**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGEACT OF 1934

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

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGEACT 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.) |
| **500 West Eldorado Street  Decatur, IL 62522-1808**(Address of principal executive offices) |

 

**(217) 423-4417**

(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   AcceleratedFiler 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 May 9, 2006. As of May 9,2006, Mueller Group, LLC had 1 unit outstanding.

 

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**PART I.**                   FINANCIALINFORMATION

**ITEM 1.**                FINANCIALSTATEMENTS

**MUELLERGROUP, LLCCONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED)**

| ** **                                                                                                                                                   | ** ** | **March 31,  2006**            | ** ** | **September 30,  2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                   | ** ** | **(dollars in millions)** | ** ** |
| **Assets**                                                                                                                                                   | ** ** |                                | ** ** | ** **                   |       |   | ** ** | ** ** |   |
| Cash and cash  equivalents                                                                                                                                   |       |                                | $          | 39.2                         |       |   |   | $ | — |   |   |
| Receivables, net of  allowance for doubtful accounts of $6.5 million and $0.9 million at  March 31, 2006 and September 30, 2005, respectively |       |                                | 272.7      |                         |       |   | 118.5 |   |   |
| Inventories                                                                                                                                                  |       |                                | 460.3      |                         |       |   | 147.2 |   |   |
| Deferred income taxes                                                                                                                                        |       |                                | 58.1       |                         |       |   | 11.1 |   |   |
| Prepaid expenses                                                                                                                                             |       |                                | 31.1       |                         |       |   | 1.5 |   |   |
| Total current assets                                                                                                                                         |       |                                | 861.4      |                         |       |   | 278.3 |   |   |
| Property, plant and  equipment, net                                                                                                                          |       |                                | 340.7      |                         |       |   | 149.2 |   |   |
| Deferred financing fees                                                                                                                                      |       |                                | 27.7       |                         |       |   | — |   |   |
| Deferred income taxes                                                                                                                                        |       |                                | —     |                         |       |   | 9.5 |   |   |
| Due from parent, Walter  Industries                                                                                                                          |       |                                | 20.0       |                         |       |   | — |   |   |
| Identifiable intangibles,  net                                                                                                                               |       |                                | 849.0      |                         |       |   | — |   |   |
| Goodwill                                                                                                                                                     |       |                                | 717.3      |                         |       |   | 58.4 |   |   |
| Other long-term assets                                                                                                                                       |       |                                | 5.6        |                         |       |   | — |   |   |
| Total assets                                                                                                                                                 |       |                                | $          | 2,821.7                      |       |   |   | $ | 495.4 |   |   |
| **Liabilities  and Shareholder’s Equity (Deficit)**                                                                                                     | ** ** |                                | ** ** | ** **                   |       |   | ** ** | ** ** |   |
| Current portion of long-term  debt                                                                                                                           |       |                                | $          | 11.5                         |       |   |   | $ | — |   |   |
| Accounts payable                                                                                                                                             |       |                                | 110.3      |                         |       |   | 52.5 |   |   |
| Accrued expenses and  other liabilities                                                                                                                      |       |                                | 103.8      |                         |       |   | 34.7 |   |   |
| Payable to affiliate,  Sloss Industries                                                                                                                      |       |                                | 4.4        |                         |       |   | 2.5 |   |   |
| Total current  liabilities                                                                                                                                   |       |                                | 230.0      |                         |       |   | 89.7 |   |   |
| Long-term debt                                                                                                                                               |       |                                | 1,368.0    |                         |       |   | — |   |   |
| Payable to parent,  Walter Industries                                                                                                                        |       |                                | 2.9        |                         |       |   | 443.6 |   |   |
| Accrued pension  liability, net                                                                                                                              |       |                                | 105.4      |                         |       |   | 53.6 |   |   |
| Accumulated  postretirement benefits obligation                                                                                                              |       |                                | 48.3       |                         |       |   | 51.1 |   |   |
| Deferred income taxes                                                                                                                                        |       |                                | 316.1      |                         |       |   | — |   |   |
| Other long-term  liabilities                                                                                                                                 |       |                                | 23.6       |                         |       |   | 12.6 |   |   |
| Total liabilities                                                                                                                                            |       |                                | 2,094.3    |                         |       |   | 650.6 |   |   |
| Commitments and contingencies (Note 13)                                                                                                                      |       |                                |       |                         |       |   |   |   |   |
| **Shareholder’s equity (deficit):**                                                                                                                     | ** ** |                                | ** ** | ** **                   |       |   | ** ** | ** ** |   |
| Membership unit:                                                                                                                                             |       |                                |       |                         |       |   |   |   |   |
| (1 unit outstanding at  March 31, 2006 and September 30, 2005)                                                                                     |       |                                | —     |                         |       |   | — |   |   |
| Capital in excess of par  value                                                                                                                              |       |                                | 988.3      |                         |       |   | 68.3 |   |   |
| Accumulated deficit                                                                                                                                          |       |                                | (218.0     | )                            |       |   | (178.1 | ) |   |
| Accumulated other  comprehensive loss                                                                                                                        |       |                                | (42.9      | )                            |       |   | (45.4 | ) |   |
| Total shareholder’s  equity (deficit)                                                                                                                   |       |                                | 727.4      |                         |       |   | (155.2 | ) |   |
| Total liabilities and shareholder’s equity (deficit)                                                                                                    |       |                                | $          | 2,821.7                      |       |   |   | $ | 495.4 |   |   |

 

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

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

| ** **                                                                | ** ** | **Three months ended**    | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                | ** ** | **March 31, 2006**        | ** ** | **March 31, 2005** | ** ** |
| ** **                                                                | ** ** | **(dollars in millions)** | ** ** |
| Net sales                                                                 |       |                                | $          | 434.9 |   |   |   | $ | 124.7 |   |   |
| Cost of sales                                                             |       |                                | 340.3      |   |   |   | 114.1 |   |   |
| Gross profit                                                              |       |                                | 94.6       |   |   |   | 10.6 |   |   |
| Operating expenses:                                                       |       |                                |       |   |   |   |   |   |   |
| Selling, general and administrative                                       |       |                                | 60.8       |   |   |   | 5.1 |   |   |
| Related party corporate charges                                           |       |                                | 2.0        |   |   |   | 1.8 |   |   |
| Facility rationalization, restructuring and related  costs                |       |                                | 4.3        |   |   |   | — |   |   |
| Total operating expenses                                                  |       |                                | 67.1       |   |   |   | 6.9 |   |   |
| Income loss from  operations                                              |       |                                | 27.5       |   |   |   | 3.7 |   |   |
| Interest expense  arising from related party payable to Walter Industries |       |                                | —     |   |   |   | (5.1 | ) |   |
| Interest expense,  net of interest income                                 |       |                                | (25.9      | ) |   |   | (0.2 | ) |   |
| Income (loss) before income taxes                                         |       |                                | 1.6        |   |   |   | (1.6 | ) |   |
| Income tax  expense (benefit)                                             |       |                                | 0.6        |   |   |   | (0.4 | ) |   |
| Net income (loss)                                                         |       |                                | $          | 1.0 |   |   |   | $ | (1.2 | ) |   |

 

| ** **                                                                | ** ** | **Six months ended**      | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                | ** ** | **March 31, 2006**        | ** ** | **March 31, 2005** | ** ** |
| ** **                                                                | ** ** | **(dollars in millions)** | ** ** |
| Net sales                                                                 |       |                                | $          | 915.3 |   |   |   | $ | 265.9 |   |   |
| Cost of sales                                                             |       |                                | 777.2      |   |   |   | 242.6 |   |   |
| Gross profit                                                              |       |                                | 138.1      |   |   |   | 23.3 |   |   |
| Operating expenses:                                                       |       |                                |       |   |   |   |   |   |   |
| Selling, general and administrative                                       |       |                                | 117.9      |   |   |   | 18.3 |   |   |
| Related party corporate charges                                           |       |                                | 3.8        |   |   |   | 3.7 |   |   |
| Facility rationalization, restructuring and related  costs                |       |                                | 28.4       |   |   |   | — |   |   |
| Total operating expenses                                                  |       |                                | 150.1      |   |   |   | 22.0 |   |   |
| Income (loss)  from operations                                            |       |                                | (12.0      | ) |   |   | 1.3 |   |   |
| Interest expense  arising from related party payable to Walter Industries |       |                                | —     |   |   |   | (11.0 | ) |   |
| Interest expense,  net of interest income                                 |       |                                | (54.0      | ) |   |   | (0.3 | ) |   |
| Loss before income taxes                                                  |       |                                | (66.0      | ) |   |   | (10.0 | ) |   |
| Income tax  expense (benefit)                                             |       |                                | (26.1      | ) |   |   | 0.7 |   |   |
| Net loss                                                                  |       |                                | $          | (39.9 | ) |   |   | $ | (10.7 | ) |   |

 

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

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**MUELLER GROUP, LLC**

**CONDENSEDCONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITY (DEFICIT) AND COMPREHENSIVE LOSS**

**FOR THE SIX MONTHS ENDEDMARCH 31, 2006**

**(UNAUDITED)**

| ** **                                               | ** ** | **Capital in  Excess of  Par Value** | ** ** | **Accumulated  Deficit** | ** ** | **Comprehensive  Income  (Loss)** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Total** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------|------------|-----------------------------------|------------|---------------------------------------------|------------|-----------|------------|
| Balance at  September 30, 2005                      |       |                                                | $          | 68.3                     |       |                              |       | $                                           | (178.1     | )         |       |   |   |   |   |   | $ | (45.4 | ) |   | $ | (155.2 | ) |
| Walter’s  investment in subsidiary                  |       |                                                | 932.9      |                     |       |                              | —     |                                        |       |      |       |   |   |   | — |   |   | 932.9 |   |
| Dividend to  Walter                                      |       |                                                | (444.5     | )                        |       |                              | —     |                                        |       |      |       |   |   |   | — |   |   | (444.5 | ) |
| Dividend to Walter  for acquisition costs                |       |                                                | (12.0      | )                        |       |                              | —     |                                        |       |      |       |   |   |   | — |   |   | (12.0 | ) |
| Forgiveness of  U.S. Pipe payable to Walter              |       |                                                | 443.6      |                     |       |                              | —     |                                        |       |      |       |   |   |   | — |   |   | 443.6 |   |
| Comprehensive income  (loss)                             |       |                                                |       |                     |       |                              |       |                                        |       |      |       |   |   |   |   |   |   |   |   |
| Net loss                                                 |       |                                                | —     |                     |       |                              | (39.9      | )                                           |       |      | (39.9      | ) |   |   | — |   |   | (39.9 | ) |
| Other comprehensive income (loss), net of tax       |       |                                                |       |                     |       |                              |       |                                        |       |      |       |   |   |   |   |   |   |   |   |
| Unrealized gain on interest rate swaps, net of  tax |       |                                                | —     |                     |       |                              | —     |                                        |       |      | 2.6        |   |   |   | 2.6 |   |   | 2.6 |   |
| Foreign currency translation adjustments                 |       |                                                | —     |                     |       |                              | —     |                                        |       |      | (0.1       | ) |   |   | (0.1 | ) |   | (0.1 | ) |
| Comprehensive loss                                       |       |                                                |       |                     |       |                              |       |                                        |       |      | $          | (37.4 | ) |   |   |   |   |   |   |   |
| Balance at  March 31, 2006                          |       |                                                | $          | 988.3                    |       |                              |       | $                                           | (218.0     | )         |       |   |   |   |   |   | $ | (42.9 | ) |   | $ | 727.4 |   |
|                                                          |            |                                                     |            |                          |            |                                   |            |                                             |            |           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

3

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

| ** **                                                                                          | ** ** | **Six months ended**      | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                          | ** ** | **March 31,  2006**            | ** ** | **March 31,  2005** | ** ** |
| ** **                                                                                          | ** ** | **(dollars in millions)** | ** ** |
| OPERATING  ACTIVITIES                                                                               |       |                                |       |   |   |   |   |   |   |
| Net loss                                                                                            |       |                                | $          | (39.9 | ) |   |   | $ | (10.7 | ) |   |
| Adjustments to reconcile  net income (loss) to net cash provided by (used in) operating activities: |       |                                |       |   |   |   |   |   |   |
| Depreciation                                                                                        |       |                                | 34.4       |   |   |   | 13.1 |   |   |
| Amortization of intangibles                                                                         |       |                                | 13.6       |   |   |   | — |   |   |
| Amortization of deferred financing fees                                                             |       |                                | 2.2        |   |   |   | — |   |   |
| Accretion resulting from valuing acquired debt at  fair value                                       |       |                                | (1.6       | ) |   |   | — |   |   |
| Gain on disposal of property, plant and equipment                                                   |       |                                | (0.3       | ) |   |   | — |   |   |
| Stock-based compensation expense                                                                    |       |                                | 0.3        |   |   |   | — |   |   |
| Impairments of property, plant and equipment                                                        |       |                                | 21.3       |   |   |   | — |   |   |
| Provision for deferred income taxes                                                                 |       |                                | (25.9      | ) |   |   | 8.5 |   |   |
| Gain on interest rate swaps                                                                         |       |                                | (0.5       | ) |   |   | — |   |   |
| Changes in assets and  liabilities, net of the effects of acquisitions:                             |       |                                |       |   |   |   |   |   |   |
| Receivables                                                                                         |       |                                | 23.4       |   |   |   | 20.9 |   |   |
| Inventories                                                                                         |       |                                | 62.1       |   |   |   | (42.4 | ) |   |
| Income taxes payable                                                                                |       |                                | —     |   |   |   | 2.0 |   |   |
| Prepaid expenses and other current assets                                                           |       |                                | 1.8        |   |   |   | (0.1 | ) |   |
| Pension and other long-term liabilities                                                             |       |                                | 3.5        |   |   |   | 2.7 |   |   |
| Accounts payable, accrued expenses and other current  liabilities                                   |       |                                | (24.3      | ) |   |   | (1.0 | ) |   |
| Net cash provided  by (used in) operating activities                                                |       |                                | 70.1       |   |   |   | (7.0 | ) |   |
| INVESTING ACTIVITIES                                                                                |       |                                |       |   |   |   |   |   |   |
| Additions to  property, plant and equipment                                                         |       |                                | (30.9      | ) |   |   | (11.2 | ) |   |
| Acquisition of  businesses, net of cash acquired                                                    |       |                                | (15.5      | ) |   |   | — |   |   |
| Increase in  amounts due to (from) Walter                                                           |       |                                | (15.6      | ) |   |   | 18.2 |   |   |
| Net cash provided  by (used in) investing activities                                                |       |                                | (62.0      | ) |   |   | 7.0 |   |   |
| FINANCING ACTIVITIES                                                                                |       |                                |       |   |   |   |   |   |   |
| Increase  (decrease) in dollar value of bank checks outstanding                                     |       |                                | 9.7        |   |   |   | (0.1 | ) |   |
| 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, including capital lease obligations                                  |       |                                | (617.9     | ) |   |   | — |   |   |
| Payment of  deferred financing fees                                                                 |       |                                | (21.6      | ) |   |   | — |   |   |
| Dividend paid to  Walter                                                                            |       |                                | (444.5     | ) |   |   | — |   |   |
| Dividend to  Walter for acquisition costs                                                           |       |                                | (12.0      | ) |   |   | — |   |   |
| Walter  contribution of Predecessor Mueller’s cash                                             |       |                                | 67.4       |   |   |   | — |   |   |
| Net cash provided  by (used in) financing activities                                                |       |                                | 31.1       |   |   |   | (0.1 | ) |   |
| Net increase  (decrease) in cash and cash equivalents                                               |       |                                | 39.2       |   |   |   | (0.1 | ) |   |
| Cash and cash equivalents  at beginning of period                                                   |       |                                | —     |   |   |   | 0.1 |   |   |
| Cash and cash  equivalents at end of period                                                         |       |                                | $          | 39.2 |   |   |   | $ | — |   |   |

 

4

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

Schedule of non-cash investing and financing activities:

On October 3,the Company’s parent, Walter Industries, purchased all of the outstandingcommon stock of Predecessor Mueller. This stock was contributed to the Companyby Walter as further described in Note 3.

| ** **                                     | ** ** | **(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     |       |                                | $          | 856.6 |   |   |

 

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

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

5

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**MUELLER GROUP, LLCNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSAS OF AND FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2006 ANDMARCH 31, 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. See Note 15 for a detaileddescription of the merger.

On October 3, 2005, through a series oftransactions (the “Acquisition”), Walter Industries, Inc. (“Walter”),through a wholly-owned subsidiary, acquired all outstanding shares of capitalstock of our parent company, Mueller Water Products, Inc. (“PredecessorMueller Water”), which immediately was converted into Mueller Water Products,LLC, a Delaware limited liability company and contributed United States Pipeand Foundry Company, LLC, (“U.S. Pipe”), owned by Walter since 1969, to theacquired company’s wholly-owned subsidiary, Mueller Group, LLC (“PredecessorMueller Group”). In accordance with generally accepted accounting principles, foraccounting purposes U.S. Pipe is treated as the acquirer of Predecessor MuellerGroup. Accordingly, effective October 3, 2005, U.S. Pipe’s basis ofaccounting is used for the Company and all financial data for periods prior to October 3,2005 of the Company included in this report on Form 10-Q, is that ofU.S. Pipe. The results of operations of Predecessor Mueller Group are includedin the Consolidated Statements 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 Industries, Inc., a diversified New York Stock Exchange tradedcompany (NYSE: WLT). On September 23, 2005, Inc. was dissolved andUnited States Pipe and Foundry Company, LLC was organized in the state ofAlabama, and the operations of Inc. were conducted under the form of a limitedliability company.

In December 2005, U.S. Pipe changed its fiscalyear-end to September 30, which coincides with the fiscal year end ofPredecessor Mueller Group. Beginning with the quarter ended December 31,2005, the Company has three operating segments which are named after itsleading brands in each segment: Mueller, U.S. Pipe, and Anvil.

The accompanying unaudited condensed consolidated financialstatements of the Company have been prepared in accordance with generallyaccepted accounting principles for interim financial information and with theinstructions to Form 10-Q. Accordingly, they do not include all ofthe information and footnotes required by accounting principles generallyaccepted in the United States for complete financial statements. In the opinionof management, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included. Operatingresults for the three-month and six-month periods ended March 31, 2006 arenot necessarily indicative of the results that may be expected for the yearending September 30, 2006.

The balance sheet at September 30, 2005 has beenderived from the audited financial statements at that date but does not includeall of the information and footnotes required by accounting principlesgenerally accepted in the United States for complete financial statements.

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Certain amounts in theprior period’s consolidated financial statements have been reclassified toconform to the current-period presentation. On the Consolidated Balance Sheetas of September 30, 2005, prepaid pension cost of $19.3 million has beennetted against accrued pension liability of $72.9 million and is presented asaccrued pension liability, net of $53.6 million.

**Note 2.**   Summaryof Significant Accounting Policies

*RevenueRecognition**—The* Company recognizes revenuebased on the recognition criteria set forth in the Securities and Exchange Commission’sStaff Accounting Bulletin 104 “Revenue Recognition in Financial Statements”,which is when delivery of product has occurred or services have been renderedand there is persuasive evidence of a sales arrangement, selling prices arefixed or determinable, and collectibility from the customer is reasonablyassured. Revenue from the sale of products via rail or truck is recognized whentitle passes upon delivery to the customer. Revenue earned for shipments viaocean vessel is recognized under international shipping standards as defined byIncoterms 2000 when title and risk of loss transfer to the customer. Sales arerecorded net of estimated cash discounts and rebates.

*Shippingand Handling**—Costs* to ship products tocustomers are included in cost of sales in the Consolidated Statements ofOperations. Amounts billed to customers, if any, to cover shipping and handlingcosts are included in net sales.

*CustomerRebates**—Customer* rebates are appliedagainst net sales at the time the sales are recorded based on estimates withrespect to the deductions to be taken.

*Cashand Cash Equivalents**—The***Companyconsiders all highly liquid investments with original maturities of ninety daysor less when purchased to be cash equivalents. Outstanding checks are netted againstcash when there is a sufficient balance of cash available in the Company’saccounts at the bank to cover the outstanding amount and the right of offsetexists. Where there is no right of offset against cash balances, outstandingchecks are classified along with accounts payable. At March 31, 2006 and September 30,2005 checks issued but not yet presented to the banks for payment (i.e. thedollar value of bank checks outstanding) were $9.7 million and zero,respectively, and were recorded in accounts payable.

*Receivables**—Receivables*relateprimarily to amounts due from customers located in North America. To reducecredit risk, credit investigations are performed prior to accepting an orderand, when necessary, letters of credit are required to ensure payment.

The estimated allowance for doubtful accountsreceivable is based, in large part, upon judgments and estimates of expectedlosses and specific identification of problem trade accounts. Significantlyweaker than anticipated industry or economic conditions could impact customers’ability to pay such that actual losses may be greater than the amounts providedfor in these allowances. The periodic evaluation of the adequacy of theallowance for doubtful accounts is based on an analysis of prior collectionexperience, specific customer creditworthiness and current economic trendswithin the industries served. In circumstances where a specific customer’sinability to meet its financial obligation is known to the Company (e.g.,bankruptcy filings or substantial downgrading of credit ratings), the Companyrecords a specific allowance to reduce the receivable to the amount the Companyreasonably believes will be collected.

*Inventories**—Inventories* arerecorded at the lower of cost (first-in, first-out) or market value.Additionally, the Company evaluates its inventory in terms of excess andobsolete exposures. This evaluation includes such factors as anticipated usage,inventory turnover, inventory levels and ultimate product sales value.Inventory cost includes an overhead component that can be affected by levels ofproduction and actual costs incurred. Management periodically evaluates theeffects of production levels and actual costs incurred on the costs capitalizedas part of inventory.

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*Property,plant and equipment**—Property,*plant and equipment isrecorded at cost, less accumulated depreciation and amortization. Depreciationis recorded on the straight-line method over the estimated useful lives of theassets. Leasehold improvements are amortized on the straight-line method overthe lesser of the useful life of the improvement or the remaining lease term.Estimated useful lives used in computing depreciation expense are 2 to20 years for machinery and equipment and 3 to 50 years for landimprovements and buildings. Gains and losses upon disposition are reflected inthe Consolidated Statements of Operations in the period of disposition.

Direct internal and external costs to implementcomputer systems and software are capitalized as incurred. Capitalized costs areamortized over the estimated useful life of the system or software, beginningwhen site installations or module development is complete and ready for itsintended use, which generally is 3 to 5 years.

The Company accounts for its asset retirement obligationsrelated to plant and landfill closures in accordance with Statement ofFinancial Accounting Standards No. 143 (“SFAS 143”). Under SFAS 143,liabilities are recognized at fair value for an asset retirement obligation inthe period in which it is incurred and the carrying amount of the relatedlong-lived asset is correspondingly increased. Over time, the liability isaccreted to its future value. The corresponding asset capitalized at inceptionis depreciated over the useful life of the asset.

*Tooling**—Prepaid* expensesinclude maintenance and tooling inventory costs. Perishable tools andmaintenance items are expensed when put into service. More durable items aredepreciated over their estimated useful lives, ranging from 4 to 10 years.

*EnvironmentalExpenditures**—The* Company capitalizesenvironmental expenditures that increase the life or efficiency of property orthat reduce or prevent environmental contamination. The Company accrues forenvironmental expenses resulting from existing conditions that relate to pastoperations when the costs are probable and reasonably estimable. The Company isindemnified by Tyco for all environmental liabilities associated withPredecessor Mueller as it existed as of August 16, 1999, whether known ornot.

*Accountingfor the Impairment of Long-Lived Assets**—Long-lived* assetsare reviewed for impairment whenever events or changes in circumstancesindicate that the book value of the asset may not be recoverable. Goodwill andintangible assets that have an indefinite life are not amortized, but insteadare tested for impairment annually (or more frequently if events orcircumstances indicate possible impairments) using both a discounted cash flowmethod and a market comparable method.

*Workers’ Compensation**—The* Company is self-insured for workers’compensation benefits for work-related injuries. Liabilities, including thoserelated to claims incurred but not reported, are recorded principally usingannual valuations based on discounted future expected payments and usinghistorical data or combined insurance industry data when historical data islimited. Pursuant to the terms of the Tyco Purchase Agreement, PredecessorMueller is indemnified by Tyco for all liabilities that occurred prior to August 16,1999. Workers’ compensation liabilities were as follows:

| ** **                                                          | ** ** | **March 31,  2006**            | ** ** | **September 30,  2005** | ** ** |
|---------------------------------------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                                                          | ** ** | **(dollars in millions)** | ** ** |
| Workers’ compensation liability recorded on a discounted basis |       |                                | $          | 24.4                         |       |   |   | $ | 11.9 |   |   |
|                                                                     |            |                                     |            |                              |            |  |  |  |  |  |  |

 

Aone-percentage-point increase in the discount rate on the discounted claimsliability would decrease the liability by $0.1 million, while aone-percentage-point decrease in the discount rate would increase the liabilityby $0.1 million.

8

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*WarrantyCosts**—The***Companyaccrues for U.S. Pipe segment warranty expenses that include customer costs ofrepair and/or replacement, including labor, materials, equipment, freight andreasonable overhead costs, determined on a case-by-case basis, whenever theCompany’s products and/or services fail to comply with published industrystandards or mutually agreed upon customer requirements.

The Company accrues forthe estimated cost of product warranties of the Mueller and Anvil segments atthe time of sale based on historical experience. Adjustments to obligations forwarranties are made as changes in the obligations become reasonably estimable.

Activity in accruedwarranty, included in the caption accrued expenses in the accompanyingConsolidated Balance Sheets, was as follows (in millions):

| ** **                               | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                               | ** ** | **March 31,  2006**         | ** ** | **March 31,  2005**       | ** ** | **March 31,  2006** | ** ** | **March 31,  2005** | ** ** |
| Accrued balance  at beginning of period  |       |                             | $          | 5.0                            |       |   |   | $ | 1.7 |   |   |   | $ | 4.7 |   |   |   | $ | 1.8 |   |   |
| Accrued warranty  of Predecessor Mueller |       |                             | —     |                           |       |   | — |   |   |   | 1.6 |   |   |   | — |   |   |
| Warranty expense                         |       |                             | 1.4        |                           |       |   | 0.9 |   |   |   | 1.8 |   |   |   | 1.7 |   |   |
| Settlement of warranty  claims           |       |                             | (2.0       | )                              |       |   | (0.8 | ) |   |   | (3.7 | ) |   |   | (1.7 | ) |   |
| Balance at end of period                 |       |                             | $          | 4.4                            |       |   |   | $ | 1.8 |   |   |   | $ | 4.4 |   |   |   | $ | 1.8 |   |   |

 

*DeferredFinancing Fees*—Costs of debtfinancing included in other non-current assets are amortized over the life ofthe related loan agreements, which range from five to eight years. Such costsare reassessed when amendments occur, in accordance with Emerging Issues TaskForce (EITF) 96-19, “Debtors Accounting for a Modification or Exchange ofDebt Instruments.”

*IncomeTaxes**—Deferred***taxliabilities and assets are recognized for the expected future tax consequencesof events that have been included in the financial statements or tax returns.Deferred tax liabilities and assets are determined based on the differencesbetween the financial statements and the tax basis of assets and liabilities,using tax rates in effect for the years in which the differences are expectedto reverse. A valuation allowance is provided to offset any net deferred taxassets if, based upon the available evidence, it is more likely than not thatsome or all of the deferred tax assets will not be realized.

*Researchand Development**—Research*and developmentexpenditures are expensed when incurred.

*Advertising**—Advertising* costsare expensed when incurred.

*Translationof Foreign Currency**—Assets*and liabilities of theCompany’s businesses operating outside of the United States of America whichmaintains accounts in a functional currency other than U.S. dollars aretranslated into U.S. dollars using year-end exchange rates. Revenues andexpenses are translated at the average exchange rates effective during theyear. Foreign currency translation gains and losses are included as a separatecomponent of stockholders’ equity. Gains and losses resulting from foreigncurrency transactions are included in either cost of sales or selling, generaland administrative expense, as appropriate.

*DerivativeInstruments and Hedging Activities**—The***Company currently uses interest rate swaps as required inthe 2005 Mueller Credit Agreement to reduce the risk of interest ratevolatility. The amount to be paid or received from interest rate swaps ischarged or credited to interest expense over the lives of the interest rateswap agreements. Changes in the fair value of derivatives are recorded each periodin earnings or Accumulated Other Comprehensive Income (Loss), depending onwhether or not a derivative is designated and effective as part of a hedgetransaction and meets the applicable requirements associated with Statement ofFinancial Accounting Standards No. 133 (“SFAS 133”) (see Note 6).

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Additionally, the Company utilizes forward contractsto mitigate its exposure to changes in foreign currency exchange rates fromthird party and intercompany transactions. The primary currency to which theCompany is exposed and to which it hedges the exposure is the Canadian Dollar.The effective portion of unrealized gains and losses associated with forwardcontracts are deferred as a component of Accumulated Other Comprehensive Income(Loss) until the underlying hedged transactions are reported in the Company’sConsolidated Statements of Operations.

*RelatedParty Transactions**—The***Companypurchases foundry coke from an affiliate, Sloss Industries, Inc. for anamount that approximates the market value of comparable transactions. Costsincluded in cost of sales related to purchases from Sloss Industries, Inc.were $5.4 million and $6.6 million for the three months ended March 31,2006 and 2005, respectively, and $10.8 million and $10.3 million for the sixmonths ended March 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 $0.4 million and $0.4 million for the three monthsended March 31, 2006 and 2005, respectively, and $0.8 million and $0.7 millionfor the six months ended March 31, 2006 and 2005, respectively.

*RelatedParty Allocations**—Certain* costs incurred by Waltersuch as insurance, executive salaries, professional service fees, humanresources, transportation, healthcare and other centralized business functionsare allocated to its subsidiaries. Certain costs that were considered directlyrelated to the U.S. Pipe segment were charged to the Company and includedin selling, general and administrative expenses. These costs were approximately$0.6 million and $0.4 million for the three months ended March 31,2006 and 2005, respectively, and approximately $1.0 million and $0.8 millionfor the six months ended March 31, 2006 and 2005. Costs incurred by Walterthat cannot be directly attributed to its subsidiaries are allocated to thembased on estimated annual revenues. Such costs were allocated to the Companyand are recorded in the caption, related party corporate charges, in theaccompanying Consolidated Statements of Operations and were approximately$2.0 million and $1.8 million for the three months ended March 31,2006 and 2005, respectively, and approximately $3.8 million and $3.7 millionfor the six months ended March 31, 2006 and 2005, respectively.

While the Company considers the allocation of suchcosts to be reasonable, in the event the Company was not affiliated withWalter, these costs may increase or decrease.

Certain of the Company’s employees have been granted Walterrestricted stock units and stock options under Walter’s stock-basedcompensation plans. The Company has expensed $0.2 million and $0.2 millionrelated to the stock-based compensation costs allocated from Walter for thethree and six months ended March 31, 2006, respectively.

**Note 3.**   Acquisitions

**HuntIndustries, Inc.**

OnJanuary 4, 2006, the Company acquired Hunt Industries, Inc. (“Hunt”)for $6.8 million in cash. Hunt, based in Murfreesboro, Tennessee, is amanufacturer of meter pits and meter yokes which are sold by the Company’s Muellersegment. 

Theestimated fair values of the assets and liabilities acquired are as follows(dollars in millions):

| Current assets       |   | $    | 0.2    |   |
|----------------------|--------|------|--------|--------|
| Goodwill             |   | 6.8  |   |
| Current  liabilities |   | (0.2 | )      |
| Net assets  acquired |   | $    | 6.8    |   |

 

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**CCNE, L.L.C.**

On January 27, 2006, the Company acquired theoperating assets of CCNE, L.L.C., a Connecticut-based manufacturer of checkvalves for sale to the water and wastewater treatment markets, for$8.8 million in cash. 

Theestimated fair values of the assets and liabilities acquired are as follows(dollars in millions):

| Inventory            |   | $ 2.1 |   |
|----------------------|--------|------------|--------|
| Intangible assets    |   | 6.7        |   |
| Net assets  acquired |   | $ 8.8 |   |

 

The intangible assetsacquired represent purchased technology and are being amortized over anestimated useful life of 55 months. 

**Acquisition ofPredecessor Mueller by Walter Industries**

On October 3, 2005, pursuant to the agreementdated June 17, 2005, Walter acquired all of the outstanding common stockof Predecessor Mueller Water for $943.4 million and assumed $1.05 billion ofindebtedness. Predecessor Mueller Water was converted into a limited liabilitycompany on October 3, 2005 and was merged with and into our parent,Mueller Water, on February 2, 2006. Transaction costs included in theacquisition price were $14.8 million. In conjunction with the acquisition, U.S.Pipe was contributed in a series of transactions to the Company, a wholly-ownedsubsidiary of Mueller Water, 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 $932.9 million.

Walter’sacquisition of Predecessor Mueller Water has been accounted for as a businesscombination with U.S. Pipe considered the acquirer for accounting purposes.Assets acquired and liabilities assumed were recorded at their fair values asof October 3, 2005. The total purchase price of $932.9 million iscomprised of (dollars in millions):

| Acquisition of  the outstanding common stock of Predecessor Mueller Water |   | $ 918.1 |   |
|---------------------------------------------------------------------------|--------|--------------|--------|
| Acquisition-related  transaction costs                                    |   | 14.8         |   |
| Total purchase  price                                                     |   | $ 932.9 |   |

 

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

Underbusiness combination accounting, the purchase price was allocated toPredecessor Mueller Water’s net tangible and identifiable intangible assetsbased on their fair values as of October 3, 2005. The excess of thepurchase price over the net tangible and identifiable intangible assets wasrecorded as goodwill. Based on estimated fair values, the purchase price wasallocated as follows (dollars in millions):

| Receivables, net                 |   | $    177.4 |   |
|----------------------------------|--------|--------------------------------|--------|
| Inventory                        |   | 373.2                          |   |
| Property, plant  and equipment   |   | 215.7                          |   |
| Identifiable  intangible assets  |   | 855.9                          |   |
| Goodwill                         |   | 652.2                          |   |
| Net other assets                 |   | 444.1                          |   |
| Net deferred tax  liabilities    |   | (345.9                         | )      |
| Debt                             |   | (1,411.1                       | )      |
| Total purchase  price allocation |   | $    961.5 |   |

 

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The purchase price allocation is preliminary and issubject to future adjustments to goodwill for the execution of certainrestructuring plans identified by Walter prior to the acquisition dateprimarily related to Predecessor Mueller Group facility rationalizationactions. Costs related to these facility rationalization actions will be recordedto goodwill through October 3, 2006.

Receivables are short-term trade receivables and theirnet book value approximates current fair value.

Finished goods inventory is valued at estimatedselling price less cost of disposal and reasonable profit allowance for theselling effort. Work in process inventory is valued at estimated selling priceof finished goods less costs to complete, cost of disposal and a reasonableprofit allowance for the completing and selling effort. Raw materials arevalued at book value, which approximates current replacement cost. The carryingvalue of inventories include $70.2 million in excess of Predecessor Mueller’scarrying value, of which $11.8 million was charged to cost of sales during thethree months ended March 31, 2006 and $70.2 million was charged to cost ofsales during the six months ended March 31, 2006.

Property,plant and equipment are valued at the current replacement cost as follows (inmillions):

| ** **                           | ** ** | ** **   | ** ** | **Depreciation  Period** | ** ** |
|--------------------------------------|------------|--------------|------------|--------------------------|------------|
| Land                                 |       | $ 14.1  |       | Indefinite               |       |
| Buildings                            |       | 51.8         |       | 5 to  14 years           |       |
| Machinery and  equipment             |       | 136.6        |       | 3 to  5 years            |       |
| Other                                |       | 13.2         |       | 3  years                 |       |
| Total property,  plant and equipment |       | $ 215.7 |       |                     |       |

 

Identifiable intangible assets acquired consist oftrade name, trademark, technology and customer relationships and were valued attheir current fair value. Trade name and trademark relate to Mueller®, Anvil®, HerseyTM, Henry PrattTM and James JonesTM.Technology represents processes related to the design and development ofproducts. Customer relationships represent the recurring nature of sales tocurrent distributors, municipalities, contractors and other end customersregardless of their contractual nature.

Identifiableintangible assets were as follows (dollars in millions):

| ** **                            | ** ** | ** **   | ** ** | **Amortization  Period** | ** ** |
|---------------------------------------|------------|--------------|------------|--------------------------|------------|
| Trade name and  trademark             |       | $ 403.0 |       |                     | Indefinite |   |   |
| Technology                            |       | 56.3         |       |                     | 10  years  |   |   |
| Customer  relationships               |       | 396.6        |       |                     | 19  years  |   |   |
| Total  identifiable intangible assets |       | $ 855.9 |       |                     |       |   |   |

 

Goodwill represents the excess of the purchase priceover the fair value of tangible and identifiable intangible assets acquired.Goodwill is not amortized, but rather is tested for impairment at leastannually. In the event that the Company determines the book value of goodwillhas become impaired, the Company will incur an accounting charge for the amountof impairment during the fiscal quarter in which such determination is made. TheCompany’s goodwill is not tax deductible.

Net other assets include cash, prepaid expenses,deferred financing fees, accounts payable, accrued expenses and accrued pensionliability and were valued at their approximate current fair value. After thepurchase price allocation Predecessor Mueller Group paid a $444.5 milliondividend to Walter.

Net deferred tax liabilities include the tax effectsof fair value adjustments related to identifiable intangible assets and nettangible assets.

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Debt is valued at fair market value as of October 3,2005, which resulted in an $18.9 million fair value increase to the seniorsubordinated notes. 

The following table of unaudited pro forma results ofoperations of Predecessor Mueller Group and U.S. Pipe for the three and six monthsended March 31, 2005 is presented as if the Acquisition and borrowingsunder the 2005 Mueller Credit Agreement had taken place on October 1, 2004and were carried forward through March 31, 2005.

Theunaudited pro forma amounts are not intended to represent or be indicative ofthe consolidated results of operations that would have been reported had theAcquisition and borrowings under the 2005 Mueller Credit Agreement beencompleted as of the dates presented, and should not be taken as representativeof the future consolidated results of operations of the Company.

| ** **        | ** ** | **Three months  ended**        | ** **             | **Six months  ended**   | ** ** |
|-------------------|------------|-------------------------------------|------------------------|------------------------------|------------|
| ** **        | ** ** | **March 31, 2005**        | ** **             | **March 31, 2005** | ** ** |
| ** **        | ** ** | **(dollars in millions)** | ** **             |
| ** **        | ** ** | **(unaudited)**                     | ** **             |
| Net Sales         |       |                                | $ 409.9           |                         |       |   | $ 807.2 |   |   |
| Net income (loss) |       |                                | $   0.6 |                         |       |   | $ (11.5 | ) |   |

 

The pro forma amounts arebased on the historical results of operations and are adjusted for amortizationof definite-lived intangibles of $5.9 million and $11.8 million for the threeand six months ended March 31, 2005, respectively; depreciation of property,plant and equipment of ($0.2) million and ($0.4) million for the three and sixmonths ended March 31, 2005, respectively; interest expense of $6.2million and $12.9 million for the three and six months ended March 31,2005, respectively; and amortization of financing fees related to the 2005Mueller Credit Agreement of ($0.1) million and $2.4 million for the three andsix months ended March 31, 2005, respectively.

