**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q/A**

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

| **x**                                                   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
| **For the quarterly period ended April 2,  2005.** |
| **o**                                                   | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**CommissionFile Number 333-116590**

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**MUELLER WATER PRODUCTS, INC.**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                     | **20-3547095**                        |
|------------------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) | (I.R.S. Employer  identification No.) |

 

**4211W. Boy Scout Blvd.Tampa, FL 33607**(Address of principalexecutive offices)

**(813) 871-4811**

(Registrant’s telephonenumber, including area code)

**Mueller Water Products,LLC500 West Eldorado StreetDecatur, IL 62522-1808**

(Former Name and FormerAddress if Changed Since Last Reported)

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

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

|              | ** ** | **Common Stock** | ** ** | **Shares Outstanding  As of May 6, 2005** |
|--------------|------------|------------------|------------|------------------------------------------------|
| Class A |       | $0.01  Par Value |       | 131,208,998                                    |
| Class B |       | $0.01 Par Value  |       | 89,343,699                                     |

 

 

 

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**Explanatory Note**

Organizational Change

Mueller Water Products, Inc., a Delaware corporation(the “Company”), was formerly known as Mueller Holding Company, Inc., and,effective February 2, 2006, is the “successor issuer” to Mueller WaterProducts, LLC, a Delaware limited liability company, pursuant toRule 15d-5 promulgated under the Securities and Exchange Act of 1934, asamended.

Purpose of Amendment to Quarterly Report

The purpose of this Amendment No. 1 to theQuarterly Report on Form 10-Q of the Company is to restate theCompany’s consolidated financial statements as of and for the three and sixmonths ended April 2, 2005. On December 14, 2005, the Company’s managementand the Audit Committee of the Board of Directors determined that the financialstatements of the Company for the two years ended September 30, 2004 andinterim periods of fiscal years 2005 and 2004 required restatement.

The 2005 Restatements reflect adjustments to correctcash flow statement errors related to foreign currency translation and book cashoverdrafts, the misclassification of deferred income tax assets between currentand non-current classifications in the balance sheet and the misclassificationof depreciation expense between selling, general and administrative expense andcost of sales. The 2005 Restatements had no impact on the Company’sconsolidated net income or the Consolidated Statement of Stockholders’ Deficit.The nature and impact of these adjustments are described in Note 2: “Restatements”in this Form 10-Q/A.

For the convenienceof the reader, this Form 10-Q/A sets forth the original Form 10-Qin its entirety. Except for the revision of management’s conclusion regardingthe effectiveness of the Company’s disclosure controls and procedures as of April 2,2005 presented under Part1, Item 4, the Company has not modified or updatedother disclosures presented in the original report on Form 10-Qexcept for the required effects of the restatement. Accordingly, other than theitems indicated above, this Form 10-Q/A does not reflect eventsoccurring after the filing of the original Form 10-Q or modify orupdate those disclosures. Information not affected by the restatement isunchanged and reflects the disclosure made at the time of the original filingof the Form 10-Q with the Securities and Exchange Commission on May 13,2005. Accordingly, this Form 10-Q/A should be read in conjunctionwith the Company’s filings made with the Securities and Exchange Commissionsubsequent to the filing of the original Form 10-Q. The followingitems have been amended as a result of the restatement:

·       Part I—Item1. Unaudited Financial Statements

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

·       Part I—Item4. Controls and Procedures; and

·       Part II—Item6. Exhibits

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**MUELLER WATER PRODUCTS, INC.REPORT ON FORM 10-QFOR THE QUARTERLY PERIOD ENDED APRIL 2, 2005**

**TABLE OF CONTENTS**

|                                                                                                     | ** ** | **Page** |
|-----------------------------------------------------------------------------------------------------|------------|----------|
| PART I—FINANCIAL  INFORMATION                                                             |       |     | 4 |   |
| Item  1. Unaudited Financial Statements                                                             |       |     | 4 |   |
| Condensed Consolidated Balance Sheets                                                               |       |     | 4 |   |
| Condensed Consolidated Statements of Operations                                                     |       |     | 5 |   |
| Condensed Consolidated Statements of Cash Flows                                                     |       |     | 6 |   |
| Notes to Condensed Consolidated Financial Statements                                                |       |     | 7 |   |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations |       |     | 23 |   |
| Item 3. Quantitative and Qualitative Disclosures About  Market Risk                                 |       |     | 35 |   |
| Item 4. Controls and Procedures                                                                     |       |     | 35 |   |
| PART II—OTHER  INFORMATION                                                                |       |     | 39 |   |
| Item  1. Legal Proceedings                                                                          |       |     | 39 |   |
| Item 6.  Exhibits                                                                                   |       |     | 39 |   |
| Signatures                                                                                          |       |     | 40 |   |

 

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**PART I. FINANCIAL INFORMATION**

**ITEM 1.**                FINANCIALSTATEMENTS

**MUELLER WATER PRODUCTS, INC.UNAUDITED CONDENSEDCONSOLIDATED BALANCE SHEETS**

| ** **                                                                                                            | ** ** | **September 30,  2004  (restated)** | ** ** | **April 2,  2005  (restated)** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                                            | ** ** | **(unaudited)**                          | ** ** |
| ** **                                                                                                            | ** ** | **(dollars in millions)**      | ** ** |
| **Assets**                                                                                                            |       |                                     |       |                                |       |   |   |
| Cash and cash  equivalents                                                                                            |       |                                     | $          | 60.5                                |       |   | $ | 56.9 |   |
| Receivables, net  of allowance for doubtful accounts of $5.1 and $5.3, respectively                              |       |                                     | 162.0      |                                |       | 163.7 |   |
| Inventories                                                                                                           |       |                                     | 260.2      |                                |       | 304.0 |   |
| Income taxes  receivable                                                                                              |       |                                     | 4.1        |                                |       | 3.7 |   |
| Deferred income  taxes                                                                                                |       |                                     | 21.8       |                                |       | 23.5 |   |
| Prepaid expenses  and other current assets                                                                            |       |                                     | 28.9       |                                |       | 27.6 |   |
| Total current assets                                                                                                  |       |                                     | 537.5      |                                |       | 579.4 |   |
| Property, plant  and equipment, net                                                                                   |       |                                     | 186.8      |                                |       | 177.1 |   |
| Goodwill, net                                                                                                         |       |                                     | 163.2      |                                |       | 163.2 |   |
| Identifiable  intangibles, net                                                                                        |       |                                     | 55.2       |                                |       | 53.8 |   |
| Pension  intangible                                                                                                   |       |                                     | 0.8        |                                |       | 0.8 |   |
| Deferred  financing fees, net                                                                                         |       |                                     | 37.4       |                                |       | 34.8 |   |
| Deferred income  taxes                                                                                                |       |                                     | 8.3        |                                |       | 9.6 |   |
| Total assets                                                                                                          |       |                                     | $          | 989.2                               |       |   | $ | 1,018.7 |   |
| **Liabilities**                                                                                                       |       |                                     |       |                                |       |   |   |
| Accounts payable                                                                                                      |       |                                     | $          | 57.6                                |       |   | $ | 61.0 |   |
| Current portion  of long-term debt                                                                                    |       |                                     | 3.2        |                                |       | 3.9 |   |
| Accrued expenses  and other current liabilities                                                                       |       |                                     | 85.9       |                                |       | 84.3 |   |
| Total current liabilities                                                                                             |       |                                     | 146.7      |                                |       | 149.2 |   |
| Long-term  debt, net of current portion                                                                               |       |                                     | 1,036.2    |                                |       | 1,043.8 |   |
| Accrued pension  liability                                                                                            |       |                                     | 29.2       |                                |       | 32.3 |   |
| Other long-term  liabilities                                                                                          |       |                                     | 7.8        |                                |       | 4.8 |   |
| Total liabilities                                                                                                     |       |                                     | 1,219.9    |                                |       | 1,230.1 |   |
| Commitments and  contingencies (Note 9)                                                                               |       |                                     | —     |                                |       | — |   |
| Redeemable common  stock                                                                                              |       |                                     | 1.7        |                                |       | 1.7 |   |
| **Shareholders’  equity**                                                                                        |       |                                     |       |                                |       |   |   |
| Common stock:                                                                                                         |       |                                     |       |                                |       |   |   |
| Class A,  $0.01 par value (400,000,000 shares authorized and 131,208,998 issued)                            |       |                                     | 1.3        |                                |       | 1.3 |   |
| Class B,  $0.01 par value, convertible, non-voting (150,000,000 shares authorized  and 89,343,699 shares issued) |       |                                     | 0.9        |                                |       | 0.9 |   |
| Additional paid-in  capital                                                                                           |       |                                     | —     |                                |       | — |   |
| Accumulated  deficit                                                                                                  |       |                                     | (218.6     | )                                   |       | (202.7 | ) |
| Accumulated other  comprehensive loss                                                                                 |       |                                     | (16.0      | )                                   |       | (12.6 | ) |
| Total  shareholders’ equity                                                                                      |       |                                     | (232.4     | )                                   |       | (213.1 | ) |
| Total liabilities and  shareholders’ equity                                                                      |       |                                     | $          | 989.2                               |       |   | $ | 1,018.7 |   |

 

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

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**MUELLER WATER PRODUCTS, INC.UNAUDITED CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

| ** **                                                                         | ** ** | **Three months ended**    | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                         | ** ** | **March 27,  2004**            | ** ** | **April 2,  2005** | ** ** |
| ** **                                                                         | ** ** | **(restated)**                      | ** ** | **(restated)** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**                     | ** ** |
| ** **                                                                         | ** ** | **(dollars in millions)** | ** ** |
| Net sales                                                                          |       |                                | $          | 236.3 |   |   |   | $ | 285.2 |   |   |
| Cost of sales                                                                      |       |                                | 171.4      |   |   |   | 199.0 |   |   |
| Gross profit                                                                       |       |                                | 64.9       |   |   |   | 86.2 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       |                                | 38.4       |   |   |   | 46.0 |   |   |
| Facility  rationalization, restructuring and related costs                         |       |                                | 0.9        |   |   |   | 1.5 |   |   |
| Operating income                                                                   |       |                                | 25.6       |   |   |   | 38.7 |   |   |
| Interest expense  and early repayment costs                                        |       |                                | (6.7       | ) |   |   | (23.5 | ) |   |
| Interest income                                                                    |       |                                | 0.2        |   |   |   | 0.2 |   |   |
| Income before  income taxes                                                        |       |                                | 19.1       |   |   |   | 15.4 |   |   |
| Income tax  expense                                                                |       |                                | 7.7        |   |   |   | 6.2 |   |   |
| Net income                                                                         |       |                                | $          | 11.4 |   |   |   | $ | 9.2 |   |   |

 

| ** **                                                                          | ** ** | **Six months ended**      | ** ** |
|-------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                          | ** ** | **March 27,  2004**            | ** ** | **April 2,  2005** | ** ** |
| ** **                                                                          | ** ** | **(restated)**                      | ** ** | **(restated)** | ** ** |
| ** **                                                                          | ** ** | **(unaudited)**                     | ** ** |
| ** **                                                                          | ** ** | **(dollars in millions)** | ** ** |
| Net sales                                                                           |       |                                | $          | 456.5 |   |   |   | $ | 541.3 |   |   |
| Cost of sales                                                                       |       |                                | 334.7      |   |   |   | 380.9 |   |   |
| Gross profit                                                                        |       |                                | 121.8      |   |   |   | 160.4 |   |   |
| Selling, general  and administrative expense, including stock compensation expense. |       |                                | 75.4       |   |   |   | 87.9 |   |   |
| Facility  rationalization, restructuring and related costs                          |       |                                | 0.9        |   |   |   | 1.6 |   |   |
| Operating income                                                                    |       |                                | 45.5       |   |   |   | 70.9 |   |   |
| Interest expense  and early repayment costs                                         |       |                                | (20.4      | ) |   |   | (44.6 | ) |   |
| Interest income                                                                     |       |                                | 0.4        |   |   |   | 0.6 |   |   |
| Income before  income taxes                                                         |       |                                | 25.5       |   |   |   | 26.9 |   |   |
| Income tax  expense                                                                 |       |                                | 10.2       |   |   |   | 11.0 |   |   |
| Net income                                                                          |       |                                | $          | 15.3 |   |   |   | $ | 15.9 |   |   |

 

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

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**MUELLER WATER PRODUCTS, INC.UNAUDITED CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

| ** **                                                                         | ** ** | **Six months ended**      | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                         | ** ** | **March 27,  2004**            | ** ** | **April 2,  2005** | ** ** |
| ** **                                                                         | ** ** | **(restated)**                      | ** ** | **(restated)** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**                     | ** ** |
| ** **                                                                         | ** ** | **(dollars in millions)** | ** ** |
| **Cash flows from operating  activities**                                          |       |                                |       |   |   |   |   |   |   |
| Net income                                                                         |       |                                | $          | 15.3 |   |   |   | $ | 15.9 |   |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                                |       |   |   |   |   |   |   |
| Depreciation                                                                       |       |                                | 23.2       |   |   |   | 22.6 |   |   |
| Amortization of intangibles and tooling                                            |       |                                | 10.0       |   |   |   | 2.8 |   |   |
| Unrealized gain on interest rate swaps                                             |       |                                | (6.3       | ) |   |   | (2.9 | ) |   |
| All other adjustments                                                              |       |                                | 2.3        |   |   |   | (0.2 | ) |   |
| Changes in assets and  liabilities, net of the effects of acquisitions:            |       |                                |       |   |   |   |   |   |   |
| Receivables                                                                        |       |                                | (14.0      | ) |   |   | (0.6 | ) |   |
| Inventories                                                                        |       |                                | (15.4      | ) |   |   | (42.1 | ) |   |
| Accounts payable and accrued expenses                                              |       |                                | (8.3       | ) |   |   | (3.8 | ) |   |
| All other changes, net                                                             |       |                                | 3.4        |   |   |   | 14.0 |   |   |
| Net cash provided  by operating activities                                         |       |                                | 10.2       |   |   |   | 5.7 |   |   |
| **Cash  flows from investing activities**                                          |       |                                |       |   |   |   |   |   |   |
| Purchase of  property, plant and equipment                                         |       |                                | (11.0      | ) |   |   | (13.6 | ) |   |
| Acquisition of  businesses, net of cash acquired                                   |       |                                | (19.8      | ) |   |   | — |   |   |
| Net cash used in  investing activities                                             |       |                                | (30.8      | ) |   |   | (13.6 | ) |   |
| **Cash  flows from financing activities**                                          |       |                                |       |   |   |   |   |   |   |
| Book cash overdrafts                                                               |       |                                | 5.9        |   |   |   | 4.9 |   |   |
| Proceeds from  short-term borrowings                                               |       |                                | 9.2        |   |   |   | — |   |   |
| Payment of long-term  debt, including capital lease obligations                    |       |                                | (51.8      | ) |   |   | (1.2 | ) |   |
| Payment of  deferred financing fees                                                |       |                                | (0.8       | ) |   |   | — |   |   |
| Net cash provided  by (used in) financing activities                               |       |                                | (37.5      | ) |   |   | 3.7 |   |   |
| Effect of  exchange rate changes on cash                                           |       |                                | 0.4        |   |   |   | 0.6 |   |   |
| Decrease in cash  and cash equivalents                                             |       |                                | (57.7      | ) |   |   | (3.6 | ) |   |
| **Cash  and cash equivalents**                                                     |       |                                |       |   |   |   |   |   |   |
| Beginning of  period                                                               |       |                                | 73.0       |   |   |   | 60.5 |   |   |
| End of period                                                                      |       |                                | $          | 15.3 |   |   |   | $ | 56.9 |   |   |

