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

FORM 10-Q

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

Commission File Number 333-116590

---

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

|Delaware(State or other jurisdiction of incorporation or organization)               |  | 52-2175259(I.R.S. Employer identification No.)
|------------------------------------------------------------------------------------ |  | ----------------------------------------------
|500 West Eldorado St.
Decatur, IL 62522-1808(Address of principal executive offices)

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

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

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

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



---





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

TABLE OF CONTENTS

|                                                                                              |  |                                                      |  | Page
|--------------------------------------------------------------------------------------------- |  | ---------------------------------------------------- |  | ----
|PART IFINANCIAL INFORMATION                                                                  |  | 3                                                   
|Item 1. Unaudited Financial Statements                                                        |  | 3                                                   
|                                                                                              |  | Condensed Consolidated Balance Sheets                |  | 3   
|                                                                                              |  | Condensed Consolidated Statements of Operations      |  | 4   
|                                                                                              |  | Condensed Consolidated Statements of Cash Flows      |  | 5   
|                                                                                              |  | Notes to Condensed Consolidated Financial Statements |  | 6   
|Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations |  | 21                                                  
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 33                                                  
|Item 4. Controls and Procedures                                                               |  | 33                                                  
|PART IIOTHER INFORMATION                                                                     |  | 35                                                  
|Item 1. Legal Proceedings                                                                     |  | 35                                                  
|Item 6. Exhibits                                                                              |  | 35                                                  
|Signatures                                                                                    |  | 36                                                  

2

---





PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MUELLER WATER PRODUCTS, INC.  UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                                               |                           | September 30,
2004 |         | April 2,
2005 |  
|-------------------------------------------------------------------------------------------------------------- | ------------------------- | ------------------ | ------- | ------------- | -
|
|Assets                                                                                                         |                           |                    |         |               |  
|Cash and cash equivalents                                                                                      |                           | $                  | 55.6    |               | $
|Receivables, net of allowance for doubtful accounts of $5.1 and $5.3, respectively                             |                           |                    | 162.0   |               |  
|Inventories                                                                                                    |                           |                    | 260.2   |               |  
|Income taxes receivable                                                                                        |                           |                    | 4.1     |               |  
|Deferred income taxes                                                                                          |                           |                    | 9.0     |               |  
|Prepaid expenses and other current assets                                                                      |                           |                    | 28.9    |               |  
|                                                                                                               |                           |                    |         |               |  
|                                                                                                               | Total current assets      |                    |         | 519.8         |  
|Property, plant and equipment, net                                                                             |                           |                    | 186.8   |               |  
|Goodwill, net                                                                                                  |                           |                    | 163.2   |               |  
|Identifiable intangibles, net                                                                                  |                           |                    | 55.2    |               |  
|Pension intangible                                                                                             |                           |                    | 0.8     |               |  
|Deferred financing fees, net                                                                                   |                           |                    | 37.4    |               |  
|Deferred income taxes                                                                                          |                           |                    | 21.1    |               |  
|                                                                                                               |                           |                    |         |               |  
|                                                                                                               | Total assets              |                    | $       | 984.3         |  
|                                                                                                               |                           |                    |         |               |  
|Liabilities                                                                                                    |                           |                    |         |               |  
|Accounts payable                                                                                               |                           | $                  | 52.7    |               | $
|Current portion of long-term debt                                                                              |                           |                    | 3.2     |               |  
|Accrued expenses and other current liabilities                                                                 |                           |                    | 85.9    |               |  
|                                                                                                               |                           |                    |         |               |  
|                                                                                                               | Total current liabilities |                    |         | 141.8         |  
|Long-term debt, net of current portion                                                                         |                           |                    | 1,036.2 |               |  
|Accrued pension liability                                                                                      |                           |                    | 29.2    |               |  
|Other long-term liabilities                                                                                    |                           |                    | 7.8     |               |  
|                                                                                                               |                           |                    |         |               |  
|                                                                                                               | Total liabilities         |                    |         | 1,215.0       |  
|                                                                                                               |                           |                    |         |               |  
|Commitments and contingencies (Note 9)                                                                         |                           |                    |        |               |  
|Redeemable common stock                                                                                        |                           |                    | 1.7     |               |  
|Shareholders' equity                                                                                           |                           |                    |         |               |  
|Common stock:                                                                                                  |                           |                    |         |               |  
|Class A, $0.01 par value (400,000,000 shares authorized and 131,208,998 issued)                                |                           |                    | 1.3     |               |  
|Class B, $0.01 par value, convertible, non-voting (150,000,000 shares authorized and 89,343,699 shares issued) |                           |                    | 0.9     |               |  
|Additional paid-in capital                                                                                     |                           |                    |        |               |  
|Accumulated deficit                                                                                            |                           |                    | (218.6  | )             |  
|Accumulated other comprehensive loss                                                                           |                           |                    | (16.0   | )             |  
|                                                                                                               |                           |                    |         |               |  
|Total shareholders' equity                                                                                     |                           |                    | (232.4  | )             |  
|                                                                                                               |                           |                    |         |               |  
|Total liabilities and shareholders' equity                                                                     |                           | $                  | 984.3   |               | $
|                                                                                                               |                           |                    |         |               |  

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

3

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MUELLER WATER PRODUCTS, INC.  UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                          |            | Three months ended |      
|--------------------------------------------------------- | ---------- | ------------------ | -----
|
|
|
|Net sales                                                 |            | $                  | 236.3
|Cost of sales                                             |            |                    | 169.7
|                                                          |            |                    |      
|Gross profit                                              |            |                    | 66.6 
|Selling, general and administrative expense               |            |                    | 39.9 
|Stock compensation expense                                |            |                    | 0.2  
|Facility rationalization, restructuring and related costs |            |                    | 0.9  
|                                                          |            |                    |      
|Operating income                                          |            |                    | 25.6 
|Interest expense and early repayment costs                |            |                    | (6.7 
|Interest income                                           |            |                    | 0.2  
|                                                          |            |                    |      
|Income before income taxes                                |            |                    | 19.1 
|Income tax expense                                        |            |                    | 7.7  
|                                                          |            |                    |      
|                                                          | Net income |                    | $    
|                                                          |            |                    |      

|                                                          |            | Six months ended |      
|--------------------------------------------------------- | ---------- | ---------------- | -----
|
|
|
|Net sales                                                 |            | $                | 456.5
|Cost of sales                                             |            |                  | 331.2
|                                                          |            |                  |      
|Gross profit                                              |            |                  | 125.3
|Selling, general and administrative expense               |            |                  | 78.6 
|Stock compensation expense                                |            |                  | 0.3  
|Facility rationalization, restructuring and related costs |            |                  | 0.9  
|                                                          |            |                  |      
|Operating income                                          |            |                  | 45.5 
|Interest expense and early repayment costs                |            |                  | (20.4
|Interest income                                           |            |                  | 0.4  
|                                                          |            |                  |      
|Income before income taxes                                |            |                  | 25.5 
|Income tax expense                                        |            |                  | 10.2 
|                                                          |            |                  |      
|                                                          | Net income |                  | $    
|                                                          |            |                  |      

