |       |                                                 |       | $                                                   | 172.1      |   |   |   | $ | 434.7 |   |   |   | $ | 480.8 |   |   |
| Piping systems                     |       |                                                  | 116.3      |                                                 |       |                                                 | 124.8      |                                                |       |   | 310.9 |   |   |   | 357.4 |   |   |
| Consolidated                       |       |                                                  | 289.1      |                                                 |       |                                                 | 296.9      |                                                |       |   | 745.6 |   |   |   | 838.2 |   |   |
| **Intersegment sales:**            |       |                                                  |       |                                                 |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Water infrastructure               |       |                                                  | 4.1        |                                                 |       |                                                 | 3.8        |                                                |       |   | 10.1 |   |   |   | 10.6 |   |   |
| Piping systems                     |       |                                                  | 0.2        |                                                 |       |                                                 | 0.3        |                                                |       |   | 0.5 |   |   |   | 0.6 |   |   |
| Consolidated                       |       |                                                  | 4.3        |                                                 |       |                                                 | 4.1        |                                                |       |   | 10.6 |   |   |   | 11.2 |   |   |
| **Segment EBITDA:**                |       |                                                  |       |                                                 |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Water  infrastructure              |       |                                                  | 46.0       |                                                 |       |                                                 | 52.7       |                                                |       |   | 113.0 |   |   |   | 131.9 |   |   |
| Piping systems                     |       |                                                  | 12.4       |                                                 |       |                                                 | 17.2       |                                                |       |   | 28.4 |   |   |   | 47.5 |   |   |
| Total segment  EBITDA              |       |                                                  | 58.4       |                                                 |       |                                                 | 69.9       |                                                |       |   | 141.4 |   |   |   | 179.4 |   |   |
| **Depreciation and amortization:** |       |                                                  |       |                                                 |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Water  infrastructure              |       |                                                  | 5.7        |                                                 |       |                                                 | 4.9        |                                                |       |   | 17.9 |   |   |   | 16.9 |   |   |
| Piping systems                     |       |                                                  | 4.3        |                                                 |       |                                                 | 4.3        |                                                |       |   | 12.7 |   |   |   | 12.9 |   |   |
| Corporate                          |       |                                                  | 6.3        |                                                 |       |                                                 | 2.2        |                                                |       |   | 18.9 |   |   |   | 7.0 |   |   |
| Consolidated                       |       |                                                  | 16.3       |                                                 |       |                                                 | 11.4       |                                                |       |   | 49.5 |   |   |   | 36.8 |   |   |
| **Impairment charges:**            |       |                                                  |       |                                                 |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Water  infrastructure              |       |                                                  | —     |                                                 |       |                                                 | —     |                                                |       |   | — |   |   |   | — |   |   |
| Piping systems                     |       |                                                  | —     |                                                 |       |                                                 | —     |                                                |       |   | 0.1 |   |   |   | — |   |   |
| Corporate                          |       |                                                  | —     |                                                 |       |                                                 | —     |                                                |       |   | — |   |   |   | — |   |   |
| Consolidated                       |       |                                                  | —     |                                                 |       |                                                 | —     |                                                |       |   | 0.1 |   |   |   | — |   |   |
| **Capital expenditures:**          |       |                                                  |       |                                                 |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Water  infrastructure              |       |                                                  | 3.1        |                                                 |       |                                                 | 4.0        |                                                |       |   | 9.3 |   |   |   | 13.0 |   |   |
| Piping systems                     |       |                                                  | 3.3        |                                                 |       |                                                 | 2.9        |                                                |       |   | 8.1 |   |   |   | 6.8 |   |   |
| Corporate                          |       |                                                  | —     |                                                 |       |                                                 | 0.3        |                                                |       |   | — |   |   |   | 1.0 |   |   |
| Consolidated                       |       |                                                  | 6.4        |                                                 |       |                                                 | 7.2        |                                                |       |   | 17.4 |   |   |   | 20.8 |   |   |
|                                    |            |                                                       |            |                                                      |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

14

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**3. Segment Information (Continued)**

| ** **                    | ** ** | **At September 30, 2004** | ** ** | **At July 2, 2005** | ** ** |
|-------------------------------|------------|------------------------------------------|------------|------------------------------------|------------|
| ** **                    | ** ** | **(restated)**                           | ** ** | **(restated)**                     | ** ** |
| **Total assets:**             |       |                                     |       |                               |       |   |   |   |   |
| Water  infrastructure         |       |                                     | $          | 500.0                              |       |   |   | $ | 507.4 |   |   |
| Piping systems                |       |                                     | 307.9      |                               |       |   | 336.2 |   |   |
| Corporate                     |       |                                     | 175.9      |                               |       |   | 182.2 |   |   |
| Consolidated                  |       |                                     | 983.8      |                               |       |   | 1,025.8 |   |   |
| **Goodwill:**                 |       |                                     |       |                               |       |   |   |   |   |
| Water  infrastructure         |       |                                     | 149.1      |                               |       |   | 149.1 |   |   |
| Piping systems                |       |                                     | 14.1       |                               |       |   | 14.1 |   |   |
| Consolidated                  |       |                                     | 163.2      |                               |       |   | 163.2 |   |   |
| **Identifiable intangibles:** |       |                                     |       |                               |       |   |   |   |   |
| Water  infrastructure         |       |                                     | 5.3        |                               |       |   | 4.7 |   |   |
| Piping systems                |       |                                     | 7.2        |                               |       |   | 5.7 |   |   |
| Corporate                     |       |                                     | 42.7       |                               |       |   | 42.7 |   |   |
| Consolidated                  |       |                                     | 55.2       |                               |       |   | 53.1 |   |   |
|                               |            |                                          |            |                                    |            |  |  |  |  |  |  |

 

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

| ** **                                  | ** ** | **Three months  ended  June 26, 2004** | ** ** | **Three months  ended  July 2, 2005** | ** ** | **Nine months  ended  June 26, 2004** | ** ** | **Nine months  ended  July 2, 2005** | ** ** |
|---------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                  | ** ** | **(restated)**                                        | ** ** | ** **                                           | ** ** | **(restated)**                                       | ** ** | ** **                                          | ** ** |
| Total segment  EBITDA                       |       |                                                  | $          | 58.4                                                 |       |                                                 |       | $                                                   | 69.9       |   |   |   | $ | 141.4 |   |   |   | $ | 179.4 |   |   |
| Unallocated  corporate costs                |       |                                                  | (25.0      | )                                                    |       |                                                 | (9.2       | )                                                   |       |   | (29.1 | ) |   |   | (21.8 | ) |   |
| Interest expense  and early repayment costs |       |                                                  | (18.9      | )                                                    |       |                                                 | (18.5      | )                                                   |       |   | (39.3 | ) |   |   | (53.6 | ) |   |
| Depreciation and  amortization              |       |                                                  | (16.3      | )                                                    |       |                                                 | (11.4      | )                                                   |       |   | (49.5 | ) |   |   | (36.8 | ) |   |
| Income before income  taxes                 |       |                                                  | $          | (1.8                                                 | )          |                                                 |       | $                                                   | 30.8       |   |   |   | $ | 23.5 |   |   |   | $ | 67.2 |   |   |

 

Geographicalarea information with respect to net sales, as determined by the location ofthe customer invoiced, and property, plant and equipment—net, as determined bythe physical location of the assets, were as follows for the three and ninemonths ended June 26, 2004 and July 2, 2005:

| ** **      | ** ** | **Three months  ended  June 26, 2004** | ** ** | **Three months  ended  July 2, 2005** | ** ** | **Nine months  ended  June 26, 2004** | ** ** | **Nine months  ended  July 2, 2005** | ** ** |
|-----------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **      | ** ** | **(restated)**                                        | ** ** | ** **                                           | ** ** | **(restated)**                                       | ** ** | ** **                                          | ** ** |
| Net sales:      |       |                                                  |       |                                                 |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| United States   |       |                                                  | $          | 238.6                                                |       |                                                 |       | $                                                   | 238.2      |   |   |   | $ | 620.6 |   |   |   | $ | 686.3 |   |   |
| Canada          |       |                                                  | 46.5       |                                                 |       |                                                 | 55.2       |                                                |       |   | 116.7 |   |   |   | 144.5 |   |   |
| Other Countries |       |                                                  | 4.0        |                                                 |       |                                                 | 3.5        |                                                |       |   | 8.3 |   |   |   | 7.4 |   |   |
|            |       |                                                  | $          | 289.1                                                |       |                                                 |       | $                                                   | 296.9      |   |   |   | $ | 745.6 |   |   |   | $ | 838.2 |   |   |

 

15

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**3. Segment Information (Continued)**

| ** **                           | ** ** | **At September 30, 2004** | ** ** | **At July 2, 2005** | ** ** |
|--------------------------------------|------------|------------------------------------------|------------|------------------------------------|------------|
| Property, plant and  equipment, net: |       |                                     |       |                               |       |   |   |   |   |
| United States                        |       |                                     | $          | 173.7                              |       |   |   | $ | 160.3 |   |   |
| Canada                               |       |                                     | 11.7       |                               |       |   | 11.7 |   |   |
| Other Countries                      |       |                                     | 1.4        |                               |       |   | 1.5 |   |   |
|                                 |       |                                     | $          | 186.8                              |       |   |   | $ | 173.5 |   |   |

 

**4.**   Summaryof Significant Accounting Policies

Fiscal Year—The Company’s fiscal year ends on September 30.The Company’s third quarter ends on the Saturday closest to June 30.

Inventory—Inventories are recorded at the lower ofcost (first-in, first-out) or market value. Additionally, the Company evaluatesits inventory reserves in terms of excess and obsolete exposures. Thisevaluation includes such factors as anticipated usage, inventory turnover,inventory levels and ultimate product sales value. These factors may changeover time causing the reserve level to adjust accordingly.

WarrantyCosts—The Company accrues for the estimated cost of product warranties at thetime of product sale based on historical experience. Adjustments to obligationsfor warranties are made as changes in the obligations become reasonablyestimable. The following table summarizes information concerning the Company’sproduct warranty obligations:

| ** **                      | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|---------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                      | ** ** | **June 26, 2004**      | ** ** | **July 2, 2005**      | ** ** | **June 26, 2004** | ** ** | **July 2, 2005** | ** ** |
| Balance at  beginning of period |       |                             | $          | 0.9                             |       |   |   | $ | 1.4 |   |   |   | $ | 0.9 |   |   |   | $ | 1.6 |   |   |
| Accruals for  warranties        |       |                             | 2.0        |                            |       |   | 0.5 |   |   |   | 4.5 |   |   |   | 1.6 |   |   |
| Settlement of  warranty claims  |       |                             | (0.9       | )                               |       |   | (0.2 | ) |   |   | (3.4 | ) |   |   | (1.5 | ) |   |
| Balance at end of period        |       |                             | $          | 2.0                             |       |   |   | $ | 1.7 |   |   |   | $ | 2.0 |   |   |   | $ | 1.7 |   |   |

 

Comprehensive Income—The Company’s comprehensiveincome for the three months ended June 26, 2004, and July 2, 2005includes foreign currency translation losses of $(1.1) million and$(1.2) million, respectively and minimum pension liability adjustment of$(0.4) million for the three months ended June 26, 2004. The Company’scomprehensive income for the nine months ended June 26, 2004 and July 2,2005 includes foreign currency translation gains of $0.2 million and$2.2 million, respectively, and minimum pension liability adjustment of$(0.4) million for the nine months ended June 26, 2004.

Related Party Transactions—Substantially all of theoutstanding shares of the common stock of our parent company, Mueller WaterProducts, Inc. (“Mueller Water”), are held by DLJ Merchant Banking PartnersII, L.P. and its affiliates (the “DLJ Funds”). On July 23, 1999, theCompany and Mueller Water entered into a financial advisory agreement withDonaldson, Lufkin & Jenrette (“DLJ”) whereby the Company committed topay DLJ for financial advisory services provided by DLJ. On April 27,2004, Credit Suisse, as successor to DLJ, assigned its rights under thefinancial advisory agreement to DLJ Merchant Banking II, Inc. (“DLJMerchant Banking”), other than the right to provide services to the Company and

16

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**4.**   Summary of SignificantAccounting Policies (Continued)

receive customarycompensation for such services in connection with a “Transaction”, generallydefined in the financial advisory agreement to be a sale or disposition of theCompany, a significant acquisition by the Company or a refinancing orrestructuring of the Company’s debt or equity. Credit Suisse and DLJ MerchantBanking are affiliates of the DLJ Funds.

The aggregate amount ofall fees incurred by the Company with DLJ Merchant Banking and Credit Suisseunder the financial advisory agreement was approximately $21.4 million and$0.2 million, respectively, for each of the three-month periods ended June 26,2004 and July 2, 2005 and $21.9 million and $0.4 million for thenine-month periods ended June 26, 2004 and July 2, 2005, respectively.Included in fees paid during the three- and nine-month periods ended June 26,2004 was $21.2 million related to the Company’s April 2004recapitalization. Under the financial advisory agreement, Credit Suisse will beentitled to receive fees in connection with the closing of the pending mergerof our parent company, Mueller Water, and Walter Industries. See Note 5—MergerAnnouncement and Acquisitions.

**5.**   MergerAnnouncement and Acquisitions

*Merger Announcement*

As previously announced, on June 17, 2005,Mueller Water entered into a definitive merger agreement with Walter Industries, Inc.(“Walter Industries”) whereby Walter Industries will acquire Mueller Water foran aggregate purchase price of approximately $1.91 billion, consisting ofapproximately $860 million in cash and the assumption of approximately $1.05billion in debt, based on Mueller Water’s balance sheet as of April 2,2005, subject to the post-closing adjustments specified in the merger agreementbased on Mueller Water’s working capital upon the closing of the transaction. Asa result of the merger, Mueller Water’s shares of common stock will beconverted into the right to receive the applicable merger consideration in cashat the closing, subject to the post-closing adjustments. Upon closing of thetransaction, the outstanding warrants of Mueller Water will become rights toreceive cash upon exercise of the warrants based on the number of sharesunderlying the warrants.

Also, as previously disclosed, Mueller Water willcause the Company to commence a tender offer and consent solicitation for theCompany’s second priority senior secured floating rate notes due 2011, and theclosing of the tender offer and consent solicitation would be simultaneous withthe merger closing but is not a condition to the merger closing. The Company’ssenior credit facility will be refinanced at merger closing. In addition, theholders of Mueller Water’s 143⁄4% senior discount notes due 2014 and the Company’s10% senior subordinated notes due 2012 will have the right to put these notesto their respective issuers following the change of control resulting from theconsummation of the merger transaction in accordance with the respective indentures.See Note 7—Long Term Debt.

