UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

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

Commission File Number 333-117473

---

MUELLER GROUP, INC.(Exact name of registrant as specified in its charter)

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

(217) 423-4471(Registrant's telephone number, including area code)

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

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

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



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

TABLE OF CONTENTS

|                                                                                              |  |                                                      |  | Page
|--------------------------------------------------------------------------------------------- |  | ---------------------------------------------------- |  | ----
|PART IFINANCIAL INFORMATION                                                                  |  | 3                                                   
|Item 1. Unaudited Financial Statements                                                        |  | 3                                                   
|                                                                                              |  | Condensed Consolidated Balance Sheets                |  | 3   
|                                                                                              |  | Condensed Consolidated Statements of Operations      |  | 4   
|                                                                                              |  | Condensed Consolidated Statements of Cash Flows      |  | 5   
|                                                                                              |  | Notes to Condensed Consolidated Financial Statements |  | 6   
|Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations |  | 23                                                  
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 32                                                  
|Item 4. Controls and Procedures                                                               |  | 32                                                  
|PART IIOTHER INFORMATION                                                                     |  | 35                                                  
|Item 6. Exhibits                                                                              |  | 35                                                  
|Signatures                                                                                    |  | 36                                                  

2

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MUELLER GROUP, INC.  UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                   |                           | September 30,
2004 |        | January 1,
2005 |  
|---------------------------------------------------------------------------------- | ------------------------- | ------------------ | ------ | --------------- | -
|
|Assets                                                                             |                           |                    |        |                 |  
|Cash and cash equivalents                                                          |                           | $                  | 55.6   |                 | $
|Receivables, net of allowance for doubtful accounts of $5.1 and $5.2, respectively |                           |                    | 162.0  |                 |  
|Inventories                                                                        |                           |                    | 260.2  |                 |  
|Income taxes receivable                                                            |                           |                    | 4.1    |                 |  
|Deferred income taxes                                                              |                           |                    | 9.0    |                 |  
|Prepaid expenses and other current assets                                          |                           |                    | 28.9   |                 |  
|                                                                                   |                           |                    |        |                 |  
|                                                                                   | Total current assets      |                    |        | 519.8           |  
|Property, plant and equipment, net                                                 |                           |                    | 186.8  |                 |  
|Goodwill, net                                                                      |                           |                    | 163.2  |                 |  
|Identifiable intangibles, net                                                      |                           |                    | 55.2   |                 |  
|Pension intangible                                                                 |                           |                    | 0.8    |                 |  
|Deferred financing fees, net                                                       |                           |                    | 33.8   |                 |  
|Deferred income taxes                                                              |                           |                    | 19.3   |                 |  
|                                                                                   |                           |                    |        |                 |  
|                                                                                   | Total assets              |                    | $      | 978.9           |  
|                                                                                   |                           |                    |        |                 |  
|Liabilities                                                                        |                           |                    |        |                 |  
|Accounts payable                                                                   |                           | $                  | 52.7   |                 | $
|Current portion of long-term debt                                                  |                           |                    | 3.2    |                 |  
|Accrued expenses and other current liabilities                                     |                           |                    | 85.5   |                 |  
|                                                                                   |                           |                    |        |                 |  
|                                                                                   | Total current liabilities |                    |        | 141.4           |  
|Long-term debt, net of current portion                                             |                           |                    | 929.4  |                 |  
|Accrued pension liability                                                          |                           |                    | 29.2   |                 |  
|Other long-term liabilities                                                        |                           |                    | 7.8    |                 |  
|                                                                                   |                           |                    |        |                 |  
|                                                                                   | Total liabilities         |                    |        | 1,107.8         |  
|                                                                                   |                           |                    |        |                 |  
|Commitments and contingencies (Note 7)                                             |                           |                    |       |                 |  
|Shareholders' equity                                                               |                           |                    |        |                 |  
|Common stock$0.01 par value (100 shares authorized and issued)                    |                           |                    |       |                 |  
|Additional paid-in capital                                                         |                           |                    |       |                 |  
|Accumulated deficit                                                                |                           |                    | (112.9 | )               |  
|Accumulated other comprehensive loss                                               |                           |                    | (16.0  | )               |  
|                                                                                   |                           |                    |        |                 |  
|Total shareholders' equity                                                         |                           |                    | (128.9 | )               |  
|                                                                                   |                           |                    |        |                 |  
|Total liabilities and shareholders' equity                                         |                           | $                  | 978.9  |                 | $
|                                                                                   |                           |                    |        |                 |  

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

3

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MUELLER GROUP, INC.  UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                          |            | Three months ended |      
|--------------------------------------------------------- | ---------- | ------------------ | -----
|
|
|
|Net sales                                                 |            | $                  | 220.2
|Cost of sales                                             |            |                    | 161.5
|                                                          |            |                    |      
|Gross profit                                              |            |                    | 58.7 
|Selling, general and administrative expense               |            |                    | 38.7 
|Stock compensation expense                                |            |                    | 0.1  
|Facility rationalization, restructuring and related costs |            |                    |     
|                                                          |            |                    |      
|Operating income                                          |            |                    | 19.9 
|Interest expense and early repayment costs                |            |                    | (13.7
|Interest income                                           |            |                    | 0.1  
|                                                          |            |                    |      
|Income before income taxes                                |            |                    | 6.3  
|Income tax expense                                        |            |                    | 2.5  
|                                                          |            |                    |      
|                                                          | Net income |                    | $    
|                                                          |            |                    |      

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

4

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

|                                                                                            |                                                                  | Three months ended |      
|------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------------------ | -----
|
|
|
|
|Cash flows from operating activities                                                        |                                                                  |                    |      
|Net income                                                                                  |                                                                  | $                  | 3.8  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |                                                                  |                    |      
|                                                                                            | Depreciation                                                     |                    |      
|                                                                                            | Amortization of intangibles                                      |                    |      
|                                                                                            | Amortization of deferred financing fees                          |                    |      
|                                                                                            | Amortization of tooling                                          |                    |      
|                                                                                            | Write off of deferred financing fees                             |                    |      
|                                                                                            | Deferred income taxes                                            |                    |      
|                                                                                            | Stock compensation (non-cash amounts)                            |                    |      
|                                                                                            | Unrealized gain on interest rate swaps                           |                    |      
|Changes in assets and liabilities, net of the effects of acquisitions:                      |                                                                  |                    |      
|                                                                                            | Receivables                                                      |                    |      
|                                                                                            | Inventories                                                      |                    |      
|                                                                                            | Income taxes receivable                                          |                    |      
|                                                                                            | Prepaid expenses and other current assets                        |                    |      
|                                                                                            | Pension, net                                                     |                    |      
|                                                                                            | Accounts payable, accrued expenses and other current liabilities |                    |      
|                                                                                            | Other, net                                                       |                    |      
|                                                                                            |                                                                  |                    |      
|Net cash provided by (used in) operating activities                                         |                                                                  |                    | 15.3 
|                                                                                            |                                                                  |                    |      
|Cash flows from investing activities                                                        |                                                                  |                    |      
|Purchase of property, plant and equipment                                                   |                                                                  |                    | (4.5 
|Loss on disposal of property, plant and equipment                                           |                                                                  |                    | 0.1  
|                                                                                            |                                                                  |                    |      
|Net cash used in investing activities                                                       |                                                                  |                    | (4.4 
|                                                                                            |                                                                  |                    |      
|Cash flows from financing activities                                                        |                                                                  |                    |      
|Payment of long-term debt                                                                   |                                                                  |                    | (50.0
|Payment of deferred financing fees                                                          |                                                                  |                    | (0.8 
|Financing of assets through capital leases                                                  |                                                                  |                    | (0.3 
|                                                                                            |                                                                  |                    |      
|Net cash used in financing activities                                                       |                                                                  |                    | (51.1
|                                                                                            |                                                                  |                    |      
|Effect of exchange rate changes on cash                                                     |                                                                  |                    | 2.1  
|                                                                                            |                                                                  |                    |      
|Decrease in cash and cash equivalents                                                       |                                                                  |                    | (38.1
|Cash and cash equivalents                                                                   |                                                                  |                    |      
|Beginning of period                                                                         |                                                                  |                    | 71.4 
|                                                                                            |                                                                  |                    |      
|End of period                                                                               |                                                                  | $                  | 33.3 
|                                                                                            |                                                                  |                    |      