 

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

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**MUELLERWATER PRODUCTS, INC.NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTSTHREE AND SIX MONTHS ENDED MARCH 27, 2004 AND APRIL 2, 2005(UNAUDITED)**

**1. Basis of Presentation**

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

**2. Restatements**

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

**2005 Restatements**

In the course offinalizing the September 30, 2005 financial statements, the Companydetermined that certain items included in the Statements of Consolidated CashFlows, the Consolidated Statements of Operations and the Consolidated BalanceSheets were not properly classified in annual and interim periods. The interimfinancial statements for the three and six months ended March 27, 2004 andApril 2, 2005, respectively, were restated for the following items:

*Effect of exchangerate changes on cash*

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

*Book cash overdrafts*

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

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*Current andNon-current deferred income taxes*

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

*Misclassificationof depreciation expense*

In interim periodsduring fiscal 2004 and 2005, the Company incorrectly classified certaindepreciation expense amounts as selling, general and administrative expense inthe Consolidated Statements of Operations when it should have been reported ascost of sales.

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

**2004 Restatements**

In November 2004, our Audit Committee wasnotified of alleged potential accounting improprieties concerning ouraccounting for inventory reserves and certain questions concerning revenuerecognition. The Audit Committee appointed an independent law firm toinvestigate the allegations. The report identified several areas requiringfinancial review by the Company principally concerning accounting for excessand obsolete (E&O) inventory, the capitalization of costs relating to aproject that should have been expensed in prior periods, the accrual ofreserves for this project without identifying support for such accruals and thetiming of recognition of revenue with regard to full truckload shipments thatwere not immediately dispatched to customers by certain freight carriers usedby the Company. The Company also identified some additional annual and interimitems recorded in incorrect periods in the course of finalizing the 2004financial statements. In addition, the Company determined that the value itassigned to stock compensation in connection with its April 2004recapitalization should be revised. As a result of these findings, the Companyrestated its annual and interim financial statements.

The interim financialstatements for the three and six months ended March 27, 2004 were restatedfor the following items:

*Inventory valuationadjustments*

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

*Research anddevelopment costs*

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

*Revenue recognitionadjustments*

Revenues related tocertain full-truckload customer shipments which were not immediately dispatchedto customers by certain freight carriers used by the Company originallyrecognized should have 

8

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beendeferred until such time as the trucks were dispatched and the productsdelivered to the customer. The interim financial statements were restated toreflect the recognition of revenue in the proper periods.

*Inventory journalentries*

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

*Intercompany profitelimination*

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

*Deferred financingfees*

Previouslyexpensed financing fees associated with an amendment to our senior creditfacility in the first quarter of 2004 which were expensed should have beencapitalized and amortized over the remaining term of the facility.

*Income tax effectof adjustments*

As a result of the aforementioned adjustments, theincome tax provisions in the interim financial statements were also revised.

Thefollowing tables set forth the effects of the 2005 and 2004 Restatementsdiscussed above on the financial statements as of April 2, 2005 and forthe three and six months ended March 27, 2004 and April 2, 2005 asfollows:

**ConsolidatedStatement of Operations**

| ** **                                                                         | ** ** | **Three months ended  March 27, 2004** | ** ** | **Six months ended  March 27, 2004** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **as originally  reported(A)**                        | ** ** | **as restated  for 2004  Restatements(B)**     | ** ** | **as restated  for 2005  Restatements** | ** ** | **as originally  reported(A)** | ** ** | **as restated  for 2004  Restatements(B)** | ** ** | **as restated  for 2005  Restatements** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**                                            | ** ** | **(unaudited)**                                          | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| ** **                                                                         | ** ** | **(dollars in millions)**                        | ** ** |
| Net sales                                                                          |       |                                                       | $          | 236.9                                                    |       |   |   | $ | 236.3 |   |   |   | $ | 236.3 |   |   |   | $ | 454.9 |   |   |   | $ | 456.5 |   |   |   | $ | 456.5 |   |   |
| Cost of sales                                                                      |       |                                                       | 169.4      |                                                     |       |   | 169.7 |   |   |   | 171.4 |   |   |   | 328.0 |   |   |   | 331.2 |   |   |   | 334.7 |   |   |
| Gross profit                                                                       |       |                                                       | 67.5       |                                                     |       |   | 66.6 |   |   |   | 64.9 |   |   |   | 126.9 |   |   |   | 125.3 |   |   |   | 121.8 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       |                                                       | 40.2       |                                                     |       |   | 40.1 |   |   |   | 38.4 |   |   |   | 79.3 |   |   |   | 78.9 |   |   |   | 75.4 |   |   |
| Facility rationalization  and related costs                                        |       |                                                       | 0.9        |                                                     |       |   | 0.9 |   |   |   | 0.9 |   |   |   | 0.9 |   |   |   | 0.9 |   |   |   | 0.9 |   |   |
| Operating income                                                                   |       |                                                       | 26.4       |                                                     |       |   | 25.6 |   |   |   | 25.6 |   |   |   | 46.7 |   |   |   | 45.5 |   |   |   | 45.5 |   |   |
| Interest expense  and early repayment costs                                        |       |                                                       | (6.7       | )                                                        |       |   | (6.7 | ) |   |   | (6.7 | ) |   |   | (21.2 | ) |   |   | (20.4 | ) |   |   | (20.4 | ) |   |
| Interest income                                                                    |       |                                                       | 0.2        |                                                     |       |   | 0.2 |   |   |   | 0.2 |   |   |   | 0.4 |   |   |   | 0.4 |   |   |   | 0.4 |   |   |
| Income before  income taxes                                                        |       |                                                       | 19.9       |                                                     |       |   | 19.1 |   |   |   | 19.1 |   |   |   | 25.9 |   |   |   | 25.5 |   |   |   | 25.5 |   |   |
| Income tax expense                                                                 |       |                                                       | 8.0        |                                                     |       |   | 7.7 |   |   |   | 7.7 |   |   |   | 10.4 |   |   |   | 10.2 |   |   |   | 10.2 |   |   |
| Net income                                                                         |       |                                                       | $          | 11.9                                                     |       |   |   | $ | 11.4 |   |   |   | $ | 11.4 |   |   |   | $ | 15.5 |   |   |   | $ | 15.3 |   |   |   | $ | 15.3 |   |   |

 

9

----

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

| ** **                              | ** ** | **Three months  ended  March 27, 2004** | ** ** | **Six months  ended  March 27, 2004** | ** ** |
|-----------------------------------------|------------|--------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                              | ** ** | **(unaudited)**                                        | ** ** | **(unaudited)**                                      | ** ** |
| ** **                              | ** ** | **(dollars in millions)**                    | ** ** |
| Net income, as  originally reported(A)  |       |                                                   | $          | 11.9                                                 |       |   |   | $ | 15.5 |   |   |
| Increased  (decreased) pretax earnings: |       |                                                   |       |                                                 |       |   |   |   |   |
| Inventory valuation adjustments         |       |                                                   | (0.1       | )                                                    |       |   | (0.1 | ) |   |
| Research & development costs   |       |                                                   | 0.1        |                                                 |       |   | 0.4 |   |   |
| Revenue recognition adjustments         |       |                                                   | (0.2       | )                                                    |       |   | 0.5 |   |   |
| Inventory journal entries               |       |                                                   | —     |                                                 |       |   | (0.2 | ) |   |
| Intercompany profit elimination         |       |                                                   | (0.6       | )                                                    |       |   | (1.8 | ) |   |
| Deferred financing fees                 |       |                                                   | —     |                                                 |       |   | 0.8 |   |   |
| Total pre-tax  adjustments              |       |                                                   | (0.8       | )                                                    |       |   | (0.4 | ) |   |
| Income tax effect  of adjustments       |       |                                                   | 0.3        |                                                 |       |   | 0.2 |   |   |
| Net income, as  restated(B)             |       |                                                   | $          | 11.4                                                 |       |   |   | $ | 15.3 |   |   |

 

| ** **                                                                         | ** ** | **Three months ended  April 2, 2005** | ** ** | **Six months ended  April 2, 2005** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **as originally  reported(C)**                       | ** ** | **as restated  for 2005  Restatements**       | ** ** | **as originally  reported(C)** | ** ** | **as restated  for 2005  Restatements** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**                                           | ** ** | **(unaudited)**                                         | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| ** **                                                                         | ** ** | **(dollars in millions)**                       | ** ** |
| Cost of sales                                                                      |       |                                                      | $          | 197.3                                                   |       |   |   | $ | 199.0 |   |   |   | $ | 377.5 |   |   |   | $ | 380.9 |   |   |
| Gross profit                                                                       |       |                                                      | $          | 87.9                                                    |       |   |   | $ | 86.2 |   |   |   | $ | 163.8 |   |   |   | $ | 160.4 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       |                                                      | $          | 47.7                                                    |       |   |   | $ | 46.0 |   |   |   | $ | 91.3 |   |   |   | $ | 87.9 |   |   |

 

**ConsolidatedBalance Sheets**

| ** **                                        | ** ** | **September 30, 2004**    | ** ** | **April 2, 2005**                       | ** ** |
|---------------------------------------------------|------------|-------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                        | ** ** | **as originally  reported(C)** | ** ** | **as restated  for 2005  Restatements** | ** ** | **as originally  reported(C)** | ** ** | **as restated  for 2005  Restatements** | ** ** |
| ** **                                        | ** ** | **(unaudited)**                     | ** ** | **(unaudited)**                                   | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| ** **                                        | ** ** | **(dollars in millions)** | ** ** |
| Cash and cash  equivalents                        |       |                                | $          | 55.6                                              |       |   |   | $ | 60.5 |   |   |   | $ | 47.1 |   |   |   | $ | 56.9 |   |   |
| Deferred income  taxes—current               |       |                                | $          | 9.0                                               |       |   |   | $ | 21.8 |   |   |   | $ | 9.9 |   |   |   | $ | 23.5 |   |   |
| Current assets                                    |       |                                | $          | 519.8                                             |       |   |   | $ | 537.5 |   |   |   | $ | 556.0 |   |   |   | $ | 579.4 |   |   |
| Deferred income  taxes—non-current           |       |                                | $          | 21.1                                              |       |   |   | $ | 8.3 |   |   |   | $ | 23.2 |   |   |   | $ | 9.6 |   |   |
| Total assets                                      |       |                                | $          | 984.3                                             |       |   |   | $ | 989.2 |   |   |   | $ | 1,008.9 |   |   |   | $ | 1,018.7 |   |   |
| Accounts payable                                  |       |                                | $          | 52.7                                              |       |   |   | $ | 57.6 |   |   |   | $ | 51.2 |   |   |   | $ | 61.0 |   |   |
| Total current  liabilities                        |       |                                | $          | 141.8                                             |       |   |   | $ | 146.7 |   |   |   | $ | 139.4 |   |   |   | $ | 149.2 |   |   |
| Total liabilities                                 |       |                                | $          | 1,215.0                                           |       |   |   | $ | 1,219.9 |   |   |   | $ | 1,220.3 |   |   |   | $ | 1,230.1 |   |   |
| Total liabilities and  shareholders’ deficit |       |                                | $          | 984.3                                             |       |   |   | $ | 989.2 |   |   |   | $ | 1,008.9 |   |   |   | $ | 1,018.7 |   |   |

 

