**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

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

**Forthe quarterly period ended March 31, 2007.**

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

**CommissionFile Number 333-117473**

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**MUELLER GROUP, LLC**

(Exact name of registrantas specified in its charter)

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

 

**1200 Abernathy RoadAtlanta, GA  30328**

(Address of principalexecutive offices)

**(770) 206-4200**

(Registrant’s telephonenumber, including area code)

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

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

Large AcceleratedFiler o  AcceleratedFiler o  Non-acceleratedFiler x

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

As of May 1, 2007Mueller Group, LLC had 1 unit outstanding.

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

 

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**PART I. FINANCIAL INFORMATION**

**ITEM 1.**                FINANCIALSTATEMENTS

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

| ** **                                                                                                                                                        | ** ** | **March 31,  2007**            | ** ** | **September 30,  2006** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                        | ** ** | **(dollars in millions)** | ** ** |
| **Assets**                                                                                                                                                        |       |                                |       |                         |       |   |   |   |   |
| Cash and cash  equivalents                                                                                                                                        |       |                                | $          | 67.6                         |       |   |   | $ | 79.1 |   |   |
| Receivables, net  of allowance for doubtful accounts of $4.9 million and $4.8 million  at March 31, 2007 and September 30, 2006, respectively |       |                                | 274.3      |                         |       |   | 322.9 |   |   |
| Inventories                                                                                                                                                       |       |                                | 510.8      |                         |       |   | 454.6 |   |   |
| Deferred income  taxes                                                                                                                                            |       |                                | 42.4       |                         |       |   | 42.6 |   |   |
| Prepaid expenses                                                                                                                                                  |       |                                | 35.7       |                         |       |   | 33.7 |   |   |
| Total current assets                                                                                                                                              |       |                                | 930.8      |                         |       |   | 932.9 |   |   |
| Property, plant  and equipment, net                                                                                                                               |       |                                | 343.7      |                         |       |   | 337.0 |   |   |
| Deferred  financing fees and other long-term assets                                                                                                               |       |                                | 13.7       |                         |       |   | 16.8 |   |   |
| Identifiable  intangible assets, net                                                                                                                              |       |                                | 834.0      |                         |       |   | 835.4 |   |   |
| Goodwill                                                                                                                                                          |       |                                | 724.2      |                         |       |   | 724.1 |   |   |
| Total assets                                                                                                                                                      |       |                                | $          | 2,846.4                      |       |   |   | $ | 2,846.2 |   |   |
| **Liabilities**                                                                                                                                                   |       |                                |       |                         |       |   |   |   |   |
| Current portion  of long-term debt                                                                                                                                |       |                                | $          | 8.9                          |       |   |   | $ | 9.0 |   |   |
| Accounts payable                                                                                                                                                  |       |                                | 115.4      |                         |       |   | 129.9 |   |   |
| Accrued expenses  and other current liabilities                                                                                                                   |       |                                | 97.0       |                         |       |   | 122.1 |   |   |
| Total current liabilities                                                                                                                                         |       |                                | 221.3      |                         |       |   | 261.0 |   |   |
| Long-term debt                                                                                                                                                    |       |                                | 996.9      |                         |       |   | 1,002.0 |   |   |
| Accrued pension  liability, net                                                                                                                                   |       |                                | 45.7       |                         |       |   | 43.7 |   |   |
| Accumulated  postretirement benefits obligation                                                                                                                   |       |                                | 44.7       |                         |       |   | 46.3 |   |   |
| Deferred income  taxes                                                                                                                                            |       |                                | 299.8      |                         |       |   | 294.0 |   |   |
| Other long-term  liabilities                                                                                                                                      |       |                                | 20.9       |                         |       |   | 20.9 |   |   |
| Total liabilities                                                                                                                                                 |       |                                | 1,629.3    |                         |       |   | 1,667.9 |   |   |
| **Shareholders’ Equity**                                                                                                                                     |       |                                |       |                         |       |   |   |   |   |
| Membership unit:                                                                                                                                                  |       |                                |       |                         |       |   |   |   |   |
| 1 unit outstanding at March 31, 2007 and  September 30, 2006                                                                                            |       |                                | —     |                         |       |   | — |   |   |
| Capital in excess  of par value                                                                                                                                   |       |                                | 1,359.6    |                         |       |   | 1,358.4 |   |   |
| Accumulated  deficit                                                                                                                                              |       |                                | (121.9     | )                            |       |   | (161.5 | ) |   |
| Accumulated other  comprehensive loss                                                                                                                             |       |                                | (20.6      | )                            |       |   | (18.6 | ) |   |
| Total shareholders’ equity                                                                                                                                   |       |                                | 1,217.1    |                         |       |   | 1,178.3 |   |   |
| Total liabilities  and shareholders’ equity                                                                                                                  |       |                                | $          | 2,846.4                      |       |   |   | $ | 2,846.2 |   |   |

 

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

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**MUELLER GROUP, LLC CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)**

| ** **                                                 | ** ** | **Three months ended  March 31,** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                 | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                                 | ** ** | **(dollars in millions)**              | ** ** |
| Net sales                                                  |       | $                                                | 459.7      |   | $ | 434.9 |   |
| Cost of sales                                              |       | 341.9                                            |       | 340.3 |   |
| Gross profit                                               |       | 117.8                                            |       | 94.6 |   |
| Operating expenses:                                        |       |                                             |       |   |   |
| Selling, general and administrative                        |       | 64.9                                             |       | 60.8 |   |
| Related party corporate charges                            |       | —                                           |       | 2.0 |   |
| Facility rationalization, restructuring and related  costs |       | —                                           |       | 4.3 |   |
| Total operating expenses                                   |       | 64.9                                             |       | 67.1 |   |
| Income from  operations                                    |       | 52.9                                             |       | 27.5 |   |
| Interest expense,  net of interest income                  |       | 17.9                                             |       | 25.9 |   |
| Income before income taxes                                 |       | 35.0                                             |       | 1.6 |   |
| Income tax  expense                                        |       | 14.8                                             |       | 0.6 |   |
| Net income                                                 |       | $                                                | 20.2       |   | $ | 1.0 |   |

 

| ** **                                                 | ** ** | **Six months ended  March 31,** | ** ** |
|------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                 | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| ** **                                                 | ** ** | **(dollars in millions)**            | ** ** |
| Net sales                                                  |       | $                                              | 871.6      |   | $ | 915.3 |   |
| Cost of sales                                              |       | 646.1                                          |       | 777.2 |   |
| Gross profit                                               |       | 225.5                                          |       | 138.1 |   |
| Operating expenses:                                        |       |                                           |       |   |   |
| Selling, general and administrative                        |       | 122.0                                          |       | 117.9 |   |
| Related party corporate charges                            |       | 1.6                                            |       | 3.8 |   |
| Facility rationalization, restructuring and related  costs |       | —                                         |       | 28.4 |   |
| Total operating expenses                                   |       | 123.6                                          |       | 150.1 |   |
| Income (loss)  from operations                             |       | 101.9                                          |       | (12.0 | ) |
| Interest expense,  net of interest income                  |       | 35.2                                           |       | 54.0 |   |
| Income (loss) before income taxes                          |       | 66.7                                           |       | (66.0 | ) |
| Income tax  expense (benefit)                              |       | 27.1                                           |       | (26.1 | ) |
| Net income (loss)                                          |       | $                                              | 39.6       |   | $ | (39.9 | ) |

 

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

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**MUELLER GROUP, LLC**

**CONDENSEDCONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITYAND COMPREHENSIVE INCOME**

**FOR THE SIX MONTHSENDED MARCH 31, 2007(UNAUDITED)**

| ** **                                | ** ** | **Capital in  Excess of  Par Value** | ** ** | **Accumulated  Deficit** | ** ** | **Comprehensive  Income** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------|------------|---------------------------|------------|---------------------------------------------|------------|-----------|------------|
| Balance at  September 30, 2006       |       | $                                                   | 1,358.4    |                     |       | $                         | (161.5     | )                                           |       |      | $          | — |   |   |   | $ | (18.6 | ) |   | $ | 1,178.3 |   |
| Dividend paid to  parent                  |       | (4.0                                                | )          |                     |       |                      |       |                                        |       |      |       |   |   |   |   | (4.0 | ) |
| Share-based  compensation                 |       | 5.2                                                 |       |                     |       |                      |       |                                        |       |      |       |   |   |   |   | 5.2 |   |
| Comprehensive income                      |       |                                                |       |                     |       |                      |       |                                        |       |      |       |   |   |   |   |   |   |
| Net income                                |       |                                                |       |                     | 39.6       |                      |       |                                        | 39.6       |      |       |   | — |   |   | 39.6 |   |
| Unrealized loss on derivative instruments |       |                                                |       |                     |       |                      |       |                                        | (0.8       | )         |       |   | (0.8 | ) |   |   | (0.8 | ) |
| Foreign currency translation adjustments  |       |                                                |       |                     |       |                      |       |                                        | (1.2       | )         |       |   |   | (1.2 | ) |   |   | (1.2 | ) |
| Comprehensive  income                     |       |                                                |       |                     |       |                      |       |                                        | $          | 37.6      |       |   |   |   |   |   |   |   |   |   |
| Balance at  March 31, 2007           |       | $                                                   | 1,359.6    |                     |       | $                         | (121.9     | )                                           |       |      |       |   |   |   | $ | (20.6 | ) |   |   | $ | 1,217.1 |   |

 

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

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

| ** **                                                                                | ** ** | **Six months ended  March 31,**     | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                                | ** ** | **   2007    ** | ** ** | **2006** | ** ** |
| ** **                                                                                | ** ** | **(dollars in millions)**                | ** ** |
| **Operating Activities**                                                                  | ** ** |                                               | ** ** | ** ** |   | ** ** | ** ** |
| Net income (loss)                                                                         |       |                                               | $          | 39.6 |   |   | $ | (39.9 | ) |
| Adjustments to reconcile  net income (loss) to net cash provided by operating activities: |       |                                               |       |   |   |   |   |
| Depreciation                                                                              |       |                                               | 35.0       |   |   | 34.4 |   |
| Amortization of intangibles                                                               |       |                                               | 14.5       |   |   | 13.6 |   |
| Amortization of deferred financing fees                                                   |       |                                               | 1.3        |   |   | 2.2 |   |
| Accretion on debt                                                                         |       |                                               | (0.9       | ) |   | (1.6 | ) |
| Share-based compensation expense                                                          |       |                                               | 5.2        |   |   | 0.3 |   |
| Impairments of property, plant and equipment                                              |       |                                               | —     |   |   | 21.3 |   |
| Provision (credit) for deferred income taxes                                              |       |                                               | 6.8        |   |   | (25.9 | ) |
| Other, net                                                                                |       |                                               | 2.5        |   |   | (0.8 | ) |
| Changes in assets and  liabilities, net of the effects of acquisitions:                   |       |                                               |       |   |   |   |   |
| Receivables                                                                               |       |                                               | 53.1       |   |   | 23.4 |   |
| Inventories                                                                               |       |                                               | (50.8      | ) |   | 62.1 |   |
| Prepaid expenses and other current assets                                                 |       |                                               | (1.5       | ) |   | 1.8 |   |
| Pension and other long-term liabilities                                                   |       |                                               | 0.1        |   |   | 3.5 |   |
| Accrued expenses and other current liabilities                                            |       |                                               | (47.5      | ) |   | (24.3 | ) |
| Net cash provided  by operating activities                                                |       |                                               | 57.4       |   |   | 70.1 |   |
| **Investing Activities**                                                                  | ** ** |                                               | ** ** | ** ** |   | ** ** | ** ** |
| Additions to  property, plant and equipment                                               |       |                                               | (42.5      | ) |   | (30.9 | ) |
| Acquisitions of  businesses, net of cash acquired                                         |       |                                               | (22.5      | ) |   | (15.5 | ) |
| Decrease in  amounts due to Walter                                                        |       |                                               | —     |   |   | (15.6 | ) |
| Net cash used in  investing activities                                                    |       |                                               | (65.0      | ) |   | (62.0 | ) |
| **Financing Activities**                                                                  | ** ** |                                               | ** ** | ** ** |   | ** ** | ** ** |
| Increase in  dollar value of bank checks outstanding                                      |       |                                               | 3.9        |   |   | 9.7 |   |
| Proceeds from  short-term borrowings                                                      |       |                                               | —     |   |   | 55.9 |   |
| Retirement of  short-term debt                                                            |       |                                               | —     |   |   | (55.9 | ) |
| Proceeds from  long-term debt                                                             |       |                                               | —     |   |   | 1,050.0 |   |
| Retirement of  long-term debt                                                             |       |                                               | (4.3       | ) |   | (617.9 | ) |
| Payment of  deferred financing fees                                                       |       |                                               | —     |   |   | (21.6 | ) |
| Dividend to  parent                                                                       |       |                                               | (4.0       | ) |   | (444.5 | ) |
| Dividend to  Walter for acquisition costs                                                 |       |                                               | —     |   |   | (12.0 | ) |
| Walter  contribution of Predecessor Mueller’s cash                                   |       |                                               | —     |   |   | 67.4 |   |
| Net cash (used  in) provided by financing activities                                      |       |                                               | (4.4       | ) |   | 31.1 |   |
| Effect of  exchange rate changes on cash                                                  |       |                                               | 0.5        |   |   | — |   |
| Net (decrease)  increase in cash and cash equivalents                                     |       |                                               | (11.5      | ) |   | 39.2 |   |
| Cash and cash  equivalents at beginning of period                                         |       |                                               | 79.1       |   |   | — |   |
| Cash and cash  equivalents at end of period                                               |       |                                               | $          | 67.6 |   |   | $ | 39.2 |   |

 

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

Schedule of non-cash investing and financingactivities:

On October 3,2005, the Company’s former parent, Walter Industries, Inc., purchased allthe outstanding common stock of Predecessor Mueller in the Acquisition (asdefined in Note 1).

