**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q/A**

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

| **x** | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(D) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|--------------------------------------------------------------------------------------------------------|

 

**Forthe quarterly period ended January 1, 2005.**

| o | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|---|------------|----------------------------------------------------------------------------------------------------------|

 

**Commission FileNumber 333-116590**

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

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

 

**4211W. Boy Scout Blvd.Tampa, FL 33607**

(Address of principalexecutive offices)

**(813) 871-4811**

(Registrant’s telephonenumber, including area code)

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

(Former Name and FormerAddressif Changed Since Last Reported)

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

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

|              | ** ** | ** ** | **Common Stock** | ** **     | ** ** | **Shares Outstanding As of March 25, 2005** | ** ** |
|--------------|------------|------------|-----------------------|----------------|------------|---------------------------------------------------------------------------|------------|
| Class A |       |       | $                     | 0.01 Par Value |       |                                                                      |       | 131,208,998 |   |   |
| Class B |       |       | $                     | 0.01 Par Value |       |                                                                      |       | 89,343,699 |   |   |

 

 

 

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**Explanatory Note**

**Organizational Change**

Mueller Water Products,Inc., a Delaware corporation (the “Company”), was formerly known as MuellerHolding Company, Inc., and, effective February 2, 2006, is the “successorissuer” to Mueller Water Products, LLC, a Delaware limited liability company,pursuant to Rule 15d-5 promulgated under the Securities and Exchange Actof 1934, as amended.

**Purposeof Amendment to Quarterly Report**

The purpose of this Amendment No. 1 to theQuarterly Report on Form 10-Q of is to restate the Company’sconsolidated financial statements as of and for the three months ended January 1,2005. On December 14, 2005, the Company’s management and the AuditCommittee of the Board of Directors determined that the financial statements ofthe Company for the two years ended September 30, 2004 and interim periodsof fiscal years 2005 and 2004 required restatement.

The 2005 Restatements reflect adjustments to correctcash flow statement errors related to foreign currency translation, disposalsof property, plant and equipment and book cash overdrafts, themisclassification of deferred income tax assets between current and non-currentclassifications in the balance sheet and the misclassification of depreciationexpense between selling, general and administrative expense and cost of sales. The2005 Restatements had no impact on the Company’s consolidated net income or theConsolidated Statement of Stockholders’ Deficit. The nature and impact of theseadjustments are described in Note 2: “Restatements” in this Form 10-Q/A.

For the convenienceof the reader, this Form 10-Q/A sets forth the original Form 10-Qin its entirety. Except for the revision of management’s conclusion regardingthe effectiveness of the Company’s disclosure controls and procedures as of January 1,2005 presented under Part1, Item 4, the Company has not modified or updatedother disclosures presented in the original report on Form 10-Qexcept for the required effects of the restatement. Accordingly, other than theitems indicated above, this Form 10-Q/A does not reflect eventsoccurring after the filing of the original Form 10-Q or modify orupdate those disclosures. Information not affected by the restatement isunchanged and reflects the disclosure made at the time of the original filingof the Form 10-Q with the Securities and Exchange Commission on March 31,2005. Accordingly, this Form 10-Q/A should be read in conjunctionwith the Company’s filings made with the Securities and Exchange Commissionsubsequent to the filing of the original Form 10-Q. The followingitems have been amended as a result of the restatement:

·       Part I—Item1. Unaudited Financial Statements

·       Part I—Item 2. Management’sDiscussion and Analysis of Financial Condition and Results of Operations

·       Part I—Item4. Controls and Procedures; and

·       Part II—Item6. Exhibits

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**MUELLER WATER PRODUCTS, INC.REPORT ON FORM 10-QFOR THE QUARTERLY PERIOD ENDED JANUARY 1, 2005**

**TABLEOF CONTENTS**

|                                                                                                     | ** ** | **Page** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|----------|------------|
| PART I—FINANCIAL  INFORMATION                                                             |       |     | 3          |   |   |
| Item  1. Unaudited Financial Statements                                                             |       |     | 3          |   |   |
| Condensed Consolidated Balance Sheets                                                               |       |     | 3          |   |   |
| Condensed Consolidated Statements of Operations                                                     |       |     | 4          |   |   |
| Condensed Consolidated Statements of Cash Flows                                                     |       |     | 5          |   |   |
| Notes  to Condensed Consolidated Financial Statements                                               |       |     | 6          |   |   |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations |       |     | 20         |   |   |
| Item 3. Quantitative and Qualitative Disclosures About  Market Risk                                 |       |     | 29         |   |   |
| Item  4. Controls and Procedures                                                                    |       |     | 29         |   |   |
| PART II—OTHER INFORMATION                                                                 |       |     | 33         |   |   |
| Item 6. Exhibits                                                                                    |       |     | 33         |   |   |
| Signatures                                                                                          |       |     | 34         |   |   |

 

2

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**PART I.FINANCIAL INFORMATION**

**ITEM 1.FINANCIAL STATEMENTS**

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

| ** **                                                                                                            | ** ** | **September 30,  2004  (restated)**         | ** ** | **January 1,  2005  (restated)** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                            | ** ** | **(unaudited)  (dollars in millions)** | ** ** |
| **Assets**                                                                                                            |       |                                             |       |                                  |       |   |   |   |   |
| Cash and cash  equivalents                                                                                            |       |                                             | $          | 60.5                                  |       |   |   | $ | 56.2 |   |   |
| Receivables, net  of allowance for doubtful accounts of $5.1 and $5.2, respectively                                   |       |                                             | 162.0      |                                  |       |   | 141.3 |   |   |
| Inventories                                                                                                           |       |                                             | 260.2      |                                  |       |   | 288.1 |   |   |
| Income taxes  receivable                                                                                              |       |                                             | 4.1        |                                  |       |   | 2.5 |   |   |
| Deferred income  taxes                                                                                                |       |                                             | 21.8       |                                  |       |   | 22.5 |   |   |
| Prepaid expenses  and other current assets                                                                            |       |                                             | 28.9       |                                  |       |   | 29.0 |   |   |
| Total current assets                                                                                                  |       |                                             | 537.5      |                                  |       |   | 539.6 |   |   |
| Property, plant  and equipment, net                                                                                   |       |                                             | 186.8      |                                  |       |   | 180.6 |   |   |
| Goodwill, net                                                                                                         |       |                                             | 163.2      |                                  |       |   | 163.2 |   |   |
| Identifiable  intangibles, net                                                                                        |       |                                             | 55.2       |                                  |       |   | 54.5 |   |   |
| Pension  intangible                                                                                                   |       |                                             | 0.8        |                                  |       |   | 0.8 |   |   |
| Deferred  financing fees, net                                                                                         |       |                                             | 37.4       |                                  |       |   | 36.2 |   |   |
| Deferred income  taxes                                                                                                |       |                                             | 8.3        |                                  |       |   | 8.0 |   |   |
| Total assets                                                                                                          |       |                                             | $          | 989.2                                 |       |   |   | $ | 982.9 |   |   |
| **Liabilities**                                                                                                       |       |                                             |       |                                  |       |   |   |   |   |
| Accounts payable                                                                                                      |       |                                             | $          | 57.6                                  |       |   |   | $ | 51.9 |   |   |
| Current portion  of long-term debt                                                                                    |       |                                             | 3.2        |                                  |       |   | 3.9 |   |   |
| Accrued expenses  and other current liabilities                                                                       |       |                                             | 85.9       |                                  |       |   | 70.9 |   |   |
| Total current  liabilities                                                                                            |       |                                             | 146.7      |                                  |       |   | 126.7 |   |   |
| Long-term  debt, net of current portion                                                                               |       |                                             | 1,036.2    |                                  |       |   | 1,039.9 |   |   |
| Accrued pension  liability                                                                                            |       |                                             | 29.2       |                                  |       |   | 30.8 |   |   |
| Other long-term  liabilities                                                                                          |       |                                             | 7.8        |                                  |       |   | 5.5 |   |   |
| Total liabilities                                                                                                     |       |                                             | 1219.9     |                                  |       |   | 1202.9 |   |   |
| Commitments and  contingencies (Note 8)                                                                               |       |                                             | —     |                                  |       |   | — |   |   |
| Redeemable common  stock                                                                                              |       |                                             | 1.7        |                                  |       |   | 1.7 |   |   |
| **Shareholders’ equity**                                                                                         |       |                                             |       |                                  |       |   |   |   |   |
| Common stock:                                                                                                         |       |                                             |       |                                  |       |   |   |   |   |
| Class A,  $0.01 par value (400,000,000 shares authorized and 131,208,998 issued)                                 |       |                                             | 1.3        |                                  |       |   | 1.3 |   |   |
| Class B,  $0.01 par value, convertible, non-voting (150,000,000 shares authorized  and 89,343,699 shares issued) |       |                                             | 0.9        |                                  |       |   | 0.9 |   |   |
| Additional paid-in  capital                                                                                           |       |                                             | —     |                                  |       |   | — |   |   |
| Accumulated  deficit                                                                                                  |       |                                             | (218.6     | )                                     |       |   | (211.9 | ) |   |
| Accumulated other  comprehensive loss                                                                                 |       |                                             | (16.0      | )                                     |       |   | (12.0 | ) |   |
| Total  shareholders’ equity                                                                                      |       |                                             | (232.4     | )                                     |       |   | (221.7 | ) |   |
| Total liabilities and  shareholders’ equity                                                                      |       |                                             | $          | 989.2                                 |       |   |   | $ | 982.9 |   |   |