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

4

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MUELLER WATER PRODUCTS, INC.  UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months endedMarch 27,
2004

April 2,
2005(restated)(unaudited)(dollars in millions)Cash flows from operating activitiesNet income

$
15.3

$
15.9Adjustments to reconcile net income to net cash provided by operating activities:Depreciation


23.2


22.6Amortization of intangibles and tooling


10.0


2.8Unrealized gain on interest rate swaps


(6.3
)

(2.9
)All other adjustments


2.3


(0.1
)Changes in assets and liabilities, net of the effects of acquisitions:Receivables


(14.5
)

(1.7
)Inventories


(16.3
)

(43.8
)Accounts payable and accrued expenses


(7.9
)

(3.1
)All other changes, net


3.5


13.2Net cash provided by operating activities


9.3


2.9Cash flows from investing activitiesPurchase 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 activitiesProceeds 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 used in financing activities


(43.4
)

(1.2
)Effect of exchange rate changes on cash


1.3


3.4Decrease in cash and cash equivalents


(63.6
)

(8.5
)Cash and cash equivalentsBeginning of period


71.4


55.6End of period

$
7.8

$
47.1


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

5

---





MUELLER WATER PRODUCTS, INC.        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        THREE 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 accompanying unaudited condensed consolidated financial statements of Mueller Water Products, Inc. have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial information. Accordingly, the unaudited condensed consolidated financial statements and notes do not contain certain
information included in the Company's annual financial statements. In the opinion of management, all normal and recurring adjustments that are considered necessary for a fair financial statement
presentation have been 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 the fiscal year ended
September 30, 2005. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended September 30, 2004 as found
in the Company's Annual Report on Form 10-K.

2.    Restatements

In November 2004, our Audit Committee was notified of alleged potential accounting improprieties concerning our accounting for inventory reserves and
certain questions concerning revenue recognition.
The Audit Committee appointed an independent law firm to investigate the allegations. The report identified several areas requiring financial review by the Company principally concerning accounting
for excess and obsolete (E&O) inventory, the capitalization of costs relating to a project that should have been expensed in prior periods, the accrual of reserves for this project without identifying
support for such accruals and the timing of recognition of revenue with regard to full truckload shipments that were not immediately dispatched to customers by certain freight carriers used by the
Company. The Company also identified some additional annual and interim items recorded in incorrect periods in the course of finalizing the 2004 financial statements. In addition, the Company
determined that the value it assigned to stock compensation in connection with its April 2004 recapitalization should be revised. As a result of these findings, the Company restated its annual
and interim financial statements. For more specific information about prior period restatements, see Notes 2 and 21 of the Company's Audited Consolidated Financial Statements for the year ended
September 30, 2004 as found in Form 10-K (File No. 333-116590).

The
interim financial statements for the three and six months ended March 27, 2004 were restated for the following items:



The Company determined that certain reports utilized in the assessment and establishment of excess and obsolete provisions were inaccurate and that certain items
were erroneously eliminated from the provision. The interim financial statements were restated to reflect the decrease in inventory value and increase in cost of goods sold to reflect the adjustment
to properly record the provision for excess and obsolete inventory reserves.

6

---





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



Revenues related to certain full-truckload customer shipments which were not immediately dispatched to customers by certain freight carriers used by
the Company originally recognized should have been deferred until such time as the trucks were dispatched and the products delivered to the customer. The interim financial statements were restated to
reflect the recognition of revenue in the proper periods.



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



There was an error, which initially arose in the first quarter of 2004, in the estimated amount of intercompany profit elimination recorded during the interim
periods in the year ended September 30, 2004.



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



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

7

---



The
following tables set forth the effects of the adjustments discussed above on the Statements of Operations for the three and six months ended March 27, 2004:

Three Months Ended 3/27/04

Six Months Ended
3/27/04(dollars in millions)

As previously
reported

As restated

As previously
reported

As restatedNet sales

$
236.9

$
236.3

$
454.9

$
456.5Cost of sales


169.4


169.7


328.0


331.2Gross profit


67.5


66.6


126.9


125.3Selling, general and administrative expense


40.0


39.9


79.0


78.6Stock compensation expense


0.2


0.2


0.3


0.3Facility rationalization and related costs


0.9


0.9


0.9


0.9Operating income


26.4


25.6


46.7


45.5Interest expense and early repayment costs


(6.7
)

(6.7
)

(21.2
)

(20.4
)Interest income


0.2


0.2


0.4


0.4Income before income taxes


19.9


19.1


25.9


25.5Income tax expense


8.0


7.7


10.4


10.2Net income

$
11.9

$
11.4

$
15.5

$
15.3


(dollars in millions)

Three Months
Ended
3/27/04

Six Months
Ended
3/27/04Net income, as previously reported

$
11.9

$
15.5Increased (decreased) pretax earnings:Inventory valuation adjustments


(0.1
)

(0.1
)Research & development costs


0.1


0.4Revenue recognition adjustments


(0.2
)

0.5Inventory journal entries





(0.2
)Intercompany profit elimination


(0.6
)

(1.8
)Deferred financing fees





0.8Total pre-tax adjustments


(0.8
)

(0.4
)Income tax effect of adjustments


0.3


0.2Net income, as restated

$
11.4

$
15.3


8

---



Three Months Ended
3/27/04

Six Months Ended
3/27/04(dollars in millions)

As previously
reported

As restated

As previously
reported

As restatedNet sales:Water infrastructure

$
137.8

$
137.2

$
260.3

$
261.9Piping systems


99.1


99.1


194.6


194.6Consolidated


236.9


236.3


454.9


456.5Segment EBITDA:Water infrastructure


36.6


36.4


66.2


67.0Piping systems


8.8


8.2


18.0


16.0Total segment EBITDA


45.4


44.6


84.2


83.0Operating Income:Water infrastructure


30.5


30.3


54.0


54.8Piping systems


4.5


3.9


9.6


7.6Corporate


(8.6
)

(8.6
)

(16.9
)

(16.9
)Consolidated


26.4


25.6


46.7


45.5


3.    Segment Information

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

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

The
Company evaluates segment performance based on segment EBITDA. Segment EBITDA is defined as net income plus income tax expense, interest expense (not net of interest income),