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

 

Subsequent to the Acquisition (as defined in Note 1),the Company’s former parent, Walter Industries, Inc., forgave anintercompany receivable with U.S. Pipe of $443.6 million.

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

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**MUELLER GROUP, LLCNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSAS OF AND FOR THE THREE AND SIX MONTHS ENDEDMARCH 31, 2007 AND MARCH 31, 2006(UNAUDITED)**

**Note 1. Organization**

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

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

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

The condensed consolidatedfinancial statements are prepared in conformity with accounting principlesgenerally accepted in the United States of America, which require management tomake certain estimates and assumptions that affect the reported amounts ofassets, liabilities, sales and expenses for the reporting periods. Actualresults could differ from those estimates. All significant intercompanybalances and transactions have been eliminated. In the opinion of management,all normal and recurring adjustments that are considered necessary for a fairfinancial statement presentation have been made. The condensed balance sheetdata as of September 30, 2006 was derived from audited financialstatements, but does not include all disclosures required by accountingprinciples generally accepted in the United States of America.

**Note 2. RelatedParty Transactions**

*Related Party Transactions*—The Company purchases foundry cokefrom Sloss Industries, Inc., which was an affiliate until December 14,2006, for an amount that approximates the market value of comparable transactions.Costs included in cost of sales related to purchases from Sloss Industries, Inc.were $4.5 million and $5.4 million for the three months ended March 31,2007 and 2006, respectively, and $9.0 million and $10.8 million for thesix months ended March 31, 2007 and 2006, respectively.

Other services that Sloss Industries, Inc.provides to the Company include the delivery of electrical power to one of theCompany’s facilities, rail car switching and the leasing of a distributionfacility.

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Charges for such serviceswere immaterial for the three months ended March 31, 2007,$0.4 million for the three months ended March 31, 2006, and $0.3million and $0.8 million for the six months ended March 31, 2007 and2006, respectively.

*Related Party Allocations—*Certain**costs incurred by Walter such asinsurance, executive salaries, professional service fees, human resources,transportation, healthcare and other centralized business functions wereallocated to its subsidiaries. Certain costs that were considered directlyrelated to the U.S. Pipe segment were charged to the Company and includedin selling, general and administrative expenses. As of December 15, 2006,Walter is no longer considered a related party. These costs were approximately$0.5 million, $0.6 million and $1.0 million for the six months ended March 31,2007 and the three months and six months ended March 31, 2006,respectively. Costs incurred by Walter that could not be directly attributed toits subsidiaries were allocated based on estimated annual revenues. Such costswere allocated to the Company and are recorded as related party corporatecharges in the accompanying Condensed Consolidated Statements of Operations. Therewere no charges during the three months ended March 31, 2007 and$2.0 million of such charges for the three months ended March 31,2006. Allocated expenses were $1.6 million and $3.8 million for the six monthsended March 31, 2007 and 2006, respectively. While the Company considersthe allocation of such costs to be reasonable, the cost of performing suchservices on its own behalf may vary from historically allocated amounts.

Certain of the Company’semployees had been granted Walter restricted stock units and stock optionsunder Walter’s share-based compensation plans. In connection with Walter’sdistribution of all of Mueller Water’s Series B common stock to itsshareholders on December 14, 2006, Walter cancelled these outstanding instruments.The Company had no expenses related to this share-based compensation allocatedfrom Walter for the three months ended March 31, 2007 and expensed $0.2million for the three months ended March 31, 2006, and $0.5 million and$0.2 million for the six months ended March 31, 2007 and 2006,respectively.

**Note 3. Acquisitions**

**Fast Fabricators, Inc.**

On January 4, 2007, the Company acquired theassets of Fast Fabricators, Inc., a ductile iron pipe fabricatorheadquartered in Bloomfield, Connecticut, for $22.5 million in cash, net ofcash acquired. In March 2007, the Company accrued an additional amount dueof $0.5 million based on the final net asset value, adjusting the purchaseprice to $23.0 million. This accrued amount was paid in April 2007. Thepurchase price may increase by up to $1.5 million for an earnout holdback. Theearnout holdback will be settled by March 15, 2008, based on the 2007calendar year EBITDA as defined in the purchase agreement with the seller. TheCompany has deposited $1.5 million into escrow, which is included in cash andcash equivalents in the accompanying Condensed Consolidated Balance Sheet, forthe Earnout Holdback. The Company cannot access these funds until the earnout,if any, has been paid.

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

| Current assets                                              |   | $    | 10.5   |   |
|-------------------------------------------------------------|--------|------|--------|--------|
| Identified intangibles                                      |   | 13.1 |   |
| Goodwill                                                    |   | 0.5  |   |
| Plant, property, and equipment and other noncurrent  assets |   | 1.8  |   |
| Accounts payable and accrued liabilities                    |   | (2.9 | )      |
| Net assets  acquired                                        |   | $    | 23.0   |   |

 

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**Acquisition ofPredecessor Mueller by Walter Industries**

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

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

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

 

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

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

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

 

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

On October 26, 2005 Walter announced plans toclose U.S. Pipe’s Chattanooga, Tennessee plant and transfer the valve andhydrant production of that plant to Mueller Co.’s Chattanooga, Tennessee andAlbertville, Alabama plants. The plant closed in 2006, resulting in thetermination of approximately 340 employees. Exit costs totaled $49.9million of which approximately $28.6 million was related to severance and fixedasset write-offs and qualified as restructuring and impairment charges. Theremaining exit costs of $21.3 million were comprised of an inventory write-downtotaling $11.4 million, a $9.0 million write-off of unabsorbed overhead costsand $0.9 million of other related costs, which were recognized in cost of salesduring the year ended September 30, 2006. The Company paid $0.1 millionand $0.4 million of the above-mentioned severance in the three and six monthsended March 31, 2007, respectively.

On January 26, 2006, the Company announced theclosure of the Henry Pratt valve manufacturing facility in Dixon, Illinois,which is included in the Company’s Mueller Co. segment. The eventual closure ofthe facility is expected to occur in fiscal year 2007, resulting in thetermination of approximately 100 employees. Total estimated costs relatedto this closure are $3.7 million, including termination benefits of $1.0million and property impairment charges of $1.7 million, which were recorded asadjustments to goodwill in the year ended September 30, 2006. Theserestructuring costs were recorded to goodwill as the 

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overall plan to close thefacility was identified prior to the Acquisition. The remaining estimated costsof $1.0 million are for the transfer and installation of equipment andtemporary outsourcing of manufacturing and will be expensed when incurred. TheCompany paid $0.1 million and $0.5 million of the above-mentioned severance inthe three and six months ended March 31, 2007, respectively.

On November 18, 2006, the Company announced therelocation of pipe nipple and merchant coupling production in the Canvilmanufacturing facility in Ontario, Canada to the Beck facility in Pennsylvania,both of which are included in the Company’s Anvil segment. The consolidation ofthese product lines in the Beck Facility was completed during the quarter endedMarch 31, 2007, resulting in the termination of approximately 60 employees.Termination benefits of $1.8 million were recorded as adjustments to goodwillin the year ended September 30, 2006. These restructuring costs were recordedto goodwill as the overall plan to close the facility was identified prior tothe Acquisition. In the current fiscal year, the Company revised its severanceestimate, and decreased the goodwill balance and accrued severance by $0.4million. The Company paid $0.5 million of the above-mentioned severance in thethree and six months ended March 31, 2007.

Activityin accrued restructuring and other severance for the three and six months endedMarch 31, 2007 was as follows (dollars in millions):

| ** **                                                                                             | ** ** | **For the three  months ended  March 31, 2007** | ** ** | **For the six  months ended  March 31, 2007** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| Beginning balance                                                                                      |       |                                                                     | $          | 4.2                                                                    |       |   |   | $ | 5.3 |   |   |
| Adjustments to  accruals allocated to goodwill for plant closures identified prior to the  Acquisition |       |                                                                     | —     |                                                                   |       |   | (0.4 | ) |   |
| Accrued  restructuring and other severance payments                                                    |       |                                                                     | (1.2       | )                                                                      |       |   | (1.9 | ) |   |
| Ending balance                                                                                         |       |                                                                     | $          | 3.0                                                                    |       |   |   | $ | 3.0 |   |   |

 

**Note 5. Share-BasedCompensation Plans**

Certainof the Company’s employees had been granted Walter restricted stock units andstock options under Walter’s share-based compensation plans. The Company hasexpensed $0.5 million related to the share-based compensation costs allocatedfrom Walter for the six months ended March 31, 2007. In connection withWalter’s distribution of all Mueller Water’s Series B common stock to itsshareholders on December 14, 2006, Walter cancelled these outstandinginstruments and Mueller Water replaced them with restricted stock units andoptions to acquire shares of Mueller Water’s common stock. These equity awardswere designed to provide intrinsic value and terms equal to the Waltercancelled instruments as follows:

| ** **                 | ** ** | **Number of  instruments** | ** ** | **Range of  exercise prices** | ** ** | **Weighted  average  exercise price** | ** **                  | **Total  compensation**             | ** ** |
|----------------------------|------------|---------------------------------|------------|-----------------------------------------|------------|--------------------------------------------|-----------------------------|-------------------------------------|------------|
| ** **                 | ** ** | **(millions)**                  | ** ** | ** **                              | ** ** | ** **                                 | ** **                  | **(dollars in millions)** | ** ** |
| Restricted stock  units    |       |                            | 0.4        |                                    |       |                                       |                        |                                | $          | 14.95 |   |   |   | $ | 5.7 |   |   |
| Traditional stock  options |       |                            | 0.5        |                                    |       | $                                          | 2.05 – 20.56 |                                |       | 13.45 |   |   |   | 0.6 |   |   |
|                       |       |                            | 0.9        |                                    |       |                                       |                        |                                |       |   |   |   | $ | 6.3 |   |   |
|                            |            |                                 |            |                                         |            |                                            |                             |                                     |            |  |  |  |  |  |  |  |  |  |

 

9

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TheCompany also granted stock options and restricted stock units separately duringthe six months ended March 31, 2007 as follows:

| ** **                            | ** ** | **Number of  instruments** | ** ** | **Range of  exercise prices** | ** ** | **Weighted  average  fair value  per instrument** | ** **  | **Total  compensation**             | ** ** |
|---------------------------------------|------------|---------------------------------|------------|-----------------------------------------|------------|-------------------------------------------------------------|-------------|-------------------------------------|------------|
| ** **                            | ** ** | **(millions)**                  | ** ** | ** **                              | ** ** | ** **                                                  | ** **  | **(dollars in millions)** | ** ** |
| Restricted stock  units               |       |                            | 0.4        |                                    |       |                                                        |        |                                | $          | 15.09 |   |   |   | $ | 6.7 |   |   |
| Traditional stock  options            |       |                            | 0.4        |                                    |       | $                                                           | 14.19-15.09 |                                |       | 5.76 |   |   |   | 2.3 |   |   |
| Employee stock  purchase plan options |       |                            | 0.1        |                                    |       |                                                        |        |                                | 3.65       |   |   |   | 0.3 |   |   |
|                                  |       |                            | 0.9        |                                    |       |                                                        |        |                                |       |   |   |   | $ | 9.3 |   |   |
|                                       |            |                                 |            |                                         |            |                                                             |             |                                     |            |  |  |  |  |  |  |  |  |  |

 

As of March 31, 2007,there was approximately $28.1 million of unrecognized compensation cost relatedto non-vested share-based compensation arrangements granted under the 2006Stock Incentive Plan, including the Walter replacement instruments describedabove. The Company expensed $2.7 million and $5.2 million related toshare-based compensation for the three and six months ended March 31,2007, respectively.