10

----

**Statementsof Consolidated Cash Flows**

| ** **                                                                   | ** ** | **Six months ended  March 27, 2004** | ** ** | **Six months ended  April 2, 2005** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **as originally  reported(A)**                      | ** ** | **as restated  for 2004  Restatements(B)**    | ** ** | **as restated  for 2005  Restatements** | ** ** | **as originally  reported(C)** | ** ** | **as restated  for 2005  Restatements** | ** ** |
| ** **                                                                   | ** ** | **(unaudited)**                                          | ** ** | **(unaudited)**                                         | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| ** **                                                                   | ** ** | **(dollars in millions)**                      | ** ** |
| **Cash  flows from operating activities:**                                   |       |                                                     |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| All other adjustments                                                        |       |                                                     | $          | 2.5                                                     |       |   |   | $ | 2.3 |   |   |   | $ | 2.3 |   |   |   | $ | (0.1 | ) |   |   | $ | (0.2 | ) |   |
| Receivables                                                                  |       |                                                     | $          | (12.9                                                   | )          |   |   | $ | (14.5 | ) |   |   | $ | (14.0 | ) |   |   | $ | (1.7 | ) |   |   | $ | (0.6 | ) |   |
| Inventories                                                                  |       |                                                     | $          | (18.6                                                   | )          |   |   | $ | (16.3 | ) |   |   | $ | (15.4 | ) |   |   | $ | (43.8 | ) |   |   | $ | (42.1 | ) |   |
| Accounts payable, accrued expenses and other  current liabilities  |       |                                                     | $          | (7.6                                                    | )          |   |   | $ | (7.9 | ) |   |   | $ | (8.3 | ) |   |   | $ | (3.1 | ) |   |   | $ | (3.8 | ) |   |
| Other, net                                                                   |       |                                                     | $          | 3.3                                                     |       |   |   | $ | 3.5 |   |   |   | $ | 3.4 |   |   |   | $ | 13.2 |   |   |   | $ | 14.0 |   |   |
| Cash flows provided by operating activities                                  |       |                                                     | $          | 9.1                                                     |       |   |   | $ | 9.3 |   |   |   | $ | 10.2 |   |   |   | $ | 2.9 |   |   |   | $ | 5.7 |   |   |
| **Cash flows from financing activities:**                                    |       |                                                     |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Book cash overdrafts                                                         |       |                                                     | $          | —                                                  |       |   |   | $ | — |   |   |   | $ | 5.9 |   |   |   | $ | — |   |   |   | $ | 4.9 |   |   |
| Cash flows used in financing activities                                      |       |                                                     | $          | (42.8                                                   | )          |   |   | $ | (43.4 | ) |   |   | $ | (37.5 | ) |   |   | $ | (1.2 | ) |   |   | $ | 3.7 |   |   |
| **Effect of exchange rate changes on cash**                                  |       |                                                     | $          | 1.3                                                     |       |   |   | $ | 1.3 |   |   |   | $ | 0.4 |   |   |   | $ | 3.4 |   |   |   | $ | 0.6 |   |   |
| **Increase (decrease) in cash and cash equivalents**                         |       |                                                     | $          | 63.1                                                    |       |   |   | $ | (63.6 | ) |   |   | $ | (57.7 | ) |   |   | $ | (8.5 | ) |   |   | $ | (3.6 | ) |   |
| **Cash  and cash equivalents—beginning of period**                      |       |                                                     | $          | 71.4                                                    |       |   |   | $ | 71.4 |   |   |   | $ | 73.0 |   |   |   | $ | 55.6 |   |   |   | $ | 60.5 |   |   |
| **Cash  and cash equivalents—end of period**                            |       |                                                     | $          | 8.3                                                     |       |   |   | $ | 7.8 |   |   |   | $ | 15.3 |   |   |   | $ | 47.1 |   |   |   | $ | 56.9 |   |   |

 

11

----

**Segment Information**

| ** **           | ** ** | **Three months ended  March 27, 2004** | ** ** | **Six months ended  March 27, 2004** | ** ** |
|----------------------|------------|------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **           | ** ** | **as originally  reported(A)**                        | ** ** | **as restated  for 2004  Restatements(B)**     | ** ** | **as originally  reported(A)** | ** ** | **as restated  for 2004  Restatements(B)** | ** ** |
| ** **           | ** ** | **(unaudited)**                                            | ** ** | **(unaudited)**                                          | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| ** **           | ** ** | **(dollars in millions)**                        | ** ** |
| Net sales:           |       |                                                       |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Water infrastructure |       |                                                       | $          | 137.8                                                    |       |   |   | $ | 137.2 |   |   |   | $ | 260.3 |   |   |   | $ | 261.9 |   |   |
| Piping systems       |       |                                                       | 99.1       |                                                     |       |   | 99.1 |   |   |   | 194.6 |   |   |   | 194.6 |   |   |
| Consolidated         |       |                                                       | $          | 236.9                                                    |       |   |   | $ | 236.3 |   |   |   | $ | 454.9 |   |   |   | $ | 456.5 |   |   |
| Segment EBITDA:      |       |                                                       |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Water infrastructure |       |                                                       | $          | 36.6                                                     |       |   |   | $ | 36.4 |   |   |   | $ | 66.2 |   |   |   | $ | 67.0 |   |   |
| Piping systems       |       |                                                       | 8.8        |                                                     |       |   | 8.2 |   |   |   | 18.0 |   |   |   | 16.0 |   |   |
| Total segment EBITDA |       |                                                       | $          | 45.4                                                     |       |   |   | $ | 44.6 |   |   |   | $ | 84.2 |   |   |   | $ | 83.0 |   |   |
| Operating income:    |       |                                                       |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Water infrastructure |       |                                                       | $          | 30.5                                                     |       |   |   | $ | 30.3 |   |   |   | $ | 54.0 |   |   |   | $ | 54.8 |   |   |
| Piping systems       |       |                                                       | 4.5        |                                                     |       |   | 3.9 |   |   |   | 9.6 |   |   |   | 7.6 |   |   |
| Corporate            |       |                                                       | (8.6       | )                                                        |       |   | (8.6 | ) |   |   | (16.9 | ) |   |   | (16.9 | ) |   |
| Consolidated         |       |                                                       | $          | 26.4                                                     |       |   |   | $ | 25.6 |   |   |   | $ | 46.7 |   |   |   | $ | 45.5 |   |   |

 

| ** **           | ** ** | **At September 30, 2004** | ** ** | **At April 2, 2005**               | ** ** |
|----------------------|------------|------------------------------------------|------------|---------------------------------------------------|------------|
| ** **           | ** ** | **as originally  reported(C)**      | ** ** | **as restated  for 2005  Restatements** | ** ** | **as originally  reported(C)** | ** ** | **as restated  for 2005  Restatements** | ** ** |
| ** **           | ** ** | **(unaudited)**                          | ** ** | **(unaudited)**                                   | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| ** **           | ** ** | **(dollars in millions)**      | ** ** |                                              |
| Total assets:        |       |                                     |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Water infrastructure |       |                                     | $          | 500.0                                             |       |   |   | $ | 500.0 |   |   |   | $ | 508.6 |   |   |   | $ | 508.6 |   |   |   |
| Piping systems       |       |                                     | 307.9      |                                              |       |   | 307.9 |   |   |   | 325.5 |   |   |   | 325.5 |   |   |   |
| Corporate            |       |                                     | 176.4      |                                              |       |   | 181.3 |   |   |   | 174.8 |   |   |   | 184.6 |   |   |   |
| Consolidated         |       |                                     | $          | 984.3                                             |       |   |   | $ | 989.2 |   |   |   | $ | 1,008.9 |   |   |   | $ | 1,018.7 |   |   |   |

----

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

(B)        The 2004 Restatements wereinitially presented in the original fiscal year 2005 Form 10-Qfilings. No previous Form 10-Q/A’s were filed for the 2004Restatements.

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

12

----

**3. Segment Information**

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

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

13

----

The Companyevaluates segment performance based on segment EBITDA. Segment EBITDA isdefined as net income plus income tax expense, interest expense (not net ofinterest income), depreciation and amortization expense. Segment assets consistprimarily of accounts receivable, inventories, property, plant and equipment—net,goodwill, and identifiable intangibles. Summarized financial information forour segments follows:

| ** **                         | ** ** | **Three months  ended  March 27, 2004** | ** ** | **Three months  ended  April 2, 2005** | ** ** | **Six months  ended  March 27, 2004** | ** ** | **Six months  ended  April 2, 2005** | ** ** |
|------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                         | ** ** | **(restated)**                                         | ** ** | ** **                                            | ** ** | **(restated)**                                       | ** ** | ** **                                          | ** ** |
| **Net Sales:**                     |       |                                                   |       |                                                  |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Water  infrastructure              |       |                                                   | $          | 137.2                                                 |       |                                                 |       | $                                                   | 170.1      |   |   |   | $ | 261.9 |   |   |   | $ | 308.7 |   |   |
| Piping systems                     |       |                                                   | 99.1       |                                                  |       |                                                 | 115.1      |                                                |       |   | 194.6 |   |   |   | 232.6 |   |   |
| Consolidated                       |       |                                                   | 236.3      |                                                  |       |                                                 | 285.2      |                                                |       |   | 456.5 |   |   |   | 541.3 |   |   |
| **Intersegment sales:**            |       |                                                   |       |                                                  |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Water  infrastructure              |       |                                                   | 3.1        |                                                  |       |                                                 | 3.4        |                                                |       |   | 6.1 |   |   |   | 6.8 |   |   |
| Piping systems                     |       |                                                   | 0.2        |                                                  |       |                                                 | 0.1        |                                                |       |   | 0.3 |   |   |   | 0.3 |   |   |
| Consolidated                       |       |                                                   | 3.3        |                                                  |       |                                                 | 3.5        |                                                |       |   | 6.4 |   |   |   | 7.1 |   |   |
| **Segment EBITDA:**                |       |                                                   |       |                                                  |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Water  infrastructure              |       |                                                   | 36.4       |                                                  |       |                                                 | 44.4       |                                                |       |   | 67.0 |   |   |   | 79.2 |   |   |
| Piping systems                     |       |                                                   | 8.2        |                                                  |       |                                                 | 14.2       |                                                |       |   | 16.0 |   |   |   | 30.3 |   |   |
| Total segment  EBITDA              |       |                                                   | 44.6       |                                                  |       |                                                 | 58.6       |                                                |       |   | 83.0 |   |   |   | 109.5 |   |   |
| **Depreciation and amortization:** |       |                                                   |       |                                                  |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Water  infrastructure              |       |                                                   | 6.1        |                                                  |       |                                                 | 6.0        |                                                |       |   | 12.2 |   |   |   | 12.0 |   |   |
| Piping systems                     |       |                                                   | 4.3        |                                                  |       |                                                 | 4.3        |                                                |       |   | 8.4 |   |   |   | 8.6 |   |   |
| Corporate                          |       |                                                   | 6.3        |                                                  |       |                                                 | 2.5        |                                                |       |   | 12.6 |   |   |   | 4.8 |   |   |
| Consolidated                       |       |                                                   | 16.7       |                                                  |       |                                                 | 12.8       |                                                |       |   | 33.2 |   |   |   | 25.4 |   |   |
| **Impairment charges:**            |       |                                                   |       |                                                  |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Water  infrastructure              |       |                                                   | —     |                                                  |       |                                                 | —     |                                                |       |   | — |   |   |   | — |   |   |
| Piping systems                     |       |                                                   | 0.1        |                                                  |       |                                                 | —     |                                                |       |   | 0.1 |   |   |   | — |   |   |
| Corporate                          |       |                                                   | —     |                                                  |       |                                                 | —     |                                                |       |   | — |   |   |   | — |   |   |
| Consolidated                       |       |                                                   | 0.1        |                                                  |       |                                                 | —     |                                                |       |   | 0.1 |   |   |   | — |   |   |
| **Capital expenditures:**          |       |                                                   |       |                                                  |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Water  infrastructure              |       |                                                   | 3.6        |                                                  |       |                                                 | 6.2        |                                                |       |   | 6.2 |   |   |   | 9.0 |   |   |
| Piping systems                     |       |                                                   | 2.9        |                                                  |       |                                                 | 2.1        |                                                |       |   | 4.8 |   |   |   | 3.9 |   |   |
| Corporate                          |       |                                                   | —     |                                                  |       |                                                 | 0.6        |                                                |       |   | — |   |   |   | 0.7 |   |   |
| Consolidated                       |       |                                                   | 6.5        |                                                  |       |                                                 | 8.9        |                                                |       |   | 11.0 |   |   |   | 13.6 |   |   |
|                                    |            |                                                        |            |                                                       |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

14

----

 

| ** **                    | ** ** | **At September 30, 2004** | ** ** | **At April 2, 2005** | ** ** |
|-------------------------------|------------|------------------------------------------|------------|-------------------------------------|------------|
| ** **                    | ** ** | **(restated)**                           | ** ** | **(restated)**                      | ** ** |
| **Total assets:**             |       |                                     |       |                                |       |   |   |   |   |
| Water  infrastructure         |       |                                     | $          | 500.0                               |       |   |   | $ | 508.6 |   |   |
| Piping systems                |       |                                     | 307.9      |                                |       |   | 325.5 |   |   |
| Corporate                     |       |                                     | 181.3      |                                |       |   | 184.6 |   |   |
| Consolidated                  |       |                                     | 989.2      |                                |       |   | 1,018.7 |   |   |
| **Goodwill:**                 |       |                                     |       |                                |       |   |   |   |   |
| Water  infrastructure         |       |                                     | 149.1      |                                |       |   | 149.1 |   |   |
| Piping systems                |       |                                     | 14.1       |                                |       |   | 14.1 |   |   |
| Consolidated                  |       |                                     | 163.2      |                                |       |   | 163.2 |   |   |
| **Identifiable intangibles:** |       |                                     |       |                                |       |   |   |   |   |
| Water  infrastructure         |       |                                     | 5.3        |                                |       |   | 4.9 |   |   |
| Piping systems                |       |                                     | 7.2        |                                |       |   | 6.2 |   |   |
| Corporate                     |       |                                     | 42.7       |                                |       |   | 42.7 |   |   |
| Consolidated                  |       |                                     | 55.2       |                                |       |   | 53.8 |   |   |
|                               |            |                                          |            |                                     |            |  |  |  |  |  |  |

 

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

| ** **                                  | ** ** | **Three months  ended  March 27, 2004** | ** ** | **Three months  ended  April 2, 2005** | ** ** | **Six months  ended  March  27, 2004** | ** ** | **Six months  ended  April 2, 2005** | ** ** |
|---------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                  | ** ** | **(restated)**                                         | ** ** | ** **                                            | ** ** | **(restated)**                                             | ** ** | ** **                                          | ** ** |
| Total segment  EBITDA                       |       |                                                   | $          | 44.6                                                  |       |                                                       |       | $                                                   | 58.6       |   |   |   | $ | 83.0 |   |   |   | $ | 109.5 |   |   |
| Unallocated  corporate costs                |       |                                                   | (2.1       | )                                                     |       |                                                       | (6.9       | )                                                   |       |   | (3.9 | ) |   |   | (12.6 | ) |   |
| Interest expense  and early repayment costs |       |                                                   | (6.7       | )                                                     |       |                                                       | (23.5      | )                                                   |       |   | (20.4 | ) |   |   | (44.6 | ) |   |
| Depreciation and  amortization              |       |                                                   | (16.7      | )                                                     |       |                                                       | (12.8      | )                                                   |       |   | (33.2 | ) |   |   | (25.4 | ) |   |
| Income before income  taxes                 |       |                                                   | $          | 19.1                                                  |       |                                                       |       | $                                                   | 15.4       |   |   |   | $ | 25.5 |   |   |   | $ | 26.9 |   |   |