The merger is subject tocustomary conditions to closing, including the expiration or termination of thewaiting period under the Hart-Scott-Rodino Antitrust Improvements Act and thefunding of Walter Industries’ committed financing, and there can be noassurance that the transaction will be consummated.

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**5.**   Merger Announcement andAcquisitions (Continued)

*Acquisitions*

Effective January 15, 2004, the Company acquiredcertain assets of Star Pipe, Inc. (“Star”). The acquisition was accountedfor in accordance with SFAS No. 141 and the operating results wereincluded in the consolidated results since the date of acquisition. Star is aleading distributor of cast and grooved fittings and couplings sourced outsideof the United States. The Star acquisition provided an entry into themarketplace for these foreign-sourced products. The acquisition’s purchaseprice was $17 million, paid in cash at closing, plus possible deferredpurchase price payments, as discussed below.

Thefollowing summary presents the estimated fair values of the assets andliabilities assumed as of January 15, 2004:

| **(dollars in millions)**   | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|------------|------------|------------|------------|
| Current assets                        |       | $          | 13.1       |       |
| Property,  plant & equipment |       | 0.4        |       |
| Intangible assets                     |       | 6.7        |       |
| Total assets                          |       | $          | 20.2       |       |
| Current  liabilities                  |       | 3.2        |       |
| Net assets acquired                   |       | $          | 17.0       |       |

 

As part of the acquisition, the Company agreed to afuture payment to be made to the seller to the extent that the gross profit ofthe acquired business exceeds a targeted gross profit. The maximum potentialdeferred payment amount is $23 million. Management currently estimates thedeferred payment could total approximately $3 to $6 million for thethree-year deferred payment period which began February 1, 2004 and ends January 31,2007. This estimated deferred payment amount is based on management’s bestestimate, but the actual deferred payment could be materially different. Theliability for such deferred payment will be recorded at the end of each twelve-monthperiod ending January 31, 2005, 2006 or 2007, in accordance with thepurchase agreement. No deferred payment was earned for the twelve months ended January 31,2005.

The intangible assets acquired include trademarks,customer relationships and a non-compete agreement with the former owners.These intangibles are being amortized over their estimated useful lives of tenyears, three years and five years, respectively.

Also effective January 15, 2004, the Companyacquired certain assets of Modern Molded Products (“Modern Molded”). Theacquisition was accounted for in accordance with SFAS No. 141 and theoperating results were included in the consolidated results since the date ofacquisition. The purchase of the assets and technology of Modern Molded hasenabled the Company to internally produce parts that were previously purchased,thereby reducing spending and increasing product supply line predictability.The acquisition’s purchase price was $2.8 million, and was paid in cash.

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**5.**   Merger Announcementand Acquisitions (Continued)

The following summarypresents the estimated fair values of the assets and liabilities assumed as ofJanuary 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-competeagreement with the former owners and purchased technology. These intangiblesare being amortized over their estimated useful lives of five years.

The followingunaudited pro forma summary presents the consolidated results of operations forthe three and nine months ended June 26, 2004 as if the acquisitions ofStar and Modern Molded had occurred as of October 1, 2003:

| ** ** | ** ** | **Three months ended  June 26, 2004** | ** ** | **Nine months ended  June 26, 2004** | ** ** |
|------------|------------|-----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| Net Sales  |       |                                                      | $          | 289.1                                                    |       |   |   | $ | 753.0 |   |   |
| Net income |       |                                                      | 2.8        |                                                     |       |   | 18.2 |   |   |

 

The unaudited consolidated pro forma information isnot necessarily indicative of the combined results that would have occurred hadthe acquisitions occurred on that date, nor is it indicative of the resultsthat may occur in the future.

**6. New AccountingPronouncements**

In December 2004, the Financial AccountingStandards Board issued SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R) replacesSFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedesAPB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123(R) requirescompensation costs related to share-based payment transactions to be recognizedin the financial statements over the period that an employee provides servicein exchange for the award. Public companies are required to adopt the newstandard using a modified prospective method and may elect to restate priorperiods using the modified retrospective method. Under the modified prospectivemethod, companies are required to record compensation cost for new and modifiedawards over the related vesting period of such awards prospectively and recordcompensation cost prospectively for the unvested portion, at the date ofadoption, of previously issued and outstanding awards over the remainingvesting period of such awards. No change to prior periods presented ispermitted under the modified prospective method. Under the modifiedretrospective method, companies record compensation costs for prior periodsretroactively through restatement of such periods using the exact pro formaamounts disclosed in the companies’ footnotes. Also, in the period of adoptionand after, companies record compensation based on the modified prospectivemethod. SFAS No. 123(R), as amended in April 2005 for compliancedates, allows companies to implement the standard at the beginning of theirnext fiscal year. The Company plans to adopt SFAS No. 123(R) as of October 1,2005, the beginning of its next fiscal year 

19

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**6. New AccountingPronouncements (Continued)**

and to use the modifiedprospective method. The adoption of SFAS 123(R) is not expected tohave a material impact on the Company’s financial statements, as all optionspreviously outstanding have been cancelled as part of the April 2004recapitalization.

In November 2004, the Financial AccountingStandards Board issued SFAS No. 151, “Inventory Costs.” SFAS No. 151amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” toclarify the accounting for abnormal amounts of idle facility expense, freight,handling costs, and wasted material. This Statement requires that those itemsbe recognized as current-period charges regardless of whether they meet thecriterion of “so abnormal.” In addition, this Statement requires thatallocation of fixed production overheads to the costs of conversion be based onthe normal capacity of the production facilities. SFAS No. 151 iseffective for fiscal years beginning after June 15, 2005. The Companyintends to adopt SFAS No. 151 on October 1, 2005, the beginning ofits 2006 fiscal year. The Company is currently evaluating the impact of thisstandard on its financial statements.

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

In March 2005, theFASB issued FASB Interpretation No. 47 (“FIN 47”), “Accounting forConditional Asset Retirement Obligations.” FIN 47 provides clarification ofcertain sections of FASB Statement No. 143, “Accounting for AssetRetirement Obligations.” Specifically, FIN 47 clarifies the meaning of the term“conditional asset retirement obligation” as used in SFAS 143 and alsoclarifies when an entity would have sufficient information to reasonablyestimate the fair value of an asset retirement obligation. FIN 47 is effectiveno later than the end of fiscal years ending after December 15, 2005. TheCompany is currently evaluating the impact of this standard on its financialstatements.

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**7. Long-TermDebt**

| ** **                            | ** ** | **September 30, 2004**    | ** ** | **July 2, 2005** | ** ** |
|---------------------------------------|------------|-------------------------------------|------------|----------------------------|------------|
| ** **                            | ** ** | **(dollars in millions)** | ** ** |
| Senior credit  facility term loans    |       |                                | $          | 515.0                      |       |   |   | $ | 513.5 |   |   |
| Second Priority  Senior Secured Notes |       |                                | 100.0      |                       |       |   | 100.0 |   |   |
| 10% Senior  Subordinated Notes        |       |                                | 315.0      |                       |       |   | 315.0 |   |   |
| Capital lease  obligations            |       |                                | 2.6        |                       |       |   | 2.3 |   |   |
|                                  |       |                                | 932.6      |                       |       |   | 930.8 |   |   |
| Less current  portion                 |       |                                | (3.2       | )                          |       |   | (3.9 | ) |   |
|                                  |       |                                | $          | 929.4                      |       |   |   | $ | 926.9 |   |   |

 

Treatment of Long-Term Debt in Connection with WalterIndustries Merger—Under the Walter Industries merger agreement with our parentcompany, Mueller Water, and prior to merger closing, the Company will commencea tender offer and consent solicitation for the Company’s second prioritysenior secured floating rate notes due 2011. The consummation of the tenderoffer and consent solicitation is expected to occur simultaneously with theconsummation of the merger, but it is not a condition to merger closing. TheCompany’s senior credit facility will be refinanced at merger closing. TheCompany’s 10% senior subordinated notes due 2012 will remain outstanding afterthe merger is completed. However, holders of these notes will have the right toput them to the issuer following the change of control resulting from theconsummation of the merger transaction in accordance with the indentures. TheCompany anticipates that, in connection with the merger, the Company will incuradditional debt. As a result, the Company’s leverage will increase, therebyincreasing its debt service obligations. The increased leverage could adverselyaffect the outstanding notes of the Company going forward.

As a result of the pending acquisition by WalterIndustries, it is expected that Walter Industries’ US Pipe subsidiary will becontributed to the Company, which will have an impact on the Company’sfinancial statements by, for example, lowering the margins of the consolidatedcompany. In addition, we expect that our reporting segments may be changedafter the merger. We also expect that purchase accounting adjustments couldincrease non-cash deprecation and amortization expense.

Interest Rate Swaps—The Company has entered intointerest rate swap agreements in order to reduce interest rate risks and manageinterest expense. As of July 2, 2005, a notional principal amount of$100.0 million in swap agreements was outstanding and scheduled to maturein July 2005 and May 2007. The swap agreements effectively convertfloating-rate debt into fixed-rate debt and carried an average fixed interestrate of 5.77% at July 2, 2005. Interest differentials to be paid or receivedbecause of swap agreements are reflected as an adjustment to interest expenseover the related debt period. At July 2, 2005 and September 30, 2004,the fair value of interest rate swaps was a liability of $0.5 million and$4.7 million, respectively, and has been recorded in Other Long-TermLiabilities on the Consolidated Balance Sheets.

On July 27, 2005, theCompany executed a new interest rate swap agreement—notional principal amountof $50.0 million, maturing in April 2007—to replace the swap agreementwhich expired in July 2005. Interest differentials to be paid or receivedbecause of swap agreements will be reflected as an adjustment to interestexpense over the related debt period.

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**8. Commitments andContingencies**

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

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

Certain of our products contain lead. Environmentaladvocacy groups, relying on standards established by California’s Proposition65, are seeking to eliminate or reduce the content of lead in some of ourproducts offered for sale in California. In certain cases, we have entered intosettlement agreements with these environmental advocacy groups to modify ourproducts or offer substitutes. Further, similar issues may be raised by otheradvocacy groups in other jurisdictions.

Over the next two to three years, the Company expectsto incur between $2.0 million and $6.0 million of capital costs at its U.S.iron foundries to comply with the United States Environmental Protection Agency’sNational Emissions Standards for Hazardous Air Pollutants (“NESHAP”) for Ironand Steel Foundries and the NESHAP for Miscellaneous Metal Parts CoatingOperations.

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

On March 31, 2004, the Company’s subsidiary,Anvil International, entered into a consent order with the Georgia Departmentof Natural Resources regarding various alleged hazardous waste violations atthe Statesboro, Georgia site owned by Anvil. Pursuant to the consent order, Anvilhas paid a settlement amount of $100,000, comprised of a $50,000 monetary fineand $50,000 towards a supplemental environmental project. Anvil has also agreedto perform various investigatory and remedial actions at the site and itslandfill. During the second quarter of 2005, investigatory procedures wereperformed that resulted in management’s decision to perform additionalremediation and book an additional $0.4 million to the reserve relating tothis remediation. While the ultimate investigatory and remedial costs arecurrently unknown, the total costs are estimated to be between$1.2 million and $1.4 million. The Company believes that it maintainsan adequate reserve to cover these estimated costs.

In November 2003, Beck Manufacturing, a divisionof Anvil International, closed its manufacturing facility in Kearny, NJ, andwithdrew from the Teamsters Local 11 Pension Fund (“Teamsters” or “Fund”).Anvil has established an accrual of $0.2 million for any withdrawalliability. On July 19, 2004, the Fund 

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**8. Commitmentsand Contingencies (Continued)**

Trustees issued notice toAnvil that, pursuant to ERISA Sections 4202 and 4219(b)(1), Anvil owedapproximately $1.2 million in withdrawal liability to the Fund. On October 5,2004, Anvil sent notice to the Teamsters appealing the amount of the withdrawalliability. The Teamsters denied Anvil’s appeal, and Anvil has filed anarbitration demand. However, prior to the arbitration proceeding, the partieshave agreed to mediate the dispute some time in the fall of 2005.

As part of the Star acquisition, the Company agreed toa future payment to be made to the seller to the extent that the gross profitof the acquired business exceeds a targeted gross profit. The maximum potentialdeferred payment amount is $23 million. Management currently estimates thedeferred payment could total approximately $3 to $6 million for thethree-year deferred payment period which began February 1, 2004 and ends January 31,2007. This estimated deferred payment amount is based on management’s bestestimate, but the actual deferred payment could be materially different. Theliability for such deferred payment will be recorded at the end of eachtwelve-month period ending January 31, 2005, 2006 or 2007, in accordancewith the purchase agreement. No deferred payment was earned for the twelvemonths ended January 31, 2005.

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

**9. Net Periodic BenefitCost—Defined Benefit Plans**

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

The following sets forththe components of net periodic benefit cost of the domestic non-contributorydefined benefit plans for the three months and the nine months ended June 26,2004 and July 2, 2005:

| ** **                          | ** ** | **Three months ended**    | ** ** | **Nine months ended** | ** ** |
|-------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|
| ** **                          | ** ** | **June 26,  2004**             | ** ** | **July 2,  2005**          | ** ** | **June 26,  2004** | ** ** | **July 2,  2005** | ** ** |
| ** **                          | ** ** | **(dollars in millions)** | ** ** |
| Service cost                        |       |                                | $          | 0.5                             |       |   |   | $ | 0.8 |   |   |   | $ | 1.5 |   |   |   | $ | 2.3 |   |   |
| Interest cost                       |       |                                | 1.4        |                            |       |   | 1.4 |   |   |   | 4.2 |   |   |   | 4.1 |   |   |
| Expected return  on plan assets     |       |                                | (1.1       | )                               |       |   | (1.3 | ) |   |   | (3.4 | ) |   |   | (3.8 | ) |   |
| Amortization of  prior service cost |       |                                | —     |                            |       |   | — |   |   |   | — |   |   |   | 0.1 |   |   |
| Amortization of  net actuarial loss |       |                                | 0.6        |                            |       |   | 0.7 |   |   |   | 2.0 |   |   |   | 2.0 |   |   |
| Net periodic benefit  cost          |       |                                | $          | 1.4                             |       |   |   | $ | 1.6 |   |   |   | $ | 4.3 |   |   |   | $ | 4.7 |   |   |

 

The Company previouslydisclosed in its financial statements for the year ended September 30,2004, that it was required to contribute $0.1 million to its pension plansin 2005. As of July 2, 2005, no contributions have been made. The Companypresently anticipates contributing $0.1 million to fund its pension plansin 2005 and may make further discretionary payments.