**Note 6. BorrowingArrangements**

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

| ** **                     | ** ** | **March 31,  2007**            | ** ** | **September 30,  2006** | ** ** |
|--------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                     | ** ** | **(dollars in millions)** | ** ** |
| 2005 Mueller  Credit Agreement |       |                                | $          | 789.7                        |       |   |   | $ | 793.8 |   |   |
| Senior  subordinated notes     |       |                                | 214.2      |                         |       |   | 215.1 |   |   |
| Capital lease  obligations     |       |                                | 1.9        |                         |       |   | 2.1 |   |   |
|                           |       |                                | 1,005.8    |                         |       |   | 1,011.0 |   |   |
| Less current  portion          |       |                                | (8.9       | )                            |       |   | (9.0 | ) |   |
|                           |       |                                | $          | 996.9                        |       |   |   | $ | 1,002.0 |   |   |

 

*2005Mueller Credit Agreement:**  *On October 3,2005, the Company entered into a credit agreement (the “2005 Mueller CreditAgreement”) consisting of a $145 million senior secured revolving creditfacility maturing in October 2010 (the “2005 Mueller Revolving CreditFacility”) and a $1,050 million senior secured term loan maturing in October 2012(the “2005 Mueller Term Loan”). The commitment fee on the unused portion of the2005 Mueller Revolving Credit Facility is 0.375% and the interest rate is afloating interest rate of 1.75% over LIBOR. The 2005 Mueller Term Loan carriesa floating interest rate of 2.0% over LIBOR.

*SeniorSubordinated Notes:*   In April 2004, theCompany issued $315.0 million principal face amount of senior subordinatednotes due 2012. The notes were recorded at fair value in connection with theAcquisition, resulting in an effective interest rate of 9.2%.

*TenderOffer—*On May 1, 2007, the Company announced a cashtender offer to repurchase all of the outstanding Senior Subordinated Notes andconsent solicitation to amend the related indentures in connection with the proposedrefinancing of the 2005 Mueller Credit Agreement and issuance of$350 million of new Senior Subordinated Notes.

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**Note 7. DerivativeFinancial Instruments**

*Interest Rate Swaps—*TheCompany uses interest rate swap contracts with a cumulative total notionalamount of $425.0 million to hedge against cash-flow variability arising fromchanges in LIBOR rates in conjunction with its LIBOR-indexed variable rateborrowings. The Company recorded an unrealized loss from its swap contracts,net of tax, of $0.1 million at March 31, 2007 in accumulated othercomprehensive income. These swaps have a fair value of $0.2 million at March 31,2007, which is included in other long-term liabilities in the accompanyingCondensed Consolidated Balance Sheet, and are accounted for as effectivehedges.

*Forward Foreign Currency Exchange Contracts—*TheCompany uses Canadian dollar forward exchange contracts with a cumulativenotional amount of $26.7 million to hedge against cash-flow variability arisingfrom changes in the Canadian dollar-U.S. dollar exchange rate in connectionwith anticipated transactions, primarily inventory purchases denominated inCanadian dollars. These contracts are accounted for as effective hedges. TheCompany recorded an unrealized gain of $0.2 million, net of tax, from itsforward exchange contracts at March 31, 2007. These forwards have a fairvalue of $0.3 million at March 31, 2007, which is included in deferredfinancing fees and other long-term assets in the accompanying CondensedConsolidated Balance Sheet.

The Company has also entered into Canadian dollarforward exchange contracts reducing the Company’s exposure to currencyfluctuations from its Canadian-denominated intercompany loans. The instrumentshave a cumulative notional amount of $32.8 million. With these instruments, theCompany sells Canadian dollars for U.S. dollars at a weighted average rate of$0.864. Gains and losses on these instruments are included in selling, generaland administrative expenses in the accompanying Condensed ConsolidatedStatement of Operations. The Company recorded a net loss of $0.2 million and anet gain of $0.8 million for the three months and six months ended March 31,2007, respectively. The Company entered into three Canadian dollar forwardexchange contracts with a cumulative notional amount of $2.4 million tohedge against cash flow variability in connection with certain intercompanytransactions that are not accounted for as effective hedges during the quarterended March 31, 2007. The weighted average rate These instruments have aweighted average translation rate of $0.819, expire in April and May 2007,and resulted in a loss of $0.1 million in the three and six month periods endedMarch 31, 2007 that is included in selling, general and administrativeexpenses in the accompanying Condensed Consolidated Statement of Operations.

*NaturalGas Swaps—*The Company uses natural gas swap contracts with acumulative total notional amount of approximately 499,000 mmbtu to hedgeagainst cash-flow variability arising from changes in natural gas prices on theNYMEX exchange in conjunction with its anticipated purchases of natural gas. Thesecontracts fix the Company’s purchase price for natural gas at prices rangingfrom $6.67 to $7.56 per mmbtu for a total purchased volume of 499,000mmbtu through September 30, 2007. The Company recorded an unrealized gainfrom its swap contracts, net of tax, of $0.2 million at March 31, 2007 inaccumulated other comprehensive income. These swaps have a fair value of $0.3million at March 31, 2007, which is included in deferred financing feesand other long-term assets in the accompanying Condensed Consolidated BalanceSheet, and are accounted for as effective hedges.

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**Note 8. Pension andOther Post-employment Benefits**

Thecomponents of net periodic benefit cost for pension and post-employmentbenefits for the three months and six months ended March 31, 2007 and 2006are as follows:

| ** **                                   | ** ** | **Pension Benefits**                                      | ** ** | **Other Benefits**                                        | ** ** |
|----------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                   | ** ** | **For the three  months ended  March 31,** | ** ** | **For the three  months ended  March 31,** | ** ** |
| ** **                                   | ** ** | **   2007   **                   | ** ** | **   2006   **                   | ** ** | **   2007   ** | ** ** | **   2006   ** | ** ** |
| ** **                                   | ** ** | **(dollars in millions)**                            | ** ** |
| **Components  of net periodic benefit cost** | ** ** |                                                           | ** ** | ** **                                                     |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Service cost                                 |       |                                                           | $          | 1.6                                                            |       |   |   | $ | 1.9 |   |   |   | $ | 0.1 |   |   |   | $ | 0.2 |   |   |
| Interest cost                                |       |                                                           | 5.1        |                                                           |       |   | 4.7 |   |   |   | 0.3 |   |   |   | 0.3 |   |   |
| Expected return on plan assets               |       |                                                           | (5.9       | )                                                              |       |   | (4.9 | ) |   |   | — |   |   |   | — |   |   |
| Amortization of prior service cost (credit)  |       |                                                           | 0.1        |                                                           |       |   | 0.2 |   |   |   | (0.6 | ) |   |   | (0.6 | ) |   |
| Amortization of net loss (gain)              |       |                                                           | 0.5        |                                                           |       |   | 1.8 |   |   |   | (0.4 | ) |   |   | (0.2 | ) |   |
| Curtailment settlement loss (gain)           |       |                                                           | —     |                                                           |       |   | 4.9 |   |   |   | — |   |   |   | (1.1 | ) |   |
| Net periodic benefit  cost (credit)          |       |                                                           | $          | 1.4                                                            |       |   |   | $ | 8.6 |   |   |   | $ | (0.6 | ) |   |   | $ | (1.4 | ) |   |

 

| ** **                                   | ** ** | **Pension Benefits**                                    | ** ** | **Other Benefits**                                      | ** ** |
|----------------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                   | ** ** | **For the six  months ended  March 31,** | ** ** | **For the six  months ended  March 31,** | ** ** |
| ** **                                   | ** ** | **    2007    **     | ** ** | **    2006    **     | ** ** | **    2007    ** | ** ** | **    2006    ** | ** ** |
| ** **                                   | ** ** | **(dollars in millions)**                          | ** ** |
| **Components  of net periodic benefit cost** | ** ** |                                                         | ** ** | ** **                                                   |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Service cost                                 |       |                                                         | $          | 3.2                                                          |       |   |   | $ | 3.9 |   |   |   | $ | 0.2 |   |   |   | $ | 0.4 |   |   |
| Interest cost                                |       |                                                         | 10.2       |                                                         |       |   | 9.4 |   |   |   | 0.6 |   |   |   | 0.6 |   |   |
| Expected return on plan assets               |       |                                                         | (11.8      | )                                                            |       |   | (9.8 | ) |   |   | — |   |   |   | — |   |   |
| Amortization of prior service cost (credit)  |       |                                                         | 0.2        |                                                         |       |   | 0.3 |   |   |   | (1.2 | ) |   |   | (1.2 | ) |   |
| Amortization of net loss (gain)              |       |                                                         | 1.0        |                                                         |       |   | 3.7 |   |   |   | (0.8 | ) |   |   | (0.4 | ) |   |
| Curtailment settlement loss (gain)           |       |                                                         | —     |                                                         |       |   | 4.9 |   |   |   | — |   |   |   | (1.1 | ) |   |
| Net periodic benefit  cost (credit)          |       |                                                         | $          | 2.8                                                          |       |   |   | $ | 12.4 |   |   |   | $ | (1.2 | ) |   |   | $ | (1.7 | ) |   |

 

For the three months andsix months ended March 31, 2007, the Company had no contributions to itspension plans. The Company presently anticipates contributing approximately$7.7 million to fund its pension plans and $2.0 million to its otherpost-employment benefit plan in fiscal 2007, and may make further discretionarypayments.

**Note 9. SupplementaryBalance Sheet Information**

Selectedsupplementary balance sheet information is presented below:

| ** **                                 | ** ** | **March 31,  2007**            | ** ** | **September 30,  2006** | ** ** |
|--------------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                                 | ** ** | **(dollars in millions)** | ** ** |
| **Inventories**                            |       |                                |       |                         |       |   |   |   |   |
| Purchased materials and manufactured parts |       |                                | $          | 81.2                         |       |   |   | $ | 66.7 |   |   |
| Work in process                            |       |                                | 128.2      |                         |       |   | 127.7 |   |   |
| Finished goods                             |       |                                | 301.4      |                         |       |   | 260.2 |   |   |
|                                       |       |                                | $          | 510.8                        |       |   |   | $ | 454.6 |   |   |

 

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| ** **                        | ** ** | **March 31,  2007**            | ** ** | **September 30,  2006** | ** ** |
|-----------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                        | ** ** | **(dollars in millions)** | ** ** |
| **Property, plant and equipment** |       |                                |       |                         |       |   |   |   |   |
| Land                              |       |                                | $          | 28.3                         |       |   |   | $ | 28.4 |   |   |
| Buildings                         |       |                                | 85.3       |                         |       |   | 83.4 |   |   |
| Machinery and equipment           |       |                                | 512.9      |                         |       |   | 489.9 |   |   |
| Other                             |       |                                | 59.0       |                         |       |   | 46.4 |   |   |
|                              |       |                                | 685.5      |                         |       |   | 648.1 |   |   |
| Accumulated depreciation          |       |                                | (341.8     | )                            |       |   | (311.1 | ) |   |
|                              |       |                                | $          | 343.7                        |       |   |   | $ | 337.0 |   |   |

 

| ** **                                          | ** ** | **March 31,  2007**            | ** ** | **September 30,  2006** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                                          | ** ** | **(dollars in millions)** | ** ** |
| **Accrued expenses and other  current liabilities** |       |                                |       |                         |       |   |   |   |   |
| Vacations and holidays                              |       |                                | $          | 14.1                         |       |   |   | $ | 13.6 |   |   |
| Workers compensation                                |       |                                | 5.8        |                         |       |   | 6.0 |   |   |
| Accrued payroll and bonus                           |       |                                | 13.5       |                         |       |   | 23.5 |   |   |
| Accrued sales commissions                           |       |                                | 4.4        |                         |       |   | 5.0 |   |   |
| Accrued other taxes                                 |       |                                | 5.9        |                         |       |   | 7.7 |   |   |
| Accrued warranty claims                             |       |                                | 2.8        |                         |       |   | 2.7 |   |   |
| Accrued environmental claims                        |       |                                | —     |                         |       |   | 2.5 |   |   |
| Accrued cash discounts and allowances               |       |                                | 13.7       |                         |       |   | 22.1 |   |   |
| Accrued interest                                    |       |                                | 13.9       |                         |       |   | 13.6 |   |   |
| Accrued restructuring and other severance           |       |                                | 3.0        |                         |       |   | 5.3 |   |   |
| Accrued medical                                     |       |                                | 4.2        |                         |       |   | 3.7 |   |   |
| Other                                               |       |                                | 15.7       |                         |       |   | 16.4 |   |   |
|                                                |       |                                | $          | 97.0                         |       |   |   | $ | 122.1 |   |   |

 

