**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15 (d) OFTHE SECURITIES EXCHANGE ACT OF 1934

**Forthe quarterly period ended December 31, 2006.**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15 (d) OFTHE SECURITIES EXCHANGE ACT OF 1934

**CommissionFile Number 333-117473**

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**MUELLER GROUP, LLC**

(Exact name of registrantas specified in its charter)

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

 

**1200 Abernathy RoadAtlanta, GA 30328**

(Address of principalexecutive offices)

**(770) 206-4200**

(Registrant’s telephonenumber, including area code)

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes x  No o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer” and “largeaccelerated filer” in Rule 12b-2 of the Exchange Act.

| Large Accelerated  Filer o | Accelerated Filer o | Non-accelerated Filer x |
|---------------------------------|--------------------------|------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Act). o Yes  x No

None of the Registrant’svoting stock was held by non-affiliates as of February 9, 2007. As of February 9,2007, Mueller Group, LLC had 1 unit outstanding.

Certainitems have been omitted under the reduced disclosure format pursuant to GeneralInstruction H(1) (a) and (b) of Form 10-Q forwholly owned subsidiaries (reduced disclosure format).

 

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**PART I.**                FINANCIALINFORMATION

**ITEM1.**             FINANCIAL STATEMENTS

**MUELLER GROUP, LLCCONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED)**

| ** **                                                                                                                  | ** ** | **December 31,  2006**         | ** ** | **September 30,  2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                  | ** ** | **(dollars in millions)** | ** ** |
| **Assets**                                                                                                                  |       |                                |       |                         |       |   |   |   |   |
| Cash and cash  equivalents                                                                                                  |       |                                | $          | 69.9                         |       |   |   | $ | 79.1 |   |   |
| Receivables, net  of allowance for doubtful accounts of $4.8 million at December 31, 2006  and September 30, 2006 |       |                                | 252.2      |                         |       |   | 322.9 |   |   |
| Inventories                                                                                                                 |       |                                | 491.5      |                         |       |   | 454.6 |   |   |
| Deferred income  taxes                                                                                                      |       |                                | 42.6       |                         |       |   | 42.6 |   |   |
| Prepaid expenses                                                                                                            |       |                                | 35.8       |                         |       |   | 33.7 |   |   |
| Total current assets                                                                                                        |       |                                | 892.0      |                         |       |   | 932.9 |   |   |
| Property, plant  and equipment, net                                                                                         |       |                                | 338.8      |                         |       |   | 337.0 |   |   |
| Deferred  financing fees                                                                                                    |       |                                | 13.9       |                         |       |   | 14.6 |   |   |
| Identifiable  intangible assets, net                                                                                        |       |                                | 828.3      |                         |       |   | 835.4 |   |   |
| Goodwill                                                                                                                    |       |                                | 723.7      |                         |       |   | 724.1 |   |   |
| Other long-term  assets                                                                                                     |       |                                | 2.4        |                         |       |   | 2.2 |   |   |
| Total assets                                                                                                                |       |                                | $          | 2,799.1                      |       |   |   | $ | 2,846.2 |   |   |
| **Liabilities**                                                                                                             |       |                                |       |                         |       |   |   |   |   |
| Current portion  of long-term debt                                                                                          |       |                                | $          | 9.0                          |       |   |   | $ | 9.0 |   |   |
| Accounts payable                                                                                                            |       |                                | 91.7       |                         |       |   | 129.9 |   |   |
| Accrued expenses  and other current liabilities                                                                             |       |                                | 99.6       |                         |       |   | 122.1 |   |   |
| Total current liabilities                                                                                                   |       |                                | 200.3      |                         |       |   | 261.0 |   |   |
| Long-term debt                                                                                                              |       |                                | 999.4      |                         |       |   | 1,002.0 |   |   |
| Accrued pension  liability, net                                                                                             |       |                                | 45.2       |                         |       |   | 43.7 |   |   |
| Accumulated  postretirement benefits obligation                                                                             |       |                                | 45.5       |                         |       |   | 46.3 |   |   |
| Deferred income  taxes                                                                                                      |       |                                | 292.3      |                         |       |   | 294.0 |   |   |
| Other long-term  liabilities                                                                                                |       |                                | 20.8       |                         |       |   | 20.9 |   |   |
| Total liabilities                                                                                                           |       |                                | 1,603.5    |                         |       |   | 1,667.9 |   |   |
| **Shareholder’s Equity**                                                                                               |       |                                |       |                         |       |   |   |   |   |
| Membership unit:                                                                                                            |       |                                |       |                         |       |   |   |   |   |
| 1 unit outstanding at December 31, 2006 and  September 30, 2006                                                   |       |                                | —     |                         |       |   | — |   |   |
| Capital in excess  of par value                                                                                             |       |                                | 1,358.9    |                         |       |   | 1,358.4 |   |   |
| Accumulated deficit                                                                                                         |       |                                | (142.1     | )                            |       |   | (161.5 | ) |   |
| Accumulated other  comprehensive loss                                                                                       |       |                                | (21.2      | )                            |       |   | (18.6 | ) |   |
| Total shareholder’s equity                                                                                             |       |                                | 1,195.6    |                         |       |   | 1,178.3 |   |   |
| Total liabilities  and shareholder’s equity                                                                            |       |                                | $          | 2,799.1                      |       |   |   | $ | 2,846.2 |   |   |

 

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

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**MUELLER GROUP, LLCCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)**

| ** **                                                 | ** ** | **Three months ended  December 31,**      | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                 | ** ** | **    2006    ** | ** ** | **    2005    ** | ** ** |
| ** **                                                 | ** ** | **(dollars in millions)**                      | ** ** |
| Net sales                                                  |       |                                                     | $          | 411.9 |   |   |   | $ | 480.4 |   |   |
| Cost of sales                                              |       |                                                     | 304.2      |   |   |   | 436.9 |   |   |
| Gross profit                                               |       |                                                     | 107.7      |   |   |   | 43.5 |   |   |
| Operating expenses:                                        |       |                                                     |       |   |   |   |   |   |   |
| Selling, general and administrative                        |       |                                                     | 57.1       |   |   |   | 57.1 |   |   |
| Related party corporate charges                            |       |                                                     | 1.6        |   |   |   | 1.8 |   |   |
| Facility rationalization, restructuring and related  costs |       |                                                     | —     |   |   |   | 24.1 |   |   |
| Total operating expenses                                   |       |                                                     | 58.7       |   |   |   | 83.0 |   |   |
| Income (loss)  from operations                             |       |                                                     | 49.0       |   |   |   | (39.5 | ) |   |
| Interest expense,  net of interest income                  |       |                                                     | 17.3       |   |   |   | 28.1 |   |   |
| Income (loss) before income taxes                          |       |                                                     | 31.7       |   |   |   | (67.6 | ) |   |
| Income tax  expense (benefit)                              |       |                                                     | 12.3       |   |   |   | (26.7 | ) |   |
| Net income (loss)                                          |       |                                                     | $          | 19.4 |   |   |   | $ | (40.9 | ) |   |

 

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

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**MUELLER GROUP, LLCCONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITYFOR THE THREE MONTHS ENDED DECEMBER 31, 2006(UNAUDITED)**

| ** **                               | ** ** | **Common  Stock**                   | ** ** | **Capital in  Excess of   Par Value** | ** ** | **Accumulated  Deficit** | ** ** | **Comprehensive  Income  (Loss)** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Total** | ** ** |
|------------------------------------------|------------|-------------------------------------|------------|-----------------------------------------------------------|------------|--------------------------|------------|-----------------------------------|------------|---------------------------------------------|------------|-----------|------------|
| ** **                               | ** ** | **(dollars in millions)** | ** ** |
| Balance at  September 30, 2006      |       |                                | $          | —                                                    |       |                     | $          | 1,358.4                           |       |                                        | $          | (161.5    | )          |   |   | $ | — |   |   |   | $ | (18.6 | ) |   | $ | 1,178.3 |   |
| Dividend paid to  parent                 |       |                                |       |                                                      |       | (2.0                     | )          |                              |       |                                        |       |      |       |   |   |   |   |   |   | (2.0 | ) |
| Share-based  compensation                |       |                                |       |                                                      |       | 2.5                      |       |                              |       |                                        |       |      |       |   |   |   |   |   |   | 2.5 |   |
| Comprehensive income                     |       |                                |       |                                                      |       |                     |       |                              |       |                                        |       |      |       |   |   |   |   |   |   |   |   |
| Net income                               |       |                                |       |                                                      |       |                     |       |                              | 19.4       |                                        |       |      | 19.4       |   |   |   |   |   |   | 19.4 |   |
| Foreign currency translation adjustments |       |                                |       |                                                      |       |                     |       |                              |       |                                        |       |      | (2.6       | ) |   |   | (2.6 | ) |   | (2.6 | ) |
| Comprehensive  income                    |       |                                |       |                                                      |       |                     |       |                              |       |                                        |       |      | $          | 16.8 |   |   |   |   |   |   |   |   |
| Balance at  December 31, 2006       |       |                                | $          | —                                                    |       |                     | $          | 1,358.9                           |       |                                        | $          | (142.1    | )          |   |   |   |   |   |   | $ | (21.2 | ) |   | $ | 1,195.6 |   |