 

Geographicalarea information with respect to net sales, as determined by the location ofthe customer invoiced, and property, plant and equipment—net, as determined bythe physical location of the assets, were as follows for the three and sixmonths ended March 27, 2004 and April 2, 2005:

| ** **      | ** ** | **Three months  ended  March 27, 2004** | ** ** | **Three months  ended  April 2, 2005** | ** ** | **Six months  ended  March 27, 2004** | ** ** | **Six months  ended  April 2, 2005** | ** ** |
|-----------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **      | ** ** | **(restated)**                                         | ** ** | ** **                                            | ** ** | **(restated)**                                       | ** ** | ** **                                          | ** ** |
| Net sales:      |       |                                                   |       |                                                  |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| United States   |       |                                                   | $          | 195.7                                                 |       |                                                 |       | $                                                   | 237.7      |   |   |   | $ | 382.0 |   |   |   | $ | 448.1 |   |   |
| Canada          |       |                                                   | 38.3       |                                                  |       |                                                 | 44.9       |                                                |       |   | 70.2 |   |   |   | 89.3 |   |   |
| Other Countries |       |                                                   | 2.3        |                                                  |       |                                                 | 2.6        |                                                |       |   | 4.3 |   |   |   | 3.9 |   |   |
|            |       |                                                   | $          | 236.3                                                 |       |                                                 |       | $                                                   | 285.2      |   |   |   | $ | 456.5 |   |   |   | $ | 541.3 |   |   |

 

| ** **                           | ** ** | **At September 30, 2004** | ** ** | **At April 2, 2005** | ** ** |
|--------------------------------------|------------|------------------------------------------|------------|-------------------------------------|------------|
| Property, plant and  equipment, net: |       |                                     |       |                                |       |   |   |   |   |
| United States                        |       |                                     | $          | 173.7                               |       |   |   | $ | 163.9 |   |   |
| Canada                               |       |                                     | 11.7       |                                |       |   | 11.8 |   |   |
| Other Countries                      |       |                                     | 1.4        |                                |       |   | 1.4 |   |   |
|                                 |       |                                     | $          | 186.8                               |       |   |   | $ | 177.1 |   |   |

** **

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**4. Summary ofSignificant Accounting Policies**

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

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

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

| ** **                      | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|---------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                      | ** ** | **March 27, 2004**     | ** ** | **April 2, 2005**    | ** ** | **March 27, 2004** | ** ** | **April 2, 2005** | ** ** |
| Balance at beginning  of period |       |                             | $          | 1.1                            |       |   |   | $ | 1.3 |   |   |   | $ | 0.9 |   |   |   | $ | 1.6 |   |   |
| Accruals for  warranties        |       |                             | 1.8        |                           |       |   | 0.5 |   |   |   | 2.5 |   |   |   | 1.1 |   |   |
| Settlement of  warranty claims  |       |                             | (2.0       | )                              |       |   | (0.4 | ) |   |   | (2.5 | ) |   |   | (1.3 | ) |   |
| Balance at end of period        |       |                             | $          | 0.9                            |       |   |   | $ | 1.4 |   |   |   | $ | 0.9 |   |   |   | $ | 1.4 |   |   |

 

Comprehensive Income—The Company’s comprehensiveincome for the three months ended March 27, 2004, and April 2, 2005includes foreign currency translation losses of $(0.8) million and$(0.6) million, respectively. The Company’s comprehensive income for thesix months ended March 27, 2004 and April 2, 2005 includes foreigncurrency translation gains of $1.3 million and $3.4 million,respectively.

Related Party Transactions—Substantiallyall of the outstanding shares of our common stock are held by the Donaldson,Lufkin & Jenrette (“DLJ”) Merchant Banking funds. We pay DLJ an annualadvisory fee in connection with a financial advisory agreement. Credit SuisseFirst Boston LLC, an affiliate of DLJ, has received and will receive customaryfees and reimbursement of expenses in connection with the arrangement andsyndication of Group’s senior credit facility and as a lender and agentthereunder. The aggregate amount of all fees incurred by the Company with theserelated parties in connection with advisory services and financing arrangementswas approximately $0.1 million for each of the three-month periodsended March 27, 2004 and April 2, 2005 and $0.5 million and$0.2 million for the six-month periods ended March 27, 2004 andApril 2, 2005, respectively.

**5. Acquisitions**

Effective January 15, 2004, the Company acquiredcertain assets of Star Pipe, Inc. (“Star”). The acquisition was accountedfor in accordance with SFAS No. 141 and the operating results wereincluded in the consolidated results since the date of acquisition. Star is aleading distributor of foreign-sourced cast and grooved fittings andcouplings. The Star acquisition provides an entry into the foreign-sourcedproduct marketplace. The acquisition’s purchase price was $17 million, andwas paid in cash.

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

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

 

As part of the acquisition, the Company has agreed toa future payment to be made to the seller to the extent that the gross profitof the acquired business exceeds a targeted gross profit. The maximum potentialdeferred payment amount is $23 million. Management currently estimates thedeferred payment could total approximately $3 to $6 million for thedeferred payment period which begins February 1, 2004 and ends January 31,2007. The deferred payment amount indicated above is based on management’s bestestimate, but the actual adjustment could be materially different. Theliability for such deferred payment will be recorded at the end of eachdeferred payment period, in accordance with the purchase agreement. No deferredpayment was earned in 2004.

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

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

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

| **(dollars in millions)**   | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|------------|------------|------------|------------|
| Current assets                        |       | $          | 0.2        |       |
| Property,  plant & equipment |       | 0.7        |       |
| Intangible assets                     |       | 1.9        |       |
| Net assets acquired                   |       | $          | 2.8        |       |

 

Theintangible assets acquired include a non-compete agreement with the formerowners and purchased technology. These intangibles are being amortized overtheir estimated useful lives of five years.

The following unauditedpro forma summary presents the consolidated results of operations for the threeand six months ended March 27, 2004 as if the acquisitions of Star andModern Molded had occurred as of October 1, 2003:

| ** ** | ** ** | **Three months ended**    | ** ** | **Six months ended** | ** ** |
|------------|------------|-------------------------------------|------------|--------------------------------|------------|
| ** ** | ** ** | **March 27, 2004**        | ** ** | **March 27, 2004**   | ** ** |
| ** ** | ** ** | **(dollars in millions)** | ** ** |
| Net Sales  |       |                                | $          | 237.4                          |       |   |   | $ | 463.9 |   |   |
| Net income |       |                                | 11.4       |                           |       |   | 15.5 |   |   |

 

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The unaudited consolidatedpro forma information is not necessarily indicative of the combined resultsthat would have occurred had the acquisitions occurred on that date, nor is itindicative of the results that may occur in the future.

**6. New Accounting Pronouncements**

In December 2004, the Financial AccountingStandards Board issued SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R) replacesSFAS No. 123, “Accounting for Stock-Based Compensation,” andsupersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.”SFAS No. 123(R) requires compensation costs related to share-basedpayment transactions to be recognized in the financial statements over theperiod that an employee provides service in exchange for the award. Publiccompanies are required to adopt the new standard using a modified prospectivemethod and may elect to restate prior periods using the modified retrospectivemethod. Under the modified prospective method, companies are required to recordcompensation cost for new and modified awards over the related vesting periodof such awards prospectively and record compensation cost prospectively for theunvested portion, at the date of adoption, of previously issued and outstandingawards over the remaining vesting period of such awards. No change to priorperiods presented is permitted under the modified prospective method. Under themodified retrospective method, companies record compensation costs for priorperiods retroactively through restatement of such periods using the exact proforma amounts disclosed in the companies’ footnotes. Also, in the period ofadoption and after, companies record compensation based on the modifiedprospective method. SFAS No. 123(R), as amended in April 2005 forcompliance dates, allows companies to implement the standard at the beginningof their next fiscal year. The Company plans to adopt SFAS No. 123(R) asof October 1, 2005, the beginning of its next fiscal year and to use themodified prospective method. The adoption of SFAS 123(R) is notexpected to have a material impact on the Company’s financial statements, asall options previously outstanding have been cancelled as part of the April 2004recapitalization.

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

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

18

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

**7. Long-TermDebt**

| ** **                            | ** ** | **September 30, 2004**    | ** ** | **April 2, 2005** | ** ** |
|---------------------------------------|------------|-------------------------------------|------------|-----------------------------|------------|
| ** **                            | ** ** | **(dollars in millions)** | ** ** |
| Senior credit  facility term loans    |       |                                | $          | 515.0                       |       |   |   | $ | 514.3 |   |   |
| Second Priority  Senior Secured Notes |       |                                | 100.0      |                        |       |   | 100.0 |   |   |
| 10% Senior  Subordinated Notes        |       |                                | 315.0      |                        |       |   | 315.0 |   |   |
| 143¤4%  Senior discount notes(1) |       |                                | 106.8      |                        |       |   | 116.0 |   |   |
| Capital lease  obligations            |       |                                | 2.6        |                        |       |   | 2.4 |   |   |
|                                  |       |                                | 1,039.4    |                        |       |   | 1,047.7 |   |   |
| Less current  portion                 |       |                                | (3.2       | )                           |       |   | (3.9 | ) |   |
|                                  |       |                                | $          | 1,036.2                     |       |   |   | $ | 1,043.8 |   |   |

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(1)          The accreted value ofthe 143¤4%senior discount notes is reduced by $9.6 million (net of $0.9 millionof amortization) to reflect the fair market value assigned to the warrants soldas units with these notes. The fair market value assigned to the warrants isreflected in stockholders’ equity.

Interest Rate Swaps—Grouphas entered into interest rate swap agreements in order to reduce interest raterisks and manage interest expense. As of April 2, 2005, a notionalprincipal amount of $100.0 million in swap agreements was stilloutstanding and scheduled to mature in May 2005 and July 2005. Theswap agreements effectively convert floating-rate debt into fixed-rate debt andcarried an average fixed interest rate of 7.52% at April 2, 2005. Interestdifferentials to be paid or received because of swap agreements are reflectedas an adjustment to interest expense over the related debt period. At April 2,2005 and September 30, 2004, the fair value of interest rate swaps was aliability of $1.7 million and $4.7 million, respectively, and hasbeen recorded in Other Long-Term Liabilities on the Consolidated BalanceSheets.

**8. Redeemable Common Stock**

Group has entered into anemployment agreement with Dale B. Smith, the Company’s and Group’sPresident and Chief Executive Officer. This agreement, in certaincircumstances, gives Mr. Smith the right to sell to the Company, at aprice equal to the fair market value of his equity interests as of the date ofsuch sale or purchase, his shares of the Company’s common stock. The Companyhas classified an amount representing the initial fair value of the redeemableshares of its common stock owned by Mr. Smith outside of permanent equity.At September 30, 2004 and April 2, 2005, Mr. Smith beneficiallyowned approximately 9.2 million Class A common shares. These sharesof common stock have not been marked-to-market as the circumstances that wouldgive rise to Mr. Smith’s right to sell, and the Company’s obligation topurchase Mr. Smith’s shares of common stock, are considered remotecurrently.

**9. Commitments and Contingencies**

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

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

Certain of our products contain lead. Environmentaladvocacy groups, relying on standards established by California’s Proposition65, are seeking to eliminate or reduce the content of lead in some of ourproducts offered for sale in California. In certain cases, we have entered intosettlement agreements with these environmental advocacy groups to modify ourproducts or offer substitutes. Further, similar issues may be raised by otheradvocacy groups in other jurisdictions under Proposition 65.

Over the next two to three years, the Company expectsto incur between $2.0 million and $6.0 million of capital costs at its steeland iron foundries to comply with the United States Environmental ProtectionAgency’s National Emissions Standards for Hazardous Air Pollutants which wereissued April 22, 2004.

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

On March 31, 2004, the Company’s subsidiary,Anvil International, entered into a consent order with the Georgia Departmentof Natural Resources regarding various alleged hazardous waste violations atthe Statesboro, Georgia site formerly operated by Anvil. Pursuant to theconsent order, Anvil paid 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 atthe site and its landfill. During the second quarter of 2005, investigatoryprocedures were performed that resulted in management’s decision to performremediation and book an additional $0.4 million to the reserve relating tothis remediation. While the ultimate investigatory and remedial costs arecurrently unknown, the total costs are estimated to be between$1.2 million and $1.4 million. The Company maintains an adequatereserve to cover these estimated costs.

In November 2003, Beck Manufacturing, a divisionof Anvil International, closed its manufacturing facility in Kearny, NJ, andwithdrew from the Teamsters Local 11 Pension Fund (“Teamsters” or “Fund”).Anvil has established an accrual of $0.2 million for any withdrawalliability. On July 19, 2004, the Fund Trustees issued notice to Anvilthat, pursuant to ERISA Sections 4202 and 4219(b)(1), Anvil owedapproximately $1.2 million in withdrawal liability to the Fund. On October 5,2004, Anvil sent notice to the Teamsters contesting the amount of thewithdrawal liability. The Teamsters gave notice of their plan to appeal andpursue arbitration under the guidelines set out in the Teamsters TrustAgreement. Anvil has filed an arbitration demand and intends to vigorouslydefend its position that a substantially lower withdrawal liability isappropriate.

As part of the Star acquisition, the Company hasagreed to a future payment to be made to the seller to the extent that thegross profit of the acquired business exceeds a targeted gross profit. Themaximum potential deferred payment amount is $23 million. Managementcurrently estimates the deferred payment could total approximately $3 to $6million for the deferred payment period that begins February 1, 2004 andends January 31, 2007. The deferred payment amount indicated above isbased on management’s best estimate, but the annual adjustment could bematerially different. The liability for such deferred payment 

20

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will be recorded at the endof each deferred payment period, in accordance with the purchase agreement. Nodeferred payment was earned in 2004.

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

**10. NetPeriodic Benefit Cost—Defined Benefit Plans**

For a detailed disclosure on the Company’s pension andemployee benefits plans, please refer to Note 13 of the Company’s AuditedConsolidated Financial Statements for the year ended September 30, 2004,as found on Form 10-K (File No. 333-116590).