 

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

3

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**MUELLER WATERPRODUCTS, INC.UNAUDITED CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

| ** **                                                                         | ** ** | **Three months ended**                 | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                         | ** ** | **December 27, 2003**                  | ** ** | **January 1, 2005** | ** ** |
| ** **                                                                         | ** ** | **(restated)**                                   | ** ** | **(restated)** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)  (dollars in millions)** | ** ** |
| Net sales                                                                          |       |                                             | $          | 220.2 |   |   |   | $ | 256.1 |   |   |
| Cost of sales                                                                      |       |                                             | 163.3      |   |   |   | 181.9 |   |   |
| Gross profit                                                                       |       |                                             | 56.9       |   |   |   | 74.2 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       |                                             | 37.0       |   |   |   | 41.9 |   |   |
| Facility  rationalization, restructuring and related costs                         |       |                                             | —     |   |   |   | 0.1 |   |   |
| Operating income                                                                   |       |                                             | 19.9       |   |   |   | 32.2 |   |   |
| Interest expense  and early repayment costs                                        |       |                                             | (13.7      | ) |   |   | (21.1 | ) |   |
| Interest income                                                                    |       |                                             | 0.2        |   |   |   | 0.4 |   |   |
| Income before  income taxes                                                        |       |                                             | 6.4        |   |   |   | 11.5 |   |   |
| Income tax  expense                                                                |       |                                             | 2.5        |   |   |   | 4.8 |   |   |
| Net income                                                                         |       |                                             | $          | 3.9 |   |   |   | $ | 6.7 |   |   |

 

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

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

| ** **                                                                                   | ** ** | **Three months ended**    | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                   | ** ** | **December 27,  2003**         | ** ** | **January 1,  2005** | ** ** |
| ** **                                                                                   | ** ** | **(restated)**                      | ** ** | **(restated)** | ** ** |
| ** **                                                                                   | ** ** | **(unaudited)**                     | ** ** |
| ** **                                                                                   | ** ** | **(dollars in millions)** | ** ** |
| **Cash  flows from operating activities**                                                    |       |                                |       |   |   |   |   |   |   |
| Net income                                                                                   |       |                                | $          | 3.9 |   |   |   | $ | 6.7 |   |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |                                |       |   |   |   |   |   |   |
| Depreciation                                                                                 |       |                                | 11.7       |   |   |   | 11.2 |   |   |
| Amortization of intangibles                                                                  |       |                                | 4.3        |   |   |   | 0.8 |   |   |
| Amortization of deferred financing fees                                                      |       |                                | 0.7        |   |   |   | 1.2 |   |   |
| Amortization of tooling                                                                      |       |                                | 0.5        |   |   |   | 0.6 |   |   |
| Write off of deferred financing fees                                                         |       |                                | 0.4        |   |   |   | — |   |   |
| (Gain) loss on disposal of property, plant and  equipment                                    |       |                                | 0.1        |   |   |   | 0.1 |   |   |
| Deferred income taxes                                                                        |       |                                | 0.8        |   |   |   | (0.5 | ) |   |
| Stock compensation (non-cash amounts)                                                        |       |                                | 0.1        |   |   |   | — |   |   |
| Unrealized gain on interest rate swaps                                                       |       |                                | (3.7       | ) |   |   | (2.3 | ) |   |
| Changes in assets  and liabilities, net of the effects of acquisitions:                      |       |                                |       |   |   |   |   |   |   |
| Receivables                                                                                  |       |                                | 18.3       |   |   |   | 22.2 |   |   |
| Inventories                                                                                  |       |                                | (2.5       | ) |   |   | (25.5 | ) |   |
| Income taxes receivable                                                                      |       |                                | —     |   |   |   | 1.6 |   |   |
| Prepaid expenses and other current assets                                                    |       |                                | 0.3        |   |   |   | (0.6 | ) |   |
| Pension, net                                                                                 |       |                                | 1.5        |   |   |   | 1.6 |   |   |
| Accounts payable, accrued expenses and other current  liabilities                            |       |                                | (19.3      | ) |   |   | (20.9 | ) |   |
| Other, net                                                                                   |       |                                | (0.1       | ) |   |   | 4.3 |   |   |
| Net cash provided  by (used in) operating activities                                         |       |                                | 17.0       |   |   |   | 0.5 |   |   |
| **Cash  flows from investing activities**                                                    |       |                                |       |   |   |   |   |   |   |
| Purchase of  property, plant and equipment                                                   |       |                                | (4.5       | ) |   |   | (4.7 | ) |   |
| Net cash used in  investing activities                                                       |       |                                | (4.5       | ) |   |   | (4.7 | ) |   |
| **Cash  flows from financing activities**                                                    |       |                                |       |   |   |   |   |   |   |
| Book cash overdrafts                                                                         |       |                                | 0.3        |   |   |   | (0.7 | ) |   |
| Payment of long-term  debt                                                                   |       |                                | (50.0      | ) |   |   | — |   |   |
| Payment of  deferred financing fees                                                          |       |                                | (0.8       | ) |   |   | — |   |   |
| Financing of  assets through capital leases                                                  |       |                                | (0.3       | ) |   |   | (0.3 | ) |   |
| Net cash used in  financing activities                                                       |       |                                | (50.8      | ) |   |   | (1.0 | ) |   |
| Effect of  exchange rate changes on cash                                                     |       |                                | 0.5        |   |   |   | 0.9 |   |   |
| Decrease in cash  and cash equivalents                                                       |       |                                | (37.8      | ) |   |   | (4.3 | ) |   |
| **Cash  and cash equivalents**                                                               |       |                                |       |   |   |   |   |   |   |
| Beginning of  period                                                                         |       |                                | 73.0       |   |   |   | 60.5 |   |   |
| End of period                                                                                |       |                                | $          | 35.2 |   |   |   | $ | 56.2 |   |   |

 

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

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**MUELLER WATERPRODUCTS, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSTHREE MONTHS ENDED DECEMBER 27, 2003 AND JANUARY 1, 2005(UNAUDITED)**

**1. Basis of Presentation**

Mueller Water Products, Inc.(formerly Mueller Holdings (N.A.), Inc.) (“Mueller Water” or the “Company”)is the parent company of Mueller Group, Inc. (“Group”). The accompanyingunaudited condensed consolidated financial statements of Mueller Water Products, Inc.have been prepared in accordance with accounting principles generally acceptedin the United States of America for interim financial information. Accordingly,the unaudited condensed consolidated financial statements and notes do notcontain certain information included in the Company’s annual financialstatements. In the opinion of management, all normal and recurring adjustmentsthat are considered necessary for a fair presentation have been made. Operatingresults for the three months ended January 1, 2005 are not necessarilyindicative of the results that may be expected for the fiscal year ended September 30,2005. The consolidated financial statements should be read in conjunction withthe audited consolidated financial statements for the year ended September 30,2004 as found in the Company’s Annual Report on Form 10-K.

**2. Restatements**

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

***2005Restatements***

In the course offinalizing the September 30, 2005 financial statements, the Companydetermined that certain items included in the Statements of Consolidated CashFlows, the Consolidated Statements of Operations and the Consolidated BalanceSheets were not properly classified in annual and interim periods. The interimfinancial statements for the three months ended December 27, 2003 and January 1,2005, respectively, were restated for the following items:

*Effect of exchangerate changes on cash*

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

*Disposals ofproperty, plant and equipment*

In the first quarter offiscal 2004, the Company presented disposals of property, plant and equipmentas an investing activity in error, when it should have been presented as anadjustment in determining cash flows provided by operating activities.