23

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**10. Supplementary BalanceSheet Information**

Selectedsupplementary balance sheet information is presented below:

| ** **                                  | ** ** | **September 30,  2004**        | ** ** | **July 2,  2005** | ** ** |
|---------------------------------------------|------------|-------------------------------------|------------|------------------------|------------|
| ** **                                  | ** ** | **(dollars in millions)** | ** ** |
| **Inventories**                             | ** ** |                                | ** ** | ** **             |       | ** ** | ** ** |
| Purchased  materials and manufactured parts |       |                                | $          | 41.1                   | ** ** |   | $ | 37.0 |   |
| Work in process                             |       |                                | 67.3       | ** **             |       | 90.3 |   |
| Finished goods                              |       |                                | 151.8      | ** **             |       | 182.4 |   |
|                                        |       |                                | $          | 260.2                  | ** ** |   | $ | 309.7 |   |

 

**11. Supplementary IncomeStatement Information**

Thecomponents of interest expense are presented below:

| ** **                                        | ** ** | **Three months ended**    | ** ** | **Nine months ended** | ** ** |
|---------------------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|
| ** **                                        | ** ** | **June 26,  2004**             | ** ** | **July 2,  2005**          | ** ** | **June 26,  2004** | ** ** | **July 2,  2005** | ** ** |
| ** **                                        | ** ** | **(dollars in millions)** | ** ** |
| **Interest  expense and early repayment costs:**  | ** ** |                                | ** ** | ** **                      |       | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |
| Contractual interest expense                      |       |                                | $          | 15.6                            |       |   | $ | 18.6 |   |   | $ | 33.6 |   |   | $ | 54.2 |   |
| Deferred financing fee amortization               |       |                                | 0.8        |                            |       | 1.2 |   |   | 2.1 |   |   | 3.6 |   |
| Senior subordinated debt early redemption penalty |       |                                | —     |                            |       | — |   |   | 7.0 |   |   | — |   |
| Write off of deferred financing fees              |       |                                | 6.6        |                            |       | — |   |   | 7.0 |   |   | — |   |
| Interest rate swap gains                          |       |                                | (4.1       | )                               |       | (1.3 | ) |   | (10.4 | ) |   | (4.2 | ) |
| Total interest expense  and early repayment costs |       |                                | $          | 18.9                            |       |   | $ | 18.5 |   |   | $ | 39.3 |   |   | $ | 53.6 |   |

 

Areconciliation of net income available to the common shareholder is as follows:

| ** **                                                                                        | ** ** | **Three months ended**    | ** ** | **Nine months ended** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                        | ** ** | **June 26,  2004**             | ** ** | **July 2,  2005**          | ** ** | **June 26,  2004** | ** ** | **July 2,  2005** | ** ** |
| ** **                                                                                        | ** ** | **(restated)**                      | ** ** | ** **                      | ** ** | **(restated)** | ** ** | ** ** | ** ** |
| ** **                                                                                        | ** ** | **(dollars in millions)** | ** ** |
| Net income                                                                                        |       |                                | $          | 2.8                             |       |   | $ | 19.8 |   |   | $ | 18.0 |   |   | $ | 42.1 |   |
| Less preferred  share accretion related to redeemable preferred stock retired in  April 2004 |       |                                | (1.3       | )                               |       | — |   |   | (9.3 | ) |   | — |   |
| Net income available to  the common shareholder                                                   |       |                                | $          | 1.5                             |       |   | $ | 19.8 |   |   | $ | 8.7 |   |   | $ | 42.1 |   |

 

24

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

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

In the first quarter of fiscal 2005, the Companyannounced that it would cease manufacturing and begin outsourcing a productline it produced at its water infrastructure plant in Colorado. A restructuringcharge of $0.1 million in the first quarter of fiscal 2005 related toseverance payments. An additional charge of $1.5 million, relatedprimarily to the termination of operating leases for the plant building andmachinery, was reflected in the second quarter of fiscal 2005.

For the three months endedJune 26, 2004, the Company recorded no charge. For the nine months ended June 26,2004, the Company recorded a charge of $0.1 million related to assetimpairment for write-offs at piping systems facilities that were closed inNorcross, Georgia and Kearny, New Jersey, $0.3 million related toenvironmental issues at the piping systems closed facility in Statesboro,Georgia (see Note 8), and $0.5 million related to future leaseobligations at the closed and vacated Kearny, New Jersey facility.

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

Thefollowing tables set forth the consolidating statements of operations and cashflows of the Company’s guarantor and non-guarantor subsidiaries for the periodsended June 26, 2004 and July 2, 2005 and the consolidating balancesheets as of September 30, 2004 and July 2, 2005. Amounts have beenrestated to reflect the impact of items discussed in Note 2. The followinginformation is included as a result of the guarantee by certain of the Company’swholly-owned U.S. subsidiaries (“Guarantor Companies”) of the second prioritysenior secured notes and senior subordinated notes issued by the Company. Noneof the Company’s other subsidiaries guarantee the debt. Each of the guaranteesis joint and several and full and unconditional. The information presentedbelow under the title “Issuer” includes the consolidated financial results ofMueller Group, Inc. with all of its wholly-owned subsidiaries accounted forunder the equity method.

**ConsolidatingStatement of OperationsFor the Three Months Ended June 26, 2004**

| ** **                                                                         | ** ** | **Issuer**     | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminating** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------|------------|-----------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------|------------|
| ** **                                                                         | ** ** | **(restated)** | ** ** | **(restated)**              | ** ** | ** **                   | ** ** | **(restated)**                 | ** ** | **(restated)**   | ** ** |
| Net sales                                                                          |       |           | $          | —                      |       |                         |       | $                              | 246.9      |             |       |   | $ | 42.2 |   |   |   | $ | — |   |   |   | $ | 289.1 |   |   |
| Cost of sales                                                                      |       |           | —     |                        |       |                         | 175.5      |                           |       |             | 30.8       |   |   |   | — |   |   |   | 206.3 |   |   |
| Royalty expense                                                                    |       |           | —     |                        |       |                         | (0.6       | )                              |       |             | 0.6        |   |   |   | — |   |   |   | — |   |   |
| Gross profit                                                                       |       |           | —     |                        |       |                         | 72.0       |                           |       |             | 10.8       |   |   |   | — |   |   |   | 82.8 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       |           | 4.0        |                        |       |                         | 56.5       |                           |       |             | 5.3        |   |   |   | — |   |   |   | 65.8 |   |   |
| Facility  rationalization and related costs                                        |       |           | —     |                        |       |                         | —     |                           |       |             | —     |   |   |   | — |   |   |   | — |   |   |
| Operating income  (loss)                                                           |       |           | (4.0       | )                           |       |                         | 15.5       |                           |       |             | 5.5        |   |   |   | — |   |   |   | 17.0 |   |   |
| Interest expense                                                                   |       |           | (18.8      | )                           |       |                         | 0.7        |                           |       |             | (0.8       | ) |   |   | — |   |   |   | (18.9 | ) |   |
| Interest income                                                                    |       |           | —     |                        |       |                         | —     |                           |       |             | 0.1        |   |   |   | — |   |   |   | 0.1 |   |   |
| Income (loss)  before income  taxes                                                |       |           | (22.8      | )                           |       |                         | 16.2       |                           |       |             | 4.8        |   |   |   | — |   |   |   | (1.8 | ) |   |
| Income tax expense  (benefit)                                                      |       |           | (8.1       | )                           |       |                         | 1.6        |                           |       |             | 1.9        |   |   |   | — |   |   |   | (4.6 | ) |   |
| Equity income from  subsidiaries                                                   |       |           | 17.5       |                        |       |                         | 2.9        |                           |       |             | —     |   |   |   | (20.4 | ) |   |   | — |   |   |
| Net income                                                                         |       |           | $          | 2.8                         |       |                         |       | $                              | 17.5       |             |       |   | $ | 2.9 |   |   |   | $ | (20.4 | ) |   |   | $ | 2.8 |   |   |

 

25

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**13. Consolidating Guarantor and Non-GuarantorFinancial Information (Continued)**

**ConsolidatingStatement of OperationsFor the Three Months Ended July 2, 2005**

| ** **                                                                         | ** ** | **Issuer** | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminating** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------|------------|------------|------------|-----------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------|------------|
| ** **                                                                         | ** ** | ** ** | ** ** | **(restated)**              | ** ** | ** **                   | ** ** | ** **                     | ** ** | **(restated)**   | ** ** |
| Net sales                                                                          |       | $          | —     |                        |       | $                            | 233.2      |                           |       |             | $          | 63.7 |   |   |   | $ | — |   |   |   | $ | 296.9 |   |   |
| Cost of sales                                                                      |       | —     |       |                        | 152.4      |                         |       |                           | 49.7       |             |       |   | — |   |   |   | 202.1 |   |   |
| Royalty expense                                                                    |       | —     |       |                        | —     |                         |       |                           | —     |             |       |   | — |   |   |   | — |   |   |
| Gross profit                                                                       |       | —     |       |                        | 80.8       |                         |       |                           | 14.0       |             |       |   | — |   |   |   | 94.8 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       | 1.8        |       |                        | 36.2       |                         |       |                           | 7.9        |             |       |   | — |   |   |   | 45.9 |   |   |
| Facility  rationalization and related costs                                        |       | —     |       |                        | —     |                         |       |                           | —     |             |       |   | — |   |   |   | — |   |   |
| Operating income  (loss)                                                           |       | (1.8       | )          |                        | 44.6       |                         |       |                           | 6.1        |             |       |   | — |   |   |   | 48.9 |   |   |
| Interest expense                                                                   |       | (18.5      | )          |                        | (0.1       | )                            |       |                           | —     |             |       |   | 0.1 |   |   |   | (18.5 | ) |   |
| Interest income                                                                    |       | 0.3        |       |                        | 0.1        |                         |       |                           | 0.1        |             |       |   | (0.1 | ) |   |   | 0.4 |   |   |
| Income (loss)  before income taxes                                                 |       | (20.0      | )          |                        | 44.6       |                         |       |                           | 6.2        |             |       |   | — |   |   |   | 30.8 |   |   |
| Income tax  expense (benefit)                                                      |       | (7.7       | )          |                        | 16.7       |                         |       |                           | 2.0        |             |       |   | — |   |   |   | 11.0 |   |   |
| Equity income  from subsidiaries                                                   |       | 32.1       |       |                        | 4.2        |                         |       |                           | —     |             |       |   | (36.3 | ) |   |   | — |   |   |
| Net income                                                                         |       | $          | 19.8       |                        |       | $                            | 32.1       |                           |       |             | $          | 4.2 |   |   |   | $ | (36.3 | ) |   |   | $ | 19.8 |   |   |

 

26

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**13. Consolidating Guarantor and Non-GuarantorFinancial Information (Continued)**

**ConsolidatingStatement of OperationsFor the Nine Months Ended June 26, 2004**

| ** **                                                                         | ** ** | **Issuer**     | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminating** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------|------------|-----------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------|------------|
| ** **                                                                         | ** ** | **(restated)** | ** ** | **(restated)**              | ** ** | ** **                   | ** ** | **(restated)**                 | ** ** | **(restated)**   | ** ** |
| Net sales                                                                          |       |           | $          | —                      |       |                         |       | $                              | 635.3      |             |       |   | $ | 110.3 |   |   |   | $ | — |   |   |   | $ | 745.6 |   |   |
| Cost of sales                                                                      |       |           | —     |                        |       |                         | 458.3      |                           |       |             | 82.7       |   |   |   | — |   |   |   | 541.0 |   |   |
| Royalty expense                                                                    |       |           | —     |                        |       |                         | —     |                           |       |             | —     |   |   |   | — |   |   |   | — |   |   |
| Gross profit                                                                       |       |           | —     |                        |       |                         | 177.0      |                           |       |             | 27.6       |   |   |   | — |   |   |   | 204.6 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       |           | 7.9        |                        |       |                         | 118.8      |                           |       |             | 14.5       |   |   |   | — |   |   |   | 141.2 |   |   |
| Facility  rationalization and related costs                                        |       |           | —     |                        |       |                         | 0.9        |                           |       |             | —     |   |   |   | — |   |   |   | 0.9 |   |   |
| Operating income  (loss)                                                           |       |           | (7.9       | )                           |       |                         | 57.3       |                           |       |             | 13.1       |   |   |   | — |   |   |   | 62.5 |   |   |
| Interest expense                                                                   |       |           | (39.2      | )                           |       |                         | 2.4        |                           |       |             | (2.5       | ) |   |   | — |   |   |   | (39.3 | ) |   |
| Interest income                                                                    |       |           | 0.1        |                        |       |                         | —     |                           |       |             | 0.2        |   |   |   | — |   |   |   | 0.3 |   |   |
| Income (loss)  before income taxes                                                 |       |           | (47.0      | )                           |       |                         | 59.7       |                           |       |             | 10.8       |   |   |   | — |   |   |   | 23.5 |   |   |
| Income tax  expense (benefit)                                                      |       |           | (17.8      | )                           |       |                         | 19.0       |                           |       |             | 4.3        |   |   |   | — |   |   |   | 5.5 |   |   |
| Equity income  from subsidiaries                                                   |       |           | 47.2       |                        |       |                         | 6.5        |                           |       |             | —     |   |   |   | (53.7 | ) |   |   | — |   |   |
| Net income                                                                         |       |           | $          | 18.0                        |       |                         |       | $                              | 47.2       |             |       |   | $ | 6.5 |   |   |   | $ | (53.7 | ) |   |   | $ | 18.0 |   |   |

 

27

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**13. Consolidating Guarantor and Non-GuarantorFinancial Information (Continued)**