 

 

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

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**MUELLER GROUP, LLCCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)**

| ** **                                                                                | ** ** | **Three months ended December 31,**                                                                          | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                | ** ** | **          2006          ** | ** ** | **          2005          ** | ** ** |
| ** **                                                                                | ** ** | **(dollars in millions)**                                                                                              | ** ** |
| **Operating Activities**                                                                  |       |                                                                                                                             |       |   |   |   |   |   |   |
| Net income (loss)                                                                         |       |                                                                                                                             | $          | 19.4 |   |   |   | $ | (40.9 | ) |   |
| Adjustments to reconcile  net income (loss) to net cash provided by operating activities: |       |                                                                                                                             |       |   |   |   |   |   |   |
| Depreciation                                                                              |       |                                                                                                                             | 17.3       |   |   |   | 17.2 |   |   |
| Amortization of intangibles                                                               |       |                                                                                                                             | 7.1        |   |   |   | 6.6 |   |   |
| Amortization of deferred financing fees                                                   |       |                                                                                                                             | 0.7        |   |   |   | 1.1 |   |   |
| Accretion on debt                                                                         |       |                                                                                                                             | (0.4       | ) |   |   | (0.8 | ) |   |
| Share-based compensation expense                                                          |       |                                                                                                                             | 2.5        |   |   |   | — |   |   |
| Impairments of property, plant and equipment                                              |       |                                                                                                                             | —     |   |   |   | 19.2 |   |   |
| Credit for deferred income taxes                                                          |       |                                                                                                                             | (1.6       | ) |   |   | (25.7 | ) |   |
| Other, net                                                                                |       |                                                                                                                             | (1.5       | ) |   |   | (0.8 | ) |   |
| Changes in assets and  liabilities, net of the effects of acquisitions:                   |       |                                                                                                                             |       |   |   |   |   |   |   |
| Receivables                                                                               |       |                                                                                                                             | 72.2       |   |   |   | 28.9 |   |   |
| Inventories                                                                               |       |                                                                                                                             | (38.0      | ) |   |   | 91.2 |   |   |
| Prepaid expenses                                                                          |       |                                                                                                                             | (2.2       | ) |   |   | 1.0 |   |   |
| Other non-current assets                                                                  |       |                                                                                                                             | 0.3        |   |   |   | — |   |   |
| Pension and other long-term liabilities                                                   |       |                                                                                                                             | —     |   |   |   | (4.4 | ) |   |
| Accounts payable                                                                          |       |                                                                                                                             | (28.6      | ) |   |   | (0.8 | ) |   |
| Accrued expenses and other current liabilities                                            |       |                                                                                                                             | (22.6      | ) |   |   | (16.9 | ) |   |
| Net cash provided  by operating activities                                                |       |                                                                                                                             | 24.6       |   |   |   | 74.9 |   |   |
| **Investing Activities**                                                                  |       |                                                                                                                             |       |   |   |   |   |   |   |
| Additions to  property, plant and equipment                                               |       |                                                                                                                             | (20.0      | ) |   |   | (16.0 | ) |   |
| Decrease in  amounts due to Walter                                                        |       |                                                                                                                             | —     |   |   |   | (20.0 | ) |   |
| Net cash used in  investing activities                                                    |       |                                                                                                                             | (20.0      | ) |   |   | (36.0 | ) |   |
| **Financing Activities**                                                                  |       |                                                                                                                             |       |   |   |   |   |   |   |
| (Decrease)  increase in dollar value of bank checks outstanding                           |       |                                                                                                                             | (10.0      | ) |   |   | 0.6 |   |   |
| Proceeds from  short-term borrowings                                                      |       |                                                                                                                             | —     |   |   |   | 55.9 |   |   |
| Retirement of  short-term debt                                                            |       |                                                                                                                             | —     |   |   |   | (55.9 | ) |   |
| Proceeds from  long-term debt                                                             |       |                                                                                                                             | —     |   |   |   | 1,050.0 |   |   |
| Retirement of  long-term debt                                                             |       |                                                                                                                             | (2.2       | ) |   |   | (615.3 | ) |   |
| Payment of  deferred financing fees                                                       |       |                                                                                                                             | —     |   |   |   | (21.6 | ) |   |
| Dividend to  parent                                                                       |       |                                                                                                                             | (2.0       | ) |   |   | (444.5 | ) |   |
| Dividend to  Walter for acquisition costs                                                 |       |                                                                                                                             | —     |   |   |   | (12.0 | ) |   |
| Walter  contribution of Predecessor Mueller’s cash                                   |       |                                                                                                                             | —     |   |   |   | 67.4 |   |   |
| Net cash (used  in) provided by financing activities                                      |       |                                                                                                                             | (14.2      | ) |   |   | 24.6 |   |   |
| Effect of  exchange rate changes on cash                                                  |       |                                                                                                                             | 0.4        |   |   |   | — |   |   |
| Net (decrease)  increase in cash and cash equivalents                                     |       |                                                                                                                             | (9.2       | ) |   |   | 63.5 |   |   |
| Cash and cash  equivalents at beginning of period                                         |       |                                                                                                                             | 79.1       |   |   |   | — |   |   |
| Cash and cash  equivalents at end of period                                               |       |                                                                                                                             | $          | 69.9 |   |   |   | $ | 63.5 |   |   |

 

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Schedule of non-cash investing and financingactivities:

On October 3,2005, the Company’s former parent Walter purchased all the outstanding commonstock of Predecessor Mueller.

| ** **                                     | ** ** | **(dollars in millions)** | ** ** |
|------------------------------------------------|------------|-------------------------------------|------------|
| Contribution of  Predecessor Mueller by Walter |       |                                | $          | 932.9 |   |   |
| Less: Cash of  Predecessor Mueller received    |       |                                | (67.4      | ) |   |
| Total net assets  received excluding cash      |       |                                | $          | 865.5 |   |   |

 

Subsequent to the Acquisition, the Company’s parentforgave an intercompany receivable with U.S. Pipe of $443.6 million.

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

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**MUELLER GROUP, LLCNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSAS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2006 AND 2005(UNAUDITED)**

**Note 1.   Organization**

Mueller Group, LLC (the “Company”) is a wholly-ownedsubsidiary of Mueller Water Products, Inc. (“Mueller Water”), a Delawarecorporation. Mueller Water is the surviving corporation of the merger on February 2,2006 of Mueller Water Products, LLC (Commission File Number: 333-116590)and Mueller Water Products Co-Issuer, Inc. with and into Mueller HoldingCompany, Inc., a Delaware corporation. On June 1, 2006, Mueller Watercompleted its initial public offering of its Series A common stock (NYSE:MWA). On December 14, 2006, Walter Industries, Inc. (“Walter”), adiversified New York Stock Exchange traded company (NYSE:WLT), distributed allof the Company’s outstanding Series B common stock (NYSE:  MWA.B) toits shareholders.

On October 3, 2005, through a series oftransactions (the “Acquisition”), Walter, through a wholly-owned subsidiary,acquired all outstanding shares of capital stock of the Company’s parent,Mueller Water Products, Inc. (“Predecessor Mueller”), which immediatelywas converted into Mueller Water Products, LLC, a Delaware limitedliability company and contributed United States Pipe and Foundry Company, LLC,(“U.S. Pipe”), owned by Walter since 1969, to the acquired company. The resultsof operations of Predecessor Mueller are included in the Condensed ConsolidatedStatements of Operations beginning October 3, 2005.

The Company was originally organized as United StatesPipe and Foundry Company, Inc. (“Inc.”) and was a wholly-owned subsidiaryof Walter. On September 23, 2005, Inc. was dissolved and UnitedStates Pipe and Foundry Company, LLC was organized in the state of Alabama, andthe operations of Inc. were conducted under the form of a limited liabilitycompany. The Company has three operating segments, which are named after itsleading brands in each segment: Mueller Co., U.S. Pipe and Anvil.

The consolidated financialstatements are prepared in conformity with accounting principles generallyaccepted in the United States of America, which require management to makecertain estimates and assumptions that affect the reported amounts of assets,liabilities, sales and expenses for the reporting periods. Actual results coulddiffer from those estimates. All significant intercompany balances andtransactions have been eliminated. In the opinion of management, all normal andrecurring adjustments that are considered necessary for a fair financialstatement presentation have been made. The condensed balance sheet data as of September 30,2006 was derived from audited financial statements, but does not include alldisclosures required by accounting principles generally accepted in the UnitedStates of America.