**Note 10.Supplementary Income Statement Information**

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

| ** **                                    | ** ** | **Three months  ended   March 31,**       | ** ** | **Six months  ended  March 31,**               | ** ** |                                                     |
|-----------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|
| ** **                                    | ** ** | **    2007    ** | ** ** | **    2006    ** | ** ** | **    2007    ** | ** ** | **    2006    ** | ** ** |   |
| ** **                                    | ** ** | **(dollars in millions)**                      | ** ** |                                                     |
| **Interest  expense, net of interest income** |       |                                                     |       |                                                     |       |                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Contractual interest expense                  |       |                                                     | $          | 18.7                                                     |       |                                                     |   | $ | 25.4 |   |   |   | $ | 37.4 |   |   |   | $ | 50.6 |   |   |
| Deferred financing fee amortization           |       |                                                     | 0.6        |                                                     |       |                                                     | 1.1 |   |   |   | 1.3 |   |   |   | 2.2 |   |   |
| Write-off of bridge loan commitment fees      |       |                                                     | —     |                                                     |       |                                                     | — |   |   |   | — |   |   |   | 2.5 |   |   |
| Interest rate swap gains                      |       |                                                     | (0.8       | )                                                        |       |                                                     | (0.1 | ) |   |   | (1.7 | ) |   |   | (0.5 | ) |   |
| Interest expense                              |       |                                                     | 18.5       |                                                     |       |                                                     | 26.4 |   |   |   | 37.0 |   |   |   | 54.8 |   |   |
| Interest income                               |       |                                                     | (0.6       | )                                                        |       |                                                     | (0.5 | ) |   |   | (1.8 | ) |   |   | (0.8 | ) |   |
|                                          |       |                                                     | $          | 17.9                                                     |       |                                                     |   | $ | 25.9 |   |   |   | $ | 35.2 |   |   |   | $ | 54.0 |   |   |

 

**Note 11. IncomeTaxes**

The Company calculated its2007 effective tax rate using Accounting Principles Board Opinion No. 28,which requires that an estimated annual effective tax rate be determined andapplied to the pre-tax income. For the six months ended March 31, 2007,the Company determined its effective tax rate to be 

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40.6%.The tax rate for the six months ended March 31, 2006 was 39.5%. Thedifference between the federal, state, and foreign statutory tax rates and theeffective tax rate is due primarily to non-deductible interest expense.

**Note 12. Segment Information**

| ** **                                 | ** ** | **Three months  ended  March 31,**             | ** ** | **Six months  ended  March 31,**               | ** ** |
|--------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                 | ** ** | **    2007    ** | ** ** | **    2006    ** | ** ** | **    2007    ** | ** ** | **    2006    ** | ** ** |
| ** **                                 | ** ** | **(dollars in millions)**                      | ** ** |
| **Net  sales**                             |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller Co.                                |       |                                                     | $          | 200.3                                                    |       |   |   | $ | 193.3 |   |   |   | $ | 367.4 |   |   |   | $ | 373.5 |   |   |
| U.S. Pipe                                  |       |                                                     | 133.3      |                                                     |       |   | 119.7 |   |   |   | 250.7 |   |   |   | 290.8 |   |   |
| Anvil                                      |       |                                                     | 134.3      |                                                     |       |   | 127.4 |   |   |   | 267.9 |   |   |   | 260.2 |   |   |
| Consolidating eliminations                 |       |                                                     | (8.2       | )                                                        |       |   | (5.5 | ) |   |   | (14.4 | ) |   |   | (9.2 | ) |   |
| Consolidated                               |       |                                                     | $          | 459.7                                                    |       |   |   | $ | 434.9 |   |   |   | $ | 871.6 |   |   |   | $ | 915.3 |   |   |
| **Income  (loss) from operations**         |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller Co.                                |       |                                                     | $          | 42.8                                                     |       |   |   | $ | 39.2 |   |   |   | $ | 78.5 |   |   |   | $ | 35.4 |   |   |
| U.S. Pipe                                  |       |                                                     | 6.8        |                                                     |       |   | (7.2 | ) |   |   | 14.0 |   |   |   | (35.0 | ) |   |
| Anvil                                      |       |                                                     | 13.6       |                                                     |       |   | 5.0 |   |   |   | 26.6 |   |   |   | 3.5 |   |   |
| Corporate expense(1)                       |       |                                                     | (10.3      | )                                                        |       |   | (8.9 | ) |   |   | (17.2 | ) |   |   | (15.3 | ) |   |
| Consolidating eliminations                 |       |                                                     | —     |                                                     |       |   | (0.6 | ) |   |   | — |   |   |   | (0.6 | ) |   |
| Consolidated                               |       |                                                     | $          | 52.9                                                     |       |   |   | $ | 27.5 |   |   |   | $ | 101.9 |   |   |   | $ | (12.0 | ) |   |
| **Depreciation  and amortization expense** |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller Co.                                |       |                                                     | $          | 13.0                                                     |       |   |   | $ | 12.9 |   |   |   | $ | 25.7 |   |   |   | $ | 24.9 |   |   |
| U.S. Pipe                                  |       |                                                     | 6.2        |                                                     |       |   | 5.3 |   |   |   | 11.7 |   |   |   | 11.6 |   |   |
| Anvil                                      |       |                                                     | 5.7        |                                                     |       |   | 5.9 |   |   |   | 11.6 |   |   |   | 11.3 |   |   |
| Corporate                                  |       |                                                     | 0.2        |                                                     |       |   | 0.1 |   |   |   | 0.5 |   |   |   | 0.2 |   |   |
| Consolidated                               |       |                                                     | $          | 25.1                                                     |       |   |   | $ | 24.2 |   |   |   | $ | 49.5 |   |   |   | $ | 48.0 |   |   |
| **Capital  expenditures**                  |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller Co.                                |       |                                                     | $          | 5.7                                                      |       |   |   | $ | 8.4 |   |   |   | $ | 12.4 |   |   |   | $ | 14.4 |   |   |
| U.S. Pipe                                  |       |                                                     | 12.1       |                                                     |       |   | 3.1 |   |   |   | 19.9 |   |   |   | 10.5 |   |   |
| Anvil                                      |       |                                                     | 3.7        |                                                     |       |   | 3.4 |   |   |   | 8.8 |   |   |   | 5.9 |   |   |
| Corporate                                  |       |                                                     | 1.0        |                                                     |       |   | — |   |   |   | 1.4 |   |   |   | 0.1 |   |   |
| Consolidated                               |       |                                                     | $          | 22.5                                                     |       |   |   | $ | 14.9 |   |   |   | $ | 42.5 |   |   |   | $ | 30.9 |   |   |

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(1)          Includescertain expenses not allocated to segments.

**Note 13.Commitments and Contingencies**

**Income TaxLitigation**

A dispute exists with regardto federal income taxes for fiscal years 1980 through 1994 allegedly owed bythe Walter consolidated group, which included the U.S. Pipe segment duringthese periods. It is estimated that the amount of tax presently claimed by theInternal Revenue Service is approximately $34.0 million for issues currently indispute in bankruptcy court for matters unrelated to the Company. This amountis subject to interest and penalties. In addition, the IRS has issued a Noticeof Proposed Deficiency assessing additional tax of $80.4 million for the fiscalyears ended May 31, 2000, December 31, 2000 and December 31,2001. As a matter of law, the Company is jointly and severally liable for anyfinal tax determination. However, Walter management has indicated to the Companythat they believe that Walter’s tax filing positions have substantial merit andthat they intend to defend vigorously any claims 

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asserted.Walter management has further indicated to the Company that Walter has anaccrual that they believe to be sufficient to cover the estimated probableloss, including interest and penalties. The Company has concluded the risk ofloss to the Company is not probable and accordingly, no liability has beenrecorded in the Company’s condensed consolidated financial statements.

**EnvironmentalMatters**

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

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

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

Although the Company nowproduces a small amount of no-lead brass products, most of the Company’s brassvalve products contain approximately 5.0% lead. Environmental advocacy groups,relying on standards established by California’s Proposition 65, are seeking toeliminate or reduce the content of lead in water infrastructure productsoffered for sale in California. Some of the Company’s subsidiaries have enteredinto settlement agreements with these environmental advocacy groups to modifyproducts or offer substitutes for sale in California. Legislation tosubstantially restrict lead content in water infrastructure products has beenintroduced in the United States Congress. Congress or state jurisdictions otherthan California may enact legislation similar to Proposition 65 to restrict thecontent of lead in water products, which could require the Company to incuradditional capital expenditures to modify production. The Company incurredapproximately $8.0 million in capital spending during the year ended September 30,2006 to implement a no-lead brass production line. Also, the Company beganconsolidating its two existing brass foundries into one facility, incurring$5.8 million and $2.0 million in capital spending during the year ended September 30,2006 and the six months ended March 31, 2007, respectively. The Companyexpects to complete the foundry consolidation project during 2007 with totalcapital spending of approximately $11.0 million.

15

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**Commitments andContingencies—Other**

As part of the acquisitionon January 15, 2004 of the business of Star Pipe, Inc. (“Star”),Anvil has agreed to a future payment to be made to the sellers of Star to theextent that the gross profit of the acquired business exceeds a targeted grossprofit. The maximum potential payment amount is $23.0 million. The Company isin the process of determining the final settlement and currently estimates thepayment to be approximately $3.0 million for the payment period that began February 1,2004 and ended January 31, 2007. The Company will record the liability forsuch payment upon the resolution of the contingency with a correspondingincrease to goodwill.

**Note 14. SubsequentEvents**

On May 1, 2007, theCompany announced a cash tender offer to repurchase all of the outstandingSenior Subordinated Notes and consent solicitation to amend the relatedindentures in connection with the proposed refinancing of the 2005 MuellerCredit Agreement and issuance of $350 million of new Senior SurbordinatedNotes.

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

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

Prior to the Acquisition on October 3, 2005, U.S.Pipe was not a Guarantor Company of the senior subordinated notes issued byPredecessor Mueller Group. The Consolidating Statements of Operations for thethree and six month periods ended March 31, 2007 and the ConsolidatingStatement of Cash Flows for the six months ended March 31, 2007 and the ConsolidatingBalance Sheet as of March 31, 2007 reflect the results of the Company,including U.S. Pipe.

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**ConsolidatingStatement of OperationsFor Mueller Group, LLCFor the Three Months Ended March 31, 2007**

| ** **                                                 | ** ** | **   Issuer   ** | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminating** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|------------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|--------------------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **(dollars in millions)**            | ** ** |
| Net sales                                                  |       |                                           | $          | —                      |       |                           |       | $                              | 416.2      |             |       |   | $ | 43.5 |   |   |   | $ | — |   |   |   | $ | 459.7 |   |   |
| Cost of sales                                              |       |                                           | —     |                        |       |                           | 304.4      |                           |       |             | 37.5       |   |   |   | — |   |   |   | 341.9 |   |   |
| Gross profit                                               |       |                                           | —     |                        |       |                           | 111.8      |                           |       |             | 6.0        |   |   |   | — |   |   |   | 117.8 |   |   |
| Selling, general  and administrative                       |       |                                           | —     |                        |       |                           | 57.9       |                           |       |             | 7.0        |   |   |   | — |   |   |   | 64.9 |   |   |
| Related party  corporate charges                           |       |                                           | —     |                        |       |                           | —     |                           |       |             | —     |   |   |   | — |   |   |   | — |   |   |
| Facility  rationalization, restructuring and related costs |       |                                           | —     |                        |       |                           | —     |                           |       |             | —     |   |   |   | — |   |   |   | — |   |   |
| Income (loss) from  operations                             |       |                                           | —     |                        |       |                           | 53.9       |                           |       |             | (1.0       | ) |   |   | — |   |   |   | 52.9 |   |   |
| Interest expense,  net of interest  income                 |       |                                           | 18.0       |                        |       |                           | —     |                           |       |             | (0.1       | ) |   |   | — |   |   |   | 17.9 |   |   |
| Income (loss)  before income tax expense (benefit)         |       |                                           | (18.0      | )                           |       |                           | 53.9       |                           |       |             | (0.9       | ) |   |   | — |   |   |   | 35.0 |   |   |
| Income tax expense  (benefit)                              |       |                                           | (7.5       | )                           |       |                           | 22.6       |                           |       |             | (0.3       | ) |   |   | — |   |   |   | 14.8 |   |   |
| Equity income from  subsidiaries                           |       |                                           | 30.7       |                        |       |                           | (0.6       | )                              |       |             | —     |   |   |   | (30.1 | ) |   |   | — |   |   |
| Net income                                                 |       |                                           | $          | 20.2                        |       |                           |       | $                              | 30.7       |             |       |   | $ | (0.6 | ) |   |   | $ | (30.1 | ) |   |   | $ | 20.2 |   |   |

 