**ConsolidatingStatement of OperationsFor the Nine Months Ended July 2, 2005**

| ** **                                                                         | ** ** | **Issuer** | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminating** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------|------------|------------|------------|-----------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------|------------|
| ** **                                                                         | ** ** | ** ** | ** ** | **(restated)**              | ** ** | ** **                   | ** ** | ** **                     | ** ** | **(restated)**   | ** ** |
| Net sales                                                                          |       | $          | —     |                        |       | $                            | 666.5      |                           |       |             | $          | 171.7 |   |   |   | $ | — |   |   |   | $ | 838.2 |   |   |
| Cost of sales                                                                      |       | —     |       |                        | 446.7      |                         |       |                           | 136.3      |             |       |   | — |   |   |   | 583.0 |   |   |
| Royalty expense                                                                    |       | —     |       |                        | —     |                         |       |                           | —     |             |       |   | — |   |   |   | — |   |   |
| Gross profit                                                                       |       | —     |       |                        | 219.8      |                         |       |                           | 35.4       |             |       |   | — |   |   |   | 255.2 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       | 6.0        |       |                        | 105.3      |                         |       |                           | 22.5       |             |       |   | — |   |   |   | 133.8 |   |   |
| Facility  rationalization and related costs                                        |       | —     |       |                        | 1.6        |                         |       |                           | —     |             |       |   | — |   |   |   | 1.6 |   |   |
| Operating income  (loss)                                                           |       | (6.0       | )          |                        | 112.9      |                         |       |                           | 12.9       |             |       |   | — |   |   |   | 119.8 |   |   |
| Interest expense                                                                   |       | (53.5      | )          |                        | (0.4       | )                            |       |                           | —     |             |       |   | 0.3 |   |   |   | (53.6 | ) |   |
| Interest income                                                                    |       | 0.7        |       |                        | 0.3        |                         |       |                           | 0.3        |             |       |   | (0.3 | ) |   |   | 1.0 |   |   |
| Income (loss)  before income taxes                                                 |       | (58.8      | )          |                        | 112.8      |                         |       |                           | 13.2       |             |       |   | — |   |   |   | 67.2 |   |   |
| Income tax  expense (benefit)                                                      |       | (22.7      | )          |                        | 43.3       |                         |       |                           | 4.5        |             |       |   | — |   |   |   | 25.1 |   |   |
| Equity income  from subsidiaries                                                   |       | 78.2       |       |                        | 8.7        |                         |       |                           | —     |             |       |   | (86.9 | ) |   |   | — |   |   |
| Net income                                                                         |       | $          | 42.1       |                        |       | $                            | 78.2       |                           |       |             | $          | 8.7 |   |   |   | $ | (86.9 | ) |   |   | $ | 42.1 |   |   |

 

28

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**13. ConsolidatingGuarantor and Non-Guarantor Financial Information (Continued)**

**ConsolidatingBalance SheetSeptember 30, 2004**

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

 

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**13. Consolidating Guarantor and Non-GuarantorFinancial Information (Continued)**

**ConsolidatingBalance SheetJuly 2, 2005**

| ** **                                                 | ** ** | **Issuer**     | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|----------------|------------|-----------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **(restated)** | ** ** | **(restated)**              | ** ** | ** **                     | ** ** | ** **                      | ** ** | **(restaed)**    | ** ** |
| **Assets**                                                 |       |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                                 |       | $              | 66.7       |                        |       | $                              | (12.6      | )                               |       |             | $          | 20.2 |   |   |   | $ | — |   |   |   | $ | 74.3 |   |   |
| Receivables, net                                           |       | —         |       |                        | 131.6      |                           |       |                            | 29.3       |             |       |   | — |   |   |   | 160.9 |   |   |
| Inventories                                                |       | —         |       |                        | 255.0      |                           |       |                            | 54.7       |             |       |   | — |   |   |   | 309.7 |   |   |
| Income taxes  receivable                                   |       | 1.1            |       |                        | —     |                           |       |                            | (0.6       | )                |       |   | — |   |   |   | 0.5 |   |   |
| Deferred income  taxes                                     |       | —         |       |                        | 23.9       |                           |       |                            | —     |             |       |   | — |   |   |   | 23.9 |   |   |
| Prepaid expenses  and other current assets                 |       | —         |       |                        | 24.1       |                           |       |                            | 2.2        |             |       |   | — |   |   |   | 26.3 |   |   |
| Total current  assets                                      |       | 67.8           |       |                        | 422.0      |                           |       |                            | 105.8      |             |       |   | — |   |   |   | 595.6 |   |   |
| Property, plant  and equipment, net                        |       | —         |       |                        | 160.6      |                           |       |                            | 12.9       |             |       |   | — |   |   |   | 173.5 |   |   |
| Goodwill, net                                              |       | —         |       |                        | 163.2      |                           |       |                            | —     |             |       |   | — |   |   |   | 163.2 |   |   |
| Identifiable  intangibles, net                             |       | —         |       |                        | 53.0       |                           |       |                            | 0.1        |             |       |   | — |   |   |   | 53.1 |   |   |
| Pension  intangible                                        |       | —         |       |                        | 0.8        |                           |       |                            | —     |             |       |   | — |   |   |   | 0.8 |   |   |
| Investment in  subsidiaries                                |       | 1,116.0        |       |                        | 36.1       |                           |       |                            | —     |             |       |   | (1,152.1 | ) |   |   | — |   |   |
| Deferred  financing fees, net                              |       | 30.2           |       |                        | —     |                           |       |                            | —     |             |       |   | — |   |   |   | 30.2 |   |   |
| Deferred income  taxes                                     |       | (3.3           | )          |                        | 13.3       |                           |       |                            | (0.6       | )                |       |   | — |   |   |   | 9.4 |   |   |
| Total assets                                               |       | $              | 1,210.7    |                        |       | $                              | 849.0      |                            |       |             | $          | 118.2 |   |   |   | $ | (1,152.1 | ) |   |   | $ | 1,025.8 |   |   |
| **Liabilities**                                            | ** ** | ** **     | ** ** |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Accounts payable                                           |       | $              | 8.3        |                        |       | $                              | 37.5       |                            |       |             | $          | 12.9 |   |   |   | $ | — |   |   |   | $ | 58.7 |   |   |
| Current portion  of long-term debt                         |       | 2.9            |       |                        | 1.0        |                           |       |                            | —     |             |       |   | — |   |   |   | 3.9 |   |   |
| Accrued expenses  and other current liabilities            |       | 11.2           |       |                        | 66.0       |                           |       |                            | 6.4        |             |       |   | — |   |   |   | 83.6 |   |   |
| Total current  liabilities                                 |       | 22.4           |       |                        | 104.5      |                           |       |                            | 19.3       |             |       |   | — |   |   |   | 146.2 |   |   |
| Intercompany  accounts                                     |       | 346.8          |       |                        | (408.4     | )                              |       |                            | 61.6       |             |       |   | — |   |   |   | — |   |   |
| Long-term debt,  net of current portion                    |       | 925.6          |       |                        | 1.3        |                           |       |                            | —     |             |       |   | — |   |   |   | 926.9 |   |   |
| Accrued pension  liability                                 |       | —         |       |                        | 34.1       |                           |       |                            | (0.4       | )                |       |   | — |   |   |   | 33.7 |   |   |
| Other long-term  liabilities                               |       | 0.5            |       |                        | 1.5        |                           |       |                            | 1.6        |             |       |   | — |   |   |   | 3.6 |   |   |
| Total liabilities                                          |       | 1,295.3        |       |                        | (267.0     | )                              |       |                            | 82.1       |             |       |   | — |   |   |   | 1,110.4 |   |   |
| **Shareholder’s equity (deficit)**                    | ** ** | ** **     | ** ** |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Total shareholder’s  equity (deficit)                 |       | (84.6          | )          |                        | 1,116.0    |                           |       |                            | 36.1       |             |       |   | (1,152.1 | ) |   |   | (84.6 | ) |   |
| Total liabilities  and shareholder’s equity (deficit) |       | $              | 1,210.7    |                        |       | $                              | 849.0      |                            |       |             | $          | 118.2 |   |   |   | $ | (1,152.1 | ) |   |   | $ | 1,025.8 |   |   |

 

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**13. ConsolidatingGuarantor and Non-Guarantor Financial Information (Continued)**

**ConsolidatingStatement of Cash FlowsFor the Nine Months Ended June 26, 2004**

| ** **                                                      | ** ** | **Issuer**     | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|----------------|------------|-----------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                                      | ** ** | **(restated)** | ** ** | **(restated)**              | ** ** | **(restated)**                 | ** ** | ** **                      | ** ** | **(restated)**   | ** ** |
| Net cash provided  by (used in) operating activities            |       |           | $          | (52.1                       | )          |                           |       | $                               | 103.4      |             |       |   | $ | 0.3 |   |   |   | — |   |   |   | $ | 51.6 |   |   |
| **Cash flows from investing  activities**                       | ** ** |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Capital  expenditures                                           |       |           | —     |                        |       |                           | (16.4      | )                               |       |             | (1.0       | ) |   |   | — |   |   |   | (17.4 | ) |   |
| Acquisition of  businesses                                      |       |           | —     |                        |       |                           | (19.8      | )                               |       |             | —     |   |   |   | — |   |   |   | (19.8 | ) |   |
| Net cash used in  investing activities                          |       |           | —     |                        |       |                           | (36.2      | )                               |       |             | (1.0       | ) |   |   | — |   |   |   | (37.2 | ) |   |
| **Cash flows from financing  activities**                       | ** ** |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Book cash overdrafts                                            |       |           | 7.9        |                        |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | 7.9 |   |   |
| Proceeds from  short-term  borrowings                           |       |           | 9.2        |                        |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | 9.2 |   |   |
| Payment of  short-term borrowings                               |       |           | (9.2       | )                           |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | (9.2 | ) |   |
| Intercompany  change                                            |       |           | 73.5       |                        |       |                           | (72.3      | )                               |       |             | (1.2       | ) |   |   | — |   |   |   | — |   |   |
| Proceeds from  long-term debt                                   |       |           | 960.0      |                        |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | 960.0 |   |   |
| Payment of  long-term debt, including capital lease obligations |       |           | (603.4     | )                           |       |                           | (1.0       | )                               |       |             | —     |   |   |   | — |   |   |   | (604.4 | ) |   |
| Payment of  deferred financing fees                             |       |           | (30.8      | )                           |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | (30.8 | ) |   |
| Dividends paid                                                  |       |           | (387.3     | )                           |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | (387.3 | ) |   |
| Net cash provided  by (used in) financing activities            |       |           | 19.9       |                        |       |                           | (73.3      | )                               |       |             | (1.2       | ) |   |   | — |   |   |   | (54.6 | ) |   |
| Effect of  exchange rate changes on cash                   |       |           | —     |                        |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | — |   |   |
| Decrease in cash                                                |       |           | (32.2      | )                           |       |                           | (6.1       | )                               |       |             | (1.9       | ) |   |   | — |   |   |   | (40.2 | ) |   |
| **Cash and cash equivalents**                                   | ** ** |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Beginning of  period                                            |       |           | 54.9       |                        |       |                           | 1.6        |                            |       |             | 16.5       |   |   |   | — |   |   |   | 73.0 |   |   |
| End of period                                                   |       |           | $          | 22.7                        |       |                           |       | $                               | (4.5       | )                |       |   | $ | 14.6 |   |   |   | — |   |   |   | $ | 32.8 |   |   |

 

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**MUELLER GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) THREE AND NINE MONTHS ENDED JUNE 26, 2004 AND JULY 2, 2005 (UNAUDITED)**

**13. Consolidating Guarantor and Non-GuarantorFinancial Information (Continued)**

**ConsolidatingStatement of Cash FlowsFor the Nine Months Ended July 2, 2005**

| ** **                                                      | ** ** | **Issuer**     | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|----------------|------------|-----------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                                      | ** ** | **(restated)** | ** ** | **(restated)**              | ** ** | **(restated)**                 | ** ** | ** **                      | ** ** | **(restated)**   | ** ** |
| Net cash provided by  (used in) operating activities            |       |           | $          | (39.9                       | )          |                           |       | $                               | 69.9       |             |       |   | $ | 3.1 |   |   |   | — |   |   |   | $ | 33.1 |   |   |
| **Cash flows from investing activities**                        | ** ** |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                            |       |           | —     |                        |       |                           | (18.8      | )                               |       |             | (2.0       | ) |   |   | — |   |   |   | (20.8 | ) |   |
| Net cash used in  investing activities                          |       |           | —     |                        |       |                           | (18.8      | )                               |       |             | (2.0       | ) |   |   | — |   |   |   | (20.8 | ) |   |
| **Cash flows from financing activities**                        | ** ** |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Book cash overdrafts                                            |       |           | 3.6        |                        |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | 3.6 |   |   |
| Intercompany change                                             |       |           | 54.7       |                        |       |                           | (54.9      | )                               |       |             | 0.2        |   |   |   | — |   |   |   | — |   |   |
| Payment of long-term  debt, including capital lease obligations |       |           | (1.5       | )                           |       |                           | (0.9       | )                               |       |             | —     |   |   |   | — |   |   |   | (2.4 | ) |   |
| Net cash provided by  (used in) financing activities            |       |           | 56.8       |                        |       |                           | (55.8      | )                               |       |             | 0.2        |   |   |   | — |   |   |   | 1.2 |   |   |
| Effect of exchange rate  changes on cash                   |       |           | —     |                        |       |                           | —     |                            |       |             | 0.3        |   |   |   | — |   |   |   | 0.3 |   |   |
| Increase (decrease) in  cash                                    |       |           | 16.9       |                        |       |                           | (4.7       | )                               |       |             | 1.6        |   |   |   | — |   |   |   | 13.8 |   |   |
| **Cash and cash equivalents**                                   | ** ** |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Beginning of period                                             |       |           | 49.8       |                        |       |                           | (7.9       | )                               |       |             | 18.6       |   |   |   | — |   |   |   | 60.5 |   |   |
| End of period                                                   |       |           | $          | 66.7                        |       |                           |       | $                               | (12.6      | )                |       |   | $ | 20.2 |   |   |   | — |   |   |   | $ | 74.3 |   |   |

----

(1)          Guarantorsinclude the accounts of the following direct and indirect subsidiaries ofMueller Group, Inc.:

| **Name**                                 | ** ** | ** ** | ** ** | **State of Incorporation** |
|------------------------------------------|------------|------------|------------|----------------------------|
| AnvilStar, LLC                           |       | Delaware   |
| Anvil International, Inc.           |       | Delaware   |
| Henry Pratt Company                      |       | Delaware   |
| Henry Pratt International Ltd            |       | Delaware   |
| Hersey Meters Co.                        |       | Delaware   |
| Hydro Gate Acquisition Corp.             |       | Delaware   |
| James Jones Company                      |       | California |
| J.B. Smith Mfg. Co.                      |       | Oklahoma   |
| Mueller Co.                              |       | Illinois   |
| Mueller Service Co.                      |       | Delaware   |
| Milliken Acquisition Corp.               |       | Delaware   |
| Mueller International, Inc.         |       | Delaware   |
| Mueller International, LLC               |       | Delaware   |
| Mueller International Finance, Inc. |       | Delaware   |
| Mueller  International Finance, LLC      |       | Delaware   |

 

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

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

Except as otherwise noted, we present all financialand operating data on a fiscal quarter basis. Our fiscal year ends on September 30,and our third fiscal quarter ends on the Saturday closest to June 30.