**Note 2.   RelatedParty Transactions**

*RelatedParty Transactions—**The*Company purchases foundry cokefrom Sloss Industries, Inc., which was an affiliate until December 14,2006, for an amount that approximates the market value of comparabletransactions. Costs included in cost of sales related to purchases from SlossIndustries, Inc. were $4.5 million and $5.4 million for thethree months ended December 31, 2006 and 2005, respectively.

Other services that Sloss Industries, Inc.provides to the Company include the delivery of electrical power to one of theCompany’s facilities, rail car switching and the leasing of a distributionfacility. The total of these other services included in the Company’s operatingexpenses were $0.3 million and $0.4 million for the three months ended December 31,2006 and 2005, respectively.

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*RelatedParty Allocations—**Certain*costs incurred by Waltersuch as insurance, executive salaries, professional service fees, humanresources, transportation, healthcare and other centralized business functionswere allocated to its subsidiaries. Certain costs that were considered directlyrelated to the U.S. Pipe segment were charged to the Company and included inselling, general and administrative expenses. These costs were approximately$0.5 million for the three months ended December 31, 2006 and 2005.Costs incurred by Walter that cannot be directly attributed to its subsidiarieswere allocated to them based on estimated annual revenues. Such costs wereallocated to the Company and are recorded in the caption related partycorporate charges in the accompanying Condensed Consolidated Statements ofOperations and were approximately $1.6 million and $1.8 million forthe three months ended December 31, 2006 and 2005, respectively. While theCompany considers the allocation of such costs to be reasonable, the cost ofperforming such services on its own behalf may be higher or lower thanhistorically allocated amounts.

Certain of the Company’semployees have been granted Walter restricted stock units and stock optionsunder Walter’s share-based compensation plans. The Company has expensed$0.5 million related to the share-based compensation costs allocated fromWalter for the three months ended December 31, 2006, and had no suchexpenses for the three months ended December 31, 2005.

**Note 3.   Acquisitionof Predecessor Mueller by Walter**

On October 3, 2005, pursuant to the agreementdated June 17, 2005, Walter acquired all of the outstanding common stockof Predecessor Mueller for $944.0 million and assumed $1.05 billion ofindebtedness. Predecessor Mueller was converted into a limited liabilitycompany on October 3, 2005 and was merged with and into the Company on February 2,2006. In conjunction with the acquisition, U.S. Pipe was contributed in aseries of transactions to the Company on October 3, 2005. On February 23,2006, Walter received $10.5 million based on the final closing cash and workingcapital, adjusting the purchase price to $933.5 million.

Walter’sacquisition of Predecessor Mueller has been accounted for as a businesscombination with U.S. Pipe considered the acquirer for accounting purposes. Thetotal purchase price is comprised of (dollars in millions):

| Acquisition of  the outstanding common stock of Predecessor Mueller |   | $    | 918.1  |   |
|---------------------------------------------------------------------|--------|------|--------|--------|
| Acquisition-related  transaction costs                              |   | 15.4 |   |
| Total purchase  price                                               |   | $    | 933.5  |   |

 

Acquisition-related transaction costs includeinvestment banking, legal and accounting fees and other external costs directlyrelated to the Acquisition.

Theexcess of the purchase price over the net tangible and identifiable intangibleassets is recorded as goodwill. Based on current fair values, the purchaseprice was allocated as follows (dollars in millions):

| Receivables, net                 |   | $        | 177.4  |   |
|----------------------------------|--------|----------|--------|--------|
| Inventory                        |   | 373.2    |   |
| Property, plant  and equipment   |   | 214.2    |   |
| Identifiable  intangible assets  |   | 856.9    |   |
| Goodwill                         |   | 660.3    |   |
| Net other assets                 |   | 351.2    |   |
| Net deferred tax  liabilities    |   | (288.6   | )      |
| Debt                             |   | (1,411.1 | )      |
| Total purchase  price allocation |   | $        | 933.5  |   |

 

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**Note 4.   FacilityRationalization, Restructuring and Related Costs**

On October 26, 2005, Walter announced plans toclose U.S. Pipe’s Chattanooga, Tennessee plant and transfer the valve andhydrant production of that plant to Mueller Co.’s Chattanooga, Tennessee andAlbertville, Alabama plants. The plant closed in 2006, resulting in thetermination of approximately 340 employees. Exit costs totaled $49.9 million ofwhich approximately $28.6 million was related to severance and fixed assetwrite-offs and qualified as restructuring and impairment charges. The remainingexit costs of $21.3 million were comprised of an inventory write-down totaling$11.4 million, a $9.0 million write-off of unabsorbed overhead costs, and $0.9million of other related costs, which were recognized in cost of sales duringthe twelve months ended September 30, 2006. During the quarter ended December 31,2006, the Company paid $0.3 million of the above-mentioned severance.

On January 26, 2006, the Company announced theclosure of the Henry Pratt valve manufacturing facility in Dixon, Illinois,which is included in the Company’s Mueller Co. segment. The eventual closure ofthe facility is expected to occur in fiscal year 2007, resulting in thetermination of approximately 100 employees. Total estimated costs related tothis closure are $3.7 million, including termination benefits of $1.0 millionand property impairment charges of $1.7 million, which were recorded asadjustments to goodwill in the twelve months ended September 30, 2006.These restructuring costs were recorded to goodwill as the overall plan toclose the facility was identified prior to the Acquisition. The remainingestimated costs of $1.0 million are for the transfer and installation ofequipment and temporary outsourcing of manufacturing and will be expensed whenincurred. During the quarter ended December 31, 2006, the Company paid$0.4 million of the above-mentioned severance.

On November 18, 2006, the Company announced therelocation of pipe nipple and merchant coupling production in the Canvilmanufacturing facility in Ontario, Canada to the Beck facility in Pennsylvania,both of which are included in the Company’s Anvil segment. The eventual closureof the lines is expected to occur in fiscal year 2007, resulting in thetermination of approximately 60 employees. Termination benefits of $1.8 millionwere recorded as adjustments to goodwill in the twelve months ended September 30,2006. These restructuring costs were recorded to goodwill as the overall planto close the facility was identified prior to the Acquisition. During thequarter ended December 31, 2006, the Company revised its severanceestimate, and adjusted the goodwill balance and accrued severance by $0.4million.

Activityin accrued restructuring for the three months ended December 31, 2006 wasas follows (dollars in millions):

| Beginning balance                                                                                     |   | $    | 5.3 |   |
|-------------------------------------------------------------------------------------------------------|--------|------|-----|--------|
| Adjustment to  accruals allocated to goodwill for plant closures identified prior to the  Acquisition |   | (0.4 | )   |
| Payments                                                                                              |   | (0.7 | )   |
| Ending balance                                                                                        |   | $    | 4.2 |   |

 

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**Note 5.   Share-BasedCompensation Plans**

Certainof the Company’s employees had been granted Walter restricted stock units andstock options under Walter’s share-based compensation plans. The Company hasexpensed $0.5 million related to the share-based compensation costs allocatedfrom Walter for the three months ended December 31, 2006. In connectionwith Walter’s distribution of all of the Company’s Series B common stockto its shareholders on December 14, 2006, Walter cancelled theseinstruments and the Company replaced them with restricted stock units andoptions to acquire Mueller Water’s Series A common shares. These equityawards were designed to provide intrinsic value and terms equal to the Waltercancelled instruments as follows:

| ** **                 | ** ** | **Number of  instruments** | ** ** | **Range of exercise  prices** | ** ** | **Weighted  average  exercise price** | ** ** | **Total  compensation**             | ** ** |
|----------------------------|------------|---------------------------------|------------|-----------------------------------------|------------|--------------------------------------------|------------|-------------------------------------|------------|
| ** **                 | ** ** | **(millions)**                  | ** ** | ** **                              | ** ** | ** **                                 | ** ** | **(dollars in millions)** | ** ** |
| Restricted stock units     |       |                            | 0.4        |                                    |       |                                       | —     |                                |       |   | $ | 14.95 |   |   |   | $ | 2.2 |   |   |
| Traditional stock  options |       |                            | 0.5        |                                    |       |                                       | $          | 2.05 – 20.56                   |       |   |   | 13.45 |   |   |   | 0.5 |   |   |
|                       |       |                            | 0.9        |                                    |       |                                       |       |                                |       |   |   |   |   |   | $ | 2.7 |   |   |
|                            |            |                                 |            |                                         |            |                                            |            |                                     |            |  |  |  |  |  |  |  |  |  |  |  |

 

TheCompany also granted stock options and restricted stock units separately duringthe three months ended December 31, 2006 as follows:

| ** **                            | ** ** | **Number of  instruments** | ** ** | **Weighted  average fair  value per  instrument** | ** ** | **Total  compensation**             | ** ** |
|---------------------------------------|------------|---------------------------------|------------|-------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                            | ** ** | **(millions)**                  | ** ** | ** **                                                  | ** ** | **(dollars in millions)** | ** ** |
| Restricted stock  units               |       |                            | 0.4        |                                                        |       |                                | $          | 15.09 |   |   |   | $ | 6.7 |   |   |
| Traditional stock  options            |       |                            | 0.3        |                                                        |       |                                | 5.90       |   |   |   | 1.7 |   |   |
| Employee stock  purchase plan options |       |                            | —     |                                                        |       |                                | 3.75       |   |   |   | 0.1 |   |   |
|                                  |       |                            | 0.7        |                                                        |       |                                |       |   |   |   | $ | 8.5 |   |   |

 

As of December 31,2006, there was approximately $26.5 million of unrecognized compensation costrelated to non-vested share-based compensation arrangements granted under the2006 Plan, including the Walter replacement instruments described above.