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

On January 26, 2006, the Company announced theclosure of the Henry Pratt (“Pratt”) valve manufacturing facility in Dixon,Illinois, which is included in the Company’s Mueller segment. The eventualclosure of the facility is expected to occur by the end of the fiscal year2006, resulting in the termination of approximately 100 employees. Totalestimated costs related to this closure are $2.2 million, of which $1.4million, consisting of termination benefits, is expected to be recorded as anadjustment to goodwill. The remaining other costs include costs to transfer andinstall equipment and temporary outsourcing of manufacturing and will beexpensed when incurred. During the quarter ended March 31, 2006, $0.3million of termination benefits was recorded as an adjustment to goodwill. Therestructuring costs are recorded to goodwill as the overall plan to close thefacility was approved prior to the Acquisition. 

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’s Chattanooga, Tennessee andAlbertville, Alabama plants. The eventual closure of the U.S. Pipe Chattanoogaplant is expected to occur in calendar 2006, resulting in the termination ofapproximately 340 employees. Total exit costs are expected to approximate $47.6million of which approximately $29.3 million qualify as restructuring andimpairment charges. The remaining exit costs of $18.3 million were comprised ofan inventory write-down totaling $10.7 million and a $7.6 million write-off ofunabsorbed overhead costs, of which $2.4 million and $18.3 million wererecognized in cost of sales during the three months and six months ended March 31,2006, respectively.

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Totalestimated restructuring and impairment charges and the amounts recorded torestructuring expenses are as follows (in millions):

| ** **                                   | ** ** | ** **                                     | ** **  | **Restructuring & impairment  charges expensed**      | ** ** |
|----------------------------------------------|------------|------------------------------------------------|-------------|--------------------------------------------------------------------------|------------|
| ** **                                   | ** ** | **Total estimated  restructuring  costs** | ** **  | **For the three  months ended  March 31, 2006** | ** ** | **For the six  months ended  March 31, 2006** | ** ** |
| ** **                                   | ** ** | **(dollars in millions)**            | ** **  |
| Termination benefits                         |       |                                           | $ 3.6  |                                                                     |       |   | $ 0.4 |   |   |   | $ 3.4 |   |   |
| Other employee-related  costs                |       |                                           | 3.3         |                                                                     |       |   | 3.9 |   |   |   | 3.9 |   |   |
| Other associated costs                       |       |                                           | 3.4         |                                                                     |       |   | — |   |   |   | 2.1 |   |   |
| Impairment of property,  plant and equipment |       |                                           | 19.0        |                                                                     |       |   | — |   |   |   | 19.0 |   |   |
| Total                                        |       |                                           | $ 29.3 |                                                                     |       |   | $ 4.3 |   |   |   | $ 28.4 |   |   |

 

Termination benefits relating to the U.S. PipeChattanooga plant closure of $3.4 million consist primarily of severancerelated to staff reductions of hourly and salaried personnel. The Companyexpects to recognize an additional $0.2 million for severance expense duringthe remainder of fiscal 2006. In addition, the Company recognized otheremployee-related costs of approximately $3.9 million related to pension andother postretirement benefit obligations during the three months ended March 31,2006. The Company expects to record reductions to these costs of $0.6 millionrelated to pension and other postretirement benefit obligations during theremainder of 2006.

Other associated costs of $2.1 million principallyinclude an increase to the estimated asset retirement obligation. The Companyexpects to recognize an additional $1.3 million of environmental-related costs,as those costs are incurred during fiscal 2006.

Property impairment charges of $19.0 million wererecorded during the three months ended December 31, 2005. These assetshave a remaining net book value of $3.9 million as of March 31, 2006.

Activityin accrued restructuring was as follows (dollars in millions):

| ** **                          | ** ** | **For the three   months ended   March 31, 2006** | ** ** | **For the six  months ended  March 31, 2006** | ** ** |
|-------------------------------------|------------|--------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| Beginning balance                   |       |                                                                                 | $ 3.8 |                                                                   |       |   | $  — |   |   |
| Restructuring expenses  accrued     |       |                                                                                 | 4.3        |                                                                   |       |   | 9.4 |   |   |
| Restructuring payments  and charges |       |                                                                                 | (4.5       | )                                                                      |       |   | (5.8 | ) |   |
| Ending balance                      |       |                                                                                 | $ 3.6 |                                                                   |       |   | $ 3.6 |   |   |

 

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**Note 5.**   BorrowingArrangements

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

| ** **                       | ** ** | **March 31,  2006**            | ** **     | **September 30,  2005** | ** ** |
|----------------------------------|------------|-------------------------------------|----------------|------------------------------|------------|
| ** **                       | ** ** | **(dollars in millions)** | ** **     |
| 2005 Mueller Credit Agreement    |       |                                | $ 1,044.8 |                         |       |   | $ — |   |   |
| 10% senior subordinated notes(1) |       |                                | 332.4          |                         |       |   | — |   |   |
| Capital lease obligations        |       |                                | 2.3            |                         |       |   | — |   |   |
|                             |       |                                | 1,379.5        |                         |       |   | — |   |   |
| Less current portion             |       |                                | (11.5          | )                            |       |   | — |   |   |
|                             |       |                                | $ 1,368.0 |                         |       |   | $ — |   |   |

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*(1)**         **The value of the 10% seniorsubordinated notes were recorded at fair value at October 3, 2005 whichwas an increase of $18.9 million over Predecessor Mueller. This amount isamortized over the life of the notes as a reduction to interest expense. As of March 31,2006, the unamortized fair value adjustment was $17.4 million.*

*2005Mueller Credit Agreement:**  *OnOctober 3, 2005, the Company entered into a credit agreement (the “2005Mueller Credit Agreement”) consisting of a $145 million senior securedrevolving credit facility maturing in October 2010 (the “2005 MuellerRevolving Credit Facility”) and a $1,050 million senior secured term loanmaturing in October 2012 (the “2005 Mueller Term Loan”). The 2005 MuellerCredit Agreement is a secured obligation of the Company and substantially allof its wholly-owned domestic subsidiaries, including U.S. Pipe. The 2005Mueller Term Loan requires quarterly principal payments of $2.6 million throughOctober 3, 2012, at which point in time the remaining principaloutstanding is due. The commitment fee on the unused portion of the 2005Mueller Revolving Credit Facility is 0.50% and the interest rate is a floatinginterest rate of 2.5% over LIBOR. The 2005 Mueller Term Loan carries a floatinginterest rate of 2.25% over LIBOR. As of March 31, 2006, the averageinterest rate was 7.0%.

Proceeds from the 2005 Mueller Credit Agreement were$1,053.4 million, net of $21.6 million of underwriting fees and expenses whichwill be amortized over the life of the loans. The proceeds were used to financethe acquisition of our parent, Predecessor Mueller Water, by Walter and torefinance existing indebtedness.

The 2005 Mueller Credit Agreement contains customaryevents of default and covenants, including covenants that restrict the abilityof the Company and certain of its subsidiaries to incur certain additionalindebtedness, pay dividends, create or permit liens on assets, engage inmergers or consolidations, and certain restrictive financial covenants.

An amendment to the 2005 Mueller Credit Agreement madein January 2006 provides that in the event of an initial public offering,the Company may pay annual dividends of up to $8.5 million to Mueller Water topay its common shareholders.

*10%Senior Subordinated Notes:*   In 2004, the Company issued $315 million principalface amount of 10% senior subordinated notes due 2012. The senior subordinatednotes are guaranteed by each of the Company’s existing domesticrestricted subsidiaries. The subordinated notes contain customary covenants andevents of default, including covenants that limit the Company’s ability toincur debt, pay dividends and make investments. The effective interest rate was7.3% as of March 31, 2006.

*Capital Leases—**The*Company leases automobiles under capital leasearrangements that expire over the next four years.

**InterestRate Swaps****—These**hedges are described inNote 6 and comply with covenants contained in the 2005 Mueller CreditAgreement.

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**Distributions to MuellerWater****—Mueller Water**has no materialassets other than its ownership of the Company’s capital stock and accordinglydepends upon distributions from the Company to satisfy its cash needs. MuellerWater’s principal cash needs will be debt service on its senior discount notesdue 2014. These senior discount notes do not require cash interest paymentsuntil 2009 and contain restrictive covenants that will, among other things,limit the ability of Mueller Water and its subsidiaries (including the Company)to incur debt, pay dividends and make investments. Neither the Company nor anyof its subsidiaries guarantee these notes. Mueller Water, however, is a holdingcompany and its ability to pay interest on the notes will be dependent upon thereceipt of dividends from its subsidiaries. The Company is Mueller Water’s onlydirect subsidiary. However, the terms of the Company’s borrowing arrangementssignificantly restrict its ability to pay dividends to Mueller Water.

**Note 6.**   DerivativeFinancial Instruments

*InterestRate Swaps**—On*October 27, 2005, theCompany entered into six interest rate hedge transactions with a cumulativenotional amount of $350 million. The swap terms are between one and seven yearswith five separate counter-parties. The objective of the hedges is to protectthe Company against rising LIBOR interest rates that would have a negativeeffect on the Company’s cash flows due to changes in interest payments on its2005 Mueller Term Loan. The structure of the hedges are a one-year 4.617% LIBORswap of $25 million, a three-year 4.740% LIBOR swap of $50 million, a four-year4.800% LIBOR swap of $50 million, a five-year 4.814% LIBOR swap of $100million, a six-year 4.915% LIBOR swap of $50 million, and a seven year 4.960%LIBOR swap of $75 million. These swap agreements call for the Company to makefixed rate payments over the term at each swap’s stated fixed rate and toreceive payments based on three month LIBOR from the counter-parties. Theseswaps will be settled quarterly over their lives and will be accounted for ascash flow hedges. As such, changes in the fair value of these swaps that takeplace through the date of maturity will be recorded in Accumulated OtherComprehensive Income (Loss). These hedges comply with covenants contained inthe 2005 Mueller Credit Agreement.

The Company also has two interest rate hedgeagreements that existed as of October 3, 2005: a two-year 3.928% LIBORswap that matures in May 2007 and a two-year 4.249% LIBOR swap thatmatures in April 2007. The changes in fair value of these two swaps wererecorded as interest expense in the Statements of Operations until achievinghedge effectiveness in October 2005 and November 2005, respectively,at which times such changes in fair value were recorded in Accumulated OtherComprehensive Income (Loss).

The Company recorded an unrealized gain from itsinterest rate swap contracts, net of tax, of $2.6 million at March 31, 2006in Accumulated Other Comprehensive Income (Loss).

*ForwardForeign Currency Exchange Contracts—**The*Company enteredinto forward exchange contracts primarily to hedge currency fluctuations fromtransactions (primarily an intercompany loan and anticipated inventorypurchases) denominated in foreign currencies, thereby limiting the risk thatwould otherwise result from changes in foreign currency exchange rates. Themajority of the Company’s exposure to currency fluctuations is in Canada. Gainsand losses on the forward foreign currency exchange contracts are expected tobe offset by losses / gains on identified underlying foreign currency exchangetransactions. As of March 31, 2006, the Company had entered into forwardforeign currency exchange contracts at a notional amount of $7.4 million toprotect anticipated inventory purchases over the next six months by itsCanadian operations. With these hedges, the Company purchases U.S. dollars andsells Canadian dollars at an average exchange rate of $0.870.

16

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The Company has also entered into hedges protecting the Companyfrom currency fluctuations from its Canadian-denominated intercompany loan. Thehedges have a notional value of $37.3 million and mature over the next threeyears. With these hedges, the Company sells Canadian dollars for U.S. dollarsat an exchange rate of $0.8681. Gains or losses on these hedges will berecorded in earnings. The loss on the hedges at March 31, 2006 was notmaterial.

**Note 7.**   InterestExpense Arising from Related Party Payable to Walter Industries

Interest expenseassociated with the outstanding debt payable to Walter was allocated to theCompany up to the date of the Acquisition based upon the outstanding balance ofthe intercompany note. On October 3, 2005, the intercompany note to Walterof $443.6 million was forgiven and contributed to capital. Intercompanyinterest expense was zero and $5.1 million for the three months ended March 31,2006 and 2005, respectively, and was zero and $11.0 million for the six monthsended March 31, 2006 and 2005, respectively.

**Note 8.**   Pensionand Other Postretirement Benefits

Thecomponents of net periodic benefit cost for pension and postretirement benefitsfor the three and six months ended March 31, 2006 and 2005 are as follows:

| ** **                                            | ** ** | **Pension Benefits**                                          | ** ** | **Other Benefits**                                            | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                            | ** ** | **For the three months  ended March 31,** | ** ** | **For the three months  ended March 31,** | ** ** |
| ** **                                            | ** ** | **    2006    **           | ** ** | **    2005    **           | ** ** | **    2006    ** | ** ** | **    2005    ** | ** ** |
| ** **                                            | ** ** | **(dollars in millions)**                                | ** ** |
| Components of net  periodic benefit cost:             |       |                                                               |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Service cost                                          |       |                                                               | $          | 1.9                                                                |       |   |   | $ | 1.3 |   |   |   | $ | 0.2 |   |   |   | $ | 0.1 |   |   |
| Interest cost                                         |       |                                                               | 4.7        |                                                               |       |   | 3.1 |   |   |   | 0.3 |   |   |   | 0.3 |   |   |
| Expected return on plan assets                        |       |                                                               | (4.9       | )                                                                  |       |   | (3.5 | ) |   |   | — |   |   |   | — |   |   |
| Amortization of prior service cost                    |       |                                                               | 0.2        |                                                               |       |   | 0.1 |   |   |   | (0.6 | ) |   |   | (0.6 | ) |   |
| Amortization of net loss (gain)                       |       |                                                               | 1.8        |                                                               |       |   | 0.8 |   |   |   | (0.2 | ) |   |   | (0.2 | ) |   |
| Curtailment and termination benefits loss (gain) |       |                                                               | 4.9        |                                                               |       |   | — |   |   |   | (1.1 | ) |   |   | — |   |   |
| Net periodic  benefit cost                            |       |                                                               | $          | 8.6                                                                |       |   |   | $ | 1.8 |   |   |   | $ | (1.4 | ) |   |   | $ | (0.4 | ) |   |

 

| ** **                                            | ** ** | **Pension Benefits**                                        | ** ** | **Other Benefits**                                          | ** ** |
|-------------------------------------------------------|------------|------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                            | ** ** | **For the six months  ended March 31,** | ** ** | **For the six months  ended March 31,** | ** ** |
| ** **                                            | ** ** | **    2006    **         | ** ** | **    2005    **         | ** ** | **    2006    ** | ** ** | **    2005    ** | ** ** |
| ** **                                            | ** ** | **(dollars in millions)**                              | ** ** |
| Components of net  periodic benefit cost:             |       |                                                             |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Service cost                                          |       |                                                             | $          | 3.9                                                              |       |   |   | $ | 2.4 |   |   |   | $ | 0.4 |   |   |   | $ | 0.2 |   |   |
| Interest cost                                         |       |                                                             | 9.4        |                                                             |       |   | 6.3 |   |   |   | 0.6 |   |   |   | 0.7 |   |   |
| Expected return on plan assets                        |       |                                                             | (9.8       | )                                                                |       |   | (6.6 | ) |   |   | — |   |   |   | — |   |   |
| Amortization of prior service cost                    |       |                                                             | 0.3        |                                                             |       |   | 0.2 |   |   |   | (1.2 | ) |   |   | (1.3 | ) |   |
| Amortization of net loss (gain)                       |       |                                                             | 3.7        |                                                             |       |   | 1.6 |   |   |   | (0.4 | ) |   |   | (0.4 | ) |   |
| Curtailment and termination benefits loss (gain) |       |                                                             | 4.9        |                                                             |       |   | — |   |   |   | (1.1 | ) |   |   | 0.3 |   |   |
| Net periodic  benefit cost                            |       |                                                             | $          | 12.4                                                             |       |   |   | $ | 3.9 |   |   |   | $ | (1.7 | ) |   |   | $ | (0.5 | ) |   |

 

The curtailment and termination benefits loss (gain)shown in the schedule above are related to the closure of the U.S. PipeChattanooga, Tennessee plant as described in Note 4. These components of net 

17

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periodic benefit cost forpension and postretirement plans were charged to restructuring expense in thestatement of operations.

For the the three monthsand six months ended March 31, 2006, the Company had no contributions toits pension plans. The Company anticipates contributing approximately$5.3 million to fund its pension plans in fiscal 2006 and may make furtherdiscretionary payments.

**Note 9.**   Goodwilland Identifiable Intangibles

Goodwill and intangible assets that have an indefinitelife are not amortized, but instead are tested for impairment annually (or morefrequently if events or circumstances indicate possible impairments) using botha discounted cash flow method and a market comparable method. Definite-livedintangible assets are amortized over their respective estimated useful livesand reviewed for impairment if events or circumstances indicate possibleimpairment. The Company uses an estimate of future undiscounted net cash flowsof the related asset or asset grouping over the remaining life in measuringwhether the assets are recoverable.

Identifiableintangible assets consist of the following:

| ** **                              | ** ** | **March 31, 2006**        | ** ** |
|-----------------------------------------|------------|-------------------------------------|------------|
| ** **                              | ** ** | **Cost**                            | ** ** | **Accumulated  Amortization** | ** ** |
| ** **                              | ** ** | **(dollars in millions)** | ** ** |
| **Definite-lived intangible  assets**   | ** ** | ** **                          | ** ** |   | ** ** | ** ** |   |
| Technology                              |       | $                                   | 63.0       |   |   | $ | 3.2 | ** ** |   |
| Customer  relationships                 |       | 396.6                               |       |   | 10.4 | ** ** |   |
|                                    |       | 459.6                               |       |   | 13.6 | ** ** |   |
| **Indefinite lived intangible  assets** | ** ** | ** **                          | ** ** |   | ** ** | ** ** |   |
| Trade name and  trademarks              |       | 403.0                               |       |   | — | ** ** |   |
|                                    |       | $                                   | 862.6      |   |   | $ | 13.6 | ** ** |   |

 

Identifiable intangible assets, net, were $849.0million at March 31, 2006, compared to zero at September 30, 2005. Theincrease primarily represents the allocation of purchase price of theAcquisition of $855.9 million as of October 3, 2005. During the threemonths ended March 31, 2006, there was an addition of $6.7 million oftechnology intangibles related to the acquisition of CCNE, L.L.C. in January 2006.Amortization expense was $7.0 million and $13.6 million for the three and sixmonths ended March 31, 2006, respectively.

Goodwill was $717.3million at March 31, 2006, compared to $58.4 million at September 30,2005. The increase of $658.9 million primarily represents $660.1 million ofgoodwill identified during the allocation of the purchase price of theAcquisition, as well as the following adjustments recorded during the threemonths ended March 31, 2006: a $6.8 million increase related to the January 20006acquisition of Hunt Industries; a $0.6 million increase related to the executionof certain restructuring plans identified by Walter prior to the Acquisitiondate; a $2.4 million increase related to deferred taxes on the foreign currencytransaction gain on partial repayment of the foreign-denominated intercompanyloan that existed at the Acquisition date; a $0.5 million decrease related toadjustments to the property valuations recorded as part of the purchase priceallocation; and a $10.5 million decrease due to the settlement of the finalworking capital and cash adjustments to the purchase price. Goodwill isexpected to increase as the Company implements facility rationalizations thatwere formally identified prior to the Acquisition up to, and no later than, October 3,2006. Certain facility rationalization costs, primarily related to severance,will be recorded as a liability at the time identified as permitted underaccounting principles generally accepted in the United States of America, witha corresponding increase in goodwill. All closure costs related to the 

18

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shut-downof the U.S. Pipe Chattanooga facility (as described in Note 4) have beencharged to operating expenses and are not reflected as a component of goodwill.

**Note 10.**   SupplementaryBalance Sheet Information

Selectedsupplementary balance sheet information is presented below:

| ** **                                  | ** ** | **March 31,  2006**            | ** ** | **September 30,  2005** | ** ** |
|---------------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                                  | ** ** | **(dollars in millions)** | ** ** |
| **Inventories**                             | ** ** |                                | ** ** | ** **                   |       |   | ** ** | ** ** |   |
| Purchased  materials and manufactured parts |       |                                | $          | 77.6                         | ** ** |   |   | $ | 30.6 | ** ** |   |
| Work in process                             |       |                                | 114.2      | ** **                   |       |   | 15.5 | ** ** |   |
| Finished goods                              |       |                                | 268.5      | ** **                   |       |   | 101.1 | ** ** |   |
|                                        |       |                                | $          | 460.3                        | ** ** |   |   | $ | 147.2 | ** ** |   |

 

| ** **                         | ** ** | **March 31,  2006**            | ** ** | **September 30,  2005** | ** ** |
|------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                         | ** ** | **(dollars in millions)** | ** ** |
| **Property,  plant and equipment** | ** ** |                                | ** ** | ** **                   |       |   | ** ** | ** ** |   |
| Land                               |       |                                | $          | 25.6                         |       |   |   | $ | 11.3 |   |   |
| Buildings                          |       |                                | 88.4       |                         |       |   | 33.8 |   |   |
| Machinery and  equipment           |       |                                | 529.5      |                         |       |   | 401.7 |   |   |
| Other                              |       |                                | 31.0       |                         |       |   | 16.2 |   |   |
| Accumulated  depreciation          |       |                                | (333.8     | )                            |       |   | (313.8 | ) |   |
|                               |       |                                | $          | 340.7                        |       |   |   | $ | 149.2 |   |   |

 

| ** **                                              | ** ** | **March 31,  2006**            | ** ** | **September 30,  2005** | ** ** |
|---------------------------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                                              | ** ** | **(dollars in millions)** | ** ** |
| **Accrued  expenses and other liabilities**             | ** ** |                                | ** ** | ** **                   |       |   | ** ** | ** ** |   |
| Vacations and  holidays                                 |       |                                | $          | 14.3                         |       |   |   | $ | 4.5 | ** ** |   |
| Workers’  compensation and comprehensive liability |       |                                | 6.1        |                         |       |   | 2.9 | ** ** |   |
| Accrued payroll  and bonus                              |       |                                | 13.3       |                         |       |   | 3.9 | ** ** |   |
| Accrued sales  commissions                              |       |                                | 3.7        |                         |       |   | 1.0 | ** ** |   |
| Accrued other  taxes                                    |       |                                | 7.3        |                         |       |   | 2.1 | ** ** |   |
| Accrued warranty  claims                                |       |                                | 4.4        |                         |       |   | 4.7 | ** ** |   |
| Accrued  environmental claims                           |       |                                | 4.2        |                         |       |   | 4.0 | ** ** |   |
| Accrued income  taxes                                   |       |                                | (2.9       | )                            |       |   | 5.5 | ** ** |   |
| Accrued cash  discounts and rebates                     |       |                                | 11.8       |                         |       |   | 4.8 | ** ** |   |
| Accrued interest                                        |       |                                | 21.0       |                         |       |   | — | ** ** |   |
| Other                                                   |       |                                | 20.6       |                         |       |   | 1.3 | ** ** |   |
|                                                    |       |                                | $          | 103.8                        |       |   |   | $ | 34.7 | ** ** |   |

 

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**Note 11.**   SupplementaryIncome Statement Information

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

| ** **                                      | ** ** | **Three months ended**    | ** ** | **Six months ended** | ** ** |
|-------------------------------------------------|------------|-------------------------------------|------------|--------------------------------|------------|
| ** **                                      | ** ** | **March 31,  2006**            | ** ** | **March 31,  2005**       | ** ** | **March 31,  2006** | ** ** | **March 31,  2005** | ** ** |
| ** **                                      | ** ** | **(dollars in millions)** | ** ** |
| **Interest expense, net of  interest income:**  | ** ** |                                | ** ** | ** **                     |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Interest expense                                |       |                                | $          | 25.4                           |       |   |   | $ | 0.2 | ** ** |   |   | $ | 50.6 |   |   |   | $ | 0.3 | ** ** |   |
| Deferred financing fee amortization             |       |                                | 1.1        |                           |       |   | — | ** ** |   |   | 2.2 |   |   |   | — | ** ** |   |
| Write off of bridge loan commitment fees        |       |                                | —     |                           |       |   | — | ** ** |   |   | 2.5 |   |   |   | — | ** ** |   |
| Interest rate swap gains                        |       |                                | (0.1       | )                              |       |   | — | ** ** |   |   | (0.5 | ) |   |   | — | ** ** |   |
| Total interest expense                          |       |                                | 26.4       |                           |       |   | 0.2 | ** ** |   |   | 54.8 |   |   |   | 0.3 | ** ** |   |
| Interest income                                 |       |                                | (0.5       | )                              |       |   | — | ** ** |   |   | (0.8 | ) |   |   | — | ** ** |   |
| Total interest expense,  net of interest income |       |                                | $          | 25.9                           |       |   |   | $ | 0.2 | ** ** |   |   | $ | 54.0 |   |   |   | $ | 0.3 | ** ** |   |

 

The bridge loan commitmentfees represent fees paid to lenders to make available to the Company a bridgeloan commitment to repurchase the 10% senior subordinated notes from theholders of such notes under the terms of the change of control provisions ofthe indentures. No notes were tendered under the offer and the bridge loan wasnot used. The related commitment fees were charged to interest expense duringthe three months ended December 31, 2005.

**Note 12.**   SegmentInformation

Prior to the Acquisition on October 3, 2005, theCompany had one segment—U.S. Pipe. As of March 31, 2005, the Company’soperations consisted of three operating segments: Mueller, U.S. Pipe and Anvil.These segments are organized based on products and are consistent with how theoperating segments are managed, how resources are allocated, and howinformation is used by the chief operating decision maker. The Mueller segmentis a manufacturer of valves, fire hydrants and other related products utilizedin the distribution of water and gas and in water and wastewater treatmentfacilities. The U.S. Pipe segment is a manufacturer of ductile iron pressurepipe, fittings and other cast iron products used primarily for major water andwastewater transmission and collection systems. The Anvil segment is amanufacturer of cast iron and malleable iron pipe fittings, ductile ironcouplings and fittings, pipe hangers and other related products for the fireprotection, plumbing, heating, mechanical, construction, retail hardware andother related industries. The accounting policies of the segments are the sameas those described in the summary of significant accounting policies.

Intersegment sales and transfers are made atestablished intersegment selling prices generally intended to cover costs. Thedetermination of segment earnings does not reflect allocations of certaincorporate expenses not directly attributable to segment operations andintersegment eliminations, which is designated as Corporate in the segmentpresentation, and is before interest expense, net of interest income, andincome taxes. Corporate expenses include those costs incurred by Mueller’scorporate function and do not include any allocated costs from Walter. Costsallocated by Walter to the Company are recorded in the determination of U.S.Pipe’s operating income. Corporate costs include those costs related tofinancial and administrative matters, treasury, risk management, humanresources, legal counsel, and tax functions. Corporate assets include cash,deferred tax assets and deferred financing fees. These assets have not beenpushed down to the Company’s segments and are maintained as Corporate items.Therefore, segment earnings are not reflective of results on a stand-alonebasis. See also Note 2 regarding 

20

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Related Party Allocationsfrom Walter which are recorded solely by U.S. Pipe and are reflected in theCompany’s consolidated SG&A expenses.

Segmentassets consist primarily of accounts receivable, inventories, property, plantand equipment,

| ** **                                                           | ** ** | **Three months ended March 31,**                                                     | ** ** | **Six months ended March 31,**                                                       | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|
| ** **                                                           | ** ** | **        2006        ** | ** ** | **        2005        ** | ** ** | **       2006       ** | ** ** | **       2005       ** | ** ** |
| ** **                                                           | ** ** | **(dollars in millions)**                                                                      | ** ** |
| **Net  sales:**                                                      |       |                                                                                                     |       |                                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                              |       |                                                                                                     | $          | 193.3                                                                                                    |       |   |   | $ | — |   |   |   | $ | 373.5 |   |   |   | $ | — |   |   |
| U.S. Pipe                                                            |       |                                                                                                     | 119.7      |                                                                                                     |       |   | 124.7 |   |   |   | 290.8 |   |   |   | 265.9 |   |   |
| Anvil                                                                |       |                                                                                                     | 127.4      |                                                                                                     |       |   | — |   |   |   | 260.2 |   |   |   | — |   |   |
| Consolidating eliminations                                           |       |                                                                                                     | (5.5       | )                                                                                                        |       |   | — |   |   |   | (9.2 | ) |   |   | — |   |   |
| Consolidated                                                         |       |                                                                                                     | $          | 434.9                                                                                                    |       |   |   | $ | 124.7 |   |   |   | $ | 915.3 |   |   |   | $ | 265.9 |   |   |
| **Income (loss) from operations:**                                   |       |                                                                                                     |       |                                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                              |       |                                                                                                     | $          | 39.2                                                                                                     |       |   |   | $ | — |   |   |   | $ | 35.4 |   |   |   | $ | — |   |   |
| U.S. Pipe                                                            |       |                                                                                                     | (7.2       | )                                                                                                        |       |   | 3.7 |   |   |   | (35.0 | ) |   |   | 1.3 |   |   |
| Anvil                                                                |       |                                                                                                     | 5.0        |                                                                                                     |       |   | — |   |   |   | 3.5 |   |   |   | — |   |   |
| Corporate expense(1)                                                 |       |                                                                                                     | (8.9       | )                                                                                                        |       |   | — |   |   |   | (15.3 | ) |   |   | — |   |   |
| Consolidating eliminations                                           |       |                                                                                                     | (0.6       | )                                                                                                        |       |   | — |   |   |   | (0.6 | ) |   |   | — |   |   |
| Consolidated                                                         |       |                                                                                                     | $          | 27.5                                                                                                     |       |   |   | $ | 3.7 |   |   |   | $ | (12.0 | ) |   |   | $ | 1.3 |   |   |
| **Depreciation and amortization:**                                   |       |                                                                                                     |       |                                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                              |       |                                                                                                     | $          | 12.9                                                                                                     |       |   |   | $ | — |   |   |   | $ | 24.9 |   |   |   | $ | — |   |   |
| U.S. Pipe                                                            |       |                                                                                                     | 5.3        |                                                                                                     |       |   | 6.6 |   |   |   | 11.6 |   |   |   | 13.1 |   |   |
| Anvil                                                                |       |                                                                                                     | 5.9        |                                                                                                     |       |   | — |   |   |   | 11.3 |   |   |   | — |   |   |
| Corporate                                                            |       |                                                                                                     | 0.1        |                                                                                                     |       |   | — |   |   |   | 0.2 |   |   |   | — |   |   |
| Consolidated                                                         |       |                                                                                                     | $          | 24.2                                                                                                     |       |   |   | $ | 6.6 |   |   |   | $ | 48.0 |   |   |   | $ | 13.1 |   |   |
| **Facility rationalization, restructuring and  related costs:** |       |                                                                                                     |       |                                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                              |       |                                                                                                     | $          | —                                                                                                   |       |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| U.S. Pipe                                                            |       |                                                                                                     | 4.3        |                                                                                                     |       |   | — |   |   |   | 28.4 |   |   |   | — |   |   |
| Anvil                                                                |       |                                                                                                     | —     |                                                                                                     |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Consolidated                                                         |       |                                                                                                     | $          | 4.3                                                                                                      |       |   |   | $ | — |   |   |   | $ | 28.4 |   |   |   | $ | — |   |   |
| **Capital expenditures:**                                            |       |                                                                                                     |       |                                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                              |       |                                                                                                     | $          | 8.4                                                                                                      |       |   |   | $ | — |   |   |   | $ | 14.4 |   |   |   | $ | — |   |   |
| U.S. Pipe                                                            |       |                                                                                                     | 3.1        |                                                                                                     |       |   | 3.3 |   |   |   | 10.5 |   |   |   | 11.2 |   |   |
| Anvil                                                                |       |                                                                                                     | 3.4        |                                                                                                     |       |   | — |   |   |   | 5.9 |   |   |   | — |   |   |
| Corporate                                                            |       |                                                                                                     | —     |                                                                                                     |       |   | — |   |   |   | 0.1 |   |   |   | — |   |   |
| Consolidated                                                         |       |                                                                                                     | $          | 14.9                                                                                                     |       |   |   | $ | 3.3 |   |   |   | $ | 30.9 |   |   |   | $ | 11.2 |   |   |

----

(1)          Includescertain expenses not allocated to segments.

21

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| ** **                 | ** ** | **March 31,  2006**            | ** ** | **September 30,  2005** | ** ** |
|----------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                 | ** ** | **(dollars in millions)** | ** ** |
| Total assets:              |       |                                |       |                         |       |   |   |   |   |
| Mueller                    |       |                                | $          | 1,773.8                      |       |   |   | $ | — |   |   |
| U.S. Pipe                  |       |                                | 401.2      |                         |       |   | 495.4 |   |   |
| Anvil                      |       |                                | 475.3      |                         |       |   | — |   |   |
| Corporate                  |       |                                | 171.4      |                         |       |   | — |   |   |
| Consolidated               |       |                                | $          | 2,821.7                      |       |   |   | $ | 495.4 |   |   |
| Goodwill:                  |       |                                |       |                         |       |   |   |   |   |
| Mueller                    |       |                                | $          | 589.5                        |       |   |   | $ | — |   |   |
| U.S. Pipe                  |       |                                | 58.4       |                         |       |   | 58.4 |   |   |
| Anvil                      |       |                                | 69.4       |                         |       |   | — |   |   |
| Consolidated               |       |                                | $          | 717.3                        |       |   |   | $ | 58.4 |   |   |
| Identifiable  intangibles: |       |                                |       |                         |       |   |   |   |   |
| Mueller                    |       |                                | $          | 760.0                        |       |   |   | $ | — |   |   |
| U.S. Pipe                  |       |                                | —     |                         |       |   | — |   |   |
| Anvil                      |       |                                | 89.0       |                         |       |   | — |   |   |
| Consolidated               |       |                                | $          | 849.0                        |       |   |   | $ | — |   |   |

 

Geographicalarea information with respect to net sales, as determined by the location ofthe customer invoiced, and property, plant and equipment—net, as determined bythe physical location of the assets, were as follows:

| ** **      | ** ** | **Three months  ended  March 31, 2006** | ** ** | **Three months  ended  March 31, 2005** | ** ** | **Six months  ended  March 31, 2006** | ** ** | **Six months  ended  March 31, 2005** | ** ** |
|-----------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **      | ** ** | **(dollars in millions)**                    | ** ** |
| Net sales:      |       |                                                   |       |                                                   |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| United States   |       |                                                   | $          | 388.2                                                  |       |                                                 |       | $                                                    | 121.1      |   |   |   | $ | 818.3 |   |   |   | $ | 258.8 |   |   |
| Canada          |       |                                                   | 45.8       |                                                   |       |                                                 | —     |                                                 |       |   | 93.9 |   |   |   | — |   |   |
| Other Countries |       |                                                   | 0.9        |                                                   |       |                                                 | 3.6        |                                                 |       |   | 3.1 |   |   |   | 7.1 |   |   |
|            |       |                                                   | $          | 434.9                                                  |       |                                                 |       | $                                                    | 124.7      |   |   |   | $ | 915.3 |   |   |   | $ | 265.9 |   |   |

 

| ** **                          | ** ** | **March 31,  2006**            | ** ** | **September 30,  2005** | ** ** |
|-------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                          | ** ** | **(dollars in millions)** | ** ** |
| Property, plant and equipment, net: |       |                                |       |                         |       |   |   |   |   |
| United States                       |       |                                | $          | 319.3                        |       |   |   | $ | 149.2 |   |   |
| Canada                              |       |                                | 19.9       |                         |       |   | — |   |   |
| Other Countries                     |       |                                | 1.5        |                         |       |   | — |   |   |
|                                |       |                                | $          | 340.7                        |       |   |   | $ | 149.2 |   |   |

 

**Note 13.**   Commitmentsand Contingencies

**Income TaxLitigation**

A controversy 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 IRS is approximately $34.0 million for issues currently in disputein bankruptcy court for matters unrelated to the Company. This amount issubject to interest and penalties. In addition, the Internal Revenue Servicehas issued 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. The proposed adjustments relate primarily toWalter’s method of 

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recognizingrevenue on the sale of homes and interest income on the related installmentnotes receivable. Under tax law, the Company is jointly and severally liablefor any final tax determination. However, Walter and its affiliates believethat their tax filing positions have substantial merit and intend to defendvigorously any claims asserted. Walter believes that it has an accrualsufficient to cover the estimated probable loss, including interest andpenalties. There are no charges or accruals in the Company’s accounts relatedto these issues since these matters do not relate to the operations of theCompany.

**EnvironmentalMatters**

The Company is subject toa wide variety of laws and regulations concerning the protection of theenvironment, both with respect to the construction and operation of many of itsplants and with respect to remediating environmental conditions that may existat its own and other properties. The Company believes that it is in substantialcompliance with federal, state and local environmental laws and regulations.The Company accrues for environmental expenses resulting from existingconditions that relate to past operations when the costs are probable andreasonably estimable. Expensescharged to the statement of operations for compliance of ongoing operations andfor remediation of environmental conditions arising from past operations wereapproximately $0.6 million and $0.2 million in the three months ended March 31,2006 and 2005, respectively, and were approximately $1.1 million and $0.3million in the six months ended March 31, 2006 and 2005, respectively.Because environmental laws and regulations continue to evolve and becauseconditions giving rise to obligations and liabilities under environmental lawsare in some circumstances not readily identifiable, it is difficult to forecastthe amount of such future environmental expenditures or the effects of changingstandards on future business operations or results. Consequently, the Companycan give no assurance that such expenditures will not be material in thefuture. The Company capitalizes environmental expenditures that increase thelife or efficiency of property or that reduce or prevents environmentalcontamination. Capital expenditures for environmental requirements areanticipated to average approximately $6.3 million per year in the nextfive years. Capital expendituresfor environmental requirements were approximately $0.4 million and $0.2 millionin the three months ended March 31, 2006 and 2005, respectively, and wereapproximately $1.0 million and $1.4 million in the six months ended March 31,2006 and 2005, respectively.

The Company hasimplemented an Administrative Consent Order (“ACO”) for its Burlington, New Jerseyplant that was required under the New Jersey Environmental CleanupResponsibility Act (now known as the Industrial Site Recovery Act). The ACOrequired soil and ground water cleanup, and the Company has completed, and hasreceived final approval on, the soil cleanup required by the ACO. U. S. Pipe iscontinuing to address ground water issues at this site. Further remediationcould be required. These remediation costs are expected to be minimal.Long-term ground water monitoring will be required to verify naturalattenuation. It is not known how long ground water monitoring will be required.Management does not believe monitoring or further cleanup costs, if any, willhave a material adverse effect on the financial condition or results ofoperations of the Company.

The Federal ComprehensiveEnvironmental Response, Compensation and Liability Act (“CERCLA”) generallyimposes liability, which may be joint and several and is without regard tofault or the legality of waste generation or disposal, on certain classes ofpersons, including owners and operators of sites at which hazardous substancesare released into the environment (or pose a threat of such release), personsthat disposed or arranged for the disposal of hazardous substances at suchsites, and persons who owned or operated such sites at the time of suchdisposal. CERCLA authorizes the EPA, the States and, in some circumstances,private entities to take actions in response to public health or environmentalthreats and to seek to recover the costs they incur from the same classes ofpersons. Certain governmental authorities can also seek recovery for damages tonatural resources. Currently, U.S. Pipe has been identified as a potentiallyresponsible party (“PRP”) by the EPA under CERCLA with respect to cleanup ofhazardous substances at a superfund site located in Anniston, Alabama, and U.S.Pipe is among many PRP’s at the site, a significant number of which aresubstantial companies.