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

5

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MUELLER GROUP, INC.        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        THREE MONTHS ENDED DECEMBER 27, 2003 AND JANUARY 1, 2005        (UNAUDITED)

1.    Basis of Presentation

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

2.    Restatements

In November 2004, our Audit Committee was notified of alleged potential accounting improprieties concerning our accounting for inventory reserves and
certain questions concerning revenue recognition. The Audit Committee appointed an independent law firm to investigate the allegations. The report identified several areas requiring financial review
by the Company principally concerning accounting for
excess and obsolete (E&O) inventory, the capitalization of costs relating to a project that should have been expensed in prior periods, the accrual of reserves for this project without identifying
support for such accruals and the timing of recognition of revenue with regard to full truckload shipments that were not immediately dispatched to customers by certain freight carriers used by the
Company. The Company also identified some additional annual and interim items recorded in incorrect periods in the course of finalizing the 2004 financial statements. In addition, the Company
determined that the value it assigned to stock compensation in connection with our April 2004 recapitalization should be revised. As a result of these findings, the Company has restated its
annual and interim financial statements. For more specific information about prior period restatements, see Notes 2 and 21 of the Company's Audited Consolidated Financial Statements for the
year ended September 30, 2004 as found in Form 10-K (File No. 333-117473).

The
interim financial statements for the periods noted below have been restated for the following items:



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



Revenues related to certain full-truckload customer shipments which were not immediately dispatched to customers by certain freight carriers used by
the Company originally recognized should

6

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have
been deferred until such time as the trucks were dispatched and the products delivered to the customer. The interim financial statements have been restated to reflect the recognition of revenue
in the proper periods.



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



There was an error, which arose primarily in the first quarter of 2004, in the estimated amount of intercompany profit elimination recorded during the interim
periods in the year ended September 30, 2004 related to the piping systems segment.



Previously expensed financing fees associated with an amendment to our senior credit facility in the first quarter of 2004 which were expensed should have been
capitalized and amortized over the remaining term of the facility.



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

7

---



The
following tables set forth the effects of the adjustments discussed above on the Statements of Operations for the three months ended December 27, 2003:

Three Months Ended 12/27/03(dollars in millions)

As previously
reported

As restatedNet sales

$
218.0

$
220.2Cost of sales


158.6


161.5Gross profit


59.4


58.7Selling, general and administrative expense


39.0


38.7Stock compensation expense


0.1


0.1Operating income


20.3


19.9Interest expense and early repayment costs


(14.5
)

(13.7
)Interest income


0.1


0.1Income before income taxes


5.9


6.3Income tax expense


2.4


2.5Net income

$
3.5

$
3.8


(dollars in millions)

Three Months
Ended
12/27/03Net income, as previously reported

$
3.5Increased (decreased) pretax earnings:Research & development costs


0.3Revenue recognition adjustments


0.7Inventory journal entries


(0.2
)Intercompany profit elimination


(1.2
)Deferred financing fees


0.8Income tax effect of adjustments


(0.1
)Net income, as restated

$
3.8


8

---



Three Months Ended 12/27/03(dollars in millions)

As previously
reported

As restatedNet sales:Water infrastructure

$
122.5

$
124.7Piping systems


95.5


95.5Consolidated


218.0


220.2Segment EBITDA:Water infrastructure


29.6


30.6Piping systems


9.2


7.8Total segment EBITDA


38.8


38.4Operating Income:Water infrastructure


23.5


24.5Piping systems


5.1


3.7Corporate


(8.3
)

(8.3
)Consolidated


20.3


19.9


3.    Segment Information

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

Intersegment
sales and transfers are made at established intersegment selling prices generally intended to cover costs. Our determination of segment earnings does not reflect allocations
of certain corporate expenses not attributable to segment operations and intersegment eliminations, which we designate as Corporate in the segment presentation, and is before interest expense and
early debt repayment costs,
interest income and income taxes. Corporate expenses include costs related to financial and administrative matters, treasury, risk management, human resources, legal counsel, and tax functions.
Corporate assets include items booked at the date of the Company's inception in 1999 related to purchase accounting valuation adjustments associated with property, plant and equipment and
non-compete agreements with the predecessor parent company, as well as intangibles associated with intellectual property. These assets and any related depreciation or amortization expense
have not been pushed down to our water infrastructure products and piping systems products segments and are maintained as Corporate items. Therefore, segment earnings are not reflective of results on
a stand-alone basis.

The
Company evaluates segment performance based on segment EBITDA. Segment EBITDA is defined as net income plus income tax expense, interest expense (not net of interest income),
depreciation and amortization expense. Segment assets consist primarily of accounts receivable,

9

---



inventories,
property, plant and equipmentnet, goodwill, and identifiable intangibles. Summarized financial information for our segments follows:

Three months
ended
December 27, 2003

Three months
ended
January 1, 2005(restated)Net Sales:Water infrastructure

$
124.7

$
138.6Piping systems


95.5


117.5Consolidated


220.2


256.1Intersegment sales:Water infrastructure


3.0


3.4Piping systems


0.1


0.2Consolidated


3.1


3.6Segment EBITDA:Water infrastructure


30.6


34.8Piping systems


7.8


16.1Total segment EBITDA


38.4


50.9Depreciation and amortization:Water infrastructure


6.1


6.0Piping systems


4.1


4.3Corporate


6.3


2.3Consolidated


16.5


12.6Capital expenditures:Water infrastructure


2.6


2.8Piping systems


1.9


1.8Corporate





0.1Consolidated


4.5


4.7


10

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At September 30, 2004

At January 1, 2005Total assets:Water infrastructure

$
500.0

$
488.8Piping systems


307.9


318.2Corporate


171.0


163.2Consolidated


978.9


970.2Goodwill:Water infrastructure


149.1


149.1Piping systems


14.1


14.1Consolidated


163.2


163.2Identifiable intangibles:Water infrastructure


5.3


5.2Piping systems


7.2


6.6Corporate


42.7


42.7Consolidated


55.2


54.5


The
Company evaluates segment performance based on segment EBITDA. A reconciliation of segment EBITDA to consolidated income before income taxes follows:

Three months
ended
December 27, 2003

Three months
ended
January 1, 2005(restated)Total segment EBITDA

$
38.4

$
50.9Unallocated corporate costs


(1.9
)

(5.6
)Interest expense and early repayment costs


(13.7
)

(16.5
)Depreciation and amortization


(16.5
)

(12.6
)Income before income taxes

$
6.3

$
16.2


Geographical
area information with respect to net sales, as determined by the location of the customer invoiced, and property, plant and equipmentnet, as
determined by the physical location of the assets, were as follows for the three months ended December 27, 2003 and January 1, 2005:

Three months
ended
December 27, 2003

Three months
ended
January 1, 2005(restated)(dollars in millions)Net sales:United States

$
186.3

$
210.4Canada


31.9


44.4Other Countries


2.0


1.3$
220.2

$
256.1


11

---



At September 30, 2004

At January 1, 2005Property, plant and equipment, net:United States

$
173.7

$
167.2Canada


11.7


12.0Other Countries


1.4


1.4$
186.8

$
180.6


4.    Summary of Significant Accounting Policies

Fiscal YearThe Company's fiscal year ends on September 30. The Company's first quarter ends on the Saturday closest to December 31.

InventoryInventories
are recorded at the lower of cost (first-in, first-out) or market value. Additionally, the Company evaluates its inventory
reserves in terms of excess and obsolete exposures. This evaluation includes such factors as anticipated usage, inventory turnover, inventory levels and ultimate product sales value. As such, these
factors may change over time causing the reserve level to adjust accordingly. Warranty CostsThe Company accrues for the estimated cost of product warranties at the time of sale based on
historical experience. Adjustments to obligations for warranties are made as changes in the obligations become reasonably estimable. The following table summarizes information concerning the Company's
product warranty:

Three months endedDecember 27, 2003

January 1, 2005Balance at beginning of period

$
0.9

$
1.6Accruals for warranties


0.8


0.6Settlement of warranty claims


(0.5
)

(0.9
)Balance at end of period

$
1.2

$
1.3


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

Related
Party TransactionsThe Company paid $0.4 million to Credit Suisse First Boston for the three months ended December 27, 2003 for management advisory
services and credit arranger fees. The Company paid $0.1 million to Credit Suisse First Boston for the three months ended January 1, 2005 for management advisory services.