**Note 6.   BorrowingArrangements**

*Long-Term Debt—**Long-term*debtconsists of the following obligations:

| ** **                     | ** ** | **December 31,  2006**         | ** ** | **September 30,  2006** | ** ** |
|--------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                     | ** ** | **(dollars in millions)** | ** ** |
| 2005 Mueller  credit agreement |       |                                | $          | 791.8                        |       |   |   | $ | 793.8 |   |   |
| Senior  subordinated notes     |       |                                | 214.6      |                         |       |   | 215.1 |   |   |
| Capital lease  obligations     |       |                                | 2.0        |                         |       |   | 2.1 |   |   |
|                           |       |                                | 1,008.4    |                         |       |   | 1,011.0 |   |   |
| Less current  portion          |       |                                | (9.0       | )                            |       |   | (9.0 | ) |   |
|                           |       |                                | $          | 999.4                        |       |   |   | $ | 1,002.0 |   |   |

 

*2005Mueller Credit Agreement:**  *On October 3,2005, the Company entered into a credit agreement (the “2005 Mueller CreditAgreement”) consisting of a $145 million senior secured revolving creditfacility maturing in October 2010 (the “2005 Mueller Revolving CreditFacility”) and a $1,050 million senior secured term loan maturing in October 2012(the “2005 Mueller Term Loan”). The commitment fee on the unused portion of the2005 Mueller Revolving Credit Facility is 0.375% and the interest rate is a 

9

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floating interest rate of1.75% over LIBOR. The 2005 Mueller Term Loan carries a floating interest rateof 2.0% over LIBOR.

*Senior Subordinated Notes:*   InApril 2004, the Company issued $315.0 million principal face amount ofsenior subordinated notes due 2012. The notes were recorded at fair value inconnection with the Acquisition, resulting in an effective interest rate of9.2%.

**Note 7.   DerivativeFinancial Instruments**

*InterestRate Swaps—**The*Company uses interest rate swapcontracts with a cumulative total notional amount of $425 million to hedgeagainst cash-flow variability arising from changes in LIBOR rates in conjunctionwith its LIBOR-indexed variable rate borrowings. The Company recorded anunrealized gain from its swap contracts, net of tax, of $0.9 million at December 31,2006 in accumulated other comprehensive income. These swaps have a fair valueof $1.5 million at December 31, 2006, which is included in other long-termassets in the accompanying Condensed Consolidated Balance Sheet.

*ForwardForeign Currency Exchange Contracts—**The*Company usesCanadian dollar forward exchange contracts with a cumulative notional amount of$29.4 million to hedge against cash-flow variability arising from changes inthe Canadian dollar-U.S. dollar exchange rate in connection with anticipatedtransactions, primarily inventory purchases denominated in Canadian dollars. TheCompany recorded an unrealized gain from its forward exchange contracts, net oftax, $0.4 million at December 31, 2006. These forwards have a fair valueof $0.7 million at December 31, 2006, which is included in other long-termassets in the accompanying Condensed Consolidated Balance Sheet.

*NaturalGas Swaps—**The*Company uses natural gas swapcontracts with a cumulative total notional amount of approximately 600,000 mmbtuto hedge against cash-flow variability arising from changes in natural gasprices on the NYMEX exchange in conjunction with its anticipated purchases ofnatural gas. The Company recorded an unrealized loss from its swap contracts,net of tax, of $0.3 million at December 31, 2006 in accumulated othercomprehensive income. These swaps have a negative fair value of $0.6 million atDecember 31, 2006, which is included in other liabilities in theaccompanying Condensed Consolidated Balance Sheet.

On January 8, 2007,the Company entered into additional natural gas swap contracts. These contractsfix the Company’s purchase price for natural gas at prices ranging from $6.67to $7.10 per mmbtu for a total purchased volume of approximately 300,000 mmbtu overthe eight months ended September 30, 2007.

**Note 8.**   Pension and Other Post-employmentBenefits

Thecomponents of net periodic benefit cost for pension and post-employmentbenefits for the three months ended December 31, 2006 and 2005 are asfollows:

| ** **                                   | ** ** | **Pension Benefits**                           | ** ** | **Other Benefits**                             | ** ** |
|----------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                   | ** ** | **Three months  ended December 31,** | ** ** | **Three months  ended December 31,** | ** ** |
| ** **                                   | ** ** | **   2006   **        | ** ** | **   2005   **        | ** ** | **   2006   ** | ** ** | **   2005   ** | ** ** |
| ** **                                   | ** ** | **(dollars in millions)**                 | ** ** |
| **Components of net periodic  benefit cost** |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Service cost                                 |       |                                                | $          | 1.6                                                 |       |   |   | $ | 2.0 |   |   |   | $ | 0.1 |   |   |   | $ | 0.2 |   |   |
| Interest cost                                |       |                                                | 5.1        |                                                |       |   | 4.7 |   |   |   | 0.3 |   |   |   | 0.3 |   |   |
| Expected return on plan assets               |       |                                                | (5.9       | )                                                   |       |   | (4.9 | ) |   |   | — |   |   |   | — |   |   |
| Amortization of prior service cost           |       |                                                | 0.1        |                                                |       |   | 0.1 |   |   |   | (0.6 | ) |   |   | (0.6 | ) |   |
| Amortization of net loss (gain)              |       |                                                | 0.5        |                                                |       |   | 1.9 |   |   |   | (0.4 | ) |   |   | (0.2 | ) |   |
| Curtailment settlement loss                  |       |                                                | —     |                                                |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Net periodic benefit  cost                   |       |                                                | $          | 1.4                                                 |       |   |   | $ | 3.8 |   |   |   | $ | (0.6 | ) |   |   | $ | (0.3 | ) |   |

 

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For the three months endedDecember 31, 2006, the Company had no contributions to its pension plans.The Company presently anticipates contributing approximately $7.7 millionto fund its pension plans and $2.0 million to its other post-employment benefitplan in fiscal 2007, and may make further discretionary payments.

**Note 9.   SupplementaryBalance Sheet Information**

Selectedsupplementary balance sheet information is presented below:

| ** **                                 | ** ** | **December 31,  2006**         | ** ** | **September 30,  2006** | ** ** |
|--------------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                                 | ** ** | **(dollars in millions)** | ** ** |
| **Inventories**                            |       |                                |       |                         |       |   |   |   |   |
| Purchased materials and manufactured parts |       |                                | $          | 69.6                         |       |   |   | $ | 66.7 |   |   |
| Work in process                            |       |                                | 134.5      |                         |       |   | 127.7 |   |   |
| Finished goods                             |       |                                | 287.4      |                         |       |   | 260.2 |   |   |
|                                       |       |                                | $          | 491.5                        |       |   |   | $ | 454.6 |   |   |

 

| ** **                         | ** ** | **December 31,  2006**         | ** ** | **September 30,  2006** | ** ** |
|------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                         | ** ** | **(dollars in millions)** | ** ** |
| **Property,  plant and equipment** |       |                                |       |                         |       |   |   |   |   |
| Land                               |       |                                | $          | 28.6                         |       |   |   | $ | 28.4 |   |   |
| Buildings                          |       |                                | 84.2       |                         |       |   | 83.4 |   |   |
| Machinery and equipment            |       |                                | 499.2      |                         |       |   | 489.9 |   |   |
| Other                              |       |                                | 51.2       |                         |       |   | 46.4 |   |   |
|                               |       |                                | 663.2      |                         |       |   | 648.1 |   |   |
| Accumulated depreciation           |       |                                | (324.4     | )                            |       |   | (311.1 | ) |   |
|                               |       |                                | $          | 338.8                        |       |   |   | $ | 337.0 |   |   |