*Book cashoverdrafts*

In interim periods duringfiscal 2004 and 2005, cash accounts in book cash overdraft positions werenetted with accounts where legal right of offset did not exist. On the ConsolidatedBalance Sheets, cash 

6

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and cashequivalents should have increased and a liability recorded with respect to suchbook cash overdrafts by comparable amounts. The change in the book cash overdraftshould have been reflected as a financing activity in the Statements ofConsolidated Cash Flows and the balance should have been included in accountspayable and as an increase in cash and cash equivalents in the ConsolidatedBalance Sheet as of January 1, 2005.

*Current andNon-current deferred income taxes*

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

*Misclassificationof depreciation expense*

In interim periods during fiscal 2004 and 2005, theCompany incorrectly classified certain depreciation expense amounts as selling,general and administrative expense in the Consolidated Statements of Operationswhen it should have been reported as cost of sales.

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

***2004Restatements***

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

Theinterim financial statements for the periods noted below have been restated forthe following items:

*Research anddevelopment costs*

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

*Revenue recognitionadjustments*

Revenues related tocertain full-truckload customer shipments which were not immediately dispatchedto customers by certain freight carriers used by the Company originallyrecognized should have been deferred until such time as the trucks weredispatched and the products delivered to the customer. 

7

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Theinterim financial statements have been restated to reflect the recognition ofrevenue in the proper periods.

*Inventory journalentries*

Unauthorizedjournal entries were recorded at a piping systems segment plant, whichincreased the value of inventory inappropriately. The interim financialstatements have been restated to reduce the inventory value and increase costof goods sold.

*Intercompany profitelimination*

Therewas an error, which arose primarily in the first quarter of 2004, in theestimated amount of intercompany profit elimination recorded during the interimperiods in the year ended September 30, 2004 related to the piping systemssegment.

*Deferred financingfees*

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

*Income tax effectof adjustments*

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

The following tables set forth the effects of the 2005and 2004 Restatements discussed above on the financial statements as of January 1,2005 and for the three months ended December 27, 2003 and January 1,2005 as follows:

**ConsolidatedStatement of Operations**

| ** **                                                                         | ** ** | **Three months ended**    | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                         | ** ** | **December 27, 2003**     | ** ** |
| ** **                                                                         | ** ** | ** **                          | ** ** | **as restated** | ** ** | **as restated** | ** ** |
| ** **                                                                         | ** ** | **as originally**              | ** ** | **for 2004** | ** ** | **for 2005** | ** ** |
| ** **                                                                         | ** ** | **reported (A)**               | ** ** | **Restatements (B)** | ** ** | **Restatements** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**                     | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| ** **                                                                         | ** ** | **(dollars in millions)** | ** ** |
| Net sales                                                                          |       |                                | $          | 218.0 |   |   |   | $ | 220.2 |   |   |   | $ | 220.2 |   |   |
| Cost of sales                                                                      |       |                                | 158.6      |   |   |   | 161.5 |   |   |   | 163.3 |   |   |
| Gross profit                                                                       |       |                                | 59.4       |   |   |   | 58.7 |   |   |   | 56.9 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       |                                | 39.1       |   |   |   | 38.8 |   |   |   | 37.0 |   |   |
| Facility  rationalization and related costs                                        |       |                                | —     |   |   |   | — |   |   |   | — |   |   |
| Operating income                                                                   |       |                                | 20.3       |   |   |   | 19.9 |   |   |   | 19.9 |   |   |
| Interest expense  and early repayment costs                                        |       |                                | (14.5      | ) |   |   | (13.7 | ) |   |   | (13.7 | ) |   |
| Interest income                                                                    |       |                                | 0.2        |   |   |   | 0.2 |   |   |   | 0.2 |   |   |
| Income before  income taxes                                                        |       |                                | 6.0        |   |   |   | 6.4 |   |   |   | 6.4 |   |   |
| Income tax  expense                                                                |       |                                | 2.4        |   |   |   | 2.5 |   |   |   | 2.5 |   |   |
| Net income                                                                         |       |                                | $          | 3.6 |   |   |   | $ | 3.9 |   |   |   | $ | 3.9 |   |   |

 

8

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

| ** **                              | ** ** | **Three months**               | ** ** |
|-----------------------------------------|------------|-------------------------------------|------------|
| ** **                              | ** ** | **ended**                           | ** ** |
| ** **                              | ** ** | **December 27, 2003**     | ** ** |
| ** **                              | ** ** | **(unaudited)**                     | ** ** |
| ** **                              | ** ** | **(dollars in millions)** | ** ** |
| Net income, as  originally reported (A) |       |                                | $          | 3.6 |   |   |
| Increased (decreased)  pretax earnings: |       |                                |       |   |   |
| Research & development costs   |       |                                | 0.3        |   |   |
| Revenue recognition adjustments         |       |                                | 0.7        |   |   |
| Inventory journal entries               |       |                                | (0.2       | ) |   |
| Intercompany profit elimination         |       |                                | (1.2       | ) |   |
| Deferred financing fees                 |       |                                | 0.8        |   |   |
| Total pre-tax  adjustments              |       |                                | 0.4        |   |   |
| Income tax effect  of adjustments       |       |                                | (0.1       | ) |   |
| Net income, as restated  (B)            |       |                                | $          | 3.9 |   |   |

 

| ** **                                    | ** ** | **Three months ended**    | ** ** |
|-----------------------------------------------|------------|-------------------------------------|------------|
| ** **                                    | ** ** | **January 1, 2005**       | ** ** |
| ** **                                    | ** ** | ** **                          | ** ** | **as restated** | ** ** |
| ** **                                    | ** ** | **as originally**              | ** ** | **for 2005** | ** ** |
| ** **                                    | ** ** | **reported (C)**               | ** ** | **Restatements** | ** ** |
| ** **                                    | ** ** | **(unaudited)**                     | ** ** | **(unaudited)** | ** ** |
| ** **                                    | ** ** | **(dollars in millions)** | ** ** |
| Cost of sales                                 |       |                                | $          | 180.2 |   |   |   | $ | 181.9 |   |   |
| Gross profit                                  |       |                                | $          | 75.9 |   |   |   | $ | 74.2 |   |   |
| Selling, general and  administrative expense, |       |                                |       |   |   |   |   |   |   |
| including stock  compensation expense         |       |                                | $          | 43.6 |   |   |   | $ | 41.9 |   |   |

 

**ConsolidatedBalance Sheets**

| ** **                                        | ** ** | **September 30, 2004**    | ** ** | **January 1, 2005** | ** ** |
|---------------------------------------------------|------------|-------------------------------------|------------|-------------------------------|------------|
| ** **                                        | ** ** | ** **                          | ** ** | **as restated**          | ** ** | ** ** | ** ** | **as restated** | ** ** |
| ** **                                        | ** ** | **as originally**              | ** ** | **for 2005**             | ** ** | **as originally** | ** ** | **for 2005** | ** ** |
| ** **                                        | ** ** | **reported (C)**               | ** ** | **Restatements**              | ** ** | **reported (C)** | ** ** | **Restatements** | ** ** |
| ** **                                        | ** ** | **(unaudited)**                     | ** ** | **(unaudited)**               | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| ** **                                        | ** ** | **(dollars in millions)** | ** ** |
| Cash and cash  equivalents                        |       |                                | $          | 55.6                          |       |   |   | $ | 60.5 |   |   |   | $ | 52.0 |   |   |   | $ | 56.2 |   |   |
| Deferred income  taxes—current               |       |                                | $          | 9.0                           |       |   |   | $ | 21.8 |   |   |   | $ | 9.0 |   |   |   | $ | 22.5 |   |   |
| Current assets                                    |       |                                | $          | 519.8                         |       |   |   | $ | 537.5 |   |   |   | $ | 521.9 |   |   |   | $ | 539.6 |   |   |
| Deferred income  taxes—non-current           |       |                                | $          | 21.1                          |       |   |   | $ | 8.3 |   |   |   | $ | 21.5 |   |   |   | $ | 8.0 |   |   |
| Total assets                                      |       |                                | $          | 984.3                         |       |   |   | $ | 989.2 |   |   |   | $ | 978.7 |   |   |   | $ | 982.9 |   |   |
| Accounts payable                                  |       |                                | $          | 52.7                          |       |   |   | $ | 57.6 |   |   |   | $ | 47.7 |   |   |   | $ | 51.9 |   |   |
| Total current  liabilities                        |       |                                | $          | 141.8                         |       |   |   | $ | 146.7 |   |   |   | $ | 122.5 |   |   |   | $ | 126.7 |   |   |
| Total liabilities                                 |       |                                | $          | 1,215.0                       |       |   |   | $ | 1,219.9 |   |   |   | $ | 1,198.7 |   |   |   | $ | 1,202.9 |   |   |
| Total liabilities and  shareholders’ deficit |       |                                | $          | 984.3                         |       |   |   | $ | 989.2 |   |   |   | $ | 978.7 |   |   |   | $ | 982.9 |   |   |