12

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5.    New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), "Share-Based Payment." SFAS No. 123(R) replaces SFAS
No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123(R) requires compensation costs
related to share-based payment transactions to be recognized in the financial statements over the period that an employee provides service in exchange for the award. Public companies are required to
adopt the new standard using a modified prospective method and may elect to restate prior periods using the modified retrospective method. Under the modified prospective method, companies are required
to record compensation cost for new and modified awards over the related vesting period of such awards prospectively and record compensation cost prospectively for the unvested portion, at the date of
adoption, of previously issued and outstanding awards over the remaining vesting period of such awards. No change to prior periods presented is permitted under the modified prospective method. Under
the modified retrospective method, companies record compensation costs for prior periods retroactively through restatement of such periods using the exact pro forma amounts disclosed in the companies'
footnotes. Also, in the period of adoption and after, companies record compensation based on the modified prospective method. SFAS No. 123(R) is effective for periods beginning after
June 15, 2005. The Company plans to adopt SFAS No. 123(R) as of July 3, 2005, the beginning of its fourth fiscal quarter and to use the modified prospective method. The adoption
of SFAS 123(R) is not expected to have a material impact on the Company's financial statements for the year ended September 30, 2005, as all options previously outstanding have been
cancelled as part of the April 2004 recapitalization.

In
November 2004, the Financial Accounting Standards Board issued SFAS No. 151, "Inventory Costs." SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4,
"Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. This Statement requires that those items be recognized as
current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The Company intends to adopt SFAS No. 151 on
October 1, 2005, the beginning of its 2006 fiscal year. The adoption of SFAS No. 151 is not expected to have a material impact on the Company's financial statements.

FASB
Staff Position (FSP) No. FAS 109-1 and 109-2 were issued in December 2004, providing guidance on foreign earnings repatriation and qualified
production activities of the American Jobs Creation Act (AJCA) that was enacted on October 22, 2004. The AJCA created a temporary incentive for United States multinationals to repatriate
accumulated earnings outside the United States by providing an 85 percent dividends received deduction for certain qualifying earnings repatriations in either fiscal 2005 or in fiscal 2006. As
of January 1, 2005, the Company has not provided deferred taxes on foreign earnings because any taxes on dividends would be substantially offset by foreign tax credits or because the Company
intends to reinvest those earnings indefinitely. Due to the complexity of the repatriation provision, the Company is still evaluating the effects of this provision on its plan for repatriation of
foreign earnings and does not expect to be able to complete this evaluation until after Congress or the Treasury Department provides additional guidance clarifying key elements of the provision.

13

---



6.    Long-Term Debt

September 30, 2004

January 1, 2005(dollars in millions)Credit facilityTerm loans

$
515.0


515.0Second Priority Senior Secured Notes


100.0


100.010% Senior Subordinated Notes


315.0


315.0Capital lease obligations


2.6


2.4932.6


932.4Less current portion


(3.2
)

(3.9
)$
929.4

$
928.5


Interest Rate SwapsThe Company has entered into interest rate swap agreements in order to reduce interest
rate risks and manage interest expense. As of January 1, 2005, a notional principal amount of $100.0 million in swap agreements was still outstanding and scheduled to mature between
May 2005 and July 2005. The swap agreements effectively convert floating-rate debt into fixed-rate debt and carry an average fixed interest rate of 7.52% at
January 1, 2005. Interest differentials to be paid or received because of swap agreements are reflected as an adjustment to interest expense over the related debt period. At January 1,
2005 and September 30, 2004, the fair value of interest rate swaps was a liability of $2.4 million and $4.7 million, respectively, and has been recorded in Other Long-Term
Liabilities on the Consolidated Balance Sheets.

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

7.    Commitments and Contingencies

The Company is subject to retention on certain contracts, with the retention portion of the amount receivable paid upon project completion.

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

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

14

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The Company is subject to warranty claims related to sales of water meters that can be read remotely by hand-held or drive-by electronic
readers. Radio transmitters purchased from one of the Company's third party vendors have demonstrated a high failure rate and the Company has taken actions to correct the issue. Initially, the third
party vendor had taken financial responsibility with respect to this matter. The third party vendor is no longer able to fulfill its warranty obligations and the Company has taken corrective action.
In fiscal year 2004, the Company incurred $1.9 million of cost to replace defective radio transmitters. If the Company finds it necessary to replace all of the remaining affected third party
vendors' radio transmitters still in service, the additional future exposure is not expected to exceed $0.1 million. The Company has a reserve of $0.1 million as of January 1,
2005.

Over
the next two to three years, the Company expects to incur between $2.0 million and $6.0 million of capital costs at its steel and iron foundries to comply with the United States
Environmental Protection Agency's National Emissions Standards for Hazardous Air Pollutants which were issued April 22, 2004. The Company is in the process of performing an analysis to assess
the impact of these standards on the financial results of the Company.

The
Company's subsidiary, James Jones Company, and its former parent company are defendants in a false claims lawsuit in which a former James Jones Company employee is suing on behalf of
cities, water districts and municipalities. The employee alleges that the defendants sold allegedly non-conforming public water system parts to various government entities. The lawsuit
seeks consequential damages, penalties and punitive damages. The Company's subsidiary, Mueller Co., which had also been named as a defendant, brought a summary judgment motion and was dismissed from
this litigation in January 2004. Any liability associated with the lawsuit is covered by an indemnification from our previous owner.

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

In
November 2003, Beck Manufacturing, a division of Anvil International, closed its manufacturing facility in Kearny, NJ, withdrew from the Teamsters Local 11 Pension Fund
("Teamsters" or "Fund"). Anvil has established an accrual of $0.2 million for any withdrawal liability. On July 19, 2004, the Fund Trustees issued notice to Anvil that pursuant to ERISA
Sections 4202 and 4219(b)(1), Anvil owed approximately $1.2 million in withdrawal liability to the Fund. On October 5, 2004, Anvil sent notice to the Teamsters contesting the
amount of the withdrawal liability. The Teamsters gave notice of their plan to appeal and pursue arbitration under the guidelines set out in the Teamsters Trust Agreement. Anvil intends to vigorously
defend its position that a substantially lower withdrawal liability is appropriate.

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

15

---



deferred
payment could total approximately $3 to $6 million for the deferred payment period that begins February 1, 2004 and ends January 31, 2007. The deferred payment amount indicated
above is based on management's best estimate, but the annual adjustment could be materially different. The liability for such deferred payment will be recorded at the end of each deferred payment
period, in accordance with the purchase agreement. No deferred payment was earned for the year ended September 30, 2004.

In
the opinion of management, accruals associated with contingencies incurred in the normal course of business are sufficient. Resolution of existing known contingencies is not expected
to significantly affect the Company's financial position and result of operations.

8.    Net Periodic Benefit CostDefined Benefit Plans

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

The
following sets forth the components of net periodic benefit cost of the domestic non-contributory defined benefit plans for the three months ended January 1, 2005:

Three months endedDecember 27,
2003

January 1,
2005(dollars in millions)Service cost

$
0.5

$
0.8Interest cost


1.4


1.3Expected return on plan assets


(1.1
)

(1.3
)Amortization of prior service cost





0.1Amortization of net actuarial loss


0.6


0.7Net periodic benefit cost

$
1.4


1.6


The
Company 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 plans in 2005. As of January 1, 2005, no contributions have been made. The Company presently anticipates contributing $0.1 million to fund its pension plans in 2005 and may make
further discretionary payments.