 

| ** **                                  | ** ** | **December 31,  2006**         | ** ** | **September 30,  2006** | ** ** |
|---------------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                                  | ** ** | **(dollars in millions)** | ** ** |
| **Accrued  expenses and other liabilities** |       |                                |       |                         |       |   |   |   |   |
| Vacations and holidays                      |       |                                | $          | 13.4                         |       |   |   | $ | 13.6 |   |   |
| Workers compensation                        |       |                                | 5.9        |                         |       |   | 6.0 |   |   |
| Accrued payroll and bonus                   |       |                                | 7.6        |                         |       |   | 23.5 |   |   |
| Accrued sales commissions                   |       |                                | 3.7        |                         |       |   | 5.0 |   |   |
| Accrued other taxes                         |       |                                | 5.2        |                         |       |   | 7.7 |   |   |
| Accrued warranty claims                     |       |                                | 2.9        |                         |       |   | 2.7 |   |   |
| Accrued environmental claims                |       |                                | —     |                         |       |   | 2.5 |   |   |
| Accrued cash discounts and rebates          |       |                                | 26.5       |                         |       |   | 22.1 |   |   |
| Accrued interest                            |       |                                | 9.9        |                         |       |   | 13.6 |   |   |
| Accrued restructuring and severance         |       |                                | 4.2        |                         |       |   | 5.3 |   |   |
| Accrued medical                             |       |                                | 3.9        |                         |       |   | 3.7 |   |   |
| Other                                       |       |                                | 16.4       |                         |       |   | 16.4 |   |   |
|                                        |       |                                | $          | 99.6                         |       |   |   | $ | 122.1 |   |   |

 

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**Note 10.   SupplementaryIncome Statement Information**

Thecomponents of interest expense, net of interest income are presented below:

| ** **                                    | ** ** | **Three months ended  December 31,** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                    | ** ** | **   2006   **        | ** ** | **   2005   ** | ** ** |
| ** **                                    | ** ** | **(dollars in millions)**                 | ** ** |
| **Interest  expense, net of interest income** |       |                                                |       |   |   |   |   |   |   |
| Contractual interest expense                  |       |                                                | $          | 18.7 |   |   |   | $ | 25.2 |   |   |
| Deferred financing fee amortization           |       |                                                | 0.7        |   |   |   | 1.1 |   |   |
| Write-off of bridge loan commitment fees      |       |                                                | —     |   |   |   | 2.5 |   |   |
| Interest rate swap gains                      |       |                                                | (0.9       | ) |   |   | (0.4 | ) |   |
| Interest expense                              |       |                                                | 18.5       |   |   |   | 28.4 |   |   |
| Interest income                               |       |                                                | (1.2       | ) |   |   | (0.3 | ) |   |
|                                          |       |                                                | $          | 17.3 |   |   |   | $ | 28.1 |   |   |

 

The bridge loan commitmentfees represent fees paid to lenders to make available to the Company a bridgeloan facility to repurchase the Senior Discount Notes and Senior SubordinatedNotes from the holders of such notes under the terms of the change of controlprovisions of the indentures. No notes were tendered under the offer and thebridge loan was not used. The related commitment fees were charged to interestexpense during the three months ended December 31, 2005.

**Note 11.   IncomeTaxes**

The Company calculates itseffective tax rate using Accounting Principles Board Opinion No. 28, whichrequires that an estimated annual effective tax rate be determined and appliedto the pre-tax income. During the quarter ended December 2006, the Companydetermined its annual effective tax rate to be 38.8% based on its latestearnings projection for 2007. The tax rate for the quarter ended December 31,2005 was a benefit of 39.5%. The difference between the federal, state, andforeign statutory tax rates and the effective tax rate is due to the domesticmanufacturing deduction.

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**Note 12.   Segment Information**

| ** **                                 | ** ** | **Three months ended December 31,**                                                                          | ** ** |
|--------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                 | ** ** | **          2006          ** | ** ** | **          2005          ** | ** ** |
| ** **                                 | ** ** | **(dollars in millions)**                                                                                              | ** ** |
| **Net  sales**                             |       |                                                                                                                             |       |   |   |   |   |   |   |
| Mueller Co.                                |       |                                                                                                                             | $          | 167.1 |   |   |   | $ | 180.4 |   |   |
| U.S. Pipe                                  |       |                                                                                                                             | 117.4      |   |   |   | 171.1 |   |   |
| Anvil                                      |       |                                                                                                                             | 133.6      |   |   |   | 132.8 |   |   |
| Consolidated eliminations                  |       |                                                                                                                             | (6.2       | ) |   |   | (3.9 | ) |   |
| Consolidated                               |       |                                                                                                                             | $          | 411.9 |   |   |   | $ | 480.4 |   |   |
| **Income  (loss) from operations**         |       |                                                                                                                             |       |   |   |   |   |   |   |
| Mueller Co.                                |       |                                                                                                                             | $          | 35.7 |   |   |   | $ | (3.8 | ) |   |
| U.S. Pipe                                  |       |                                                                                                                             | 7.2        |   |   |   | (27.8 | ) |   |
| Anvil                                      |       |                                                                                                                             | 13.0       |   |   |   | (1.5 | ) |   |
| Corporate expense(1)                       |       |                                                                                                                             | (6.9       | ) |   |   | (6.4 | ) |   |
| Consolidated                               |       |                                                                                                                             | $          | 49.0 |   |   |   | $ | (39.5 | ) |   |
| **Depreciation  and amortization expense** |       |                                                                                                                             |       |   |   |   |   |   |   |
| Mueller Co.                                |       |                                                                                                                             | $          | 12.7 |   |   |   | $ | 12.0 |   |   |
| U.S. Pipe                                  |       |                                                                                                                             | 5.5        |   |   |   | 6.3 |   |   |
| Anvil                                      |       |                                                                                                                             | 5.9        |   |   |   | 5.4 |   |   |
| Corporate                                  |       |                                                                                                                             | 0.3        |   |   |   | 0.1 |   |   |
| Consolidated                               |       |                                                                                                                             | $          | 24.4 |   |   |   | $ | 23.8 |   |   |
| **Capital  expenditures**                  |       |                                                                                                                             |       |   |   |   |   |   |   |
| Mueller Co.                                |       |                                                                                                                             | $          | 6.7 |   |   |   | $ | 6.0 |   |   |
| U.S. Pipe                                  |       |                                                                                                                             | 7.8        |   |   |   | 7.4 |   |   |
| Anvil                                      |       |                                                                                                                             | 5.1        |   |   |   | 2.5 |   |   |
| Corporate                                  |       |                                                                                                                             | 0.4        |   |   |   | 0.1 |   |   |
| Consolidated                               |       |                                                                                                                             | $          | 20.0 |   |   |   | $ | 16.0 |   |   |

----

(1)Includes certain expenses not allocated to segments.

**Note 13.   Commitmentsand Contingencies**

**Income TaxLitigation**

A dispute exists withregard to federal income taxes for fiscal years 1980 through 1994 allegedlyowed by the Walter consolidated group, which included the U.S. Pipe segmentduring these periods. It is estimated that the amount of tax presently claimedby the Internal Revenue Service is approximately $34.0 million for issuescurrently in dispute in bankruptcy court for matters unrelated to the Company.This amount is subject to interest and penalties. In addition, the IRS hasissued a Notice of Proposed Deficiency assessing additional tax of$80.4 million for the fiscal years ended May 31, 2000, December 31,2000, and December 31, 2001. As a matter of law, the Company is jointlyand severally liable for any final tax determination. However, Waltermanagement has indicated to the Company that they believe that Walter’s taxfiling positions have substantial merit and that they intend to defendvigorously any claims asserted. Walter management has further indicated to theCompany that Walter has an accrual that they believe to be sufficient to coverthe estimated probable loss, including interest and penalties. The Company hasconcluded the risk of loss to the Company is not probable and accordingly, noliability has been recorded in the Company’s consolidated financial statements.

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**EnvironmentalMatters**

The Company is subject to a wide variety of laws andregulations concerning the protection of the environment, both with respect tothe construction and operation of many of its plants and with respect toremediating environmental conditions that may exist at its own and otherproperties. The Company believes that it is in substantial compliance withfederal, state and local environmental laws and regulations. The Companyaccrues for environmental expenses resulting from existing conditions thatrelate to past operations when the costs are probable and reasonably estimable.

Solutia, Inc and Pharmacia Corporation filed suitagainst U.S. Pipe and Walter on January 5, 2003 for contribution and costrecovery by Solutia with respect to costs incurred and to be incurred bySolutia in performing remediation of polychlorinated biphenyls (PCBs) and heavymetals mandated by the Environmental Protection Agency in Anniston, Alabamaunder an administrative consent order negotiated with the EPA (an “ACO”). TheACO provides protection against contribution claims by third parties, such asSolutia. The Magistrate has entered an Order staying discovery in this matterbut has allowed Solutia to proceed with “on-site” sampling discovery. Managementbelieves that the likelihood of liability in the contribution litigation isremote.