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

These forward looking statements are subject to anumber of risks and uncertainties, including but not limited to: thepossibility that the Company’s parent, Mueller Water, and Walter Industries maynot be able to obtain regulatory approvals required for the proposedacquisition of Mueller Water by Walter Industries; the Company’s businesses maysuffer as a result of the uncertainty surrounding the Walter Industriesacquisition; upon consummation of the acquisition, the combined company willhave significant debt; integrating the businesses after the acquisition may notbe successfully accomplished as anticipated; the acquisition may involveunexpected costs; the Company’s ability to continue long-standing relationshipswith major customers; increased competition; demand for and market acceptanceof new and existing products in the markets we serve; adverse changes incurrency exchange rates or raw material prices, specifically steel scrap, steelpipe and brass ingot; unanticipated developments that could occur with respectto contingencies such as litigation, product liability exposures andenvironmental matters; the Company’s ability to integrate acquired businessesinto its operations; and other risks and uncertainties that affect themanufacturing sector generally including, but not limited to, economic,political, governmental and technological factors affecting the Company’soperations, markets, products, services and prices.

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

**Overview**

We are a leading North American manufacturer of abroad range of flow control products for use in water distribution, water andwastewater treatment facilities, gas distribution systems and piping systemsand maintain a large installed base of products. We are comprised of twosegments: water infrastructure, a leading manufacturer of hydrants, valves andother products for use in water and gas distribution systems; and pipingsystems, a leading manufacturer of fittings, pipe hangers and other productsfor use in piping system applications. Our business strategy continues to befocused on sustaining our market leadership and competitive differentiation,while growing revenues and enhancing profitability.

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Results for the third quarter and first nine months of2005 reflected continued strong performance in the residential andnon-residential construction markets, as well as the full effect of the pricingincreases implemented in the second half of 2004 and early 2005. Both our waterinfrastructure and piping systems segments reported improvements in grossprofit and operating income in the three months and the nine months ended July 2,2005 as compared to the three months and nine months ended June 26, 2004.

The Company incurred a significant amount ofadditional indebtedness in connection with its recapitalization in April 2004.New debt associated with the recapitalization added $3.4 million and$22.1 million of interest expense in the three and nine month periodsended July 2, 2005 as compared to the similar fiscal periods in 2004.

As previously announced, on June 17, 2005,Mueller Water entered into a definitive merger agreement with Walter Industries, Inc.(“Walter Industries”) whereby Walter Industries will acquire Mueller Water foran aggregate purchase price of approximately $1.91 billion, consisting ofapproximately $860 million in cash and the assumption of approximately $1.05billion in Mueller Water and Company debt, based on Mueller Water’s balancesheet as of April 2, 2005, subject to the post-closing adjustments specifiedin the merger agreement based on Mueller Water’s working capital upon theclosing of the transaction. As a result of the merger, Mueller Water’s sharesof common stock will be converted into the right to receive the applicablemerger consideration in cash at the closing, subject to the post-closingadjustments. Upon closing of the transaction, the outstanding warrants ofMueller Water will become rights to receive cash upon exercise of the warrantsbased on the number of shares underlying the warrants.

Under the merger agreement and prior to merger closingthe Company will  commence a tender offerand consent solicitation for the its second priority senior secured floatingrate notes due 2011. The consummation of the tender offer and consentsolicitation is expected to occur simultaneously with the consummation of themerger, but is not a condition to the merger closing. The Company’s seniorcredit facility will be refinanced at merger closing. The Company’s 10% seniorsubordinated notes due 2012 will remain outstanding after the merger iscompleted. However, holders of these notes will have the right to put them tothe issuer following the change of control resulting from the consummation ofthe merger transaction in accordance with the indenture. The Companyanticipates that, in connection with the merger, the Company will incuradditional debt. As a result, the Company’s leverage will increase, therebyincreasing its debt service obligations. The increased leverage could adverselyaffect the outstanding notes of the Company going forward.

The merger is subject tocustomary conditions to closing, including the expiration or termination of thewaiting period under the Hart-Scott-Rodino Antitrust Improvements Act and thefunding of Walter Industries’ committed financing, and there can be noassurance that the transaction will be consummated.

**Restatements**

This section is comprisedof two parts: 2005 Restatements and 2004 Restatements. The 2004 Restatementswere previously reported in the original Form 10-Q. The previousManagement’s Discussion and Analysis of Financial Condition and Results ofOperations has been appropriately updated to reflect the 2005 and 2004Restatements.

***2005 Restatements***

In the course offinalizing the September 30, 2005 financial statements, the Companydetermined that certain items included in the Statements of Consolidated CashFlows, the Consolidated Statements of Operations and the Consolidated BalanceSheets were not properly classified in annual and interim periods. As a resultof these findings, the Company has restated its financial statements in this Form 10-Q/A.See Note 2 to the Consolidated Financial Statements. The 2005 Restatements hadno 

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impacton the Company’s consolidated net income or the Consolidated Statement of Stockholders’Deficit for any of the prior periods presented.

***2004 Restatements***

In November 2004, our Audit Committee wasnotified of alleged potential accounting improprieties concerning ouraccounting for inventory reserves and certain questions concerning revenuerecognition. The Audit Committee appointed an independent law firm toinvestigate the allegations. In January 2005, the independent law firmissued an investigative report that identified several areas requiringfinancial review by the Company. These areas principally concerned accountingfor excess and obsolete (E&O) inventory, the capitalization of costsrelating to a project that should have been expensed in prior periods, theaccrual of reserves for this project without identifying support for suchaccruals and the timing of recognition of revenue with regard to full truckloadshipments that were not immediately dispatched to customers by certain freightcarriers used by the Company. The Company also identified some additionalannual and interim items recorded in incorrect periods in the course offinalizing the 2004 financial statements. In addition, the Company determinedthat the value it assigned to stock compensation in connection with its April 2004recapitalization should be revised. As a result of these findings, the Companyrestated its annual financial statements for its 2002 and 2003 fiscal years andits interim financial statements for its 2004 fiscal year.

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**Results of Operations**

***Three Months Ended July 2,2005 As Compared to the Three Months Ended June 26, 2004***

| ** **                                                                              | ** ** | **Three months ended**    | ** ** | ** **                 | ** ** | ** **        | ** ** | **FY05 Q3 vs. FY04 Q3** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------------------------|------------|----------------------------|------------|-------------------|------------|---------------------------------------------|------------|
| ** **                                                                              | ** ** | ** **                          | ** ** | **Percentage**             | ** ** | ** **        | ** ** | **Percentage**                              | ** ** | ** ** | ** ** | **Change in** | ** ** |
| ** **                                                                              | ** ** | **July 2,**                    | ** ** | **of net sales** | ** ** | **June 26,** | ** ** | **of net sales**                  | ** ** | **Increase/** | ** ** | **percentage** | ** ** |
| ** **                                                                              | ** ** | **2005**                            | ** ** | **(2)**                    | ** ** | **2004**          | ** ** | **(2)**                                     | ** ** | **(decrease)** | ** ** | **of net sales** | ** ** |
| ** **                                                                              | ** ** | **(restated)**                      | ** ** | ** **                 | ** ** | **(restated)**    | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                              | ** ** | **(dollars in millions)** | ** ** |
| **Net sales**                                                                           | ** ** |                                | ** ** | ** **                 |       |              | ** ** | ** **                                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | $          | 172.1                      |       |              |       | 58.0                                        | %          |   |   | $ | 172.8 |   |   |   | 59.8 | % |   |   | $ | (0.7 | ) |   |   | (1.8 | )% |   |
| Piping systems                                                                          |       |                                | 124.8      |                       |       |              | 42.0       |                                        |       |   | 116.3 |   |   |   | 40.2 |   |   |   | 8.5 |   |   |   | 1.8 |   |   |
| Consolidated                                                                            |       |                                | 296.9      |                       |       |              | 100.0      |                                        |       |   | 289.1 |   |   |   | 100.0 |   |   |   | 7.8 |   |   |   | — |   |   |
| **Gross profit**                                                                        | ** ** |                                | ** ** | ** **                 |       |              | ** ** | ** **                                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 64.5       |                       |       |              | 37.5       |                                        |       |   | 56.6 |   |   |   | 32.8 |   |   |   | 7.9 |   |   |   | 4.7 |   |   |
| Piping systems                                                                          |       |                                | 32.2       |                       |       |              | 25.8       |                                        |       |   | 28.0 |   |   |   | 24.1 |   |   |   | 4.2 |   |   |   | 1.7 |   |   |
| Depreciation expense not allocated to segments                                          |       |                                | (1.9       | )                          |       |              | (0.6       | )                                           |       |   | (1.8 | ) |   |   | (0.6 | ) |   |   | (0.1 | ) |   |   | — |   |   |
| Consolidated                                                                            |       |                                | 94.8       |                       |       |              | 31.9       |                                        |       |   | 82.8 |   |   |   | 28.6 |   |   |   | 12.0 |   |   |   | 3.3 |   |   |
| **Selling, general and  administrative expenses, including stock compensation expense** | ** ** |                                | ** ** | ** **                 |       |              | ** ** | ** **                                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 16.7       |                       |       |              | 9.7        |                                        |       |   | 16.3 |   |   |   | 9.4 |   |   |   | 0.4 |   |   |   | 0.3 |   |   |
| Piping systems                                                                          |       |                                | 19.3       |                       |       |              | 15.5       |                                        |       |   | 19.9 |   |   |   | 17.1 |   |   |   | (0.6 | ) |   |   | (1.6 | ) |   |
| Corporate                                                                               |       |                                | 9.9        |                       |       |              | 3.3        |                                        |       |   | 29.6 |   |   |   | 10.2 |   |   |   | (19.7 | ) |   |   | (6.9 | ) |   |
| Consolidated                                                                            |       |                                | 45.9       |                       |       |              | 15.5       |                                        |       |   | 65.8 |   |   |   | 22.8 |   |   |   | (19.9 | ) |   |   | (7.3 | ) |   |
| **Facility rationalization,  restructuring and related costs**                          | ** ** |                                | ** ** | ** **                 |       |              | ** ** | ** **                                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | —     |                       |       |              | —     |                                        |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Piping systems                                                                          |       |                                | —     |                       |       |              | —     |                                        |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Consolidated                                                                            |       |                                | —     |                       |       |              | —     |                                        |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| **Operating income**                                                                    | ** ** |                                | ** ** | ** **                 |       |              | ** ** | ** **                                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 47.8       |                       |       |              | 27.8       |                                        |       |   | 40.3 |   |   |   | 23.3 |   |   |   | 7.5 |   |   |   | 4.5 |   |   |
| Piping systems                                                                          |       |                                | 12.9       |                       |       |              | 10.3       |                                        |       |   | 8.1 |   |   |   | 7.0 |   |   |   | 4.8 |   |   |   | 3.3 |   |   |
| Corporate                                                                               |       |                                | (11.8      | )                          |       |              | (4.0       | )                                           |       |   | (31.4 | ) |   |   | (10.9 | ) |   |   | 19.6 |   |   |   | 6.9 |   |   |
| Consolidated                                                                            |       |                                | 48.9       |                       |       |              | 16.5       |                                        |       |   | 17.0 |   |   |   | 5.9 |   |   |   | 31.9 |   |   |   | 10.6 |   |   |
| Interest expense                                                                        |       |                                | (18.5      | )                          |       |              | (6.2       | )                                           |       |   | (18.9 | ) |   |   | (6.5 | ) |   |   | 0.4 |   |   |   | 0.3 |   |   |
| Interest income                                                                         |       |                                | 0.4        |                       |       |              | 0.1        |                                        |       |   | 0.1 |   |   |   | — |   |   |   | 0.3 |   |   |   | 0.1 |   |   |
| Income before income taxes                                                              |       |                                | 30.8       |                       |       |              | 10.4       |                                        |       |   | (1.8 | ) |   |   | (0.6 | ) |   |   | 32.6 |   |   |   | 11.0 |   |   |
| Income tax expense                                                                      |       |                                | 11.0       |                       |       |              | 3.7        |                                        |       |   | (4.6 | ) |   |   | (1.6 | ) |   |   | 15.6 |   |   |   | 5.3 |   |   |
| Net income                                                                              |       |                                | $          | 19.8                       |       |              |       | 6.7                                         | %          |   |   | $ | 2.8 |   |   |   | 1.0 | % |   |   | $ | 17.0 |   |   |   | 5.7 | % |   |
| **Segment EBITDA(1)**                                                                   | ** ** |                                | ** ** | ** **                 |       |              | ** ** | ** **                                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 52.7       |                       |       |              | 30.6       |                                        |       |   | 46.0 |   |   |   | 26.6 |   |   |   | 6.7 |   |   |   | 4.0 |   |   |
| Piping systems                                                                          |       |                                | 17.2       |                       |       |              | 13.8       |                                        |       |   | 12.4 |   |   |   | 10.7 |   |   |   | 4.8 |   |   |   | 3.1 |   |   |
| Total segment  EBITDA                                                                   |       |                                | $          | 69.9                       |       |              |       | 23.5                                        |       |   |   | $ | 58.4 |   |   |   | 20.2 |   |   |   | $ | 11.5 |   |   |   | 3.3 |   |   |

----

(1)          Segment EBITDA isdefined as segment operating income plus depreciation and amortization expenseand excludes unallocated corporate expenses. This performance measure may notbe comparable to EBITDA as reported by other companies.

36

----

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

| ** **                                  | ** ** | **Three months ended** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **July 2, 2005**       | ** ** | **June 26, 2004** | ** ** |
| ** **                                  | ** ** | ** **                       | ** ** | **(as restated)(3)** | ** ** |
| Total segment  EBITDA                       |       |                             | $          | 69.9 |   |   |   | $ | 58.4 |   |   |
| Unallocated  corporate costs                |       |                             | (9.2       | ) |   |   | (25.0 | ) |   |
| Interest expense  and early repayment costs |       |                             | (18.5      | ) |   |   | (18.9 | ) |   |
| Depreciation and  amortization              |       |                             | (11.4      | ) |   |   | (16.3 | ) |   |
| Income before income  taxes                 |       |                             | $          | 30.8 |   |   |   | $ | (1.8 | ) |   |

----

(2)          Percentages are bysegment, if applicable.