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With respect to the sitelocated in Anniston, the PRP’s have negotiated an administrative consent orderwith the EPA. Based on these negotiations, management estimates the Company’sshare of liability for cleanup, after allocation among several PRP’s, will beapproximately $4.0 million, which was accrued in 2004. Civil litigation inrespect of the site is also ongoing as follows: a suit for contribution byanother Anniston PRP and a putative class action lawsuit against 18 foundriesin the Anniston, Alabama area alleging state law tort claims in the creationand disposal of foundry sand alleged to contain lead and PCB’s and seekingdamages for personal injury and property damage. Management believes that thelikelihood of liability in the contribution litigation is remote. The classaction lawsuit is still in early stages of litigation and no substantivediscovery has taken place yet. In addition, management believes that bothprocedural and substantive defenses would be available to the Company shouldthis litigation proceed. Accordingly, management believes that presently, thereis no reasonable basis for management to form a view with respect to theprobability of liability in the putative class action matter.

The Company’s Anvilsegment entered into a Consent Order with the Georgia Department of NaturalResources regarding alleged hazardous waste violations at Anvil’s formerfoundry facility in Statesboro, Georgia. Pursuant to the Consent Order, Anvilagreed to pay a monetary fine of $50,000 and pay an additional $50,000 to funda supplemental environmental project. Anvil has also agreed to perform variousinvestigatory and remedial actions at the foundry and its landfill. The totalcosts are estimated to be between $1.2 million and $1.4 million. TheCompany maintains an adequate reserve to cover these estimated costs.

Over the next two andone-half years, the Company could potentially incur between $18.0 millionand $22.0 million of capital costs at its iron foundries to comply withthe United States Environmental Protection Agency’s National EmissionsStandards for Hazardous Air Pollutants which were issued April 22, 2004.

Although no assurances canbe given that the Company will not be required in the future to make materialexpenditures relating to environmental laws or legally mandated site clean-up,management does not believe at this time that the compliance and cleanup costs,if any, associated with the current laws and sites for which the Company hascleanup liability or any other future sites will have a material adverse effecton the financial condition or results of operations of the Company, but suchcleanup costs could be material to results of operations in a reporting period.

In 2004, the Companyentered into a settlement and release agreement with a former insurer wherebythe former insurer paid $1.9 million, net of legal fees, to the Companyfor historical insurance claims, previously expensed as incurred by theCompany. Such claims had not previously been submitted to the insurance companyfor reimbursement. The Company released the insurer of both past and futureclaims, and recorded a $1.9 million reduction to selling, general andadministrative expenses in 2004.

In 2005, the Companyentered into a settlement and release agreement with a former insurer wherebythe former insurer agreed to pay $5.1 million, net of legal fees, to theCompany for historical insurance claims previously expensed as incurred by theCompany. Such claims had not previously been submitted to the insurance companyfor reimbursement. The Company released the insurer of both past and futureclaims. During 2005, the Company received $2.8 million in cash and theremainder was received during the quarter ended March 31, 2006. TheCompany recorded a $5.1 million reduction to selling, general andadministrative expenses in 2005.

Under the terms of theagreement whereby Tyco International sold the Mueller and Anvil businesses in August 1999to prior owners (the “August 1999 Tyco Transaction”), Tyco agreed toindemnify the Company’s predecessor-in-interest (“Predecessor Mueller”), and,by legal succession, the Company and its affiliates, for all “ExcludedLiabilities”. Excluded Liabilities include, among other things, substantiallyall environmental liabilities relating to the time prior to the August 1999Tyco Transaction. The indemnity survives indefinitely, is not subject to anydeductibles or caps, and continues with respect to the Company’s currentoperations, other than those operations acquired since the August 1999 TycoTransaction, 

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includingthe operations of the U.S. Pipe segment. If Tyco ever becomes financiallyunable to, or otherwise fails to comply with the terms of the indemnity, theCompany may be responsible for the Tyco-indemnified obligations. In addition,Tyco’s indemnity does not cover environmental liabilities to the extent causedby the Company or Predecessor Mueller or the operation of the Company’sbusiness after the August 1999 Tyco Transaction, nor does it coverenvironmental liabilities arising with respect to businesses or sites acquiredafter the August 1999 Tyco Transaction, which would include the U.S. Pipebusiness and facilities.

**Miscellaneous Litigation**

In 2003, the Companyincreased its accruals for outstanding litigation by approximately $6.5 million,principally related to the settlement of a class action employment matter. Thesettlement was finalized in May 2004 for an amount approximating theaccrual.

In the purchase agreementrelating to the August 1999 Tyco Transaction, Tyco agreed to indemnifyPredecessor Mueller and, by legal succession, the Company and its affiliatesfor all “Excluded Liabilities.” Excluded Liabilities include, among otherthings, product liabilities for products manufactured or sold prior to the August 1999Tyco Transaction and substantially all other liabilities relating to the timeprior to the August 1999 Tyco Transaction. The indemnity survivesindefinitely and is not subject to any deductibles or caps. However, theCompany may be responsible for these liabilities in the event that Tyco (or anysuccessor entity) ever becomes financially unable or fails to comply with, theterms of the indemnity. In addition, Tyco’s indemnity does not coverliabilities to the extent caused by us or Predecessor Mueller or the operationof the business of the Company or Predecessor Mueller after the August 1999Tyco Transaction, nor does it cover liabilities arising with respect tobusinesses or sites acquired after the August 1999 Tyco Transaction, whichwould include the U.S. Pipe business and facilities.

The Company’s subsidiary,James Jones Company, and its former parent company are defendants in a falseclaims lawsuit in which a former James Jones Company employee is suing onbehalf of cities, water districts and municipalities. The employee alleges thatthe defendants sold allegedly non-conforming public water system parts tovarious government entities. The lawsuit seeks consequential damages, penaltiesand punitive damages. The Company’s subsidiary, Mueller Co., which had alsobeen named as a defendant, brought a summary judgment motion and was dismissedfrom this litigation in January 2004. On September 15, 2004, thetrial court ruled against the intervention of approximately 30 municipalitiesthat had failed to intervene within the time deadlines previously specified bythe Court. The trial court also ruled that the majority of municipalities thathad purchased James Jones products from contractors or distributors, were notin privity with the James Jones Company and were not entitled to punitivedamages. Following the Court’s ruling, the water districts and municipalitiesfiled a new action against the James Jones Company, Mueller Co. and Watts(former parent company of James Jones Company), alleging fraud and intentionalmisrepresentation. This lawsuit is based on the same underlying facts as thefalse claims lawsuit. Any liability associated with these lawsuits is coveredby the Tyco indemnity, and the defense is being paid for and conducted by Tyco.

Some of the Company’ssubsidiaries have been named as defendants in a small number ofasbestos-related lawsuits. The Company does not believe these lawsuits, eitherindividually or in the aggregate, are material to its financial position orresults of operations.

The Company is a party toa number of other lawsuits arising in the ordinary course of business. TheCompany provides for costs relating to these matters when a loss is probableand the amount is reasonably estimable. The effect of the outcome of thesematters on the Company’s future results of operations cannot be predicted withcertainty as any such effect depends on future results of operations and theamount and timing of the resolution of such matters. While the results oflitigation cannot be predicted with certainty, the Company believes that thefinal outcome of such other litigation will not have a materially adverseeffect on the Company’s financial statements.

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*Commitments and Contingencies—Other*

As part of the Star Pipe, Inc.acquisition on January 15, 2004, Anvil has agreed to a future payment tobe made to the seller of a business Anvil acquired to the extent that the grossprofit of the acquired business exceeds a targeted gross profit. The maximumpotential payment amount is $23 million. Management currently estimates thepayment could total approximately $3 million to $6 million for the paymentperiod that began February 1, 2004 and ends January 31, 2007. Thepayment amount indicated above is based on management’s best estimate, but theactual adjustment could be materially different. The liability for such paymentwill be recorded at the end of the payment period, in accordance with thepurchase agreement, with a corresponding increase to goodwill.

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

**Note 14.**   Subsequent Events

On April 20, 2006,the Company announced the closure of the Mueller Canada Milton, Ontario (“Milton”)valve and hydrant manufacturing facility by the end of fiscal 2006. Productionwill be transferred to other Mueller facilities beginning in the third quarterof fiscal 2006. Total estimated costs related to this closure are $4.4 million,of which $3.2 million, consisting of termination benefits, is expected to berecorded as an adjustment to goodwill. The remaining other costs pertain to thetransfer and installation of equipment and warehouse relocation and will beexpensed when incurred.

**Note 15.**   New AccountingPronouncements

In November 2004, theFinancial Accounting Standards Board issued SFAS No. 151, “InventoryCosts,” which clarifies the accounting for abnormal amounts of idle facilityexpense, freight, handling costs, and wasted material. This Statement requiresthat those items be recognized as current-period charges regardless of whetherthey meet the criterion of “so abnormal.” In addition, this Statement requiresthat allocation of fixed production overheads to the costs of conversion be basedon the normal capacity of the production facilities. The Company adopted SFAS No. 151on October 1, 2005, the beginning of its 2006 fiscal year. The impact ofthe adoption of SFAS No. 151 on the Company’s financial statements mayhave a material impact on operating income in the event actual productionoutput is significantly higher or lower than normal capacity. In the eventactual production capacity is significantly different than normal capacity, theCompany may be required to recognize certain amounts of facility expense,freight, handling costs or wasted materials as a current period expense.

**Note 16.**   ConsolidatingGuarantor and Non-Guarantor Financial Information

The following informationis included as a result of the guarantee by certain of the Company’s whollyowned U.S. subsidiaries (“Guarantor Companies”) of the senior subordinatednotes issued by Predecessor Mueller Group prior to the Acquisition on October 3,2005 that have continued to be liabilities of the Company subsequent to theAcquisition. None of the Company’s other subsidiaries guarantee the debt. Eachof the guarantees is joint and several and full and unconditional. “MuellerGroup, LLC” (“Issuer”) includes the consolidated financial results of MuellerGroup, LLC with all of its wholly-owned subsidiaries accounted forunder the equity method.

Prior to the Acquisitionon October 3, 2005, U.S. Pipe was not a Guarantor Company of the seniorsubordinated notes issued by Predecessor Mueller Group. See Note 18 for furtherdiscussion of Predecessor Mueller Group. The Consolidating Statements ofOperations for the three and six months ended March 31, 2006 and theConsolidating Statement of Cash Flows for the six months ended March 31,2006 and the Consolidating Balance Sheet as of March 31, 2006 reflect theresults of the Company, including U.S. Pipe.

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**Consolidating Statement of OperationsFor Mueller Group, LLCFor the Three Months Ended March 31, 2006**

| ** **                                                 | ** ** | **Issuer**                          | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminating** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **(dollars in millions)** | ** ** |
| Net sales                                                  |       | $                                   | —     |                        |       | $                            | 403.3      |                           |       |             | $          | 31.6 |   |   |   | $ | — |   |   |   | $ | 434.9 |   |   |
| Cost of sales                                              |       | —                              |       |                        | 317.8      |                         |       |                           | 22.5       |             |       |   | — |   |   |   | 340.3 |   |   |
| Gross profit                                               |       | —                              |       |                        | 85.5       |                         |       |                           | 9.1        |             |       |   | — |   |   |   | 94.6 |   |   |
| Selling, general  and administrative                       |       | —                              |       |                        | 55.7       |                         |       |                           | 5.1        |             |       |   | — |   |   |   | 60.8 |   |   |
| Related party  corporate charges                           |       | —                              |       |                        | 2.0        |                         |       |                           | —     |             |       |   | — |   |   |   | 2.0 |   |   |
| Facility  rationalization, restructuring and related costs |       | —                              |       |                        | 4.3        |                         |       |                           | —     |             |       |   | — |   |   |   | 4.3 |   |   |
| Income from  operations                                    |       | —                              |       |                        | 23.5       |                         |       |                           | 4.0        |             |       |   | — |   |   |   | 27.5 |   |   |
| Interest expense,  net of interest  income                 |       | (26.0                               | )          |                        | (0.1       | )                            |       |                           | 0.2        |             |       |   | — |   |   |   | (25.9 | ) |   |
| Income (loss)  before income tax expense (benefit)         |       | (26.0                               | )          |                        | 23.4       |                         |       |                           | 4.2        |             |       |   | — |   |   |   | 1.6 |   |   |
| Income tax  expense (benefit)                              |       | (9.4                                | )          |                        | 9.6        |                         |       |                           | 0.4        |             |       |   | — |   |   |   | 0.6 |   |   |
| Equity income  (loss) from  subsidiaries                   |       | 17.6                                |       |                        | 3.8        |                         |       |                           | —     |             |       |   | (21.4 | ) |   |   | — |   |   |
| Net income (loss)                                          |       | $                                   | 1.0        |                        |       | $                            | 17.6       |                           |       |             | $          | 3.8 |   |   |   | $ | (21.4 | ) |   |   | $ | 1.0 |   |   |

 

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**ConsolidatingStatement of OperationsFor Mueller Group, LLCFor the Six Months Ended March 31, 2006**

| ** **                                                 | ** ** | **Issuer**                          | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminating** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **(dollars in millions)** | ** ** |
| Net sales                                                  |       | $                                   | —     |                        |       | $                            | 829.0      |                           |       |             | $          | 86.3 |   |   |   | $ | — |   |   |   | $ | 915.3 |   |   |
| Cost of sales                                              |       | —                              |       |                        | 710.4      |                         |       |                           | 66.8       |             |       |   | — |   |   |   | 777.2 |   |   |
| Gross profit                                               |       | —                              |       |                        | 118.6      |                         |       |                           | 19.5       |             |       |   | — |   |   |   | 138.1 |   |   |
| Selling, general  and administrative                       |       | —                              |       |                        | 104.9      |                         |       |                           | 13.0       |             |       |   | — |   |   |   | 117.9 |   |   |
| Related party  corporate charges                           |       | —                              |       |                        | 3.8        |                         |       |                           | —     |             |       |   | — |   |   |   | 3.8 |   |   |
| Facility  rationalization, restructuring and related costs |       | —                              |       |                        | 28.4       |                         |       |                           | —     |             |       |   | — |   |   |   | 28.4 |   |   |
| Income (loss)  from operations                             |       | —                              |       |                        | (18.5      | )                            |       |                           | 6.5        |             |       |   | — |   |   |   | (12.0 | ) |   |
| Interest expense,  net of interest  income                 |       | (54.3                               | )          |                        | (0.1       | )                            |       |                           | 0.4        |             |       |   | — |   |   |   | (54.0 | ) |   |
| Income (loss)  before income tax expense (benefit)         |       | (54.3                               | )          |                        | (18.6      | )                            |       |                           | 6.9        |             |       |   | — |   |   |   | (66.0 | ) |   |
| Income tax  expense (benefit)                              |       | (20.5                               | )          |                        | (7.0       | )                            |       |                           | 1.4        |             |       |   | — |   |   |   | (26.1 | ) |   |
| Equity income  (loss) from  subsidiaries                   |       | (6.1                                | )          |                        | 5.5        |                         |       |                           | —     |             |       |   | 0.6 |   |   |   | — |   |   |
| Net income (loss)                                          |       | $                                   | (39.9      | )                           |       | $                            | (6.1       | )                              |       |             | $          | 5.5 |   |   |   | $ | 0.6 |   |   |   | $ | (39.9 | ) |   |

 

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**Consolidating Balance SheetFor Mueller Group, LLCMarch 31, 2006**

| ** **                                                 | ** ** | **Issuer**                          | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **(dollars in millions)** | ** ** |
| **Assets**                                                 | ** ** | ** **                          | ** ** |                        | ** ** | ** **                   |       |                            | ** ** | ** **       |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Cash and cash  equivalents                                 |       | $                                   | 46.5       |                        |       | $                            | (9.0       | )                               |       |             | $          | 1.7 |   |   |   | $ | — |   |   |   | $ | 39.2 | ** ** |   |
| Receivables, net                                           |       | —                              |       |                        | 241.8      |                         |       |                            | 30.9       |             |       |   | — |   |   |   | 272.7 | ** ** |   |
| Inventories                                                |       | —                              |       |                        | 400.3      |                         |       |                            | 60.0       |             |       |   | — |   |   |   | 460.3 | ** ** |   |
| Deferred income  taxes                                     |       | —                              |       |                        | 58.1       |                         |       |                            | —     |             |       |   | — |   |   |   | 58.1 | ** ** |   |
| Prepaid expenses                                           |       | —                              |       |                        | 28.5       |                         |       |                            | 2.6        |             |       |   | — |   |   |   | 31.1 | ** ** |   |
| Total current  assets                                      |       | 46.5                                |       |                        | 719.7      |                         |       |                            | 95.2       |             |       |   | — |   |   |   | 861.4 | ** ** |   |
| Property, plant  and equipment,  net                       |       | 3.1                                 |       |                        | 316.4      |                         |       |                            | 21.2       |             |       |   | — |   |   |   | 340.7 | ** ** |   |
| Deferred  financing fees, net                              |       | 27.7                                |       |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | 27.7 | ** ** |   |
| Due from Walter  affiliates                                |       | —                              |       |                        | 20.0       |                         |       |                            | —     |             |       |   | — |   |   |   | 20.0 | ** ** |   |
| Identifiable  intangibles, net                             |       | —                              |       |                        | 849.0      |                         |       |                            | —     |             |       |   | — |   |   |   | 849.0 | ** ** |   |
| Goodwill                                                   |       | —                              |       |                        | 717.3      |                         |       |                            | —     |             |       |   | — |   |   |   | 717.3 | ** ** |   |
| Other non-current  assets                                  |       | —                              |       |                        | 5.6        |                         |       |                            | —     |             |       |   | — |   |   |   | 5.6 | ** ** |   |
| Investment in  subsidiaries                                |       | 2,621.9                             |       |                        | 43.6       |                         |       |                            | —     |             |       |   | (2,665.5 | ) |   |   | — | ** ** |   |
| Total assets                                               |       | $                                   | 2,699.2    |                        |       | $                            | 2,671.6    |                            |       |             | $          | 116.4 |   |   |   | $ | (2,665.5 | ) |   |   | $ | 2,821.7 | ** ** |   |
| **Liabilities**                                            | ** ** | ** **                          | ** ** |                        | ** ** | ** **                   |       |                            | ** ** | ** **       |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Accounts payable                                           |       | $                                   | 9.7        |                        |       | $                            | 87.9       |                            |       |             | $          | 12.7 |   |   |   | $ | — |   |   |   | $ | 110.3 | ** ** |   |
| Current portion  of long-term debt                         |       | 10.5                                |       |                        | 1.0        |                         |       |                            | —     |             |       |   | — |   |   |   | 11.5 | ** ** |   |
| Accrued expenses                                           |       | 21.0                                |       |                        | 78.2       |                         |       |                            | 4.6        |             |       |   | — |   |   |   | 103.8 | ** ** |   |
| Payable to  affiliate, Sloss  Industries                   |       | —                              |       |                        | 4.4        |                         |       |                            | —     |             |       |   | — |   |   |   | 4.4 | ** ** |   |
| Total current  liabilities                                 |       | 41.2                                |       |                        | 171.5      |                         |       |                            | 17.3       |             |       |   | — |   |   |   | 230.0 | ** ** |   |
| Intercompany  accounts                                     |       | 563.9                               |       |                        | (618.0     | )                            |       |                            | 54.1       |             |       |   | — |   |   |   | — | ** ** |   |
| Long-term  debt                                            |       | 1,366.7                             |       |                        | 1.3        |                         |       |                            | —     |             |       |   | — |   |   |   | 1,368.0 | ** ** |   |
| Payable to  parent, Walter  Industries                     |       | —                              |       |                        | 2.9        |                         |       |                            | —     |             |       |   | — |   |   |   | 2.9 | ** ** |   |
| Accrued pension  liability                                 |       | —                              |       |                        | 106.2      |                         |       |                            | (0.8       | )                |       |   | — |   |   |   | 105.4 | ** ** |   |
| Accumulated  postretirement benefits obligation            |       | —                              |       |                        | 48.3       |                         |       |                            | —     |             |       |   | — |   |   |   | 48.3 | ** ** |   |
| Deferred income  taxes                                     |       | —                              |       |                        | 313.9      |                         |       |                            | 2.2        |             |       |   | — |   |   |   | 316.1 | ** ** |   |
| Other long-term  liabilities                               |       | —                              |       |                        | 23.6       |                         |       |                            | —     |             |       |   | — |   |   |   | 23.6 | ** ** |   |
| Total liabilities                                          |       | 1,971.8                             |       |                        | 49.7       |                         |       |                            | 72.8       |             |       |   | — |   |   |   | 2,094.3 | ** ** |   |
| **Shareholder’s  equity (deficit)**                   | ** ** | ** **                          | ** ** |                        | ** ** | ** **                   |       |                            | ** ** | ** **       |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Total  shareholder’s equity  (deficit)                |       | 727.4                               |       |                        | 2,621.9    |                         |       |                            | 43.6       |             |       |   | (2,665.5 | ) |   |   | 727.4 | ** ** |   |
| Total liabilities and  shareholder’s equity (deficit) |       | $                                   | 2,699.2    |                        |       | $                            | 2,671.6    |                            |       |             | $          | 116.4 |   |   |   | $ | (2,665.5 | ) |   |   | $ | 2,821.7 | ** ** |   |

 

29

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**Consolidating Statement of Cash FlowsFor Mueller Group, LLCFor the Six Months Ended March 31, 2006**

| ** **                                                         | ** ** | **Issuer**                          | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                                         | ** ** | **(dollars in millions)** | ** ** |
| Net cash provided  by (used in) operating activities               |       | $                                   | (9.6       | )                           |       | $                            | 146.7      |                            |       |             | $          | (67.0 | ) |   |   | — |   |   |   | $ | 70.1 |   |   |
| **Cash flows from investing  activities**                          | ** ** | ** **                          | ** ** |                        |       |                         |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Capital  expenditures                                              |       | —                              |       |                        | (29.3      | )                            |       |                            | (1.6       | )                |       |   | — |   |   |   | (30.9 | ) |   |
| Acquisition of  businesses, net of cash acquired                   |       | —                              |       |                        | (15.5      | )                            |       |                            | —     |             |       |   | — |   |   |   | (15.5 | ) |   |
| Increase in  amounts due from Walter                               |       | —                              |       |                        | (15.6      | )                            |       |                            | —     |             |       |   | — |   |   |   | (15.6 | ) |   |
| Net cash provided  by (used in) investing activities               |       | —                              |       |                        | (60.4      | )                            |       |                            | (1.6       | )                |       |   | — |   |   |   | (62.0 | ) |   |
| **Cash flows from financing  activities**                          | ** ** | ** **                          | ** ** |                        |       |                         |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Book cash overdrafts                                               |       | 9.7                                 |       |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | 9.7 |   |   |
| Intercompany  change                                               |       | 13.0                                |       |                        | (83.3      | )                            |       |                            | 70.3       |             |       |   |   |   |   |   | — |   |   |
| Proceeds from  short-term borrowings                               |       | 55.9                                |       |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | 55.9 |   |   |
| Retirement of  short-term debt                                     |       | (55.9                               | )          |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | (55.9 | ) |   |
| Proceeds from  long-term debt                                      |       | 1,050.0                             |       |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | 1,050.0 |   |   |
| Retirement of  long-term debt, including capital lease obligations |       | (617.9                              | )          |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | (617.9 | ) |   |
| Payment of  deferred financing  fees                               |       | (21.6                               | )          |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | (21.6 | ) |   |
| Dividend paid to  Walter                                           |       | (444.5                              | )          |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | (444.5 | ) |   |
| Dividend to  Walter for acquisition costs                          |       | —                              |       |                        | (12.0      | )                            |       |                            | —     |             |       |   | — |   |   |   | (12.0 | ) |   |
| Walter  contribution of Predecessor Mueller’s cash       |       | 67.4                                |       |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | 67.4 |   |   |
| Net cash provided  by (used in) financing activities               |       | 56.1                                |       |                        | (95.3      | )                            |       |                            | 70.3       |             |       |   |   |   |   |   | 31.1 |   |   |
| Effect of  exchange rate changes on cash                      |       | —                              |       |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | — |   |   |
| Increase in cash                                                   |       | 46.5                                |       |                        | (9.0       | )                            |       |                            | 1.7        |             |       |   | — |   |   |   | 39.2 |   |   |
| **Cash and cash equivalents**                                      | ** ** | ** **                          | ** ** |                        |       |                         |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Beginning of  period                                               |       | —                              |       |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | — |   |   |
| End of period                                                      |       | $                                   | 46.5       |                        |       | $                            | (9.0       | )                               |       |             | $          | 1.7 |   |   |   | — |   |   |   | $ | 39.2 |   |   |

----

(1)          Guarantors include theaccounts of the following direct and indirect subsidiaries of MuellerGroup, LLC:

30

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| **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    |                                 |       |

----

*                    Applicableonly for periods beginning October 3, 2005.

**Note 17.**   SupplementalData—Predecessor Mueller Group Financial Statements

Prior to the October 3, 2005 Acquisition,Predecessor Mueller Group was a registrant filing reports with the U.S.Securities and Exchange Commission (“SEC”). The following financial statementswere derived from reports previously filed with the SEC (Commission File Number333-117473). The unaudited Consolidated Statements of Operations and CashFlows for the three months ended April 2, 2005 shown below are derivedfrom the Quarterly Report on Form 10-Q/A of Mueller Group, LLC(formerly known as Mueller Group, Inc.) for the quarterly period ended April 2,2005, as filed with the SEC on February 3, 2006. The audited ConsolidatedBalance Sheet as of September 30, 2005 shown below is derived from theAnnual Report on Form 10-K of Mueller Group, LLC (formerly known asMueller Group, Inc.) for the fiscal year ended September 30, 2005, asfiled with the SEC on December 19, 2005. This information is presented assupplemental data in this Form 10-Q to support the prior periodPredecessor Mueller Group Guarantor Financial Statements. In this footnote, each of the terms “Group,” the “Company,”“we,” “us” or “our” refers to Predecessor Mueller Group, LLC and itssubsidiaries, except where the context makes clear that the reference is onlyto Predecessor Mueller Group itself, and is not inclusive of its subsidiaries.

31

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**PREDECESSORMUELLER GROUPUNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS**

| ** **                                                                         | ** ** | **Three months ended  April 2, 2005** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **(dollars in millions)**                       | ** ** |
| Net sales                                                                          |       |                                                      | $          | 285.2 |   |   |
| Cost of sales                                                                      |       |                                                      | 199.0      |   |   |
| Gross profit                                                                       |       |                                                      | 86.2       |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       |                                                      | 46.1       |   |   |
| Facility  rationalization, restructuring and related costs                         |       |                                                      | 1.5        |   |   |
| Operating income                                                                   |       |                                                      | 38.6       |   |   |
| Interest expense,  net of interest income                                          |       |                                                      | (18.4      | ) |   |
| Income before  income taxes                                                        |       |                                                      | 20.2       |   |   |
| Income tax  expense                                                                |       |                                                      | 7.8        |   |   |
| Net income                                                                         |       |                                                      | $          | 12.4 |   |   |

 

| ** **                                                                         | ** ** | **Six months ended  April 2, 2005** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **(dollars in millions)**                     | ** ** |
| Net sales                                                                          |       |                                                    | $          | 541.3 |   |   |
| Cost of sales                                                                      |       |                                                    | 380.9      |   |   |
| Gross profit                                                                       |       |                                                    | 160.4      |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       |                                                    | 87.9       |   |   |
| Facility  rationalization, restructuring and related costs                         |       |                                                    | 1.6        |   |   |
| Operating income                                                                   |       |                                                    | 70.9       |   |   |
| Interest expense,  net of interest income                                          |       |                                                    | (34.5      | ) |   |
| Income before  income taxes                                                        |       |                                                    | 36.4       |   |   |
| Income tax  expense                                                                |       |                                                    | 14.1       |   |   |
| Net income                                                                         |       |                                                    | $          | 22.3 |   |   |

 

32

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**PREDECESSOR MUELLER GROUPCONSOLIDATED BALANCE SHEET**

| ** **                                                            | ** ** | **September 30,  2005**        | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                            | ** ** | **(dollars in millions)** | ** ** |
| **Assets**                                                            | ** ** |                                | ** ** | ** ** |   |
| Cash and cash  equivalents                                            |       |                                | $          | 112.8 |   |   |
| Receivables, net                                                      |       |                                | 177.4      |   |   |
| Inventories                                                           |       |                                | 303.0      |   |   |
| Income tax  receivable                                                |       |                                | —     |   |   |
| Deferred income  taxes                                                |       |                                | 27.7       |   |   |
| Prepaid expenses                                                      |       |                                | 31.1       |   |   |
| Total current assets                                                  |       |                                | 652.0      |   |   |
| Property, plant  and equipment, net                                   |       |                                | 168.0      |   |   |
| Deferred  financing fees, net                                         |       |                                | 29.0       |   |   |
| Deferred income  taxes                                                |       |                                | 10.9       |   |   |
| Other long-term  assets                                               |       |                                | 1.5        |   |   |
| Identifiable  intangibles, net                                        |       |                                | 52.4       |   |   |
| Goodwill                                                              |       |                                | 163.2      |   |   |
| Total assets                                                          |       |                                | $          | 1,077.0 |   |   |
| **Liabilities**                                                       | ** ** |                                | ** ** | ** ** |   |
| Accounts payable                                                      |       |                                | $          | 63.3 |   |   |
| Current portion  of long-term debt                                    |       |                                | 3.8        |   |   |
| Accrued expenses                                                      |       |                                | 103.0      |   |   |
| Total current liabilities                                             |       |                                | 170.1      |   |   |
| Long-term  debt                                                       |       |                                | 926.2      |   |   |
| Accrued pension  liability                                            |       |                                | 37.7       |   |   |
| Other long-term  liabilities                                          |       |                                | 1.5        |   |   |
| Total liabilities                                                     |       |                                | 1,135.5    |   |   |
| Commitments and  contingencies                                        |       |                                | —     |   |   |
| **Shareholders’  deficit:**                                      |       |                                |       |   |   |
| Common  stock—$0.01 par value (100 shares authorized and issued) |       |                                | —     |   |   |
| Accumulated  deficit                                                  |       |                                | (48.9      | ) |   |
| Accumulated other  comprehensive loss                                 |       |                                | (9.6       | ) |   |
| Total shareholders’ deficit                                      |       |                                | (58.5      | ) |   |
| Total liabilities  and shareholders’ deficit                     |       |                                | $          | 1,077.0 |   |   |

 

33

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**PREDECESSOR MUELLER GROUPUNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS**

| ** **                                                                                   | ** ** | **Six months ended**      | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                   | ** ** | **April 2, 2005**         | ** ** |
| ** **                                                                                   | ** ** | **(dollars in millions)** | ** ** |
| **Cash flows from operating  activities**                                                    |       |                                |       |   |   |
| Net income                                                                                   |       |                                | $          | 22.3 |   |   |
| Adjustments to reconcile  net income to net cash provided by (used in) operating activities: |       |                                |       |   |   |
| Depreciation                                                                                 |       |                                | 22.6       |   |   |
| Amortization of intangibles and tooling                                                      |       |                                | 2.8        |   |   |
| Unrealized gain on interest rate swaps                                                       |       |                                | (2.9       | ) |   |
| All other adjustments                                                                        |       |                                | 1.8        |   |   |
| Changes in assets and  liabilities, net of the effects of acquisitions:                      |       |                                |       |   |   |
| Receivables                                                                                  |       |                                | (0.6       | ) |   |
| Inventories                                                                                  |       |                                | (42.1      | ) |   |
| Accounts payable, accrued expenses and other current  liabilities                            |       |                                | (3.4       | ) |   |
| All other changes, net                                                                       |       |                                | 5.2        |   |   |
| Net cash provided  by operating activities                                                   |       |                                | 5.7        |   |   |
| **Cash  flows from investing activities**                                                    |       |                                |       |   |   |
| Purchase of  property, plant and equipment                                                   |       |                                | (13.6      | ) |   |
| Net cash used in investing  activities                                                       |       |                                | (13.6      | ) |   |
| **Cash  flows from financing activities**                                                    |       |                                |       |   |   |
| Book cash  overdrafts                                                                        |       |                                | 4.9        |   |   |
| Payment of  long-term debt, including capital lease obligations                              |       |                                | (1.2       | ) |   |
| Net cash provided  by financing activities                                                   |       |                                | 3.7        |   |   |
| Effect of  exchange rate changes on cash                                                     |       |                                | 0.6        |   |   |
| Decrease in cash  and cash equivalents                                                       |       |                                | (3.6       | ) |   |
| **Cash and cash equivalents**                                                                |       |                                |       |   |   |
| Beginning of  period                                                                         |       |                                | 60.5       |   |   |
| End of period                                                                                |       |                                | $          | 56.9 |   |   |

 

34

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**PREDECESSOR MUELLERGROUP**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**Organization**

Mueller Group, LLC (formerly Mueller Group, Inc.)(“Group” or the “Company”) is a wholly-owned subsidiary of Mueller WaterProducts, LLC (formerly Mueller Water Products, Inc.) (“Mueller Water”).As of September 30, 2005, the Company has two reporting and operatingsegments, Mueller and Anvil. Our Mueller segment (formerly called “Waterinfrastructure”) is a manufacturer of valves, fire hydrants and other relatedproducts utilized in the distribution of water and gas and in water andwastewater treatment facilities. Our Anvil segment segment (formerly called “Pipingsystems”) is a manufacturer of cast iron and malleable iron pipe fittings,ductile iron couplings and fittings, pipe hangers and other related productsfor the plumbing, heating, mechanical, construction retail hardware and otherrelated industries. Both segments have operations in the United States andCanada.

*Fiscal Year End—**The*fiscal year ofthe Company ends on September 30.

**Segment Information**

As of September 30, 2005, the Company’soperations had two operating segments: Mueller and Anvil. These segments areorganized around differences in products and are consistent with how theoperating entities are managed, how resources are allocated, and howinformation is used by the chief operating decision maker. The Mueller segmentis a manufacturer of valves, fire hydrants and other related products utilizedin the distribution of water and gas and in water and wastewater treatmentfacilities. The Anvil segment is a manufacturer of cast iron and malleable ironpipe fittings, ductile iron couplings and fittings, pipe hangers and otherrelated products for the plumbing, heating, mechanical, construction retail hardwareand other related industries. Both segments have operations in the UnitedStates and Canada.

Intersegment sales and transfers are made atestablished intersegment selling prices generally intended to cover costs. Ourdetermination of segment earnings does not reflect allocations of certaincorporate expenses not directly attributable to segment operations andintersegment eliminations, which we designate as Corporate in the segmentpresentation, and is before interest expense, net, and income taxes. Corporateexpenses include costs related to financial and administrative matters,treasury, risk management, human resources, legal counsel, and tax functions.Corporate assets include items recorded at the date of the Company’s inceptionin 1999 related to purchase accounting valuation adjustments associated withproperty, plant and equipment and non-compete agreements with the predecessorparent company, as well as intangibles associated with intellectual property.These assets and any related depreciation or amortization expense have not beenpushed down to our segments and are maintained as Corporate items. Therefore,segment earnings are not reflective of results on a stand-alone basis.

35

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Segmentassets consist primarily of accounts receivable, inventories, property, plantand equipment, net, goodwill, and identifiable intangibles, net. Summarizedfinancial information for our segments follows:

| ** **                                  | ** ** | **Three months  ended  April 2, 2005** | ** ** | **Six months  ended  April 2, 2005** | ** ** |
|---------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **Net  Sales:**                             |       |                                                  |       |                                                |       |   |   |   |   |
| Mueller segment                             |       |                                                  | $          | 170.1                                               |       |   |   | $ | 308.7 |   |   |
| Anvil segment                               |       |                                                  | 115.1      |                                                |       |   | 232.6 |   |   |
| Consolidated                                |       |                                                  | 285.2      |                                                |       |   | 541.3 |   |   |
| **Intersegment  sales:**                    |       |                                                  |       |                                                |       |   |   |   |   |
| Mueller segment                             |       |                                                  | 3.4        |                                                |       |   | 6.8 |   |   |
| Anvil segment                               |       |                                                  | 0.1        |                                                |       |   | 0.3 |   |   |
| Consolidated                                |       |                                                  | 3.5        |                                                |       |   | 7.1 |   |   |
| **Operating  income (expense):**            |       |                                                  |       |                                                |       |   |   |   |   |
| Mueller segment                             |       |                                                  | 38.4       |                                                |       |   | 67.2 |   |   |
| Anvil segment                               |       |                                                  | 9.9        |                                                |       |   | 21.7 |   |   |
| Corporate  expense(1)                       |       |                                                  | (9.7       | )                                                   |       |   | (18.0 | ) |   |
| Consolidated                                |       |                                                  | 38.6       |                                                |       |   | 70.9 |   |   |
| **Depreciation  and amortization expense:** |       |                                                  |       |                                                |       |   |   |   |   |
| Mueller segment                             |       |                                                  | 6.0        |                                                |       |   | 12.0 |   |   |
| Anvil segment                               |       |                                                  | 4.3        |                                                |       |   | 8.6 |   |   |
| Corporate                                   |       |                                                  | 2.5        |                                                |       |   | 4.8 |   |   |
| Consolidated                                |       |                                                  | 12.8       |                                                |       |   | 25.4 |   |   |
| **Capital  expenditures:**                  |       |                                                  |       |                                                |       |   |   |   |   |
| Mueller segment                             |       |                                                  | 6.2        |                                                |       |   | 9.0 |   |   |
| Anvil segment                               |       |                                                  | 2.1        |                                                |       |   | 3.9 |   |   |
| Corporate                                   |       |                                                  | 0.6        |                                                |       |   | 0.7 |   |   |
| Consolidated                                |       |                                                  | 8.9        |                                                |       |   | 13.6 |   |   |
|                                             |            |                                                       |            |                                                     |            |  |  |  |  |  |  |

----

(1)          Includescertain expenses not allocated to segments.

| ** **                | ** ** | **At September 30,**     | ** ** |
|---------------------------|------------|------------------------------------|------------|
| ** **                | ** ** | **2005**                           | ** ** |
| ** **                | ** ** | **(dollars in millions** | **)**      |
| Total assets:             |       |                               |       |   |   |
| Mueller segment           |       |                               | $          | 516.6 |   |   |
| Anvil segment             |       |                               | 303.6      |   |   |
| Corporate                 |       |                               | 256.8      |   |   |
| Consolidated              |       |                               | $          | 1,077.0 |   |   |
| Goodwill:                 |       |                               |       |   |   |
| Mueller segment           |       |                               | $          | 149.1 |   |   |
| Anvil segment             |       |                               | 14.1       |   |   |
| Consolidated              |       |                               | $          | 163.2 |   |   |
| Identifiable intangibles: |       |                               |       |   |   |
| Mueller segment           |       |                               | $          | 4.4 |   |   |
| Anvil segment             |       |                               | 5.3        |   |   |
| Corporate                 |       |                               | 42.7       |   |   |
| Consolidated              |       |                               | $          | 52.4 |   |   |

36

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

| ** **      | ** ** | **Three months  ended  April 2, 2005** | ** ** | **Six months  ended  April 2, 2005** | ** ** |
|-----------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| Net sales:      |       |                                                  |       |                                                |       |   |   |   |   |
| United States   |       |                                                  | $          | 237.7                                               |       |   |   | $ | 448.1 |   |   |
| Canada          |       |                                                  | 44.9       |                                                |       |   | 89.3 |   |   |
| Other Countries |       |                                                  | 2.6        |                                                |       |   | 3.9 |   |   |
|            |       |                                                  | $          | 285.2                                               |       |   |   | $ | 541.3 |   |   |

 

| ** **                           | ** ** | **At September 30, 2005** | ** ** |
|--------------------------------------|------------|------------------------------------------|------------|
| ** **                           | ** ** | **(dollars in millions)**      | ** ** |
| Property, plant  and equipment, net: |       |                                     |       |   |   |
| United States                        |       |                                     | $          | 152.8 |   |   |
| Canada                               |       |                                     | 12.6       |   |   |
| Other Countries                      |       |                                     | 2.6        |   |   |
|                                 |       |                                     | $          | 168.0 |   |   |

 

**Summary ofSignificant Accounting Policies**

Fiscal Year—The Company’s fiscal year ends on September 30.The Company’s second quarter ends on the Saturday closest to March 31.