 

9

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**Statementsof Consolidated Cash Flows**

| ** **                                                        | ** ** | **Three months ended**    | ** ** | **Three months ended** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------|------------|----------------------------------|------------|
| ** **                                                        | ** ** | **December 27, 2003**     | ** ** | **January 1, 2005**    | ** ** |
| ** **                                                        | ** ** | ** **                          | ** ** | **as restated**             | ** ** | **as restated** | ** ** | ** ** | ** ** | **as restated** | ** ** |
| ** **                                                        | ** ** | **as originally**              | ** ** | **for 2004**                | ** ** | **for 2005** | ** ** | **as originally** | ** ** | **for 2005** | ** ** |
| ** **                                                        | ** ** | **reported (A)**               | ** ** | **Restatements (B)**        | ** ** | **Restatements** | ** ** | **reported (C)** | ** ** | **Restatements** | ** ** |
| ** **                                                        | ** ** | **(unaudited)**                     | ** ** | **(unaudited)**                  | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| ** **                                                        | ** ** | **(dollars in millions)** | ** ** |
| **Cash flows from operating  activities:**                        |       |                                |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gain (loss) on disposal of property, plant and  equipment         |       |                                | $          | —                           |       |   |   | $ | — |   |   |   | $ | 0.1 |   |   |   | $ | — |   |   |   | $ | 0.1 |   |   |
| Deferred income taxes                                             |       |                                | $          | 1.0                              |       |   |   | $ | 0.8 |   |   |   | $ | 0.8 |   |   |   | $ | (0.4 | ) |   |   | $ | (0.5 | ) |   |
| Receivables                                                       |       |                                | $          | 19.7                             |       |   |   | $ | 17.6 |   |   |   | $ | 18.3 |   |   |   | $ | 20.7 |   |   |   | $ | 22.2 |   |   |
| Inventories                                                       |       |                                | $          | (6.6                             | )          |   |   | $ | (3.7 | ) |   |   | $ | (2.5 | ) |   |   | $ | (27.9 | ) |   |   | $ | (25.5 | ) |   |
| Prepaid expenses and other current assets                         |       |                                | $          | 0.2                              |       |   |   | $ | 0.2 |   |   |   | $ | 0.3 |   |   |   | $ | (0.7 | ) |   |   | $ | (0.6 | ) |   |
| Accounts payable, accrued expenses and other current  liabilities |       |                                | $          | (18.5                            | )          |   |   | $ | (18.8 | ) |   |   | $ | (19.3 | ) |   |   | $ | (20.0 | ) |   |   | $ | (20.9 | ) |   |
| Other, net                                                        |       |                                | $          | (0.4                             | )          |   |   | $ | (0.2 | ) |   |   | $ | (0.1 | ) |   |   | $ | 4.2 |   |   |   | $ | 4.3 |   |   |
| Cash flows provided by (used in) operating activities             |       |                                | $          | 14.5                             |       |   |   | $ | 15.3 |   |   |   | $ | 17.0 |   |   |   | $ | (2.7 | ) |   |   | $ | 0.5 |   |   |
| **Cash flows used in investing  activities:**                     |       |                                |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gain (loss) on disposal of property, plant and  equipment         |       |                                | $          | 0.1                              |       |   |   | $ | 0.1 |   |   |   | $ | — |   |   |   | $ | 0.1 |   |   |   | $ | — |   |   |
| Cash flows used in investing activities                           |       |                                | $          | (4.4                             | )          |   |   | $ | (4.4 | ) |   |   | $ | (4.5 | ) |   |   | $ | (4.6 | ) |   |   | $ | (4.7 | ) |   |
| **Cash flows used in financing  activities:**                     |       |                                |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Book cash overdrafts                                              |       |                                | $          | —                           |       |   |   | $ | — |   |   |   | $ | 0.3 |   |   |   | $ | — |   |   |   | $ | (0.7 | ) |   |
| Cash flows used in financing activities                           |       |                                | $          | (50.3                            | )          |   |   | $ | (51.1 | ) |   |   | $ | (50.8 | ) |   |   | $ | (0.3 | ) |   |   | $ | (1.0 | ) |   |
| **Effect of exchange rate changes on cash**                       |       |                                | $          | 2.1                              |       |   |   | $ | 2.1 |   |   |   | $ | 0.5 |   |   |   | $ | 4.0 |   |   |   | $ | 0.9 |   |   |
| **Increase (decrease) in cash and cash equivalents**              |       |                                | $          | (38.1                            | )          |   |   | $ | (38.1 | ) |   |   | $ | (37.8 | ) |   |   | $ | (3.6 | ) |   |   | $ | (4.3 | ) |   |
| **Cash and cash equivalents—****beginning of period**        |       |                                | $          | 71.4                             |       |   |   | $ | 71.4 |   |   |   | $ | 73.0 |   |   |   | $ | 55.6 |   |   |   | $ | 60.5 |   |   |
| **Cash and  cash equivalents—end of period**                 |       |                                | $          | 33.3                             |       |   |   | $ | 33.3 |   |   |   | $ | 35.2 |   |   |   | $ | 52.0 |   |   |   | $ | 56.2 |   |   |

 

10

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**Segment Information**

| ** **           | ** ** | **Three months ended**    | ** ** |
|----------------------|------------|-------------------------------------|------------|
| ** **           | ** ** | **December 27, 2003**     | ** ** |
| ** **           | ** ** | ** **                          | ** ** | **as restated** | ** ** |
| ** **           | ** ** | **as originally**              | ** ** | **for 2004** | ** ** |
| ** **           | ** ** | **reported (A)**               | ** ** | **Restatements (B)** | ** ** |
| ** **           | ** ** | **(unaudited)**                     | ** ** | **(unaudited)** | ** ** |
| ** **           | ** ** | **(dollars in millions)** | ** ** |
| Net sales:           |       |                                |       |   |   |   |   |   |   |
| Water infrastructure |       |                                | $          | 122.5 |   |   |   | $ | 124.7 |   |   |
| Piping systems       |       |                                | 95.5       |   |   |   | 95.5 |   |   |
| Consolidated         |       |                                | $          | 218.0 |   |   |   | $ | 220.2 |   |   |
| Segment EBITDA:      |       |                                |       |   |   |   |   |   |   |
| Water infrastructure |       |                                | $          | 29.6 |   |   |   | $ | 30.6 |   |   |
| Piping systems       |       |                                | 9.2        |   |   |   | 7.8 |   |   |
| Total segment EBITDA |       |                                | $          | 38.8 |   |   |   | $ | 38.4 |   |   |
| Operating income:    |       |                                |       |   |   |   |   |   |   |
| Water infrastructure |       |                                | $          | 23.5 |   |   |   | $ | 24.5 |   |   |
| Piping systems       |       |                                | 5.1        |   |   |   | 3.7 |   |   |
| Corporate            |       |                                | (8.3       | ) |   |   | (8.3 | ) |   |
| Consolidated         |       |                                | $          | 20.3 |   |   |   | $ | 19.9 |   |   |

 

| ** **           | ** ** | **At September 30, 2004** | ** ** | **At January 1, 2005** | ** ** |
|----------------------|------------|------------------------------------------|------------|---------------------------------------|------------|
| ** **           | ** ** | ** **                               | ** ** | **as restated**                  | ** ** | ** ** | ** ** | **as restated** | ** ** |
| ** **           | ** ** | **as originally**                   | ** ** | **for 2005**                     | ** ** | **as originally** | ** ** | **for 2005** | ** ** |
| ** **           | ** ** | **reported (C)**                    | ** ** | **Restatements**                      | ** ** | **reported (C)** | ** ** | **Restatements** | ** ** |
| ** **           | ** ** | **(unaudited)**                          | ** ** | **(unaudited)**                       | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| ** **           | ** ** | **(dollars in millions)**      | ** ** |
| Total assets:        |       |                                     |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Water infrastructure |       |                                     | $          | 500.0                                 |       |   |   | $ | 500.0 |   |   |   | $ | 488.8 |   |   |   | $ | 488.8 |   |   |
| Piping systems       |       |                                     | 307.9      |                                  |       |   | 307.9 |   |   |   | 318.2 |   |   |   | 318.2 |   |   |
| Corporate            |       |                                     | 176.4      |                                  |       |   | 181.3 |   |   |   | 171.7 |   |   |   | 175.9 |   |   |
| Consolidated         |       |                                     | $          | 984.3                                 |       |   |   | $ | 989.2 |   |   |   | $ | 978.7 |   |   |   | $ | 982.9 |   |   |

----

(A)  Represents the amounts originally reportedbefore the 2004 and 2005 Restatements described herein.