The Company and its U.S. Pipe subsidiary have beennamed in a purported civil class action case originally filed on April 8,2005 in the Circuit Court of Calhoun County, Alabama, and removed to the U.S.District Court for the Northern District of Alabama under the Class ActionFairness Act. The putative plaintiffs in the case filed an amended complaintwith the U.S. District Court on December 15, 2006. The case was filedagainst U.S. Pipe and other foundries in the Anniston, Alabama area allegingstate law tort claims (negligence, failure to warn, wantonness, nuisance,trespass and outrage) arising from creation and disposal of “foundry sand”alleged to contain harmful levels of PCBs and other toxins, including arsenic,cadmium, chromium, lead and zinc. The plaintiffs are seeking damages for realand personal property damage and for other unspecified personal injury.Management believes this matter is still in early stages of litigation and nosubstantial discovery has taken place. In addition, management believes thatboth procedural and substantive defenses would likely be available should this classaction be allowed to proceed. At present, management has no reasonable basis toform a view with respect to the probability of liability in this matter.

Although the Company nowproduces a small amount of no-lead brass products, most of the Company’s brassvalve products contain approximately 5.0% lead. Environmental advocacy groups,relying on standards established by California’s Proposition 65, are seeking toeliminate or reduce the content of lead in water infrastructure productsoffered for sale in California. Some of the Company’s subsidiaries have enteredinto settlement agreements with these environmental advocacy groups to modifyproducts or offer substitutes for sale in California. Legislation tosubstantially restrict lead content in water infrastructure products has beenintroduced in the United States Congress. Congress or state jurisdictions otherthan California may enact legislation similar to Proposition 65 to restrict thecontent of lead in water products, which could require the Company to incuradditional capital expenditures to modify production. The Company undertook acapital project to implement a no-lead brass production line that required theCompany to incur approximately $8.0 million in incremental capital spending, ofwhich $7.9 million was spent during the year ended September 30, 2006.Also, the Company began implementation of a project to consolidate its twoexisting brass foundries into one facility that required the Company to incurapproximately $11.2 million in incremental spending, of which $5.8 million wasspent during the year ended September 30, 2006. The foundry consolidationproject is expected to be completed during 2007.

**Commitments andContingencies—Other**

As part of the acquisitionon January 15, 2004 of the business of Star Pipe, Inc. (“Star”),Anvil has agreed to a future payment to be made to the seller Star to theextent that the gross profit of the acquired 

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businessexceeds a targeted gross profit. The maximum potential payment amount is $23million. Management currently estimates the payment could total approximately$3 million to $6 million for the payment period that began February 1,2004 and ended January 31, 2007. The payment amount indicated above isbased on management’s best estimate, but the actual payment could be materiallydifferent. The liability for such payment will be recorded at the end of thepayment period, in accordance with the purchase agreement, with a correspondingincrease to goodwill.

**Note 14.   SubsequentEvents**

On January 4, 2007, the Company acquired theassets of Fast Fabricators, Inc., a ductile iron pipe fabricatorheadquartered in Bloomfield, Connecticut, for $24.5 million in cash subject toadjustments based on working capital settlements and earn-out provisions.

On January 31, 2007,Mueller Water declared a quarterly dividend of $0.0175 per share of its Series Aand Series B common stock, payable on February 19, 2007 to itsshareholders of record at the close of business on February 9, 2007. TheCompany concurrently declared a dividend of approximately $2.0 million toMueller Water to fund this dividend to Mueller Water’s shareholders.

**Note 15.   ConsolidatingGuarantor and Non-Guarantor Financial Information**

The following information is included as a result ofthe guarantee by certain of the Company’s wholly-owned U.S. subsidiaries (“GuarantorCompanies”) of the senior subordinated notes issued by Predecessor MuellerGroup prior to the Acquisition on October 3, 2005 that have continued tobe liabilities of the Company subsequent to the Acquisition. None of theCompany’s other subsidiaries guarantee the debt. Each of the guarantees isjoint and several and full and unconditional. “Mueller Group, LLC” (“Issuer”)includes the consolidated financial results of Mueller Group, LLC with allof its wholly-owned subsidiaries accounted for under the equity method.

Prior to the Acquisition on October 3, 2005, U.S.Pipe was not a Guarantor Company of the senior subordinated notes issued byPredecessor Mueller Group. The Consolidating Statements of Operations and CashFlows for the three-month period ended December 31, 2006 and theConsolidating Balance Sheet as of December 31, 2006 reflect the results ofthe Company, including U.S. Pipe.

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**ConsolidatingStatement of OperationsFor Mueller Group, LLCFor the Three Months Ended December 31, 2006(Unaudited)**

| ** **                                                      | ** ** | **Issuer**                          | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminating** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------|------------|
| ** **                                                      | ** ** | **(dollars in millions)** | ** ** |
| Net sales                                                       |       | $                                   | —     |                        |       | $                            | 366.7      |                           |       |             | $          | 45.2 |   |   |   | $ | — |   |   |   | $ | 411.9 |   |   |
| Cost of sales                                                   |       | —                              |       |                        | 269.1      |                         |       |                           | 35.1       |             |       |   | — |   |   |   | 304.2 |   |   |
| Gross profit                                                    |       | —                              |       |                        | 97.6       |                         |       |                           | 10.1       |             |       |   | — |   |   |   | 107.7 |   |   |
| Selling, general  and administrative                            |       | —                              |       |                        | 50.4       |                         |       |                           | 6.7        |             |       |   | — |   |   |   | 57.1 |   |   |
| Related party  corporate charges                                |       | —                              |       |                        | 1.6        |                         |       |                           | —     |             |       |   | — |   |   |   | 1.6 |   |   |
| Facility  rationalization, restructuring and related costs |       | —                              |       |                        | —     |                         |       |                           | —     |             |       |   | — |   |   |   | — |   |   |
| Income (loss)  from operations                                  |       | —                              |       |                        | 45.6       |                         |       |                           | 3.4        |             |       |   | — |   |   |   | 49.0 |   |   |
| Interest expense,  net of interest (income)                     |       | 17.7                                |       |                        | (0.3       | )                            |       |                           | (0.1       | )                |       |   | — |   |   |   | 17.3 |   |   |
| Income (loss)  before income tax expense (benefit)              |       | (17.7                               | )          |                        | 45.9       |                         |       |                           | 3.5        |             |       |   | — |   |   |   | 31.7 |   |   |
| Income tax  expense (benefit)                                   |       | (7.0                                | )          |                        | 17.9       |                         |       |                           | 1.4        |             |       |   | — |   |   |   | 12.3 |   |   |
| Equity income  from subsidiaries                                |       | 30.1                                |       |                        | 2.1        |                         |       |                           | —     |             |       |   | (32.2 | ) |   |   | — |   |   |
| Net income                                                      |       | $                                   | 19.4       |                        |       | $                            | 30.1       |                           |       |             | $          | 2.1 |   |   |   | $ | (32.2 | ) |   |   | $ | 19.4 |   |   |

 

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**ConsolidatingBalance SheetFor Mueller Group, LLCDecember 31, 2006(Unaudited)**