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

*NetSales.**  *Netsales for the three months ended July 2, 2005 were $296.9 million, or a2.7% increase as compared to $289.1 million for the three months ended June 26,2004.

Water infrastructure net sales for the three monthsended July 2, 2005 were $172.1 million, or a 0.4% decrease as compared to$172.8 million for the three months ended June 26, 2004. The salesvolume for hydrants and valves decreased for our third quarter of 2005 ascompared to our third quarter of 2004. There was a price increase in May 2004that we believe resulted in customers placing a larger-than-usual amount oforders ahead of that date in order to get the benefit of lower pricing, whichsubsequently resulted in higher shipments during the third quarter of 2004.There was no similar price increase announced during the third quarter of 2005.The impact of the decrease in hydrant and valve volumes was offset by theeffects of price increases on those same products.

Piping systems net sales for the three months ended July 2,2005 were $124.8 million, or a 7.3% increase as compared to $116.3 millionfor the three months ended June 26, 2004. This increase was drivenprimarily by price increases which were implemented in the second half of 2004and in the first half of 2005, and also by an additional $2.1 million of Starproduct sales..

*GrossProfit.**  *Grossprofit for the three months ended July 2, 2005 was $94.8 million, ora 14.5% increase as compared to $82.8 million for the three months ended June 26,2004. Gross profit, as a percentage of net sales, or gross margin, increasedfrom 28.6% for our third quarter of 2004 to 31.9% for our third quarter of2005.

Water infrastructure gross profit for the three monthsended July 2, 2005 was $64.5 million, or a 14.0% increase as comparedto $56.6 million for the three months ended June 26, 2004. Grossprofit, as a percentage of net sales, increased from 32.8% for our thirdquarter of 2004 to 37.5% for our third quarter of 2005. The increase in grossprofit was primarily driven by price increases and the continued strongperformance of the residential construction market. Partially offsetting theeffects of higher prices were higher raw material costs (most notably brassingot and scrap steel) due to worldwide supply and demand issues. We cannotprovide assurances that any future increases in raw material costs can bepassed on to our customers.

Piping systems gross profit for the three months endedJuly 2, 2005 was $32.2 million, or a 15.0% increase as compared to$28.0 million for the three months ended June 26, 2004. Gross profit,as a percentage of net sales, increased from 24.1% to 25.8%. The increase ingross profit was primarily driven by price increases. Increased raw materialcosts partially offset the effects of the higher prices. We cannot provide assurancesthat we can continue to pass on cost increases to our customers.

37

----

*Selling,General & Administrative Expense.**  *Selling, General and Administrative expenses (“SG&A”)for the three months ended July 2, 2005 were $45.9 million, or a30.2% decrease as compared to $65.8 million for the three months ended June 26,2004. As a percentage of net sales, SG&A decreased from 22.8% for our thirdquarter of 2004 to 15.5% for our third quarter of 2005.

Water infrastructure SG&A for the three monthsended July 2, 2005 was $16.7 million, or a 2.5% increase as compared to$16.3 million for the three months ended June 26, 2004. As a percentageof net sales, SG&A increased slightly from 9.4% for our third quarter of2004 to 9.7% for our third quarter of 2005. The increase was primarily due tocompensation and benefit costs for additional personnel.

Piping systems SG&A for the three months ended July 2,2005 was $19.3 million, or a 3.0% decrease as compared to $19.9 millionfor the three months ended June 26, 2004. As a percentage of net sales,SG&A decreased from 17.1% for our third quarter of 2004 to 15.5% for ourthird quarter of 2005. The decrease was primarily due to a reduction in legalexpenses and foreign currency losses for Canadian transactions recognized inthe third quarter of 2004. There were no similar foreign currency losses in thethird quarter of 2005. These decreases were partially offset by a moderateincrease in selling costs of $0.6 million, primarily due to higher salescommissions.

Corporate expenses for the three months ended July 2,2005 were $9.9 million as compared to $29.6 million for the three monthsended June 26, 2004. The decrease was primarily due to a $4.0 millionreduction in amortization expense for 2005 as compared to 2004 as a result ofan intangible asset becoming fully amortized during the fourth quarter of 2004and a $20.9 million reduction in corporate stock compensation charges for 2005as compared to 2004 primarily related to charges for employee optionholdersmade in connection with the recapitalization of the Company during the thirdquarter of 2004. All options were cancelled at that time. These items werepartially offset in 2005 by: consulting fees of $1.1 million related toefforts to become compliant with public company reporting and Sarbanes-Oxleyinternal control requirements, $1.4 million related to compensation payments tocurrent employees and directors to offset additional taxes owed by them as aresult of the Company’s revaluation of stock compensation paid to them in 2004,$1.6 million of professional fees related to efforts to sell the Company (seeNote 5), increased board of director fees of $0.2 million, increased legal,audit and other consulting fees of $0.7 million, and increased salary andbenefit costs of $0.4 million associated with additional accounting andlegal staffing. Corporate expenses consist primarily of corporate staff,benefits, legal and facility costs.

*InterestExpense.**  *Interestexpense for the three months ended July 2, 2005 was $18.5 million, ora $0.4 million decrease from $18.9 million for the three months endedJune 26, 2004. Interest expense for the three months ended July 2,2005, included $3.4 million of additional interest expense andamortization of deferred financing fees on $406.9 million of netadditional debt resulting from the Company’s recapitalization in April 2004.This increase was offset by a $6.6 million write-off of term debt deferredfinancing fees during the three months ended June 26, 2004 in connectionwith the April 2004 recapitalization. Also, gains recorded on interestrate swaps were $2.8 million lower in 2005 than in 2004 as more swap agreementsexpired and were not renewed.

*IncomeTax Expense.**  *Theeffective tax rates (excluding discrete third quarter items) for three monthsended July 2, 2005 and June 26, 2004 were 38% and 28%, respectively.For the third quarter of 2005, the Company adjusted its tax accruals downwardby approximately $0.7 million due to the expiration of statutes of limitation. Discretethird quarter events in 2004 included the conclusion of the federal and certainstate tax examinations and the expiration of certain state statutes oflimitation which allowed the Company to adjust tax accruals downward byapproximately $6.4 million. Partially offsetting these items in the thirdquarter of 2004 were $2.3 million of charges related to Foreign Tax Credits andthe effects of other items, including changes in the effective rate on priorperiod deferred tax balances.

38

----

*SegmentEBITDA.**  *SegmentEBITDA for the three months ended July 2, 2005 was $69.9 million, ora 19.7% increase as compared to $58.4 million for the three months ended June 26,2004.

Water infrastructure EBITDA for the three months endedJuly 2, 2005 was $52.7 million, which was $6.7 million or 14.6%higher than the $46.0 million for the three months ended June 26,2004. The increased EBITDA resulted primarily from increased prices, partiallyoffset by additional SG&A spending as discussed above.

Piping systems EBITDA was $17.2 million for the threemonths ended July 2, 2005, which was $4.8 million higher than the$12.4 million reported for the three months ended June 26, 2004. Theincreased EBITDA resulted primarily from increased prices.

39

----

**Results of Operations**

***Nine Months Ended July 2,2005 As Compared to the Nine Months Ended June 26, 2004***

| ** **                                                                              | ** ** | **Nine months ended**     | ** ** | ** **                 | ** ** | ** **        | ** ** | **2005 vs. 2004** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------------------------|------------|----------------------------|------------|-------------------|------------|-----------------------------|------------|
| ** **                                                                              | ** ** | ** **                          | ** ** | **Percentage**             | ** ** | ** **        | ** ** | **Percentage**              | ** ** | ** ** | ** ** | **Change in** | ** ** |
| ** **                                                                              | ** ** | **July 2,**                    | ** ** | **of net sales** | ** ** | **June 26,** | ** ** | **of net sales**  | ** ** | **Increase/** | ** ** | **percentage** | ** ** |
| ** **                                                                              | ** ** | **2005**                            | ** ** | **(2)**                    | ** ** | **2004**          | ** ** | **(2)**                     | ** ** | **(decrease)** | ** ** | **of net sales** | ** ** |
| ** **                                                                              | ** ** | **(restated)**                      | ** ** | ** **                 | ** ** | **(restated)**    | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                              | ** ** | **(dollars in millions)** | ** ** |
| **Net sales**                                                                           | ** ** |                                | ** ** | ** **                 |       |              | ** ** | ** **                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | $          | 480.8                      |       |              |       | 57.4                        | %          |   |   | $ | 434.7 |   |   |   | 58.3 | % |   |   | $ | 46.1 |   |   |   | (0.9 | )% |   |
| Piping systems                                                                          |       |                                | 357.4      |                       |       |              | 42.6       |                        |       |   | 310.9 |   |   |   | 41.7 |   |   |   | 46.5 |   |   |   | 0.9 |   |   |
| Consolidated                                                                            |       |                                | 838.2      |                       |       |              | 100.0      |                        |       |   | 745.6 |   |   |   | 100.0 |   |   |   | 92.6 |   |   |   | — |   |   |
| **Gross profit**                                                                        | ** ** |                                | ** ** | ** **                 |       |              | ** ** | ** **                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 166.1      |                       |       |              | 34.5       |                        |       |   | 139.9 |   |   |   | 32.2 |   |   |   | 26.2 |   |   |   | 2.3 |   |   |
| Piping systems                                                                          |       |                                | 94.4       |                       |       |              | 26.4       |                        |       |   | 70.0 |   |   |   | 22.5 |   |   |   | 24.4 |   |   |   | 3.9 |   |   |
| Depreciation expense not allocated to segments                                          |       |                                | (5.3       | )                          |       |              | (0.6       | )                           |       |   | (5.3 | ) |   |   | (0.7 | ) |   |   | — |   |   |   | 0.1 |   |   |
| Consolidated                                                                            |       |                                | 255.2      |                       |       |              | 30.4       |                        |       |   | 204.6 |   |   |   | 27.4 |   |   |   | 50.6 |   |   |   | 3.0 |   |   |
| **Selling, general and  administrative expenses, including stock compensation expense** | ** ** |                                | ** ** | ** **                 |       |              | ** ** | ** **                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 49.5       |                       |       |              | 10.3       |                        |       |   | 44.8 |   |   |   | 10.3 |   |   |   | 4.7 |   |   |   | — |   |   |
| Piping systems                                                                          |       |                                | 59.8       |                       |       |              | 16.7       |                        |       |   | 53.4 |   |   |   | 17.2 |   |   |   | 6.4 |   |   |   | (0.5 | ) |   |
| Corporate                                                                               |       |                                | 24.5       |                       |       |              | 2.9        |                        |       |   | 43.0 |   |   |   | 5.8 |   |   |   | (18.5 | ) |   |   | (2.9 | ) |   |
| Consolidated                                                                            |       |                                | 133.8      |                       |       |              | 16.0       |                        |       |   | 141.2 |   |   |   | 18.9 |   |   |   | (7.4 | ) |   |   | (2.9 | ) |   |
| **Facility rationalization,  restructuring and related costs**                          | ** ** |                                | ** ** | ** **                 |       |              | ** ** | ** **                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 1.6        |                       |       |              | 0.3        |                        |       |   | — |   |   |   | — |   |   |   | 1.6 |   |   |   | 0.3 |   |   |
| Piping systems                                                                          |       |                                | —     |                       |       |              | —     |                        |       |   | 0.9 |   |   |   | 0.3 |   |   |   | (0.9 | ) |   |   | (0.3 | ) |   |
| Consolidated                                                                            |       |                                | 1.6        |                       |       |              | 0.2        |                        |       |   | 0.9 |   |   |   | 0.1 |   |   |   | 0.7 |   |   |   | 0.1 |   |   |
| **Operating income**                                                                    | ** ** |                                | ** ** | ** **                 |       |              | ** ** | ** **                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 115.0      |                       |       |              | 23.9       |                        |       |   | 95.1 |   |   |   | 21.9 |   |   |   | 19.9 |   |   |   | 2.0 |   |   |
| Piping systems                                                                          |       |                                | 34.6       |                       |       |              | 9.7        |                        |       |   | 15.7 |   |   |   | 5.0 |   |   |   | 18.9 |   |   |   | 4.7 |   |   |
| Corporate                                                                               |       |                                | (29.8      | )                          |       |              | (3.6       | )                           |       |   | (48.3 | ) |   |   | (6.5 | ) |   |   | 18.5 |   |   |   | 2.9 |   |   |
| Consolidated                                                                            |       |                                | 119.8      |                       |       |              | 14.3       |                        |       |   | 62.5 |   |   |   | 8.4 |   |   |   | 57.3 |   |   |   | 5.9 |   |   |
| Interest expense                                                                        |       |                                | (53.6      | )                          |       |              | (6.4       | )                           |       |   | (39.3 | ) |   |   | (5.3 | ) |   |   | (14.3 | ) |   |   | (1.1 | ) |   |
| Interest income                                                                         |       |                                | 1.0        |                       |       |              | 0.1        |                        |       |   | 0.3 |   |   |   | — |   |   |   | 0.7 |   |   |   | 0.1 |   |   |
| Income before income taxes                                                              |       |                                | 67.2       |                       |       |              | 8.0        |                        |       |   | 23.5 |   |   |   | 3.2 |   |   |   | 43.7 |   |   |   | 4.8 |   |   |
| Income tax expense                                                                      |       |                                | 25.1       |                       |       |              | 3.0        |                        |       |   | 5.5 |   |   |   | 0.7 |   |   |   | 19.6 |   |   |   | 2.3 |   |   |
| Net income                                                                              |       |                                | $          | 42.1                       |       |              |       | 5.0                         | %          |   |   | $ | 18.0 |   |   |   | 2.4 | % |   |   | $ | 24.1 |   |   |   | 2.6 | % |   |
| **Segment EBITDA(1)**                                                                   | ** ** |                                | ** ** | ** **                 |       |              | ** ** | ** **                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 131.9      |                       |       |              | 27.4       |                        |       |   | 113.0 |   |   |   | 26.0 |   |   |   | 18.9 |   |   |   | 1.4 |   |   |
| Piping systems                                                                          |       |                                | 47.5       |                       |       |              | 13.3       |                        |       |   | 28.4 |   |   |   | 9.1 |   |   |   | 19.1 |   |   |   | 4.2 |   |   |
| Total segment  EBITDA                                                                   |       |                                | $          | 179.4                      |       |              |       | 21.4                        |       |   |   | $ | 141.4 |   |   |   | 19.0 |   |   |   | $ | 38.0 |   |   |   | 2.4 |   |   |

----

(1)          Segment EBITDA isdefined as segment operating income plus depreciation and amortization expenseand excludes unallocated corporate expenses. This performance measure may notbe comparable to EBITDA as reported by other companies.