(B)        The 2004 Restatements wereinitially presented in the original fiscal year 2005 Form 10-Q filings.  No previous Form 10-Q/A's were filed for the2004 Restatements.

(C) Represents the amounts originally reported in theForm 10-Q in fiscal year 2005.

**3. Segment Information**

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

Intersegment sales and transfers are made atestablished intersegment selling prices generally intended to cover costs. Ourdetermination of segment earnings does not reflect allocations of certaincorporate expenses not attributable to segment operations and intersegmenteliminations, which we designate as Corporate in the segment presentation, andis before interest expense and early debt repayment costs, interest income andincome taxes. Corporate expenses include costs related to financial andadministrative matters, treasury, risk management, human resources, legalcounsel, and tax functions. 

11

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Corporate assets includeitems booked at the date of the Company’s inception in 1999 related to purchaseaccounting valuation adjustments associated with property, plant and equipmentand non-compete agreements with the predecessor parent company, as well asintangibles associated with intellectual property. These assets and any relateddepreciation or amortization expense have not been pushed down to our waterinfrastructure products and piping systems products segments and are maintainedas Corporate items. Therefore, segment earnings are not reflective of resultson a stand-alone basis.

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

| ** **                          | ** ** | **Three months  ended  December 27, 2003** | ** ** | **Three months  ended  January 1, 2005** | ** ** |
|-------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                          | ** ** | **(restated)**                                            | ** ** | ** **                                              | ** ** |
| **Net Sales:**                      |       |                                                      |       |                                                    |       |   |   |   |   |
| Water  infrastructure               |       |                                                      | $          | 124.7                                                   |       |   |   | $ | 138.6 |   |   |
| Piping systems                      |       |                                                      | 95.5       |                                                    |       |   | 117.5 |   |   |
| Consolidated                        |       |                                                      | 220.2      |                                                    |       |   | 256.1 |   |   |
| **Intersegment  sales:**            |       |                                                      |       |                                                    |       |   |   |   |   |
| Water  infrastructure               |       |                                                      | 3.0        |                                                    |       |   | 3.4 |   |   |
| Piping systems                      |       |                                                      | 0.1        |                                                    |       |   | 0.2 |   |   |
| Consolidated                        |       |                                                      | 3.1        |                                                    |       |   | 3.6 |   |   |
| **Segment  EBITDA:**                |       |                                                      |       |                                                    |       |   |   |   |   |
| Water  infrastructure               |       |                                                      | 30.6       |                                                    |       |   | 34.8 |   |   |
| Piping systems                      |       |                                                      | 7.8        |                                                    |       |   | 16.1 |   |   |
| Total segment  EBITDA               |       |                                                      | 38.4       |                                                    |       |   | 50.9 |   |   |
| **Depreciation  and amortization:** |       |                                                      |       |                                                    |       |   |   |   |   |
| Water  infrastructure               |       |                                                      | 6.1        |                                                    |       |   | 6.0 |   |   |
| Piping systems                      |       |                                                      | 4.1        |                                                    |       |   | 4.3 |   |   |
| Corporate                           |       |                                                      | 6.3        |                                                    |       |   | 2.3 |   |   |
| Consolidated                        |       |                                                      | 16.5       |                                                    |       |   | 12.6 |   |   |
| **Capital  expenditures:**          |       |                                                      |       |                                                    |       |   |   |   |   |
| Water  infrastructure               |       |                                                      | 2.6        |                                                    |       |   | 2.8 |   |   |
| Piping systems                      |       |                                                      | 1.9        |                                                    |       |   | 1.8 |   |   |
| Corporate                           |       |                                                      | —     |                                                    |       |   | 0.1 |   |   |
| Consolidated                        |       |                                                      | 4.5        |                                                    |       |   | 4.7 |   |   |
|                                     |            |                                                           |            |                                                         |            |  |  |  |  |  |  |

 

12

----

 

| ** **                    | ** ** | **At September 30, 2004  (restated)** | ** ** | **At January 1, 2005  (restated)** | ** ** |
|-------------------------------|------------|------------------------------------------------------|------------|---------------------------------------------------|------------|
| **Total  assets:**            |       |                                                 |       |                                              |       |   |   |   |   |
| Water  infrastructure         |       |                                                 | $          | 500.0                                             |       |   |   | $ | 488.8 |   |   |
| Piping systems                |       |                                                 | 307.9      |                                              |       |   | 318.2 |   |   |
| Corporate                     |       |                                                 | 181.3      |                                              |       |   | 175.9 |   |   |
| Consolidated                  |       |                                                 | 989.2      |                                              |       |   | 982.9 |   |   |
| **Goodwill:**                 |       |                                                 |       |                                              |       |   |   |   |   |
| Water  infrastructure         |       |                                                 | 149.1      |                                              |       |   | 149.1 |   |   |
| Piping systems                |       |                                                 | 14.1       |                                              |       |   | 14.1 |   |   |
| Consolidated                  |       |                                                 | 163.2      |                                              |       |   | 163.2 |   |   |
| **Identifiable intangibles:** |       |                                                 |       |                                              |       |   |   |   |   |
| Water  infrastructure         |       |                                                 | 5.3        |                                              |       |   | 5.2 |   |   |
| Piping systems                |       |                                                 | 7.2        |                                              |       |   | 6.6 |   |   |
| Corporate                     |       |                                                 | 42.7       |                                              |       |   | 42.7 |   |   |
| Consolidated                  |       |                                                 | 55.2       |                                              |       |   | 54.5 |   |   |
|                               |            |                                                      |            |                                                   |            |  |  |  |  |  |  |

 

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

| ** **                                  | ** ** | **Three months  ended  December 27, 2003** | ** ** | **Three months  ended  January 1, 2005** | ** ** |
|---------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                  | ** ** | **(restated)**                                            | ** ** | ** **                                              | ** ** |
| Total segment  EBITDA                       |       |                                                      | $          | 38.4                                                    |       |   |   | $ | 50.9 |   |   |
| Unallocated  corporate costs                |       |                                                      | (1.8       | )                                                       |       |   | (5.7 | ) |   |
| Interest expense  and early repayment costs |       |                                                      | (13.7      | )                                                       |       |   | (21.1 | ) |   |
| Depreciation and  amortization              |       |                                                      | (16.5      | )                                                       |       |   | (12.6 | ) |   |
| Income before income  taxes                 |       |                                                      | $          | 6.4                                                     |       |   |   | $ | 11.5 |   |   |

 

Geographicalarea information with respect to net sales, as determined by the location ofthe customer invoiced, and property, plant and equipment—net, as determined bythe physical location of the assets, were as follows for the three months endedDecember 27, 2003 and January 1, 2005:

| ** **      | ** ** | **Three months  ended  December 27, 2003** | ** ** | **Three months  ended  January 1, 2005** | ** ** |
|-----------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **      | ** ** | **(restated)**                                            | ** ** | ** **                                              | ** ** |
| ** **      | ** ** | **(dollars in millions)**                       | ** ** |
| Net sales:      |       |                                                      |       |                                                    |       |   |   |   |   |
| United States   |       |                                                      | $          | 186.3                                                   |       |   |   | $ | 210.4 |   |   |
| Canada          |       |                                                      | 31.9       |                                                    |       |   | 44.4 |   |   |
| Other Countries |       |                                                      | 2.0        |                                                    |       |   | 1.3 |   |   |
|            |       |                                                      | $          | 220.2                                                   |       |   |   | $ | 256.1 |   |   |