**Forthe Six Months Ended March 31, 2007**

| ** **                                                 | ** ** | **   Issuer   ** | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminating** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|------------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|--------------------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **(dollars in millions)**            | ** ** |
| Net sales                                                  |       |                                           | $          | —                      |       |                           |       | $                              | 782.9      |             |       |   | $ | 88.7 |   |   |   | $ | — |   |   |   | $ | 871.6 |   |   |
| Cost of sales                                              |       |                                           | —     |                        |       |                           | 573.5      |                           |       |             | 72.6       |   |   |   | — |   |   |   | 646.1 |   |   |
| Gross profit                                               |       |                                           | —     |                        |       |                           | 209.4      |                           |       |             | 16.1       |   |   |   | — |   |   |   | 225.5 |   |   |
| Selling, general  and administrative                       |       |                                           | —     |                        |       |                           | 108.3      |                           |       |             | 13.7       |   |   |   | — |   |   |   | 122.0 |   |   |
| Related party  corporate charges                           |       |                                           | —     |                        |       |                           | 1.6        |                           |       |             | —     |   |   |   | — |   |   |   | 1.6 |   |   |
| Facility  rationalization, restructuring and related costs |       |                                           | —     |                        |       |                           | —     |                           |       |             | —     |   |   |   | — |   |   |   | — |   |   |
| Income (loss) from  operations                             |       |                                           | —     |                        |       |                           | 99.5       |                           |       |             | 2.4        |   |   |   | — |   |   |   | 101.9 |   |   |
| Interest expense,  net of interest  income                 |       |                                           | 35.7       |                        |       |                           | (0.3       | )                              |       |             | (0.2       | ) |   |   | — |   |   |   | 35.2 |   |   |
| Income (loss)  before income tax expense (benefit)         |       |                                           | (35.7      | )                           |       |                           | 99.8       |                           |       |             | 2.6        |   |   |   | — |   |   |   | 66.7 |   |   |
| Income tax expense  (benefit)                              |       |                                           | (14.5      | )                           |       |                           | 40.5       |                           |       |             | 1.1        |   |   |   | — |   |   |   | 27.1 |   |   |
| Equity income from  subsidiaries                           |       |                                           | 60.8       |                        |       |                           | 1.5        |                           |       |             | —     |   |   |   | (62.3 | ) |   |   | — |   |   |
| Net income                                                 |       |                                           | $          | 39.6                        |       |                           |       | $                              | 60.8       |             |       |   | $ | 1.5 |   |   |   | $ | (62.3 | ) |   |   | $ | 39.6 |   |   |

 

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**ConsolidatingBalance SheetFor Mueller Group, LLCMarch 31, 2007**

| ** **                                                 | ** ** | **    Issuer    ** | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **(dollars in millions)**                        | ** ** |
| **Assets**                                                 |       |                                                       |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                                 |       |                                                       | $          | 70.9                        |       |                           |       | $                               | (7.2       | )                |       |   | $ | 3.9 |   |   |   | $ | — |   |   |   | $ | 67.6 |   |   |
| Receivables, net                                           |       |                                                       | —     |                        |       |                           | 244.4      |                            |       |             | 29.9       |   |   |   | — |   |   |   | 274.3 |   |   |
| Inventories                                                |       |                                                       | —     |                        |       |                           | 443.6      |                            |       |             | 67.2       |   |   |   | — |   |   |   | 510.8 |   |   |
| Deferred income  taxes                                     |       |                                                       | —     |                        |       |                           | 42.4       |                            |       |             | —     |   |   |   | — |   |   |   | 42.4 |   |   |
| Prepaid expenses                                           |       |                                                       | —     |                        |       |                           | 33.5       |                            |       |             | 2.2        |   |   |   | — |   |   |   | 35.7 |   |   |
| Total current  assets                                      |       |                                                       | 70.9       |                        |       |                           | 756.7      |                            |       |             | 103.2      |   |   |   | — |   |   |   | 930.8 |   |   |
| Property, plant  and equipment, net                        |       |                                                       | 3.0        |                        |       |                           | 325.1      |                            |       |             | 15.6       |   |   |   | — |   |   |   | 343.7 |   |   |
| Deferred financing  fees and other long-term assets        |       |                                                       | 13.3       |                        |       |                           | 0.3        |                            |       |             | 0.1        |   |   |   | — |   |   |   | 13.7 |   |   |
| Deferred income  taxes                                     |       |                                                       | —     |                        |       |                           | 4.4        |                            |       |             | (4.4       | ) |   |   | — |   |   |   | — |   |   |
| Identifiable  intangibles, net                             |       |                                                       | —     |                        |       |                           | 834.0      |                            |       |             | —     |   |   |   | — |   |   |   | 834.0 |   |   |
| Goodwill                                                   |       |                                                       | —     |                        |       |                           | 724.2      |                            |       |             | —     |   |   |   | — |   |   |   | 724.2 |   |   |
| Investment in  subsidiaries                                |       |                                                       | 1,439.7    |                        |       |                           | 66.0       |                            |       |             | —     |   |   |   | (1,505.7 | ) |   |   | — |   |   |
| Total assets                                               |       |                                                       | $          | 1,526.9                     |       |                           |       | $                               | 2,710.7    |             |       |   | $ | 114.5 |   |   |   | $ | (1,505.7 | ) |   |   | $ | 2,846.4 |   |   |
| **Liabilities**                                            |       |                                                       |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Accounts payable                                           |       |                                                       | $          | —                      |       |                           |       | $                               | 106.6      |             |       |   | $ | 8.8 |   |   |   | $ | — |   |   |   | $ | 115.4 |   |   |
| Current portion of  long-term debt                         |       |                                                       | 8.0        |                        |       |                           | 0.9        |                            |       |             | —     |   |   |   | — |   |   |   | 8.9 |   |   |
| Deferred income  taxes                                     |       |                                                       | —     |                        |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | — |   |   |
| Accrued expenses  and other current liabilities            |       |                                                       | 13.8       |                        |       |                           | 85.4       |                            |       |             | (2.2       | ) |   |   | — |   |   |   | 97.0 |   |   |
| Total current  liabilities                                 |       |                                                       | 21.8       |                        |       |                           | 192.9      |                            |       |             | 6.6        |   |   |   | — |   |   |   | 221.3 |   |   |
| Intercompany  accounts                                     |       |                                                       | (707.9     | )                           |       |                           | 665.1      |                            |       |             | 42.8       |   |   |   | — |   |   |   | — |   |   |
| Long-term debt                                             |       |                                                       | 995.9      |                        |       |                           | 1.0        |                            |       |             | —     |   |   |   | — |   |   |   | 996.9 |   |   |
| Accrued pension  liability                                 |       |                                                       | —     |                        |       |                           | 46.6       |                            |       |             | (0.9       | ) |   |   | — |   |   |   | 45.7 |   |   |
| Accumulated  postretirement benefits obligation            |       |                                                       | —     |                        |       |                           | 44.7       |                            |       |             | —     |   |   |   | — |   |   |   | 44.7 |   |   |
| Deferred income  taxes                                     |       |                                                       | —     |                        |       |                           | 299.8      |                            |       |             | —     |   |   |   | — |   |   |   | 299.8 |   |   |
| Other long-term  liabilities                               |       |                                                       | —     |                        |       |                           | 20.9       |                            |       |             | —     |   |   |   | — |   |   |   | 20.9 |   |   |
| Total liabilities                                          |       |                                                       | 309.8      |                        |       |                           | 1,271.0    |                            |       |             | 48.5       |   |   |   | — |   |   |   | 1,629.3 |   |   |
| **Shareholder’s  equity (deficit)**                   |       |                                                       |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Total  shareholder’s equity (deficit)                 |       |                                                       | 1,217.1    |                        |       |                           | 1,439.7    |                            |       |             | 66.0       |   |   |   | (1,505.7 | ) |   |   | 1,217.1 |   |   |
| Total liabilities and  shareholder’s equity (deficit) |       |                                                       | $          | 1,526.9                     |       |                           |       | $                               | 2,710.7    |             |       |   | $ | 114.5 |   |   |   | $ | (1,505.7 | ) |   |   | $ | 2,846.4 |   |   |

 

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**ConsolidatingStatement of Cash FlowsFor Mueller Group, LLCFor the Six Months Ended March 31, 2007**

| ** **                                          | ** ** | **Issuer**                          | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                          | ** ** | **(dollars in millions)** | ** ** |
| Net cash provided by (used in) operating activities |       | $                                   | (26.1      | )                           |       |                           | $          | 88.6                            |       |             |       |   | $ | (5.1 | ) |   |   | — |   |   |   | $ | 57.4 |   |   |   |
| **Cash flows from investing  activities**           |       |                                |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                |       | —                              |       |                        |       | (40.8                          | )          |                            |       |             | (1.7       | ) |   |   | — |   |   |   | (42.5 | ) |   |   |
| Acquisition of business, net of cash  acquired      |       | —                              |       |                        |       | (22.5                          | )          |                            |       |             | —     |   |   |   | — |   |   |   | (22.5 | ) |   |   |
| Net cash used investing activities                  |       | —                              |       |                        |       | (63.3                          | )          |                            |       |             | (1.7       | ) |   |   | — |   |   |   | (65.0 | ) |   |   |
| **Cash flows from financing  activities**           |       |                                |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |   |
| Book cash overdrafts                                |       | —                              |       |                        |       | 3.9                            |       |                            |       |             | —     |   |   |   | — |   |   |   | 3.9 |   |   |   |
| Intercompany change                                 |       | 25.2                                |       |                        |       | (25.3                          | )          |                            |       |             | 0.1        |   |   |   | — |   |   |   | — |   |   |   |
| Payment of long-term debt                           |       | (4.3                                | )          |                        |       | —                         |       |                            |       |             | —     |   |   |   | — |   |   |   | (4.3 | ) |   |   |
| Dividend paid to parent                             |       | (4.0                                | )          |                        |       | —                         |       |                            |       |             | —     |   |   |   | — |   |   |   | (4.0 | ) |   |   |
| Net cash provided by (used in) financing activities |       | 16.9                                |       |                        |       | (21.4                          | )          |                            |       |             | 0.1        |   |   |   | — |   |   |   | (4.4 | ) |   |   |
| Effect of exchange rate changes on cash             |       | —                              |       |                        |       | —                         |       |                            |       |             | 0.5        |   |   |   | — |   |   |   | 0.5 |   |   |   |
| Increase in cash                                    |       | (9.2                                | )          |                        |       | 3.9                            |       |                            |       |             | (6.2       | ) |   |   | — |   |   |   | (11.5 | ) |   |   |
| **Cash and cash equivalents**                       |       |                                |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |   |
| Beginning of period                                 |       | 80.1                                |       |                        |       | (11.1                          | )          |                            |       |             | 10.1       |   |   |   | — |   |   |   | 79.1 |   |   |   |
| End of period                                       |       | $                                   | 70.9       |                        |       |                           | $          | (7.2                            | )          |             |       |   | $ | 3.9 |   |   |   | — |   |   |   | $ | 67.6 |   |   |   |

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(1)           Guarantors include the accounts of thefollowing direct and indirect subsidiaries of Mueller Group, LLC:

| **Name**                                     | ** ** | ** ** | ** ** | **State of Incorporation** | ** ** |
|----------------------------------------------|------------|------------|------------|--------------------------------------|------------|
| AnvilStar, LLC                               |       |       | Delaware   |                                 |       |
| Anvil  International, Inc.              |       |       | Delaware   |                                 |       |
| Henry Pratt  Company                         |       |       | Delaware   |                                 |       |
| Henry Pratt  International Ltd               |       |       | Delaware   |                                 |       |
| Hersey Meters Co.                            |       |       | Delaware   |                                 |       |
| Hydro Gate  Acquisition Corp.                |       |       | Delaware   |                                 |       |
| James Jones  Company                         |       |       | California |                                 |       |
| J.B. Smith Mfg.  Co.                         |       |       | Oklahoma   |                                 |       |
| Mueller Co.                                  |       |       | Illinois   |                                 |       |
| Mueller Service  Co.                         |       |       | Delaware   |                                 |       |
| Milliken  Acquisition Corp.                  |       |       | Delaware   |                                 |       |
| Mueller  International, Inc.            |       |       | Delaware   |                                 |       |
| Mueller  International, LLC                  |       |       | Delaware   |                                 |       |
| Mueller  International Finance, Inc.    |       |       | Delaware   |                                 |       |
| Mueller  International Finance, LLC          |       |       | Delaware   |                                 |       |
| United States Pipe and  Foundry Company, LLC |       |       | Alabama    |                                 |       |

 

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**ITEM2.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

*The following discussion should be read in conjunctionwith the audited consolidated financial statements and notes thereto thatappear in the Company’s Annual Report filed on Form 10-K and withthe condensed consolidated financial statements that appear elsewhere in thisquarterly report. This report contains certain statements that may be deemed “forward-lookingstatements” within the meaning of Section 21E of the Securities ExchangeAct of 1934 as amended. All statements, other than statements of historicalfact, that address activities, events or developments that we or our managementintends, expects, projects, believes or anticipates will or may occur in the futureare forward-looking statements. Such statements are based upon certainassumptions and assessments made by our management in light of their experienceand their perception of historical trends, current conditions and expectedfuture developments. Actual results and the timing of events may differsignificantly from those projected in such forward-looking statements due to anumber of factors, including those set forth in the section entitled “RiskFactors” in Item 1A of Part II of this Report.*

Mueller Group, LLC (the “Company”)is a wholly-owned subsidiary of Mueller Water Products, Inc. (“MuellerWater”), a Delaware corporation. Mueller Water is the surviving corporation ofthe merger on February 2, 2006 of Mueller Water Products, LLC (CommissionFile Number: 333-116590) and Mueller Water Products Co-Issuer, Inc.with and into Mueller Holding Company, Inc., a Delaware corporation. On June 1,2006, Mueller Water completed its initial public offering of its Series Acommon stock (NYSE: MWA). On December 14, 2006, Walter Industries, Inc.(“Walter”), a diversified New York Stock Exchange traded company (NYSE: WLT),distributed all of the Company’s outstanding Series B common stock (NYSE:MWA.B) to its shareholders.