9

---



depreciation
and amortization expense. Segment assets consist primarily of accounts receivable, inventories, property, plant and equipmentnet, goodwill, and identifiable intangibles.
Summarized financial information for our 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

$
308.7Piping systems


99.1


115.1


194.6


232.6Consolidated


236.3


285.2


456.5


541.3Intersegment sales:Water infrastructure


3.1


3.4


6.1


6.8Piping systems


0.2


0.1


0.3


0.3Consolidated


3.3


3.5


6.4


7.1Segment EBITDA:Water infrastructure


36.4


44.4


67.0


79.2Piping systems


8.2


14.2


16.0


30.3Total segment EBITDA


44.6


58.6


83.0


109.5Depreciation and amortization:Water infrastructure


6.1


6.0


12.2


12.0Piping systems


4.3


4.3


8.4


8.6Corporate


6.3


2.5


12.6


4.8Consolidated


16.7


12.8


33.2


25.4Impairment 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


9.0Piping systems


2.9


2.1


4.8


3.9Corporate





0.6





0.7Consolidated


6.5


8.9


11.0


13.6


10

---



At September 30, 2004

At April 2, 2005Total assets:Water infrastructure

$
500.0

$
508.6Piping systems


307.9


325.5Corporate


176.4


174.8Consolidated


984.3


1,008.9Goodwill:Water infrastructure


149.1


149.1Piping systems


14.1


14.1Consolidated


163.2


163.2Identifiable intangibles:Water infrastructure


5.3


4.9Piping systems


7.2


6.2Corporate


42.7


42.7Consolidated


55.2


53.8


The
Company evaluates segment performance based on segment EBITDA. A reconciliation of 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

$
109.5Unallocated 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


Geographical
area information with respect to net sales, as determined by the location of the customer invoiced, and property, plant and equipmentnet, as
determined by the physical location of the assets, were as follows for the three and six months 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

$
448.1Canada


38.3


44.9


70.2


89.3Other Countries


2.3


2.6


4.3


3.9$
236.3

$
285.2

$
456.5

$
541.3


11

---



At September 30, 2004

At April 2, 2005Property, plant and equipment, net:United States

$
173.7

$
163.9Canada


11.7


11.8Other Countries


1.4


1.4$
186.8

$
177.1


4.    Summary of Significant 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 of cost (first-in, first-out) or market value. Additionally, the Company evaluates its inventory
reserves in terms of excess and obsolete exposures. This evaluation includes such factors as anticipated usage, inventory turnover, inventory levels and ultimate product sales value. As such, these
factors may change over time causing the reserve level to adjust accordingly.

Warranty
CostsThe Company accrues for the estimated cost of product warranties at the time of product sale based on historical experience. Adjustments to obligations for
warranties are made as changes in the obligations become reasonably estimable. The following table summarizes information concerning the Company's product warranty obligations:

Three months ended

Six months endedMarch 27, 2004

April 2, 2005

March 27, 2004

April 2, 2005Balance at beginning of period

$
1.1

$
1.3

$
0.9

$
1.6Accruals for warranties


1.8


0.5


2.5


1.1Settlement 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 comprehensive income for the three months ended March 27, 2004, and April 2, 2005 includes foreign currency
translation losses of $(0.8) million and $(0.6) million, respectively. The Company's comprehensive income for the six months ended March 27, 2004 and April 2, 2005 includes
foreign currency translation gains of $1.3 million and $3.4 million, respectively.

Related
Party TransactionsSubstantially all of the outstanding shares of our common stock are held by the Donaldson, Lufkin & Jenrette ("DLJ") Merchant Banking funds.
We pay DLJ an annual advisory fee in connection with a financial advisory agreement. Credit Suisse First Boston LLC, an affiliate of DLJ, has received and will receive customary fees and reimbursement
of expenses in connection with the arrangement and syndication of Group's senior credit facility and as a lender and agent thereunder. The aggregate amount of all fees incurred by the Company with
these related parties in connection with advisory services and financing arrangements was approximately $0.1 million for each of the three-month periods ended March 27, 2004 and
April 2, 2005 and $0.5 million and $0.2 million for the six-month periods ended March 27, 2004 and April 2, 2005, respectively.

12

---





5.    Acquisitions

Effective January 15, 2004, the Company acquired certain assets of Star Pipe, Inc. ("Star"). The acquisition was accounted for in accordance with
SFAS No. 141 and the operating results were included in the consolidated results since the date of acquisition. Star is a leading distributor of foreign-sourced cast and grooved fittings and
couplings. The Star acquisition provides an entry into the foreign-sourced product marketplace. The acquisition's purchase price was $17 million, and was paid in cash.

The
following summary presents the estimated fair values of the assets and liabilities assumed as of January 15, 2004:

(dollars in millions)Current assets

$
13.1Property, plant & equipment


0.4Intangible assets


6.7Total assets

$
20.2Current liabilities


3.2Net assets acquired

$
17.0


As
part of the acquisition, the Company has agreed to a future payment to be made to the seller to the extent that the gross profit of the acquired business exceeds a targeted gross
profit. The maximum potential deferred payment amount is $23 million. Management currently estimates the deferred payment could total approximately $3 to $6 million for the deferred
payment period which begins February 1, 2004 and ends January 31, 2007. The deferred payment amount indicated above is based on management's best estimate, but the actual adjustment
could be materially different. The liability for such deferred payment will be recorded at the end of each deferred payment period, in accordance with the purchase agreement. No deferred payment was
earned 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 ten years, three years and five years, respectively.

Also
effective January 15, 2004, the Company acquired certain assets of Modern Molded Products ("Modern Molded"). The acquisition was accounted for in accordance with SFAS
No. 141 and the operating results were included in the consolidated results since the date of acquisition. The purchase of the assets and technology of Modern Molded enables the company to
internally produce parts that we previously purchased, thereby reducing spending and increasing product supply line predictability. The acquisition's purchase price was $2.8 million, and was
paid in cash.

13

---



The
following summary presents the estimated fair values of the assets and liabilities assumed as of January 15, 2004:

(dollars in millions)Current assets

$
0.2Property, plant & equipment


0.7Intangible assets


1.9Net assets acquired

$
2.8


The intangible assets acquired include a non-compete agreement with the former owners and purchased technology. These intangibles are
being amortized over their estimated useful lives of five years.