 

13

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| ** **                           | ** ** | **At September 30, 2004** | ** ** | **At January 1, 2005** | ** ** |
|--------------------------------------|------------|------------------------------------------|------------|---------------------------------------|------------|
| Property, plant  and equipment, net: |       |                                     |       |                                  |       |   |   |   |   |
| United States                        |       |                                     | $          | 173.7                                 |       |   |   | $ | 167.2 |   |   |
| Canada                               |       |                                     | 11.7       |                                  |       |   | 12.0 |   |   |
| Other Countries                      |       |                                     | 1.4        |                                  |       |   | 1.4 |   |   |
|                                 |       |                                     | $          | 186.8                                 |       |   |   | $ | 180.6 |   |   |

 

**4. Summaryof Significant Accounting Policies**

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

Inventory—Inventoriesare recorded at the lower of cost (first-in, first-out) or market value.Additionally, the Company evaluates its inventory reserves in terms of excessand obsolete exposures. This evaluation includes such factors as anticipatedusage, inventory turnover, inventory levels and ultimate product sales value.As such, these factors may change over time causing the reserve level to adjustaccordingly. Warranty Costs—The Company accrues for the estimated cost ofproduct warranties at the time of sale based on historical experience. Adjustmentsto obligations for warranties are made as changes in the obligations becomereasonably estimable. The following table summarizes information concerning theCompany’s product warranty:

| ** **                      | ** ** | **Three months ended** | ** ** |
|---------------------------------|------------|----------------------------------|------------|
| ** **                      | ** ** | **December 27, 2003**  | ** ** | **January 1, 2005** | ** ** |
| Balance at  beginning of period |       |                             | $          | 0.9 |   |   |   | $ | 1.6 |   |   |
| Accruals for  warranties        |       |                             | 0.8        |   |   |   | 0.6 |   |   |
| Settlement of  warranty claims  |       |                             | (0.5       | ) |   |   | (0.9 | ) |   |
| Balance at end of period        |       |                             | $          | 1.2 |   |   |   | $ | 1.3 |   |   |

 

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

Related Party Transactions—TheCompany paid $0.4 million to Credit Suisse First Boston for the three monthsended December 27, 2003 for management advisory services and creditarranger fees. The Company paid $0.1 million to Credit Suisse First Bostonfor the three months ended January 1, 2005 for management advisoryservices.

**5. New Accounting Pronouncements**

In December 2004, the Financial AccountingStandards Board issued SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R) replacesSFAS No. 123, “Accounting for Stock-Based Compensation,” andsupersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.”SFAS No. 123(R) requires compensation costs related to share-basedpayment transactions to be recognized in the financial statements over theperiod that an employee provides service in exchange for the award. Publiccompanies are required to adopt the new standard using a modified prospectivemethod and may elect to restate prior periods using the modified retrospectivemethod. Under the modified prospective method, companies are required to recordcompensation cost for new and modified awards over the related vesting periodof such awards prospectively and record compensation cost prospectively for theunvested portion, at the date of adoption, of previously issued and outstandingawards over the remaining vesting period of such awards. No change to priorperiods presented is permitted under the modified prospective method. Under themodified retrospective method, companies record compensation costs for 

14

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prior periodsretroactively through restatement of such periods using the exact pro forma amountsdisclosed in the companies’ footnotes. Also, in the period of adoption andafter, companies record compensation based on the modified prospective method.SFAS No. 123(R) is effective for periods beginning after June 15,2005. The Company plans to adopt SFAS No. 123(R) as of July 3,2005, the beginning of its fourth fiscal quarter and to use the modifiedprospective method. The adoption of SFAS 123(R) is not expected tohave a material impact on the Company’s financial statements for the year endedSeptember 30, 2005, as all options previously outstanding have beencancelled as part of the April 2004 recapitalization.

In November 2004, the Financial AccountingStandards Board issued SFAS No. 151, “Inventory Costs.” SFAS No. 151amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” toclarify the accounting for abnormal amounts of idle facility expense, freight,handling costs, and wasted material. This Statement requires that those itemsbe recognized as current-period charges regardless of whether they meetthe criterion of “so abnormal.” In addition, this Statement requires thatallocation of fixed production overheads to the costs of conversion be based onthe normal capacity of the production facilities. SFAS No. 151 iseffective for fiscal years beginning after June 15, 2005. The Companyintends to adopt SFAS No. 151 on October 1, 2005, the beginning ofits 2006 fiscal year. The adoption of SFAS No. 151 is not expected to havea material impact on the Company’s financial statements.

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

**6. Long-TermDebt**

| ** **                            | ** ** | **September 30, 2004**    | ** ** | **January 1, 2005** | ** ** |
|---------------------------------------|------------|-------------------------------------|------------|-------------------------------|------------|
| ** **                            | ** ** | **(dollars in millions)** | ** ** |
| Credit facility                       |       |                                |       |                          |       |   |   |   |   |
| Term loans                            |       |                                | $          | 515.0                         |       |   |   | 515.0 |   |   |
| Second Priority Senior Secured Notes  |       |                                | 100.0      |                          |       |   | 100.0 |   |   |
| 10% Senior Subordinated Notes         |       |                                | 315.0      |                          |       |   | 315.0 |   |   |
| 14 3¤4% Senior discount notes(1) |       |                                | 106.8      |                          |       |   | 111.4 |   |   |
| Capital lease  obligations            |       |                                | 2.6        |                          |       |   | 2.4 |   |   |
|                                  |       |                                | 1,039.4    |                          |       |   | 1,043.8 |   |   |
| Less current  portion                 |       |                                | (3.2       | )                             |       |   | (3.9 | ) |   |
|                                  |       |                                | $          | 1,036.2                       |       |   |   | $ | 1,039.9 |   |   |
|                                       |            |                                     |            |                               |            |  |  |  |  |  |  |

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(1)          Theaccreted value of the 14 3¤4% senior discount notes isreduced by $9.8 million (net of $0.7 million of amortization) toreflect the fair market value assigned to the warrants sold as units with thesenotes. The fair market value assigned to the warrants is reflected instockholders’ equity.

Interest Rate Swaps Group has entered into interest rate swap agreements in order to reduceinterest rate risks and manage interest expense. As of January 1, 2005, anotional principal amount of $100.0 million in swap agreements was stilloutstanding and scheduled to mature between May 2005 and 

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July 2005. The swapagreements effectively convert floating-rate debt into fixed-rate debt andcarry an average fixed interest rate of 7.52% at January 1, 2005. Interestdifferentials to be paid or received because of swap agreements are reflectedas an adjustment to interest expense over the related debt period. At January 1,2005 and September 30, 2004, the fair value of interest rate swaps was aliability of $2.4 million and $4.7 million, respectively, and has beenrecorded in Other Long-Term Liabilities on the Consolidated Balance Sheets.

See Note 13 regardingdefaults, and a waiver obtained under the credit agreement subsequent to January 1,2005 related to untimely filing of annual and quarterly reports.

**7. Redeemable Common Stock**

Group has entered into anemployment agreement with Dale B. Smith, Group’s President and ChiefExecutive Officer. This agreement, in certain circumstances, gives Mr. Smiththe right to sell to the Company, at a price equal to the fair market value ofhis equity interests as of the date of such sale or purchase, his shares of theCompany’s common stock. The Company has classified an amount representing theinitial fair value of the redeemable shares of its common stock owned by Mr. Smithoutside of permanent equity. At September 30, 2004 and January 1,2005, Mr. Smith beneficially owned approximately 9.2 million Class Acommon shares. These shares of common stock have not been marked-to-market asthe circumstances that would give rise to Mr. Smith’s right to sell, andthe Company’s obligation to purchase Mr. Smith’s shares of common stock,are considered remote currently.

**8. Commitments and Contingencies**

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

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

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

The Company is subject to warranty claims related tosales of water meters that can be read remotely by hand-held or drive-byelectronic readers. Radio transmitters purchased from one of the Company’sthird party vendors have demonstrated a high failure rate and the Company hastaken actions to correct the issue. Initially, the third party vendor had takenfinancial responsibility with respect to this matter. The third party vendor isno longer able to fulfill its warranty obligations and the Company has takencorrective action. In fiscal year 2004, the Company incurred $1.9 millionof cost to replace defective radio transmitters. If the Company finds itnecessary to replace all of the remaining affected third party vendors’ radiotransmitters still in service, the additional future exposure is not expectedto exceed $0.1 million. The Company has a reserve of $0.1 million asof January 1, 2005.