On October 3, 2005,through a series of transactions (the “Acquisition”), Walter, through awholly-owned subsidiary, acquired all outstanding shares of capital stock ofthe Company’s parent, Mueller Water Products, Inc. (“Predecessor Mueller”),which immediately was converted into Mueller Water Products, LLC, aDelaware limited liability company and contributed United States Pipe andFoundry Company, LLC, (“U.S. Pipe”) to the acquired company.

In this report, each ofthe terms “Mueller Water,” the “Company,” “we,” “us” or “our” refers to MuellerWater Products, Inc. and its subsidiaries, except where the context makesclear 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 year and fiscal quarterbasis. Our fiscal year ends on September 30, and our second fiscal quarterends on March 31.

**Abbreviated Management’s Narrative Analysis**

The Company’s net incomefor the three months ended March 31, 2007 was $20.2 million, whichcompares to $1.0 million in the prior year period. The prior year periodincludes U.S. Pipe Chattanooga plant closure costs of $6.7 million,pre-tax; expenses related to valuing the acquired inventory of Mueller Co. andAnvil segments at fair value at $12.0 million, pre-tax; and reduced interestexpense from using the net cash proceeds received from the initial publicoffering in June 2006. In addition, increased net income for the quarterwas primarily driven by higher selling prices across all segments, as well asachievements resulting from the synergy plan, improved product mix, and costreduction initiatives at U.S. Pipe, but these items were partially offset bylower volumes. During the past twelve months, the Company has implemented sellingprice increases in response to higher raw material costs, most notablyassociated with both brass ingot, which is comprised primarily of copper, andscrap iron. The synergy plan, which includes certain plant closures andincreased benefits from combining purchasing and commercial selling efforts ofthe segments, was started in January 2006. Synergy plan results for thecurrent quarter include approximately $6.0 million of additional realizedbenefits compared to the prior year period. The lower 

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volumesprincipally relate to higher margin water infrastructure products, such ashydrants and iron gate valves, as a result of softness in the residentialconstruction market.

Managementhas identified the following significant developments, trends and factors thatmay impact our future results:

·       TheCompany recently announced an increase in ductile iron pipe selling priceseffective January 2007 of about 4%. The Company also announced an increasein valve and hydrant selling prices effective in February 2007 ofapproximately 5%. The Company has historically implemented price increases toalleviate rising raw material costs, but in certain market conditions the fullamount of these increases may not be sustained.

·       Forthe month of March 2007, new privately-owned housing unit starts declined23% over March 2006. Approximately 40% of fiscal 2006 consolidated netsales were into residential construction end markets.

·       Managementbelieves the Company will benefit from projected spending increases in thewater infrastructure repair and replacement market. The American Water WorksAssociation forecasts that project repair and replacement spending will grow 11%in 2007. The Company’s U.S. Pipe segment public works quotation activityincreased 18%, in tons, in fiscal 2007 compared to the prior year period.

·       Subsequentto the spinoff of the Company from Walter, the Company is no longer subject tocorporate expense allocations from Walter. Such charges totaled $1.6 millionand $8.0 million for the six months ended March 31, 2007 and the yearended September 30, 2006, respectively, and were recorded as a componentof U.S. Pipe segment operating results. However, the Company’s corporatesegment expenses are expected to increase as the Company provides certainservices previously provided by Walter. The corporate segment is expected toincur increased expenses in the future, primarily employee-related costs, asstaffing levels increase to replace the functionality previously provided byWalter, as well as increased audit costs related to Sarbanes-Oxley compliance,and other costs related to operating as a stand-alone public company.

·       TheCompany’s synergy plan has achieved an annual operating income improvementrun-rate benefits of $45 million as of March 31, 2007 and is expected tobe at the high end of a $40 million to $50 million annual range by early fiscal2008. Further significant volume or price declines may impede the Company’sability to maintain or exceed its current synergy run rates. The synergy planalso contemplates plant closures that have been announced for certainfacilities. Costs related to these plant closures, which will eliminate fixedplant costs, are expected to reduce future operating income.

·       Duringfiscal 2006, brass ingot costs rose from $1.60 per pound to approximately $3.00per pound. Brass ingot costs have decreased slightly from that prior yearlevels during the current fiscal year. Also, during the current quarter, scrapiron prices increased from approximately $237 per net ton to a high of $313 pernet ton. These prices are expected to fluctuate based on marketplace demand.

·       OnMay 1, 2007, the Company announced a cash tender offer to repurchase allof the outstanding Senior Subordinated Notes and a consent solicitation toamend the related indentures in connection with a proposed refinancing of the2005 Mueller Credit Agreement and issuance of up to $350 million of new SeniorSubordinated Notes. Management expects these actions will be completed in thethird quarter of fiscal 2007. Annual interest expense is expected to declineafter these actions are completed.

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·       During the remainder of thefiscal year, the Company plans to reduce the buildup of inventory. In order toachieve this, the Company may need to reduce man-hours worked in its foundries,which could cause compression of gross margins if the manufactured cost ofthose products rise.

**Results of Operations for the Three Months Ended March 31,2007 Compared to the Three Months Ended March 31, 2006**

*Net Sales.**  *Consolidated net sales for thethree months ended March 31, 2007 were $459.7 million, an increase of$24.8 million, or 5.7%, from $434.9 million in the prior year period. Thisincrease was primarily due to improved pricing selling prices, a favorable U.S.Pipe product mix, and the January 2007 acquisition of Fast Fabricators, Inc.,but these items partially offset by a decline in volumes of $26 millionprimarily due to continued weakness in residential construction.

*Gross Profit.**  *Consolidated gross profit for thethree months ended March 31, 2007 was $117.8 million, compared to $94.6million in the prior year period. Gross margin increased to 25.6% in thecurrent period compared to 21.8% in the prior year period. Cost of sales forthe three months ended March 31, 2006 includes $12.0 million of purchaseaccounting adjustments related to valuing inventory acquired in the Acquisitionat fair value. Excluding the impact of this adjustment, prior period grossmargin would have been 24.5%. The improvement in gross profit is primarily dueto reduction of fixed costs due to plant closures, and a favorable U.S. Pipeproduct mix, but these items were partially offset by increased raw materialcosts.

*Selling, General &Administrative.**  *Consolidatedexpenses for the three months ended March 31, 2007 were $64.9 million, anincrease of $4.1 million compared to $60.8 million in the prior yearperiod. Expenses as a percentage of net sales increased to 14.1% in the currentperiod compared to 13.9% in the prior year period.

*Related Party CorporateCharges.**  *TheCompany incurred no such costs in the current period since it is no longer asubsidiary of Walter. Historically, certain indirect costs incurred by Waltersuch as insurance, executive salaries, professional service fees, humanresources, transportation, and other centralized business functions had beenallocated to the Company’s U.S. Pipe segment. Costs of this nature that areincurred by the Company are now recorded in the Corporate segment and are notallocate to other segments.

*Facility Rationalization,Restructuring and Related Costs.**  *Restructuring costs of$4.3 million for the three months ended March 31, 2006 were relatedto the closure of U.S. Pipe’s Chattanooga, Tennessee valve and hydrant plant.

*Interest Expense, Net ofInterest Income.**  *Interestexpense, net of interest income, for the current period was $17.9 million,compared to $25.9 million in the prior year period. Net cash proceeds receivedfrom the initial public offering in June 2006 were used to pay down debt,resulting in lower interest expense in the current period.

*Income Tax Expense(Benefit).**  *Incometax expense for the current period was $14.8 million as compared to $0.6million in the prior year period. The effective tax rate for the second fiscalquarter of 2007 was 42.3%. The effective tax rate for the second fiscal quarterof 2006 was 37.5%.

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**Results of Operations for the Six Months Ended March 31,2007 Compared to the Six Months Ended March 31, 2006**

*NetSales.**  *Consolidatednet sales for the six months ended March 31, 2007 were $871.6 million, adecrease of $43.7 million, or 4.8%, from $915.3 million in the prior yearperiod. This decrease is due primarily to $114.0 million of lower volumeprimarily attributable to a weakness in residential construction, but ispartially offset by higher pricing of $71.0 million. In addition, sales in theprior year include approximately $30.0 million in ductile iron pipe salesassociated with Hurricane Katrina.

*Gross Profit.**  *Consolidated gross profit for thesix months ended March 31, 2007 was $225.5 million, an increase of $87.4million, compared to $138.1 million in the prior year period. Gross marginincreased to 25.9% in the current period compared to 15.1% in the prior yearperiod. Excluding $88.7 million of prior year costs associated with the closureof U.S. Pipe’s Chattanooga facility and purchase accounting adjustments relatedto valuing inventory acquired in the Acquisition at fair value, gross marginwould have been 24.8% in the prior period. The improvement in gross profit isdue primarily to reduction of fixed costs due to plant closures and a favorableU.S. Pipe product mix, but is partially offset by increased raw material costs.

*Selling, General &Administrative.**  *Consolidatedexpenses for the six months ended March 31, 2007 were $122.0 million, anincrease of $4.1 million, compared to $117.9 million in the prior yearperiod. Expenses as a percentage of net sales increased to 14.0% in the currentperiod compared to 12.9% in the prior year period. This percentage increase isdue to lower sales in the current period and increased corporate costs of $1.9million.

*Related Party CorporateCharges.**  *Certainoverhead costs incurred by Walter such as insurance, executive salaries,professional service fees, human resources, transportation, and othercentralized business functions were partially allocated to U.S. Pipe andrecorded as a component of operating income. The current period includes suchcharges through December 14, 2006, the date the Company spun-off fromWalter.

*Facility Rationalization,Restructuring and Related Costs.**  *Restructuring costs of $28.4million for the six months ended March 31, 2006 were related to theclosure of U.S. Pipe’s Chattanooga, Tennessee plant.

*Interest Expense, Net ofInterest Income.**  *Interestexpense, net of interest income, for the current period was $35.2 million,compared to $54.0 million in the prior year period. Net cash proceeds receivedfrom the initial public offering in June 2006 were used to pay down debt,resulting in lower interest expense in the current period. The prior yearperiod also includes $2.5 million of expenses from bridge loan commitment feesincurred as a result of the Acquisition.

*Income Tax Expense(Benefit).**  *Incometax expense for the current period was $27.1 million as compared to abenefit of $26.1 million in the prior year period. The effective tax ratefor the first six months of fiscal 2007 was 40.6%. The effective tax rate forthe first six months of fiscal 2006 was 39.5%.

**ITEM4.**                CONTROLS ANDPROCEDURES

We maintain disclosurecontrols and procedures that are designed to ensure that information requiredto be disclosed in our Exchange Act reports is recorded, processed, summarizedand reported within the time periods specified in the SEC’s rules andforms, and that such information is accumulated and communicated to themanagement, including the Chief Executive Officer and Interim Chief FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosure. Management necessarily applied its judgment in assessing the costsand benefits of such controls and procedures, which, by their nature, canprovide only reasonable assurance regarding management’s control objectives.

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The Company’s management,including the Chief Executive Officer and Interim Chief Financial Officer, doesnot expect that our disclosure controls can prevent all errors and all fraud. Acontrol system, no matter how well conceived and operated, can provide onlyreasonable, not absolute, assurance that the objectives of the control systemare met. There are inherent limitations in all control systems, including therealities that judgments in decision-making can be faulty, and that breakdownscan occur because of simple error or mistake. Additionally, controls can becircumvented by the individual acts of one or more persons. The design of anysystem of controls also is based in part upon certain assumptions about thelikelihood of future events, and, while our disclosure controls and proceduresare designed to be effective under circumstances where they should reasonablybe expected to operate effectively, there can be no assurance that any designwill succeed in achieving its stated goals under all potential future conditions.Because of the inherent limitations in any control system, misstatements due toerror or fraud may occur and not be detected.