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

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

| ** **                      | ** ** | **Three months  ended  April 2, 2005** | ** ** | **Six months  ended  April 2, 2005** | ** ** |
|---------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| Balance at  beginning of period |       |                                                  | $          | 1.3                                                 |       |   |   | $ | 1.6 |   |   |
| Accruals for  warranties        |       |                                                  | 0.5        |                                                |       |   | 1.1 |   |   |
| Settlement of  warranty claims  |       |                                                  | (0.4       | )                                                   |       |   | (1.3 | ) |   |
| Balance at end of period        |       |                                                  | $          | 1.4                                                 |       |   |   | $ | 1.4 |   |   |

 

Comprehensive Income—The Company’s comprehensiveincome for the three months ended April 2, 2005 includes foreign currencytranslation losses of $(0.6) million. The Company’s comprehensive incomefor the six months ended April 2, 2005 includes foreign currency translationgains of $3.4 million.

Related Party Transactions—Substantiallyall of the outstanding shares of the common stock of our parent company,Mueller Water Products, Inc., are held by the Donaldson, Lufkin &Jenrette (“DLJ”) Merchant Banking funds. We pay DLJ an annual advisory fee inconnection with a financial advisory agreement. Credit Suisse First Boston LLC,an affiliate of DLJ, has received and will receive customary fees andreimbursement of expenses in connection with the arrangement and syndication ofour senior 

37

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creditfacility and as a lender and agent thereunder. The aggregate amount of all feesincurred by the Company with these related parties in connection with advisoryservices and financing arrangements was approximately $0.1 million for thethree-month period ended April 2, 2005 and $0.2 million for thesix-month period ended April 2, 2005.

**BorrowingArrangements**

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

| ** **                                          | ** ** | **September 30,**              | ** ** |
|-----------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                          | ** ** | **2005**                            | ** ** |
| ** **                                          | ** ** | **(dollars in millions)** | ** ** |
| Senior credit  facility term loans                  |       |                                | $          | 512.8 |   |   |
| Second priority  senior secured floating rate notes |       |                                | 100.0      |   |   |
| 10% senior  subordinated notes                      |       |                                | 315.0      |   |   |
| Capital lease  obligations                          |       |                                | 2.2        |   |   |
|                                                |       |                                | 930.0      |   |   |
| Less current  portion                               |       |                                | (3.8       | ) |   |
|                                                |       |                                | $          | 926.2 |   |   |

 

Aschedule of debt maturities as of September 30, 2005 is as follows:

| ** **                            | ** ** | **Less than  1 year**     | ** ** | **1-3  years** | ** ** | **4-5  years** | ** ** | **After  5 years** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|-------------------------------------|------------|----------------|------------|----------------|------------|-------------------------|------------|-----------|------------|
| ** **                            | ** ** | **(dollars in millions)** | ** ** |
| Senior credit  facility term loans    |       |                                | $          | 2.9            |       |           |       | $                       | 5.8        |      |       |   | $ | 5.8 |   |   | $ | 498.3 |   | $ | 512.8 |   |
| Second Priority  Senior Secured Notes |       |                                | —     |           |       |           | —     |                    |       |      | —     |   |   | 100.0 |   | 100.0 |   |
| 10% Senior  Subordinated Notes        |       |                                | —     |           |       |           | —     |                    |       |      | —     |   |   | 315.0 |   | 315.0 |   |
| Capital lease  obligations            |       |                                | 0.9        |           |       |           | 1.2        |                    |       |      | 0.1        |   |   | — |   | 2.2 |   |
| Total debt maturities                 |       |                                | $          | 3.8            |       |           |       | $                       | 7.0        |      |       |   | $ | 5.9 |   |   | $ | 913.3 |   | $ | 930.0 |   |

 

*2004Mueller Credit Facility:*   The Company enteredinto a senior credit facility, which includes a $545 million amortizingsenior credit facility term loan ($32.2 million of which has since beenrepaid) maturing seven years after closing and an $80.0 million revolvingcredit facility that will terminate five years after closing. The revolvingcredit facility and/or the term loan facility are subject to a potential,although uncommitted, increase of up to an aggregate of $50.0 million atthe Company’s request at any time prior to maturity. In addition, althoughuncommitted, a foreign currency sub-facility may be made available to one ormore of the Company’s restricted foreign subsidiaries in an aggregate principalamount of up to the U.S. dollar equivalent of $30.0 million. This increaseand the additional foreign currency sub-facility will only be available if oneor more financial institutions agree to provide them. The Company had noborrowings under the revolving credit facility at September 30, 2005.

Borrowings 2004 Mueller Credit Facility bore interestbased on a margin over, at the Company’s option, the base rate or LIBOR. Theapplicable margin was 2.75% over LIBOR and 1.50% over the base rate for termloans. The applicable margin under the revolving senior credit facility was arange of 2.25% to 3.25% over LIBOR and a range of 1.00% to 2.00% over thebase rate, depending on our ratio of consolidated debt to EBITDA as defined inthe senior credit facility. At September 30, 2005 the applicable margin onthe revolving senior credit facility was 2.75% over LIBOR and 1.50% over thebase rate. The Company’s obligations under the senior credit facility areguaranteed by Mueller Water and all of the Company’s existing or futuredomestic restricted subsidiaries and is secured by substantially all of theassets of the Company and its subsidiary guarantors, including a pledge of thecapital stock of all of the Company’s existing and future domesticsubsidiaries, a pledge of no more than 65.0% of the voting stock of 

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any of the Company’sforeign subsidiaries, a pledge of all intercompany indebtedness in favor of theCompany and its domestic restricted subsidiaries, and a pledge of its capitalstock by Mueller Water. The 2004 Mueller Credit Facility contained customarycovenants, including covenants that limit the Company’s ability to incur debtand liens, pay dividends and make investments and capital expenditures, andevents of default. Mueller Group was permitted to make payments of up to$2.0 million in any fiscal year to Mueller Water Products to pay overheadexpenses of Mueller Water Products. These restrictions expired October 3,2005 in connection with the acquisition by Walter.

*SecondPriority Senior Secured Floating Rate Notes:*   TheCompany issued $100 million of such notes. Interest on the secured notesis payable at a rate equal to the three-month reserve-adjustedLondon-interbank offered rate, or LIBOR, which is reset quarterly, plus4.75% on February 1, May 1, August 1 and November 1 of eachyear, beginning on August 1, 2004. The interest rate for the interestperiod beginning August 1, 2005 is 8.44% per annum. The secured notesmature in 2011 and are guaranteed by each of the existing domestic restrictedsubsidiaries and secured by second-priority liens on the assets securingthe senior credit facility (other than certain subsidiary stock and assets ofWater). The secured notes contain customary covenants and events of default,including covenants that limit the Company’s ability to incur debt, paydividends and make investments and also include a maintenance covenant limitingthe Company’s senior total leverage as a multiple of EBITDA, as defined in theindenture.

*10%Senior Subordinated Notes:*   The Company issued$315 million of such notes. Interest on the subordinated notes is payableat an annual rate of 10% on May 1 and November 1 of each year,beginning on November 1, 2004. The subordinated notes mature in 2012 andare guaranteed by each of the Company’s existing domestic restrictedsubsidiaries. The subordinated notes contain customary covenants and events ofdefault, including covenants that limit the Company’s ability to incur debt,pay dividends and make investments. Generally, the notes only permit us to paydividends if there is no default or event of default and our fixed charge ratio(as defined) is at least 2.5 to 1, and the maximum amount we may paycannot exceed 50% of our cumulative net income (as defined) since January 1,2004, subject to specified exceptions. The Company is permitted to makedividends or loans to Mueller Water of up to $2 million in any fiscal year forcosts and expenses incurred by Mueller Water in its capacity as a holdingcompany for services rendered on behalf of the Company.

*CapitalLeases—**The*Company leases automobilesunder capital lease arrangements that expire over the next four years.

Futureminimum lease payments under scheduled capital leases that have initial orremaining non-cancelable terms in excess of one year are as follows:

| ** **                        | ** ** | **(dollars in millions)** | ** ** |
|-----------------------------------|------------|-------------------------------------|------------|
| Fiscal 2006                       |       |                                | $          | 1.1 |   |   |
| Fiscal 2007                       |       |                                | 0.9        |   |   |
| Fiscal 2008                       |       |                                | 0.5        |   |   |
| Fiscal 2009                       |       |                                | 0.1        |   |   |
| Total minimum  lease payments     |       |                                | 2.6        |   |   |
| Amount  representing interest     |       |                                | (0.4       | ) |   |
| Obligations under  capital leases |       |                                | 2.2        |   |   |
| Obligations due  within one year  |       |                                | (0.9       | ) |   |
| Long term obligations             |       |                                | $          | 1.3 |   |   |

 

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**InterestRate Swap****—The**Company has entered intointerest rate swap agreements in order to reduce interest rate risks and manageinterest expense. As of September 30, 2005, a notional principal amount of$100 million in swap agreements is still outstanding and scheduled tomature in April 2007 and May 2007. At September 30, 2005, thefair value of interest rate swaps was an asset of $0.5 million. The swapagreements effectively convert floating-rate debt into fixed-rate debt andcarry an average fixed interest rate of 4.09% at September 30, 2005.Interest differentials to be paid or received because of swap agreements arereflected as an adjustment to interest expense over the related debt period.For the three months ended January 1, 2005 Group recorded gains oninterest rate swaps of $2.3 million. While Group is exposed to credit loss onits interest rate swaps in the event of non-performance by the counterpartiesto such swaps, management believes such nonperformance is unlikely to occurgiven the financial resources of the counterparties.

**Distributionsto Water****—Mueller**Water has no materialassets other than its ownership of the Company’s capital stock and accordinglydepends upon distributions from the Company to satisfy its cash needs. MuellerWater’s principal cash needs will be debt service on its Senior Discount Notesdue 2014. These notes do not require cash interest payments until 2009 andcontain restrictive covenants that will, among other things, limit the abilityof Mueller Water and its subsidiaries (including the Company) to incur debt,pay dividends and make investments. Neither the Company nor any of itssubsidiaries guarantee these notes. Mueller Water, however, is a holdingcompany and its ability to pay interest on the notes will be dependent upon thereceipt of dividends from its subsidiaries. The Company is Mueller Water’s onlydirect subsidiary. However, the terms of the Company’s borrowing arrangementssignificantly restrict its ability to pay dividends to Mueller Water.

**Fair Value of Debt****—Based**on the levelof interest rates prevailing at September 30, 2005, the fair value of theCompany’s fixed-rate debt exceeded its carrying value by approximately $18.9million. Unrealized gains or losses on debt do not result in the realization orexpenditure of cash and generally are not recognized for financial reportingpurposes unless the debt is retired prior to its maturity.

**Net PeriodicBenefit Cost—Defined Benefit Plans**

For a detailed disclosure on the Company’s pension andemployee benefits plans, please refer to Note 10 of the Company’s AuditedConsolidated Financial Statements for the year ended September 30, 2005,as found on Form 10-K (File No. 333-117473).

Thefollowing sets forth the components of net periodic benefit cost of thedomestic non-contributory defined benefit plans for the three months and thesix months ended March 27, 2004 and April 2, 2005:

| ** **                          | ** ** | **Three months  ended**        | ** ** | **Six months  ended**  | ** ** |
|-------------------------------------|------------|-------------------------------------|------------|-----------------------------|------------|
| ** **                          | ** ** | **April 2, 2005**         | ** ** | **April 2, 2005** | ** ** |
| ** **                          | ** ** | **(dollars in millions)** | ** ** |
| Service cost                        |       |                                | $          | 0.7                         |       |   |   | $ | 1.5 |   |   |
| Interest cost                       |       |                                | 1.4        |                        |       |   | 2.7 |   |   |
| Expected return  on plan assets     |       |                                | (1.2       | )                           |       |   | (2.5 | ) |   |
| Amortization of  prior service cost |       |                                | —     |                        |       |   | 0.1 |   |   |
| Amortization of  net actuarial loss |       |                                | 0.6        |                        |       |   | 1.3 |   |   |
| Net periodic benefit  cost          |       |                                | $          | 1.5                         |       |   |   | $ | 3.1 |   |   |

 

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

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**SupplementaryBalance Sheet Information**

Selectedsupplementary balance sheet information is presented below:

| ** **                                  | ** ** | **September 30,**              | ** ** |
|---------------------------------------------|------------|-------------------------------------|------------|
| ** **                                  | ** ** | **2005**                            | ** ** |
| ** **                                  | ** ** | **(dollars in millions)** | ** ** |
| **Inventories**                             |       |                                |       |   |   |
| Purchased  materials and manufactured parts |       |                                | $          | 33.5 |   |   |
| Work in process                             |       |                                | 90.6       |   |   |
| Finished goods                              |       |                                | 178.9      |   |   |
|                                        |       |                                | $          | 303.0 |   |   |
| **Property, plant and equipment**           |       |                                |       |   |   |
| Land                                        |       |                                | $          | 9.2 |   |   |
| Buildings                                   |       |                                | 63.0       |   |   |
| Machinery and  equipment                    |       |                                | 300.0      |   |   |
| Other                                       |       |                                | 14.9       |   |   |
| Accumulated  depreciation                   |       |                                | (219.1     | ) |   |
|                                        |       |                                | $          | 168.0 |   |   |
| **Accrued expenses and other liabilities**  |       |                                |       |   |   |
| Vacations and  holidays                     |       |                                | $          | 9.7 |   |   |
| Workers  compensation                       |       |                                | 8.8        |   |   |
| Accrued interest                            |       |                                | 15.2       |   |   |
| Accrued payroll  and bonus                  |       |                                | 20.0       |   |   |
| Accrued sales  commissions                  |       |                                | 3.8        |   |   |
| Accrued cash  discounts and rebates         |       |                                | 15.8       |   |   |
| Accrued federal  and state income taxes     |       |                                | 4.4        |   |   |
| Accrued other  taxes                        |       |                                | 4.1        |   |   |
| Accrued medical  claims                     |       |                                | 4.0        |   |   |
| Other                                       |       |                                | 17.2       |   |   |
|                                        |       |                                | $          | 103.0 |   |   |

 

**SupplementaryIncome Statement Information**

The componentsof interest expense are presented below:

| ** **                                        | ** ** | **Three months  ended**        | ** ** | **Six months  ended**  | ** ** |
|---------------------------------------------------|------------|-------------------------------------|------------|-----------------------------|------------|
| ** **                                        | ** ** | **April 2, 2005**         | ** ** | **April 2, 2005** | ** ** |
| ** **                                        | ** ** | **(dollars in millions)** | ** ** |
| **Interest  expense and early repayment costs:**  | ** ** |                                | ** ** | ** **                  |       |   | ** ** | ** ** |   |
| Contractual interest expense                      |       |                                | $          | 17.9                        |       |   |   | $ | 35.6 |   |   |
| Deferred financing fee amortization               |       |                                | 1.3        |                        |       |   | 2.4 |   |   |
| Senior subordinated debt early redemption penalty |       |                                | —     |                        |       |   | — |   |   |
| Write off of deferred financing fees              |       |                                | —     |                        |       |   | — |   |   |
| Interest rate swap gains                          |       |                                | (0.6       | )                           |       |   | (2.9 | ) |   |
| Total interest expense  and early repayment costs |       |                                | $          | 18.6                        |       |   |   | $ | 35.1 |   |   |

 

**FacilityRationalization, Restructuring and Related Costs**

In the first quarter offiscal 2005, the Company announced that it would cease manufacturing and beginoutsourcing a product line it produced at its water infrastructure plant inColorado. A restructuring 

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chargeof $0.1 million in the first quarter of fiscal 2005 related to severancepayments. An additional charge of $1.5 million, related primarily to thetermination of operating leases for the plant building and machinery, isreflected in the second quarter of fiscal 2005.

**ConsolidatingGuarantor and Non-Guarantor Financial Information**

The following tables setforth the Consolidating Statements of Operations for the three and six monthsended April 2, 2005 and the Consolidating Statement of Cash Flows for thesix months ended April 2, 2005 and the Consolidating Balance Sheet as of September 30,2005. The following information is included as a result of the guarantee bycertain of the Company’s wholly owned U.S. subsidiaries (“Guarantor Companies”)of the second priority senior secured notes and senior subordinated notesissued by the Company. None of the Company’s other subsidiaries guarantee thedebt. Each of the guarantees is joint and several and full and unconditional. “MuellerGroup, Inc.” (“Issuer”) includes the consolidated financial results ofMueller Group, Inc. with all of its wholly-owned subsidiariesaccounted for under the equity method.

**ConsolidatingStatement of Operations**

**Forthe Three Months Ended April 2, 2005**

| ** **                                                                         | ** ** | **Issuer** | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminating** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------|------------|------------|------------|-----------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------|------------|
| Net sales                                                                          |       | $          | —     |                        |       | $                            | 230.6      |                           |       |             | $          | 54.6 |   |   |   | $ | — |   |   |   | $ | 285.2 |   |   |
| Cost of sales                                                                      |       | —     |       |                        | 154.7      |                         |       |                           | 44.3       |             |       |   | — |   |   |   | 199.0 |   |   |
| Royalty expense                                                                    |       | —     |       |                        | —     |                         |       |                           | —     |             |       |   | — |   |   |   | — |   |   |
| Gross profit                                                                       |       | —     |       |                        | 75.9       |                         |       |                           | 10.3       |             |       |   | — |   |   |   | 86.2 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       | 1.3        |       |                        | 37.7       |                         |       |                           | 7.1        |             |       |   | — |   |   |   | 46.1 |   |   |
| Facility  rationalization and related costs                                        |       | —     |       |                        | 1.5        |                         |       |                           | —     |             |       |   | — |   |   |   | 1.5 |   |   |
| Operating income  (loss)                                                           |       | (1.3       | )          |                        | 36.7       |                         |       |                           | 3.2        |             |       |   | — |   |   |   | 38.6 |   |   |
| Interest expense                                                                   |       | (18.5      | )          |                        | (0.2       | )                            |       |                           | —     |             |       |   | 0.1 |   |   |   | (18.6 | ) |   |
| Interest income                                                                    |       | 0.1        |       |                        | 0.1        |                         |       |                           | 0.1        |             |       |   | (0.1 | ) |   |   | 0.2 |   |   |
| Income (loss)  before income taxes                                                 |       | (19.7      | )          |                        | 36.6       |                         |       |                           | 3.3        |             |       |   | — |   |   |   | 20.2 |   |   |
| Income tax  expense (benefit)                                                      |       | (7.6       | )          |                        | 14.2       |                         |       |                           | 1.2        |             |       |   | — |   |   |   | 7.8 |   |   |
| Equity income  from subsidiaries                                                   |       | 24.5       |       |                        | 2.1        |                         |       |                           | —     |             |       |   | (26.6 | ) |   |   | — |   |   |
| Net income                                                                         |       | $          | 12.4       |                        |       | $                            | 24.5       |                           |       |             | $          | 2.1 |   |   |   | $ | (26.6 | ) |   |   | $ | 12.4 |   |   |

 

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**ConsolidatingStatement of Operations**

**Forthe Six Months Ended April 2, 2005**

| ** **                                                                         | ** ** | **Issuer** | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminating** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------|------------|------------|------------|-----------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------|------------|
| Net sales                                                                          |       | $          | —     |                        |       | $                            | 433.3      |                           |       |             | $          | 108.0 |   |   |   | $ | — |   |   |   | $ | 541.3 |   |   |
| Cost of sales                                                                      |       | —     |       |                        | 294.3      |                         |       |                           | 86.6       |             |       |   | — |   |   |   | 380.9 |   |   |
| Royalty expense                                                                    |       | —     |       |                        | —     |                         |       |                           | —     |             |       |   | — |   |   |   | — |   |   |
| Gross profit                                                                       |       | —     |       |                        | 139.0      |                         |       |                           | 21.4       |             |       |   | — |   |   |   | 160.4 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       | 4.2        |       |                        | 69.1       |                         |       |                           | 14.6       |             |       |   | — |   |   |   | 87.9 |   |   |
| Facility  rationalization and related costs                                        |       | —     |       |                        | 1.6        |                         |       |                           | —     |             |       |   | — |   |   |   | 1.6 |   |   |
| Operating income  (loss)                                                           |       | (4.2       | )          |                        | 68.3       |                         |       |                           | 6.8        |             |       |   | — |   |   |   | 70.9 |   |   |
| Interest expense                                                                   |       | (35.0      | )          |                        | (0.3       | )                            |       |                           | —     |             |       |   | 0.2 |   |   |   | (35.1 | ) |   |
| Interest income                                                                    |       | 0.4        |       |                        | 0.2        |                         |       |                           | 0.2        |             |       |   | (0.2 | ) |   |   | 0.6 |   |   |
| Income (loss)  before income taxes                                                 |       | (38.8      | )          |                        | 68.2       |                         |       |                           | 7.0        |             |       |   | — |   |   |   | 36.4 |   |   |
| Income tax  expense (benefit)                                                      |       | (15.0      | )          |                        | 26.6       |                         |       |                           | 2.5        |             |       |   | — |   |   |   | 14.1 |   |   |
| Equity income  from subsidiaries                                                   |       | 46.1       |       |                        | 4.5        |                         |       |                           | —     |             |       |   | (50.6 | ) |   |   | — |   |   |
| Net income                                                                         |       | $          | 22.3       |                        |       | $                            | 46.1       |                           |       |             | $          | 4.5 |   |   |   | $ | (50.6 | ) |   |   | $ | 22.3 |   |   |

 

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**Consolidating Balance SheetFor Predecessor Mueller GroupSeptember 30, 2005**

| ** **                                                 | ** ** | **Issuer**                          | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **(dollars in millions)** | ** ** |
| **Assets**                                                 | ** ** | ** **                          | ** ** |                        | ** ** | ** **                   |       |                            | ** ** | ** **       |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Cash and cash  equivalents                                 |       | $                                   | 94.5       |                        |       | $                            | (11.4      | )                               |       |             | $          | 29.7 |   |   |   | $ | — |   |   |   | $ | 112.8 |   |   |
| Receivables, net                                           |       | —                              |       |                        | 143.6      |                         |       |                            | 33.8       |             |       |   | — |   |   |   | 177.4 |   |   |
| Inventories                                                |       | —                              |       |                        | 247.1      |                         |       |                            | 55.9       |             |       |   | — |   |   |   | 303.0 |   |   |
| Deferred income  taxes                                     |       | —                              |       |                        | 27.7       |                         |       |                            | —     |             |       |   | — |   |   |   | 27.7 |   |   |
| Prepaid expenses                                           |       | —                              |       |                        | 28.7       |                         |       |                            | 2.4        |             |       |   | — |   |   |   | 31.1 |   |   |
| Total current  assets                                      |       | 94.5                                |       |                        | 435.7      |                         |       |                            | 121.8      |             |       |   | — |   |   |   | 652.0 |   |   |
| Property, plant  and equipment,  net                       |       | —                              |       |                        | 153.9      |                         |       |                            | 14.1       |             |       |   | — |   |   |   | 168.0 |   |   |
| Deferred  financing fees, net                              |       | 29.0                                |       |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | 29.0 |   |   |
| Deferred income  taxes                                     |       | (4.1                                | )          |                        | 15.6       |                         |       |                            | (0.6       | )                |       |   | — |   |   |   | 10.9 |   |   |
| Other long-term  assets                                    |       | 0.5                                 |       |                        | 1.0        |                         |       |                            | —     |             |       |   | — |   |   |   | 1.5 |   |   |
| Identifiable  intangibles, net                             |       | —                              |       |                        | 52.4       |                         |       |                            | —     |             |       |   | — |   |   |   | 52.4 |   |   |
| Goodwill                                                   |       | —                              |       |                        | 163.2      |                         |       |                            | —     |             |       |   | — |   |   |   | 163.2 |   |   |
| Investment in  subsidiaires                                |       | 1,190.1                             |       |                        | 42.4       |                         |       |                            | —     |             |       |   | (1,232.5 | ) |   |   | — |   |   |
| Total assets                                               |       | $                                   | 1,310.0    |                        |       | $                            | 864.2      |                            |       |             | $          | 135.3 |   |   |   | $ | (1,232.5 | ) |   |   | $ | 1,077.0 |   |   |
| **Liabilities**                                            | ** ** | ** **                          | ** ** |                        | ** ** | ** **                   |       |                            | ** ** | ** **       |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Accounts payable                                           |       | $                                   | 10.0       |                        |       | $                            | 37.2       |                            |       |             | $          | 16.1 |   |   |   | $ | — |   |   |   | $ | 63.3 |   |   |
| Current portion  of long-term  debt                        |       | 2.8                                 |       |                        | 1.0        |                         |       |                            | —     |             |       |   | — |   |   |   | 3.8 |   |   |
| Accrued expenses                                           |       | 18.3                                |       |                        | 74.6       |                         |       |                            | 10.1       |             |       |   | — |   |   |   | 103.0 |   |   |
| Total current  liabilities                                 |       | 31.1                                |       |                        | 112.8      |                         |       |                            | 26.2       |             |       |   | — |   |   |   | 170.1 |   |   |
| Intercompany  accounts                                     |       | 410.9                               |       |                        | (478.1     | )                            |       |                            | 67.2       |             |       |   | — |   |   |   | — |   |   |
| Long-term  debt                                            |       | 925.0                               |       |                        | 1.2        |                         |       |                            | —     |             |       |   | — |   |   |   | 926.2 |   |   |
| Accrued pension  liability                                 |       | —                              |       |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | 37.7 |   |   |
| Other long-term  liabilities                               |       | 1.5                                 |       |                        | 38.2       |                         |       |                            | (0.5       | )                |       |   | — |   |   |   | 1.5 |   |   |
| Total liabilities                                          |       | 1,368.5                             |       |                        | (325.9     | )                            |       |                            | 92.9       |             |       |   | — |   |   |   | 1,135.5 |   |   |
| **Shareholders’  equity**                             | ** ** | ** **                          | ** ** |                        | ** ** | ** **                   |       |                            | ** ** | ** **       |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Total  shareholders’ equity  (deficit)                |       | (58.5                               | )          |                        | 1,190.1    |                         |       |                            | 42.4       |             |       |   | (1,232.5 | ) |   |   | (58.5 | ) |   |
| Total liabilities and  shareholders’ equity (deficit) |       | $                                   | 1,310.0    |                        |       | $                            | 864.2      |                            |       |             | $          | 135.3 |   |   |   | $ | (1,232.5 | ) |   |   | $ | 1,077.0 |   |   |

 

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**Consolidating Statement of Cash FlowsFor the Six Months Ended April 2, 2005**

| ** **                                                           | ** ** | **Issuer** | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------|------------|------------|------------|-----------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
| Net cash provided  by operating activities                           |       | $          | (19.8      | )                           |       | $                            | 29.6       |                            |       |             | $          | (4.1 | ) |   |   | — |   |   |   | $ | 5.7 |   |   |
| **Cash  flows from investing activities**                            | ** ** | ** ** | ** ** |                        |       |                         |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Capital  expenditures                                                |       | —     |       |                        | (12.6      | )                            |       |                            | (1.0       | )                |       |   | — |   |   |   | (13.6 | ) |   |
| Net cash provided  by (used in) investing activities                 |       | —     |       |                        | (12.6      | )                            |       |                            | (1.0       | )                |       |   | — |   |   |   | (13.6 | ) |   |
| **Cash  flows from financing activities**                            | ** ** | ** ** | ** ** |                        |       |                         |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Book overdrafts                                                      |       | 4.9        |       |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | 4.9 |   |   |
| Intercompany  change                                                 |       | 22.9       |       |                        | (20.5      | )                            |       |                            | (2.4       | )                |       |   | — |   |   |   | — |   |   |
| Payment of long-term  debt, including capital lease obligations |       | (0.7       | )          |                        | (0.5       | )                            |       |                            | —     |             |       |   | — |   |   |   | (1.2 | ) |   |
| Net cash provided  by (used in) financing activities                 |       | 27.1       |       |                        | (21.0      | )                            |       |                            | (2.4       | )                |       |   | — |   |   |   | 3.7 |   |   |
| Effect of  exchange rate changes on cash                        |       | —     |       |                        | —     |                         |       |                            | 0.6        |             |       |   | — |   |   |   | 0.6 |   |   |
| Increase  (decrease) in cash                                         |       | 7.3        |       |                        | (4.0       | )                            |       |                            | (6.9       | )                |       |   | — |   |   |   | (3.6 | ) |   |
| **Cash  and cash equivalents**                                       | ** ** | ** ** | ** ** |                        |       |                         |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Beginning of  period                                                 |       | 49.8       |       |                        | (7.9       | )                            |       |                            | 18.6       |             |       |   | — |   |   |   | 60.5 |   |   |
| End of period                                                        |       | $          | 57.1       |                        |       | $                            | (11.9      | )                               |       |             | $          | 11.7 |   |   |   | — |   |   |   | $ | 56.9 |   |   |

----

(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   |                                 |       |

 

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

In this report, each of the terms “Group,” the “Company,”“we,” “us” or “our” refers to Mueller Group, LLC and its subsidiaries, exceptwhere the context makes clear that the reference is only to Mueller Group, LLCitself, and is not inclusive of its subsidiaries.

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 second fiscal quarterends on March 31.

**Overview**

*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 October 3, 2005, through a series of transactions(the “Acquisition”), Walter Industries, Inc. (“Walter”), through awholly-owned subsidiary, acquired all outstanding shares of capital stock ofour parent company, Mueller Water Products, Inc. (“Predecessor MuellerWater”), which immediately was converted into Mueller Water Products, LLC, aDelaware limited liability company and contributed United States Pipe andFoundry Company, LLC, (“U.S. Pipe”), owned by Walter since 1969, to theacquired company’s wholly-owned subsidiary, Mueller Group, LLC (“PredecessorMueller Group”). In accordance with generally accepted accounting principles,for accounting purposes U.S. Pipe is treated as the acquirer of PredecessorMueller Group. Accordingly, effective October 3, 2005, U.S. Pipe’s basisof accounting is used for the Company and all historical financial data of theCompany included in this report on Form 10-Q, is that of U.S. Pipe.The results of operations of Predecessor Mueller Group are included in theConsolidated Statements 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 Industries, Inc., a diversified New York Stock Exchange tradedcompany (NYSE: WLT). On September 23, 2005, Inc. was dissolved andUnited States Pipe and Foundry Company, LLC was organized in the state ofAlabama, and the operations of Inc. were conducted under the form of a limitedliability company.

In December 2005, U.S. Pipe changed its fiscalyear-end to September 30, which coincides with the fiscal year end ofPredecessor Mueller Group. Beginning with the quarter ended December 31,2005, the Company has three operating segments which are named after ourleading brands in each segment: Mueller, U.S. Pipe, and Anvil.

Consistent with generallyaccepted accounting principles, the discussion of the Company’s results ofoperations for the three and six months ended March 31, 2006 includes thefinancial results of Predecessor Mueller Group from the Acquisition date. Theinclusion of these results, plus the continuing integration process, may renderdirect comparison with the results for prior periods less meaningful. Accordingly,the discussion below addresses, where appropriate, trends that we believe aresignificant, separate and apart from the impact of the Acquisition. Supplementalinformation with comparisons of the three and six months ended March 31,2006 Statements of Operations data to the pro forma three and six months ended March 31,2005 Statements of Operations data is provided below under the subheadings “SupplementalInformation—Results of Operations for the Three Months Ended March 31,2006 Compared to Pro Forma Results of Operations for the Three Months Ended March 31,2005” and “Supplemental Information—Results of Operations for the Six MonthsEnded March 31, 2006 Compared to Pro Forma Results of Operations for theSix Months Ended March 31, 2005.”

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*Business*

We are a leading North American manufacturer of a broad range ofwater infrastructure and flow control products for use in water distributionnetworks, water and wastewater treatment facilities, gas distribution andpiping systems. We manage our business and report operations through threeoperating segments, based largely on the products they sell and the marketsthey serve. Our segments are named after lead brands in each segment:

·       *Mueller*.   The Mueller segment produces and sells hydrants, valvesand related products primarily to the water and wastewater infrastructuremarkets. Sales of our Mueller segment products are driven principally byspending on water and wastewater infrastructure upgrade, repair and replacementand new water and wastewater infrastructure. Subsequent to the Acquisition,effective January 1, 2006, U.S. Pipe transferred its valve and hydrantbusiness to our Mueller segment. Mueller segment sales are estimated to beapproximately 50% for new infrastructure, with the remainder for upgrade,repair and replacement. A significant portion of Mueller’s sales are madethrough its broad distributor network. For most of our Mueller segmentproducts, which are sold through independent distributors, end-users choose thebrand or establish product specifications. We believe our reputation forquality, extensive distributor relationships, installed base and coordinatedmarketing approach have helped our Mueller segment products to be “specified”as an approved product for use in most major metropolitan areas throughout theUnited States.

·       *U.S. Pipe*.   The U.S. Pipe segment produces and sells ductile ironpressure pipe, restraint joints and fittings and related products to the waterinfrastructure market. U.S. Pipe products are sold primarily to water worksdistributors, contractors, municipalities, private utilities and othergovernmental agencies. A substantial percentage of ductile iron pressure pipeorders result from contracts that are bid by contractors or directly issued bymunicipalities or private utilities. To support our customers’ inventory anddelivery requirements, U.S. Pipe utilizes numerous storage depots throughoutthe country.

·       *Anvil*.   The Anvil segment produces, sources and sells pipefittings, pipe hangers and pipe nipples and a variety of related productsprimarily to the commercial fire protection piping systems and HVACapplications market. Sales of our Anvil segment products are driven principallyby spending on non-residential construction projects.

*Developments andTrends*

The Acquisition of Predecessor Mueller Water on October 3,2005, as well as other developments, trends and factors may impact our futureresults including the following:

·       Recent price increases in brass ingot, which conatinsapproximately 85% copper, have increased the overall cost of manufacturingcertain Mueller segment products, including certain hydrant and valvecomponents. The Mueller segment raised prices on certain brass products by 10%,effective May 1, 2006 and announced another 12% increase on certain brassproducts, effective June 5, 2006, as well as announcing an increase oncertain hydrants and iron valves containing brass components, effectiveMay 26, 2006, which is expected to partially offset the increase in brassingot costs. The cost of copper has continued to rise and we may need toimplement further pricing actions to offset higher raw material costs.

·       As presented herein, the operating results from the Acquisition ofPredecessor Mueller Group will be consolidated with those of U.S. Pipe’sresults from October 3, 2005, the date of Acquisition.

·       In the quarter ended December 31, 2005, the Company, enteredinto the 2005 Mueller Credit Agreement. Proceeds of the 2005 Mueller CreditAgreement were approximately $1,053.4 million, net of approximately $21.6million of underwriting fees and expenses which will be amortized over 

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the life of the loans. The proceeds were used to refinancePredecessor Mueller Group’s 2004 Credit Facility (“2004 Mueller Credit Facility”),redeem Predecessor Mueller Group’s second priority senior secured floating ratenotes, and finance the acquisition of Predecessor Mueller Group by WalterIndustries. During the period subsequent to September 30, 2005, and priorto Walter Industries acquiring Predecessor Mueller Group on October 3,2005, Predecessor Mueller Group expensed $18.4 million of deferred financingfees related to the 2004 Mueller Credit Facility and wrote off $2.4 million ofdeferred financing fees related to the second priority senior secured floatingrate notes. These expenses are excluded from the results of operations for theperiods presented.

·       In the period subsequent to September 30, 2005 and prior toWalter Industries acquiring Predecessor Mueller Group on October 3, 2005,Predecessor Mueller Group expensed transaction fees of approximately $20.1million and transaction bonuses of $10.0 million. These fees were contingentupon completion of the sale of Predecessor Mueller Group to Walter Industries.Non-contingent legal and other fees and expenses of approximately $3.1 millionassociated solely with the Acquisition were expensed by Predecessor MuellerGroup during the fiscal year ended September 30, 2005. These expenses areexcluded from the results of operations for the periods presented.

·       We have initiated a synergy plan designed to streamline ourmanufacturing operations, add incremental volume through combining salesefforts for complementary products and create savings through a coordinatedpurchasing plan to reduce raw material and overall production costs. We expectthat the full implementation of our synergy plan by early fiscal 2008 willproduce approximately $40-$50 million of ongoing incremental annualoperating income. These benefits could be higher if additional production,purchasing and sales improvements are realized.

As part of the synergy plan, in October 2005we announced and have initiated several closures:

·        *Closure of the U.S. Pipe Chattanooga, TennesseePlant.  *EffectiveJanuary 1, 2006, we transferred the valve and hydrant production of theU.S. Pipe Chattanooga, Tennessee plant to our Mueller segment’s Chattanooga,Tennessee and Albertville, Alabama plants. The eventual closure of the U.S.Pipe Chattanooga, Tennessee plant will occur sometime in fiscal 2006. Totalcosts related to this plant closure are expected to be approximately $47.6million, which will be expensed and included as a component of operating incomein accordance with generally accepted accounting principles. Costs recorded ascomponents of operating income for the three months and six months ended March 31,2006 were $2.4 million and $18.3 million, respectively, charged to cost of salesrelated to inventory obsolescence and additional facility expenses and $4.3million and $28.4 million, respectively, of restructuring costs primarilyrelated to fixed asset impairments, severance, net pension curtailmentsettlement and environmental costs.

·        *Closure of the Mueller segment’s Henry Pratt (“Pratt”) ValveManufacturing Facility in Dixon, Illinois*.   On January 26,2006 we announced the closure of this facility by the end of fiscal 2006. Theprocess of transferring the Dixon plant’s operations to other Pratt facilitieshas begun. Severance costs associated with this plant closure of approximately$1.4 million will be allocated to goodwill. Costs associated with relocatingequipment will be expensed as incurred. For the three months ended March 31,2006, the Company has recorded $0.3 million in severance costs to goodwill.

·        *Closure ofthe Mueller Canada Milton, Ontario (“Milton”) Valve and Hydrant ManufacturingFacility.  *On April 20, 2006, we announced the closure ofthis facility by the end of fiscal 2006. Production will be transferred toother Mueller facilities beginning in the third quarter of fiscal 2006. Severancecosts associated with this plant closure will be charged to goodwill. Costs 

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associated with relocatingthe Milton warehouse and equipment will be expensed as incurred. No costs havebeen incurred or charged to goodwill for the three months ended March 31, 2006.