The
following unaudited pro forma summary presents the consolidated results of operations for the three and six months ended March 27, 2004 as if the acquisitions of Star and
Modern Molded had occurred as of October 1, 2003:

Three months ended

Six months endedMarch 27, 2004

March 27, 2004(dollars in millions)Net Sales

$
237.4

$
463.9Net income


11.4


15.5


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

6.    New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), "Share-Based Payment." SFAS No. 123(R) replaces SFAS
No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123(R) requires compensation costs
related to share-based payment transactions to be recognized in the financial statements over the period that an employee provides service in exchange for the award. Public companies are required to
adopt the new standard using a modified prospective method and may elect to restate prior periods using the modified retrospective method. Under the modified prospective method, companies are required
to record compensation cost for new and modified awards over the related vesting period of such awards prospectively and record compensation cost prospectively for the unvested portion, at the date of
adoption, of previously issued and outstanding awards over the remaining vesting period of such awards. No change to prior periods presented is permitted under the modified prospective method. Under
the modified retrospective method, companies record compensation costs for prior periods retroactively through restatement of such periods using the exact pro forma amounts disclosed in the companies'
footnotes. Also, in the period of adoption and after, companies record compensation based on the modified prospective method. SFAS No. 123(R), as amended in April 2005 for compliance dates,
allows companies to

14

---



implement
the standard at the beginning of their next fiscal year. The Company plans to adopt SFAS No. 123(R) as of October 1, 2005, the beginning of its next fiscal year and to use the
modified prospective method. The adoption of SFAS 123(R) is not expected to have a material impact on the Company's financial statements, as all options previously outstanding have been
cancelled as part of the April 2004 recapitalization.

In
November 2004, the Financial Accounting Standards Board issued SFAS No. 151, "Inventory Costs." SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4,
"Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. This Statement requires that those items be recognized as
current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The Company intends to adopt SFAS No. 151 on
October 1, 2005, the beginning of its 2006 fiscal year. The Company is currently evaluating the impact of this standard on its financial statements.

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

In
March 2005, the FASB issued FASB Interpretation No. 47 ("FIN 47"), "Accounting for Conditional Asset Retirement Obligations." FIN 47 provides clarification of certain
sections of FASB Statement No. 143, "Accounting for Asset Retirement Obligations." Specifically, FIN 47 clarifies the meaning of the term "conditional asset retirement obligation" as used in
SFAS 143 and also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end
of fiscal years ending after December 15, 2005. The Company is currently evaluating the impact of this standard on its financial statements.

15

---



7.    Long-Term Debt

September 30, 2004

April 2, 2005(dollars in millions)Senior credit facility term loans

$
515.0

$
514.3Second Priority Senior Secured Notes


100.0


100.010% Senior Subordinated Notes


315.0


315.0143/4% Senior discount notes(1)


106.8


116.0Capital lease obligations


2.6


2.41,039.4


1,047.7Less current portion


(3.2
)

(3.9
)$
1,036.2

$
1,043.8


---

Interest Rate SwapsGroup has entered into interest rate swap agreements in order to reduce interest rate risks and manage
interest expense. As of April 2, 2005, a notional principal amount of $100.0 million in swap agreements was still outstanding and scheduled to mature in May 2005 and
July 2005. The swap agreements effectively convert floating-rate debt into fixed-rate debt and carried an average fixed interest rate of 7.52% at April 2, 2005.
Interest differentials to be paid or received because of swap agreements are reflected as an adjustment to interest expense over the related debt period. At April 2, 2005 and
September 30, 2004, the fair value of interest rate swaps was a liability of $1.7 million and $4.7 million, respectively, and has been recorded in Other Long-Term
Liabilities on the Consolidated Balance Sheets.

8.    Redeemable Common Stock

Group has entered into an employment agreement with Dale B. Smith, the Company's and Group's President and Chief Executive Officer. This agreement, in
certain circumstances, gives Mr. Smith the right to sell to the Company, at a price equal to the fair market value of his equity interests as of the date of such sale or purchase, his shares of
the Company's common stock. The Company has classified an amount representing the initial fair value of the redeemable shares of its common stock owned by Mr. Smith outside of permanent equity.
At September 30, 2004 and April 2, 2005, Mr. Smith beneficially owned approximately 9.2 million Class A common shares. These shares of common stock have not been
marked-to-market as the circumstances that would give rise to Mr. Smith's
right to sell, and the Company's obligation to purchase Mr. Smith's shares of common stock, are considered remote currently.

16

---





9.    Commitments and Contingencies

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

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

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

Over
the next two to three years, the Company expects to incur between $2.0 million and $6.0 million of capital costs at its steel and iron foundries to comply with the United States
Environmental Protection Agency's National Emissions Standards for Hazardous Air Pollutants which were issued April 22, 2004.

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

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

In
November 2003, Beck Manufacturing, a division of Anvil International, closed its manufacturing facility in Kearny, NJ, and withdrew from the Teamsters Local 11 Pension Fund
("Teamsters" or "Fund"). Anvil has established an accrual of $0.2 million for any withdrawal liability. On July 19, 2004,

17

---



the
Fund Trustees issued notice to Anvil that, pursuant to ERISA Sections 4202 and 4219(b)(1), Anvil owed approximately $1.2 million in withdrawal liability to the Fund. On
October 5, 2004, Anvil sent notice to the Teamsters contesting the amount of the withdrawal liability. The Teamsters gave notice of their plan to appeal and pursue arbitration under the
guidelines set out in the Teamsters Trust Agreement. Anvil has filed an arbitration demand and intends to vigorously defend its position that a substantially lower withdrawal liability is appropriate.

As
part of the Star acquisition, the Company has agreed to a future payment to be made to the seller to the extent that the gross profit of the acquired business exceeds a targeted gross
profit. The maximum potential deferred payment amount is $23 million. Management currently estimates the deferred payment could total approximately $3 to $6 million for the deferred payment
period that begins February 1, 2004 and ends January 31, 2007. The deferred payment amount indicated above is based on management's best estimate, but the annual adjustment could be
materially different. The liability for such deferred payment will be recorded at the end of each deferred payment period, in accordance with the purchase agreement. No deferred payment was earned in
2004.