As of the end of theperiod covered by this report, we carried out an evaluation, under thesupervision and with the participation of management, including the ChiefExecutive Officer along with the Chief Financial Officer, of the effectivenessof the design and operation of our disclosure controls and procedures pursuantto Exchange Act Rules 13a-15(b) and 15d-15(b). Based uponthe foregoing, the Chief Executive Officer along with the Interim ChiefFinancial Officer concluded that our disclosure controls and procedures areeffective at providing reasonable assurance that all material informationrelating to Mueller Water Products, Inc. and its subsidiaries required tobe included in our Exchange Act reports is reported in a timely manner.

There have been nosignificant changes in our internal procedures that significantly affected, orare reasonably likely to affect, our disclosure controls during the threemonths ended March 31, 2007.

**PART II. OTHERINFORMATION**

**Item1.**                        LegalProceeding

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

**Item1A.**                Risk Factors

**Risks Relating to Our Business**

**Ourbusiness may suffer as a result of a downturn in government spending related toinfrastructure upgrades, repairs and replacements, or in the cyclicalresidential or non-residential building markets.**

Our business is primarilydependent upon spending on water and wastewater infrastructure upgrades,repairs and replacement, new water and wastewater infrastructure spending(which is dependent upon residential construction) and spending on non-residentialconstruction. We are also subject to general economic conditions, the need forconstruction projects, interest rates and government incentives provided forpublic work projects. In addition, a significant percentage of our products areultimately used by municipalities or other governmental agencies in publicwater transmission and collection systems. As a result, our sales could declineas a result of declines in the number of projects planned by public wateragencies, government spending cuts, general budgetary constraints, difficultyin obtaining necessary permits or the inability of government entities to issuedebt. It is not unusual for water projects to be delayed and rescheduled for anumber of reasons, including changes in project priorities and difficulties incomplying with environmental and other government regulations. Spending growthin the infrastructure upgrades, repairs and replacement sector may slow in thefuture if state and local governments’ budgets are negatively impacted bydownturns in the economy. Even if favorable economic conditions exist, stateand local governments may choose not to address deferred infrastructure needs.Although the residential 

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buildingmarket has experienced growth in recent years, this growth may not continue inthe future. Recently, there have been steep declines in sales of both new andexisting homes, which have impacted our volume in recent periods. Theresidential and non-residential building markets are cyclical. Any significantdecline in the residential or non-residential building markets or governmentalspending on infrastructure could lead to a significant decline in our sales,profitability and cash flows.

**Our industry is very competitive and some of ourproducts are commodities.**

The domestic andinternational markets for flow control products are competitive. While thereare only a few competitors for most of our product offerings, many of them arewell-established companies with strong brand recognition. In particular, ourmalleable iron and cast iron pipe fitting products, which together comprised 6%of our net sales for the six months ended March 31, 2007 and 5% of our netsales for the fiscal years ended September 30, 2006 and 2005, facecompetition from less expensive imports. Further, our pipe nipple and hangerproducts and our pipe fittings and couplings products, which together comprised16% of our net sales for those two years and 17% of our net sales for the sixmonths ended March 31, 2007, compete on the basis of price and are sold infragmented markets with low barriers to entry, allowing less expensive domesticand foreign products to gain market share and reduce our margins. Also,competition for ductile iron pressure pipe sold by our U.S. Pipe segment comesnot only from ductile pipe produced by a concentrated number of domesticmanufacturers, but also from pipe composed of other materials, such aspolyvinylchloride (PVC), high density polyethylene (HDPE), concrete,fiberglass, reinforced plastic and steel.

**Foreign competition is intense and could harm oursales, profitability and cash flows.**

In addition to domesticcompetition, we face the threat of foreign competition. The intensity offoreign competition is affected by fluctuations in the value of the U.S. dollaragainst foreign currencies, by the cost to ship competitive products into theNorth American markets and by the availability of trade remedies. Foreigncompetition is likely to further increase and certain product prices willcontinue to face downward pressure as our domestic competitors shift theiroperations or outsource manufacturing requirements overseas or source suppliesfrom foreign vendors in an effort to reduce expenses.

**Wedepend on a group of major distributors for a significant portion of our sales;any loss of these distributors could reduce our sales and continuingconsolidation could cause price pressure.**

Approximately 35% and 38%of our net sales for the six months ended March 31, 2007 and the fiscalyear ended September 30, 2006, respectively, were to our 10 largestdistributors, and approximately 30% and 32% of our net sales for the six monthsended March 31, 2007 and the fiscal year ended September 30, 2006,respectively, were to our three largest distributors: HD Supply, FergusonEnterprises and Consolidated Pipe for the six months ended March 31, 2007,and HD Supply, Ferguson Enterprises and Groeniger for the fiscal year ended September 30,2006. Our business relationships with most of our major distributor branchesmay be terminated at the option of either party upon zero to 60 days’notice.

While our relationshipswith our ten largest distributors have been long-lasting, distributors in ourindustry have experienced significant consolidation in recent years, and ourdistributors may be acquired by other distributors who buy products from ourcompetitors. For example, Home Depot acquired National Waterworks in 2005 andthen acquired Hughes Supply in March 2006. The combined business has beenmerged into one entity now called HD Supply. As a result, two of our largestdistributors have been combined under common control. As consolidation amongdistributors continues, pricing pressure may result, which could lead to asignificant decline in our profitability. Further, our ability to retain ourcustomers in the face of competition generally depends on a variety of factors,including the quality and price of our products and services and our ability tomarket our products effectively. The loss of either HD Supply or FergusonEnterprises as a distributor could reduce our levels of sales andprofitability.

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**Our brass valve products contain lead, which may bereplaced in the future.**

Our brass valve products,which constituted approximately 6% of our net sales for the six months ended March 31,2007 and the fiscal year ended September 30, 2006, contain approximately5.0% lead. Environmental advocacy groups, relying on standards established byCalifornia’s Proposition 65, are seeking to eliminate or reduce the content oflead in some of these products, including water meters and valves, and to limittheir sale in California. Some of our business units have entered intosettlement agreements with these environmental advocacy groups that haverequired them to either modify some of these products or offer substitutes forthem with respect to products sold in California. Modifications of orsubstitutions for our products to meet or conform with regulatory requirementswill require us to purchase more expensive raw materials, and we may not beable to pass these costs on to our customers. Federal legislation tosubstantially restrict lead content in water products has been introduced inCongress. Congress may adopt legislation that would require us to reduce oreliminate lead in our brass products, which could require us to incursubstantial additional production expenses. In addition, advocacy groups orother parties may file suit against us, which could result in additional costsin connection with marketing and selling our brass products.

**Ourbusiness is subject to risk of price increases and fluctuations and delay inthe delivery of raw materials and purchased components.**

Our business is subject tothe risk of price increases and fluctuations and periodic delays in thedelivery of raw materials and purchased components that are beyond our control.Our operations require substantial amounts of raw materials or purchasedcomponents, such as steel pipe and scrap steel and iron, brass ingot, sand,resin, and natural gas. Management estimates that scrap metal and ferrousalloys used in the U.S. Pipe manufacturing process account for approximately42% of the cost to manufacture ductile iron pipe and raw materials used in ourmanufacturing processes currently account for approximately 18% of the MuellerCo. and Anvil cost of goods sold. Fluctuations in the price and delivery ofthese materials may be driven by the supply/demand relationship for a materialand factors particular to that material. In addition, if any of our suppliersseeks bankruptcy relief or otherwise cannot continue its business asanticipated or we cannot renew our supply contracts on favorable terms, theavailability of raw materials could be reduced or the price of raw materialscould increase.

The availability and priceof certain raw materials or purchased components, such as steel scrap and brassingot, are subject to market forces largely beyond our control, including NorthAmerican and international demand, freight costs, speculation and foreignexchange rates. We generally purchase raw materials at spot prices andgenerally do not hedge our exposure to price changes. We are not always able,and may not be able in the future, to pass on increases in the price of theseraw materials to our customers. In particular, when raw material prices increaserapidly or to significantly higher than normal levels, we may not be able topass price increases through to our customers on a timely basis, if at all,which could lead to significant reductions of our operating margins and cashflow. Any fluctuations in the price or availability of raw materials orpurchased components could significantly reduce our levels of production andsales or impair our profitability.

**Interruptionof normal operations at our key manufacturing facilities may impair ourproduction capabilities.**

Someof our key products, including hydrants, valves and ductile iron pipe, aremanufactured at large manufacturing facilities. The operations at our majormanufacturing facilities may be impaired by various operating risks, including,but not limited to:

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

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·       interruptionsin raw materials and energy supply;

·       adversegovernment regulation;

·       breakdownsor equipment failures;

·       violationsof our permit requirements or revocation of permits;

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

·       shortagesof equipment or spare parts; and

·       labordisputes.

To date, we havesuccessfully managed non-material occurrences of the foregoing eventswithout significant disruption of our operations. More acute occurrences ofthese events could cause a decrease in, or the elimination of, the revenuesgenerated by our key facilities or a substantial increase in the costs ofoperating such facilities that, in turn, could, impair our cash flows andresults of operations.

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

A part of our growthstrategy depends on the availability of acquisition candidates with businessesthat can be successfully integrated into our existing business and that willprovide us with complementary manufacturing capabilities, products or services.However, we may be unable to identify targets that will be suitable foracquisition. In addition, if we identify a suitable acquisition candidate, ourability to successfully implement the acquisition will depend on a variety offactors, including our ability to finance the acquisition. Our ability to financeour acquisitions is subject to a number of factors, including the availabilityof adequate cash from operations or of acceptable financing terms and the termsof our debt instruments. In addition, there are many challenges to integratingacquired companies and businesses in our company, including eliminatingredundant operations, facilities and systems, coordinating management andpersonnel, retaining key employees, managing different corporate cultures andachieving cost reductions and cross-selling opportunities. We may not beable to meet these challenges in the future.

**Businesses we have acquired or will acquire may notperform as expected.**

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

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

We have recorded asignificant amount of goodwill and other identifiable intangible assets. As of March 31,2007, goodwill was approximately $724.2 million and other identifiableintangible assets were approximately $834.0 million (representingapproximately 55% of our total assets). Goodwill and identifiable intangibleassets of the Company were recorded at fair value on the date of acquisition. Inaccordance with Financial Accounting Standards Board Statement of FinancialAccounting Standards No. 142, *Goodwill and OtherIntangible**Assets*, theseassets are reviewed at least annually for impairment. Impairment may resultfrom, among other things, deterioration in our performance, adverse marketconditions, adverse changes in applicable laws or regulations, includingchanges that restrict the activities of or affect the products and servicessold by our business, and a variety of other factors. The amount of anyquantified impairment must be expensed immediately as a charge to results ofoperations. 

**We have asignificant amount of debt and we may incur additional debt in the future.**

As of March 31,2007, our total debt was $1,005.8 million. The level of our indebtedness couldhave important consequences, including:

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

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

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

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

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

**We may not be able to generate sufficient cash toservice all of our indebtedness and may be forced to take other actions tosatisfy our obligations under our indebtedness, which may not be successful.**

Our ability to pay or to refinance our indebtednesswill depend upon our future operating performance, which will be affected bygeneral economic, financial, competitive, legislative, regulatory, business andother factors beyond our control. There is a risk that our business will notgenerate sufficient cash flow from operations, that currently anticipatedrevenue growth and operating improvements will not be realized or that futureborrowings will not be available to us in an amount sufficient to enable us topay our indebtedness, or to fund our other liquidity needs. We cannot assure you that we will maintain a levelof liquidity from operating activities sufficient to permit us to pay theprincipal, premium, if any, and interest on our indebtedness.

If our cash flows andcapital resources are insufficient to fund our debt service obligations, we maybe forced to reduce or delay investments and capital expenditures, or to sellassets, seek additional capital or restructure or refinance our indebtedness.However, we may not be able to accomplish these actions on satisfactory terms,or at all. In addition, these actions, if accomplished, could affect theoperation and growth of our business and may not permit us to meet ourscheduled debt service obligations. 