·        The Company has otherplans that were formally identified prior to the Acquisition to rationalizefacilities and substantial cash expenditures in the form of severance and newequipment may be required to implement these plans. Although certainexpenditures related to future plant rationalizations are expected to qualifyfor purchase accounting treatment and are not expected to be charged tooperations, all costs of future facility rationalizations may not qualify forpurchase accounting treatment.

·       In 2005, Walter Industriesannounced its plan to undertake an initial public offering (“the IPO”) andspin-off of Mueller Water. The IPO is expected to take place during the quarterending June 30, 2006, with a subsequent tax-free spin-off to WalterIndustries’ stockholders not earlier than six months after the IPO of MuellerWater of Walter Industries’ ownership interest in Mueller Water. On February 3,2006, Mueller Water filed with the Securities and Exchange Commission aregistration statement on Form S-1 (Registration No. 333-131536) forthe IPO. The Company filed Amendment No. 1 to the registration statementon Form S-1/A on March 31, 2006 and Amendment No. 2 on May 2,2006. The registration has not yet been declared effective.

·       Assumingthat the IPO is completed during the quarter ending June 30, 2006, theCompany expects to recognize a pre-tax charge of approximately $11 millionassociated with the early redemption of debt.

·       On January 4, 2006, theCompany acquired Hunt Industries, Inc. (“Hunt”) for $6.8 million in cash.Hunt, based in Murfreesboro, Tennessee, is a manufacturer of meter pits andmeter yokes which are sold by the Company’s Mueller segment.

·       On January 27, 2006,the Company acquired the operating assets of CCNE, L.L.C. (“CCNE”), aConnecticut-based manufacturer and seller of check valves to the water andwastewater treatment markets, for $8.8 million in cash. The Company acquiredcertain identifiable intangible assets in conjunction with the CCNEacquisition, resulting in additional annual amortization expense of approximately$1.5 million over the next four and a half years.

·       Mueller Water has announced its intention to enter into atax allocation agreement (“Tax Allocation Agreement”) with Walter Industries inconnection with the IPO of the Company’s Common Stock and the announcedspin-off of Mueller Water by Walter Industries. Pursuant to the Tax AllocationAgreement, Mueller Water and Walter Industries will make payments to each otherto compensate the payee for income taxes owed and paid by the payee, subject tocertain adjustments, that would not have been payable by that party had eachparty filed separate federal, state and local income tax returns for thoseperiods prior to the spin-off in which Mueller Water filed combined,consolidated or unitary (as applicable) federal, state and local returns as aconsolidated subsidiary of Walter Industries. With respect to our tax assets,our right to reimbursement from Walter Industries will be determined based onthe usage of such tax assets by the Walter Industries consolidated federalincome tax group or the combined, consolidated or unitary state or local incometax group. For all periods prior to the spin-off, Walter Industries willcontinue to have all the rights of a parent of a consolidated group, will bethe sole and exclusive agent for us in any and all matters relating to thecombined, consolidated or unitary federal, state and local income taxliabilities of us, will have sole and exclusive responsibility for thepreparation and filing of consolidated federal income and consolidated orcombined state and local tax returns (or amended returns), and will have thepower to contest or compromise any asserted tax adjustment or deficiency and tofile, litigate or compromise any claim for refund on behalf of us 

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related to any suchcombined, consolidated or unitary (as applicable) federal, state or local taxreturn.

·       Mueller Water has announcedits intention to issue restricted stock to officers and employees in connectionwith the IPO and intends to adopt a new 2006 stock incentive plan designed topromote long-term growth and financial success by providing incentives toemployees and directors through grants of stock-based awards. Stockcompensation expense, net of tax, resulting from the issuance of restrictedstock in connection with the IPO is estimated to be $2.0 million in 2006.

·       As of March 31, 2006,scrap metal costs for our U.S. Pipe segment declined nearly 20% from their peakin 2004. The average cost of scrap iron per ton produced during the threemonths ended March 31, 2006 improved nearly 5% compared to the averagecost during the three months ended March 31, 2005. Recently scrap costshave increased: the average cost of scrap iron per ton produced during themonth of April 2006 increased 3.5% over the average cost during the threemonths ended March 31, 2006.

·       In the fiscal year ended September 30,2005, on a pro forma basis, approximately 37% of our pro forma sales were toour ten largest distributors, and approximately 30% of our pro forma sales wereto our three largest distributors: Hughes Supply, Ferguson Enterprises, andNational Waterworks. While our relationships with our ten largest distributorshave been of long duration, distributors in our industry have experiencedsignificant consolidateion in recent years. As consolidation among distributorscontinues, pricing pressure may result, which could lead to a significantdecline in our profitability. For example, Home Depot acquired NationalWaterworks in 2005 and announced in March 2006 that it had completed itsacquisition of Hughes Supply. As a result, two of our three largestdistributors have been combined under common control. Moreover, the loss of anyof National Waterworks, Hughes Supply or Ferguson Enterprises as a distributorcould significantly reduce our levels of sales and profitability.

**Forward-LookingStatements**

This report contains certain statements that may bedeemed “forward-looking statements” within the meaning of Section 21E ofthe Securities Exchange Act of 1934. Allstatements other than statements of historical fact are statements that couldbe deemed forward looking statements. In this context, forward-lookingstatements often address our future business and financial performance, and maybe characterized by terminology such as “believe”, “anticipate”, “should”, “intend”,“plan”, “will”, “expects”, “estimates”, “projects”, “positioned”, “strategy”,and similar expressions. These statements are based on assumptions andassessments made by the Company’s management in light of its experience and itsperception of historical trends, current conditions, expected futuredevelopments and other factors it believes to be appropriate. These forwardlooking statements are subject to a number of risks and uncertainties, includingbut not limited to: the Company’s ability to continue long-standingrelationships with major customers; increased competition; demand for andmarket acceptance of new and existing products in the markets we serve; adversechanges in currency exchange rates or raw material prices, specifically steelscrap, steel pipe and brass ingot; unanticipated developments that could occurwith respect to contingencies such as litigation, product liability exposuresand environmental matters; the Company’s ability to integrate acquiredbusinesses into its operations; and other risks and uncertainties that affectthe manufacturing sector generally including, but not limited to, economic,political, governmental and technological factors affecting the Company’soperations, markets, products, services and prices. Any such forward lookingstatements are not guarantees of future performances and actual results,developments and business decisions may differ from those envisaged by suchforward looking statements. These forward looking statements speak only as ofthe date of this Quarterly Report. The Company disclaims any duty to update anyforward looking statement, all of which are expressly qualified by theforegoing Forward-Looking Statements.

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**Results ofOperations**

***Three Months Ended March 31,2006 As Compared to the Three Months Ended March 31, 2005 (dollars inmillions)***

| ** **                                                      | ** ** | **Three months ended March 31,** | ** ** | ** **                            | ** ** | ** **                                  | ** ** |
|-----------------------------------------------------------------|------------|------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                             | ** ** | **2005**                              | ** ** | **FY06 Q2 vs. FY05 Q2** | ** ** |
| ** **                                                      | ** ** | ** **                                           | ** ** | **Percentage  of net  sales(1)** | ** ** | ** **                                  | ** ** | **Percentage  of net  sales(1)** | ** ** | **Increase/  (decrease)** | ** ** | **Percentage  increase/  (decrease)** | ** ** |
| Net sales                                                       |       |                                                 |       |                                  |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                         |       | $ 193.3                                         |       |                                  | 44.4       | %                                           |       | $    — |   |   | — | % |   |   | $ 193.3 |   |   |   |   |   |   |
| U.S. Pipe                                                       |       | 119.7                                                |       |                                  | 27.5       |                                        |       | 124.7 |   |   | 100.0 |   |   |   | (5.0 | ) |   |   | (4.0 | )% |   |
| Anvil                                                           |       | 127.4                                                |       |                                  | 29.3       |                                        |       | — |   |   | — |   |   |   | 127.4 |   |   |   |   |   |   |
| Consolidating  eliminations                                     |       | (5.5                                                 | )          |                                  | (1.3       | )                                           |       | — |   |   | — |   |   |   | (5.5 | ) |   |   |   |   |   |
| Consolidated                                                    |       | $ 434.9                                         |       |                                  | 100.0      |                                        |       | $ 124.7 |   |   | 100.0 |   |   |   | $ 310.2 |   |   |   |   |   |   |
| Gross profit                                                    |       |                                                 |       |                                  |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                         |       | $ 58.0                                          |       |                                  | 30.0       |                                        |       | $    — |   |   | — |   |   |   | $ 58.0 |   |   |   |   |   |   |
| U.S. Pipe                                                       |       | 9.4                                                  |       |                                  | 7.9        |                                        |       | 10.6 |   |   | 8.5 |   |   |   | (1.2 | ) |   |   | (11.3 | ) |   |
| Anvil                                                           |       | 27.8                                                 |       |                                  | 21.8       |                                        |       | — |   |   | — |   |   |   | 27.8 |   |   |   |   |   |   |
| Consolidating  eliminations                                     |       | (0.6                                                 | )          |                                  | (0.1       | )                                           |       | — |   |   | — |   |   |   | (0.6 | ) |   |   |   |   |   |
| Consolidated                                                    |       | $ 94.6                                          |       |                                  | 21.8       |                                        |       | $ 10.6 |   |   | 8.5 |   |   |   | $ 84.0 |   |   |   |   |   |   |
| Selling, general and administrative                             |       |                                                 |       |                                  |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                         |       | $ 18.8                                          |       |                                  | 9.7        |                                        |       | $    — |   |   | — |   |   |   | $ 18.8 |   |   |   |   |   |   |
| U.S. Pipe                                                       |       | 10.3                                                 |       |                                  | 8.6        |                                        |       | 5.1 |   |   | 4.1 |   |   |   | 5.2 |   |   |   |   |   |   |
| Anvil                                                           |       | 22.8                                                 |       |                                  | 17.9       |                                        |       | — |   |   | — |   |   |   | 22.8 |   |   |   |   |   |   |
| Corporate                                                       |       | 8.9                                                  |       |                                  | 2.0        |                                        |       | — |   |   | — |   |   |   | 8.9 |   |   |   |   |   |   |
| Consolidated                                                    |       | $ 60.8                                          |       |                                  | 13.9       |                                        |       | $   5.1 |   |   | 4.1 |   |   |   | $ 55.7 |   |   |   |   |   |   |
| Related party corporate charges                                 |       |                                                 |       |                                  |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                         |       | $    —                      |       |                                  | —     |                                        |       | $    — |   |   | — |   |   |   | $    — |   |   |   |   |   |   |
| U.S. Pipe                                                       |       | 2.0                                                  |       |                                  | 1.7        |                                        |       | 1.8 |   |   | 1.4 |   |   |   | 0.2 |   |   |   | 11.1 |   |   |
| Anvil                                                           |       | —                                               |       |                                  | —     |                                        |       | — |   |   | — |   |   |   | — |   |   |   |   |   |   |
| Consolidated                                                    |       | $   2.0                               |       |                                  | 0.5        |                                        |       | $   1.8 |   |   | 1.4 |   |   |   | $   0.2 |   |   |   |   |   |   |
| Facility rationalization, restructuring and related  costs      |       |                                                 |       |                                  |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                         |       | $    —                      |       |                                  | —     |                                        |       | $    — |   |   | — |   |   |   | $    — |   |   |   |   |   |   |
| U.S. Pipe                                                       |       | 4.3                                                  |       |                                  | 3.6        |                                        |       | — |   |   | — |   |   |   | 4.3 |   |   |   |   |   |   |
| Anvil                                                           |       | —                                               |       |                                  | —     |                                        |       | — |   |   | — |   |   |   | — |   |   |   |   |   |   |
| Consolidated                                                    |       | $   4.3                               |       |                                  | 1.0        |                                        |       | $    — |   |   | — |   |   |   | $   4.3 |   |   |   |   |   |   |
| Income (loss) from operations                                   |       |                                                 |       |                                  |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                         |       | $ 39.2                                          |       |                                  | 20.3       |                                        |       | $    — |   |   | — |   |   |   | $ 39.2 |   |   |   |   |   |   |
| U.S. Pipe                                                       |       | (7.2                                                 | )          |                                  | (6.0       | )                                           |       | 3.7 |   |   | 3.0 |   |   |   | (10.9 | ) |   |   |   |   |   |
| Anvil                                                           |       | 5.0                                                  |       |                                  | 3.9        |                                        |       | — |   |   | — |   |   |   | 5.0 |   |   |   |   |   |   |
| Corporate                                                       |       | (8.9                                                 | )          |                                  | (2.0       | )                                           |       | — |   |   | — |   |   |   | (8.9 | ) |   |   |   |   |   |
| Consolidating  eliminations                                     |       | (0.6                                                 | )          |                                  | (0.1       | )                                           |       | — |   |   | — |   |   |   | (0.6 | ) |   |   |   |   |   |
| Consolidated                                                    |       | $ 27.5                                          |       |                                  | 6.3        |                                        |       | $   3.7 |   |   | 3.0 |   |   |   | $ 23.8 |   |   |   |   |   |   |
| Interest expense arising  from related party  payable to Walter |       | $    —                      |       |                                  | —     |                                        |       | $ (5.1 | ) |   | (4.1 | ) |   |   | $   5.1 |   |   |   |   |   |   |
| Interest expense, net of  interest income                       |       | (25.9                                                | )          |                                  | (6.0       | )                                           |       | (0.2 | ) |   | (0.2 | ) |   |   | (25.7 | ) |   |   |   |   |   |
| Income (loss) before  income taxes                              |       | 1.6                                                  |       |                                  | 0.4        |                                        |       | (1.6 | ) |   | (1.3 | ) |   |   | 3.2 |   |   |   |   |   |   |
| Income tax expense  (benefit)                                   |       | 0.6                                                  |       |                                  | 0.1        |                                        |       | (0.4 | ) |   | (0.3 | ) |   |   | 1.0 |   |   |   |   |   |   |
| Net income (loss)                                               |       | $   1.0                               |       |                                  | 0.2        |                                        |       | $ (1.2 | ) |   | (1.0 | ) |   |   | $   2.2 |   |   |   |   |   |   |

----

(1)          Percentages are by segment, if applicable.

51

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*NetSales.**  *Consolidatednet sales for the three months ended March 31, 2006 were $434.9 million,an increase of $310.2 million from $124.7 million in the prior yearperiod. The increase was primarily related to the October 3, 2005Acquisition of Predecessor Mueller.

Mueller segment net sales for the three months ended March 31,2006 were $193.3 million.

U.S. Pipe segment net sales for the three months endedMarch 31, 2006 were $119.7 million, a decrease of $5.0 million, or4.0% from $124.7 million in the prior year period. Net sales in theprior-year period included $13.2 million from the valve and hydrant business.As of January 1, 2006, the valve and hydrant business was transferred tothe Mueller segment. The effect of this decrease was partially offset byincreases in ductile iron pipe selling prices and shipments. Prices were higherthan the prior year as the industry has been raising prices to mitigate risingscrap metal cost increases.

Anvil segment net sales for the three months ended March 31,2006 were $127.4 million.

*GrossProfit.**  *Consolidatedgross profit for the three months ended March 31, 2006 was $94.6 million,an increase of $84.0 million compared to $10.6 million in the prior yearperiod. The Acquisition of Predecessor Mueller contributed $85.2 million of theincrease. Included in cost of sales for the three months ended March 31,2006 was $11.8 million of purchase accounting adjustments related to valuinginventory acquired in the Acquisition at fair value and $0.2 million ofpurchase accounting adjustments related to valuing inventory acquired in theCCNE acquisition at fair value.

Mueller segment gross profit for the three monthsended March 31, 2006 was $58.0 million. Included in cost of sales for thethree months ended March 31, 2006 was $6.6 million of purchase accountingadjustments related to valuing inventory at fair value in connection with theAcquisition and $0.2 million of purchase accounting adjustments related tovaluing inventory acquired in the CCNE acquisition at fair value.

U.S. Pipe segment gross profit for the three monthsended March 31, 2006 was $9.4 million, a decrease of $1.2 million, or11.3%, compared to $10.6 million in the prior year period. Gross margindecreased to 7.9% in the current period compared to 8.5% in the prior yearperiod. Due to the plant closure process, current period actual productioncapacity at the U.S. Pipe Chattanooga facility was significantly lower thannormal capacity, resulting in facility expenses of $2.4 million chargeddirectly to cost of sales. Excluding the charges for facility expenses of $2.4million, U.S. Pipe gross margins would have been $11.8 million, or 9.9% for thecurrent period, compared to 8.5% in the prior year period. This increase isprimarily due to higher ductile iron pipe selling prices.

Anvil segment gross profit for the three months ended March 31,2006 was $27.8 million. Included in cost of sales for the three months ended March 31,2006 was $5.2 million of purchase accounting adjustments related to valuinginventory acquired in the Acquisition at fair value.

*Selling,General & Administrative.**  *Consolidated expenses for the threemonths ended March 31, 2006 were $60.8 million, an increase of$55.7 million, compared to $5.1 million in the prior year period. Theprior period included a favorable $5.1 million insurance claim settlement. Theacquisition of Predecessor Mueller accounted for $50.5 million of the increase.Expenses as a percentage of net sales increased to 13.9% in the current periodcompared to 4.1% in the prior year period. Excluding the $5.1 million favorableinsurance settlement, prior year expenses were 8.2% as a percentage of netsales.

Mueller segment expenses for the three months ended March 31,2006 were $18.8 million.

U.S. Pipe segment expenses for the three months ended March 31,2006 were $10.3 million, compared to $5.1 million for the prior yearperiod. As a percentage of net sales, expenses increased to 8.6% in the currentperiod compared to 4.1% in the prior year period. The prior year period expensewas favorably impacted by a $5.1 million insurance claim settlement.

52

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Anvil segment expenses for the current period were$22.8 million.

Corporate segment expenses for the current period were$8.9 million.

*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 its subsidiaries based onestimated annual revenues.

*FacilityRationalization, Restructuring and Related Costs.**  *The Company expensed$4.3 million of restructuring costs for the three months ended March 31,2006, related to the closure of the U.S. Pipe Chattanooga, Tennessee plant.These costs are comprised of severance for terminated hourly employees of $0.4million and pension and other post-employment benefit costs of $3.9 million.

*InterestExpense Arising from Related Party Payable to Walter.**  *Interest expense was allocated to the Company up tothe date of the Acquisition based upon the outstanding balance of theintercompany note. The intercompany note to Walter of $443.6 million wasforgiven by Walter prior to October 3, 2005. There was no intercompanyinterest expense for the three months ended March 31, 2006 and $5.1million for the three months ended March 31, 2005.

*InterestExpense, Other, Net of Interest Income.**  *Interest expense, net of interestincome, for the current period was $25.9 million and includes $25.4million of interest expense on the $1,050.0 million senior secured term loanentered into on October 3, 2005 and the 10% Senior Subordinated Notesassumed by the Company as part of the October 3, 2005 Acquisition; and$1.1 million of amortization of deferred financing fees, partially offset by$0.1 million of gains on interest rate swaps and $0.5 million of interestincome earned on cash balances for the current period.

*Income Tax Expense (Benefit)*.   Theprovision for income taxes for the current period was an expense of $0.6million as compared to a benefit of $0.4 million in the prior year period. Theeffective tax rate for the second quarter of 2006 was 38%. The effective taxrate for the second quarter of 2005 was (25%). The estimated effective tax ratediffers from the statutory rate primarily due to state income taxes.

53

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**Results ofOperations**

***Six Months Ended March 31,2006 As Compared to the Six Months Ended March 31, 2005 (dollars inmillions)***

| ** **                                                     | ** ** | **Six months ended March 31,** | ** ** | ** **                            | ** ** | ** **                  | ** ** |
|----------------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------|------------|-----------------------------|------------|
| ** **                                                     | ** ** | **2006**                                           | ** ** | **2005**                              | ** ** | **2006 vs. 2005** | ** ** |
| ** **                                                     | ** ** | ** **                                         | ** ** | **Percentage  of net  sales(1)** | ** ** | ** **                  | ** ** | **Percentage  of net  sales(1)** | ** ** | **Increase/  (decrease)** | ** ** | **Percentage  increase/  (decrease)** | ** ** |
| Net sales                                                      |       |                                               |       |                                  |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $                                                  | 373.5      |                                  |       | 40.8                        | %          |   | $ | — |   |   | — | % |   |   | $ | 373.5 |   |   |   |   |   |   |
| U.S. Pipe                                                      |       | 290.8                                              |       |                                  | 31.8       |                        |       | 265.9 |   |   | 100.0 |   |   |   | 24.9 |   |   |   | 9.4 | % |   |
| Anvil                                                          |       | 260.2                                              |       |                                  | 28.4       |                        |       | — |   |   | — |   |   |   | 260.2 |   |   |   |   |   |   |
| Consolidating  eliminations                                    |       | (9.2                                               | )          |                                  | (1.0       | )                           |       | — |   |   | — |   |   |   | (9.2 | ) |   |   |   |   |   |
| Consolidated                                                   |       | $                                                  | 915.3      |                                  |       | 100.0                       |       |   | $ | 265.9 |   |   | 100.0 |   |   |   | $ | 649.4 |   |   |   |   |   |   |
| Gross profit                                                   |       |                                               |       |                                  |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $                                                  | 73.5       |                                  |       | 19.7                        |       |   | $ | — |   |   | — |   |   |   | $ | 73.5 |   |   |   |   |   |   |
| U.S. Pipe                                                      |       | 18.5                                               |       |                                  | 6.4        |                        |       | 23.3 |   |   | 8.8 |   |   |   | (4.8 | ) |   |   | (20.6 | ) |   |
| Anvil                                                          |       | 46.7                                               |       |                                  | 17.9       |                        |       | — |   |   | — |   |   |   | 46.7 |   |   |   |   |   |   |
| Consolidating  eliminations                                    |       | (0.6                                               | )          |                                  | (0.1       | )                           |       | — |   |   | — |   |   |   | (0.6 | ) |   |   |   |   |   |
| Consolidated                                                   |       | $                                                  | 138.1      |                                  |       | 15.1                        |       |   | $ | 23.3 |   |   | 8.8 |   |   |   | $ | 114.8 |   |   |   |   |   |   |
| Selling, general and administrative                            |       |                                               |       |                                  |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $                                                  | 38.1       |                                  |       | 10.2                        |       |   | $ | — |   |   | — |   |   |   | $ | 38.1 |   |   |   |   |   |   |
| U.S. Pipe                                                      |       | 21.3                                               |       |                                  | 7.3        |                        |       | 18.3 |   |   | 6.9 |   |   |   | 3.0 |   |   |   | 16.4 |   |   |
| Anvil                                                          |       | 43.2                                               |       |                                  | 16.6       |                        |       | — |   |   | — |   |   |   | 43.2 |   |   |   |   |   |   |
| Corporate                                                      |       | 15.3                                               |       |                                  | 1.7        |                        |       | — |   |   | — |   |   |   | 15.3 |   |   |   |   |   |   |
| Consolidated                                                   |       | $                                                  | 117.9      |                                  |       | 12.9                        |       |   | $ | 18.3 |   |   | 6.9 |   |   |   | $ | 99.6 |   |   |   |   |   |   |
| Related party corporate charges                                |       |                                               |       |                                  |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $                                                  | —     |                                  |       | —                      |       |   | $ | — |   |   | — |   |   |   | $ | — |   |   |   |   |   |   |
| U.S. Pipe                                                      |       | 3.8                                                |       |                                  | 1.3        |                        |       | 3.7 |   |   | 1.4 |   |   |   | 0.1 |   |   |   | 2.7 |   |   |
| Anvil                                                          |       | —                                             |       |                                  | —     |                        |       | — |   |   | — |   |   |   | — |   |   |   |   |   |   |
| Consolidated                                                   |       | $                                                  | 3.8        |                                  |       | 0.4                         |       |   | $ | 3.7 |   |   | 1.4 |   |   |   | $ | 0.1 |   |   |   |   |   |   |
| Facility rationalization, restructuring and related  costs     |       |                                               |       |                                  |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $                                                  | —     |                                  |       | —                      |       |   | $ | — |   |   | — |   |   |   | $ | — |   |   |   |   |   |   |
| U.S. Pipe                                                      |       | 28.4                                               |       |                                  | 9.8        |                        |       | — |   |   | — |   |   |   | 28.4 |   |   |   |   |   |   |
| Anvil                                                          |       | —                                             |       |                                  | —     |                        |       | — |   |   | — |   |   |   | — |   |   |   |   |   |   |
| Consolidated                                                   |       | $                                                  | 28.4       |                                  |       | 3.1                         |       |   | $ | — |   |   | — |   |   |   | $ | 28.4 |   |   |   |   |   |   |
| Income (loss) from operations                                  |       |                                               |       |                                  |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $                                                  | 35.4       |                                  |       | 9.5                         |       |   | $ | — |   |   | — |   |   |   | $ | 35.4 |   |   |   |   |   |   |
| U.S. Pipe                                                      |       | (35.0                                              | )          |                                  | (12.0      | )                           |       | 1.3 |   |   | 0.5 |   |   |   | (36.3 | ) |   |   |   |   |   |
| Anvil                                                          |       | 3.5                                                |       |                                  | 1.3        |                        |       | — |   |   | — |   |   |   | 3.5 |   |   |   |   |   |   |
| Corporate                                                      |       | (15.3                                              | )          |                                  | (1.7       | )                           |       | — |   |   | — |   |   |   | (15.3 | ) |   |   |   |   |   |
| Consolidating  eliminations                                    |       | (0.6                                               | )          |                                  | (0.1       | )                           |       | — |   |   | — |   |   |   | (0.6 | ) |   |   |   |   |   |
| Consolidated                                                   |       | $                                                  | (12.0      | )                                     |       | (1.3                        | )          |   | $ | 1.3 |   |   | 0.5 |   |   |   | $ | (13.3 | ) |   |   |   |   |   |
| Interest expense arising  from related party payable to Walter |       | $                                                  | —     |                                  |       | —                      |       |   | $ | (11.0 | ) |   | (4.1 | ) |   |   | $ | 11.0 |   |   |   |   |   |   |
| Interest expense, net of  interest income                      |       | (54.0                                              | )          |                                  | (5.9       | )                           |       | (0.3 | ) |   | (0.1 | ) |   |   | (53.7 | ) |   |   |   |   |   |
| Loss before income taxes                                       |       | (66.0                                              | )          |                                  | (7.2       | )                           |       | (10.0 | ) |   | (3.8 | ) |   |   | (56.0 | ) |   |   |   |   |   |
| Income tax expense  (benefit)                                  |       | (26.1                                              | )          |                                  | (2.9       | )                           |       | 0.7 |   |   | 0.3 |   |   |   | (26.8 | ) |   |   |   |   |   |
| Net loss                                                       |       | $                                                  | (39.9      | )                                     |       | (4.4                        | )          |   | $ | (10.7 | ) |   | (4.0 | ) |   |   | $ | (29.2 | ) |   |   |   |   |   |

----

(1)   Percentagesare by segment, if applicable.

54

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*Net Sales.**  *Consolidated net sales for the sixmonths ended March 31, 2006 were $915.3 million, an increase of$649.4 million from $265.9 million in the prior year period. Theincrease was primarily related to the October 3, 2005 Acquisition ofPredecessor Mueller, which accounted for $624.5 million or approximately 96% ofthe overall increase.

Mueller segment net salesfor the six months ended March 31, 2006 were $373.5 million.

U.S. Pipe segment netsales for the six months ended March 31, 2006 were $290.8 million, anincrease of $24.9 million, or 9.4% from $265.9 million in the prioryear period. This increase was driven primarily by increases in ductile ironpipe selling prices and shipments. Prices were higher than the prior year asthe industry has been raising prices to mitigate rising scrap metal costincreases. . Partially offsetting this increase was the January 1, 2006transfer of $13.2 million of the U.S. Pipe segment valve and hydrant businessto the Mueller segment.

Anvil segment net salesfor the six months ended March 31, 2006 were $260.2 million.

*Gross Profit.**  *Consolidated gross profit for thesix months ended March 31, 2006 was $138.1 million, an increase of$114.8 million compared to $23.3 million in the prior year period. TheAcquisition of Predecessor Mueller contributed $119.6 million of the increase.Included in cost of sales for the six months ended March 31, 2006 was$70.2 million of purchase accounting adjustments related to valuing inventoryacquired in the Acquisition at fair value and $0.2 million of purchaseaccounting adjustments related to valuing inventory acquired in the CCNEacquisition at fair value.

Mueller segment grossprofit for the six months ended March 31, 2006 was $73.5 million. Includedin cost of sales for the six months ended March 31, 2006 was $52.9 millionof purchase accounting adjustments related to valuing inventory at fair valueand $0.2 million of purchase accounting adjustments related to valuinginventory acquired in the CCNE acquisition at fair value.

U.S. Pipe segment grossprofit for the six months ended March 31, 2006 was $18.5 million, adecrease of $4.8 million, or 20.6%, compared to $23.3 million in theprior year period. Gross margin decreased to 6.4% in the current periodcompared to 8.8% in the prior year period. On October 26, 2005 the Companyannounced that the U.S. Pipe Chattanooga plant would be closed during fiscal2006 and that production of the U.S. Pipe valves and hydrants would betransferred to the Mueller manufacturing facilities at Albertville, Alabama andChattanooga, Tennessee. In addition to transferring production to Muellerfacilities, the sales responsibility for U.S. Pipe valve and hydrant productsales was transferred to the Mueller segment. In conjunction with thistransfer, it was determined that certain U.S. Pipe inventory would notultimately be sold. As a result, inventory obsolescence write-offs of $10.7million were recorded to cost of sales during the first quarter.

In addition, because ofthe plant closure process, actual production capacity at the U.S. PipeChattanooga facility was significantly lower than normal capacity, resulting inyear-to-date facility expenses of $7.6 million charged directly to cost ofsales, of which $5.2 million was expensed in the first quarter.

Excluding the charges forinventory write-offs of $10.7 million and facility expenses of $7.6 million,U.S. Pipe gross margins would have been $36.8 million, or 12.7% for theyear-to-date period, compared to 8.8% in the prior year period. This increaseis primarily due to higher ductile iron pipe selling prices.

Anvil segment gross profitfor the six months ended March 31, 2006 was $46.7 million. Included incost of sales for the six months ended March 31, 2006 was $17.3 million ofpurchase accounting adjustments related to valuing inventory acquired in theAcquisition at fair value.

*Selling, General &Administrative.**  *Consolidatedexpenses for the six months ended March 31, 2006 were $117.9 million, anincrease of $99.6 million, compared to $18.3 million in the prioryear period. The prior year period included a favorable $5.1 million insuranceclaim settlement. The Acquisition of Predecessor Mueller accounted for $96.6million of the increase. Expenses as a percentage of net sales increased to12.9% in the current period compared to 6.9% in the prior year period.Excluding the $5.1 million favorable insurance settlement, prior yearexpenses were 8.8% as a percentage of net sales.

55

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Mueller segment expensesfor the six months ended March 31, 2006 were $38.1 million.

U.S. Pipe segment expensesfor the six months ended March 31, 2006 were $21.3 million, comparedto $18.3 million for the prior year period. As a percentage of net sales,expenses increased to 7.3% in the current period compared to 6.9% in the prioryear period. The prior period expense was favorably impacted by a $5.1 millioninsurance claim settlement and unfavorably impacted by a $4.0 millionenvironmental charge related to the Anniston, Alabama site (shut down in 2003).Current period costs include higher management incentive accruals and increasedoutside sales commissions.

Anvil segment expenses forthe current period were $43.2 million.

Corporate segment expensesfor the current period were $15.3 million.

*Related Party CorporateCharges.*   Certain costs incurred by Walter suchas insurance, executive salaries, professional service fees, human resources,transportation, and other centralized business functions are allocated to itssubsidiaries. Costs incurred by Walter that cannot be directly attributed toits subsidiaries are allocated to its subsidiaries based on estimated annualrevenues.

*Facility Rationalization,Restructuring and Related Costs.**  *The Company expensed$28.4 million of restructuring costs for the six months ended March 31,2006, related to the closure of the U.S. Pipe Chattanooga, Tennessee plant.These costs are comprised of fixed asset impairments of $19.0 million,severance for terminated hourly and salaried employees of $3.4 million, pensionand other post-employment benefit costs of $3.9 million, andenvironmental costs of $2.1 million, primarily related to landfill closure andrequired site clean-up costs.

*Interest Expense Arisingfrom Related Party Payable to Walter.**  *Interest expense was allocated to the Company up tothe date of the Acquisition based upon the outstanding balance of theintercompany note. The intercompany note to Walter of $443.6 million wasforgiven by Walter prior to October 3, 2005. There was no intercompanyinterest expense for the six months ended March 31, 2006 and $11.0 millionfor the six months ended March 31, 2005.

*Interest Expense Arisingfrom Related Party Payable to Walter.**  *Interest expense was allocated to the Company up tothe date of the Acquisition based upon the outstanding balance of theintercompany note. The intercompany note to Walter of $443.6 million wasforgiven by Walter prior to October 3, 2005. There was no intercompanyinterest expense for the six months ended March 31, 2006 and $11.0 millionfor the six months ended March 31, 2005.

*Interest Expense, Other,Net of Interest Income.**  *Interest expense, net of interest income, for thecurrent period was $54.0 million and includes $50.6 million of interestexpense on the $1,050.0 million senior secured term loan entered into on October 3,2005, and the 10% Senior Subordinated Notes assumed by the Company as part ofthe October 3, 2005 Acquisition; $2.5 million in commitment fees for abridge loan which were expensed at the expiration of the bridge loan periodduring the current period and $2.2 million of amortization of deferredfinancing fees, partially offset by $0.5 million of gains on interest rateswaps and $0.8 million of interest income earned on unrestricted cash balancesfor the current period.

*Income Tax Expense(Benefit).**  *The provision for income taxes forthe current period was a benefit of $26.1 million as compared to anexpense of $0.7 million in the prior year period. The effective tax ratefor the first six months of 2006 was (40%). The effective tax rate for the firstsix months of 2005 was 7%. The estimated effective tax rate differs from thestatutory rate primarily due to state income taxes. The effective tax rate forthe six months ended March 31, 2005 was also impacted by the recording ofa $3.6 million valuation allowance against state deferred tax assets atthe U.S. Pipe segment.

**Supplemental Information—Resultsof Operations for the Three Months Ended March 31, 2006 Compared to Pro FormaResults of Operations for the Three Months Ended March 31, 2005**

The unaudited pro formaresults of operations for the three months ended March 31, 2005 ispresented as if the Acquisition of Predecessor Mueller and borrowings under the2005 Mueller Credit Agreement had taken place on October 1, 2004 and werecarried forward through March 31, 2005.

56

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**Pro Forma Resultsof Operations**

***Actual Three MonthsEnded March 31, 2006 As Compared to the Pro Forma Three Months Ended March 31,2005 (dollars in millions)***

| ** **                                                     | ** ** | **Three months ended March 31,** | ** ** | ** **                            | ** ** | ** **                                                                    | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                                     | ** ** | **Actual  2006**                                     | ** ** | **Pro Forma  2005**              | ** ** | **Actual FY06 Q2 vs.   Pro Forma FY05 Q2** | ** ** |
| ** **                                                     | ** ** | ** **                                           | ** ** | **Percentage  of net  sales(1)** | ** ** | ** **                                                                    | ** ** | **Percentage  of net  sales(1)** | ** ** | **Increase/  (decrease)** | ** ** | **Percentage  increase/  (decrease)** | ** ** |
| Net sales                                                      |       |                                                 |       |                                  |       |                                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $ 193.3                                         |       |                                  | 44.4       | %                                                                             |       | $ 170.1 |   |   | 41.5 | % |   |   | $ 23.2 |   |   |   | 13.6 | % |   |
| U.S. Pipe                                                      |       | 119.7                                                |       |                                  | 27.5       |                                                                          |       | 124.7 |   |   | 30.4 |   |   |   | (5.0 | ) |   |   | (4.0 | ) |   |
| Anvil                                                          |       | 127.4                                                |       |                                  | 29.3       |                                                                          |       | 115.1 |   |   | 28.1 |   |   |   | 12.3 |   |   |   | 10.7 |   |   |
| Consolidating  eliminations                                    |       | (5.5                                                 | )          |                                  | (1.3       | )                                                                             |       | — |   |   | — |   |   |   | (5.5 | ) |   |   |   |   |   |
| Consolidated                                                   |       | $ 434.9                                         |       |                                  | 100.0      |                                                                          |       | $ 409.9 |   |   | 100.0 |   |   |   | $ 25.0 |   |   |   | 6.1 |   |   |
| Gross profit                                                   |       |                                                 |       |                                  |       |                                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $ 58.0                                          |       |                                  | 30.0       |                                                                          |       | $ 54.6 |   |   | 32.1 |   |   |   | $  3.4 |   |   |   | 6.3 |   |   |
| U.S. Pipe                                                      |       | 9.4                                                  |       |                                  | 7.9        |                                                                          |       | 10.6 |   |   | 8.5 |   |   |   | (1.2 | ) |   |   | (11.3 | ) |   |
| Anvil                                                          |       | 27.8                                                 |       |                                  | 21.8       |                                                                          |       | 30.4 |   |   | 26.4 |   |   |   | (2.6 | ) |   |   | (8.6 | ) |   |
| Consolidating  eliminations                                    |       | (0.6                                                 | )          |                                  | (0.1       | )                                                                             |       | — |   |   | — |   |   |   | (0.6 | ) |   |   |   |   |   |
| Consolidated                                                   |       | $ 94.6                                          |       |                                  | 21.8       |                                                                          |       | $ 95.6 |   |   | 23.3 |   |   |   | $ (1.0 | ) |   |   | (1.0 | ) |   |
| Selling, general and administrative                            |       |                                                 |       |                                  |       |                                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $ 18.8                                          |       |                                  | 9.7        |                                                                          |       | $ 21.6 |   |   | 12.7 |   |   |   | $ (2.8 | ) |   |   | (13.0 | ) |   |
| U.S. Pipe                                                      |       | 10.3                                                 |       |                                  | 8.6        |                                                                          |       | 5.1 |   |   | 4.1 |   |   |   | 5.2 |   |   |   |   |   |   |
| Anvil                                                          |       | 22.8                                                 |       |                                  | 17.9       |                                                                          |       | 22.2 |   |   | 19.3 |   |   |   | 0.6 |   |   |   | 2.7 |   |   |
| Corporate                                                      |       | 8.9                                                  |       |                                  | 2.0        |                                                                          |       | 6.7 |   |   | 1.6 |   |   |   | 2.2 |   |   |   | 32.8 |   |   |
| Consolidated                                                   |       | $ 60.8                                          |       |                                  | 13.9       |                                                                          |       | $ 55.6 |   |   | 13.6 |   |   |   | $  5.2 |   |   |   | 9.4 |   |   |
| Related party corporate charges                                |       |                                                 |       |                                  |       |                                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $    —                      |       |                                  | —     |                                                                          |       | $    — |   |   | — |   |   |   | $   — |   |   |   |   |   |   |
| U.S. Pipe                                                      |       | 2.0                                                  |       |                                  | 1.7        |                                                                          |       | 1.8 |   |   | 1.4 |   |   |   | 0.2 |   |   |   | 11.1 |   |   |
| Anvil                                                          |       | —                                               |       |                                  | —     |                                                                          |       | — |   |   | — |   |   |   | — |   |   |   |   |   |   |
| Consolidated                                                   |       | $   2.0                               |       |                                  | 0.5        |                                                                          |       | $   1.8 |   |   | 0.4 |   |   |   | $  0.2 |   |   |   | 11.1 |   |   |
| Facility rationalization, restructuring and related  costs     |       |                                                 |       |                                  |       |                                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $    —                      |       |                                  | —     |                                                                          |       | $   1.5 |   |   | 0.9 |   |   |   | $ (1.5 | ) |   |   |   |   |   |
| U.S. Pipe                                                      |       | 4.3                                                  |       |                                  | 3.6        |                                                                          |       | — |   |   | — |   |   |   | 4.3 |   |   |   |   |   |   |
| Anvil                                                          |       | —                                               |       |                                  | —     |                                                                          |       | — |   |   | — |   |   |   | — |   |   |   |   |   |   |
| Consolidated                                                   |       | $   4.3                               |       |                                  | 1.0        |                                                                          |       | $   1.5 |   |   | 0.4 |   |   |   | $  2.8 |   |   |   |   |   |   |
| Income (loss) from operations                                  |       |                                                 |       |                                  |       |                                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $ 39.2                                          |       |                                  | 20.3       |                                                                          |       | $ 31.5 |   |   | 18.5 |   |   |   | $  7.7 |   |   |   | 24.4 |   |   |
| U.S. Pipe                                                      |       | (7.2                                                 | )          |                                  | (6.0       | )                                                                             |       | 3.7 |   |   | 3.0 |   |   |   | (10.9 | ) |   |   |   |   |   |
| Anvil                                                          |       | 5.0                                                  |       |                                  | 3.9        |                                                                          |       | 8.2 |   |   | 7.1 |   |   |   | (3.2 | ) |   |   | (39.0 | ) |   |
| Corporate                                                      |       | (8.9                                                 | )          |                                  | (2.0       | )                                                                             |       | (6.7 | ) |   | (1.6 | ) |   |   | (2.2 | ) |   |   | (32.8 | ) |   |
| Consolidating  eliminations                                    |       | (0.6                                                 | )          |                                  | (0.1       | )                                                                             |       | — |   |   | — |   |   |   | (0.6 | ) |   |   |   |   |   |
| Consolidated                                                   |       | $ 27.5                                          |       |                                  | 6.3        |                                                                          |       | $ 36.7 |   |   | 9.0 |   |   |   | $ (9.2 | ) |   |   | (25.1 | ) |   |
| Interest expense arising  from related party payable to Walter |       | $    —                      |       |                                  | —     |                                                                          |       | $    — |   |   | — |   |   |   | $   — |   |   |   |   |   |   |
| Interest expense, net of  interest income                      |       | (25.9                                                | )          |                                  | (6.0       | )                                                                             |       | (34.9 | ) |   | (8.5 | ) |   |   | 9.0 |   |   |   | 25.8 |   |   |
| Income before income  taxes                                    |       | 1.6                                                  |       |                                  | 0.4        |                                                                          |       | 1.8 |   |   | 0.4 |   |   |   | (0.2 | ) |   |   | (11.1 | ) |   |
| Income tax expense                                             |       | 0.6                                                  |       |                                  | 0.1        |                                                                          |       | 1.2 |   |   | 0.3 |   |   |   | (0.6 | ) |   |   |   |   |   |
| Net income                                                     |       | $   1.0                               |       |                                  | 0.2        |                                                                          |       | $   0.6 |   |   | 0.1 |   |   |   | $  0.4 |   |   |   |   |   |   |

----

(1)   Percentagesare by segment, if applicable.