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

10.    Net Periodic Benefit CostDefined Benefit Plans

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

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

Three months ended

Six months endedMarch 27,
2004

April 2,
2005

March 27,
2004

April 2,
2005(dollars in millions)Service cost

$
0.5

$
0.7

$
1.0

$
1.5Interest cost


1.4


1.4


2.8


2.7Expected return on plan assets


(1.1
)

(1.2
)

(2.3
)

(2.5
)Amortization of prior service cost











0.1Amortization of net actuarial loss


0.6


0.6


1.3


1.3Net periodic benefit cost

$
1.4

$
1.5

$
2.8

$
3.1


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

18

---



11.    Supplementary Balance Sheet Information

Selected supplementary balance sheet information is presented below:

September 30,
2004

April 2,
2005(dollars in millions)InventoriesPurchased materials and manufactured parts

$
41.1

$
48.3Work in process


67.3


76.4Finished goods


151.8


179.3$
260.2

$
304.0


12.    Supplementary Income Statement Information

The components of interest expense are presented below:

Three months ended

Six months endedMarch 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

$
44.9Deferred financing fee amortization


0.6


1.4


1.3


2.6Senior 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


19

---



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

Three months ended

Six months endedMarch 27, 2004

April 2, 2005

March 27, 2004

April 2, 2005(restated)



(restated)(dollars in millions)Net income

$
11.4

$
9.2

$
15.3

$
15.9Less 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.    Facility Rationalization, Restructuring and Related Costs

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

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

20

---



ITEM 2.    MANAGEMENT'S DISCUSSION 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. and its subsidiaries, except where
the context makes clear that the reference is only to Mueller Water Products, Inc. itself, and is not inclusive of its subsidiaries.

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

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

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

Overview

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

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

Results
for the second quarter and first six months of 2005 reflected continued strong performance in the residential construction market, as well as the full effect of the pricing
increases implemented in the second half of 2004 and early 2005. Both our water infrastructure and piping systems segments reported improvements in net sales, gross profit and operating income in the
three months and the six months ended April 2, 2005 as compared to the three months and six months ended March 27, 2004.

21

---



The
Company incurred a significant amount of additional indebtedness in connection with its recapitalization in April 2004. New debt associated with the recapitalization added
$14.8 million and $28.2 million of interest expense in the three and six month periods ended April 2, 2005 as compared to the similar fiscal periods in 2004.

Restatements

In November 2004, our Audit Committee was notified of alleged potential accounting improprieties concerning our accounting for inventory reserves and
certain questions concerning revenue recognition. The Audit Committee appointed an independent law firm to investigate the allegations. In January 2005, the independent law firm issued an
investigative report that identified several areas requiring financial review by the Company. These areas principally concerned accounting for excess and obsolete (E&O) inventory, the capitalization
of costs relating to a project that should have been expensed in prior periods, the accrual of reserves for this project without identifying support for such accruals and the timing of recognition of
revenue with regard to full truckload shipments that were not immediately dispatched to customers by certain freight carriers used by the Company. The Company also identified some additional annual
and interim items recorded in incorrect periods in the course of finalizing the 2004 financial statements. In addition, the Company determined that the value it assigned to stock compensation in
connection with its April 2004 recapitalization should be revised. As a result of these findings, the Company restated its annual financial statements for its 2002 and 2003 fiscal years and its
interim financial statements for its 2004 fiscal year. For more specific information about prior period restatements, see Notes 2 and 21 of the Company's Audited Consolidated Financial
Statements for the year ended September 30, 2004 as found in Form 10-K (File No. 333-116590).

22

---



Results of Operations



|                                                          |                      | Three months ended |       |       |      | FY05 Q2 vs. FY04 Q2 |  
|--------------------------------------------------------- | -------------------- | ------------------ | ----- | ----- | ---- | ------------------- | -
|
|
|
|Net sales                                                 |                      |                    |       |       |      |                     |  
|                                                          | Water infrastructure |                    | $     | 170.1 |      | 59.6                | %
|                                                          | Piping systems       |                    |       | 115.1 |      | 40.4                |  
|                                                          |                      |                    |       |       |      |                     |  
|                                                          | Consolidated         |                    |       | 285.2 |      | 100.0               |  
|                                                          |                      |                    |       |       |      |                     |  
|Gross profit                                              |                      |                    |       |       |      |                     |  
|                                                          | Water infrastructure |                    |       | 56.8  |      | 33.4                |  
|                                                          | Piping systems       |                    |       | 31.1  |      | 27.0                |  
|                                                          |                      |                    |       |       |      |                     |  
|                                                          | Consolidated         |                    |       | 87.9  |      | 30.8                |  
|                                                          |                      |                    |       |       |      |                     |  
|Selling, general and administrative expenses              |                      |                    |       |       |      |                     |  
|                                                          | Water infrastructure |                    |       | 16.9  |      | 9.9                 |  
|                                                          | Piping systems       |                    |       | 21.2  |      | 18.4                |  
|                                                          | Corporate            |                    |       | 9.6   |      | 3.4                 |  
|                                                          |                      |                    |       |       |      |                     |  
|                                                          | Consolidated         |                    |       | 47.7  |      | 16.7                |  
|                                                          |                      |                    |       |       |      |                     |  
|Stock compensation expense                                |                      |                    |       |       |      |                     |  
|                                                          | Corporate            |                    |       |      |      |                    |  
|                                                          |                      |                    |       |       |      |                     |  
|Facility rationalization, restructuring and related costs |                      |                    |       |       |      |                     |  
|                                                          | Water infrastructure |                    |       | 1.5   |      | 0.9                 |  
|                                                          | Piping systems       |                    |       |      |      |                    |  
|                                                          |                      |                    |       |       |      |                     |  
|                                                          | Consolidated         |                    |       | 1.5   |      | 0.5                 |  
|                                                          |                      |                    |       |       |      |                     |  
|Operating income                                          |                      |                    |       |       |      |                     |  
|                                                          | Water infrastructure |                    |       | 38.4  |      | 22.6                |  
|                                                          | Piping systems       |                    |       | 9.9   |      | 8.6                 |  
|                                                          | Corporate            |                    |       | (9.6  | )    | (3.4                | )
|                                                          |                      |                    |       |       |      |                     |  
|                                                          | Consolidated         |                    |       | 38.7  |      | 13.6                |  
|                                                          |                      |                    |       |       |      |                     |  
|Interest expense                                          |                      |                    | (23.5 | )     | (8.2 | )                   |  
|Interest income                                           |                      |                    | 0.2   |       | 0.1  |                     |  
|                                                          |                      |                    |       |       |      |                     |  
|Income before income taxes                                |                      |                    | 15.4  |       | 5.4  |                     |  
|Income tax expense                                        |                      |                    | 6.2   |       | 2.2  |                     |  
|                                                          |                      |                    |       |       |      |                     |  
|Net income                                                |                      | $                  | 9.2   |       | 3.2  | %                   | $
|                                                          |                      |                    |       |       |      |                     |  
|Segment EBITDA(1)                                         |                      |                    |       |       |      |                     |  
|                                                          | Water infrastructure |                    |       | 44.4  |      | 26.1                |  
|                                                          | Piping systems       |                    |       | 14.2  |      | 12.3                |  
|                                                          |                      |                    |       |       |      |                     |  
|Total segment EBITDA                                      |                      | $                  | 58.6  |       | 20.5 |                     | $
|                                                          |                      |                    |       |       |      |                     |  

---

23

---





Three months endedApril 2, 2005

March 27, 2004(as restated)(3)Total segment EBITDA

$
58.6

$
44.6Unallocated 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


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 months ended April 2, 2005 were $170.1 million, or a 24.0% increase as compared to $137.2 million for the three months ended
March 27, 2004. This increase was driven primarily by price increases implemented in the second half of 2004 and during this current quarter, as well as increased volumes due to the 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 increase was driven primarily by price increases which were implemented in the second half of 2004 and in the first half of 2005.