40

----

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

| ** **                                  | ** ** | **Nine months ended** | ** ** |
|---------------------------------------------|------------|---------------------------------|------------|
| ** **                                  | ** ** | **July 2, 2005**      | ** ** | **June 26, 2004** | ** ** |
| ** **                                  | ** ** | ** **                      | ** ** | **(as restated)(3)** | ** ** |
| Total segment  EBITDA                       |       |                            | $          | 179.4 |   |   |   | $ | 141.4 |   |   |
| Unallocated  corporate costs                |       |                            | (21.8      | ) |   |   | (29.1 | ) |   |
| Interest expense  and early repayment costs |       |                            | (53.6      | ) |   |   | (39.3 | ) |   |
| Depreciation and  amortization              |       |                            | (36.8      | ) |   |   | (49.5 | ) |   |
| Income before income  taxes                 |       |                            | $          | 67.2 |   |   |   | $ | 23.5 |   |   |

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(2)          Percentages are bysegment, if applicable.

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

*NetSales.**  *Netsales for the nine months ended July 2, 2005 were $838.2 million, or a12.4% increase as compared to $745.6 million for the nine months ended June 26,2004.

Water infrastructure net sales for the nine monthsended July 2, 2005 were $480.8 million, or a 10.6% increase as compared to$434.7 million for the nine months ended June 26, 2004. This increasewas driven primarily by price increases implemented in the second half of 2004and during the second quarter of 2005, as well as increased volumes due to thecontinued strong performance of the residential construction market.

Piping systems net sales for the nine months ended July 2,2005 were $357.4 million, or a 15.0% increase as compared to$310.9 million for the nine months ended June 26, 2004. This increasewas driven primarily by price increases implemented in the second half of 2004and the first half of 2005, as well as $9.5 million of additional Starproduct sales. We acquired the Star business in January 2004 (seeNote 5).

*GrossProfit.**  *Grossprofit for the nine months ended July 2, 2005 was $255.2 million, ora 24.7% increase as compared to $204.6 million for the nine months ended June 26,2004. Gross profit, as a percentage of net sales, or gross margin, increasedfrom 27.4% for our first nine months of 2004 to 30.4% for our first nine monthsof 2005.

Water infrastructure gross profit for the nine monthsended July 2, 2005 was $166.1 million, or an 18.7% increase ascompared to $139.9 million for the nine months ended June 26, 2004.Gross profit, as a percentage of net sales, increased from 32.2% for our firstnine months of 2004 to 34.5% for our first nine months of 2005. The increase ingross profit was primarily driven by price increases and the continued strongperformance of the residential construction market. Partially offsetting theeffects of higher prices were higher raw material costs (most notably brassingot and scrap steel) due to worldwide supply and demand issues. We cannotprovide assurances that any future increases in raw material costs can bepassed on to our customers.

Piping systems gross profit for the nine months ended July 2,2005 was $94.4 million, or a 34.9% increase as compared to $70.0 millionfor the nine months ended June 26, 2004. Gross profit, as a percentage ofnet sales, increased from 22.5% to 26.4%. The increase in gross profit wasprimarily driven by price increases. Increased raw material costs partiallyoffset the effects of the higher prices. We cannot provide assurances that wecan continue to pass on cost increases to our customers.

*Selling,General & Administrative Expense.**  *Selling, General and Administrative expenses (“SG&A”)for the nine months ended July 2, 2005 were $133.8 million, or a 5.2%decrease as compared to $141.2 million for the nine months ended June 26,2004. As a percentage of net sales, SG&A decreased from 18.9% for our firstnine months of 2004 to 16.0% for our first nine months of 2005.

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Water infrastructure SG&A for the nine monthsended July 2, 2005 was $49.5 million, or a 10.5% increase as compared to$44.8 million for the nine months ended June 26, 2004. As apercentage of net sales, SG&A remained steady at 10.3% for both our firstnine months of 2004 and 2005. Significant factors contributing to the highercosts include increased management incentive compensation costs of$1.3 million related to higher earnings, increased sales commissions of$0.3 million related to higher sales, and increased wages and benefitcosts of $1.2 million.

Piping systems SG&A for the nine months ended July 2,2005 was $59.8 million, or a 12.0% increase as compared to $53.4 millionfor the nine months ended June 26, 2004. As a percentage of net sales,SG&A decreased from 17.2% for our first nine months of 2004 to 16.7% forour first nine months of 2005. Significant factors contributing to the highercosts include increased selling costs of $3.7 million primarily due tohigher sales commissions, increased warehousing costs of $1.1 millionprimarily related to the Star product line and increased management incentive compensationcost of $1.1 million due to higher earnings.

Corporate expenses for the nine months ended July 2,2005 were $24.5 million as compared to $43.0 million for the ninemonths ended June 26, 2004. The decrease was primarily due to a $12.0million reduction in amortization expense for 2005 as compared to 2004 as aresult of an intangible asset becoming fully amortized during the fourthquarter of 2004 and a $21.2 million reduction in corporate stock compensationcharges for 2005 as compared to 2004 primarily related to charges for employeeoptionholders made in connection with the recapitalization of the Companyduring the third quarter of 2004. All options were cancelled at that time. Theseitems were partially offset by legal and audit fees of $3.0 millionrelated to an internal investigation (see Note 2), accounting and legalfees of $1.1 million related to SEC filing matters, consulting fees of$2.6 million related to efforts to become compliant with public companyreporting and Sarbanes-Oxley internal control requirements, $1.4 millionrelated to compensation payments to current employees and directors to offsetadditional taxes owed by them as a result of the Company’s revaluation of stockcompensation paid to them in 2004, $1.6 million of professional fees related toefforts to sell the Company (see Note 5), increased board of director fees of$0.2 million, increased incentive compensation costs of $1.6 million,increased legal, audit and other consulting fees of $1.4 million, and increasedsalary, benefit, recruiting and relocation costs of $1.2 millionassociated with additional accounting and legal staffing. Corporate expensesconsist primarily of corporate staff, benefits, legal and facility costs.

*FacilityRationalization, Restructuring and Related Costs.**  *There was $1.6 million of restructuring costsfor the nine months ended July 2, 2005, related primarily to severancepayments and to the termination of operating leases for the building andmachinery at a water infrastructure plant in Colorado that ceased manufacturingand began outsourcing a product line in February 2005.

There was $0.9 million of facilityrationalization costs for the nine months ended June 26, 2004, relatedprimarily to future lease obligations at a closed piping systems facility inNew Jersey and environmental issues at a closed piping systems plant inGeorgia.

*InterestExpense.**  *Interestexpense for the nine months ended July 2, 2005 was $53.6 million, ora $14.3 million increase from $39.3 million for the nine months endedJune 26, 2004. Interest expense for the nine months ended July 2,2005, includes $22.1 million of additional interest expense andamortization of deferred financing fees on $406.9 million of netadditional debt resulting from the Company’s recapitalization in April 2004.In the nine months ended June 26, 2004, interest expense included a $6.6million write-off of term debt deferred financing fees related to the April 2004recapitalization, and a $7.0 million early redemption penalty and awrite-off of $0.4 million in deferred financing fees related to the earlyredemption of $50.0 million of senior subordinated debt in November 2003.Also, gains recorded on interest rate swaps were $6.2 million lower in2005 than in 2004 as more swap agreements expired and were not renewed.

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*Income Tax Expense.**  *The effective tax rates (excluding discrete thirdquarter items) for the nine months ended July 2, 2005 and June 26,2004 were 38% and 41%, respectively. Discrete third quarter events in 2005 and2004 allowed the Company to adjust tax accruals, as described in the quarterlycomparison section.

*SegmentEBITDA.**  *SegmentEBITDA for the nine months ended July 2, 2005 was $179.4 million, ora 26.9% increase as compared to $141.4 million for the three months endedJune 26, 2004.

Water infrastructure EBITDA for the nine months endedJuly 2, 2005 was $131.9 million, which was $18.9 million or16.7% higher than the $113.0 million for the nine months endedJune 26, 2004. The increased EBITDA resulted primarily from increasedprices and volumes, partially offset by additional SG&A spending asdiscussed above.

Piping systems EBITDA was$47.5 million for the nine months ended July 2, 2005, which was $19.1million or 67.3% higher than the $28.4 million reported for the ninemonths ended June 26, 2004. The increased EBITDA resulted primarily fromincreased prices and additional Star gross profit, partially offset byadditional SG&A spending as discussed above.

**Liquidityand Capital Resources**

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

*Debt Service*

As of July 2, 2005 wehad: (a) total consolidated indebtedness of approximately $930.8 million;and (b) approximately $58.5 million of borrowings available under oursenior revolving credit facility, subject to customary conditions. As of July 2,2005, we had obtained $21.5 million in letters of credit under the seniorrevolving credit facility, which reduced availability for borrowingsthereunder. Our significant debt service obligations could have materialconsequences to our security holders. Our key financial covenants are dependenton attaining certain levels of EBITDA, as defined in the respective debtarrangements. The most restrictive covenant in effect at July 2, 2005related to our leverage ratio, as defined in the debt arrangements, whichrequired approximately $162 million of EBITDA over the trailing twelve months,based on our net debt outstanding. Our EBITDA, as defined in the agreement,exceeded $230 million over the trailing twelve months ended July 2,2005.

*Capital Expenditures*

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

*Distributions toour Parent Company*

Our parent company,Mueller Water Products, Inc. (“Mueller Water”), has no material assetsother than its ownership of our capital stock and, accordingly, depends upondistributions from us to satisfy its cash needs. Mueller Water’s principal cashneeds will be debt service on its Senior Discount Notes due 2014. The MuellerWater notes do not require cash interest payments until 2009 and containrestrictive covenants that will, among other things, limit the ability ofMueller Water and its subsidiaries (including us) to incur debt, pay dividendsand make investments. Neither we nor any of our subsidiaries guarantee 

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theparent company notes. Mueller Water, however, is a holding company and itsability to pay interest on the parent company notes will be dependent upon thereceipt of dividends from its subsidiaries. We are currently Mueller Water’sonly direct subsidiary.

*Sources of Funds*

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

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

*Walter IndustriesMerger*

Under the merger agreement between Walter Industriesand Mueller Water and prior to merger closing, the Company will commence atender offer and consent solicitation for the Company’s second priority seniorsecured floating rate notes due 2011. The consummation of the tender offer andconsent solicitation is expected to occur simultaneously with the consummationof the merger, but it is not a condition to the merger closing. The Company’ssenior credit facility will be refinanced at merger closing. Mueller Water’s 143⁄4% senior discount notes due 2014 and the Company’s 10% senior subordinatednotes due 2012 will remain outstanding after the merger is completed.  However, holders of these notes will have theright to put them to their respective issuers following the change of controlresulting from the consummation of the merger transaction in accordance withthe respective indentures. The Company anticipates that, in connection with themerger, the Company will incur additional debt. As a result, the Company’sleverage will increase, increasing its debt service obligations. The increasedleverage could adversely affect the outstanding notes of Mueller Water and theCompany going forward.

As a result of the pending acquisition by WalterIndustries, it is expected that Walter Industries’ US Pipe subsidiarywill be contributed to the Company, which will have an impact on the Company’sfinancial statements by, for example, lowering the margins of the consolidatedcompany. In addition, we expect that our reporting segments may be changedafter the merger. We also expect that purchase accounting adjustments couldincrease non-cash deprecation and amortization expense.

The merger transaction issubject to customary conditions to closing, and there can be no assurance thatthe transaction will be consummated.

***Historical***

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

*Cashflows from operating activities.**  *Netcash provided by operations was $33.1 million for the first nine months of2005, compared to net cash provided of $51.6 million for the first ninemonths of 2004. 

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Significant changes inworking capital balances in the first nine months of 2005 included a$48.8 million increase in inventories. Water infrastructure inventoriesincreased $25.9 million during the nine months ended July 2, 2005.Significant contributing factors to the increase include higher raw materialcosts of approximately $7 million, as well as a seasonal build ofapproximately $10 million to meet anticipated fourth quarter demand. Othercontributing factors include $1.8 million of increased on-hand quantities ofraw material due to larger purchases to achieve lower prices, $1.8 million ofinventory costs associated with a large, highly-engineered project scheduled toship late in the fourth quarter of 2005, and $1.2 million in Canadian productinventories (purchased from other water infrastructure locations) required toservice Canadian customer requirements. Piping systems inventories increased$23.6 million during the nine months ended July 2, 2005. Increasedmaterial and labor costs accounted for approximately $7 million of theincrease. Approximately $14 million was due to increased foreign productinventories required to service North American and European customerrequirements. Of this $14 million, approximately $2 million is related to thestart-up of European export efforts, while the remaining $12 million is relatedto ongoing efforts to make available a full line of foreign-sourced products toour North American customers.

*Cashflows used in investing activities.**  *In the first nine months of 2005 we had net cash usedin investing activities of $20.8 million compared to net cash used in thefirst nine months of 2004 of $37.2 million. This was primarily due to$19.8 million spent during the second quarter of 2004 for the acquisitionsof Star and Modern Molded (see Note 5).

*Cash flows from financingactivities.**  *Cashflows used in financing activities were $54.6 million in the first ninemonths of 2004 compared to cash flows provided by financing activities of  $1.2 million in the first nine months of2005. This was primarily due to early payment of $50 million ofsubordinated notes due 2009 in the first quarter of 2004.

**Off-Balance Sheet Arrangements**

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

We utilize letters ofcredit and surety bonds in the ordinary course of business to ensureperformance of contractual obligations. As of July 2, 2005, we had$21.5 million of letters of credit and $16.3 million of surety bondsoutstanding.