57

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Management’s discussionbelow reflects its analysis of the pro forma data presented above. Managementbelieves that the pro forma comparisons will assist in understanding trends inthe Company’s business in the factors that management considers critical toassessing the Company’s operating and financial performance.

*Net Sales.  *Consolidatednet sales for the three months ended March 31, 2006 were$434.9 million, an increase of $25.0 million from $409.9 millionin the prior year period.

Mueller segment net salesfor the three months ended March 31, 2006 were $193.3 million, an increaseof $23.2 million, or 13.6% from $170.1 million in the prior year period. Thisincrease was primarily driven by higher pricing in hydrants and brass waterproducts and higher volumes in gate valves and water meters, plus the additionof the U.S. Pipe segment’s valve and hydrant volume, transferred to the Muellersegment effective January 1, 2006.

U.S. Pipe segment netsales for the three months ended March 31, 2006 were $119.7 million, adecrease of $5.0 million, or 4.0% from $124.7 million in the prioryear period. Net sales in the prior-year period included $13.2 million from thevalve and hydrant business. As of January 1, 2006, the valve and hydrantbusiness was transferred to the Mueller segment. The effect of this decreasewas partially offset by increases in ductile iron pipe selling prices andshipments. Prices were higher than the prior year as the industry has beenraising prices to mitigate rising scrap metal cost increases.

Anvil segment net salesfor the three months ended March 31, 2006 were $127.4 million, an increaseof $12.3 million, or 10.7% from $115.1 million in the prior year period. Thisincrease was primarily driven by higher volume and pricing on its commercialconstruction and oilfield market products.

*Gross Profit.**  *Consolidated gross profit for the threemonths ended March 31, 2006 was $94.6 million, a decrease of$1.0 million compared to $95.6 million in the prior year period.Included in cost of sales for the three months ended March 31, 2006 was$11.8 million of purchase accounting adjustments related to valuing inventoryacquired in the Acquisition at fair value and $0.2 million of purchaseaccounting adjustments related to valuing inventory acquired in the CCNEacquisition at fair value.

Mueller segment gross profitfor the three months ended March 31, 2006 was $58.0 million, an increaseof $3.4 million, or 6.3% from $54.6 million in the prior year period. Grossmargin decreased to 30.0% in the current period compared to 32.1% in the prioryear period. The current period includes $6.6 million related to theamortization expense resulting from the purchase accounting adjustment toincrease acquired inventories to fair value on the date of Acquisition  and $0.2 million of purchase accountingadjustments related to valuing inventory acquired in the CCNE acquisition atfair value. Excluding the effects of these purchase accounting adjustments,gross profit would have been $64.8 million and gross margin would have been33.5% compared to 32.1% in the prior year period. This increase was primarilydue to higher pricing in hydrants and brass water products and higher volumesin gate valves and water meters.

U.S. Pipe segment grossprofit for the three months ended March 31, 2006 was $9.4 million, adecrease of $1.2 million, or 11.3%, compared to $10.6 million in theprior year period. Gross margin decreased to 7.9% in the current periodcompared to 8.5% in the prior year period. Due to the plant closure process,current period actual production capacity at the U.S. Pipe Chattanooga facilitywas significantly lower than normal capacity, resulting in facility expenses of$2.4 million charged directly to cost of sales. Excluding the charges forfacility expenses of $2.4 million, U.S. Pipe gross margins would have been$11.8 million, or 9.9% for the current period, compared to 8.5% in the prioryear period. This increase is primarily due to higher ductile iron pipe sellingprices.

Anvil segment gross profitfor the three months ended March 31, 2006 was $27.8 million, a decrease of$2.6 million, or 8.6%, compared to $30.4 million in the prior year period. Thecurrent period includes $5.2 million related valuing inventory acquired inthe Acquisition at fair value. Excluding the effects of this 

58

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purchaseaccounting adjustment, gross profit would have been $33.0 million and grossmargin would have been 25.9% compared to 26.4% in the prior year period.

*Selling, General &Administrative.**  *Consolidatedexpenses for the three months ended March 31, 2006 were $60.8 million, anincrease of $5.2 million, compared to $55.6 million in the prior yearperiod. The prior period included a favorable $5.1 million insurance claimsettlement. Expenses as a percentage of net sales increased slightly to 13.9%in the current period compared to 13.6% in the prior year period. Excluding the$5.1 million favorable insurance settlement, prior year expenses were 14.8% asa percentage of net sales.

Mueller segment expensesfor the three months ended March 31, 2006 were $18.8 million, a decreaseof $2.8 million, or 13.0%, compared to $21.6 million in the prior year period.Expenses as a percentage of net sales improved to 9.7% in the current periodcompared to 12.7% in the prior year period.

U.S. Pipe segment expensesfor the three months ended March 31, 2006 were $10.3 million,compared to $5.1 million for the prior year period. As a percentage of netsales, expenses increased to 8.6% in the current period compared to 4.1% in theprior year period. The prior year period expense was favorably impacted by a$5.1 million insurance claim settlement. Excluding the $5.1 million insuranceclaim settlement, expenses were 8.2% in the prior year period.

Anvil segment expenses forthe current period were $22.8 million, an increase of $0.6 million, or 2.7%,compared to $22.2 million in the prior year period. Expenses as a percentage ofnet sales improved to 17.9% in the current period compared to 19.3% in theprior year period.

Corporate segment expensesfor the current period were $8.9 million, an increase of $2.2 million comparedto $6.7 million in the prior year period. This is primarily due to $0.6 millionof increased costs compared to the prior year period related to efforts toachieve future compliance with Sarbanes-Oxley requirements.

*Related Party CorporateCharges.*   Certain costs incurred by Walter suchas insurance, executive salaries, professional service fees, human resources,transportation, and other centralized business functions are allocated to itssubsidiaries. Costs incurred by Walter that cannot be directly attributed toits subsidiaries are allocated to its subsidiaries based on estimated annualrevenues.

*Facility Rationalization,Restructuring and Related Costs.**  *The Company expensed$4.3 million of restructuring costs for the three months ended March 31,2006, related to the closure of the U.S. Pipe Chattanooga, Tennessee plant.These costs are comprised of severance for terminated hourly employees of $0.4million and pension and other post-employment benefit costs of $3.9 million.The prior year period includes $1.5 million of severance expense related to theclosure of a Mueller segment manufacturing facility in Colorado.

*Interest Expense, Net ofInterest Income.**  *Interestexpense, net of interest income, for the current period was $25.9 millionand includes $25.4 million of interest expense on the $1,050.0 million seniorsecured term loan entered into on October 3, 2005, and the 10% SeniorSubordinated Notes assumed by the Company as part of the October 3, 2005Acquisition and $1.1 million of amortization of deferred financing fees,partially offset by $0.1 million of gains on interest rate swaps and $0.5million of interest income earned on unrestricted cash balances for the period.Interest expense, net of interest income, for the prior year period was $34.9million. The decrease is primarily due to the inclusion in the prior yearperiod of $5.1 million of interest expense arising from a related party payableto Walter.

**Supplemental Information—Results of Operations for theSix Months Ended March 31, 2006 Compared to Pro Forma Results ofOperations for the Six Months Ended March 31, 2005**

The unaudited pro formaresults of operations for the six months ended March 31, 2005 is presentedas if the Acquisition of Predecessor Mueller and borrowings under the 2005Mueller Credit Agreement had taken place on October 1, 2004 and werecarried forward through March 31, 2005.

59

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**Pro Forma Resultsof Operations**

***Actual Six MonthsEnded March 31, 2006 As Compared to the Pro Forma Six Months Ended March 31,2005 (dollars in millions)***

| ** **                                                     | ** ** | **Six months ended March 31,** | ** ** | **Actual 2006 vs. Pro** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                     | ** ** | **Actual 2006**                               | ** ** | **Pro Forma 2005**           | ** ** | **Forma 2005** | ** ** |
| ** **                                                     | ** ** | ** **                                         | ** ** | **Percentage  of net  sales(1)**  | ** ** | ** ** | ** ** | **Percentage  of net  sales(1)** | ** ** | **Increase/  (decrease)** | ** ** | **Percentage  increase/  (decrease)** | ** ** |
| ** **                                                     | ** ** | **(dollars in millions)**                | ** ** |
| Net sales                                                      |       |                                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $ 373.5                                       |       |                                   | 40.8       | % |   | $ 308.7 |   |   | 38.2 | % |   |   | $ 64.8 |   |   |   | 21.0 | % |   |
| U.S. Pipe                                                      |       | 290.8                                              |       |                                   | 31.8       |   |   | 265.9 |   |   | 33.0 |   |   |   | 24.9 |   |   |   | 9.4 |   |   |
| Anvil                                                          |       | 260.2                                              |       |                                   | 28.4       |   |   | 232.6 |   |   | 28.8 |   |   |   | 27.6 |   |   |   | 11.9 |   |   |
| Consolidating  eliminations                                    |       | (9.2                                               | )          |                                   | (1.0       | ) |   | — |   |   | — |   |   |   | (9.2 | ) |   |   |   |   |   |
| Consolidated                                                   |       | $ 915.3                                       |       |                                   | 100.0      |   |   | $ 807.2 |   |   | 100.0 |   |   |   | $ 108.1 |   |   |   | 13.4 |   |   |
| Gross profit                                                   |       |                                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $ 73.5                                        |       |                                   | 19.7       |   |   | $ 97.4 |   |   | 31.6 |   |   |   | $ (23.9 | ) |   |   | (24.5 | ) |   |
| U.S. Pipe                                                      |       | 18.5                                               |       |                                   | 6.4        |   |   | 23.3 |   |   | 8.8 |   |   |   | (4.8 | ) |   |   | (20.6 | ) |   |
| Anvil                                                          |       | 46.7                                               |       |                                   | 17.9       |   |   | 60.5 |   |   | 26.0 |   |   |   | (13.8 | ) |   |   | (22.8 | ) |   |
| Consolidating  eliminations                                    |       | (0.6                                               | )          |                                   | (0.1       | ) |   | — |   |   | — |   |   |   | (0.6 | ) |   |   |   |   |   |
| Consolidated                                                   |       | $ 138.1                                       |       |                                   | 15.1       |   |   | $ 181.2 |   |   | 22.4 |   |   |   | $ (43.1 | ) |   |   | (23.8 | ) |   |
| Selling, general and administrative                            |       |                                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $ 38.1                                        |       |                                   | 10.2       |   |   | $ 42.6 |   |   | 13.8 |   |   |   | $ (4.5 | ) |   |   | (10.6 | ) |   |
| U.S. Pipe                                                      |       | 21.3                                               |       |                                   | 7.3        |   |   | 18.3 |   |   | 6.9 |   |   |   | 3.0 |   |   |   | 16.4 |   |   |
| Anvil                                                          |       | 43.2                                               |       |                                   | 16.6       |   |   | 42.2 |   |   | 18.1 |   |   |   | 1.0 |   |   |   | 2.4 |   |   |
| Corporate                                                      |       | 15.3                                               |       |                                   | 1.7        |   |   | 12.1 |   |   | 1.5 |   |   |   | 3.2 |   |   |   | 26.4 |   |   |
| Consolidated                                                   |       | $ 117.9                                       |       |                                   | 12.8       |   |   | $ 115.2 |   |   | 14.3 |   |   |   | $   2.7 |   |   |   | 2.3 |   |   |
| Related party corporate charges                                |       |                                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $    —                    |       |                                   | —     |   |   | $    — |   |   | — |   |   |   | $    — |   |   |   |   |   |   |
| U.S. Pipe                                                      |       | 3.8                                                |       |                                   | 1.3        |   |   | 3.7 |   |   | 1.4 |   |   |   | 0.1 |   |   |   | 2.7 |   |   |
| Anvil                                                          |       | —                                             |       |                                   | —     |   |   | — |   |   | — |   |   |   | — |   |   |   |   |   |   |
| Consolidated                                                   |       | $   3.8                             |       |                                   | 0.4        |   |   | $   3.7 |   |   | 0.5 |   |   |   | $   0.1 |   |   |   | 2.7 |   |   |
| Facility rationalization, restructuring and related  costs     |       |                                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $    —                    |       |                                   | —     |   |   | $   1.6 |   |   | 0.5 |   |   |   | $ (1.6 | ) |   |   |   |   |   |
| U.S. Pipe                                                      |       | 28.4                                               |       |                                   | 9.8        |   |   | — |   |   | — |   |   |   | 28.4 |   |   |   |   |   |   |
| Anvil                                                          |       | —                                             |       |                                   | —     |   |   | — |   |   | — |   |   |   | — |   |   |   |   |   |   |
| Consolidated                                                   |       | $ 28.4                                        |       |                                   | 3.1        |   |   | $   1.6 |   |   | 0.2 |   |   |   | $ 26.8 |   |   |   |   |   |   |
| Income (loss) from operations                                  |       |                                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                        |       | $ 35.4                                        |       |                                   | 9.5        |   |   | $ 53.2 |   |   | 17.2 |   |   |   | $ (17.8 | ) |   |   | (33.5 | ) |   |
| U.S. Pipe                                                      |       | (35.0                                              | )          |                                   | (12.0      | ) |   | 1.3 |   |   | 0.5 |   |   |   | (36.3 | ) |   |   |   |   |   |
| Anvil                                                          |       | 3.5                                                |       |                                   | 1.3        |   |   | 18.3 |   |   | 7.9 |   |   |   | (14.8 | ) |   |   | (80.9 | ) |   |
| Corporate                                                      |       | (15.3                                              | )          |                                   | (1.7       | ) |   | (12.1 | ) |   | (1.5 | ) |   |   | (3.2 | ) |   |   | (26.4 | ) |   |
| Consolidating  eliminations                                    |       | (0.6                                               | )          |                                   | (0.1       | ) |   | — |   |   | — |   |   |   | (0.6 | ) |   |   |   |   |   |
| Consolidated                                                   |       | $ (12.0                                       | )          |                                   | (1.3       | ) |   | $ 60.7 |   |   | 7.5 |   |   |   | $ (72.7 | ) |   |   |   |   |   |
| Interest expense arising  from related party payable to Walter |       | $    —                    |       |                                   | —     |   |   | $    — |   |   | — |   |   |   | $    — |   |   |   |   |   |   |
| Interest expense, net of  interest income                      |       | (54.0                                              | )          |                                   | (5.9       | ) |   | (71.1 | ) |   | (8.8 | ) |   |   | 17.1 |   |   |   | 24.1 |   |   |
| Loss before income taxes                                       |       | (66.0                                              | )          |                                   | (7.2       | ) |   | (10.4 | ) |   | (1.3 | ) |   |   | (55.6 | ) |   |   |   |   |   |
| Income tax expense  (benefit)                                  |       | (26.1                                              | )          |                                   | (2.9       | ) |   | 1.1 |   |   | 0.1 |   |   |   | (27.2 | ) |   |   |   |   |   |
| Net loss                                                       |       | $ (39.9                                       | )          |                                   | (4.4       | ) |   | $ (11.5 | ) |   | (1.4 | ) |   |   | $ (28.4 | ) |   |   |   |   |   |

----

(1)   Percentagesare by segment, if applicable.

60

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Management’s discussion below reflects its analysis ofthe pro forma data presented above. Management believes that the pro formacomparisons will assist in understanding trends in the Company’s business inthe factors that management considers critical to assessing the Company’soperating and financial performance.

*NetSales.**  *Consolidatednet sales for the six months ended March 31, 2006 were $915.3 million, anincrease of $108.1 million from $807.2 million in the prior yearperiod.

Mueller segment net sales for the six months ended March 31,2006 were $373.5 million, an increase of $64.8 million, or 21.0% from $308.7million in the prior year period. This increase was primarily driven by higherpricing and volumes in hydrants and water valves, plus the addition of the U.S.Pipe segment’s valve and hydrant volume, transferred to the Mueller segmenteffective January 1, 2006.

U.S. Pipe segment net sales for the six months ended March 31,2006 were $290.8 million, an increase of $24.9 million, or 9.4% from$265.9 million in the prior year period. This increase was drivenprimarily by increases in ductile iron pipe selling prices and shipments. Priceswere higher than the prior year as the industry has been raising prices tomitigate rising scrap metal cost increases. . Partially offsetting thisincrease was the January 1, 2006 transfer of $13.2 million of the U.S.Pipe segment and hydrant business to the Mueller segment.

Anvil segment net sales for the six months ended March 31,2006 were $260.2 million, an increase of $27.6 million, or 11.9% from $232.6million in the prior year period. This increase was primarily the result ofcontinued strength in the non-residential construction, oilfield and mechanicalmarkets for grooved and hanger products and growth in the sales offoreign-sourced products and price increases implemented in late fiscal 2005.

*GrossProfit.**  *Consolidatedgross profit for the six months ended March 31, 2006 was$138.1 million, a decrease of $43.1 million compared to$181.2 million in the prior year period. Included in cost of sales for thesix months ended March 31, 2006 was $70.2 million of purchase accountingadjustments related to valuing inventory acquired in the Acquisition at fairvalue and $0.2 million of purchase accounting adjustments related to valuinginventory acquired in the CCNE acquisition at fair value.

Mueller segment gross profit for the six months ended March 31,2006 was $73.5 million, a decrease of $23.9 million, or 24.5% from $97.4million in the prior year period. Gross margin decreased to 19.7% in thecurrent period compared to 31.6% in the prior year period. The current periodincludes $52.9 million related to the amortization expense resulting fromthe purchase accounting adjustment to increase acquired inventories to fairvalue on the date of acquisition and $0.2 million of purchase accountingadjustments related to valuing inventory acquired in the CCNE acquisition atfair value. Excluding the effects of these purchase accounting adjustments,gross profit in the current period would have been $126.6 million and grossmargin would have been 33.9% compared to 31.6% in the prior year period. Thisincrease was primarily due to higher pricing and volumes, particularly inhydrants and water valves.

U.S. Pipe segment gross profit for the six monthsended March 31, 2006 was $18.5 million, a decrease of $4.8 million,or 20.6%, compared to $23.3 million in the prior year period. Gross margindecreased to 6.4% in the current period compared to 8.8% in the prior yearperiod. On October 26, 2005 the Company announced that the U.S. PipeChattanooga plant would be closed during fiscal 2006 and that production of theU.S. Pipe valves and hydrants would be transferred to the Mueller manufacturingfacilities at Albertville, Alabama and Chattanooga, Tennessee. In addition totransferring production to Mueller facilities, the sales responsibility forU.S. Pipe valve and hydrant product sales was transferred to the Muellersegment. In conjunction with this transfer, it was determined that certain U.S.Pipe inventory would not ultimately be sold. As a result, inventoryobsolescence write-offs of $10.7 million were recorded to cost of sales duringthe first quarter.

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In addition, because of the plant closure process,actual production capacity at the U.S. Pipe Chattanooga facility wassignificantly lower than normal capacity, resulting in year-to-date facilityexpenses of $7.6 million charged directly to cost of sales, of which $5.2million was expensed in the first quarter.

Excluding the charges for inventory write-offs of$10.7 million and facility expenses of $7.6 million, U.S. Pipe gross marginswould have been $36.8 million, or 12.7% for the year-to-date period, comparedto 8.8% in the prior year period. This increase is primarily due to higherductile iron pipe selling prices.

Anvil segment gross profit for the six months ended March 31,2006 was $46.7 million, a decrease of $13.8 million, or 22.8%, compared to$60.5 million in the prior year period. The current period includes $17.3million related to the amortization expense resulting from the purchaseaccounting adjustment related to valuing inventory acquired in the Acquisitionat fair value. Excluding the effects of this purchase accounting adjustment,gross profit would have been $64.0 million and gross margin would have been24.6% compared to 26.0% in the prior year period.

*Selling,General & Administrative.**  *Consolidated expenses for the sixmonths ended March 31, 2006 were $117.9 million, an increase of$2.7 million, compared to $115.2 million in the prior year period.The prior peiod included a favorable $5.1 million insurance claim settlement.Expenses as a percentage of net sales improved to 12.8% in the current periodcompared to 14.3% in the prior year period. Excluding the $5.1 millionfavorable insurance settlement, prior year expenses were 14.9% as a percentageof net sales.

Mueller segment expenses for the six months ended March 31,2006 were $38.1 million, a decrease of $4.5 million, or 10.6%, compared to$42.6 million in the prior year period. Expenses as a percentage of net salesimproved to 10.2% in the current period compared to 13.8% in the prior yearperiod.

U.S. Pipe segment expenses for the six months ended March 31,2006 were $21.3 million, compared to $18.3 million for the prior yearperiod. As a percentage of net sales, expenses increased to 7.3% in the currentperiod compared to 6.9% in the prior year period. The prior period expense wasfavorably impacted by a $5.1 million insurance claim settlement and unfavorablyimpacted by a $4.0 million environmental charge related to the Anniston,Alabama site (shut down in 2003). Current period costs include highermanagement incentive accruals and increased outside sales commissions.

Anvil segment expenses for the current period were$43.2 million, an increase of $1.0 million, or 2.4%, compared to $42.2 millionin the prior year period. Expenses as a percentage of net sales improved to16.6% in the current period compared to 18.1% in the prior year period.

Corporate segment expenses for the current period were$15.3 million, an increase of $3.2 million compared to $12.1 million in theprior year period. This is primarily due to $1.2 million of increased costscompared to the prior year period related to efforts to achieve futurecompliance with Sarbanes-Oxley requirements.

*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 its subsidiaries based onestimated annual revenues.

*FacilityRationalization, Restructuring and Related Costs.**  *The Company expensed$28.4 million of restructuring costs for the six months ended March 31,2006, related to the closure of the U.S. Pipe Chattanooga, Tennessee plant.These costs are comprised of fixed asset impairments of $19.0 million,severance for terminated hourly and salaried employees of $3.4 million, pensionand other post-employment benefit costs of $3.9 million, andenvironmental costs of $2.1 million, primarily related to landfill closure andrequired site clean-up costs. The prior year period includes $1.6 million ofseverance expense related to the closure of a Mueller segment manufacturingfacility in Colorado.

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*Interest Expense, Net ofInterest Income.**  *Interestexpense, net of interest income, for the current period was $54.0 millionand includes $50.6 million of interest expense on the $1,050.0 million seniorsecured term loan entered into on October 3, 2005, and the 10% SeniorSubordinated Notes assumed by the Company as part of the October 3, 2005Acquisition; $2.5 million in commitment fees for a bridge loan which wereexpensed at the expiration of the bridge loan period during the current periodand $2.2 million of amortization of deferred financing fees, partially offsetby $0.5 million of gains on interest rate swaps and $0.8 million of interestincome earned on unrestricted cash balances for the period. Interest expense,net of interest income, for the prior year period was $71.1 million. The decreaseis primarily due to the inclusion in the prior year period of $11.0 million ofinterest expense arising from a related party payable to Walter.

**Financial Condition**

Cash and cash equivalents increased from zero at September 30,2005 to $39.2 million at March 31, 2006, reflecting $69.8 million in cashflows provided by operations and $31.1 million in cash flows provided byfinancing activities, partially offset by $61.7 million of cash flows used ininvesting activities. At September 30, 2005, U.S. Pipe was a wholly-ownedsubsidiary of Walter and all of its net cash activity was transferred intoWalter’s concentrated cash management system on a daily basis.

Net receivables, consisting principally of tradereceivables, were $272.7 million at March 31, 2006, an increase of $154.2million from September 30, 2005. The Acquisition accounted for an increaseof $186.6 million, partially offset by a $32.4 million decrease for theU.S. Pipe segment, primarily due to lower U.S. Pipe sales levels for thequarter ended March 31, 2006 compared to the quarter ended September 30,2005 due primarily to seasonality.

Inventories were $460.3 million at March 31,2006, an increase of $313.1 million from September 30, 2005. TheAcquisition accounted for an increase of $334.7 million, partially offset by a$21.6 million decrease for the U.S. Pipe segment, primarily due toseasonal reductions in pipe, valve, and hydrant inventories and a $10.7 millioninventory obsolescence write-down recorded during the six months ended March 31,2006. The inventory obsolescence write-down was a result of the decision toclose the U.S. Pipe Chattanooga, Tennessee plant and transfer the valve andhydrant production of the plant to Mueller’s Chattanooga, Tennessee andAlbertville, Alabama plants.

Current deferred income taxes, net, were $58.1 millionat March 31, 2006, an increase of $47.0 million from September 30,2005. The Acquisition accounted for $25.9 million of the increase. Theremainder of the increase was primarily due to increases in non-deductibleaccruals and reserves and a net operating loss carryforward from the three dayperiod ending October 3, 2005.

Prepaid expenses, consisting principally ofmaintenance supplies and tooling parts and prepaid insurance premiums, were$31.1 million at March 31, 2006, an increase of $29.6 million from September 30,2005. The Acquisition accounted for $31.3 million of the increase. This waspartially offset by $0.3 million of prepaid tooling depreciation expense.

Property, plant and equipment was $340.7 million at March 31,2006, an increase of $191.5 million from September 30, 2005, primarily dueto assets acquired in the Acquisition of $215.7 million and capitalexpenditures of $30.9 million, partially offset by fixed assetsimpairments resulting from the U.S. Pipe Chattanooga plant closure of $17.8million and fixed asset depreciation expense of $34.1 million.

Deferred financing fees, net, were $27.7 million at March 31,2006. There were no deferred financing fees at September 30, 2005. Allfees are related to the 2005 Mueller Credit Agreement entered into inconjunction with the October 3, 2005 Acquisition and the existing 10%Senior Subordinated Notes at Predecessor Mueller that were assumed as part ofthe Acquisition.

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Due from parent, Walter Industries was $20.0 millionat March 31, 2006, representing a $20.0 million note receivable for cashloaned to Walter by the Company subsequent to the Acquisition. There was nosuch amount at September 30, 2005.

Identifiable intangibles, net, were $849.0 million at March 31,2006. There were no such intangibles at September 30, 2005. Certainintangibles were identified during the allocation of the purchase of theAcquisition: (a) indefinite-lived intangible assets consisting of tradenames and trademarks of $403.0 million; and (b) definite-livedintangible assets consisting of customer relationships of $396.6 millionand technology of $56.3 million. An additional $6.7 million was booked fortechnology acquired in the purchase of CCNE during the quarter ended March 31,2006. Amortization expense resulting from definite-lived intangible assets forthe six months ended March 31, 2006 was $7.0 million.

Goodwill was $717.3 million at March 31, 2006, anincrease of $658.9 million from September 30, 2005. This increase representsgoodwill identified during the allocation of the purchase price of theAcquisition of $652.2 million and $6.8 million related to the acquisition ofHunt Industries.

Accounts payable were $110.3 million at March 31,2006, an increase of $57.8 million from September 30, 2005 primarily as aresult of the Acquisition.

Accrued expenses and other liabilities were $103.8million at March 31, 2006, an increase of $69.1 million compared to September 30,2005 primarily as a result of the Acquisition.

Long-term debt, including the current portion, was$1,379.5 million at March 31, 2006. There was no debt payable tonon-affiliates at September 30, 2005. All debt amounts are related to the2005 Mueller Credit Agreement entered into in conjunction with the Acquisitionand existing notes and capital leases that were assumed as part of theAcquisition.

Payable to parent, Walter Industries, was $2.9 millionat March 31, 2006 compared to $443.6 million at September 30, 2005.In conjunction with the contribution of U.S. Pipe to Group at October 3,2005, the intercompany balance was forgiven. The remaining payable representscertain costs incurred by Walter which benefited the Company and are requiredto be settled in cash.

Accrued pension liability increased $51.8 million to$105.4 million at March 31, 2006. The Acquisition accounted for anincrease of $42.8 million. The remainder of the increase was primarily due to$3.7 million of normal provision for net periodic benefit cost and $5.0 millionof costs related to the closure of the U.S. Pipe Chattanooga, Tennesseeplant.

Non-current deferredincome taxes, net, were $316.1 million at March 31, 2006, an increase of$316.1 million compared to September 30, 2005 primarily as a resultof the Acquisition.

***Statement of Cash Flows***

Historically, our financing requirements have beenfunded primarily through borrowings from Walter Industries. As of theAcquisition date, the Company’s financing requirements are funded through cashgenerated by operating activities and borrowings under our revolving creditfacility.

*Cashflows from operating activities.**  *Net cash provided by operations was$69.8 million for the first six months of 2006, compared to net cashused of $7.0 million for the first six months of 2005. The difference wasdue primarily to the operations of Predecessor Mueller, acquired on October 3,2005.

*Cashflows used in investing activities.**  *In the first six months of 2006 netcash used in investing activities was $61.7 million compared to $7.0million of net cash provided in the first six months of 2005. The differencewas due primarily to the operations of Predecessor Mueller, acquired onOctober 3, 2005.

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*Cash flows from financingactivities.**  *Netcash provided by financing activities was $31.1 million for the first sixmonths of 2006, compared to net cash used in the first six months of 2005 of$0.1 million. This was primarily due to the operations of PredecessorMueller, acquired on October 3, 2005, a transaction which included$67.4 million due to the Walter contribution of Predecessor Mueller’scash.

**Liquidity andCapital Resources**

Our principal sources ofliquidity have been, and are expected to be, cash flow from operations andborrowings under the 2005 Mueller Credit Agreement. Our principal uses of cashwill be debt service requirements as described below, capital expenditures,working capital requirements, dividends to our parent, Mueller Water, to financeour cash needs and possible acquisitions.

*Debt Service*

As of March 31, 2006, we had totalconsolidated indebtedness of approximately $1,379.5 million andapproximately $113.6 million of borrowings available under the revolverportion of the 2005 Mueller Credit Agreement, subject to customary conditions.As of March 31, 2006, the Company had $31.4 million in letters ofcredit outstanding under the 2005 Mueller Credit Agreement, which reducesavailability for borrowings thereunder. The significant debt serviceobligations under the credit facility and indentures could have materialconsequences to our security holders. Our key financial covenants are dependenton attaining certain levels of EBITDA, as defined in the respective debtarrangements. The most restrictive covenant in effect at March 31, 2006related to a leverage ratio, as defined in the 2005 Mueller Credit Agreement,which required approximately $241 million of EBITDA over the trailingtwelve months, based on net debt outstanding at March 31, 2006. We were incompliance with this covenant at March 31, 2006.

*2005Mueller Credit Agreement:**  *OnOctober 3, 2005, the Company entered into a credit agreement (the “2005Mueller Credit Agreement”) consisting of a $145 million senior securedrevolving credit facility maturing in October 2010 (the “2005 MuellerRevolving Credit Facility”) and a $1,050 million senior secured term loanmaturing in October 2012 (the “2005 Mueller Term Loan”). The 2005 MuellerCredit Agreement is a secured obligation of the Company and substantially allof its wholly-owned domestic subsidiaries, including U.S. Pipe. The 2005Mueller Term Loan requires quarterly principal payments of $2.6 millionthrough October 3, 2012, at which point in time the remaining principaloutstanding is due. The commitment fee on the unused portion of the 2005Mueller Revolving Credit Facility is 0.50% and the interest rate is a floatinginterest rate of 2.5% over LIBOR. The 2005 Mueller Term Loan carries a floatinginterest rate of 2.25% over LIBOR. As of March 31, 2006, the averageinterest rate was 7.0%.

Proceeds from the 2005 Mueller Credit Agreement were$1,053.4 million, net of $21.6 million of underwriting fees andexpenses which will be amortized over the life of the loans. The proceeds wereused to finance the acquisition of our parent, Predecessor Mueller Water byWalter and to refinance existing indebtedness.

The 2005 Mueller Credit Agreement contains customaryevents of default and covenants, including covenants that restrict the abilityof the Company and certain of its subsidiaries to incur certain additionalindebtedness, pay dividends, create or permit liens on assets, engage inmergers or consolidations, and certain restrictive financial covenants.

The 2005 MuellerCredit Agreement also contains financial covenants requiring the Company tomaintain:

·       aninterest expense coverage ratio of at least 2.25 to 1.00 (increasing to 2.50 to1.00 beginning with the four quarter period ending December 31, 2007);

·       aconsolidated leverage ratio of not more than 5.50 to 1.00 (decreasing in annualincrements to 4.00 to 1.00 by the four quarter period ending December 31,2008); and

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·       aconsolidated senior secured leverage ratio of not more than 4.25 to 1.00(decreasing in annual increments to 3.00 to 1.00 by the four quarter periodending December 31, 2008).

An amendment to the 2005 Mueller Credit Agreement madein January 2006 provides that in the event of an initial public offering,Group may pay annual dividends of up to $8.5 million to the Company to pay itscommon shareholders.

*10% Senior SubordinatedNotes:*   In2004, the Company issued $315 million principal face amount of 10% seniorsubordinated notes due 2012. The senior subordinated notes areguaranteed by each of the Company’s existing domestic restricted subsidiaries.The subordinated notes contain customary covenants and events of default,including covenants that limit the Company’s ability to incur debt, paydividends and make investments. The effective interest rate was 7.3% as ofMarch 31, 2006.

*CapitalExpenditures*

The 2005 Mueller CreditAgreement contains restrictions on our ability to make capital expenditures.Based on current estimates, management believes that the amount of capitalexpenditures permitted to be made under the senior credit facility will beadequate to maintain the properties and business of our continuing operations.

*Sources of Funds*

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

From time to time we may explore additional financingmethods and other means to lower our cost of capital, which could include stockissuance or debt financing and the application of the proceeds therefrom to therepayment of bank debt or other indebtedness. In addition, in connection withany future acquisitions, we may require additional funding which may beprovided in the form of additional debt or equity financing or a combinationthereof. There can be no assurance that any additional financing will beavailable to us on acceptable terms.

As disclosed in MuellerWater’s Registration Statement on Form S-1/A filed on May 2,2006 with the Securities and Exchange Commission, we anticipate using the netproceeds from the public offering of Mueller Water’s Common Stock, as well asany proceeds received from any exercise of the underwriters’ option to purchaseadditional shares of Common Stock, to repay certain of our indebtedness,including a portion of the Company’s term loan under the 2005 Mueller CreditAgreement and a portion of the Company’s 10% senior subordinated notes due 2012and for general corporate purposes.

**Off-Balance SheetArrangements**

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

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We utilize letters ofcredit and surety bonds in the ordinary course of business to ensure ourperformance of contractual obligations. As of March 31, 2006, we had$31.4 million of letters of credit and $24.8 million of surety bondsoutstanding.

**ContractualObligations**

Our contractualobligations as of March 31, 2006:

**PaymentsDue by Period**

| **Contractual Obligations**       | ** ** | ** **                          | ** ** | **Less than  1 Year** | ** ** | **1-3 Years** | ** ** | **4-5 Years** | ** ** | **After 5 Years** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|--------------------|------------|--------------------|------------|-----------------------------|------------|-----------|------------|
| ** **                             | ** ** | **(dollars in millions)** | ** ** |
| Long-term debt                         |       |                                |       |                            |       |               |       |               |       |                        |       |      |       |   |   |   |   |   |   |
| Principal on long-term debt            |       |                                | $          | 10.5                            |       |               |       | $                  | 21.0       |                        |       |      | $          | 21.0 |   |   |   | $ | 1,307.3 |   |   | $ | 1,359.8 |   |
| Interest on long-term debt(1)          |       |                                | 108.2      |                            |       |               | 213.9      |               |       |                        | 210.7      |      |       |   | 143.4 |   |   | 676.2 |   |
| Capital lease  obligations             |       |                                | 1.0        |                            |       |               | 1.2        |               |       |                        | 0.1        |      |       |   | — |   |   | 2.3 |   |
| Operating leases                       |       |                                | 8.2        |                            |       |               | 8.0        |               |       |                        | 2.4        |      |       |   | 2.3 |   |   | 20.9 |   |
| Unconditional  purchase obligations(2) |       |                                | 22.9       |                            |       |               | —     |               |       |                        | —     |      |       |   | — |   |   | 22.9 |   |
| Other long-term  obligations(3)        |       |                                | —     |                            |       |               | —     |               |       |                        | —     |      |       |   | — |   |   | — |   |
| Total contractual  cash obligations    |       |                                | $          | 150.8                           |       |               |       | $                  | 244.1      |                        |       |      | $          | 234.2 |   |   |   | $ | 1,453.0 |   |   | $ | 2,082.1 |   |

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(1)          Interest on the seniorcredit facility is calculated using LIBOR of 5.00%, the rate in effect on March 31,2006. Each increase or decrease in LIBOR of 0.125% would result in an increaseor decrease in annual interest on the senior credit facility of $1.3 million.Because the interest rate under the senior credit facility will be variable,actual payments may differ. Interest does not include payments that could berequired under our interest-rate swap agreements, which payments will dependupon movements in interest rates and could vary significantly. The payments tobe received on the existing interest rate swaps are estimated to beapproximately $3.1 million, net of LIBOR interest calculated at 5.00%received from counterparties.