| ** **                                                 | ** ** | **Issuer**                          | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **(dollars in millions)** | ** ** |
| **Assets**                                                 |       |                                |       |                        |       |                         |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                                 |       | $                                   | 66.6       |                        |       | $                            | (6.9       | )                               |       |             | $          | 10.2 |   |   |   | $ | — |   |   |   | $ | 69.9 |   |   |
| Receivables, net                                           |       | —                              |       |                        | 225.6      |                         |       |                            | 26.6       |             |       |   | — |   |   |   | 252.2 |   |   |
| Inventories                                                |       | —                              |       |                        | 427.8      |                         |       |                            | 63.7       |             |       |   | — |   |   |   | 491.5 |   |   |
| Deferred income  taxes                                     |       | —                              |       |                        | 42.6       |                         |       |                            | —     |             |       |   | — |   |   |   | 42.6 |   |   |
| Prepaid expenses                                           |       | —                              |       |                        | 33.8       |                         |       |                            | 2.0        |             |       |   | — |   |   |   | 35.8 |   |   |
| Total current  assets                                      |       | 66.6                                |       |                        | 722.9      |                         |       |                            | 102.5      |             |       |   | — |   |   |   | 892.0 |   |   |
| Property, plant  and equipment, net                        |       | 2.4                                 |       |                        | 319.4      |                         |       |                            | 17.0       |             |       |   | — |   |   |   | 338.8 |   |   |
| Deferred  financing fees, net                              |       | 13.9                                |       |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | 13.9 |   |   |
| Deferred income  taxes                                     |       | —                              |       |                        | 4.5        |                         |       |                            | (4.5       | )                |       |   | — |   |   |   | — |   |   |
| Identifiable  intangibles, net                             |       | —                              |       |                        | 828.3      |                         |       |                            | —     |             |       |   | — |   |   |   | 828.3 |   |   |
| Goodwill                                                   |       | —                              |       |                        | 723.7      |                         |       |                            | —     |             |       |   | — |   |   |   | 723.7 |   |   |
| Other non-current  assets                                  |       | —                              |       |                        | 2.4        |                         |       |                            | —     |             |       |   | — |   |   |   | 2.4 |   |   |
| Investment in  subsidiaries                                |       | 1,404.4                             |       |                        | 66.6       |                         |       |                            | —     |             |       |   | (1,471.0 | ) |   |   | — |   |   |
| Total assets                                               |       | $                                   | 1,487.3    |                        |       | $                            | 2,667.8    |                            |       |             | $          | 115.0 |   |   |   | $ | (1,471.0 | ) |   |   | $ | 2,799.1 |   |   |
| **Liabilities**                                            |       |                                |       |                        |       |                         |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Accounts payable                                           |       | $                                   | —     |                        |       | $                            | 83.7       |                            |       |             | $          | 8.0 |   |   |   | $ | — |   |   |   | $ | 91.7 |   |   |
| Current portion  of long-term debt                         |       | 8.1                                 |       |                        | 0.9        |                         |       |                            | —     |             |       |   | — |   |   |   | 9.0 |   |   |
| Deferred income  taxes                                     |       | —                              |       |                        | (0.2       | )                            |       |                            | 0.2        |             |       |   | — |   |   |   | — |   |   |
| Accrued expenses  and other current liabilities            |       | 9.9                                 |       |                        | 90.3       |                         |       |                            | (0.6       | )                |       |   | — |   |   |   | 99.6 |   |   |
| Total current  liabilities                                 |       | 18.0                                |       |                        | 174.7      |                         |       |                            | 7.6        |             |       |   | — |   |   |   | 200.3 |   |   |
| Intercompany  accounts                                     |       | (724.6                              | )          |                        | 683.0      |                         |       |                            | 41.6       |             |       |   | — |   |   |   | — |   |   |
| Long-term debt                                             |       | 998.3                               |       |                        | 1.1        |                         |       |                            | —     |             |       |   | — |   |   |   | 999.4 |   |   |
| Accrued pension  liability                                 |       | —                              |       |                        | 46.0       |                         |       |                            | (0.8       | )                |       |   | — |   |   |   | 45.2 |   |   |
| Accumulated  postretirement benefits obligation            |       | —                              |       |                        | 45.5       |                         |       |                            | —     |             |       |   | — |   |   |   | 45.5 |   |   |
| Deferred income  taxes                                     |       | —                              |       |                        | 292.3      |                         |       |                            | —     |             |       |   | — |   |   |   | 292.3 |   |   |
| Other long-term  liabilities                               |       | —                              |       |                        | 20.8       |                         |       |                            | —     |             |       |   | — |   |   |   | 20.8 |   |   |
| Total liabilities                                          |       | 291.7                               |       |                        | 1,263.4    |                         |       |                            | 48.4       |             |       |   | — |   |   |   | 1,603.5 |   |   |
| **Shareholder’s  equity (deficit)**                   |       |                                |       |                        |       |                         |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Total  shareholder’s equity (deficit)                 |       | 1,195.6                             |       |                        | 1,404.4    |                         |       |                            | 66.6       |             |       |   | (1,471.0 | ) |   |   | 1,195.6 |   |   |
| Total liabilities and  shareholder’s equity (deficit) |       | $                                   | 1,487.3    |                        |       | $                            | 2,667.8    |                            |       |             | $          | 115.0 |   |   |   | $ | (1,471.0 | ) |   |   | $ | 2,799.1 |   |   |

 

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**ConsolidatingStatement of Cash FlowsFor Mueller Group, LLCFor the Three Months Ended December 31, 2006(Unaudited)**

| ** **                                           | ** ** | **Issuer**                          | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                           | ** ** | **(dollars in millions)** | ** ** |
| Net cash provided  by (used in) operating activities |       | $                                   | (22.3      | )                           |       | $                            | 45.3       |                            |       |             | $          | 1.6 |   |   |   | — |   |   |   | $ | 24.6 |   |   |
| **Cash flows from investing  activities**            |       |                                |       |                        |       |                         |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Capital  expenditures                                |       | —                              |       |                        | (19.1      | )                            |       |                            | (0.9       | )                |       |   | — |   |   |   | (20.0 | ) |   |
| Net cash used  investing activities                  |       |                                |       |                        | (19.1      | )                            |       |                            | (0.9       | )                |       |   |   |   |   |   | (20.0 | ) |   |
| **Cash flows from financing  activities**            |       |                                |       |                        |       |                         |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Book cash  overdrafts                                |       | —                              |       |                        | (10.0      | )                            |       |                            | —     |             |       |   | — |   |   |   | (10.0 | ) |   |
| Intercompany  change                                 |       | 47.6                                |       |                        | (34.8      | )                            |       |                            | (12.8      | )                |       |   |   |   |   |   | — |   |   |
| Payment of  long-term debt                           |       | (2.2                                | )          |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | (2.2 | ) |   |
| Dividend paid to  parent                             |       | (2.0                                | )          |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | (2.0 | ) |   |
| Net cash provided  by (used in) financing activities |       | 43.4                                |       |                        | (44.8      | )                            |       |                            | (12.8      | )                |       |   |   |   |   |   | (14.2 | ) |   |
| Effect of  exchange rate changes on cash             |       | —                              |       |                        | —     |                         |       |                            | 0.4        |             |       |   | — |   |   |   | 0.4 |   |   |
| Increase in cash                                     |       | 21.1                                |       |                        | (18.6      | )                            |       |                            | (11.7      | )                |       |   | — |   |   |   | (9.2 | ) |   |
| **Cash and cash equivalents**                        |       |                                |       |                        |       |                         |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Beginning of  period                                 |       | 80.1                                |       |                        | (11.1      | )                            |       |                            | 10.1       |             |       |   | — |   |   |   | 79.1 |   |   |
| End of period                                        |       | $                                   | 101.2      |                        |       | $                            | (29.7      | )                               |       |             | $          | (1.6 | ) |   |   | — |   |   |   | $ | 69.9 |   |   |

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

| **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   |                                 |       |
| United States Pipe and  Foundry Company, LLC |       |       | Alabama    |                                 |       |

 

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

*The followingdiscussion should be read in conjunction with the audited consolidatedfinancial statements and notes thereto that appear in the Company’s Annual Reportfiled on Form 10-K and with the condensed consolidated financialstatements that appear elsewhere in this quarterly report. This discussioncontains forward-looking statements reflecting current expectations thatinvolve risks and uncertainties. Actual results and the timing of events maydiffer significantly from those projected in such forward-looking statementsdue to a number of factors, including those set forth in the section entitled “RiskFactors” in the Company’s Annual Report filed on Form 10-K.*

Mueller Group, LLC (the “Company”) is a wholly-ownedsubsidiary of Mueller Water Products, Inc. (“Mueller Water”), a Delawarecorporation. Mueller Water is the surviving corporation of the merger on February 2,2006 of Mueller Water Products, LLC (Commission File Number: 333-116590) andMueller Water Products Co-Issuer, Inc. with and into Mueller HoldingCompany, Inc., a Delaware corporation. On June 1, 2006, Mueller Watercompleted its initial public offering of its Series A common stock (NYSE:MWA). On December 14, 2006, Walter Industries, Inc. (“Walter”), adiversified New York Stock Exchange traded company (NYSE: WLT), distributed allof the Company’s outstanding Series B common stock (NYSE: MWA.B) to its shareholders.

On October 3, 2005, through a series oftransactions (the “Acquisition”), Walter, through a wholly-owned subsidiary,acquired all outstanding shares of capital stock of the Company’s parent,Mueller Water Products, Inc. (“Predecessor Mueller”), which immediatelywas converted into Mueller Water Products, LLC, a Delaware limitedliability company and contributed United States Pipe and Foundry Company, LLC,(“U.S. Pipe”), owned by Walter since 1969, to the acquired company.

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

Except as otherwise noted,we present all financial and operating data on a fiscal year and fiscal quarterbasis. Our fiscal year ends on September 30, and our first fiscal quarterends on December 31.

**AbbreviatedManagement’s Narrative Analysis**

The Company’s netincome for the three months ended December 31, 2006 was $19.4 million,which compared to a net loss in the prior year period of $40.9 million. Theprincipal factors impacting the current period results compared to the prioryear period included:

·       OnOctober 26, 2005 the Company announced that the U.S. Pipe Chattanoogaplant would be closed during fiscal 2006 and that production of the U.S. Pipevalves and hydrants would be transferred to the Mueller Co. manufacturingfacilities at Albertville, Alabama and Chattanooga, Tennessee. Related plantclosure costs were $40.0 million of pre-tax charges in the fiscal 2006 period.

·       Revenuesdeclined 14% in the current period, related primarily to a decline in thehousing market, partially offset by higher pricing. According to U.S. CensusBureau data, housing starts per month have trended downward since January 2006.Housing starts for December 2006 declined 23% compared to the peak monthof the prior year quarter.