9.    Supplementary Balance Sheet Information

Selected supplementary balance sheet information is presented below:

September 30,
2004

January 1,
2005(dollars in millions)InventoriesPurchased materials and manufactured parts

$
41.1

$
47.1Work in process


67.3


78.0Finished goods


151.8


163.0$
260.2

$
288.1


16

---



10.    Supplementary Income Statement Information

The components of interest expense are presented below:

Three months endedDecember 27,
2003

January 1,
2005Interest expense and early repayment costs:Contractual interest expense

$
9.3

$
17.7Deferred financing fee amortization


0.7


1.1Senior subordinated debt early redemption penalty


7.0


Write off of deferred financing fees


0.4


Interest rate swap gains


(3.7
)

(2.3
)Total interest expense and early repayment costs

$
13.7

$
16.5


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

Three months endedDecember 27, 2003

January 1, 2005(restated)(dollars in millions)Net income

$
3.8

$
9.9Less preferred share accretion related to redeemable preferred stock retired in April 2004


(3.9
)

Net income available to the common shareholder

$
(0.1
)
$
9.9


11.    Facility Rationalization, Restructuring and Related Costs

In the first quarter of fiscal 2005, the Company announced that it will cease manufacturing and begin outsourcing a product line it currently produces at its
water infrastructure plant in Colorado. A restructuring charge of $0.1 million related to severance was reflected in the first quarter of fiscal 2005. An additional charge of
$1.5 million is related primarily to the termination of operating leases for the building and machinery and will be reflected in the second quarter of fiscal 2005.

12.    Subsequent Event

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

17

---





13.    Consolidating Guarantor and Non-Guarantor Financial Information

The
following tables set forth the consolidating statements of operations and cash flows for each of the three-month periods ended December 27, 2003 and January 1, 2005 and
the consolidating balance sheets as of September 30, 2004 and January 1, 2005. Amounts have been restated to reflect the impact of items discussed in Note 2. The following
information is included as a result of the guarantee by certain of the Company's wholly owned U.S. subsidiaries ("Guarantor Companies") of the second priority senior secured notes and senior
subordinated notes issued by the Company. None of the Company's other subsidiaries guarantee the debt. Each of the guarantees is joint and several and full and unconditional. "Mueller
Group, Inc." ("Issuer") includes the consolidated financial results of Mueller Group, Inc. with all of its wholly-owned subsidiaries accounted for under the equity method.

Consolidating Statement of Operations  For the Three Months Ended December 27, 2003

Issuer

Guarantor
Companies(1)

Non-Guarantor
Companies

Consolidating
Eliminating

Consolidated(restated)

(restated)



(restated)

(restated)Net sales

$


$
186.2

$
34.0

$


$
220.2Cost of sales





135.2


26.3





161.5Royalty expense





(0.4
)

0.4





Gross profit





51.4


7.3





58.7Selling, general and administrative expense


2.2


32.0


4.6





38.8Facility rationalization and related costs














Operating income (loss)


(2.2
)

19.4


2.7





19.9Interest expense


(13.7
)

0.9


(0.9
)




(13.7
)Interest income








0.1





0.1Income (loss) before income taxes


(15.9
)

20.3


1.9





6.3Income tax expense (benefit)


(6.4
)

8.1


0.8





2.5Equity income from subsidiaries


13.3


1.1





(14.4
)

Net income

$
3.8

$
13.3

$
1.1

$
(14.4
)
$
3.8


Consolidating Statement of Operations  For the Three Months Ended January 1, 2005

Issuer

Guarantor
Companies(1)

Non-Guarantor
Companies

Consolidating
Eliminating

ConsolidatedNet sales

$


$
202.7

$
53.4

$


$
256.1Cost of sales





137.9


42.3





180.2Royalty expense














Gross profit





64.8


11.1





75.9Selling, general and administrative expense


2.9


33.1


7.5





43.5Facility rationalization and related costs





0.1








0.1Operating income (loss)


(2.9
)

31.6


3.6





32.3Interest expense


(16.5
)

(0.1
)




0.1


(16.5
)Interest income


0.3


0.1


0.1


(0.1
)

0.4Income (loss) before income taxes


(19.1
)

31.6


3.7





16.2Income tax expense (benefit)


(7.4
)

12.4


1.3





6.3Equity income from subsidiaries


21.6


2.4





(24.0
)

Net income

$
9.9

$
21.6

$
2.4

$
(24.0
)
$
9.9


18

---





Consolidating Balance Sheet  September 30, 2004

|                                               |                                            | Issuer |        | Guarantor
Companies(1) |   | Non-
Guarantor
Companies |        | Consolidating
Eliminations |      | Consolidated |  
|---------------------------------------------- | ------------------------------------------ | ------ | ------ | ---------------------- | - | ------------------------ | ------ | -------------------------- | ---- | ------------ | -
|Assets                                         |                                            |        |        |                        |   |                          |        |                            |      |              |  
|Cash and cash equivalents                      |                                            | $      | 44.9   |                        | $ | (7.9                     | )      | $                          | 18.6 |              | $
|Receivables, net                               |                                            |        |       |                        |   | 134.5                    |        |                            | 27.5 |              |  
|Inventories                                    |                                            |        |       |                        |   | 211.9                    |        |                            | 48.3 |              |  
|Income taxes receivable                        |                                            |        | 6.5    |                        |   | 0.1                      |        |                            | (2.5 | )            |  
|Deferred income taxes                          |                                            |        |       |                        |   | 9.0                      |        |                            |     |              |  
|Prepaid expenses and other current assets      |                                            |        |       |                        |   | 26.8                     |        |                            | 2.1  |              |  
|                                               |                                            |        |        |                        |   |                          |        |                            |      |              |  
|Total current assets                           |                                            |        | 51.4   |                        |   | 374.4                    |        |                            | 94.0 |              |  
|Property, plant and equipment, net             |                                            |        | 0.7    |                        |   | 173.3                    |        |                            | 12.8 |              |  
|Goodwill, net                                  |                                            |        |       |                        |   | 163.1                    |        |                            | 0.1  |              |  
|Identifiable intangibles, net                  |                                            |        |       |                        |   | 55.2                     |        |                            |     |              |  
|Pension intangible                             |                                            |        |       |                        |   | 0.8                      |        |                            |     |              |  
|Investment in subsidiaries                     |                                            |        | 981.3  |                        |   | 26.1                     |        |                            |     |              |  
|Deferred financing fees, net                   |                                            |        | 33.8   |                        |   |                         |        |                            |     |              |  
|Deferred income taxes                          |                                            |        | (3.0   | )                      |   | 22.8                     |        |                            | (0.5 | )            |  
|                                               |                                            |        |        |                        |   |                          |        |                            |      |              |  
|                                               | Total assets                               |        | $      | 1,064.2                |   | $                        | 815.7  |                            | $    | 106.4        |  
|                                               |                                            |        |        |                        |   |                          |        |                            |      |              |  
|Liabilities                                    |                                            |        |        |                        |   |                          |        |                            |      |              |  
|Accounts payable                               |                                            | $      | 2.3    |                        | $ | 38.4                     |        | $                          | 12.0 |              | $
|Current portion of long-term debt              |                                            |        | 2.2    |                        |   | 1.0                      |        |                            |     |              |  
|Accrued expenses and other current liabilities |                                            |        | 17.6   |                        |   | 61.9                     |        |                            | 6.0  |              |  
|                                               |                                            |        |        |                        |   |                          |        |                            |      |              |  
|Total current liabilities                      |                                            |        | 22.1   |                        |   | 101.3                    |        |                            | 18.0 |              |  
|Intercompany accounts                          |                                            |        | 236.9  |                        |   | (297.8                   | )      |                            | 60.9 |              |  
|Long-term debt, net of current portion         |                                            |        | 927.9  |                        |   | 1.5                      |        |                            |     |              |  
|Accrued pension liability                      |                                            |        | 0.0    |                        |   | 29.4                     |        |                            | (0.2 | )            |  
|Other long-term liabilities                    |                                            |        | 6.2    |                        |   |                         |        |                            | 1.6  |              |  
|                                               |                                            |        |        |                        |   |                          |        |                            |      |              |  
|                                               | Total liabilities                          |        |        | 1,193.1                |   |                          | (165.6 | )                          |      | 80.3         |  
|Shareholders' equity                           |                                            |        |        |                        |   |                          |        |                            |      |              |  
|Total shareholders' equity                     |                                            |        | (128.9 | )                      |   | 981.3                    |        |                            | 26.1 |              |  
|                                               |                                            |        |        |                        |   |                          |        |                            |      |              |  
|                                               | Total liabilities and shareholders' equity |        | $      | 1,064.2                |   | $                        | 815.7  |                            | $    | 106.4        |  
|                                               |                                            |        |        |                        |   |                          |        |                            |      |              |  