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

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The Company is in theprocess of performing an analysis to assess the impact of these standards onthe financial results of the Company.

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

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

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

As part of the Star acquisition, the Company hasagreed to a future payment to be made to the seller to the extent that thegross profit of the acquired business exceeds a targeted gross profit. Themaximum potential deferred payment amount is $23 million. Managementcurrently estimates the deferred payment could total approximately $3 to $6million for the deferred payment period that begins February 1, 2004 andends January 31, 2007. The deferred payment amount indicated above isbased on management’s best estimate, but the annual adjustment could bematerially different. The liability for such deferred payment will be recordedat the end of each deferred payment period, in accordance with the purchaseagreement. No deferred payment was earned for the year ended September 30,2004.

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

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

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

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

| ** **                          | ** ** | **Three months ended**    | ** ** |
|-------------------------------------|------------|-------------------------------------|------------|
| ** **                          | ** ** | **December 27,  2003**         | ** ** | **January 1,  2005** | ** ** |
| ** **                          | ** ** | **(dollars in millions)** | ** ** |
| Service cost                        |       |                                | $          | 0.5 |   |   |   | $ | 0.8 |   |   |
| Interest cost                       |       |                                | 1.4        |   |   |   | 1.3 |   |   |
| Expected return  on plan assets     |       |                                | (1.1       | ) |   |   | (1.3 | ) |   |
| Amortization of  prior service cost |       |                                | —     |   |   |   | 0.1 |   |   |
| Amortization of  net actuarial loss |       |                                | 0.6        |   |   |   | 0.7 |   |   |
| Net periodic benefit  cost          |       |                                | $          | 1.4 |   |   |   | 1.6 |   |   |

 

The Company previouslydisclosed in its financial statements for the year ended September 30,2004, that it was required to contribute $0.1 million to its pension plansin 2005. As of January 1, 2005, no contributions have been made. TheCompany presently anticipates contributing $0.1 million to fund itspension plans in 2005 and may make further discretionary payments.

**10. SupplementaryBalance Sheet Information**

Selectedsupplementary balance sheet information is presented below:

| ** **                                  | ** ** | **September 30,  2004**        | ** ** | **January 1,  2005** | ** ** |
|---------------------------------------------|------------|-------------------------------------|------------|---------------------------|------------|
| ** **                                  | ** ** | **(dollars in millions)** | ** ** |
| **Inventories**                             | ** ** |                                | ** ** | ** **                |       |   | ** ** | ** ** |   |
| Purchased  materials and manufactured parts |       |                                | $          | 41.1                      | ** ** |   |   | $ | 47.1 | ** ** |   |
| Work in process                             |       |                                | 67.3       | ** **                |       |   | 78.0 | ** ** |   |
| Finished goods                              |       |                                | 151.8      | ** **                |       |   | 163.0 | ** ** |   |
|                                        |       |                                | $          | 260.2                     | ** ** |   |   | $ | 288.1 | ** ** |   |

 

**11. SupplementaryIncome Statement Information**

Thecomponents of interest expense are presented below:

| ** **                                        | ** ** | **Three months ended** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|
| ** **                                        | ** ** | **December 27,  2003**      | ** ** | **January 1,  2005** | ** ** |
| **Interest  expense and early repayment costs:**  | ** ** |                             | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Contractual interest expense                      |       |                             | $          | 9.3 |   |   |   | $ | 22.2 |   |   |
| Deferred financing fee amortization               |       |                             | 0.7        |   |   |   | 1.2 |   |   |
| Senior subordinated debt early redemption penalty |       |                             | 7.0        |   |   |   | — |   |   |
| Write off of deferred financing fees              |       |                             | 0.4        |   |   |   | — |   |   |
| Interest rate swap gains                          |       |                             | (3.7       | ) |   |   | (2.3 | ) |   |
| Total interest expense  and early repayment costs |       |                             | $          | 13.7 |   |   |   | $ | 21.1 |   |   |

 

18

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

| ** **                                                                                        | ** ** | **Three months ended**    | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                        | ** ** | **December 27, 2003**     | ** ** | **January 1, 2005** | ** ** |
| ** **                                                                                        | ** ** | **(restated)**                      | ** ** | ** ** | ** ** |
| ** **                                                                                        | ** ** | **(dollars in millions)** | ** ** |
| Net income                                                                                        |       |                                | $          | 3.9 |   |   |   | $ | 6.7 |   |   |
| Less preferred  share accretion related to redeemable preferred stock retired in  April 2004 |       |                                | (3.9       | ) |   |   | — |   |   |
| Net income available to  common shareholders                                                      |       |                                | $          | — |   |   |   | $ | 6.7 |   |   |

 

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

In the first quarter offiscal 2005, the Company announced that it will cease manufacturing and beginoutsourcing a product line it currently produces at its water infrastructureplant in Colorado. A restructuring charge of $0.1 million related to severancewas reflected in the first quarter of fiscal 2005. An additional charge of$1.5 million is related primarily to the termination of operating leasesfor the building and machinery and will be reflected in the second quarter offiscal 2005.

**13. Subsequent Event**

The Company and its principal subsidiary, MuellerGroup, Inc., failed to file their Annual Reports on Form 10-Kfor the year ended September 30, 2004 and Quarterly Reports on 10-Qfor the quarter ended January 1, 2005 by the prescribed dates under theindentures governing the Company’s outstanding senior discount notes and underMueller Group’s outstanding senior and senior subordinated notes and MuellerGroup’s senior credit facility. The failures by the Company and Mueller Groupto timely file these annual and quarterly reports constitute a default undereach of the Company’s and Mueller Group’s indentures. If these defaults are notremedied after delivery of notice of default and a lapse of the relevant 60-daygrace period, the holders of the Company’s and Mueller Group’s notes would beable to declare the notes immediately due and payable, and the lenders ofMueller Group’s senior credit facility would be able to declare the loansimmediately due. Mueller Group has obtained a waiver under its senior creditfacility until March 31, 2005 to file its annual and quarterly reports. Nonotice of default has been delivered under the indentures. Any default relatingto the late filing of the Company’s annual or quarterly reports or of MuellerGroup’s annual or quarterly reports is cured by the filing of this quarterlyreport for the quarter ended January 1, 2005 and the same-day filings ofthe Company’s Annual Report on Form 10-K for the year ended September 30,2004 and of Mueller Group’s quarterly and annual reports for these periods.

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

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

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

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

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

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

**Overview**

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

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

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

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Major changes in financialposition resulted from the Company’s recapitalization in April 2004, andthe $518.0 million of additional net debt added $13.4 million ofinterest expense and amortization of deferred financing fees in the firstquarter of 2005 as compared to the first quarter of 2004.