The following sets forth the components of netperiodic benefit cost of the domestic non-contributory defined benefit plansfor the three months and the six months ended March 27, 2004 and April 2,2005:

| ** **                          | ** ** | **Three months ended**    | ** ** | **Six months ended** | ** ** |
|-------------------------------------|------------|-------------------------------------|------------|--------------------------------|------------|
| ** **                          | ** ** | **March 27,  2004**            | ** ** | **April 2,  2005**        | ** ** | **March 27,  2004** | ** ** | **April 2,  2005** | ** ** |
| ** **                          | ** ** | **(dollars in millions)** | ** ** |
| Service cost                        | ** ** |                                | $          | 0.5                            | ** ** |   |   | $ | 0.7 | ** ** |   |   | $ | 1.0 | ** ** |   |   | $ | 1.5 | ** ** |   |
| Interest cost                       |       |                                | 1.4        |                           |       |   | 1.4 |   |   |   | 2.8 |   |   |   | 2.7 |   |   |
| Expected return  on plan assets     |       |                                | (1.1       | )                              |       |   | (1.2 | ) |   |   | (2.3 | ) |   |   | (2.5 | ) |   |
| Amortization of  prior service cost |       |                                | —     |                           |       |   | — |   |   |   | — |   |   |   | 0.1 |   |   |
| Amortization of  net actuarial loss |       |                                | 0.6        |                           |       |   | 0.6 |   |   |   | 1.3 |   |   |   | 1.3 |   |   |
| Net periodic benefit  cost          |       |                                | $          | 1.4                            |       |   |   | $ | 1.5 |   |   |   | $ | 2.8 |   |   |   | $ | 3.1 |   |   |

 

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

**11. SupplementaryBalance Sheet Information**

Selectedsupplementary balance sheet information is presented below:

| ** **                                  | ** ** | **September 30,  2004**        | ** ** | **April 2,  2005** | ** ** |
|---------------------------------------------|------------|-------------------------------------|------------|-------------------------|------------|
| ** **                                  | ** ** | **(dollars in millions)** | ** ** |
| **Inventories**                             | ** ** |                                | ** ** | ** **              |       | ** ** | ** ** |
| Purchased  materials and manufactured parts |       |                                | $          | 41.1                    | ** ** |   | $ | 48.3 |   |
| Work in process                             |       |                                | 67.3       | ** **              |       | 76.4 |   |
| Finished goods                              |       |                                | 151.8      | ** **              |       | 179.3 |   |
|                                        |       |                                | $          | 260.2                   | ** ** |   | $ | 304.0 |   |

 

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**12. SupplementaryIncome Statement Information**

Thecomponents of interest expense are presented below:

| ** **                                        | ** ** | **Three months ended**    | ** ** | **Six months ended** | ** ** |
|---------------------------------------------------|------------|-------------------------------------|------------|--------------------------------|------------|
| ** **                                        | ** ** | **March 27,  2004**            | ** ** | **April 2,  2005**        | ** ** | **March 27,  2004** | ** ** | **April 2,  2005** | ** ** |
| ** **                                        | ** ** | **(dollars in millions)** | ** ** |
| **Interest expense and early  repayment costs:**  | ** ** |                                | ** ** | ** **                     |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Contractual interest expense                      |       |                                | $          | 8.7                            |       |   |   | $ | 22.7 |   |   |   | $ | 18.0 |   |   |   | $ | 44.9 |   |   |
| Deferred financing fee amortization               |       |                                | 0.6        |                           |       |   | 1.4 |   |   |   | 1.3 |   |   |   | 2.6 |   |   |
| Senior subordinated debt early redemption penalty |       |                                | —     |                           |       |   | — |   |   |   | 7.0 |   |   |   | — |   |   |
| Write off of deferred financing fees              |       |                                | —     |                           |       |   | — |   |   |   | 0.4 |   |   |   | — |   |   |
| Interest rate swap gains                          |       |                                | (2.6       | )                              |       |   | (0.6 | ) |   |   | (6.3 | ) |   |   | (2.9 | ) |   |
| Total interest expense  and early repayment costs |       |                                | $          | 6.7                            |       |   |   | $ | 23.5 |   |   |   | $ | 20.4 |   |   |   | $ | 44.6 |   |   |

 

Areconciliation of net income available to common shareholders is as follows:

| ** **                                                                                        | ** ** | **Three months ended**    | ** ** | **Six months ended** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                        | ** ** | **March 27, 2004**        | ** ** | **April 2, 2005**    | ** ** | **March 27, 2004** | ** ** | **April 2, 2005** | ** ** |
| ** **                                                                                        | ** ** | **(restated)**                      | ** ** | ** **                     | ** ** | **(restated)** | ** ** | ** ** | ** ** |
| ** **                                                                                        | ** ** | **(dollars in millions)** | ** ** |
| Net income                                                                                        |       |                                | $          | 11.4                           |       |   |   | $ | 9.2 |   |   |   | $ | 15.3 |   |   |   | $ | 15.9 |   |   |
| Less preferred  share accretion related to redeemable preferred stock retired in  April 2004 |       |                                | (4.1       | )                              |       |   | — |   |   |   | (8.0 | ) |   |   | — |   |   |
| Net income available to  common shareholders                                                      |       |                                | $          | 7.3                            |       |   |   | $ | 9.2 |   |   |   | $ | 7.3 |   |   |   | $ | 15.9 |   |   |

 

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

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

For the three months endedMarch 27, 2004, the Company recorded a charge of $0.1 million relatedto asset impairment for write-offs at piping systems facilities that wereclosed in Norcross, Georgia and Kearny, New Jersey, $0.3 million relatedto environmental issues at the piping systems closed facility in Statesboro,Georgia (see Note 9), and $0.5 million related to future leaseobligations at the closed and vacated Kearny, New Jersey facility.

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

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

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

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

These forward looking statements are subject to anumber of risks and uncertainties, including but not limited to: the Company’sability to continue long-standing relationships with major customers; increasedcompetition; demand for and market acceptance of new and existing products inthe markets we serve; adverse changes in currency exchange rates or rawmaterial prices, specifically steel scrap, steel pipe and brass ingot;unanticipated developments that could occur with respect to contingencies suchas litigation, product liability exposures and environmental matters; theCompany’s ability to integrate acquired businesses into its operations; andother risks and uncertainties that affect the manufacturing sector generallyincluding, but not limited to, economic, political, governmental andtechnological factors affecting the Company’s operations, markets, products,services and prices.

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

**Overview**

We are a leading North American manufacturer of abroad range of flow control products for use in water distribution, water andwastewater treatment facilities, gas distribution systems and piping systemsand maintain a large installed base of products. We are comprised of twosegments: water infrastructure, a leading manufacturer of hydrants, valves andother products for use in water and gas distribution systems; and pipingsystems, a leading manufacturer of fittings, pipe hangers and other productsfor use in piping system applications.

Our business strategy continues to be focused onsustaining our market leadership and competitive differentiation, while growingrevenues and enhancing profitability.

Results for the second quarter and first six months of2005 reflected continued strong performance in the residential constructionmarket, as well as the full effect of the pricing increases implemented in thesecond half of 2004 and early 2005. Both our water infrastructure and pipingsystems segments reported improvements in net sales, gross profit and operatingincome in the three months and the six months ended April 2, 2005 ascompared to the three months and six months ended March 27, 2004.

23

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The Company incurred asignificant amount of additional indebtedness in connection with itsrecapitalization in April 2004. New debt associated with therecapitalization added $14.8 million and $28.2 million of interestexpense in the three and six month periods ended April 2, 2005 as comparedto the similar fiscal periods in 2004.

**Restatements**

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

**2005 Restatements**

In the course offinalizing the September 30, 2005 financial statements, the Companydetermined that certain items included in the Statements of Consolidated CashFlows, the Consolidated Statements of Operations and the Consolidated BalanceSheets were not properly classified in annual and interim periods. As a resultof these findings, the Company has restated its financial statements in this Form 10-Q/A.See Note 2 to the Consolidated Financial Statements. The 2005 Restatements hadno impact on the Company’s consolidated net income or the Consolidated Statementof Stockholders’ Deficit for any of the prior periods presented.

**2004 Restatements**

In November 2004, ourAudit Committee was notified of alleged potential accounting improprietiesconcerning our accounting for inventory reserves and certain questionsconcerning revenue recognition. The Audit Committee appointed an independentlaw firm to investigate the allegations. In January 2005, the independentlaw firm issued an investigative report that identified several areas requiringfinancial review by the Company. These areas principally concerned accountingfor excess and obsolete (E&O) inventory, the capitalization of costsrelating to a project that should have been expensed in prior periods, theaccrual of reserves for this project without identifying support for suchaccruals and the timing of recognition of revenue with regard to full truckloadshipments that were not immediately dispatched to customers by certain freightcarriers used by the Company. The Company also identified some additionalannual and interim items recorded in incorrect periods in the course offinalizing the 2004 financial statements. In addition, the Company determinedthat the value it assigned to stock compensation in connection with itsApril 2004 recapitalization should be revised. As a result of thesefindings, the Company restated its annual financial statements for its 2002 and2003 fiscal years and its interim financial statements for its 2004 fiscalyear.

24

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**Results of Operations**

***Three Months Ended April 2,2005 As Compared to the Three Months Ended March 27, 2004***

| ** **                                                                              | ** ** | **Three months ended**    | ** ** | **FY05 Q2 vs. FY04 Q2** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                              | ** ** | **April 2,  2005**             | ** ** | **Percentage  of net  sales(2)**       | ** ** | **March 27,  2004** | ** ** | **Percentage  of net  sales(2)** | ** ** | **Increase/  (decrease)** | ** ** | **Change in  percentage  of  net sales** | ** ** |
| ** **                                                                              | ** ** | **(restated)**                      | ** ** | ** **                                  | ** ** | **(restated)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                              | ** ** | **(dollars in millions)** | ** ** |
| **Net sales**                                                                           | ** ** |                                | ** ** | ** **                                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | $          | 170.1                                       |       |   |   | 59.6 | % |   |   | $ | 137.2 |   |   |   | 58.1 | % |   |   | $ | 32.9 |   |   |   | 1.5 | % |   |
| Piping systems                                                                          |       |                                | 115.1      |                                        |       |   | 40.4 |   |   |   | 99.1 |   |   |   | 41.9 |   |   |   | 16.0 |   |   |   | (1.5 | ) |   |
| Consolidated                                                                            |       |                                | 285.2      |                                        |       |   | 100.0 |   |   |   | 236.3 |   |   |   | 100.0 |   |   |   | 48.9 |   |   |   | — |   |   |
| **Gross profit**                                                                        | ** ** |                                | ** ** | ** **                                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 56.8       |                                        |       |   | 33.4 |   |   |   | 44.2 |   |   |   | 32.2 |   |   |   | 12.6 |   |   |   | 1.2 |   |   |
| Piping systems                                                                          |       |                                | 31.1       |                                        |       |   | 27.0 |   |   |   | 22.4 |   |   |   | 22.6 |   |   |   | 8.7 |   |   |   | 4.4 |   |   |
| Depreciation expense not allocated to segments                                          |       |                                | (1.7       | )                                           |       |   | (0.6 | ) |   |   | (1.7 | ) |   |   | (0.7 | ) |   |   | — |   |   |   | 0.1 |   |   |
| Consolidated                                                                            |       |                                | 86.2       |                                        |       |   | 30.2 |   |   |   | 64.9 |   |   |   | 27.5 |   |   |   | 21.3 |   |   |   | 2.7 |   |   |
| **Selling, general and  administrative expenses, including stock compensation expense** | ** ** |                                | ** ** | ** **                                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 16.9       |                                        |       |   | 9.9 |   |   |   | 13.9 |   |   |   | 10.1 |   |   |   | 3.0 |   |   |   | (0.2 | ) |   |
| Piping systems                                                                          |       |                                | 21.2       |                                        |       |   | 18.4 |   |   |   | 17.6 |   |   |   | 17.8 |   |   |   | 3.6 |   |   |   | 0.6 |   |   |
| Corporate                                                                               |       |                                | 7.9        |                                        |       |   | 2.8 |   |   |   | 6.9 |   |   |   | 2.9 |   |   |   | 1.0 |   |   |   | (0.1 | ) |   |
| Consolidated                                                                            |       |                                | 46.0       |                                        |       |   | 16.1 |   |   |   | 38.4 |   |   |   | 16.3 |   |   |   | 7.6 |   |   |   | (0.2 | ) |   |
| **Facility rationalization,  restructuring and related costs**                          | ** ** |                                | ** ** | ** **                                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 1.5        |                                        |       |   | 0.9 |   |   |   | — |   |   |   | — |   |   |   | 1.5 |   |   |   | 0.9 |   |   |
| Piping systems                                                                          |       |                                | —     |                                        |       |   | — |   |   |   | 0.9 |   |   |   | 0.9 |   |   |   | (0.9 | ) |   |   | (0.9 | ) |   |
| Consolidated                                                                            |       |                                | 1.5        |                                        |       |   | 0.5 |   |   |   | 0.9 |   |   |   | 0.4 |   |   |   | 0.6 |   |   |   | 0.1 |   |   |
| **Operating income**                                                                    | ** ** |                                | ** ** | ** **                                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 38.4       |                                        |       |   | 22.6 |   |   |   | 30.3 |   |   |   | 22.1 |   |   |   | 8.1 |   |   |   | 0.5 |   |   |
| Piping systems                                                                          |       |                                | 9.9        |                                        |       |   | 8.6 |   |   |   | 3.9 |   |   |   | 3.9 |   |   |   | 6.0 |   |   |   | 4.7 |   |   |
| Corporate                                                                               |       |                                | (9.6       | )                                           |       |   | (3.4 | ) |   |   | (8.6 | ) |   |   | (3.6 | ) |   |   | (1.0 | ) |   |   | 0.2 |   |   |
| Consolidated                                                                            |       |                                | 38.7       |                                        |       |   | 13.6 |   |   |   | 25.6 |   |   |   | 10.8 |   |   |   | 13.1 |   |   |   | 2.8 |   |   |
| Interest expense                                                                        |       |                                | (23.5      | )                                           |       |   | (8.2 | ) |   |   | (6.7 | ) |   |   | (2.8 | ) |   |   | (16.8 | ) |   |   | (5.4 | ) |   |
| Interest income                                                                         |       |                                | 0.2        |                                        |       |   | 0.1 |   |   |   | 0.2 |   |   |   | 0.1 |   |   |   | — |   |   |   | — |   |   |
| Income before income taxes                                                              |       |                                | 15.4       |                                        |       |   | 5.4 |   |   |   | 19.1 |   |   |   | 8.1 |   |   |   | (3.7 | ) |   |   | (2.7 | ) |   |
| Income tax expense                                                                      |       |                                | 6.2        |                                        |       |   | 2.2 |   |   |   | 7.7 |   |   |   | 3.3 |   |   |   | (1.5 | ) |   |   | (1.1 | ) |   |
| Net income                                                                              |       |                                | $          | 9.2                                         |       |   |   | 3.2 | % |   |   | $ | 11.4 |   |   |   | 4.8 | % |   |   | $ | (2.2 | ) |   |   | (1.6 | ) |   |
| **Segment EBITDA(1)**                                                                   | ** ** |                                | ** ** | ** **                                  |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                                | 44.4       |                                        |       |   | 26.1 |   |   |   | 36.4 |   |   |   | 26.5 |   |   |   | 8.0 |   |   |   | (0.4 | ) |   |
| Piping systems                                                                          |       |                                | 14.2       |                                        |       |   | 12.3 |   |   |   | 8.2 |   |   |   | 8.3 |   |   |   | 6.0 |   |   |   | 4.0 |   |   |
| Total segment  EBITDA                                                                   |       |                                | $          | 58.6                                        |       |   |   | 20.5 |   |   |   | $ | 44.6 |   |   |   | 18.9 |   |   |   | $ | 14.0 |   |   |   | 1.6 |   |   |