19

---





Consolidating Balance Sheet  January 1, 2005

|                                               |                                            | Issuer |         | Guarantor
Companies(1) |   | Non-
Guarantor
Companies |        | Consolidating
Eliminations |      | Consolidated |  
|---------------------------------------------- | ------------------------------------------ | ------ | ------- | ---------------------- | - | ------------------------ | ------ | -------------------------- | ---- | ------------ | -
|Assets                                         |                                            |        |         |                        |   |                          |        |                            |      |              |  
|Cash and cash equivalents                      |                                            | $      | 43.0    |                        | $ | (5.7                     | )      | $                          | 14.7 |              | $
|Receivables, net                               |                                            |        |        |                        |   | 115.8                    |        |                            | 25.5 |              |  
|Inventories                                    |                                            |        |        |                        |   | 233.7                    |        |                            | 54.4 |              |  
|Income taxes receivable                        |                                            |        | (0.1    | )                      |   |                         |        |                            | 0.5  |              |  
|Deferred income taxes                          |                                            |        |        |                        |   | 9.0                      |        |                            |     |              |  
|Prepaid expenses and other current assets      |                                            |        |        |                        |   | 26.7                     |        |                            | 2.3  |              |  
|                                               |                                            |        |         |                        |   |                          |        |                            |      |              |  
|Total current assets                           |                                            |        | 42.9    |                        |   | 379.5                    |        |                            | 97.4 |              |  
|Property, plant and equipment, net             |                                            |        |        |                        |   | 167.3                    |        |                            | 13.3 |              |  
|Goodwill, net                                  |                                            |        |        |                        |   | 163.2                    |        |                            |     |              |  
|Identifiable intangibles, net                  |                                            |        |        |                        |   | 54.4                     |        |                            | 0.1  |              |  
|Pension intangible                             |                                            |        |        |                        |   | 0.8                      |        |                            |     |              |  
|Investment in subsidiaries                     |                                            |        | 1,026.5 |                        |   | 32.7                     |        |                            |     |              |  
|Deferred financing fees, net                   |                                            |        | 32.7    |                        |   |                         |        |                            |     |              |  
|Deferred income taxes                          |                                            |        | (3.9    | )                      |   | 23.0                     |        |                            | (0.5 | )            |  
|                                               |                                            |        |         |                        |   |                          |        |                            |      |              |  
|                                               | Total assets                               |        | $       | 1,098.2                |   | $                        | 820.9  |                            | $    | 110.3        |  
|                                               |                                            |        |         |                        |   |                          |        |                            |      |              |  
|Liabilities                                    |                                            |        |         |                        |   |                          |        |                            |      |              |  
|Accounts payable                               |                                            | $      | 1.1     |                        | $ | 37.5                     |        | $                          | 9.1  |              | $
|Current portion of long-term debt              |                                            |        | 2.9     |                        |   | 1.0                      |        |                            |     |              |  
|Accrued expenses and other current liabilities |                                            |        | 12.3    |                        |   | 51.3                     |        |                            | 5.2  |              |  
|                                               |                                            |        |         |                        |   |                          |        |                            |      |              |  
|Total current liabilities                      |                                            |        | 16.3    |                        |   | 89.8                     |        |                            | 14.3 |              |  
|Intercompany accounts                          |                                            |        | 264.3   |                        |   | (327.6                   | )      |                            | 63.3 |              |  
|Long-term debt, net of current portion         |                                            |        | 927.1   |                        |   | 1.4                      |        |                            |     |              |  
|Accrued pension liability                      |                                            |        |        |                        |   | 30.8                     |        |                            |     |              |  
|Other long-term liabilities                    |                                            |        | 5.5     |                        |   |                         |        |                            |     |              |  
|                                               |                                            |        |         |                        |   |                          |        |                            |      |              |  
|                                               | Total liabilities                          |        |         | 1,213.2                |   |                          | (205.6 | )                          |      | 77.6         |  
|Shareholders' equity                           |                                            |        |         |                        |   |                          |        |                            |      |              |  
|Total shareholders' equity                     |                                            |        | (115.0  | )                      |   | 1,026.5                  |        |                            | 32.7 |              |  
|                                               |                                            |        |         |                        |   |                          |        |                            |      |              |  
|                                               | Total liabilities and shareholders' equity |        | $       | 1,098.2                |   | $                        | 820.9  |                            | $    | 110.3        |  
|                                               |                                            |        |         |                        |   |                          |        |                            |      |              |  

20

---





Consolidating Statement of Cash Flows  For the Three Months Ended December 27, 2003

|                                                    |  | Issuer |       | Guarantor
Companies(1) |   | Non-
Guarantor
Companies |   | Consolidating
Eliminations |      | Consolidated |  
|--------------------------------------------------- |  | ------ | ----- | ---------------------- | - | ------------------------ | - | -------------------------- | ---- | ------------ | -
|
|Net cash provided by operating activities           |  | $      | (46.2 | )                      | $ | 63.5                     |   | $                          | (2.0 | )            | 
|                                                    |  |        |       |                        |   |                          |   |                            |      |              |  
|Cash flows from investing activities                |  |        |       |                        |   |                          |   |                            |      |              |  
|Capital expenditures                                |  |        |      |                        |   | (4.5                     | ) |                            |     |              | 
|Loss on disposals                                   |  |        |      |                        |   | 0.1                      |   |                            |     |              | 
|                                                    |  |        |       |                        |   |                          |   |                            |      |              |  
|Net cash provided by (used in) investing activities |  |        |      |                        |   | (4.4                     | ) |                            |     |              | 
|                                                    |  |        |       |                        |   |                          |   |                            |      |              |  
|Cash flows from financing activities                |  |        |       |                        |   |                          |   |                            |      |              |  
|Intercompany change                                 |  |        | 58.0  |                        |   | (57.9                    | ) |                            | (0.1 | )            | 
|Payment of long-term debt                           |  |        | (50.0 | )                      |   |                         |   |                            |     |              | 
|Financing of assests through capital leases         |  |        |      |                        |   | (0.3                     | ) |                            |     |              | 
|Payment of deferred financing fees                  |  |        | (0.8  | )                      |   |                         |   |                            |     |              | 
|                                                    |  |        |       |                        |   |                          |   |                            |      |              |  
|Net cash used in financing activities               |  |        | 7.2   |                        |   | (58.2                    | ) |                            | (0.1 | )            | 
|                                                    |  |        |       |                        |   |                          |   |                            |      |              |  
|Effect of exchange rate changes on cash             |  |        |      |                        |   |                         |   |                            | 2.1  |              | 
|                                                    |  |        |       |                        |   |                          |   |                            |      |              |  
|Increase (decrease) in cash                         |  |        | (39.0 | )                      |   | 0.9                      |   |                            |     |              | 
|Cash and cash equivalents                           |  |        |       |                        |   |                          |   |                            |      |              |  
|Beginning of period                                 |  |        | 53.3  |                        |   | 1.6                      |   |                            | 16.5 |              | 
|                                                    |  |        |       |                        |   |                          |   |                            |      |              |  
|End of period                                       |  | $      | 14.3  |                        | $ | 2.5                      |   | $                          | 16.5 |              | 
|                                                    |  |        |       |                        |   |                          |   |                            |      |              |  