Gross Profit.Gross profit for the three months ended April 2, 2005 was $87.9 million, or a 32.0% increase as compared to
$66.6 million for the three months ended March 27, 2004. Gross profit, as a percentage of net sales, or gross margin, increased from 28.2% for our second quarter of 2004 to 30.8% for our
second quarter of 2005.

Water
infrastructure gross profit for the three months ended April 2, 2005 was $56.8 million, or a 28.5% increase as compared 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 second quarter of 2004 to 33.4% for our second quarter of 2005. The increase in gross profit was
primarily driven by price increases and the continued
strong performance of the residential construction market. Partially offsetting the effects of higher prices were higher raw material costs (most notably brass ingot and scrap steel) due to worldwide
supply and demand issues. We cannot be certain that any future increases in raw material costs can be passed on to our customers.

Piping
systems gross profit for the three months ended April 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. Gross profit, as a percentage of net sales, increased from 22.6% to 27.0%. The increase in gross profit was primarily driven by price increases. Increased raw material costs
partially offset the effects of the higher prices. We cannot be certain we can continue to pass on cost increases to our customers.

Selling, General & Administrative Expense.Selling, General and Administrative expenses ("SG&A") for the three months ended
April 2, 2005 were $47.7 million, or a 19.5% increase as compared to $39.9 million for the three months ended March 27, 2004. As a percentage of net sales, SG&A decreased
from 16.9% for our second quarter of 2004 to 16.7% for our second quarter of 2005.

24

---



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

Piping
systems SG&A for the three months ended April 2, 2005 was $21.2 million, or a 20.5% increase as compared to $17.6 million for the three months ended March 27,
2004. As a percentage of net sales, SG&A increased from 17.8% for our second quarter of 2004 to 18.4% for our second quarter of 2005. Significant factors contributing to the higher costs include
increased selling costs of $1.2 million primarily due to higher sales commissions, increased warehousing costs of $0.5 million primarily related to a higher volume of activity in the
Star product line and increased management incentive compensation cost of $0.8 million due to higher earnings.

Corporate
expenses for the three months ended April 2, 2005 were $9.6 million as compared to $8.4 million for the three months ended March 27, 2004. Significant
factors contributing to higher costs in the second quarter of 2005 include legal and audit fees of $0.7 million related to an internal investigation (see Note 2), accounting and legal
fees of $0.5 million related to SEC filing matters, consulting fees of $1.4 million related to efforts to become compliant with public company reporting and Sarbanes-Oxley internal
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 million associated with additional accounting and legal staffing. These items are offset by a
$4.0 million reduction in amortization expense for the second quarter of 2005 as compared to the second quarter of 2004 due to an intangible asset becoming fully amortized during the fourth
quarter of 2004. Corporate expenses consist primarily of corporate staff, benefits, legal and facility costs.

Facility Rationalization, Restructuring and Related Costs.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 building and machinery at a water infrastructure plant in Colorado that ceased manufacturing and began
outsourcing a product line in February 2005.

There
was $0.9 million of facility rationalization costs for the three months ended March 27, 2004, related primarily to future lease obligations at a closed piping systems
facility in New Jersey and environmental issues at a closed 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. Interest expense for the three months ended April 2, 2005, included $14.8 million of additional
interest expense and amortization of deferred financing fees on $518.0 million of net additional debt resulting from the Company's recapitalization in April 2004. Also, gains recorded on
interest rate swaps were $2.0 million lower in 2005 than in 2004 as more swap agreements 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.

Water
infrastructure 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. The increased EBITDA resulted primarily from increased prices and volumes, partially offset by additional SG&A spending as discussed above.

Piping
systems 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 the three months
ended March 27, 2004. The increased EBITDA resulted primarily from increased prices, partially offset by additional SG&A spending as discussed above.

25

---



Results of Operations



|                                                          |                      | Six months ended |       |       |      | 2005 vs. 2004 |  
|--------------------------------------------------------- | -------------------- | ---------------- | ----- | ----- | ---- | ------------- | -
|
|
|
|Net sales                                                 |                      |                  |       |       |      |               |  
|                                                          | Water infrastructure |                  | $     | 308.7 |      | 57.0          | %
|                                                          | Piping systems       |                  |       | 232.6 |      | 43.0          |  
|                                                          |                      |                  |       |       |      |               |  
|                                                          | Consolidated         |                  |       | 541.3 |      | 100.0         |  
|                                                          |                      |                  |       |       |      |               |  
|Gross profit                                              |                      |                  |       |       |      |               |  
|                                                          | Water infrastructure |                  |       | 101.6 |      | 32.9          |  
|                                                          | Piping systems       |                  |       | 62.2  |      | 26.7          |  
|                                                          |                      |                  |       |       |      |               |  
|                                                          | Consolidated         |                  |       | 163.8 |      | 30.3          |  
|                                                          |                      |                  |       |       |      |               |  
|Selling, general and administrative expenses              |                      |                  |       |       |      |               |  
|                                                          | Water infrastructure |                  |       | 32.8  |      | 10.6          |  
|                                                          | Piping systems       |                  |       | 40.5  |      | 17.4          |  
|                                                          | Corporate            |                  |       | 18.0  |      | 3.3           |  
|                                                          |                      |                  |       |       |      |               |  
|                                                          | Consolidated         |                  |       | 91.3  |      | 16.9          |  
|                                                          |                      |                  |       |       |      |               |  
|Stock compensation expense                                |                      |                  |       |       |      |               |  
|                                                          | Corporate            |                  |       |      |      |              |  
|                                                          |                      |                  |       |       |      |               |  
|Facility rationalization, restructuring and related costs |                      |                  |       |       |      |               |  
|                                                          | Water infrastructure |                  |       | 1.6   |      | 0.5           |  
|                                                          | Piping systems       |                  |       |      |      |              |  
|                                                          |                      |                  |       |       |      |               |  
|                                                          | Consolidated         |                  |       | 1.6   |      | 0.3           |  
|                                                          |                      |                  |       |       |      |               |  
|Operating income                                          |                      |                  |       |       |      |               |  
|                                                          | Water infrastructure |                  |       | 67.2  |      | 21.8          |  
|                                                          | Piping systems       |                  |       | 21.7  |      | 9.3           |  
|                                                          | Corporate            |                  |       | (18.0 | )    | (3.3          | )
|                                                          |                      |                  |       |       |      |               |  
|                                                          | Consolidated         |                  |       | 70.9  |      | 13.1          |  
|                                                          |                      |                  |       |       |      |               |  
|Interest expense                                          |                      |                  | (44.6 | )     | (8.2 | )             |  
|Interest income                                           |                      |                  | 0.6   |       | 0.1  |               |  
|                                                          |                      |                  |       |       |      |               |  
|Income before income taxes                                |                      |                  | 26.9  |       | 5.0  |               |  
|Income tax expense                                        |                      |                  | 11.0  |       | 2.0  |               |  
|                                                          |                      |                  |       |       |      |               |  
|Net income                                                |                      | $                | 15.9  |       | 2.9  | %             | $
|                                                          |                      |                  |       |       |      |               |  
|Segment EBITDA(1)                                         |                      |                  |       |       |      |               |  
|                                                          | Water infrastructure |                  |       | 79.2  |      | 25.7          |  
|                                                          | Piping systems       |                  |       | 30.3  |      | 13.0          |  
|                                                          |                      |                  |       |       |      |               |  
|Total segment EBITDA                                      |                      | $                | 109.5 |       | 20.2 |               | $
|                                                          |                      |                  |       |       |      |               |  