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

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

**Certain of our brass valve products may not be incompliance with National Sanitary Foundation standards, which could limit theability of municipalities to buy our products.**

The National SanitaryFoundation (“NSF”) is a non-profit entity that was contracted by the U.S.Environmental Protection Agency (“EPA”) to issue standards for the waterindustry. NSF has issued NSF 61, which governs the leaching characteristics ofvalves and devices that are part of drinking water distribution networks,including certain of our products made from brass. In recent years, a growingmajority of states have adopted, by statute or regulation, a requirement thatwater distribution systems utilize products that comply with NSF 61 and/or arecertified as NSF 61 compliant. We, along with others in the industry, areengaged in the lengthy process of attempting to obtain certification of NSF 61compliance for all of our relevant products. Our sales of brass valve productswere approximately 6% of our net sales for the six months ended March 31,2007 and the fiscal year ended September 30, 2006. To date we haveobtained certification of approximately 95% of our brass valve and fittingproducts. Approximately 26% of our certified products use “low lead” brass tocomply with current NSF 61 requirements. In the event that some of our brassvalve products are found not to be in compliance with NSF 61, those productsmay not be accepted by various municipalities or we may be forced to modifynon-conforming products with substitute materials which may require increasedcost, thereby impairing our profitability. In addition, if our competitorsdevelop a complete line of NSF 61 compliant brass valve products before we do,we may be placed at a competitive disadvantage which may, in turn, impair ourprofitability.

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

We are subject to a riskof work stoppages and other labor relations matters because our hourlyworkforce is highly unionized. As of March 31, 2007, approximately 73% ofour hourly workforce was represented by unions. These employees are representedby locals from approximately six different unions, including the Glass,Molders, Pottery, Plastics and Allied Workers International Union, which is ourlargest union. Our labor agreements will be negotiated as they expire atvarious times through 

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September 2010.Work stoppages for an extended period of time could impair our business.Labor costs are a significant element of the total expenditures involved in ourmanufacturing process, and an increase in the costs of labor could thereforeharm our business. In addition, the freight companies who deliver our productsto our distributors generally use unionized truck drivers, and our businesscould suffer if our contractors face work stoppages or increased laborcosts. 

**Our revenues are influenced by weather conditions andthe level of construction activity at different times of the year; we may notbe able to generate revenues that are sufficient to cover our expenses duringcertain periods of the year.**

Some of our products,including ductile iron pipe, are moderately seasonal, with lower sales in thewinter months. This seasonality in demand has resulted in fluctuations in ourrevenues and operating results. In order to satisfy demand during peak periods,we may incur costs associated with inventory build-up, and there can be no assurancethat our projections as to future need will be accurate. We have a significantbacklog of orders for some products for which we have inadequate inventories,or which are made-to-order. Because much of our overhead and expenses are fixedpayments, seasonal trends can cause reductions in our profit margin andnegatively affect our financial condition, especially during our slowerperiods.

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

We would be exposed toproduct liability claims in the event that the use of our products results, oris alleged to result, in bodily injury and/or property damage. There is a riskthat we will experience product liability or warranty losses in the future orthat we will incur significant costs to defend such claims. Such losses andcosts may be material. While we currently have product liability insurance, ourproduct liability insurance coverage may not be adequate for any liabilitiesthat may ultimately be incurred or the coverage may not continue to beavailable on terms acceptable to us. A successful claim brought against us inexcess of our available insurance coverage could require us to make significantpayments or a requirement to participate in a product recall which may harm ourreputation or profitability.

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

Under the terms of thepurchase agreement (the “Tyco Purchase Agreement”) relating to the August 1999sale by Tyco International Ltd. (“Tyco”) of the Mueller Co. and Anvilbusinesses to our prior owners, we are indemnified by Tyco for all liabilitiesarising in connection with the operation of these businesses prior to theirsale by Tyco, including with respect to products manufactured or sold prior tothe closing of that transaction. The indemnity survives forever and is notsubject to any dollar limits. In the past, Tyco has made substantial paymentsand/or assumed defense of claims pursuant to this indemnification provision.However, we may be responsible for these liabilities in the event that Tycoever becomes financially unable or fails to comply with, the terms of theindemnity. In addition, Tyco’s indemnity does not cover product liabilities tothe extent caused by our products manufactured after that transaction. On January 14,2006, Tyco’s board of directors announced that it approved a plan to separateTyco into three separate, publicly traded companies. Should the entity orentities that assume Tyco’s obligations under the Tyco Purchase Agreement everbecome financially unable or fail to comply with the terms of the indemnity, wemay be responsible for such obligations or liabilities. For more informationabout our potential product liabilities, see “Item 3—Legal Proceedings” in ourAnnual Report on Form 10-K.

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

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

In addition, we will be required to incur costs tocomply with the EPA’s National Emissions Standards for Hazardous Air Pollutants(“NESHAP”) for iron and steel foundries and for our foundries’ paintingoperations. These costs may be substantial. See “Item 1—Business—EnvironmentalMatters” in our Annual Report on Form 10-K. We may be required to conductinvestigations and perform remedial activities that could require us to incurmaterial costs in the future. Our operations involve the use of hazardoussubstances and the disposal of hazardous wastes. We may incur costs to managethese substances and wastes and may be subject to claims for damage forpersonal injury, property damages or damage to natural resources.

Our U.S. Pipe segment hasbeen identified as a potentially responsible party liable under federalenvironmental laws for a portion of the clean-up costs with regard to twosites, one in Alabama and one in California, and it is currently subject to anadministrative consent order requiring certain monitoring and clean-up withregard to its Burlington, New Jersey facility. Such clean-up costs could besubstantial and could have a negative effect on our profitability and cashflows in any given reporting period. As described in the immediately precedingrisk factor, we rely on Tyco to indemnify us for certain liabilities and thereis a risk that Tyco may become unable or fail to fulfill its obligation. Formore information about our environmental compliance and potential environmentalliabilities, see “Item 1—Business—Environmental Matters” in our Annual Reporton Form 10-K.

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

We expect the Sarbanes-OxleyAct and the rules and regulations subsequently implemented by the SEC andthe Public Company Accounting Oversight Board to continue to impose significantcompliance burdens and costs on the operations of the business. Those rules andregulations may make it more difficult and expensive for us to maintaindirector and officer liability insurance, and we may be required to acceptreduced coverage or incur substantially higher costs to maintain coverage.These rules and regulations could also make it more difficult for us toattract and retain qualified members of our board of directors, particularly toserve on our audit committee, and executive officers.

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

We are pursuing severalinitiatives designed to rationalize our manufacturing facilities and to use ourmanufacturing expertise to reduce our costs. In the fiscal year ended September 30,2006, we achieved integration synergies between our Mueller Co. and U.S. Pipesegments by closing the U.S. Pipe production facility in Chattanooga, Tennesseeand integrating it into Mueller Co.’s production facilities in Chattanooga,Tennessee and Albertville, Alabama. We have initiated the implementation ofplant and distribution combination and production efficiency strategies withinour Mueller Co. and Anvil segments, 

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whichefforts will continue through the fiscal year ending September 30, 2007and the beginning of 2008. Our Mueller Co. segment sales force has integratedU.S. Pipe products as complementary product offerings as part of their salesefforts. We also have begun to use our combined purchasing leverage to reduceraw material and overall product costs. If we fail to implement our integrationand rationalization plans at the economic levels or within the time periodsexpected, we may not be able to achieve the projected levels of synergies and costsavings.

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

We are a holding companythat has no operations of our own and derives all of our revenues and cash flowfrom our subsidiaries. The terms of the indentures governing our seniorsubordinated notes and our senior credit facilities significantly restrict oursubsidiaries from paying dividends and otherwise transferring assets to us.Furthermore, our subsidiaries are permitted under the terms of our seniorcredit facilities and other indebtedness to incur additional indebtedness thatmay severely restrict or prohibit the making of distributions, the payment ofdividends or the making of loans by such subsidiaries to us. A breach of any ofthose covenants would be a default under the applicable debt instrument thatwould permit the holders thereof to declare all amounts due thereunderimmediately payable. As a result, we may not have access to our subsidiaries’cash flow to finance our cash needs.

**If we fail toprotect our intellectual property, our business and ability to compete couldsuffer.**

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

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

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

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

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**Risks Relating toOur Relationship with Walter**

**We may havesubstantial additional liability for federal income tax allegedly owed byWalter.**

After the close of trading on December 14, 2006,Walter distributed to its stockholders approximately 1.65 shares of our Series Bcommon stock for each share of Walter common stock held by the stockholders ofrecord on December 6, 2006, resulting in the distribution of 85,844,920shares of our Series B common stock in a transaction intended to qualifyas a tax-free spin-off under Section 355 of the Internal Revenue Code of1986, as amended. Prior to this distribution, Walter owned all of our Series Bcommon stock, representing approximately 75% of our economic value andapproximately 96% of the combined voting power of all our voting stock. 

Each member of a consolidated group for federal incometax purposes is severally liable for the federal income tax liability of eachother member of the consolidated group for any year in which it is a member ofthe group at any time during such year. Each member of the Walter controlledgroup, which included the Company (including our subsidiaries) through December 14,2006, is also jointly and severally liable for pension and benefit funding andtermination liabilities of other group members, as well as certain benefit plantaxes. Accordingly, the Company could be liable under such provisions in theevent any such liability is incurred, and not discharged, by any other memberof the Walter consolidated or controlled group for any period during which theCompany was included in the Walter consolidated or controlled group.

A dispute exists withregard to federal income taxes allegedly owed by the Walter consolidated groupfor fiscal years 1980 through 1994 and 1999 through 2001. It is estimated thatthe amount of tax presently claimed by the IRS is approximately $34.0 millionfor issues currently in dispute in bankruptcy court and $80.4 million for the1999 through 2001 period, each of which is for matters unrelated to theCompany. These amounts are subject to interest and penalties. However, Walterhas advised the Company that its tax filing positions have substantial meritand intends to defend vigorously any claims asserted. Walter has also advisedthe Company that it believes that it has accruals sufficient to cover theestimated probable loss, including interest and penalties. If Walter cannot paythese one or more of these liabilities, we may be held responsible under the rules describedabove.

**The tax allocation agreement between Mueller Water andWalter gives Walter control over our taxes prior to the spin-off of MuellerWater’s Series B common stock and allocates to us certain tax risksassociated with that spin-off.**

Walter effectivelycontrolled all of our tax decisions for periods during which we were a memberof the Walter consolidated federal income tax group and certain combined,consolidated or unitary state and local income tax groups. Under the terms ofthe income tax allocation agreement between Walter and Mueller Water dated asof May 26, 2006, the Company generally computes its tax liability on astand-alone basis, but Walter has sole authority to respond to and conduct alltax proceedings (including tax audits) relating to our federal income andcombined state returns, to file all such returns on behalf of us and todetermine the amount of our liability to (or entitlement to payment from)Walter for such periods. This arrangement may result in conflicts of interestsbetween the Company and Walter. In addition, the tax allocation agreementprovides that if the spin-off of Mueller Water’s Series B common stock byWalter is determined not to be tax-free pursuant to Section 355 of theInternal Revenue Code of 1986, as amended, the Company generally will beresponsible for any taxes incurred by Walter or its stockholders if such taxesresult from certain of our actions or omissions and for a percentage of anysuch taxes that are not a result of our actions or omissions or Walter’sactions or omissions based upon our market value relative to Walter’s marketvalue. Additionally, to the extent that Walter were unable to pay taxes, ifany, attributable to the spin-off and for which it is responsible under theallocation agreement, we could be liable for those 

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taxes asa result of being a member of the same consolidated group for the year in whichthe spin-off occurred.

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

As of the close of business on December 14, 2006,Walter distributed all of its holding of Mueller Water’s Series B commonstock to Walter’s stockholders, thus making Mueller Water a stand-alone entity.Our operations as a stand-alone entity may place significant demands on ourmanagement, operational and technical resources. Our future performance willdepend on our ability to function as a stand-alone entity and on our ability tofinance and manage expanding operations and to adapt our information systems tochanges in our business. There is a risk that these factors could significantlyimpair our business, our results and our financial reporting ability.

Furthermore, the financialinformation included in this document may not necessarily reflect what theoperating results and financial condition would have been had we been aseparate, stand-alone entity during the periods presented or be indicative ofour future operating results and financial condition.

**Item 6.**                        Exhibits

**(a)   Exhibits**

| Exhibit No. | ** ** | ** **                                                                                                      | ** ** | **Document** |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|--------------|
| 31.1             |       | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.      |
| 31.2             |       | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002. |
| 32.1             |       | Certification of Chief  Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.      |
| 32.2             |       | Certification of Chief Financial Officer pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.  |

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*                    Managementcompensatory plan, contract or arrangement

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                        | MUELLER GROUP, LLC |
|------------------------|--------------------|
| Date: May 9, 2007 | By:                | /s/ GREGORY E. HYLAND |
|                   |               | Gregory E. Hyland |
|                   | * *           | *President and Chief Executive Officer* |
| Date: May 9, 2007 | By:                | /s/ JEFFERY W. SPRICK |
|                   |               | Jeffery W. Sprick |
|                   | * *           | *Chief Financial Officer and Chief Accounting  Officer* |

 

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