21

---



Consolidating Statement of Cash Flows  For the Three Months Ended January 1, 2005

|                                                    |  | Issuer |       | Guarantor
Companies(1) |   | Non-
Guarantor
Companies |   | Consolidating
Eliminations |      | Consolidated |  
|--------------------------------------------------- |  | ------ | ----- | ---------------------- | - | ------------------------ | - | -------------------------- | ---- | ------------ | -
|Net cash provided by operating activities           |  | $      | (11.9 | )                      | $ | 17.1                     |   | $                          | (7.9 | )            | 
|                                                    |  |        |       |                        |   |                          |   |                            |      |              |  
|Cash flows from investing activities                |  |        |       |                        |   |                          |   |                            |      |              |  
|Capital expenditures                                |  |        |      |                        |   | (4.2                     | ) |                            | (0.5 | )            | 
|Loss on disposals                                   |  |        |      |                        |   | 0.1                      |   |                            |     |              | 
|                                                    |  |        |       |                        |   |                          |   |                            |      |              |  
|Net cash provided by (used in) investing activities |  |        |      |                        |   | (4.1                     | ) |                            | (0.5 | )            | 
|                                                    |  |        |       |                        |   |                          |   |                            |      |              |  
|Cash flows from financing activities                |  |        |       |                        |   |                          |   |                            |      |              |  
|Intercompany change                                 |  |        | 10.0  |                        |   | (10.5                    | ) |                            | 0.5  |              | 
|Financing assets through capital leases             |  |        |      |                        |   | (0.3                     | ) |                            |     |              | 
|                                                    |  |        |       |                        |   |                          |   |                            |      |              |  
|Net cash used in financing activities               |  |        | 10.0  |                        |   | (10.8                    | ) |                            | 0.5  |              | 
|                                                    |  |        |       |                        |   |                          |   |                            |      |              |  
|Effect of exchange rate changes on cash             |  |        |      |                        |   |                         |   |                            | 4.0  |              | 
|Increase (decrease) in cash                         |  |        | (1.9  | )                      |   | 2.2                      |   |                            | (3.9 | )            | 
|Cash and cash equivalents                           |  |        |       |                        |   |                          |   |                            |      |              |  
|Beginning of period                                 |  |        | 44.9  |                        |   | (7.9                     | ) |                            | 18.6 |              | 
|                                                    |  |        |       |                        |   |                          |   |                            |      |              |  
|End of period                                       |  | $      | 43.0  |                        | $ | (5.7                     | ) | $                          | 14.7 |              | 
|                                                    |  |        |       |                        |   |                          |   |                            |      |              |  

---

Name

State of IncorporationAnvilStar, LLC

DelawareAnvil International, Inc.

DelawareHenry Pratt Company

DelawareHenry Pratt International Ltd

DelawareHersey Meters Co.

DelawareHydro Gate Acquisition Corp.

DelawareJames Jones Company

CaliforniaJ.B. Smith Mfg. Co.

OklahomaMueller Co.

IllinoisMueller Service Co.

DelawareMilliken Acquisition Corp.

DelawareMueller International, Inc.

DelawareMueller International, LLC

DelawareMueller International Finance, Inc.

DelawareMueller International Finance, LLC

Delaware


22

---



ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                   RESULTS OF OPERATIONS

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

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

Certain
information included or incorporated by reference in this document may be deemed to be "forward looking statements" within the meaning of the federal securities laws. All
statements other than statements of historical fact are statements that could be deemed forward looking statements. In this context, forward-looking statements often address our future business and
financial performance, and may be characterized by terminology such as "believe", "anticipate", "should", "intend", "plan", "will", "expects", "estimates", "projects", "positioned", "strategy", and
similar expressions. These statements are based on assumptions and assessments made by the Company's management in light of its experience and its perception of historical trends, current conditions,
expected future developments and other factors it believes to be appropriate.

These
forward looking statements are subject to a number of risks and uncertainties, including but not limited to: the Company's ability to continue long-standing
relationships with major customers; increased competition; demand for and market acceptance of new and existing products in the markets we serve; adverse changes in currency exchange rates or raw
material prices, specifically steel scrap, steel pipe and brass ingot; unanticipated developments that could occur with respect to contingencies such as litigation, product liability exposures and
environmental matters; the Company's ability to integrate acquired businesses into its operations; and other risks and uncertainties that affect the manufacturing sector generally including, but not
limited to, economic, political, governmental and technological factors affecting the Company's operations, markets, products, services and prices.

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

Overview

We are a leading North American manufacturer of a broad range of flow control products for use in water distribution, water and wastewater treatment facilities,
gas distribution systems and piping systems and maintain a large installed base of products. We are comprised of two segments: water infrastructure, a leading manufacturer of hydrants, valves and
other products for use in water and gas distribution systems; and piping systems, a leading manufacturer of fittings, pipe hangers and other products for use in piping system applications.

Our
business strategy continues to be focused on sustaining our market leadership and competitive differentiation, while growing revenues and enhancing profitability.

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

23

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Major
changes in financial position resulted from the Company's recapitalization in April 2004, and the $406.9 million of additional net debt added $8.8 million of
interest expense and amortization of deferred financing fees in the first quarter of 2005 as compared to the first quarter of 2004.

Restatements

In November 2004, our Audit Committee was notified of alleged potential accounting improprieties concerning our accounting for inventory reserves and
certain questions concerning revenue recognition. The Audit Committee appointed an independent law firm to investigate the allegations. The report identified several areas requiring financial review
by the Company principally concerning accounting for excess and obsolete (E&O) inventory, the capitalization of costs relating to a project that should have been expensed in prior periods, the accrual
of reserves for this project without identifying support for
such accruals and the timing of recognition of revenue with regard to full truckload shipments that were not immediately dispatched to customers by certain freight carriers used by the Company. The
Company also identified some additional annual and interim items recorded in incorrect periods in the course of finalizing the 2004 financial statements. In addition, the Company determined that the
value it assigned to stock compensation in connection with our April 2004 recapitalization should be revised. As a result of these findings, the Company has restated its annual and interim
financial statements. For more specific information about prior period restatements, see Notes 2 and 21 of the Company's Audited Consolidated Financial Statements for the year ended
September 30, 2004 as found in Form 10-K (File No. 333-117473).

24

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Results of Operations



|                                                          |                      | Three months ended |       |       |      | FY05 Q1 vs. FY04 Q1 |  
|--------------------------------------------------------- | -------------------- | ------------------ | ----- | ----- | ---- | ------------------- | -
|
|
|
|Net sales                                                 |                      |                    |       |       |      |                     |  
|                                                          | Water infrastructure |                    | $     | 138.6 |      | 54.1                | %
|                                                          | Piping systems       |                    |       | 117.5 |      | 45.9                |  
|                                                          |                      |                    |       |       |      |                     |  
|                                                          | Consolidated         |                    |       | 256.1 |      | 100.0               |  
|                                                          |                      |                    |       |       |      |                     |  
|Gross profit                                              |                      |                    |       |       |      |                     |  
|                                                          | Water infrastructure |                    |       | 44.8  |      | 32.3                |  
|                                                          | Piping systems       |                    |       | 31.1  |      | 26.5                |  
|                                                          |                      |                    |       |       |      |                     |  
|                                                          | Consolidated         |                    |       | 75.9  |      | 29.6                |  
|                                                          |                      |                    |       |       |      |                     |  
|Selling, general and administrative expenses              |                      |                    |       |       |      |                     |  
|                                                          | Water infrastructure |                    |       | 15.9  |      | 11.5                |  
|                                                          | Piping systems       |                    |       | 19.3  |      | 16.4                |  
|                                                          | Corporate            |                    |       | 8.3   |      | 3.2                 |  
|                                                          |                      |                    |       |       |      |                     |  
|                                                          | Consolidated         |                    |       | 43.5  |      | 17.0                |  
|                                                          |                      |                    |       |       |      |                     |  
|Stock compensation expense                                |                      |                    |       |       |      |                     |  
|                                                          | Corporate            |                    |       |      |      |                    |  
|                                                          |                      |                    |       |       |      |                     |  
|Facility rationalization, restructuring and related costs |                      |                    |       |       |      |                     |  
|                                                          | Water infrastructure |                    |       | 0.1   |      | 0.5                 |  
|                                                          | Piping systems       |                    |       |      |      |                    |  
|                                                          |                      |                    |       |       |      |                     |  
|                                                          | Consolidated         |                    |       | 0.1   |      | 0.2                 |  
|                                                          |                      |                    |       |       |      |                     |  
|Operating income                                          |                      |                    |       |       |      |                     |  
|                                                          | Water infrastructure |                    |       | 28.8  |      | 20.8                |  
|                                                          | Piping systems       |                    |       | 11.8  |      | 10.0                |  
|                                                          | Corporate            |                    |       | (8.3  | )    | (3.2                | )
|                                                          |                      |                    |       |       |      |                     |  
|                                                          | Consolidated         |                    |       | 32.3  |      | 12.6                |  
|                                                          |                      |                    |       |       |      |                     |  
|Interest expense                                          |                      |                    | (16.5 | )     | (6.4 | )                   |  
|Interest income                                           |                      |                    | 0.4   |       | 0.2  |                     |  
|                                                          |                      |                    |       |       |      |                     |  
|Income before income taxes                                |                      |                    | 16.2  |       | 6.3  |                     |  
|Income tax expense                                        |                      |                    | 6.3   |       | 2.5  |                     |  
|                                                          |                      |                    |       |       |      |                     |  
|Net income                                                |                      | $                  | 9.9   |       | 3.9  | %                   | $
|                                                          |                      |                    |       |       |      |                     |  
|Segment EBITDA(1)                                         |                      |                    |       |       |      |                     |  
|                                                          | Water infrastructure |                    |       | 34.8  |      | 25.1                |  
|                                                          | Piping systems       |                    |       | 16.1  |      | 13.7                |  
|Total segment EBITDA                                      |                      | $                  | 50.9  |       | 19.9 |                     | $