---

26

---





Six months endedApril 2, 2005

March 27, 2004(as restated)(3)Total segment EBITDA

$
109.5

$
83.0Unallocated 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


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 months ended April 2, 2005 were $308.7 million, or a 17.9% increase as compared to $261.9 million for the six months ended
March 27, 2004. This increase was driven primarily by price increases implemented in the second half of 2004 and during the second quarter of 2005, as well as increased volumes due to 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 increase was driven primarily by price increases implemented in the second half of 2004 and the first half of 2005, as well as $7.3 million of additional Star
product sales. We acquired the Star business in January 2004 (see Note 5).

Gross Profit.Gross profit for the six months ended April 2, 2005 was $163.8 million, or a 30.7% increase as compared to
$125.3 million for the six months ended March 27, 2004. Gross profit, as a percentage of net sales, or gross margin, increased from 27.4% for our first half of 2004 to 30.3% for our
first half of 2005.

Water
infrastructure gross profit for the six months ended April 2, 2005 was $101.6 million, or a 22.0% increase as compared 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 first half of 2004 to 32.9% for our first half of 2005. The increase in gross profit was primarily
driven by price increases and the continued strong performance of the residential construction market. Partially offsetting the effects of higher prices were higher raw material costs (most notably
brass ingot and scrap steel) due to worldwide supply and demand issues. We cannot be certain that any future increases in raw material costs can be passed 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 million for the six months ended
March 27, 2004. Gross profit, as a percentage of net sales, increased from 21.6% to 26.7%. The increase in gross profit was primarily driven by price increases. Increased raw material costs
partially offset the effects of the higher prices. We cannot be certain we can continue to pass on cost increases to our customers.

Selling, General & Administrative Expense.Selling, General and Administrative expenses ("SG&A") for the six months ended
April 2, 2005 were $91.3 million, or a 16.2% increase as compared to $78.6 million for the six months ended March 27, 2004. As a percentage of net sales, SG&A decreased
from 17.2% for our first half of 2004 to 16.9% for our first half of 2005.

27

---



Water
infrastructure SG&A for the six months ended April 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 a percentage of net sales, SG&A decreased from 10.9% for our first half of 2004 to 10.6% for our first half of 2005. Significant factors contributing to the 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 million for 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 first half of 2005. Significant factors contributing to the higher costs include increased
selling costs of $2.9 million primarily due to higher sales commissions, increased warehousing costs of $1.4 million primarily related to the Star product line and increased management
incentive compensation cost of $0.9 million due to higher earnings.

Corporate
expenses for the six months ended April 2, 2005 were $18.0 million as compared to $16.6 million for the six months ended March 27, 2004. Significant
factors contributing to higher costs for the first half of 2005 were: legal and audit fees of $3.0 million related to 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 company reporting and Sarbanes-Oxley internal control
requirements, increased incentive compensation costs of $1.7 million, increased audit and other consulting fees of $0.8 million, and increased salary, benefit, recruiting and relocation
costs of $0.8 million associated with additional accounting and legal staffing. These items are offset by a $8.0 million reduction in amortization expense for the first half of 2005 as
compared to the first half of 2004 due to an intangible asset becoming fully amortized during the fourth quarter of 2004. Corporate expenses consist primarily of corporate staff, benefits, legal and
facility costs.

Facility Rationalization, Restructuring and Related Costs.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 of operating leases for the building and machinery at a water infrastructure plant in Colorado that ceased
manufacturing and began outsourcing a product line in February 2005.

There
was $0.9 million of facility rationalization costs for the three months ended March 27, 2004, related primarily to future lease obligations at a closed piping systems
facility in New Jersey 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. Interest expense for the six months ended April 2, 2005, includes $28.2 million of additional interest
expense and amortization of deferred financing fees on $518.0 million of net additional debt resulting from the Company'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 the early
redemption of $50.0 million of senior subordinated debt in November 2003. Also, gains recorded on interest rate swaps were $3.4 million lower in 2005 than in 2004 as more swap
agreements expired and were not renewed.

Income Tax Expense.The effective tax rates for the six months ended April 2, 2005 and for the six months ended March 27,
2004 were 41% and 40%, respectively. The higher effective tax rate in the six months ended April 2, 2005 resulted primarily from the nondeductible portion of the interest expense related to the
senior discount notes issued in the third quarter 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.

28

---



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

Liquidity and Capital Resources

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

The
senior credit facility, secured notes and subordinated notes are obligations of Group and impose limitations on its ability to pay dividends to us. Group's ability to generate net
income will depend upon various factors that may be beyond our control. Accordingly, Group may not generate sufficient cash flow or be permitted by the terms of its debt instruments to pay dividends
or distributions to us in amounts sufficient to allow us to pay cash interest on the senior discount notes. We would then be required to secure alternate financing, which may not be available on
acceptable terms, or at all.

Group's
principal sources of liquidity have been and are expected to be cash flow from operations and borrowings under the senior credit facility. Its principal uses of cash will be debt
service requirements as described below, capital expenditures, working capital requirements, dividends to us to finance our cash needs and possible acquisitions.