·       TheU.S. Pipe segment net sales for the first quarter of fiscal 2006 includesapproximately $30 million of sales from ductile iron pipe that was substitutedfor PVC pipe as a result of Hurricane Katrina.

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·       Netcash proceeds received from the initial public offering in June 2006 wereused to pay down debt, thereby reducing interest expense in subsequent periods.

·       Costof sales in the prior year period included $58.4 million relating to theeffects of valuing the inventory of the Mueller Co. and Anvil segments acquiredin the Acquisition at fair value.

Management hasidentified the following significant developments, trends and factors that mayimpact our future results:

·       InDecember 2006, the Company announced a 5% price increase in valves andhydrants and an 8% increase in brass service products that were effective inFebruary 2007. In November 2006, the Company announced an increase inductile iron pipe selling prices effective in January 2007 of approximately4%.

·       Thegross dollar value of bookings for water infrastructure products decreased inthe first quarter of fiscal 2007 over prior year, but the largest declinesoccurred in the early part of the quarter. January 2007 bookings increasedover the comparable prior year period. This trend may reflect that distributorshave worked through an inventory build-up that resulted from price increasesthe Company announced in the May/June 2006 timeframe and exacerbated bythe continued decline in housing starts.

·       Managementbelieves the Company will benefit from projected spending increases in therepair and replacement market as the construction season begins. The AmericanWater Works Association forecasts that project repair and replacement spendingwill grow 11% in 2007. The Company’s U.S. Pipe public works quotation activityincreased 10% during the first quarter of fiscal 2007.

·       Subsequentto the spinoff of the Company from Walter, the Company will no longer besubject to corporate expense allocations from Walter. Such charges totaled $1.6million for the quarter ended December 31, 2006. However, the Company’scorporate segment expenses are expected to increase as the Company providescertain services previously provided by Walter. The corporate segment isexpected to incur increased expenses in the future, primarily employee-relatedcosts, as staffing levels are increased to replace the functionality previouslyprovided by Walter.

·       TheCompany’s synergy plan has an annual operating income improvement run rate of$41 million as of December 31, 2006 and is expected to be at the high endof a $40 million to $50 million annual range by early 2008. Significant volumeor price declines may impede the Company’s ability to maintain or exceed itscurrent synergy run rates.

·       TheCompany has historically implemented price increases to alleviate rising rawmaterial costs and in certain market conditions, these increases may not besustained.

·       During fiscal 2006, brassingot costs rose from $1.60 per pound to over $3.00 per pound. Brass ingotcosts decreased from that high level during the current quarter.

**Results ofOperations**

*NetSales.**  *Consolidatednet sales for the three months ended December 31, 2006 were $411.9million, a decrease of $68.5 million, or 14.3%, from $480.4 million in theprior year period. This decline was primarily due to softness in theresidential housing market, partially offset by higher pricing. In addition,sales in the prior year quarter included approximately $30 million in salesassociated with Hurricane Katrina.

*GrossProfit.**  *Consolidatedgross profit for the three months ended December 31, 2006 was $107.7 million,an increase of $64.2 million, compared to $43.5 million in the prior yearperiod. Gross margin increased to 26.1% in the current period compared to 9.1%in the prior year period. Cost of sales for the 

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three months ended December 31,2005 included $58.4 million of purchase accounting adjustments related tovaluing inventory acquired in the Acquisition at fair value. The improvement ingross profit is primarily due to plant cost reductions and efficienciesachieved by our synergy plan.

*Selling,General & Administrative.**  *Consolidated expenses for the threemonths ended December 31, 2006 and 2005 were $57.1 million. Expenses as apercentage of net sales increased to 13.9% in the current period compared to11.9% in the prior year period. This percentage increase is due to decreasedsales.

*RelatedParty Corporate Charges.*   Certain costs incurredby Walter such as insurance, executive salaries, professional service fees,human resources, transportation, and other centralized business functions areallocated to its subsidiaries. Costs incurred by Walter that cannot be directlyattributed to its subsidiaries are allocated to them based on estimated annualrevenues.

*FacilityRationalization, Restructuring and Related Costs.*   TheCompany expensed $24.1 million of restructuring costs for the three monthsended December 31, 2005 related to the closure of the U.S. PipeChattanooga, Tennessee plant.

*InterestExpense, Net of Interest Income.*   Interestexpense, net of interest income for the current period was $17.3 million,compared to $28.1 million in the prior year period. Net cash proceeds receivedfrom the Mueller Water initial public offering in June 2006 were used topay down debt, resulting in lower interest expense in the current period. Theprior year period includes $2.5 million of expenses from bridge loan commitmentfees incurred as a result of the Acquisition.

*Income Tax Expense(Benefit).*   The provision for income taxes forthe current period was an expense of $12.3 million as compared to abenefit of $26.7 million in the prior year period. The effective tax ratefor the first fiscal quarter of 2007 was 38.8%. The effective tax rate for thefirst fiscal quarter 2006 was a benefit of 39.5%.

**Forward-LookingStatements**

This report containscertain statements that may be deemed “forward-looking statements” within themeaning of Section 21E of the Securities Exchange Act of 1934. Allstatements, other than statements of historical fact, that address activities,events or developments that we or our management intends, expects, projects,believes or anticipates will or may occur in the future are forward-lookingstatements. Such statements are based upon certain assumptions and assessmentsmade by our management in light of their experience and their perception ofhistorical trends, current conditions, expected future developments and otherfactors they believe to be appropriate. The forward-looking statements includedin this report are also subject to a number of material risks anduncertainties, including but not limited to economic, competitive, governmentaland technological factors affecting our operations, markets, products, servicesand prices. Such forward-looking statements are not guarantees of futureperformance, and actual results, developments and business decisions may differfrom those envisaged by such forward-looking statements.

**PART II.**   OTHERINFORMATION

**ITEM 1.**                LegalProceedings

Refer to the informationprovided in Note 13 to the Notes to Condensed Consolidated Financial Statementspresented in Item 1 of Part I of this quarterly report.

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**ITEM 6.**                Exhibits

**(a) Exhibits**
| Exhibit No. | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                  | ** ** | **Document** |
|------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------|
| 10.10*           |       | Executive Employment  Agreement, dated September 9, 2005 between Walter Industries, Inc.  and Gregory E. Hyland. Incorporated by reference to Exhibit 10.22 to  Walter Industries, Inc. Form 8-K (File no. 001-13711)  filed on September 12, 2005.                                                                                                 |
| 10.10.1*         |       | Amendment, dated  as of March 2, 2006, to Executive Employment Agreement dated  September 9, 2005 between Walter Industries, Inc. and Gregory E.  Hyland. Incorporated by reference to Exhibit 10.1 to Mueller Water  Products, Inc. Form 8-K (File no. 333-131521) filed  on March 3, 2006.                                                   |
| 10.10.2*         |       | Assignment and  Assumption Agreement dated December 14, 2006 between Walter  Industries, Inc. and Mueller Water Products, Inc. relating to the  September 9, 2005 employment agreement of Gregory E. Hyland.  Incorporated by reference to Exhibit 10.1 to Mueller Water  Products, Inc. Form 8-K (File no. 001-32892) filed on  December 15, 2006. |
| 10.15.1*         |       | Assignment and  Assumption Agreement dated December 14, 2006 between Walter  Industries, Inc. and Mueller Water Products, Inc. relating to the  July 12, 2004 employment agreement of Raymond P. Torok. Incorporated by  reference to Exhibit 10.2 to Mueller Water Products, Inc.  Form 8-K (File no. 001-32892) filed on December 19, 2006.       |
| 10.16*           |       | Joint Litigation  Agreement dated December 14, 2006 between Walter Industries, Inc.  and Mueller Water Products, Inc. Incorporated by reference to  Exhibit 10.3 to Mueller Water Products, Inc. Form 8-K (File  no. 001-32892) filed on December 19, 2006.                                                                                              |
| 31.1**           |       | Certification of  Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                                                                                                                                                  |
| 31.2**           |       | Certification of  Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002.                                                                                                                                                                                                                                                                             |
| 32.1**           |       | Certification of  Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                                                                                                                                                  |
| 32.2**           |       | Certification of Chief  Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002                                                                                                                                                                                                                                                                              |

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*                    Managementcompensatory plan, contract or arrangement

**             Filed with this report

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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, LLC |
|------------------------------|--------------------|
| Date:  February 9, 2007 | By:                | /s/ GREGORY E. HYLAND |
|                         |               | Gregory E. Hyland |
|                         | * *           | *President and Chief Executive Officer* |
| Date:  February 9, 2007 | By:                | /s/ JEFFERY W. SPRICK |
|                         |               | Jeffery W. Sprick |
|                         | * *           | *Chief Financial Officer and  Chief Accounting Officer* |

 

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