---

25

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Three months endedJanuary 1, 2005

December 27, 2003(as restated)(3)

(as restated)(3)Total segment EBITDA

$
50.9

$
38.4Unallocated corporate costs


(5.6
)

(1.9
)Interest expense and early repayment costs


(16.5
)

(13.7
)Depreciation and amortization


(12.6
)

(16.5
)Income before income taxes

$
16.2

$
6.3


Net Sales.Net sales for the three months ended January 1, 2005 were $256.1 million, or a 16.3% increase as compared to
$220.2 million for the three months ended December 27, 2003.

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

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

Gross Profit.Gross profit for the three months ended January 1, 2005 was $75.9 million, or a 29.3% increase as compared to
$58.7 million for the three months ended December 27, 2003. Gross profit, as a percentage of net sales, or gross margin, increased from 26.7% for our first quarter of 2004 to 29.6% for
our first quarter of 2005.

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

Piping
systems gross profit for the three months ended January 1, 2005 was $31.1 million, or a 58.7% increase as compared to $19.6 million for the three months ended
December 27, 2003. Gross profit increased from 20.5% to 26.5%. The increase in gross profit was primarily driven by price increases and additional Star gross margins of $1.0 million.
Increased raw material costs partially offset the favorable pricing and increased Star margins. The price increases realized in the quarter were the culmination of increases implemented primarily in
the second half of 2004 and in 2005. We cannot be certain we can continue to pass on cost increases to our customers.

Selling, General & Administrative Expense.Selling, General and Administrative expenses ("SG&A") for the three months ended
January 1, 2005 were $43.6 million, or a 12.7% increase as compared to $38.7 million for the three months ended December 27, 2003. As a percentage of net sales, SG&A
decreased from 17.6% for our first quarter of 2004 to 17.0% for our first quarter of 2005.

26

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Water
infrastructure SG&A for the three months ended January 1, 2005 was $15.9 million, or a 8.9% increase as compared to $14.6 million for the three months ended
December 27, 2003. As a percentage of net sales, SG&A decreased from 11.7% for our first quarter of 2004 to 11.5% for our first quarter of 2005. The increase in cost was primarily due to
amortization expense for intangible assets acquired in the second quarter of 2004, increased sales commissions related to higher sales, and compensation and benefit costs for additional personnel.

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

Corporate
expenses for the three months ended January 1, 2005 were $8.3 million as compared to $8.2 million for the three months ended December 27, 2003.
Significant items included in expenses for the first quarter of 2005 were: legal fees of $2.3 million related to internal investigations (see Note 2), accounting and legal fees of
$0.6 million related to SEC filing matters, consulting fees of $0.1 million related to efforts to become compliant with public company reporting and Sarbanes-Oxley internal control
requirements, increased incentive compensation costs of $0.4 million, and increased salary and benefit costs of $0.3 million associated with additional accounting and legal staffing.
These items are
offset by a $4.0 million reduction in amortization expense for the first quarter of 2005 as compared to the first quarter of 2004 due to an intangible asset becoming fully amortized during the
fourth quarter of 2004. Corporate expenses consist primarily of corporate staff, benefits, legal and facility costs.

Stock Compensation Expense.Due to the cancellation of all options upon the April 2004 recapitalization transaction, there was no
corporate stock compensation expense for the three months ended January 1, 2005 as compared to $0.1 million for the three months ended December 27, 2003.

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

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

Income Tax Expense.The effective tax rates for the three months ended January 1, 2005 and for the three months ended
December 27, 2003 were 38.9% and 39.7%, respectively.

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

Piping
systems EBITDA was $16.1 million for the three months ended January 1, 2005, which was $8.3 million higher than the $7.8 million reported for the three months ended
December 27, 2003. The

27

---



increased
EBITDA resulted primarily from increased prices and additional Star gross profit, offset by additional SG&A spending as discussed above.

Liquidity and Capital Resources

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

Debt Service

As of January 1, 2005 we had: (a) total indebtedness of approximately $932.4 million; and (b) approximately $57.6 million of
borrowings available under our senior revolving credit facility, subject to customary conditions. As of January 1, 2005, we had obtained $22.4 million in letters of credit under the
senior revolving credit facility, which reduced availability for borrowings thereunder. Our significant debt service obligations could have material consequences to our security holders. Our key
financial covenants are dependent on attaining certain levels of EBITDA, as defined in the respective debt arrangements. The most restrictive covenant in effect at January 1, 2005 related to
our leverage ratio, as defined in the debt arrangements, which required approximately $150 million of EBITDA over the trailing twelve months, based on our net debt outstanding. Our EBITDA, as
defined in the agreements, exceeded $200 million over the trailing twelve months ended January 1, 2005.

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

Capital Expenditures

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

Distributions to our Parent Company

Our parent company has no material assets other than its ownership of our capital stock and, accordingly, depends upon distributions from us to satisfy its cash
needs. Our parent company's principal cash needs will be debt service on its Senior Discount Notes due 2014. The parent company notes do not require cash interest payments until 2009 and contain
restrictive covenants that will, among other things, limit the ability of Mueller Water Products, Inc. ("Mueller Water") and its subsidiaries (including us) to incur debt, pay dividends and
make investments. Neither we nor any of our subsidiaries guarantee the parent company notes. Mueller Water, however, is a holding company and its ability to pay interest on the parent company notes
will be dependent upon the receipt of dividends from its subsidiaries. We are currently Mueller Water's only direct subsidiary.

Sources of Funds

We anticipate that our operating cash flow, together with permitted borrowings under the senior credit facility, will be sufficient to meet our anticipated future
operating expenses, capital expenditures and debt service obligations as they become due for at least the next twelve months. However, our

28

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ability
to make scheduled payments of principal of, to pay interest on or to refinance our indebtedness and to satisfy our other debt obligations 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.

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

Historical

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

Cash flows from operating activities.Net cash used by operations was $2.7 million for the first three months of 2005, compared to
net cash provided of $15.3 million for the first three months of 2004. The difference was due primarily to a $27.9 million increase in inventories in the first quarter of 2005. Water
infrastructure inventories increased $15.3 million during the three months ended January 1, 2005. This was largely due to a planned seasonal inventory build. Approximately
$5.0 million of the total increase was due primarily to higher raw material costs. Piping systems inventories increased $12.6 million during the three months ended January 1,
2005. A planned inventory build accounted for approximately $6 million of this increase, while about $3 million was due to higher raw material and other manufacturing costs.

Cash flows used in investing activities.In the first three months of 2005 we had net cash used in investing activities of
$4.6 million compared to net cash used in the first three months of 2004 of $4.4 million. The primary investing activity in both periods was capital spending.

Cash flows from financing activities.Cash flows used in financing activities decreased from $51.1 million in the first three months
of 2004 to $0.3 million in the first three months of 2005. This was primarily due to early payment of $50 million of subordinated notes due 2009 in the first quarter of 2004.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special
purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not
have any undisclosed borrowings or debt, and we have not entered into any derivative contracts (other than those described in "Qualitative and Quantitative Disclosure About Market
RiskInterest Rate Risk") or synthetic leases. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such
relationships.