----

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

25

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

| ** **                                  | ** ** | **Three months ended** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **April 2, 2005**      | ** ** | **March 27, 2004** | ** ** |
| ** **                                  | ** ** | ** **                       | ** ** | **(as restated)(3)** | ** ** |
| Total segment  EBITDA                       |       |                             | $          | 58.6 |   |   |   | $ | 44.6 |   |   |
| Unallocated  corporate costs                |       |                             | (6.9       | ) |   |   | (2.1 | ) |   |
| Interest expense  and early repayment costs |       |                             | (23.5      | ) |   |   | (6.7 | ) |   |
| Depreciation and  amortization              |       |                             | (12.8      | ) |   |   | (16.7 | ) |   |
| Income before income  taxes                 |       |                             | $          | 15.4 |   |   |   | $ | 19.1 |   |   |

 

(2)          Percentages are bysegment, if applicable.

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

*Net Sales.**  *Net sales for the three months ended April 2,2005 were $285.2 million, or a 20.7% increase as compared to$236.3 million for the three months ended March 27, 2004.

Water infrastructure net sales for the three monthsended April 2, 2005 were $170.1 million, or a 24.0% increase as comparedto $137.2 million for the three months ended March 27, 2004. Thisincrease was driven primarily by price increases implemented in the second halfof 2004 and during this current quarter, as well as increased volumes due tothe continued strong performance of the residential construction market.

Piping systems net sales for the three months ended April 2,2005 were $115.1 million, or a 16.1% increase as compared to$99.1 million for the three months ended March 27, 2004. This increasewas driven primarily by price increases which were implemented in the secondhalf of 2004 and in the first half of 2005.

*Gross Profit.**  *Gross profit for the three months ended April 2,2005 was $86.2 million, or a 32.8% increase as compared to$64.9 million for the three months ended March 27, 2004. Grossprofit, as a percentage of net sales, or gross margin, increased from 27.5% forour second quarter of 2004 to 30.2% for our second quarter of 2005.

Water infrastructure gross profit for the three monthsended April 2, 2005 was $56.8 million, or a 28.5% increase ascompared to $44.2 million for the three months ended March 27, 2004.Gross profit, as a percentage of net sales, increased from 32.2% for our secondquarter of 2004 to 33.4% for our second quarter of 2005. The increase in grossprofit was primarily driven by price increases and the continued strongperformance of the residential construction market. Partially offsetting theeffects of higher prices were higher raw material costs (most notably brassingot and scrap steel) due to worldwide supply and demand issues. We cannot becertain that any future increases in raw material costs can be passed on to ourcustomers.

Piping systems gross profit for the three months endedApril 2, 2005 was $31.1 million, or a 38.8% increase as compared to$22.4 million for the three months ended March 27, 2004. Grossprofit, as a percentage of net sales, increased from 22.6% to 27.0%. Theincrease in gross profit was primarily driven by price increases. Increased rawmaterial costs partially offset the effects of the higher prices. We cannot becertain 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 April 2, 2005 were $46.0 million, or a19.8% increase as compared to $38.4 million for the three months ended March 27,2004. As a percentage of net sales, SG&A decreased from 16.3% for oursecond quarter of 2004 to 16.1% for our second quarter of 2005.

26

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Waterinfrastructure SG&A for the three months ended April 2, 2005 was $16.9million, or a 21.6% increase as compared to $13.9 million for the threemonths ended March 27, 2004. As a percentage of net sales, SG&Adecreased from 10.1% for our second quarter of 2004 to 9.9% for our secondquarter of 2005. Significant factors contributing to the higher costs includeincreased incentive compensation costs of $0.9 million related to higherearnings, increased sales commissions of $0.3 million related to highersales, and increased wages and benefits of $0.3 million related toadditional personnel.

Pipingsystems SG&A for the three months ended April 2, 2005 was $21.2million, or a 20.5% increase as compared to $17.6 million for the threemonths ended March 27, 2004. As a percentage of net sales, SG&Aincreased from 17.8% for our second quarter of 2004 to 18.4% for our secondquarter of 2005. Significant factors contributing to the higher costs includeincreased selling costs of $1.2 million primarily due to higher salescommissions, increased warehousing costs of $0.5 million primarily relatedto a higher volume of activity in the Star product line and increasedmanagement incentive compensation cost of $0.8 million due to higherearnings.

Corporateexpenses for the three months ended April 2, 2005 were $7.9 million ascompared to $6.9 million for the three months ended March 27, 2004.Significant factors contributing to higher costs in the second quarter of 2005include legal and audit fees of $0.7 million related to an internalinvestigation (see Note 2), accounting and legal fees of $0.5 millionrelated to SEC filing matters, consulting fees of $1.4 million related toefforts to become compliant with public company reporting and Sarbanes-Oxleyinternal control requirements, increased incentive compensation costs of$1.3 million, increased audit and other consulting fees of$0.6 million, and increased salary and benefit costs of $0.3 millionassociated with additional accounting and legal staffing. These items areoffset by a $4.0 million reduction in amortization expense for the secondquarter of 2005 as compared to the second quarter of 2004 due to an intangibleasset becoming fully amortized during the fourth quarter of 2004. Corporateexpenses consist primarily of corporate staff, benefits, legal and facilitycosts.

*Facility Rationalization, Restructuring and RelatedCosts.**  *There was$1.5 million of restructuring costs for the three months ended April 2,2005, related primarily to the termination of operating leases for the buildingand machinery at a water infrastructure plant in Colorado that ceasedmanufacturing and began outsourcing a product line in February 2005.

Therewas $0.9 million of facility rationalization costs for the three monthsended March 27, 2004, related primarily to future lease obligations at aclosed piping systems facility in New Jersey and environmental issues at aclosed piping systems plant in Georgia.

*Interest Expense.**  *Interest expense for the three months ended April 2,2005 was $23.5 million, or a $16.8 million increase from$6.7 million for the three months ended March 27, 2004. Interestexpense for the three months ended April 2, 2005, included$14.8 million of additional interest expense and amortization of deferredfinancing fees on $518.0 million of net additional debt resulting from theCompany’s recapitalization in April 2004. Also, gains recorded on interestrate swaps were $2.0 million lower in 2005 than in 2004 as more swapagreements expired and were not renewed.

*Segment EBITDA.**  *Segment EBITDA for the three months ended April 2,2005 was $58.6 million, or a 31.4% increase as compared to$44.6 million for the three months ended March 27, 2004.

Waterinfrastructure EBITDA for the three months ended April 2, 2005 was$44.4 million, which was $8.0 million or 22.0% higher than the$36.4 million for the three months ended March 27, 2004. Theincreased EBITDA resulted primarily from increased prices and volumes, partiallyoffset by additional SG&A spending as discussed above.

Pipingsystems EBITDA was $14.2 million for the three months ended April 2, 2005,which was $6.0 million higher than the $8.2 million reported for thethree months ended March 27, 2004. The increased EBITDA resulted primarilyfrom increased prices, partially offset by additional SG&A spending asdiscussed above.

27

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**Results of Operations**

***Six Months Ended April 2,2005 As Compared to the Six Months Ended March 27, 2004***

| ** **                                                                              | ** ** | **Six months ended**      | ** ** | **2005 vs. 2004**           | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                              | ** ** | **April 2,  2005**             | ** ** | **Percentage  of net  sales(2)** | ** ** | **March 27,  2004** | ** ** | **Percentage  of net  sales(2)** | ** ** | **Increase/  (decrease)** | ** ** | **Change in  percentage  of  net sales** | ** ** |
| ** **                                                                              | ** ** | **(restated)**                      | ** ** | ** **                            | ** ** | **(restated)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                              | ** ** | **(dollars in millions)** | ** ** |
| **Net sales**                                                                           | ** ** |                                | ** ** | ** **                            |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** |   |   |
| Water infrastructure                                                                    |       |                                | $          | 308.7                                 |       |   |   | 57.0 | % |   |   | $ | 261.9 |   |   |   | 57.4 | % |   |   | $ | 46.8 |   |   |   | (0.4 | )% |   |
| Piping systems                                                                          |       |                                | 232.6      |                                  |       |   | 43.0 |   |   |   | 194.6 |   |   |   | 42.6 |   |   |   | 38.0 |   |   |   | 0.4 |   |   |
| Consolidated                                                                            |       |                                | 541.3      |                                  |       |   | 100.0 |   |   |   | 456.5 |   |   |   | 100.0 |   |   |   | 84.8 |   |   |   | — |   |   |
| **Gross profit**                                                                        | ** ** |                                | ** ** | ** **                            |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** |   |   |
| Water infrastructure                                                                    |       |                                | 101.6      |                                  |       |   | 32.9 |   |   |   | 83.3 |   |   |   | 31.8 |   |   |   | 18.3 |   |   |   | 1.1 |   |   |
| Piping systems                                                                          |       |                                | 62.2       |                                  |       |   | 26.7 |   |   |   | 42.0 |   |   |   | 21.6 |   |   |   | 20.2 |   |   |   | 5.1 |   |   |
| Depreciation expense not allocated to segments                                          |       |                                | (3.4       | )                                     |       |   | (0.6 | ) |   |   | (3.5 | ) |   |   | (0.8 | ) |   |   | 0.1 |   |   |   | 0.2 |   |   |
| Consolidated                                                                            |       |                                | 160.4      |                                  |       |   | 29.6 |   |   |   | 121.8 |   |   |   | 26.7 |   |   |   | 38.6 |   |   |   | 2.9 |   |   |
| **Selling, general and  administrative expenses, including stock compensation expense** | ** ** |                                | ** ** | ** **                            |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** |   |   |
| Water infrastructure                                                                    |       |                                | 32.8       |                                  |       |   | 10.6 |   |   |   | 28.5 |   |   |   | 10.9 |   |   |   | 4.3 |   |   |   | (0.3 | ) |   |
| Piping systems                                                                          |       |                                | 40.5       |                                  |       |   | 17.4 |   |   |   | 33.5 |   |   |   | 17.2 |   |   |   | 7.0 |   |   |   | 0.2 |   |   |
| Corporate                                                                               |       |                                | 14.6       |                                  |       |   | 2.7 |   |   |   | 13.4 |   |   |   | 2.9 |   |   |   | 1.2 |   |   |   | (0.2 | ) |   |
| Consolidated                                                                            |       |                                | 87.9       |                                  |       |   | 16.2 |   |   |   | 75.4 |   |   |   | 16.5 |   |   |   | 12.5 |   |   |   | (0.3 | ) |   |
| **Facility rationalization,  restructuring and related costs**                     | ** ** |                                | ** ** | ** **                            |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** |   |   |
| Water infrastructure                                                                    |       |                                | 1.6        |                                  |       |   | 0.5 |   |   |   | — |   |   |   | — |   |   |   | 1.6 |   |   |   | 0.5 |   |   |
| Piping systems                                                                          |       |                                | —     |                                  |       |   | — |   |   |   | 0.9 |   |   |   | 0.5 |   |   |   | (0.9 | ) |   |   | (0.5 | ) |   |
| Consolidated                                                                            |       |                                | 1.6        |                                  |       |   | 0.3 |   |   |   | 0.9 |   |   |   | 0.2 |   |   |   | 0.7 |   |   |   | 0.1 |   |   |
| **Operating income**                                                                    | ** ** |                                | ** ** | ** **                            |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** |   |   |
| Water infrastructure                                                                    |       |                                | 67.2       |                                  |       |   | 21.8 |   |   |   | 54.8 |   |   |   | 20.9 |   |   |   | 12.4 |   |   |   | 0.9 |   |   |
| Piping systems                                                                          |       |                                | 21.7       |                                  |       |   | 9.3 |   |   |   | 7.6 |   |   |   | 3.9 |   |   |   | 14.1 |   |   |   | 5.4 |   |   |
| Corporate                                                                               |       |                                | (18.0      | )                                     |       |   | (3.3 | ) |   |   | (16.9 | ) |   |   | (3.7 | ) |   |   | (1.1 | ) |   |   | 0.4 |   |   |
| Consolidated                                                                            |       |                                | 70.9       |                                  |       |   | 13.1 |   |   |   | 45.5 |   |   |   | 10.0 |   |   |   | 25.4 |   |   |   | 3.1 |   |   |
| Interest expense                                                                        |       |                                | (44.6      | )                                     |       |   | (8.2 | ) |   |   | (20.4 | ) |   |   | (4.5 | ) |   |   | (24.2 | ) |   |   | (3.7 | ) |   |
| Interest income                                                                         |       |                                | 0.6        |                                  |       |   | 0.1 |   |   |   | 0.4 |   |   |   | 0.1 |   |   |   | 0.2 |   |   |   | — |   |   |
| Income before income taxes                                                              |       |                                | 26.9       |                                  |       |   | 5.0 |   |   |   | 25.5 |   |   |   | 5.6 |   |   |   | 1.4 |   |   |   | (0.6 | ) |   |
| Income tax expense                                                                      |       |                                | 11.0       |                                  |       |   | 2.0 |   |   |   | 10.2 |   |   |   | 2.2 |   |   |   | 0.8 |   |   |   | (0.2 | ) |   |
| Net income                                                                              |       |                                | $          | 15.9                                  |       |   |   | 2.9 | % |   |   | $ | 15.3 |   |   |   | 3.4 | % |   |   | $ | 0.6 |   |   |   | (0.5 | ) |   |
| **Segment EBITDA(1)**                                                                   | ** ** |                                | ** ** | ** **                            |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** |   |   |
| Water infrastructure                                                                    |       |                                | 79.2       |                                  |       |   | 25.7 |   |   |   | 67.0 |   |   |   | 25.6 |   |   |   | 12.2 |   |   |   | 0.1 |   |   |
| Piping systems                                                                          |       |                                | 30.3       |                                  |       |   | 13.0 |   |   |   | 16.0 |   |   |   | 8.2 |   |   |   | 14.3 |   |   |   | 4.8 |   |   |
| Total segment  EBITDA                                                                   |       |                                | $          | 109.5                                 |       |   |   | 20.2 |   |   |   | $ | 83.0 |   |   |   | 18.2 |   |   |   | $ | 26.5 |   |   |   | 2.0 |   |   |