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

(3)          Excludesthe deferred payment portion of the purchase price for Star Pipe, Inc. (“Star”),purchased by Predecessor Mueller Group on January 15, 2004. The Starpurchase price is subject to adjustment to reflect, among other things, adeferred payment to be made by us to the extent that the gross profit of thebusiness exceeds the target gross profit from February 1, 2004 to January 31,2007. Although the maximum amount payable is $23.0 million, we estimatethat the total deferred payment will be approximately $3.0 million to$6.0 million. This calculation of the potential Star purchase priceadjustment is based on management’s best estimate; however, the actualadjustment may be materially different.

**Effect ofInflation; Seasonality**

We do not believe that general inflation (except forscrap steel, brass ingot and steel pipe) has had a material impact on ourfinancial position or results of operations.

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

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**Critical AccountingPolicies**

Our significant accounting policies include those of U.S. Pipe andPredecessor Mueller Group. While all significant accounting policies areimportant to our consolidated financial statements, some of these policies maybe viewed as being critical. Such policies are those that are both mostimportant to the portrayal of our financial condition and require our mostdifficult, subjective and complex estimates and assumptions that affect thereported amounts of assets, liabilities, revenues, expenses and relateddisclosure of contingent assets and liabilities. These estimates are based uponour historical experience and on various other assumptions that we believe tobe reasonable under the circumstances. Our actual results may differ from theseestimates under different assumptions or conditions. We believe our mostcritical accounting policies are as follows:

***Pensions***

We sponsor a number of defined benefit retirement plans. We recordannual amounts relating to these plans based on calculations specified byaccounting principles generally accepted in the United States of America, whichinclude various actuarial assumptions including the following:

*U.S. Pipe*

| ** **                                                                          | ** ** | **Pension Benefits**    | ** ** | **Other Benefits**     | ** ** |
|-------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                          | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
| Weighted-average assumptions used to determine benefit  obligations:                |       |                         |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount rate                                                                       |       |                         | 5.0        | %                           |       |   | 6.0 | % |   |   | 5.0 | % |   |   | 6.0 | % |   |
| Rate of compensation increase                                                       |       |                         | 3.5        | %                           |       |   | 3.5 | % |   |   | — |   |   |   | — |   |   |
| Weighted-average  assumptions used to determine net periodic costs:                 |       |                         |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount rate:                                                                      |       |                         | 6.0        | %                           |       |   | 6.4 | % |   |   | 6.0 | % |   |   | 6.4 | % |   |
| Expected return on plan assets                                                      |       |                         | 8.9        | %                           |       |   | 8.9 | % |   |   | — |   |   |   | — |   |   |
| Rate of compensation increase                                                       |       |                         | 3.5        | %                           |       |   | 3.5 | % |   |   | — |   |   |   | — |   |   |
| Assumed health  care cost trend rates:                                              |       |                         |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Health care cost trend rate assumed for next year                                   |       |                         | —     |                        |       |   | — |   |   |   | 10.0 | % |   |   | 10.0 | % |   |
| Rate to which cost trend rate is assumed to decline (the ultimate  trend rate) |       |                         | —     |                        |       |   | — |   |   |   | 5.0 | % |   |   | 5.0 | % |   |
| Year that the rate reaches the ultimate trend rate                                  |       |                         | —     |                        |       |   | — |   |   |   | 2010 |   |   |   | 2009 |   |   |

 

The discount rate used to determine pension expensewas decreased to 6.0% for 2005 from 6.4% used in 2004. The discount rate isbased on a proprietary bond defeasance model designed by the plans’ investmentconsultant to create a portfolio of high quality corporate bonds which, ifinvested on the measurement date, would provide the necessary future cash flowsto pay accumulated benefits when due. The premise of the model is that annualbenefit obligations are funded from the cash flows generated from periodic bondcoupon payments, principal maturities and the interest on excess cash flows,i.e. carry forward balances.

The model uses a statistical program to determine theoptimal mix of securities to offset benefit obligations. The model is populatedwith an array of Moody’s Aa-rated corporate fixed income securities that areactively traded in the bond market on the measurement date. None of thesecurities used in the model had embedded call, put or convertible features,and none were structured with par paydowns or deferred income streams. All ofthe securities in the model are considered appropriate for the analysis as theyare diversified by maturity date and issuer and offer predictable cash flowstreams. For diversification 

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purposes, the model wasconstrained to purchasing no more than 20% of any outstanding issuance. Carryforward interest is credited at a rate determined by adding the appropriateimplied forward Treasury yield to the Aa-rated credit spread as of themeasurement date.

The expected return on plan assets was based on U.S.Pipe’s expectation of the long-term average rate of return on assets in thepension funds, which was modeled based on the current and projected asset mixof the funds and considering the historical returns earned on the type ofassets in the funds. We will review our actuarial assumptions on an annualbasis and make modifications to the assumptions based on current rates andtrends when appropriate. As required by U.S. GAAP, the effects of themodifications are amortized over future periods.

Assumed health care cost trends, discountrates, expected return on plan assets and salary increases have a significanteffect on the amounts reported for the pension plans and health care plans. Aone-percentage-point change in the rate for each of these assumptions wouldhave the following effects: 

| ** **                                               | ** ** | **1-Percentage  Point Increase** | ** ** | **1-Percentage  Point Decrease** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| ** **                                               | ** ** | **(dollars in millions)**   | ** ** |
| Discount rate:                                           |       |                                  |       |                                  |       |   |   |   |   |
| Effect on  pension service and interest cost  components |       |                                  | $          | (0.2                                  | )          |   |   | $ | 0.2 |   |   |
| Effect on  pension benefit obligation                    |       |                                  | (24.5      | )                                     |       |   | 29.8 |   |   |
| Effect on  current year pension expense                  |       |                                  | (1.5       | )                                     |       |   | 1.8 |   |   |
| Expected return on plan assets:                          |       |                                  |       |                                  |       |   |   |   |   |
| Effect on  current year pension expense                  |       |                                  | (1.2       | )                                     |       |   | 1.2 |   |   |
| Rate of compensation increase:                           |       |                                  |       |                                  |       |   |   |   |   |
| Effect on  pension service and interest cost  components |       |                                  | 0.3        |                                  |       |   | (0.3 | ) |   |
| Effect on  pension benefit obligation                    |       |                                  | 2.8        |                                  |       |   | (2.4 | ) |   |
| Effect on current year pension expense                   |       |                                  | 0.6        |                                  |       |   | (0.5 | ) |   |
|                                                          |            |                                       |            |                                       |            |  |  |  |  |  |  |

 

Among the items affectingU.S. Pipe’s net accrued retirement pension benefits were additional minimumpension liabilities recognized in 2005, which primarily resulted from a furtherdecline in the average discount rate from 6.0% to 5.0%. As a result, the netaccrued benefit was increased by $24.1 million and accumulated othercomprehensive loss (a component of equity) was increased by a similar amount,net of a tax benefit of $8.2 million. Depending on future plan assetperformances and interest rates, additional adjustments to our net accrued benefitand equity may be required.

*Predecessor Mueller Group*

| ** **                                                           | ** ** | **Pension  At September 30,** | ** ** |
|----------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                           | ** ** | **2005**                                | ** ** | **2004** | ** ** |
| Weighted-Average  Assumptions used to determine benefit obligations: |       |                                    |       |   |   |   |   |   |   |
| Discount rate                                                        |       |                                    | 5.2        | % |   |   | 5.8 | % |   |
| Rate of  compensation increase                                       |       |                                    | 3.5        | % |   |   | 3.5 | % |   |
| Weighted-Average  Assumptions used to determine net periodic costs:  |       |                                    |       |   |   |   |   |   |   |
| Discount rate:                                                       |       |                                    | 5.8        | % |   |   | 6.0 | % |   |
| Expected return  on plan assets                                      |       |                                    | 7.9        | % |   |   | 7.9 | % |   |
| Rate of compensation  increase                                       |       |                                    | 3.5        | % |   |   | 3.5 | % |   |

 

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The discount rateused to determine pension expense was decreased to 5.8% for 2005 from 6.0% usedin 2004. The rate of return on plan assets used to determine pension expense is7.9% for both 2005 and 2004. The discount rate is based on a model portfolio ofAa-rated bonds with a maturity matched to the estimated payouts of futurepension benefits. The expected return on plan assets is based on PredecessorMueller Group’s expectation of the long-term average rate of return on assetsin the pension funds, which was modeled based on the current and projectedasset mix of the funds and considering the historical returns earned on thetype of assets in the funds. We will review the actuarial assumptions on anannual basis and make modifications to the assumptions based on current ratesand trends when appropriate. As required by U.S. GAAP, the effects of themodifications are amortized over future periods.

Assumed discount rates, expected return onplan assets and salary increases have a significant effect on the amountsreported for the pension plans. A one-percentage-point change in the rate foreach of these assumptions would have the following effects: 

| ** **                                              | ** ** | **1-Percentage  Point Increase** | ** ** | **1-Percentage  Point Decrease** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| ** **                                              | ** ** | **(dollars in millions)**   | ** ** |
| Discount rate:                                          |       |                                  |       |                                  |       |   |   |   |   |
| Effect on pension service and interest cost  components |       |                                  | $          | (0.1                                  | )          |   |   | $ | — |   |   |
| Effect on pension benefit obligation                    |       |                                  | $          | (12.4                                 | )          |   |   | $ | 14.0 |   |   |
| Effect on current year pension expense                  |       |                                  | $          | (1.2                                  | )          |   |   | $ | 1.2 |   |   |
| Expected return on plan  assets:                        |       |                                  |       |                                  |       |   |   |   |   |
| Effect on current year pension expense                  |       |                                  | $          | (0.8                                  | )          |   |   | $ | 0.8 |   |   |
| Rate of compensation  increase:                         |       |                                  |       |                                  |       |   |   |   |   |
| Effect on pension service and interest cost  components |       |                                  | —     |                                  |       |   | — |   |   |
| Effect on pension benefit obligation                    |       |                                  | $          | 0.3                                   |       |   |   | $ | (0.3 | ) |   |
| Effect on current  year pension expense                 |       |                                  | $          | 0.1                                   |       |   |   | $ | — |   |   |

 

Among the items affectingour net accrued retirement pension benefits were additional minimum pensionliabilities recognized in 2005, which primarily resulted from a further declinein the average discount rate from 5.8% to 5.2%. As a result, the net accruedbenefit was increased by $2.8 million and accumulated other comprehensiveearnings (a component of equity) was reduced by a similar amount, net of a taxbenefit of $1.1 million. Depending on future plan asset performance andinterest rates, additional adjustments to our net accrued benefit and equitymay be required.

***Workers’Compensation***

We are self-insured for workers’compensation benefits for work-related injuries. Liabilities, including thoserelated to claims incurred but not reported, are recorded principally usingannual valuations based on discounted future expected payments and usinghistorical data or combined insurance industry data when historical data islimited. Pursuant to the terms of the Tyco Purchase Agreement, PredecessorMueller Group is indemnified by Tyco for all liabilities that occurred prior toAugust 16, 1999. Workers’ compensation liabilities were as follows:

| ** **                                                                | ** ** | **March 31,  2006**            | ** ** | **September 30,  2005** | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                                                                | ** ** | **(dollars in millions)** | ** ** |
| Workers’ compensation liability recorded on a discounted basis  |       |                                | $          | 24.4                         |       |   |   | $ | 11.9 |   |   |
|                                                                           |            |                                     |            |                              |            |  |  |  |  |  |  |

 

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A one-percentage-point increase in the discount rate on thediscounted claims liability would decrease the liability by $0.1 million,while a one-percentage-point decrease in the discount rate would increase theliability by $0.1 million.

***Litigation,Investigations and Claims***

We are involved in litigation, investigations, and claims arisingout of the normal conduct of our business, including those relating tocommercial transactions, as well as environmental, health and safety matters.We estimate and accrue liabilities resulting from such matters based on avariety of factors, including outstanding legal claims and proposedsettlements; assessments by internal counsel of pending or threatened litigation;and assessments of potential environmental liabilities and remediation costs.We believe we have adequately accrued for these potential liabilities; however,facts and circumstances may change and could cause the actual liability toexceed the estimates, or that may require adjustments to the recorded liabilitybalances in the future.

***RevenueRecognition***

We recognize revenue based on the recognition criteria set forthin the Securities and Exchange Commission’s Staff Accounting Bulletin 104 “RevenueRecognition in Financial Statements,” which is when delivery of a product hasoccurred and there is persuasive evidence of a sales arrangement, sales pricesare fixed and determinable, and collectibility from the customers is reasonablyassured. Revenue from the sale of products is recognized when title passes upondelivery to the customer. Sales are recorded net of cash discounts and rebates.

***Receivables***

Receivables relateprimarily to customers located in North America. To reduce credit risk, weperform credit investigations prior to accepting an order and, when necessary,require letters of credit to insure payment.

Our estimate for uncollectible accounts receivable is based, inlarge part, upon judgments and estimates of expected losses and specificidentification of problem trade accounts. Significantly weaker than anticipatedindustry or economic conditions could impact customers’ ability to pay suchthat actual losses are greater than the amounts provided for in theseallowances. Our periodic evaluation of the adequacy of our allowance is basedon our analysis of our prior collection experience, specific customercreditworthiness and current economic trends within the industries we serve. Incircumstances where we are aware of a specific customer’s inability to meet itsfinancial obligation to us (e.g., bankruptcy filings or substantial downgradingof credit ratings), we record a specific reserve to reduce the receivable tothe amount we reasonably believe will be collected.

***Inventories***

Inventories are recorded at the lower of cost (first-in,first-out) or market value. Additionally, we evaluate our inventory in terms ofexcess and obsolete exposures. This evaluation includes such factors asanticipated usage, inventory turnover, inventory levels and ultimate productsales value. Inventory cost includes an overhead component that can be affectedby levels of production and actual costs incurred. Management periodicallyevaluates the effects of production levels and actual costs incurred on thecosts capitalized as part of inventory cost.

***Income Taxes***

Deferred taxliabilities and assets are recognized for the expected future tax consequencesof events that have been included in the financial statements or tax returns.Deferred tax liabilities and assets are 

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determined based on the differences between the financialstatements and the tax basis of assets and liabilities, using tax rates ineffect for the years in which the differences are expected to reverse. Avaluation allowance is provided to offset any net deferred tax assets if, basedupon the available evidence, it is more likely than not that some or all of thedeferred tax assets will not be realized. If we were to reduce our estimates offuture taxable income, we could be required to record a valuation allowanceagainst our deferred tax assets.

We have recorded provisions associated with income tax exposures.Such provisions require significant judgment and are adjusted when events orcircumstances occur that would require a change in the estimated accrual.

***Accounting for theImpairment of Long-Lived Assets Including Goodwill and Other Intangibles***

Long-lived assets, including goodwill and intangible assets thathave an indefinite life are tested for impairment annually (or more frequentlyif events or circumstances indicate possible impairments). Definite-livedintangible assets are amortized over their respective estimated useful livesand reviewed for impairment annually or more frequently if events orcircumstances indicate possible impairment. Any recognized intangible assetdetermined to have an indefinite useful life will not be amortized, but insteadtested for impairment in accordance with the standard until its life isdetermined to no longer be indefinite. We use an estimate of futureundiscounted net cash flows of the related asset or asset grouping over theremaining life in measuring whether long-lived assets other than goodwill andintangibles are impaired. If impaired, we may need to record impairment chargesto reduce the carrying value of our long-lived assets.

***Stock-BasedCompensation***

The Company participates in the stock-basedcompensation plans of its parent company, Walter Industries. Historically,Walter Industries did not allocate any costs of this plan to U.S. Pipe.Beginning October 1, 2005, we adopted SFAS No. 123(R), “Share-BasedPayment,” which requires that compensation costs related to share-based paymenttransactions be recognized in the financial statements over the period that anemployee provides service in exchange for the award. We will use a modifiedprospective method, under which we will record compensation cost for new andmodified awards over the related vesting period of such awards. The Company hadno stock options outstanding at March 31, 2006. Certain of the Company’semployees have been granted Walter restricted stock units and stock optionsunder Walter’s stock-based compensation plans. The Company has expensed $0.3million related to the stock-based compensation costs allocated from Walter.

***DerivativeInstruments and Hedging Activities***

We currently useinterest rate swaps as required in the 2005 Mueller Credit Agreement to reducethe risk of interest rate volatility. The amount to be paid or received frominterest rate swaps is charged or credited to interest expense over the livesof the interest rate swap agreements. Changes in the fair value of derivativesare recorded each period in earnings or Accumulated Other Comprehensive Income(Loss), depending on whether a derivative is designated and effective as partof a hedge transaction and meets the applicable requirements associated withStatement of Financial Accounting Standards (SFAS) No. 133.

For a derivativeto qualify as a hedge at inception and throughout the hedge period, we mustformally document the nature and relationships between the hedging instrumentsand hedged items, as well as its risk-management objectives, strategies forundertaking the various hedge transactions and method of assessing hedgeeffectiveness. Any financial instruments qualifying for hedge accounting mustmaintain a specified level of effectiveness between the hedging instrument andthe item being hedged, both at inception and throughout the hedged period.

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Additionally, we utilize forward contracts to mitigate itsexposure to changes in foreign currency exchange rates from third party andintercompany transactions. The primary currency to which we are exposed and towhich we hedge the exposure is the Canadian dollar. The effective portion ofunrealized gains and losses associated with forward contracts are deferred as acomponent of Accumulated Other Comprehensive Income (Loss) until the underlyinghedged transactions are reported in our consolidated statement of earnings. Thebalance was less than $0.1 million at March 31, 2006.

**Recently IssuedAccounting Standards**

In November 2004, theFinancial Accounting Standards Board issued SFAS No. 151, “InventoryCosts,” which clarifies the accounting for abnormal amounts of idle facilityexpense, freight, handling costs, and wasted material. This Statement requiresthat those items be recognized as current-period charges regardless of whetherthey meet the criterion of “so abnormal.” In addition, this Statement requiresthat allocation of fixed production overheads to the costs of conversion bebased on the normal capacity of the production facilities. The Company adoptedSFAS No. 151 on October 1, 2005, the beginning of its 2006 fiscalyear. The impact of the adoption of SFAS No. 151 on the Company’sfinancial statements may have a material impact on our operating income in theevent actual production output is significantly higher or lower than normalcapacity. In the event actual production capacity is significantly differentthan normal capacity, the Company may be required to recognize certain amountsof facility expense, freight, handling costs or wasted materials as a currentperiod expense**.**

**ITEM 3.**                QUALITATIVEAND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

We are exposed tovarious market risks, which are potential losses arising from adverse changesin market rates and prices, such as interest rates and foreign exchangefluctuations. We do not enter into derivatives or other financial instrumentsfor trading or speculative purposes.

Our primary financial instruments are cash and cash equivalents.This includes cash in banks and highly rated, liquid money market investmentsand U.S. government securities. We believe that those instruments are notsubject to material potential near-term losses in future earnings fromreasonably possible near-term changes in market rates or prices.

***Interest Rate Risk***

At March 31,2006, the Company had fixed rate debt of $334.7 million and variable ratedebt of $1,044.8 million. The pre-tax earnings and cash flows impact resulting froma 100 basis point increase in interest rates on variable rate debt, holdingother variables constant and excluding the impact of the hedging agreementsdescribed below, would be approximately $10.4 million per year.

On October 27, 2005, the Company entered into sixinterest rate hedge transactions with a cumulative notional amount of$350 million. The swap terms are between one and seven years with fiveseparate counter-parties. The objective of the hedges is to protect the Companyagainst rising LIBOR interest rates that would have a negative effect on theCompany’s cash flows due to changes in interest payments on its 2005 MuellerTerm Loan. The structure of the hedges are a one-year 4.617% LIBOR swap of$25 million, a three-year 4.740% LIBOR swap of $50 million, afour-year 4.800% LIBOR swap of $50 million, a five-year 4.814% LIBORswap of $100 million, a six-year 4.915% LIBOR swap of $50 million,and a seven year 4.960% LIBOR swap of $75 million. These swap agreementscall for the Company to make fixed rate payments over the term at each swap’sstated fixed rate and to receive payments based on three month LIBOR from thecounter-parties. These swaps will be settled quarterly over their lives andwill be accounted for as cash flow hedges. As such, changes in the fair valueof these swaps that take place through the date of maturity will be recorded inAccumulated Other Comprehensive Income (Loss). These hedges comply withcovenants contained in the 2005 Mueller Credit Agreement.

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The Company has two interest rate hedge agreementswith a cumulative notional value amount of $100 million that existed as ofOctober 3, 2005: a $50 million two-year 3.928% LIBOR swap thatmatures in May 2007 and a $50 million two-year 4.249% LIBOR swap thatmatures in April 2007. The changes in fair value of these two swaps wererecorded immediately as interest expense in the Statements of Operations untilachieving hedge effectiveness in October 2005 and November 2005,respectively, at which times such changes in fair value were recorded inAccumulated Other Comprehensive Income (Loss).

The Company recorded an unrealized gain from itsinterest rate swap contracts, net of tax, of $2.6 million at March 31,2006 in Accumulated Other Comprehensive Income (Loss).

We will consider entering into additional interestrate swaps or other interest rate hedging instruments to protect againstinterest rate fluctuations on our floating rate debt.

The 2005 Mueller CreditAgreement requires that at least 50% of the funded debt of the Company and itsrestricted subsidiaries on a consolidated basis be fixed for a period beginningno later than January 1, 2006 and ending October 3, 2008. Thisrequirement can be met with any combination of fixed rate debt and rateprotection agreements. The Company is currently in compliance with thisrequirement.

***Currency Risk***

Outside of theUnited States, we maintain assets and operations in Canada and, to a muchlesser extent, China. The results of operations and financial position of ourforeign operations are principally measured in their respective currency andtranslated into United States dollars. As a result, exposure to foreigncurrency gains and losses exists. The reported income of these subsidiarieswill be higher or lower depending on a weakening or strengthening of the UnitedStates dollar against the respective foreign currency. Our subsidiaries and affiliatesalso purchase and sell products and services in various currencies. As aresult, we may be exposed to cost increases relative to the local currencies inthe markets in which we sell. Because a different percentage of our revenues isin foreign currency than our costs, a change in the relative value of theUnited States dollar could have a disproportionate impact on our revenuescompared to our cost, which could impact our margins.

A portion of ourassets are based in our foreign locations and are translated into United Statesdollars at foreign currency exchange rates in effect as of the end of eachperiod, with the effect of such translation reflected in other comprehensiveincome (loss). Accordingly, our consolidated stockholders’ equity will fluctuatedepending upon the weakening or strengthening of the United States dollaragainst the respective foreign currency.

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We have entered into forward exchange contractsprincipally to hedge currency fluctuations in transactions (primarily anintercompany loan and anticipated inventory purchases) denominated in foreigncurrencies, thereby limiting the risk that would otherwise result from changesin exchange rates. The majority of the Company’s exposure to currency movementsis in Canada. Gains and losses on the forward contracts are expected to beoffset by losses / gains in recognized net underlying foreign currency transactions.As of March 31, 2006, the Company had entered into forward contracts in anotional amount of $7.4 million to protect anticipated inventory purchases overthe next six months by its Canadian operations. With these hedges, the Companypurchases U.S. dollars and sells Canadian dollars at an average exchange rateof $0.870.

The Company has also entered into hedges protecting intercompanyloan payments to be made over the next three years by its Canadian subsidiaryto a U.S. subsidiary totaling $37.3 million. With these hedges, the Companysells Canadian dollars for U.S. dollars at an exchange rate of $0.8681. Unrealizedgains or losses on these hedges will be recorded in earnings over their lives. Theunrealized loss on the hedges at March 31, 2006 was not material.

***Raw Materials Risk***

Our products are made from several basic raw materials, includingsteel pipe, scrap steel, iron, brass ingot, sand, resin and natural gas, whoseprices fluctuate as market supply and demand change. Accordingly, productmargins and the level of profitability can fluctuate if we are not able to passraw material costs on to our customers. Management estimates for our Muellerand Anvil segments that raw material accounted for approximately 18% of ourcost of goods sold due to increasing raw material prices in 2005. Managementestimates U.S. Pipe’s scrap metal and ferrous alloys used in the manufacturingprocess accounted for 40% of the cost to manufacture ductile iron pipe as of September 30,2005. Historically, we have been able to obtain an adequate supply of rawmaterials and do not anticipate any shortage of these materials. We generallypurchase raw materials at spot prices but may, from time to time, enter intocommodity derivatives to reduce our exposure to fluctuation in the price of rawmaterials.

**ITEM 4.**                CONTROLS ANDPROCEDURES

***Evaluation ofDisclosure Controls and Procedures.***

The Company maintains disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in the reports filed or submitted under the Securities Exchange Actof 1934, as amended (“Exchange Act”), is recorded, processed, summarized, andreported within the time periods specified in the Commission’s rules andforms and that such information is accumulated and communicated to the Company’smanagement including its principal executive and financial officers, asappropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report,the Company’s management evaluated the effectiveness of the design andoperation of disclosure controls and procedures pursuant to Rule 13a-15(b) ofthe Exchange Act. This evaluation was done under the supervision and with theparticipation of management, including Dale B. Smith, President and ChiefExecutive Officer, and Jeffery W. Sprick, Chief Financial Officer.

Based on this evaluationand because of the material weakness described below, the Company’s ChiefExecutive Officer and Chief Financial Officer have concluded that the Company’sdisclosure controls and procedures were not effective as of March 31,2006. Notwithstanding this material weakness, management concluded that thefinancial statements included in this Form 10-Q for the period endedMarch 31, 2006 fairly present in all material respects their financialposition, results of operations and cash flows for the periods presented inconformity with GAAP.

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

A material weakness is a control deficiency or acombination of control deficiencies that results in more than a remotelikelihood that a material misstatement of the annual or interim consolidatedfinancial statements will not be prevented or detected.

As of September 30, 2005, the Company did notmaintain effective controls over the preparation, review and presentation anddisclosure of its consolidated financial statements, due to a lack of personnelwith experience in financial reporting and control procedures necessary for SECregistrants. Specifically, the Company’s controls failed to prevent or detectthe incorrect presentation of the following in the Predecessor Muellerconsolidated financial statements: (i) cash flows from the effect ofexchange rate changes on cash balances; (ii) cash flows from the loss ondisposal of property, plant and equipment; (iii) cash flows and balancesheet presentation of the dollar value of bank checks outstanding; (iv) thepresentation of current and non-current deferred income tax assets inPredecessor Mueller’s consolidated balance sheet; and (v) classificationof certain depreciation expense as selling, general and administrative expenseinstead of cost of sales in their consolidated statement of operations.Further, the Company’s controls failed to prevent or detect the incorrectpresentation of shipping and handling costs in the Company unauditedconsolidated statement of operations for the three months ended December 31,2004 as presented in the 10-Q for the period ended December 31,2005. The Company’s control deficiency resulted in the restatement ofPredecessor Mueller’s annual consolidated financial statements for fiscal 2004and 2003 and interim consolidated financial statements for the first threequarters of fiscal 2005, all interim periods of fiscal 2004, audit adjustmentsto the 2005 annual consolidated financial statements and the restatement of theCompany’s consolidated statement of operations for the three months ended December 31,2004. Additionally, this control deficiency could result in a misstatement of thepresentation and disclosure of the Company’s consolidated financial statementsthat would result in a material misstatement in the annual or interim financialstatements that would not be prevented or detected. Accordingly, management hasdetermined that this control deficiency constitutes a material weakness.

As of September 30,2004****and 2005, Predecessor Mueller reportedthe following control deficiencies that, in the aggregate, constituted amaterial weakness in internal control over preparation, review and presentationand disclosure of their consolidated financial statements. SpecificallyPredecessor Mueller’s control deficiencies included: (i) a lack ofpersonnel with experience in financial reporting and control proceduresnecessary for SEC registrants; (ii) a lack of sufficient controls toprevent or detect, on a timely basis, unauthorized journal entries; (iii) alack of sufficient controls over information technology data conversion andprogram changes; (iv) a lack of sufficient controls over the developmentand communication of income tax provisions; (v) a lack of effectivecontrols surrounding “whistleblower” hotline complaints and internalcertifications to ensure that issues were communicated on a more timely basisby management to the audit committee and the independent registered publicaccounting firm; (vi) a lack of effective controls over revenuerecognition associated with full truckload shipments not immediately dispatchedby freight carriers; and (vii) a lack of formal controls and proceduresregarding assessment of financial exposures and transactions, includingconsideration of accounting implications under GAAP. These control deficienciesresulted in audit adjustments to the consolidated financial statements for theyear ended September 30, 2004. Additionally, these control deficiencies,in the aggregate, could result in a misstatement to accounts and disclosuresthat would result in a material misstatement to the annual or interim financialstatements that would not be prevented or detected. While item (i) aboveremains unremediated and has been added as a component of the material weaknessexisting at March 31, 2006 described above, management has concluded thatbased on the remediation actions described below, items (ii) through (vii) ofthis material weakness did not exist at March 31, 2006.

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***Remediation ofMaterial Weakness***

In order to remediate the material weakness firstreported as of September 30, 2004, Predecessor Mueller: (i) reassignedits Chief Financial Officer, appointed an Interim Chief Financial Officer andhired additional accounting and finance staff; (ii) introduced increasedtraining for their existing financial and accounting and other staff; (iii) retainedthird-party consultants with significant SEC financial reporting experience toprovide assistance in complying with SEC reporting requirements; (iv) formeda disclosure committee to supervise the preparation of their Exchange ActReports and other public communications; (v) improved their controls over,and began developing written policies and procedures that cover all significantaccounting processes, including journal entries, the development andcommunication of income tax provisions, information data conversion issues andprogram changes, revenue recognition and assessing financial exposures; (vi) improvedand centralized controls over information technology; and (vii) implementedglobal compliance initiatives under the direction of their Chief ComplianceOfficer including controls surrounding “whistleblower” hotline complaints andinternal certifications. The Company continued these improvement efforts duringthe quarter ended March 31, 2006 and has concluded that it has remediateditems (ii) through (vii) of this material weakness. However, asdisclosed above, item (i) a lack of personnel with experience in financialreporting and control procedures necessary for SEC registrants is the onlyremaining item of the continuing material weakness at March 31, 2006.

During the quarter ended March 31, 2006, theCompany took steps to remediate the material weakness that continued as of March 31,2006. These steps included a thorough review, on a quarterly basis, of foreigncurrency translation cash flow statement effects, the dollar value of bankchecks outstanding and transactions related to property, plant and equipmentand an additional review, on a quarterly basis, of the classificationrequirements of each component line item and the individual elements thatcomprise each line item of the statement of cash flows, in accordance withStatement of Financial Accounting Standards, No.95, “Statement of Cash Flows.”Additionally, the classification of deferred income tax items in the balancesheet and cash flow statement, as well as depreciation in the statement ofoperations, will be evaluated quarterly as will the proper classification ofshipping and handling costs within our consolidated statement of operations.

In addition, duringthe quarter ended December 31, 2005, the Company made the followingchanges in internal control over financial reporting:

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

·       hiredadditional finance and accounting personnel for its Pratt and Chattanoogafacilities;

·       designatedthe Walter Industries Audit Committee, which is fully independent under NewYork Stock Exchange listing rules and the rules of the SEC, as itsaudit committee (in April 2006, the Company formed its own auditcommittee, which is fully independent under the New York Stock Exchange and SECrules); and

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

The Company continues to upgrade the knowledge of itsfinance staff by implementing on-going United States GAAP training programs,consisting of providing appropriate technical resources to our finance team andtraining on the use of such resources, conducting a series of training sessionsfor plant controllers, periodically distributing summaries of changes inaccounting and reporting standards, and issuing and updating our accountingpolicies. Additionally, the Company terminated the former Chief ComplianceOfficer of Predecessor Mueller and reassigned those duties to the Director ofInternal Audit. While significant improvements have been implemented,management believes that additional 

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remediation is needed andwill require changes in personnel, processes and procedures to ensure timelyand accurate financial reporting on a sustainable basis.

The Company believes theadditional control procedures as designed, when implemented, will fullyremediate the above material weakness.

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

Except as described above, there were no changesinternal control over financial reporting during the quarter ended March 31,2006, that have materially affected, or are reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

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**PART II**   OTHERINFORMATION

**Item 1.**                        LegalProceedings

See Note 13 of the “Notes to Condensed ConsolidatedFinancial Statements” in this Form 10-Q for a description of currentlegal proceedings.

We are involved in various legal proceedings whichhave arisen in the normal course of our operations, including the proceedingssummarized below. The effect of the outcome of these matters on the Company’sfuture results of operations cannot be predicted with certainty as any sucheffect depends on future results of operations and the amount and timing of theresolution of such matters. Other than the litigation described below, we donot believe that any of our outstanding litigation would have a materialadverse effect on our business, operations or prospects.

U.S. Pipe has implemented an Administrative ConsentOrder (“ACO”) for its Burlington, New Jersey plant that was required under theNew Jersey Environmental Cleanup Responsibility Act (now known as theIndustrial Site Recovery Act). The ACO required soil and ground water cleanup.U.S. Pipe has completed, and has received final approval for the soil cleanuprequired by the ACO. U.S. Pipe is continuing to address ground water issues atthis site. Further remediation could be required. These remediation costs are expectedto be minimal. Long term ground water monitoring will be required to verifynatural attenuation. It is not known how long ground water monitoring will berequired. Management does not believe monitoring or further cleanup costs, ifany, will have a material adverse effect on the financial condition or resultsof operations of the Company and its subsidiaries.

The Federal Comprehensive Environmental Response,Compensation and Liability Act (“CERCLA”), generally imposes liability, whichmay be joint and several and is without regard to fault or the legality ofwaste generation or disposal, on certain classes of persons, including ownersand operators of sites at which hazardous substances are released into theenvironment (or pose a threat of such release), persons that disposed orarranged for the disposal of hazardous substances at such sites, and personswho owned or operated such sites at the time of such disposal. CERCLAauthorizes the EPA, the States and, in some circumstances, private entities totake actions in response to public health or environmental threats and to seekto recover the costs they incur from the same classes of persons. Certaingovernmental authorities can also seek recovery for damages to naturalresources.

Currently, U.S. Pipe has been identified as apotentially responsible party (“PRP”) by the EPA under CERCLA with respect tocleanup of hazardous substances in Anniston, Alabama. U.S. Pipe is among manyPRP’s at such sites and a significant number of the PRP’s are substantial companies.The PRP’s have negotiated an Administrative Order of Consent (“ACO”) with theEPA and the PRP’s have agreed to divide clean-up costs pro-rata subject tolater adjustment based on the relative contribution by each PRP to thecontamination. Management estimates the Company’s share of liability forcleanup after allocation among the several PRP’s will be approximately$4.0 million which was accrued in 2004. Management does not believe thatU.S. Pipe’s share of any liability under the ACO will have a material adverseeffect on the financial condition of the Company, but could be material toresults of operations in future periods.

Solutia, Inc. and Pharmacia Corporation (“Solutia”)filed suit against United States Pipe and Foundry Company and Walter Industrieson January 5, 2003 (Solutia, Inc. and Pharmacia Corporation v. UnitedStates Pipe and Foundry Company, Walter Industries, Inc., et al, Case No. CV-03-PWG-1345-E)in US District court for the Northern District of Alabama. This is a civilaction for contribution and cost recovery by Solutia with respect to costsincurred and to be incurred in performing remediation of polychlorinatedbiphenyls (“PCB”) and heavy metals mandated by EPA in Anniston, Alabama withrespect to the ACO described above. The ACO provides protection againstcontribution claims by third parties, such as Solutia. Management believes thatthe likelihood of liability in the contribution litigation is remote.

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Walter Industries, Inc. and United States Pipeand Foundry Company have been named in a suit filed by Isaiah Evans on April 8,2005 (Isaiah Evans et al v. Walter Industries, Inc., United States Pipeand Foundry Company, Inc., et al, Case No. CV:05-258) in theCircuit Court of Calhoun County, Alabama. This is a purported civil classaction case filed against 18 foundries in the Anniston, Alabama area allegingstate law tort claims in the creation and disposal of foundry sand alleged tocontain lead and PCB’s. The plaintiffs are seeking damages for personal injuryand property damage. This matter is still in early stages of litigation and nosubstantive discovery has taken place yet. In addition, management believesthat both procedural and substantive defenses would be available to us shouldthis class action proceed. Accordingly, management believes that, presently,there is no reasonable procedural or factual basis for management to form aview with respect to the probability of liability in this matter.

The Los Angeles Department of Water and Power, ex rel.Nora Armenta (“Armenta”) filed suit against our subsidiaries, James JonesCompany, Mueller Co. et al. (Superior Court, Los Angeles County, California;Case No. BC 173487) on June 27, 1997. In a related case, on September 15,2004, the City of Banning and other California municipalities (collectively, “Cityof Banning”) filed suit against the Company’s subsidiary, James Jones Companyet. al., (Superior Court, Los Angeles County; Case No. BC 321513).The Armenta matter is a false claims lawsuit brought on behalf of cities, waterdistricts and municipalities against our James Jones Company subsidiaryalleging that the defendants sold allegedly non-conforming public water systemparts to various government entities. The lawsuit seeks consequential damages,penalties and punitive damages relating to the repair and replacement of thewater systems to remove the allegedly non-conforming parts. Our subsidiary,Mueller Co., which had also been named as a defendant in the Armenta matter,brought a summary judgment motion and was dismissed from this litigation in January 2004.On September 15, 2004, the Armenta trial court ruled against theintervention of approximately 30 municipalities that had failed to intervenewithin the time deadlines previously specified by the court. The trial court alsoruled that the majority of municipalities that had purchased James Jonesproducts from contractors or distributors were not in privity with the JamesJones Company and were not entitled to punitive damages. Following the Armentacourt’s ruling, on September 15, 2004, the water districts andmunicipalities filed the City of Banning action against the James Jones Companyand Watts (former parent company of James Jones Company), alleging fraud andintentional misrepresentation. This lawsuit is based on the same underlyingfacts as the Armenta lawsuit. Any liability associated with these lawsuits iscovered by the Tyco indemnity, described below, and the defense is being paidfor and conducted by Tyco, all in accordance with the indemnity obligation ofTyco.

In the acquisition agreement pursuant to which TycoInternational sold the Company’s Mueller and Anvil segments to the prior ownersof these businesses in August 1999, Tyco agreed to indemnify the Companyand its affiliates for all “Excluded Liabilities.” Excluded Liabilitiesinclude, among other things, substantially all liabilities relating to the timeprior to the August 1999 Tyco transaction. The indemnity survivesindefinitely and is not subject to any deductibles or caps. However, theCompany may be responsible for these liabilities in the event that Tyco everbecomes financially unable to or otherwise fails to comply with, the terms ofthe indemnity. In addition, Tyco’s indemnity does not cover liabilities to theextent caused by the Company or the operation of its business after the August 1999Tyco transaction, nor does it cover liabilities arising with respect tobusinesses or sites acquired after the August 1999 Tyco transaction.