Debt Service

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

Capital Expenditures

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

29

---



Sources of Funds

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

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

Historical

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

Cash flows from operating activities.Net cash provided by operations was $2.9 million for the first six months of 2005, compared to
net cash provided of $9.3 million for the first six months of 2004.
Significant changes in working capital balances in the first six months of 2005 included a $43.8 million increase in inventories. Water infrastructure inventories increased $21.6 million during
the six months ended April 2, 2005. This was largely due to a planned seasonal inventory build. Approximately $5.0 million of the total increase was due to higher raw material costs.
Piping systems inventories increased $22.2 million during the six months ended April 2, 2005. A planned domestic manufacturing inventory build accounted for approximately
$7.0 million of this increase, while about $5.0 million was due to higher raw material costs, and $11.0 million was due to increased foreign product required to service customer
demand.

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

Cash flows from financing activities.Cash flows used in financing activities decreased from $43.4 million in the first six months
of 2004 to $1.2 million in the first six months of 2005. This was primarily due to early payment of $50 million of subordinated notes due 2009 in the first quarter of 2004.

Off-Balance Sheet Arrangements

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

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

30

---





Contractual Obligations

Our contractual obligations as of April 2, 2005:

Payments Due by Period

Contractual Obligations

Less than
1 Year

1-3 Years

4-5 Years

After 5 Years

Total(dollars in millions)Long-term debtPrincipal on long-term debt

$
2.9

5.8

5.8

1,024.8

1,039.3Interest on long-term debt(1)


69.6

138.4

169.1

360.0

737.1Capital lease obligations


1.0

1.3

0.1



2.4Operating leases


8.3

10.9

3.7

3.2

26.1Unconditional purchase obligations(2)


14.4







14.4Other long-term obligations(3)










Total contractual cash obligations

$
96.2

156.4

178.7

1,388.0

1,819.3


---

Effect of Inflation; Seasonality

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

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

31

---



Critical Accounting Policies

Our significant accounting policies are described in our audited consolidated financial statements for the year ended September 30, 2004 as found on
Form 10-K (File No. 333-116590). While all significant accounting policies are important to our consolidated financial statements, some of these policies may be
viewed as being critical. Such policies are those that are both most important to the portrayal of our financial condition and require our most difficult, subjective and complex estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. These estimates
are based upon our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Our actual results may differ from these estimates under different
assumptions or conditions.

Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), "Share-Based Payment." SFAS No. 123(R) replaces SFAS
No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123(R) requires compensation costs
related to share-based payment transactions to be recognized in the financial statements over the period that an employee provides service in exchange for the award. Public companies are required to
adopt the new standard using a modified prospective method and may elect to restate prior periods using the modified retrospective method. Under the modified prospective method, companies are required
to record compensation cost for new and modified awards over the related vesting period of such awards prospectively and record compensation cost prospectively for the unvested portion, at the date of
adoption, of previously issued and outstanding awards over the remaining vesting period of such awards. No change to prior periods presented is permitted under the modified prospective method. Under
the modified retrospective method, companies record compensation costs for prior periods retroactively through restatement of such periods using the exact pro forma amounts disclosed in the companies'
footnotes. Also, in the period of adoption and after, companies record compensation based on the modified prospective method. SFAS No. 123(R), as amended in April 2005 for compliance dates,
allows companies to implement the standard at the beginning of their next fiscal year. The Company plans to adopt SFAS No. 123(R) as of October 1, 2005, the beginning of its next fiscal
year and to use the modified prospective method. The adoption of SFAS 123(R) is not expected to have a material impact on the Company's financial statements for the year ended
September 30, 2005.

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

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

32

---



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

In
March 2005, the FASB issued FASB Interpretation No. 47 ("FIN 47"), "Accounting for Conditional Asset Retirement Obligations." FIN 47 provides clarification of certain
sections of FASB Statement No. 143, "Accounting for Asset Retirement Obligations." Specifically, FIN 47 clarifies the meaning of the term "conditional asset retirement obligation" as used in
SFAS 143 and also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end
of fiscal years ending after December 15, 2005. The Company is currently evaluating the impact of this standard on its financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

At
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
from a 100 basis point increase in interest rates on variable rate debt, holding other variables constant and excluding the impact of the hedging agreements described below, would be approximately
$6.2 million per year.

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

Our
strategy for management of currency risk relies primarily on conducting our operations in a country's respective currency and may, from time to time, involve currency derivatives,
primarily forward foreign exchange contracts, to reduce our exposure to currency fluctuations. As of April 2, 2005, we had foreign exchange contracts outstanding with a notional principal
amount of $1.8 million to hedge our Canadian operations' exposure to currency fluctuations on products purchased from United States suppliers and purchases of equipment from European suppliers.

ITEM 4. CONTROLS AND PROCEDURES.

As previously reported, in January 2005, the Company received a written report from the independent law firm retained by us to conduct an internal
investigation of a whistle-blower complaint that alleged accounting improprieties. The investigation report did not identify any fraud or intentional misconduct by the Company or any of its employees.
However, the report identified deficiencies in the Company's accounting policies, internal controls and related matters. In connection with the audit of our fiscal 2004 results and as a result of the
investigation, we have concluded that the conditions that currently exist at the Company represent reportable conditions (as defined in AU 325, "Communication of Internal Control Related Matters Noted
In An Audit", of the AICPA professional standards) that collectively constitute a material weakness in our internal control over financial reporting.

33

---



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



Based
on deficiencies previously reported, our chief executive officer and interim chief financial officer have concluded that our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended) at April 2, 2005 were not effective. Nonetheless, our chief executive
officer and interim chief financial believe that the procedures we performed in connection with our preparation of this quarterly report, including, in particular, increased review and analysis of
transactions, account balances and journal entries in the areas where weaknesses were identified, provide reasonable assurance that the identified deficiencies did not lead to material misstatements
in our consolidated financial statements presented in this quarterly report.

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

34

---



PART II OTHER INFORMATION

Item 1. Legal Proceedings.

On April 7, 2005, our subsidiaries, Mueller Co. and Mueller International, Inc., filed a complaint against U.S. Pipe in the United States District
Court for the District of Massachusetts. The complaint alleged that certain U.S. Pipe fire hydrants infringe patent rights owned by Mueller International, Inc. The lawsuit seeks a permanent
injunction as well as unspecified monetary damages for 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 Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                                                                                                           
|31.2  |  | Certification of Interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                                                                                                   
|32.1  |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                                       
|32.2  |  | Certification of the Interim Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                               

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SIGNATURES

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

|                   |  | MUELLER WATER PRODUCTS, INC.
|------------------ |  | ----------------------------
|Date: May 13, 2005 |  | By:                         
|Date: May 13, 2005 |  | By:                         

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