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

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

| ** **                                  | ** ** | **Six months ended** | ** ** |
|---------------------------------------------|------------|--------------------------------|------------|
| ** **                                  | ** ** | **April 2, 2005**    | ** ** | **March 27, 2004** | ** ** |
| ** **                                  | ** ** | ** **                     | ** ** | **(as restated)(3)** | ** ** |
| Total segment  EBITDA                       |       |                           | $          | 109.5 |   |   |   | $ | 83.0 |   |   |
| Unallocated  corporate costs                |       |                           | (12.6      | ) |   |   | (3.9 | ) |   |
| Interest expense  and early repayment costs |       |                           | (44.6      | ) |   |   | (20.4 | ) |   |
| Depreciation and  amortization              |       |                           | (25.4      | ) |   |   | (33.2 | ) |   |
| Income before income  taxes                 |       |                           | $          | 26.9 |   |   |   | $ | 25.5 |   |   |

 

(2)          Percentages are bysegment, if applicable.

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

*Net Sales.**  *Net sales for the six months ended April 2,2005 were $541.3 million, or an 18.6% increase as compared to$456.5 million for the six months ended March 27, 2004.

Water infrastructure net sales for the six monthsended April 2, 2005 were $308.7 million, or a 17.9% increase as comparedto $261.9 million for the six months ended March 27, 2004. Thisincrease was driven primarily by price increases implemented in the second halfof 2004 and during the second quarter of 2005, as well as increased volumes dueto the continued strong performance of the residential construction market.

Piping systems net sales for the six months ended April 2,2005 were $232.6 million, or a 19.5% increase as compared to$194.6 million for the six months ended March 27, 2004. This increasewas driven primarily by price increases implemented in the second half of 2004and the first half of 2005, as well as $7.3 million of additional Starproduct sales. We acquired the Star business in January 2004 (seeNote 5).

*Gross Profit.**  *Gross profit for the six months ended April 2,2005 was $160.4 million, or a 31.7% increase as compared to$121.8 million for the six months ended March 27, 2004. Gross profit,as a percentage of net sales, or gross margin, increased from 26.7% for ourfirst half of 2004 to 29.6% for our first half of 2005.

Water infrastructure gross profit for the six monthsended April 2, 2005 was $101.6 million, or a 22.0% increase ascompared to $83.3 million for the six months ended March 27, 2004.Gross profit, as a percentage of net sales, increased from 31.8% for our firsthalf of 2004 to 32.9% for our first half of 2005. The increase in gross profitwas primarily driven by price increases and the continued strong performance ofthe residential construction market. Partially offsetting the effects of higherprices were higher raw material costs (most notably brass ingot and scrapsteel) due to worldwide supply and demand issues. We cannot be certain that anyfuture increases in raw material costs can be passed on to our customers.

Piping systems gross profit for the six months ended April 2,2005 was $62.2 million, or a 48.1% increase as compared to $42.0 millionfor the six months ended March 27, 2004. Gross profit, as a percentage ofnet sales, increased from 21.6% to 26.7%. The increase in gross profit wasprimarily driven by price increases. Increased raw material costs partiallyoffset the effects of the higher prices. We cannot be certain we can continueto pass on cost increases to our customers.

*Selling, General & Administrative Expense.**  *Selling, General and Administrative expenses (“SG&A”)for the six months ended April 2, 2005 were $87.9 million, or a 16.6%increase as compared to $75.4 million for the six months ended March 27,2004. As a percentage of net sales, SG&A decreased from 16.5% for our firsthalf of 2004 to 16.2% for our first half of 2005.

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Water infrastructure SG&A for the six months endedApril 2, 2005 was $32.8 million, or a 15.1% increase as compared to$28.5 million for the six months ended March 27, 2004. As apercentage of net sales, SG&A decreased from 10.9% for our first half of2004 to 10.6% for our first half of 2005. Significant factors contributing tothe higher costs include increased incentive compensation costs of$0.9 million related to higher earnings, increased sales commissions of$0.4 million related to higher sales, increased wages and benefit costs of$0.9 million, and increased amortization of tooling and intangibles of$0.3 million.

Piping systems SG&A for the six months ended April 2,2005 was $40.5 million, or a 20.9% increase as compared to $33.5 millionfor the six months ended March 27, 2004. As a percentage of net sales,SG&A increased from 17.2% for our first half of 2004 to 17.4% for our firsthalf of 2005. Significant factors contributing to the higher costs includeincreased selling costs of $2.9 million primarily due to higher salescommissions, increased warehousing costs of $1.4 million primarily relatedto the Star product line and increased management incentive compensation costof $0.9 million due to higher earnings.

Corporate expenses for the six months ended April 2,2005 were $14.6 million as compared to $13.4 million for the six monthsended March 27, 2004. Significant factors contributing to higher costs forthe first half of 2005 were: legal and audit fees of $3.0 million relatedto an internal investigation (see Note 2), accounting and legal fees of$1.1 million related to SEC filing matters, consulting fees of$1.5 million related to efforts to become compliant with public companyreporting and Sarbanes-Oxley internal control requirements, increasedincentive compensation costs of $1.7 million, increased audit and otherconsulting fees of $0.8 million, and increased salary, benefit, recruitingand relocation costs of $0.8 million associated with additional accountingand legal staffing. These items are offset by a $8.0 million reduction inamortization expense for the first half of 2005 as compared to the first halfof 2004 due to an intangible asset becoming fully amortized during the fourthquarter of 2004. Corporate expenses consist primarily of corporate staff,benefits, legal and facility costs.

*Facility Rationalization, Restructuring and RelatedCosts.**  *There was$1.6 million of restructuring costs for the six months ended April 2,2005, related primarily to severance payments and to the termination ofoperating leases for the building and machinery at a water infrastructure plantin Colorado that ceased manufacturing and began outsourcing a product line in February 2005.

There was $0.9 million of facilityrationalization costs for the three months ended March 27, 2004, relatedprimarily to future lease obligations at a closed piping systems facility in NewJersey and environmental issues at a closed piping systems plant in Georgia.

*Interest Expense.**  *Interest expense for the six months ended April 2,2005 was $44.6 million, or a $24.2 million increase from$20.4 million for the six months ended March 27, 2004. Interestexpense for the six months ended April 2, 2005, includes$28.2 million of additional interest expense and amortization of deferredfinancing fees on $518.0 million of net additional debt resulting from theCompany’s recapitalization in April 2004. In the six months ended March 27,2004, interest expense included a $7.0 million early redemption penalty,and a write-off of $0.4 million in deferred financing fees related to theearly redemption of $50.0 million of senior subordinated debt in November 2003.Also, gains recorded on interest rate swaps were $3.4 million lower in2005 than in 2004 as more swap agreements expired and were not renewed.

*Income Tax Expense.**  *The effective tax rates for the six monthsended April 2, 2005 and for the six months ended March 27, 2004 were41% and 40%, respectively. The higher effective tax rate in the six monthsended April 2, 2005 resulted primarily from the nondeductible portion ofthe interest expense related to the senior discount notes issued in the thirdquarter of 2004.

*Segment EBITDA.**  *Segment EBITDA for the six months ended April 2,2005 was $109.5 million, or a 31.9% increase as compared to$83.0 million for the three months ended March 27, 2004.

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Water infrastructure EBITDA for the six months ended April 2,2005 was $79.2 million, which was $12.2 million or 18.2% higher thanthe $67.0 million for the six months ended March 27, 2004. Theincreased EBITDA resulted primarily from increased prices and volumes,partially offset by additional SG&A spending as discussed above.

Piping systems EBITDA was$30.3 million for the six months ended April 2, 2005, which was$14.3 million higher than the $16.0 million reported for the sixmonths ended March 27, 2004. The increased EBITDA resulted primarily fromincreased prices and additional Star gross profit, partially offset byadditional SG&A spending as discussed above.

**Liquidity and Capital Resources**

We are a holding company and have no direct materialoperations. Our only material asset is our ownership of Group, and our onlymaterial liabilities are the senior discount notes, our guarantee of the seniorcredit facility and our potential obligation to repurchase Dale B. Smith’sequity interest (see Note 8). Our principal source of liquidity has beenand is expected to be dividends from Group and our principal use of cash willbe for debt service beginning in 2009.

The senior credit facility, secured notes andsubordinated notes are obligations of Group and impose limitations on itsability to pay dividends to us. Group’s ability to generate net income willdepend upon various factors that may be beyond our control. Accordingly, Groupmay not generate sufficient cash flow or be permitted by the terms of its debtinstruments to pay dividends or distributions to us in amounts sufficient toallow us to pay cash interest on the senior discount notes. We would then be requiredto secure alternate financing, which may not be available on acceptable terms,or at all.

Group’s principal sourcesof liquidity have been and are expected to be cash flow from operations andborrowings under the senior credit facility. Its principal uses of cash will bedebt service requirements as described below, capital expenditures, workingcapital requirements, dividends to us to finance our cash needs and possibleacquisitions.

*Debt Service*

As of April 2, 2005we had: (a) total indebtedness of approximately $1,047.7 million; and (b) approximately$59.0 million of borrowings available under Group’s senior revolvingcredit facility, subject to customary conditions. As of April 2, 2005,Group had obtained $21.0 million in letters of credit under the seniorrevolving credit facility, which reduced availability for borrowingsthereunder. Our significant debt service obligations could have materialconsequences to our security holders. Our key financial covenants are dependenton attaining certain levels of EBITDA, as defined in the respective debtarrangements. The most restrictive covenant in effect at April 2, 2005related to our leverage ratio, as defined in the debt arrangements, whichrequired approximately $151 million of EBITDA over the trailing twelvemonths, based on Group’s net debt outstanding. Group’s EBITDA, as defined inthe agreement, exceeded $220 million over the trailing twelve months endedApril 2, 2005.

*CapitalExpenditures*

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

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*Sources of Funds*

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

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

***Historical***

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

*Cash flows from operating activities.**  *Net cash provided by operations was$5.7 million for the first six months of 2005, compared to net cashprovided of $10.2 million for the first six months of 2004. Significantchanges in working capital balances in the first six months of 2005 included a $42.1 millionincrease in inventories. Water infrastructure inventories increased $21.6million during the six months ended April 2, 2005. This was largely due toa planned seasonal inventory build. Approximately $5.0 million of thetotal increase was due to higher raw material costs. Piping systems inventoriesincreased $22.2 million during the six months ended April 2, 2005. Aplanned domestic manufacturing inventory build accounted for approximately$7.0 million of this increase, while about $5.0 million was due tohigher raw material costs, and $11.0 million was due to increased foreignproduct required to service customer demand.

*Cash flows used in investing activities.**  *In the first six months of 2005 we had netcash used in investing activities of $13.6 million compared to net cashused in the first six months of 2004 of $30.8 million. This was primarilydue to $19.8 million spent during the second quarter of 2004 for theacquisitions of Star and Modern Molded (see Note 5).

*Cash flows from financing activities.**  *Cash flows used in financing activities were$37.5 million in the first six months of 2004 compared to cash flowsprovided by financing activities of $3.7 million in the first six monthsof 2005. This was primarily due to early payment of $50 million of subordinatednotes due 2009 in the first quarter of 2004.

**Off-Balance Sheet Arrangements**

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

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We utilize letters ofcredit and surety bonds in the ordinary course of business to ensure ourperformance of contractual obligations. As of April 2, 2005, we had$21.0 million of letters of credit and $15.3 million of surety bondsoutstanding.

**Contractual Obligations**

Our contractualobligations as of April 2, 2005:

**Payments Due byPeriod**

| **Contractual Obligations**       | ** ** | ** **                          | ** ** | **Less than  1 Year** | ** ** | **1-3 Years** | ** ** | **4-5 Years** | ** ** | **After 5 Years** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|--------------------|------------|--------------------|------------|-----------------------------|------------|-----------|------------|
| ** **                             | ** ** | **(dollars in millions)** | ** ** |
| Long-term  debt                        |       |                                |       |                            |       |               |       |               |       |                        |       |      |       |   |   |   |   |   |   |
| Principal on long-term debt            |       |                                | $          | 2.9                             |       |               |       | 5.8                |       |                        |       | 5.8       |       |   |   | 1,024.8 |   |   | 1,039.3 |   |
| Interest on long-term debt(1)          |       |                                | 69.6       |                            |       |               | 138.4      |               |       |                        | 169.1      |      |       |   | 360.0 |   |   | 737.1 |   |
| Capital lease  obligations             |       |                                | 1.0        |                            |       |               | 1.3        |               |       |                        | 0.1        |      |       |   | — |   |   | 2.4 |   |
| Operating leases                       |       |                                | 8.3        |                            |       |               | 10.9       |               |       |                        | 3.7        |      |       |   | 3.2 |   |   | 26.1 |   |
| Unconditional  purchase obligations(2) |       |                                | 14.4       |                            |       |               | —     |               |       |                        | —     |      |       |   | — |   |   | 14.4 |   |
| Other long-term  obligations(3)        |       |                                | —     |                            |       |               | —     |               |       |                        | —     |      |       |   | — |   |   | — |   |
| Total contractual  cash obligations    |       |                                | $          | 96.2                            |       |               |       | 156.4              |       |                        |       | 178.7     |       |   |   | 1,388.0 |   |   | 1,819.3 |   |

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(1)          Interest on the senior creditfacility and secured notes is calculated using LIBOR of 3.09% and 2.74%respectively, the rates applicable under these debt instruments and in effecton April 2, 2005. Each increase or decrease in LIBOR of 0.125% wouldresult in an increase or decrease in annual interest on the senior creditfacility and secured notes of $0.8 million. Because the interest ratesunder the senior credit facility and secured notes will be variable, actualpayments may differ. Interest does not include payments that could be requiredunder our interest-rate swap agreements, which payments will depend uponmovements in interest rates and could vary significantly. The payments due onthe existing interest rate swaps expiring in May and July 2005 areestimated to be approximately $1.9 million.