Some of our subsidiaries have been named as defendantsin a small number of asbestos-related lawsuits. We do not believe theselawsuits, either individually or in the aggregate, are material to ourfinancial position or results of operations.

The Company and itssubsidiaries are parties to a number of other lawsuits arising in the ordinarycourse of their businesses. We provide for costs relating to these matters whena loss is probable and the amount is reasonably estimable. The effect of theoutcome of these matters on the our future results of operations cannot bepredicted with certainty as any such effect depends on future results ofoperations 

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and theamount and timing of the resolution of such matters. While the results oflitigation cannot be predicted with certainty, we believe that the finaloutcome of such other litigation will not have a materially adverse effect onour consolidated financial statements.

**Item 1A.**                Risk Factors

**Risks Relating toOur Business**

**Our business may suffer as a result of a downturn ingovernment spending related to infrastructure upgrades, repairs andreplacements, or in the cyclical residential or non-residential buildingmarkets.**

Our business is primarilydependent upon spending on water and wastewater infrastructure upgrades,repairs and replacement, new water and wastewater infrastructure spending(which is dependent upon residential construction) and spending onnon-residential construction. We are also subject to general economicconditions, the need for construction projects, interest rates and governmentincentives provided for public work projects. In addition, a significantpercentage of our products are ultimately used by municipalities or othergovernmental agencies in public water transmission and collection systems. As aresult, our sales could decline as a result of declines in the number ofprojects planned by public water agencies, government spending cuts, generalbudgetary constraints, difficulty in obtaining necessary permits or theinability of government entities to issue debt. It is not unusual for waterprojects to be delayed and rescheduled for a number of reasons, includingchanges in project priorities and difficulties in complying with environmentaland other government regulations. Spending growth in the infrastructureupgrades, repairs and replacement sector has slowed in recent years as stateand local governments’ budgets were negatively impacted by the downturn in theeconomy. Even if economic conditions were to continue to improve, state andlocal governments may choose not to address deferred infrastructure needs.Although the residential building market has experienced growth in recentyears, this growth may not continue in the future. The residential andnon-residential building markets are cyclical, and, historically, down cycleshave typically lasted approximately four to six years. Any significant declinein the residential or non-residential building markets or governmental spendingon infrastructure could lead to a significant decline in our sales,profitability and cash flows.

**Our industry isvery competitive and some of our products are commodities.**

The domestic andinternational markets for flow control products are competitive. While thereare only a few competitors for most of our product offerings, many of them arewell-established companies with strong brand recognition. In particular, ourmalleable iron and cast iron pipe fitting products, which together comprised 5%and 6% of our pro forma sales for the 2005 fiscal year, and for the six monthsended March 31, 2006, respectively, face competition from less expensiveimports and our pipe nipple and hanger products and our pipe fittings andcouplings products, which together comprised 16% and 17% of our pro forma salesin 2005, and for the six months ended March 31, 2006, respectively,compete on the basis of price and are sold in fragmented markets with lowbarriers to entry, allowing less expensive domestic and foreign producers togain market share and reduce our margins. Also, competition for ductile ironpressure pipe sold by our U.S. Pipe segment comes not only from ductile pipeproduced by a concentrated number of domestic manufacturers, but also from pipecomposed of other materials, such as polyvinylchloride (PVC), high densitypolyethylene (HDPE), concrete, fiberglass, reinforced plastic and steel.

**Foreign competitionis intense and could harm our sales, profitability and cash flows.**

In addition to domesticcompetition, we face intense foreign competition. The intensity of foreigncompetition is affected significantly by fluctuations in the value of the U.S.dollar against foreign currencies, by the relative cost to ship competitiveproducts into the North American markets and by the 

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level ofimport duties imposed by the U.S. Department of Commerce on certain products.Foreign competition is likely to further increase and certain product priceswill continue to face downward pressure as our domestic competitors shift theiroperations or outsource manufacturing requirements overseas or source suppliesfrom foreign vendors in an effort to reduce expenses.

**We depend on a group of major distributors for asignificant portion of our sales; any loss of these distributors could reduceour sales and continuing consolidation could cause price pressure.**

In the fiscal year ended September 30, 2005 andthe six months ended March 31, 2006, on a pro forma basis, approximately37% and 40%, respectively, of our pro forma sales were to our ten largestdistributors, and approximately 30% and 33%, respectively, of our pro formasales were to our three largest distributors: Home Depot, Ferguson Enterprisesand American Waterworks. Our business relationships with most of our majordistributor branches may be terminated at the option of either party upon zeroto 60 days’ notice.

While our relationshipswith our ten largest distributors have been long-lasting, distributors in ourindustry have experienced significant consolidation in recent years, and ourdistributors may be acquired by other distributors who buy products from ourcompetitors. Our ability to retain these customers in the face of othercompetitors generally depends on a variety of factors, including the qualityand price of our products and our ability to market these products effectively.As consolidation among distributors continues, pricing pressure may result,which could lead to a significant decline in our profitability. For example,Home Depot acquired National Waterworks in 2005 and announced in March 2006that it has acquired Hughes Supply. As a result, two of our three previouslargest distributors have been combined under common control. Moreover, theloss of either of Home Depot or Ferguson Enterprises as a distributor couldsignificantly reduce our levels of sales and profitability.

**Our brass valveproducts contain lead, which may be replaced in the future.**

Our brass valve products,which constituted approximately 6% and 6% of our pro forma sales in the twelvemonths ended September 30, 2005 and the six months ended March 31,2006, respectively, 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 some of these products, includingwater meters and valves, and to limit their sale in California. Some of ourbusiness units have entered into settlement agreements with these environmentaladvocacy groups that have required them to either modify some of these productsor offer substitutes for them with respect to products sold in California.Modifications of or substitutions for our products to meet or conform withregulatory requirements will require incremental capital spending of up to$8.0 million in the next two years and will require us to purchase moreexpensive raw materials, and we may not be able to pass these costs on to ourcustomers. Legislation to substantially restrict lead content in water productshas been introduced in the United States Congress. Congress may adoptlegislation that would require us to reduce or eliminate lead in our brassproducts which could require us to incur substantial additional productionexpenses. In addition, advocacy groups or other parties may file suit againstus under Proposition 65, which could result in additional costs in connectionwith marketing and selling our brass products in California.

**Our business is subject to risk of price increases andfluctuations and delay in the delivery of raw materials and purchasedcomponents.**

Our business is subject to the risk of price increasesand fluctuations and periodic delays in the delivery of raw materials andpurchased components that are beyond our control. Our operations requiresubstantial amounts of raw materials or purchased components, such as steelpipe and scrap steel and iron, brass ingot, sand, resin, and natural gas.Management estimates that scrap metal and ferrous alloys used in the U.S. Pipemanufacturing process account for approximately 40% of the U.S. Pipe cost tomanufacture 

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ductile iron pipe and rawmaterials and purchased components used in our manufacturing processes currentlyaccount for approximately 18% of the Mueller and Anvil cost of goods sold.Fluctuations in the price and delivery of these materials may be driven by thesupply/demand relationship for a material and factors particular to thatmaterial. In addition, if any of our suppliers seeks bankruptcy relief orotherwise cannot continue its business as anticipated or we cannot renew oursupply contracts on favorable terms, the availability of raw materials could bereduced or the price of raw materials could increase.

The availability and priceof certain raw materials or purchased components, such as steel scrap, brassingot and natural gas are subject to market forces largely beyond our control,including North American and international demand, freight costs, speculationand foreign exchange rates. We generally purchase raw materials at spot pricesand generally do not have the ability to hedge our exposure to price changes.We are not always able, and may not be able in the future, to pass on increasesin the price of these raw materials to our customers. In particular, when rawmaterial prices increase rapidly or to significantly higher than normal levels,we may not be able to pass price increases through to our customers on a timelybasis, if at all, which could lead to significant reductions of our operatingmargins and cash flow. Any fluctuations in the price or availability of rawmaterials or purchased components could significantly reduce our levels ofproduction and sales or impair our profitability.

**Interruption of normal operations at our keymanufacturing facilities may impair our production capabilities.**

Some of our keyproducts, including hydrants, valves and ductile iron pipe, are manufactured atfive of our largest manufacturing facilities. The operations at our majormanufacturing facilities may be impaired by various operating risks, including,but not limited to:

·       catastrophicevents such as fires, explosions, floods, earthquakes or other similaroccurrences;

·       interruptionsin raw materials and energy supply;

·       adversegovernment regulation;

·       breakdownsor equipment failures;

·       violationsof our permit requirements or revocation of permits;

·       releasesof pollutants and hazardous substances to air, soil, surface water orgroundwater;

·       shortagesof equipment or spare parts; and

·       labordisputes.

To date, we havesuccessfully managed non-material occurrences of the foregoing events,including a fire at the Columbia, PA facility of our Anvil segment andCalifornia’s adoption of laws limiting the lead content of water infrastructureproducts, without significant disruption of our operations. More acuteoccurrences of these events could cause a decrease in, or the elimination of,the revenues generated by our key facilities or a substantial increase in thecosts of operating such facilities that, in turn, could, impair our cash flowsand results of operations.

**We may be unsuccessful in identifying or integratingsuitable acquisitions, which could impair our growth.**

A part of our growthstrategy depends on the availability of acquisition candidates with businessesthat can be successfully integrated into our existing business and that willprovide us with complementary manufacturing capabilities, products or services.However, we may be unable to identify targets that will be suitable foracquisition. In addition, if we identify a suitable acquisition candidate, ourability to successfully implement the acquisition will depend on a variety offactors, including our ability to finance the acquisition. Our ability tofinance our acquisitions is subject to a number of factors, including the 

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availabilityof adequate cash from operations or of acceptable financing terms and the termsof our debt instruments. In addition, there are many challenges to integratingacquired companies and businesses in our company, including eliminatingredundant operations, facilities and systems, coordinating management andpersonnel, retaining key employees, managing different corporate cultures andachieving cost reductions and cross-selling opportunities. We may not be ableto meet these challenges in the future.

**Businesses we haveacquired or will acquire may not perform as expected.**

Businesses we haverecently acquired or may acquire in the future may not perform as expected.Acquired businesses may perform below expectations after the acquisition forvarious reasons, including legislative or regulatory changes that affect theareas in which a business specializes, the loss of key customers after theacquisition has closed, general economic factors that affect a business in adirect way and the cultural incompatibility of an acquired management team withus. Any of these factors could impair our results of operations.

**We have recorded a significant amount of goodwill andother identifiable intangible assets, and we may never realize the fullvalue of our intangible assets.**

We have recorded asignificant amount of goodwill and other identifiable intangible assets. As of March 31,2006, goodwill and other identifiable intangible assets were approximately$717.3 million and $849.0 million, respectively (or approximately 56%of our total assets). Goodwill and identifiable intangible assets of theCompany were recorded at fair value on the date of acquisition and goodwill ofU.S. Pipe remains at historical cost. In accordance with Financial AccountingStandards Board Statement of Financial Accounting Standards (“SFAS”) No. 142,Goodwill and Other Intangible Assets, are reviewed at least annually forimpairment. Impairment may result from, among other things, deterioration inour performance, adverse market conditions, adverse changes in applicable lawsor regulations, including changes that restrict the activities of or affect theproducts and services sold by our business, and a variety of other factors. Theamount of any quantified impairment must be expensed immediately as a charge toresults of operations. Depending on future circumstances, it is possible thatwe may never realize the full value of our intangible assets. Any future determinationof impairment of a significant portion of goodwill or other identifiableintangible assets would result in a non-cash impairment charge.

**We have asignificant amount of debt.**

As of March 31,2006, our total debt was $1,379.5 million. We may incur significant additionalindebtedness from time to time. The level of our indebtedness could haveimportant consequences, including:

·       makingit more difficult for us to satisfy our obligations under our debt instruments;

·       limitingcash flow available for general corporate purposes, including capitalexpenditures and acquisitions, because a substantial portion of our cash flowfrom operations must be dedicated to servicing our debt;

·       limitingour ability to obtain additional debt financing in the future for workingcapital, capital expenditures or acquisitions;

·       limitingour flexibility to react to competitive and other changes in our industry andeconomic conditions generally; and

·       exposing us to risksinherent in interest rate fluctuations because a substantial portion of ourborrowings is at variable rates of interest, which could result in higherinterest expense in the event of increases in interest rates.

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**We will require a significant amount of cash toservice our debt and our ability to generate cash depends on many factors beyond ourcontrol.**

Our ability to pay or torefinance our indebtedness will depend upon our future operating performance,which will be affected by general economic, financial, competitive,legislative, regulatory, business and other factors beyond our control. Thereis a risk that our business will not generate sufficient cash flow fromoperations, that currently anticipated revenue growth and operatingimprovements will not be realized or that future borrowings will not be availableto us in an amount sufficient to enable us to pay our indebtedness, or to fundour other liquidity needs. If we are unable to meet our debt serviceobligations or fund our other liquidity needs, we could attempt to restructureor refinance our indebtedness or seek additional equity capital, but we may notbe able to accomplish those actions on satisfactory terms, if at all.

**Restrictive covenants in our debt instruments maylimit our ability to engage in certain transactions and may diminish our ability tomake payments on our indebtedness.**

Our debt instrumentscontain various covenants that limit our ability to engage in certaintransactions. Our senior credit facilities also require the maintenance ofspecified financial ratios and the satisfaction of other financial conditiontests. In addition, our debt instruments require us to provide regularfinancial information to our lenders and bondholders. Such requirementsgenerally may be satisfied by our timely filing with the SEC of annual andquarterly reports under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”). Our ability to satisfy those financial ratios, tests or covenants can beaffected by events beyond our control, and there is a risk that we will notmeet those tests. A breach of any of these covenants could result in a defaultunder our debt instruments. If an event of default is not remedied after thedelivery of notice of default and lapse of any relevant grace period, theholders of our debt would be able to declare it immediately due and payable.Upon the occurrence of an event of default under our senior credit facilities,the lenders could also terminate all commitments to extend further credit. Ifwe were unable to repay those amounts, the lenders could proceed against thecollateral granted to them to secure the indebtedness under our senior creditfacilities. We have pledged substantially all of our assets (including ourintellectual property), other than the assets of our foreign subsidiaries, assecurity under our senior credit facilities. If the lenders under our seniorcredit facilities or noteholders of the notes accelerate the repayment ofborrowings, we may not have sufficient assets to repay our senior creditfacilities and our other indebtedness, which could negatively impact the valueof our stock and our ability to operate as a going concern.

**Certain of our brass valve products may not be incompliance with NSF standards, which could limit the ability of municipalitiesto buy our products.**

The National SanitaryFoundation (“NSF”) is a non-profit entity that was contracted by the U.S.Environmental Protection Agency (“EPA”) to promulgate standards for the waterindustry. NSF has issued NSF 61, which governs the leaching characteristics ofvalves and devices that are part of drinking water distribution networks,including certain of our products made from brass. In recent years, a growingmajority of states have adopted, by statute or regulation, a requirement thatwater distribution systems utilize products that comply with NSF 61 and/or arecertified as NSF 61 compliant. We, along with others in the industry, areengaged in the lengthy process of attempting to obtain certification of NSF 61compliance for all of our relevant products. In fiscal 2005 and in the sixmonths ended March 31, 2006, our sales of brass valve products wereapproximately 6% and 6%, respectively, of our total sales, on a pro formabasis. To date we have obtained certification of approximately 95% of our brassvalve and fitting products. Approximately 26% of our certified products use “lowlead” brass to comply with current NSF 61 requirements. The NSF 61certification process is ongoing with our goal to have all products requiringcertification completed by January 1, 2007. In the event that some of ourbrass valve products are found 

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not tobe in compliance with NSF 61, those products may not be accepted by variousmunicipalities or we may be forced to modify non-conforming products withsubstitute materials which may require increased cost, thereby impairing ourprofitability. In addition, if our competitors develop a complete line of NSF61 compliant brass valve products before we do, we may be placed at acompetitive disadvantage which may, in turn, impair our profitability.

**Our business may beharmed by work stoppages and other labor relations matters.**

We are subject to a riskof work stoppages and other labor relations matters because our hourlyworkforce is highly unionized. As of March 31, 2006, approximately 85% ofour hourly workforce was represented by unions. These employees are representedby locals from approximately six different unions, including the Glass,Molders, Pottery, Plastics and Allied Workers International Union, which is ourlargest union. Our labor agreements will be negotiated as they expire atvarious times through March 2010. Work stoppages for an extendedperiod of time could impair our business. Labor costs are a significant elementof the total expenditures involved in our manufacturing process, and anincrease in the costs of labor could therefore harm our business. In addition,the freight companies who deliver our products to our distributors generallyuse unionized truck drivers, and our business could suffer if our contractorsface work stoppages or increased labor costs.

**Our revenues are influenced by weather conditions andthe level of construction activity at different times of the year; we may not beable to generate revenues that are sufficient to cover our expenses duringcertain periods of the year.**

Some of our products,including ductile iron pipe, are moderately seasonal, with lower productioncapacity and lower sales in the winter months. This seasonality in demand hasresulted in fluctuations in our revenues and operating results. Because much ofour overhead and expenses are fixed payments, seasonal trends can causereductions in our profit margin and financial condition, especially during ourslower periods.

**We may be subject to product liability or warrantyclaims that could require us to make significant payments.**

We would be exposed to product liability claims in theevent that the use of our products results, or is alleged to result, in bodilyinjury and/or property damage. There is a risk that we will experience productliability or warranty losses in the future or that we will incur significantcosts to defend such claims. Such losses and costs may be material. While wecurrently have product liability insurance, our product liability insurancecoverage may not be adequate for any liabilities that may ultimately beincurred or the coverage may not continue to be available on terms acceptableto us. A successful claim brought against us in excess of our availableinsurance coverage could require us to make significant payments or arequirement to participate in a product recall may harm our reputation orprofitability.

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**We rely on Tyco to indemnify us for certainliabilities and there is a risk that Tyco may become unable or fail to fulfill itsobligations.**

Under the terms of thepurchase agreement (the “Tyco Purchase Agreement”) relating to the August 1999sale by Tyco International Ltd. (“Tyco”) of the Mueller and Anvilbusinesses to our prior owners, we are indemnified by Tyco for all liabilitiesarising in connection with the operation of these businesses prior to theirsale by Tyco, including with respect to products manufactured or sold prior tothe closing of that transaction. The indemnity survives forever and is notsubject to any dollar limits. In the past, Tyco has made substantial paymentsand/or assumed defense of claims pursuant to this indemnification provision.However, we may be responsible for these liabilities in the event that Tycoever becomes financially unable or fails to comply with, the terms of theindemnity. In addition, Tyco’s indemnity does not cover product liabilities tothe extent caused by our products manufactured after that transaction. On January 14,2006, Tyco’s board of directors announced that it approved a plan to separateTyco into three separate, publicly traded companies. At this time, we do notknow which of the new entities will assume the indemnity provided under theterms of the Tyco Purchase Agreement if this plan is implemented. Should theentity or entities that assume Tyco’s obligations under the Tyco PurchaseAgreement ever become financially unable or fail to comply with the terms ofthe indemnity, we may be responsible for such obligations or liabilities. Formore information, see “Part II, Item 1—Legal Proceedings.”

**Environmental, health and safety laws and regulationscould subject us to liability for fines, clean-ups and other damages, require usto incur significant costs to modify our operations and increase ourmanufacturing costs.**

We are subject to various laws and regulationsrelating to the protection of the environment and human health and safety andmust incur capital and other expenditures to comply with these requirements.Failure to comply with any environmental, health or safety requirements couldresult in the assessment of damages, or imposition of penalties, suspension ofproduction, a required upgrade or change to equipment or processes or acessation of operations at one or more of our facilities. Because these lawsare complex, constantly changing and may be applied retroactively, there is arisk that these requirements, in particular as they change in the future, mayimpair our business, profitability and results of operations.

In addition, we will be required to incur costs tocomply with the EPA’s National Emissions Standards for Hazardous Air Pollutants(“NESHAP”) for iron and steel foundries and for our foundries’ paintingoperations. These costs may be substantial. See “Note 13—Commitments andContingencies—Environmental Matters.” We may be required to conductinvestigations and perform remedial activities that could require us to incurmaterial costs in the future. Our operations involve the use of hazardoussubstances and the disposal of hazardous wastes. We may incur costs to managethese substances and wastes and may be subject to claims for damage forpersonal injury, property damages or damage to natural resources.

Our U.S. Pipe segment has been identified as apotentially responsible party liable under federal environmental laws for aportion of the clean-up costs with regard to two sites, one in Alabama and onein California, and is currently subject to an administrative consent orderrequiring certain monitoring and clean-up with regard to its Burlington, NewJersey facility. Such clean-up costs could be substantial and could have anegative effect on our profitability and cash flows in any given reportingperiod. As described in the immediately preceding risk factor, we rely on Tycoto indemnify us for certain liabilities and there is a risk that Tyco maybecome unable or fail to fulfill its obligation. For more information about ourenvironmental compliance and potential environmental liabilities, see “Note 13—Commitmentsand Contingencies—Environmental Matters and Miscellaneous Litigation.”

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**We need to improve our disclosure controls andprocedures and internal control over financial reporting to comply with SECreporting requirements; public reporting obligations have put significantdemands on our financial, operational and management resources.**

The Public Company Accounting Oversight Board (“PCAOB”)defines a significant deficiency as a control deficiency, or a combination ofcontrol deficiencies, that adversely affects a company’s ability to initiate,authorize, record, process, or report external financial data reliably inaccordance with generally accepted accounting principles such that there ismore than a remote likelihood that a misstatement of the company’s annual orinterim financial statements that is more than inconsequential will not beprevented or detected. The PCAOB defines a material weakness as a singledeficiency, or a combination of deficiencies, that results in more than aremote likelihood that a material misstatement of the annual or interimfinancial statements will not be prevented or detected.

As of September 30, 2005, we did not maintaineffective controls over the preparation, review and presentation and disclosureof our consolidated financial statements due to a lack of personnel withexperience in financial reporting and control procedures necessary for SECregistrants. Specifically, our controls failed to prevent or detect theincorrect presentation of the following items in our consolidated financialstatements: (i) cash flows from the effect of exchange rate changes oncash balances; (ii) cash flows from the loss on disposal of property,plant and equipment; (iii) cash flows and balance sheet presentation ofthe dollar value of bank checks outstanding; (iv) the presentation ofcurrent and non-current deferred income tax assets in Predecessor Mueller’sconsolidated balance sheet; and (v) classification of certain depreciationexpense as selling, general and administrative expense instead of cost of salesfor the historical consolidated statement of operations for our Mueller andAnvil segments. Further, our controls failed to detect the incorrectpresentation of shipping and handling costs in our unaudited consolidatedstatement of operations for the three months ended December 31, 2004 asinitially reported for the three months ended December 31, 2005. Thesecontrol deficiencies resulted in the restatement of the annual consolidatedfinancial statements for fiscal 2004 and 2003 and interim consolidatedfinancial statements for the first three quarters of fiscal 2005, all interimperiods of fiscal 2004, audit adjustments to the 2005 annual consolidatedfinancial statements for our predecessor company that included our Mueller andAnvil segments (“Predecessor Mueller”) and the restatement of our consolidatedstatement of operations for the three months ended December 31, 2004.Additionally, control deficiencies could result in a misstatement of thepresentation and disclosure of our consolidated financial statements that wouldresult in a material misstatement in the annual or interim financial statementsthat would not be prevented or detected. Accordingly, management determinedthat these control deficiencies constituted a material weakness.

As of September 30, 2004 and 2005, PredecessorMueller reported the following control deficiencies that, in the aggregate,constituted a material weakness in internal control over preparation, reviewand presentation and disclosure of their consolidated financial statements.Specifically Predecessor Mueller’s control deficiencies included: (i) alack of personnel with experience in financial reporting and control proceduresnecessary for SEC registrants; (ii) a lack of sufficient controls toprevent or detect, on a timely basis, unauthorized journal entries; (iii) alack of sufficient controls over information technology data conversion andprogram changes; (iv) a lack of sufficient controls over the developmentand communication of income tax provisions; (v) a lack of effectivecontrols surrounding “whistleblower” hotline complaints and internalcertifications to ensure that issues were communicated on a more timely basisby management to the audit committee and the independent registered publicaccounting firm; (vi) a lack of effective controls over revenuerecognition associated with full truckload shipments not immediately dispatchedby freight carriers; and (vii) a lack of formal controls and proceduresregarding assessment of financial exposures and transactions, includingconsideration of accounting implications under GAAP. These control deficienciesresulted in audit adjustments to the consolidated financial statements for theyear ended September 30, 2004. Additionally, these control deficiencies,in the 

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aggregate, could result ina misstatement to accounts and disclosures that would result in a materialmisstatement to the annual or interim financial statements that would not beprevented or detected. While item (i) above remains unremediated and isthe only remaining item of the material weakness existing at March 31,2006 described above, management has concluded that based on the remediationactions described below, items (ii) through (vii) of this materialweakness did not exist as of March 31, 2006.

The material weakness and control deficiency will needto be addressed as part of the evaluation of our internal controls overfinancial reporting pursuant to the Sarbanes-Oxley Act of 2002 and may impairour ability to comply with Section 404 of the Act.

While we have takennumerous actions described under “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Previously Issued ConsolidatedFinancial Statements” to address the material weakness, additional measures maybe necessary and these actions may not be sufficient to address the issuesidentified by us or to ensure that our internal controls over financialreporting is effective. If we are unable to correct existing or future materialweaknesses in internal controls over financial reporting in a timely manner, wemay not be able to record, process, summarize, and report financial informationwithin the time periods specified in the rules and forms of the SEC. Thisfailure could harm our business and the market value of our securities andaffect our ability to access the capital markets. In addition, there could be anegative reaction in the financial markets due to a loss of confidence inreliability of future financial statements and SEC filings.

**Compliance with internal control reportingrequirements and securities laws and regulations is likely to increase our compliancecosts.**

The Sarbanes-Oxley Act of2002, as well as rules subsequently implemented by the SEC and the PublicCompany Accounting Oversight Board (“PCAOB”), have required changes in thecorporate governance and securities disclosure or compliance practices ofpublic companies over the last few years. We expect these new rules andregulations to continue to increase our legal and financial compliance costs,as well as our ongoing audit costs, and to make legal, accounting andadministrative activities more time-consuming and costly. As a result ofthe Company being a consolidated subsidiary of Walter Industries, in 2006, wewill need to comply with the internal control reporting requirements of theSarbanes-Oxley Act, which will have a significant impact on our compliance costin 2006. We expect to spend approximately $6 million on our compliancecosts in our fiscal year ending September 30, 2006.

**Compliance with the securities laws and regulations islikely to make it more difficult and expensive for usto obtain directors andofficers liability insurance and to attract and retain qualified members of ourboard of directors.**

We expect theSarbanes-Oxley Act and the rules and regulations subsequently implementedby the SEC and the PCAOB to make it more difficult and expensive for us toobtain director and officer liability insurance, and we may be required toaccept reduced coverage or incur substantially higher costs to obtain coverage.These new rules and regulations could also make it more difficult for usto attract and retain qualified members of our board of directors, particularlyto serve on our audit committee, and executive officers.

**We may not be able to achieve the anticipatedsynergies in connection with our integration and rationalization plans.**

We are pursuing severalinitiatives designed to rationalize our manufacturing facilities and to use ourmanufacturing expertise to reduce our costs. In fiscal 2006, we expect toachieve integration synergies between our Mueller and U.S. Pipe segments byclosing the U.S. Pipe Chattanooga, Tennessee production facility andintegrating it into the Mueller Chattanooga and Albertville, Alabama productionfacilities. We 

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haveinitiated the implementation of plant and distribution combination andproduction efficiency strategies within our Mueller and Anvil segments, whichefforts will continue through fiscal years 2006, 2007 and the beginning of2008. Our Mueller segment sales force has begun to integrate U.S. Pipe productsas complementary product offerings as part of their sales efforts. We also havebegun to use our combined purchasing leverage to reduce raw material andoverall product costs. If we fail to implement our integration andrationalization plans, at the economic levels or within the time periodsexpected, we may not be able to achieve the projected levels of synergies andcost savings. In addition, we expect to incur substantial severance,environmental and impairment costs in connection with our integration andrationalization plans.

**We are a holding company and may not have access tothe cash flow and other assets of our subsidiaries.**

We are a holding companythat has no operations of our own and derives all of our revenues and cash flowfrom our subsidiaries. The terms of the indentures governing our seniordiscount notes and senior subordinated notes and our senior credit facilitiessignificantly restrict our subsidiaries from paying dividends and otherwisetransferring assets to us. Furthermore, our subsidiaries are permitted underthe terms of our senior credit facilities and other indebtedness to incuradditional indebtedness that may severely restrict or prohibit the making ofdistributions, the payment of dividends or the making of loans by suchsubsidiaries to us. A breach of any of those covenants would be a default underthe applicable debt instrument that would permit the holders thereof to declareall amounts due thereunder immediately payable. As a result, we may not haveaccess to our subsidiaries’ cash flow to finance our cash needs.

**If we fail to protect our intellectual property, ourbusiness and ability to compete could suffer.**

Our business depends uponour technology and know-how, which is largely developed internally. While webelieve that none of our operating units is substantially dependent on anysingle patent, trademark, copyright, or other form of intellectual property, werely on a combination of patent protection, copyright and trademark laws, tradesecrets protection, employee and third party confidentiality and nondisclosureagreements and technical measures to protect our intellectual property rights.There is a risk that the measures that we take to protect our intellectualproperty rights may not be adequate to deter infringement or misappropriationor independent third-party development of our technology or to prevent anunauthorized third party from obtaining or using information or intellectualproperty that we regard as proprietary or to keep others from using brand namessimilar to our own. The disclosure, misappropriation or infringement of ourintellectual property could harm our ability to protect our rights and ourcompetitive position In addition, our actions to enforce our rights may resultin substantial costs and diversion of management and other resources. We mayalso be subject to intellectual property infringement claims from time to time,which may result in our incurring additional expenses and diverting companyresources to respond to these claims.

**If transportation for our ductile iron pipe productsbecomes unavailable or uneconomic for our customers, our ability tosell ductile iron pipe products would suffer.**

Transportation costs are a critical factor in acustomer’s purchasing decision. Increases in transportation costs could makeour ductile iron pipe products less competitive with the same or alternativeproducts from competitors with lower transportation costs.

We typically depend uponrail, barge and trucking systems to deliver our products to customers. Whileour customers typically arrange and pay for transportation from our factory tothe point of use, disruption of these transportation services because ofweather-related problems, strikes, lock-outs or other events could temporarilyimpair our ability to supply our products to our customers thereby resulting inlost sales and reduced profitability.

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**Risks Relating toour Relationship with Walter Industries**

**Walter Industriescontrols us and may have conflicts of interest with us or you in the future.**

As of the date of this report, Walter Industries isour only stockholder. Upon completion of the announced offering of the Company’sseries A common stock, Walter Industries will beneficially own all of ouroutstanding Series B common stock (which Series B common stock isentitled to eight votes per share on any matter submitted to a vote of ourstockholders). The common stock beneficially owned by Walter Industries uponcompletion of the offering will represent a majority of the voting power of allof our issued and outstanding common stock. For as long as Walter Industriescontinues to beneficially own shares of common stock representing more than 50%of the combined voting power of our common stock, Walter Industries will beable to direct the election of all of the members of our board of directors andexercise a controlling influence over our business and affairs, including anydeterminations with respect to mergers or other business combinations, theacquisition or disposition of assets, the incurrence of indebtedness, theissuance of any additional common stock or other equity securities, therepurchase or redemption of common stock or preferred stock and the payment ofdividends. Similarly, Walter Industries will have the power to determine orsignificantly influence the outcome of matters submitted to a vote of ourstockholders, including the power to prevent an acquisition or any other changein control of us and could take other actions that might be favorable to WalterIndustries.

Walter Industries willalso have an option available to it to purchase additional shares of Series Bcommon stock and/or any nonvoting capital stock to maintain its then-existingpercentage of the total voting power and value of the Company. Additionally,with respect to shares of any nonvoting capital stock that may be issued in thefuture, Walter Industries will have an option to purchase such additional sharesso as to maintain ownership of 80% of each outstanding class of such stock.Beneficial ownership of at least 80% of the total voting power and 80% of eachclass of any nonvoting capital stock is required for Walter Industries toeffect a tax-free spin-off of the Company or certain other tax-freetransactions.

**We may have substantial additional liability forfederal income tax allegedly owed by Walter Industries.**

Each member of a consolidated group for federal incometax purposes is severally liable for the federal income tax liability of eachother member of the consolidated group for any year in which it is a member ofthe group at any time during such year. Each member of the Walter Industriescontrolled group, which currently includes Walter Industries, the Company(including our subsidiaries) and Walter Industries’ other subsidiaries, is alsojointly and severally liable for pension and benefit funding and terminationliabilities of other group members, as well as certain benefit plan taxes.Accordingly, the Company could be liable under such provisions in the event anysuch liability is incurred, and not discharged, by any other member of theWalter Industries consolidated or controlled group for any period during whichthe Company was included in the Walter Industries consolidated or controlledgroup.

Controversy exists with regard to federal income taxesallegedly owed by the Walter consolidated group, which includes the Company,for fiscal years 1980 through 1994 and 1999 through 2001. It is estimated thatthe amount of tax presently claimed by the IRS is approximately$34.0 million for issues currently in dispute in bankruptcy court and$80.4 million for the 1999 through 2001 period, each of which is formatters unrelated to the Company. These amounts are subject to interest andpenalties. However, Walter Industries believes that its tax filing positionshave substantial merit and intends to defend vigorously any claims asserted.Walter Industries believes that it has accruals sufficient to cover theestimated probable loss, including interest and penalties.

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**The tax allocation agreement between the Company andWalter Industries gives Walter Industries control over our pre-IPO taxes andallocates to us certain tax risks associated with a planned spin-off of ourcommon stock.**

Walter Industrieseffectively controls all of our tax decisions for periods during which we are amember of the Walter Industries consolidated federal income tax group andcertain combined, consolidated or unitary state and local income tax groups.Under the terms of a tax allocation agreement between Walter Industries and theCompany, which will be entered into in connection with the announced offeringof the Company’s series a common stock, Walter Industries has sole authority torespond to and conduct all tax proceedings (including tax audits) relating toour federal income and combined state returns, to file all such returns onbehalf of us and to determine the amount of our liability to (or entitlement topayment from) Walter Industries for such periods. This arrangement may resultin conflicts of interests between the Company and Walter Industries. Inaddition, the tax allocation agreement will provide that in the event thatWalter Industries effectuates a spin-off of our common stock that it owns andsuch spin-off is not tax-free pursuant to Section 355 of the InternalRevenue Code of 1986, as amended, or the “Code,” the Company generally will beresponsible for any taxes incurred by Walter Industries or its stockholders ifsuch taxes result from certain of our actions or omissions and for a percentageof any such taxes that are not a result of our actions or omissions or WalterIndustries’ actions or omissions taxes based upon our market value relative toWalter Industries’ market value.

**Because we have limited experience operating as astand-alone entity, our future business prospects are difficult to evaluate andour business could suffer as a result of the separation of our business fromWalter Industries.**

Our company is a combinationof the Predecessor Mueller business acquired by Walter Industries on October 3,2005 and the U.S. Pipe business. As of the date of this report, WalterIndustries owns all outstanding shares of our common stock. Our operations as astand-alone company may place significant demands on our management,operational, and technical resources. Our future performance will depend on ourability to function as a stand-alone company and on our ability to finance andmanage expanding operations and to adapt our information systems to changes inits business. We rely on contractual arrangements that require WalterIndustries and its affiliates to provide or procure certain criticaltransitional services and shared arrangements to us such as:

·       certaintax and accounting services;

·       certainhuman resources services, including benefit plan administration;

·       communicationssystems;

·       insurance;and

·       supplyarrangements.

After the termination of these arrangements, we maynot be able to replace these services and arrangements in a timely manner or onterms and conditions, including service levels and cost, as favorable as thosewe have received from Walter Industries and its affiliates. There is a riskthat our separation from Walter Industries will not be successful, which couldsignificantly impair our business, our results and our financial reportingability.

Furthermore, the financial information included inthis prospectus may not necessarily reflect what the operating results andfinancial condition would have been had we been a separate, stand-alone entityduring the periods presented or be indicative of our future operating resultsand financial condition.

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**Our governingdocuments and applicable laws include provisions that may discourage a takeoverattempt.**

Provisions contained inour restated certificate of incorporation and by-laws, to be adoptedimmediately prior to the announced offering of the Company’s series A commonstock, and Delaware law could make it difficult for a third party to acquireus, even if doing so might be beneficial to our stockholders. For example,stockholders who wish to nominate a director or present a matter forconsideration at an annual meeting are required to give us notice of suchproposal, which gives us time to respond. These provisions could limit theprice that certain investors might be willing to pay in the future for sharesof our series A common stock and may have the effect of delaying orpreventing a change in control.

**Item6.**                        Exhibits
| 3.1  |   | Certificate of Formation of Mueller Group, LLC  together with Certificate of Conversion to Limited Liability Company of  Mueller Group, Inc.(1)                                                                                                                                                                                                                                                |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2  |   | Limited Liability  Company Agreement of Mueller Group, LLC(1)                                                                                                                                                                                                                                                                                                                                       |
| 10.1 |   | Amendment No.1, dated as  of January 24, 2006, to Credit Agreement, dated as of October 3,  2005, among Mueller Group, LLC, Bank of America, N.A., as administrative  agent, Morgan Stanley Senior Funding, Inc., as syndication agent, Caylon  New York Branch, Fifth Third Bank and JPMorgan Chase Bank, N.A., as  co-documentation agents, and the other lenders named therein(2) |
| 10.2 |   | Executive Employment  Agreement, dated January 23, 2006, between Mueller Holding  Company, Inc. and Dale B. Smith(2)                                                                                                                                                                                                                                                                      |
| 31.1 |   | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.*                                                                                                                                                                                                                                                                                     |
| 31.2 |   | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.*                                                                                                                                                                                                                                                                                     |
| 32.1 |   | Certification of Chief  Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002.*                                                                                                                                                                                                                                                                                     |
| 32.2 |   | Certification of Chief  Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002.*                                                                                                                                                                                                                                                                                     |

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(1)          Previously filed as anExhibit to the Company’s Annual Report on Form 10-K for thefiscal year ended September 30, 2005 as filed with the Securities andExchange Commission on December 20, 2005.

(2)          Previously filed as anExhibit to the Company’s Current Report on Form 8-K as filedwith the Securities and Exchange Commission on January 27, 2006.

*                    Filedherewith.

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                         | MUELLER  GROUP, LLC |
|-------------------------|---------------------|
| Date: May 9,  2006 | By:                 | /s/  DALE B. SMITH |
|                    |                | Dale B. Smith |
|                    | * *            | *President  and Chief Executive Officer* |
| Date: May 9,  2006 | By:                 | /s/  JEFFERY W. SPRICK |
|                    |                | Jeffery W. Sprick |
|                    | * *            | *Chief  Financial Officer* |

 

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