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**Contractual Obligations**

Ourcontractual obligations as of July 2, 2005:

**Payments Due byPeriod**

| **Contractual Obligations**       | ** ** | ** **                          | ** ** | **Less than  1 Year** | ** ** | **1-3 Years** | ** ** | **4-5 Years** | ** ** | **After 5 Years** | ** ** | **Total** | ** ** |   |
|----------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|--------------------|------------|--------------------|------------|-----------------------------|------------|-----------|------------|--------|
| ** **                             | ** ** | **(dollars in millions)** | ** ** |                            |
| Long-term debt                         |       |                                |       |                            |       |               |       |               |       |                        |       |      |       |   |   |   |   |   |   |
| Principal on long-term debt            |       |                                | $          | 2.9                             |       |               |       | $                  | 5.8        |                        |       |      | $          | 5.8    |   |   |   | $ | 914.0 |   |   | $ | 928.5 |   |
| Interest on long-term debt(1)          |       |                                | 72.4       |                            |       |               | 143.9      |               |       |                        | 143.2      |      |       |   | 117.3 |   |   | 476.8 |   |
| Capital lease  obligations             |       |                                | 1.0        |                            |       |               | 1.2        |               |       |                        | 0.1        |      |       |   | — |   |   | 2.3 |   |
| Operating leases                       |       |                                | 8.8        |                            |       |               | 11.3       |               |       |                        | 3.0        |      |       |   | 2.9 |   |   | 26.0 |   |
| Unconditional  purchase obligations(2) |       |                                | 6.5        |                            |       |               | —     |               |       |                        | —     |      |       |   | — |   |   | 6.5 |   |
| Other long-term  obligations(3)        |       |                                | —     |                            |       |               | —     |               |       |                        | —     |      |       |   | — |   |   | — |   |
| Total contractual  cash obligations    |       |                                | $          | 91.6                            |       |               |       | $                  | 162.2      |                        |       |      | $          | 152.1  |   |   |   | $ | 1,034.2 |   |   | $ | 1,440.1 |   |

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(1)          Interest on the seniorcredit facility and secured notes is calculated using LIBOR of 3.54% and 3.21%respectively, the rates applicable under these debt instruments and in effecton July 2, 2005. Each increase or decrease in LIBOR of 0.125% would resultin an increase or decrease in annual interest on the senior credit facility andsecured notes of $0.8 million. Because the interest rates under the seniorcredit facility and secured notes will be variable, actual payments may differ.Interest does not include payments that could be required under ourinterest-rate swap agreements, which payments will depend upon movements ininterest rates and could vary significantly. The payments due on theexistinginterest rate swaps expiring in July 2005 and May 2007 are estimated tobe approximately $0.5 million, net of LIBOR interest of 3.54% receivedfrom counterparties.

(2)          Includes contractualobligations for purchases of raw materials and capital expenditures.

(3)          Excludes the deferredpayment portion of the purchase price for Star. The Star purchase price issubject to adjustment to reflect, among other things, a deferred payment to bemade by us to the extent that the gross profit of the business exceeds thetarget gross profit from February 1, 2004 to January 31, 2007. Althoughthe maximum amount payable is $23 million, we estimate that the totaldeferred payment will be approximately $3.0 to $6.0 million. Thiscalculation of the potential Star purchase price adjustment is based onmanagement’s best estimate; however, the actual adjustment may be materiallydifferent.

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**Effect ofInflation; Seasonality**

We do not believe that general inflation has had amaterial impact on our financial position or results of operations, with theexception of recent increases in the cost of our raw materials.

Our business is largelydependent upon the North American construction industry, which is very seasonaldue to the impact of winter or wet weather conditions. Our net sales andoperating income have historically been lowest, and our working capital needshave been highest, in the three month periods ending around December 31and March 31, when the northern United States and all of Canada generallyface weather that restricts significant construction activity and we buildworking capital in anticipation of the peak construction season, during whichtime our working capital tends to be reduced.

**Critical Accounting Policies**

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

**RecentlyIssued Accounting Standards**

In December 2004, the Financial AccountingStandards Board issued SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R) replacesSFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedesAPB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123(R) requirescompensation costs related to share-based payment transactions to be recognizedin the financial statements over the period that an employee provides servicein exchange for the award. Public companies are required to adopt the newstandard using a modified prospective method and may elect to restate priorperiods using the modified retrospective method. Under the modified prospectivemethod, companies are required to record compensation cost for new and modifiedawards over the related vesting period of such awards prospectively and recordcompensation cost prospectively for the unvested portion, at the date ofadoption, of previously issued and outstanding awards over the remainingvesting period of such awards. No change to prior periods presented ispermitted under the modified prospective method. Under the modifiedretrospective method, companies record compensation costs for prior periodsretroactively through restatement of such periods using the exact pro formaamounts disclosed in the companies’ footnotes. Also, in the period of adoptionand after, companies record compensation based on the modified prospectivemethod. SFAS No. 123(R), as amended in April 2005 for compliancedates, allows companies to implement the standard at the beginning of theirnext fiscal year. The Company plans to adopt SFAS No. 123(R) as of October 1,2005, the beginning of its next fiscal year and to use the modified prospectivemethod. The adoption of SFAS 123(R) is not expected to have amaterial impact on the Company’s financial statements for the year ended September 30,2005.

In November 2004, the Financial AccountingStandards Board issued SFAS No. 151, “Inventory Costs.” SFAS No. 151amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” toclarify the accounting for abnormal amounts of idle facility expense, freight,handling costs, and wasted material. This Statement requires that those itemsbe recognized as current-period charges regardless of whether they meet thecriterion of “so abnormal.” In addition, this Statement requires thatallocation of fixed production overheads to the costs of conversion be based onthe normal capacity of the production facilities.

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SFAS No. 151 is effective for fiscal yearsbeginning after June 15, 2005. The Company intends to adopt SFAS No. 151on October 1, 2005, the beginning of its 2006 fiscal year. The adoption ofSFAS No. 151 is not expected to have a material impact on the Company’sfinancial statements.

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

In March 2005, theFASB issued FASB Interpretation No. 47 (“FIN 47”), “Accounting forConditional Asset Retirement Obligations.” FIN 47 provides clarification ofcertain sections of FASB Statement No. 143, “Accounting for AssetRetirement Obligations.” Specifically, FIN 47 clarifies the meaning of the term“conditional asset retirement obligation” as used in SFAS 143 and alsoclarifies when an entity would have sufficient information to reasonablyestimate the fair value of an asset retirement obligation. FIN 47 is effectiveno later than the end of fiscal years ending after December 15, 2005. TheCompany is currently evaluating the impact of this standard on its financialstatements.

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK**

The nature of market risks faced by the Company at July 2,2005 were the same as disclosed in the Company’s Annual Report on Form 10-Kfor the year ended September 30, 2004. We are exposed to various marketrisks, which are potential losses arising from adverse changes in market ratesand prices, such as interest rates, foreign exchange fluctuations and rawmaterials. We do not enter into derivatives or other financial instruments fortrading or speculative purposes.

At July 2, 2005 we had fixed rate debt of$317.3 million and variable rate debt of $613.5 million. The pre-taxearnings and cash flows impact resulting from a 100 basis point increase ininterest rates on variable rate debt, holding other variables constant andexcluding the impact of the hedging agreements described below, would beapproximately $6.1 million per year.

We have entered into interest rate swap agreementswith a notional principal amount of $100.0 million in order to reduce interestrate risks and manage interest expense. The swap agreements, which mature in July 2005and May 2007, effectively convert floating rate debt under our creditfacility into fixed-rate debt and carried an average fixed interest rate of5.77% at July 2, 2005.

On July 27, 2005, we executed a new interest rateswap agreement—notional principal amount of $50.0 million, maturing in April 2007—toreplace the swap agreement which expired in July 2005. With this new swapagreement, floating rate debt under our credit facility is effectivelyconverted into fixed-rate debt at an average fixed interest rate of 4.09% at July 27,2005.

Our strategy formanagement of currency risk relies primarily on conducting our operations in acountry’s respective currency and may, from time to time, involve currencyderivatives, primarily forward foreign exchange contracts, to reduce ourexposure to currency fluctuations. As of July 2, 2005, we had foreignexchange contracts outstanding with a notional principal amount of $3.2 millionto hedge our Canadian operations’ exposure to currency fluctuations on productspurchased from United States suppliers and purchases of equipment from Europeansuppliers.

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**ITEM 4. CONTROLS AND PROCEDURES.**

This Item 4 disclosure hasbeen updated from what was originally reported for the quarter ended July 2,2005 to reflect the results of the Company’s evaluation of the effectiveness ofthe design and operation of the Company’s disclosure controls and procedures asof September 30, 2005, which identified a material weakness thateffectively led to the restatement of the previously issued financialstatements for the years ended September 30, 2004 and 2003, the firstthree quarters of fiscal 2005 and all interim periods of fiscal 2004.

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

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

The 2005 Restatement had noeffect on the Company’s consolidated net income or the Consolidated Statementof Stockholders’ Deficit for the two fiscal years ended September 30, 2004and the first three quarters of fiscal 2005 and all interim periods of fiscal2004, including our quarter ended July 2, 2005.

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

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

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

***Material Weakness in Internal Control over FinancialReporting***

A material weakness is acontrol deficiency or a combination of control deficiencies that results inmore than a remote likelihood that a material misstatement of the annual orinterim consolidated financial statements will not be prevented or detected. Asof July 2, 2005, the Company did not maintain effective controls over thepreparation, review and presentation and disclosure of the Company’sconsolidated financial statements. Specifically, the Company’s controls failedto prevent or detect the incorrect presentation of the following: (i) cashflows from the effect of exchange rate changes on cash balances; (ii) cashflows and balance sheet presentation of book cash overdrafts; (iii) thepresentation of current and non-current deferred income tax assets in theCompany’s Consolidated Balance Sheets; and 

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(iv) classificationof certain depreciation expense as selling, general and administrative expenseinstead of cost of sales in the Company’s Consolidated Statements of Operations.This control deficiency resulted in the restatement of our annual consolidatedfinancial statements for fiscal 2004 and 2003 and our interim consolidatedfinancial statements for the first three quarters of fiscal 2005, all interimperiods of fiscal 2004 and audit adjustments to our 2005 annual consolidatedfinancial statements. Additionally, this control deficiency could result in amisstatement of the presentation and disclosure of the Company’s consolidatedfinancial statements that would result in a material misstatement in the annualor interim financial statements that would not be prevented or detected.Accordingly, management has determined that this control deficiency constitutesa material weakness.

***Previous Disclosure About Our Material Weakness inInternal Control over Financial Reporting***

As of September 30, 2004, and all interim periodsthrough July 2, 2005, including our quarter ended July 2, 2005, wereported the following control deficiencies that, in the aggregate, constituteda material weakness in internal control over preparation, review andpresentation and disclosure of the Company’s consolidated financial statements.Specifically our control deficiencies included: (i) a lack of personnelwith experience in financial reporting and control procedures necessary for SECregistrants; (ii) a lack of sufficient controls to prevent or detect, on atimely basis, unauthorized journal entries; (iii) a lack of sufficientcontrols over information technology data conversion and program changes; (iv) alack of sufficient controls over the development and communication of incometax provisions; (v) a lack of effective controls surrounding “whistleblower”hotline complaints and internal certifications to ensure that issues werecommunicated on a more timely basis by management to the audit committee andthe independent registered public accounting firm; (vi) a lack ofeffective controls over revenue recognition associated with full truckload shipmentsnot immediately dispatched by freight carriers; and (vii) a lack of formalcontrols and procedures regarding assessment of financial exposures andtransactions, including consideration of accounting implications undergenerally accepted accounting principles. These control deficiencies resultedin audit adjustments to the consolidated financial statements for the yearended September 30, 2004. Additionally, these control deficiencies, in theaggregate, could result in a misstatement to accounts and disclosures thatwould result in a material misstatement to the annual or interim financialstatements that would not be prevented or detected. Accordingly, managementdetermined that these control deficiencies in the aggregate constituted amaterial weakness.

We reported in our Form 10-Qfor all interim periods in fiscal 2005 that we had taken steps to remediatethis material weakness. We: (i) reassigned our Chief Financial Officer,appointed an Interim Chief Financial Officer and hired additional accountingand finance staff; (ii) introduced increased training for our existingfinancial and accounting and other staff; (iii) retained third-partyconsultants with significant SEC financial reporting experience to provideassistance in complying with SEC reporting requirements; (iv) formed adisclosure committee to supervise the preparation of our Exchange Act Reportsand other public communications; (v) improved our controls over, and begandeveloping written policies and procedures that cover all of our significantaccounting processes, including journal entries, the development andcommunication of income tax provisions, information data conversion issues andprogram changes, revenue recognition and assessing financial exposures; (vi) improvedand centralized our controls over our information technology; and (vii) implementedglobal compliance initiatives under the direction of our Chief ComplianceOfficer. These improvement efforts continued to progress during our thirdquarter ended July 2, 2005. While significant improvements have beenimplemented throughout the year, management believes that additionalremediation is needed and will require changes in personnel, processes andprocedures to ensure timely and accurate financial reporting on a sustainablebasis.

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***Changes in Internal Control Over Financial Reporting***

There have been no changesin our internal control over financial reporting during the three months ended July 2,2005 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting other than as describedabove.

***Changes in Internal Control Over Financial ReportingSubsequent to September 30, 2005***

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

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

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

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

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

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

Another significant remedial action underway orplanned to commence in fiscal year 2006, not specifically related to thepreviously identified material weakness, includes the issuance of a code ofconduct to all employees. In fiscal 2006, we will be subject to theSarbanes-Oxley internal control reporting requirements and in 2006 we will betesting key internal controls for all significant business units and businessprocesses.

The Company continues toupgrade the knowledge of our finance staff by implementing on-going UnitedStates generally accepted accounting principles training programs, consistingof providing appropriate technical resources to our finance team and trainingon the use of such resources, conducting a series of training sessions forplant controllers, periodic distribution of information regarding changes inaccounting and reporting standards, and issuance of Company accounting policystatements. Additionally, the Company terminated the prior Chief ComplianceOfficer and reassigned those duties to the Director of Internal Audit.

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**PART II OTHER INFORMATION**

**Item 6. Exhibits.**
| 3.1  |   | Certificate of Incorporation of Mueller  Group, Inc.(1)                                                  |
|------|--------|---------------------------------------------------------------------------------------------------------------|
| 3.2  |   | By-Laws of Mueller Group, Inc.(1)                                                                        |
| 31.1 |   | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002*     |
| 31.2 |   | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002*     |
| 32.1 |   | Certification of the Chief Executive Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* |
| 32.2 |   | Certification of the Chief Financial Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* |

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(1)          Previouslyfiled as an Exhibit to our Registration Statement on Form S-4as filed with the SEC on July 19, 2004.

*                     Filedherewith.

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**SIGNATURES**

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

 

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