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

(3)          Excludesthe deferred payment portion of the purchase price for Star. The Star purchaseprice is subject to adjustment to reflect, among other things, a deferredpayment to be made by us to the extent that the gross profit of the businessexceeds the target gross profit from February 1, 2004 to January 31,2007. Although the maximum amount payable is $23 million, we estimate thatthe total deferred payment will be approximately $3.0 to $6.0 million.This calculation of the potential Star purchase price adjustment is based onmanagement’s best estimate; however, the actual adjustment may be materiallydifferent.

**Effect of Inflation; Seasonality**

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

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

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**Critical AccountingPolicies**

Our significant accountingpolicies are described in our audited consolidated financial statements for theyear ended September 30, 2004 as found on Form 10-K (FileNo. 333-116590). While all significant accounting policies areimportant to our consolidated financial statements, some of these policies maybe viewed as being critical. Such policies are those that are both mostimportant to the portrayal of our financial condition and require our mostdifficult, subjective and complex estimates and assumptions that affect thereported amounts of assets, liabilities, revenues, expenses and relateddisclosure of contingent assets and liabilities. These estimates are based uponour historical experience and on various other assumptions that we believe tobe reasonable under the circumstances. Our actual results may differ from theseestimates under different assumptions or conditions.

**RecentlyIssued Accounting Standards**

In December 2004, the Financial AccountingStandards Board issued SFAS No. 123(R), “Share-Based Payment.” SFASNo. 123(R) replaces SFAS No. 123, “Accounting for Stock-BasedCompensation,” and supersedes APB Opinion No. 25, “Accounting for StockIssued to Employees.” SFAS No. 123(R) requires compensation costsrelated to share-based payment transactions to be recognized in thefinancial statements over the period that an employee provides service inexchange for the award. Public companies are required to adopt the new standardusing a modified prospective method and may elect to restate prior periodsusing the modified retrospective method. Under the modified prospective method,companies are required to record compensation cost for new and modified awardsover the related vesting period of such awards prospectively and recordcompensation cost prospectively for the unvested portion, at the date ofadoption, of previously issued and outstanding awards over the remainingvesting period of such awards. No change to prior periods presented ispermitted under the modified prospective method. Under the modifiedretrospective method, companies record compensation costs for prior periodsretroactively through restatement of such periods using the exact pro formaamounts disclosed in the companies’ footnotes. Also, in the period of adoptionand after, companies record compensation based on the modified prospectivemethod. SFAS No. 123(R), as amended in April 2005 for compliancedates, allows companies to implement the standard at the beginning of theirnext fiscal year. The Company plans to adopt SFAS No. 123(R) as ofOctober 1, 2005, the beginning of its next fiscal year and to use themodified prospective method. The adoption of SFAS 123(R) is notexpected to have a material impact on the Company’s financial statements forthe year ended September 30, 2005.

In November 2004, the Financial AccountingStandards Board issued SFAS No. 151, “Inventory Costs.” SFAS No. 151amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” toclarify the accounting for abnormal amounts of idle facility expense, freight,handling costs, and wasted material. This Statement requires that those itemsbe recognized as current-period charges regardless of whether they meetthe criterion of “so abnormal.” In addition, this Statement requires that allocationof fixed production overheads to the costs of conversion be based on the normalcapacity of the production facilities. SFAS No. 151 is effective forfiscal years beginning after June 15, 2005. The Company intends to adoptSFAS No. 151 on October 1, 2005, the beginning of its 2006 fiscalyear. The adoption of SFAS No. 151 is not expected to have a materialimpact on the Company’s financial statements.

FASB Staff Position (FSP) No. FAS 109-1and 109-2 were issued in December 2004, providing guidance onforeign earnings repatriation and qualified production activities of theAmerican Jobs Creation Act (AJCA) that was enacted on October 22, 2004.The AJCA created a temporary incentive for United States multinationals torepatriate accumulated earnings outside the United States by providing an85 percent dividends received deduction for certain qualifying earningsrepatriations in either fiscal 2005 or in fiscal 2006. As of April 2,2005, the Company has not provided deferred taxes on foreign earnings becauseany taxes on dividends would be substantially offset by foreign tax credits orbecause the Company intends to reinvest those earnings indefinitely. Due to thecomplexity of the repatriation provision, the 

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Company is stillevaluating the effects of this provision on its plan for repatriation offoreign earnings and does not expect to be able to complete this evaluationuntil after Congress or the Treasury Department provides additional guidanceclarifying key elements of the provision.

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

**ITEM 3.**                QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Thenature of market risks faced by the Company at April 2, 2005 were the sameas disclosed in the Company’s Annual Report on Form 10-K for theyear ended September 30, 2004. We are exposed to various market risks,which are potential losses arising from adverse changes in market rates andprices, such as interest rates, foreign exchange fluctuations and rawmaterials. We do not enter into derivatives or other financial instruments fortrading or speculative purposes.

At April 2,2005 we had fixed rate debt of $433.4 million and variable rate debt of$614.3 million. The pre-tax earnings and cash flows impact resulting froma 100 basis point increase in interest rates on variable rate debt, holdingother variables constant and excluding the impact of the hedging agreements describedbelow, would be approximately $6.2 million per year.

Wehave entered into interest rate swap agreements with a notional principalamount of $100.0 million in order to reduce interest rate risks and manageinterest expense. The swap agreements, which mature by July 2005,effectively convert floating rate debt under our credit facility intofixed-rate debt and carried an average fixed interest rate of 7.52% at April 2,2005. We plan to retain these interest rate swaps and intend to replace themupon maturity and consider entering into additional interest rate swaps orother interest rate hedging instruments to protect against interest ratefluctuations on our floating rate debt.

Our strategy for management of currency risk reliesprimarily on conducting our operations in a country’s respective currency andmay, from time to time, involve currency derivatives, primarily forward foreignexchange contracts, to reduce our exposure to currency fluctuations. As of April 2,2005, we had foreign exchange contracts outstanding with a notional principalamount of $1.8 million to hedge our Canadian operations’ exposure tocurrency fluctuations on products purchased from United States suppliers andpurchases of equipment from European suppliers.

**ITEM4.**                CONTROLS AND PROCEDURES.

This Item 4 disclosure has been updated from what wasoriginally reported for the quarter ended April 2, 2005 to reflect theresults of the Company’s evaluation of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures as of September 30,2005, which identified a material weakness that effectively led to therestatement of the previously issued financial statements for the years ended September 30,2004 and 2003, the first three quarters of fiscal 2005 and all interim periodsof fiscal 2004.

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

Asdescribed in Note 2 to the financial statements, the Company identified errorsin the presentation in the Company’s previously issued consolidated financialstatements: (i) the effect of foreign currency exchange rate changes oncash balances; (ii) book cash overdrafts; (iii) the misclassificationof deferred income tax assets between the current and non-currentclassifications in the balance sheet and (iv) the misclassification ofdepreciation expense. As a result of these errors, the Company has restated its

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consolidated financial statements for the years ended September 30,2004 and 2003, the first three quarters of fiscal 2005 and all interim periodsof fiscal 2004.

The 2005 Restatement had no effect on the Company’sconsolidated net income or the Consolidated Statement of Stockholders’ Deficitfor the two fiscal years ended September 30, 2004 and the first threequarters of fiscal 2005 and all interim periods of fiscal 2004, including ourquarter ended April 2, 2005.

***Evaluationof our Disclosure Controls and Procedures***

Asof the end of the period covered by this report, we evaluated the effectivenessof the design and operation of our disclosure controls and procedures (asdefined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, as amended (the “Exchange Act’’)). Thisevaluation was done under the supervision and with the participation ofmanagement, including Dale B. Smith, Chief Operating Officer (“COO’’), andJeffery W. Sprick, Chief Financial Officer (“CFO’’). It should be noted thatany system of controls, however well designed and operated, can provide onlyreasonable, and not absolute, assurance that the objectives of the system aremet.

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

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

A material weakness is acontrol deficiency or a combination of control deficiencies that results inmore than a remote likelihood that a material misstatement of the annual orinterim consolidated financial statements will not be prevented or detected. Asof April 2, 2005, the Company did not maintain effective controls over thepreparation, review and presentation and disclosure of the Company’sconsolidated financial statements. Specifically, the Company’s controls failedto prevent or detect the incorrect presentation of the following: (i) cashflows from the effect of exchange rate changes on cash balances; (ii) cashflows and balance sheet presentation of book cash overdrafts; (iii) thepresentation of current and non-current deferred income tax assets in theCompany’s Consolidated Balance Sheets; and (iv) classification of certaindepreciation expense as selling, general and administrative expense instead ofcost of sales in the Company’s Consolidated Statements of Operations. Thiscontrol deficiency resulted in the restatement of our annual consolidatedfinancial statements for fiscal 2004 and 2003 and our interim consolidatedfinancial statements for the first three quarters of fiscal 2005, all interimperiods of fiscal 2004 and audit adjustments to our 2005 annual consolidatedfinancial statements. Additionally, this control deficiency could result in amisstatement of the presentation and disclosure of the Company’s consolidatedfinancial statements that would result in a material misstatement in the annualor interim financial statements that would not be prevented or detected.Accordingly, management has determined that this control deficiency constitutesa material weakness.

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

As of September 30, 2004, and all interim periodsthrough July 2, 2005, including our quarter ended April 2, 2005, wereported the following control deficiencies that, in the aggregate, constituteda material weakness in internal control over preparation, review andpresentation and disclosure of the Company’s consolidated financial statements.Specifically our control deficiencies included: (i) a lack of personnel 

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with experience infinancial reporting and control procedures necessary for SEC registrants; (ii) alack of sufficient controls to prevent or detect, on a timely basis, unauthorizedjournal entries; (iii) a lack of sufficient controls over informationtechnology data conversion and program changes; (iv) a lack of sufficientcontrols over the development and communication of income tax provisions; (v) alack of effective controls surrounding “whistleblower” hotline complaints andinternal certifications to ensure that issues were communicated on a moretimely basis by management to the audit committee and the independentregistered public accounting firm; (vi) a lack of effective controls overrevenue recognition associated with full truckload shipments not immediatelydispatched by freight carriers; and (vii) a lack of formal controls andprocedures regarding assessment of financial exposures and transactions,including consideration of accounting implications under generally acceptedaccounting principles. These control deficiencies resulted in audit adjustmentsto the consolidated financial statements for the year ended September 30,2004. Additionally, these control deficiencies, in the aggregate, could resultin a misstatement to accounts and disclosures that would result in a materialmisstatement to the annual or interim financial statements that would not beprevented or detected. Accordingly, management determined that these controldeficiencies in the aggregate constituted a material weakness.

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

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

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

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

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

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

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

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

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

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

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

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

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**PART II. OTHER INFORMATION**

**Item 1.**                        LegalProceedings.

On April 7, 2005, oursubsidiaries, Mueller Co. and Mueller International, Inc., filed acomplaint against U.S. Pipe in the United States District Court for theDistrict of Massachusetts. The complaint alleged that certain U.S. Pipe firehydrants infringe patent rights owned by Mueller International, Inc. Thelawsuit seeks a permanent injunction as well as unspecified monetary damagesfor patent infringement.

**Item 6.**                        Exhibits.

| 3.1   |   | Certificate of Incorporation of Mueller Water  Products, Inc. (formerly known as Mueller Holdings (N.A.), Inc.,  formerly known as Hydrant Acquisition Corp.)(1)                                                       |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1.1 |   | Amendment to Certificate of Incorporation(2)                                                                                                                                                                                     |
| 3.2   |   | By-Laws of Mueller Water  Products, 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(3) |
| 10.2  |   | Amendment No. 1, dated May 3, 2005, to  Employment Agreement by and between Mueller Group, Inc. and Darrell Jean  dated February 18, 2005.(4)                                                                |
| 31.1  |   | Certification of Chief Operating Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002*                                                                                                                        |
| 31.2  |   | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002*                                                                                                                        |
| 32.1  |   | Certification of the Chief Operating Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                                                    |
| 32.2  |   | Certification of the Chief Financial Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                                                    |

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(1)          Previously filed as an Exhibit toour Registration Statement on Form S-1 as filed with the SEC on June 17,2004.

(2)          Previously filed as Exhibit 3.1.1to our Annual Report on Form 10-K as filed with the SEC on March 31,2005.

(3)          Previously filed as an Exhibit tothe Current Report on Form 8-K of Mueller Group, Inc. (SEC FileNo. 333-117473) as filed with the SEC on February 7, 2005.

(4)          Previously filed as an Exhibit tothe Current Report on Form 8-K of Mueller Group, Inc. as filedwith the SEC on May 5, 2005.

*                    Filedherewith.

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

|                              |   | MUELLER WATER PRODUCTS, INC. |
|------------------------------|--------|------------------------------|
| Date: February 3,  2006 |   | By:                          |   | /s/  DALE B. SMITH |
|                         |   |                         |   | Dale B. Smith |
|                         |   |                         |   | Chief Operating Officer |
| Date: February 3,  2006 |   | By:                          |   | /s/ JEFFERY W. SPRICK |
|                         |   |                         |   | Jeffery W. Sprick |
|                         |   |                         |   | Chief Financial Officer |

 

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