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

29

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Contractual Obligations

Our contractual obligations as of January 1, 2005:

Payments Due by Period

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

---

Effect of Inflation; Seasonality

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

Our
business is dependent upon the construction industry, which is very seasonal due to the impact of winter or wet weather conditions. Our net sales and operating income have
historically been lowest, and our working capital needs have been highest, in the three month periods ending around December 31 and March 31, when the northern United States and all of
Canada generally face weather that restricts significant construction activity and we build working capital in anticipation of the peak construction season, during which time our working capital tends
to be reduced.

30

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Critical Accounting Policies

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

Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), "Share-Based Payment." SFAS No. 123(R) replaces SFAS
No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123(R) requires compensation costs
related to share-based payment transactions to be recognized in the financial statements over the period that an employee provides service in exchange for the award. Public companies are required to
adopt the new standard using a modified prospective method and may elect to restate prior periods using the modified retrospective method. Under the modified prospective method, companies are required
to record compensation cost for new and modified awards over the related vesting period of such awards prospectively and record compensation cost prospectively for the unvested portion, at the date of
adoption, of previously issued and outstanding awards over the remaining vesting period of such awards. No change to prior periods presented is permitted under the modified prospective method. Under
the modified retrospective method, companies record compensation costs for prior periods retroactively through restatement of such periods using the exact pro forma amounts disclosed in the companies'
footnotes. Also, in the period of adoption and after, companies record compensation based on the modified prospective method. SFAS No. 123(R) is effective for periods beginning after
June 15, 2005. The Company plans to adopt SFAS No. 123(R) in July 2005, the beginning of its fourth fiscal quarter and to use the modified prospective method. The adoption of
SFAS 123(R) is not expected to have a material impact on the Company's financial statements for the year ended September 30, 2005.

In
November 2004, the Financial Accounting Standards Board issued SFAS No. 151, "Inventory Costs." SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4,
"Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. This Statement requires that those items be recognized as
current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The Company intends to adopt SFAS No. 151 on
October 1, 2005, the beginning of its 2006 fiscal year. The adoption of SFAS No. 151 is not expected to have a material impact on the Company's financial statements.

FASB
Staff Position (FSP) No. FAS 109-1 and 109-2 were issued in December 2004, providing guidance on foreign earnings repatriation and qualified
production activities of the American Jobs Creation Act (AJCA) that was enacted on October 22, 2004. The AJCA created a temporary incentive for United States multinationals to repatriate
accumulated earnings outside the United States by providing an 85 percent dividends received deduction for certain qualifying earnings repatriations in either fiscal 2005 or in fiscal 2006. As
of January 1, 2005, the Company has not provided deferred taxes on foreign earnings because any taxes on dividends would be substantially offset by foreign tax credits or because the Company
intends to reinvest those earnings indefinitely. Due to the complexity of the

31

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repatriation
provision, the Company is still evaluating the effects of this provision on its plan for repatriation of foreign earnings and does not expect to be able to complete this evaluation until
after Congress or the Treasury Department provides additional guidance clarifying key elements of the provision.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

The nature of market risks faced by the Company at January 1, 2005 are the same as disclosed in the Company's Annual Report on Form 10-K
for the year ended September 30, 2004. We are exposed to various market risks, which are potential losses arising from adverse changes in market rates and prices, such as interest rates,
foreign exchange fluctuations and raw materials. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

At
January 1, 2005 we had fixed rate debt of $317.4 million and variable rate debt of $615.0 million. The pre-tax earnings and cash flows impact
resulting from a 100 basis point increase in interest rates on variable rate debt, holding other variables constant and excluding the impact of the hedging agreements described below, would be
approximately $6.2 million per year.

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

ITEM 4. CONTROLS AND PROCEDURES

We became subject to the requirements of the Exchange Act and the rules promulgated thereunder on August 10, 2004. Prior to that time, we were a private
company. In August 2004, as a result of our becoming subject to SEC reporting requirements, we initiated several steps designed to improve our internal control structure and procedures for
financial reporting, including the launch of a new global compliance program under the direction of George Bukuras, our General Counsel, who assumed the position of Chief Compliance Officer, reporting
to the Audit Committee, and the creation of a new internal audit function under the direction of a new Director of Internal Audit.

In
August 2004, our management advised our Audit Committee that a deficiency in internal controls had been noted related to unauthorized journal entries found at one of our Anvil
facilities totaling $1.1 million made in fiscal 2003 and 2004. Additionally, in August 2004, management advised the Audit Committee of a revision of interim financial statements provided
to our note holders under our indenture prior to the filing of our Form 10-Q for the third quarter. We conducted an in-depth investigation of the circumstances
underlying the unauthorized journal entries and took appropriate remedial actions.

In
November 2004, our Audit Committee was notified of alleged potential accounting improprieties concerning our accounting for inventory reserves and certain questions concerning
revenue recognition. The Audit Committee appointed an independent law firm to investigate the allegations. The report identified several areas requiring financial review by the Company principally
concerning the excess and obsolete (E&O) inventory reserve matters discussed below, the capitalization of costs relating to a project that should have been expensed in prior periods, the accrual of
reserves for this project without identifying support for such accruals and the timing of recognition of revenue with regard to full truckload shipments that were not immediately dispatched to
customers by certain freight carriers used by the Company. The Company also has identified some additional annual and interim out-of-period items in the course of finalizing
the 2004 financial statements. In addition, the

32

---



Company
determined that the value it assigned to stock compensation in connection with the April 2004 recapitalization and the $1.1 million of unauthorized journal entries identified in
the third quarter of 2004 should be revised. As a result of these findings, the Company has restated its previously issued annual financial statements for 2002 and 2003, as well as for interim periods
in 2003 and the nine-months ended June 26, 2004, included in our annual report on Form 10-K for the year ended September 30, 2004. The investigation report
did not identify any fraud or intentional misconduct by the Company or any of its employees. However, the report identified: deficiencies in the Company's internal controls; a failure to establish,
document or properly train personnel with respect to certain accounting policies; a lack of understanding and proper application of certain accounting policies by Company personnel; a lack of
sufficient technical expertise and understanding of SEC and accounting rules by financial reporting personnel; an approach by personnel at the Company's Henry Pratt Company subsidiary to establishing
E&O inventory reserves that was at least negligent; and a failure by the Company's senior financial management to exercise proper diligence over and supervise the Henry Pratt E&O matters, including a
lack of appreciation of the impact of such issues on management certifications and management representation letters (or the significance of such certifications and letters) or the need to promptly
inform the Company's independent registered public accounting firm of such issues. In connection with the audit of our fiscal 2004 results and as a result of the investigation, we have concluded that
the aforementioned matters represent reportable conditions (as defined in AU 325, "Communication of Internal Control Related Matters Noted In An Audit", of the AICPA professional standards) that
collectively constitute a material weakness in our internal control over financial reporting. These reportable conditions include:



Our
board adopted recommendations set forth in the investigative report and, at this time, we are continuing to take steps to improve our disclosure controls and procedures, including
our internal control structure and procedures for financial reporting to enhance our ability to produce SEC reports within the time periods and in the form required under the Exchange Act. In order to
comply with these requirements, we:



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In
light of the deficiencies identified above, our chief executive officer and interim chief financial officer have concluded that our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended) at January 1, 2005 were not effective. Nonetheless, our chief executive
officer and interim chief financial officer believe that the subsequent procedures we performed in connection with our preparation of this annual report, including, in particular, increased review and
analysis of transactions, account balances and journal entries in the areas where weaknesses were identified, provide reasonable assurance that the identified deficiencies did not lead to material
misstatements in our consolidated financial statements presented in this quarterly report.

Except
for the matters and the efforts taken and underway as described above, there were no significant changes in our internal controls over financial reporting or other factors that
have materially affected or are reasonably likely to materially affect these internal controls over financial reporting as of the end of the period covered by this report.

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PART II OTHER INFORMATION

Item 6. Exhibits

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

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SIGNATURES

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

|                     |  | MUELLER WATER PRODUCTS, INC.
|-------------------- |  | ----------------------------
|Date: March 31, 2005 |  | By:                         
|Date: March 31, 2005 |  | By:                         

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