**Restatements**

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

***2005Restatements***

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

***2004Restatements***

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

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**Results of Operations**

***Three Months Ended January 1,2005 As Compared to the Three Months Ended December 27, 2003***

| ** **                                                                              | ** ** | **Three months ended**     | ** ** | ** **                                  | ** ** | **FY05 Q1 vs. FY04 Q1**     | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------------------------|------------|---------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                              | ** ** | **January 1,  2005**  | ** ** | **Percentage  of net sales  (2)** | ** ** | **December 27,  2003** | ** ** | **Percentage  of net sales  (2)** | ** ** | **Increase/  (decrease)** | ** ** | **Change in  percentage  of  net sales** | ** ** |
| ** **                                                                              | ** ** | **(restated)**             | ** ** | ** **                                  | ** ** | **(restated)**              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                              | ** ** | **(dollars  in millions)** | ** ** |
| **Net sales**                                                                           | ** ** |                       | ** ** | ** **                                  |       |                        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                       | $          | 138.6                                       |       |                        |       | 54.1 | % |   |   | $ | 124.7 |   |   |   | 56.6 | % |   |   | $ | 13.9 |   |   |   | (2.5 | )% |   |
| Piping systems                                                                          |       |                       | 117.5      |                                        |       |                        | 45.9       |   |   |   | 95.5 |   |   |   | 43.4 |   |   |   | 22.0 |   |   |   | 2.5 |   |   |
| Consolidated                                                                            |       |                       | 256.1      |                                        |       |                        | 100.0      |   |   |   | 220.2 |   |   |   | 100.0 |   |   |   | 35.9 |   |   |   | — |   |   |
| **Gross profit**                                                                        | ** ** |                       | ** ** | ** **                                  |       |                        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                       | 44.8       |                                        |       |                        | 32.3       |   |   |   | 39.1 |   |   |   | 31.4 |   |   |   | 5.7 |   |   |   | 0.9 |   |   |
| Piping systems                                                                          |       |                       | 31.1       |                                        |       |                        | 26.5       |   |   |   | 19.6 |   |   |   | 20.5 |   |   |   | 11.5 |   |   |   | 6.0 |   |   |
| Depreciation expense not  allocated to segments                                         |       |                       | (1.7       | )                                           |       |                        | (0.7       | ) |   |   | (1.8 | ) |   |   | (0.8 | ) |   |   | 0.1 |   |   |   | 0.1 |   |   |
| Consolidated                                                                            |       |                       | 74.2       |                                        |       |                        | 29.0       |   |   |   | 56.9 |   |   |   | 25.8 |   |   |   | 17.3 |   |   |   | 3.2 |   |   |
| **Selling, general and administrative expenses,  including stock compensation expense** | ** ** |                       | ** ** | ** **                                  |       |                        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                       | 15.9       |                                        |       |                        | 11.5       |   |   |   | 14.6 |   |   |   | 11.7 |   |   |   | 1.3 |   |   |   | (0.2 | ) |   |
| Piping systems                                                                          |       |                       | 19.3       |                                        |       |                        | 16.4       |   |   |   | 15.9 |   |   |   | 16.6 |   |   |   | 3.4 |   |   |   | (0.2 | ) |   |
| Corporate                                                                               |       |                       | 6.7        |                                        |       |                        | 2.6        |   |   |   | 6.5 |   |   |   | 3.0 |   |   |   | 0.2 |   |   |   | (0.4 | ) |   |
| Consolidated                                                                            |       |                       | 41.9       |                                        |       |                        | 16.4       |   |   |   | 37.0 |   |   |   | 16.8 |   |   |   | 4.9 |   |   |   | (0.4 | ) |   |
| **Facility rationalization, restructuring and  related costs**                          | ** ** |                       | ** ** | ** **                                  |       |                        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                       | 0.1        |                                        |       |                        | 0.5        |   |   |   | — |   |   |   | — |   |   |   | 0.1 |   |   |   | 0.5 |   |   |
| Piping systems                                                                          |       |                       | —     |                                        |       |                        | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Consolidated                                                                            |       |                       | 0.1        |                                        |       |                        | 0.2        |   |   |   | — |   |   |   | — |   |   |   | 0.1 |   |   |   | 0.2 |   |   |
| **Operating income**                                                                    | ** ** |                       | ** ** | ** **                                  |       |                        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                       | 28.8       |                                        |       |                        | 20.8       |   |   |   | 24.5 |   |   |   | 19.6 |   |   |   | 4.3 |   |   |   | 1.2 |   |   |
| Piping systems                                                                          |       |                       | 11.8       |                                        |       |                        | 10.0       |   |   |   | 3.7 |   |   |   | 3.9 |   |   |   | 8.1 |   |   |   | 6.1 |   |   |
| Corporate                                                                               |       |                       | (8.4       | )                                           |       |                        | (3.3       | ) |   |   | (8.3 | ) |   |   | (3.8 | ) |   |   | (0.1 | ) |   |   | 0.5 |   |   |
| Consolidated                                                                            |       |                       | 32.2       |                                        |       |                        | 12.6       |   |   |   | 19.9 |   |   |   | 9.0 |   |   |   | 12.3 |   |   |   | 3.6 |   |   |
| Interest expense                                                                        |       |                       | (21.1      | )                                           |       |                        | (8.2       | ) |   |   | (13.7 | ) |   |   | (6.2 | ) |   |   | (7.4 | ) |   |   | (2.0 | ) |   |
| Interest income                                                                         |       |                       | 0.4        |                                        |       |                        | 0.2        |   |   |   | 0.2 |   |   |   | — |   |   |   | 0.2 |   |   |   | 0.1 |   |   |
| Income before income  taxes                                                             |       |                       | 11.5       |                                        |       |                        | 4.5        |   |   |   | 6.4 |   |   |   | 2.9 |   |   |   | 5.1 |   |   |   | 1.6 |   |   |
| Income tax expense                                                                      |       |                       | 4.8        |                                        |       |                        | 1.9        |   |   |   | 2.5 |   |   |   | 1.1 |   |   |   | 2.3 |   |   |   | 0.8 |   |   |
| Net income                                                                              |       |                       | $          | 6.7                                         |       |                        |       | 2.6 | % |   |   | $ | 3.9 |   |   |   | 1.8 | % |   |   | $ | 2.8 |   |   |   | 0.8 |   |   |
| **Segment  EBITDA(1)**                                                                  | ** ** |                       | ** ** | ** **                                  |       |                        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Water infrastructure                                                                    |       |                       | 34.8       |                                        |       |                        | 25.1       |   |   |   | 30.6 |   |   |   | 24.5 |   |   |   | 4.2 |   |   |   | 0.6 |   |   |
| Piping systems                                                                          |       |                       | 16.1       |                                        |       |                        | 13.7       |   |   |   | 7.8 |   |   |   | 8.2 |   |   |   | 8.3 |   |   |   | 5.5 |   |   |
| Total segment EBITDA                                                                    |       |                       | $          | 50.9                                        |       |                        |       | 19.9 |   |   |   | $ | 38.4 |   |   |   | 17.4 |   |   |   | $ | 12.5 |   |   |   | 32.6 |   |   |

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(1)          Segment EBITDA isdefined as net income plus income tax expense, interest expense (not net ofinterest income), depreciation and amortization expense. This performancemeasure may not be comparable to EBITDA as reported by other companies.

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

| ** **                                  | ** ** | **Three months ended**        | ** ** |
|---------------------------------------------|------------|-------------------------------|------------|
| ** **                                  | ** ** | **January 1, 2005** | ** ** | **December 27, 2003** | ** ** |
| ** **                                  | ** ** | **(as restated)(3)**          | ** ** | **(as restated)(3)** | ** ** |
| Total segment EBITDA                        |       |                          | $          | 50.9 |   |   |   | $ | 38.4 |   |   |
| Unallocated corporate  costs                |       |                          | (5.7       | ) |   |   | (1.8 | ) |   |
| Interest expense and  early repayment costs |       |                          | (21.1      | ) |   |   | (13.7 | ) |   |
| Depreciation and  amortization              |       |                          | (12.6      | ) |   |   | (16.5 | ) |   |
| Income before income  taxes                 |       |                          | $          | 11.5 |   |   |   | $ | 6.4 |   |   |

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(2)          Percentagesare by segment, if applicable.

(3)          SeeNote 2 for a discussion of the restatement.

*NetSales.**  *Netsales for the three months ended January 1, 2005 were $256.1 million, or a16.3% increase as compared to $220.2 million for the three months ended December 27,2003.

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

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

*GrossProfit.**  *Grossprofit for the three months ended January 1, 2005 was $74.2 million,or a 30.4% increase as compared to $56.9 million for the three monthsended December 27, 2003. Gross profit, as a percentage of net sales, orgross margin, increased from 25.8%for our first quarter of 2004 to 29.0% forour first quarter of 2005.

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

Piping systems gross profit for the three months endedJanuary 1, 2005 was $31.1 million, or a 58.7% increase as compared to$19.6 million for the three months ended December 27, 2003. Grossprofit increased from 20.5% to 26.5%. The increase in gross profit wasprimarily driven by price increases and additional Star gross margins of$1.0 million. Increased raw material costs partially offset the favorablepricing and increased Star margins. The price increases realized in the quarterwere the culmination of increases implemented primarily in the second half of2004 and in 2005. We cannot be certain we can continue to pass on costincreases to our customers.

*Selling,General & Administrative Expense.**  *Selling, General and Administrative expenses (“SG&A”)for the three months ended January 1, 2005 were $41.9 million, or a13.2% increase as compared to $37.0 million for the three months ended December 27,2003. As a percentage of net sales, SG&A decreased from 16.8% for our firstquarter of 2004 to 16.4% for our first quarter of 2005.

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Water infrastructure SG&A for the three monthsended January 1, 2005 was $15.9 million, or a 8.9% increase as compared to$14.6 million for the three months ended December 27, 2003. As apercentage of net sales, SG&A decreased from 11.7% for our first quarter of2004 to 11.5% for our first quarter of 2005. The increase in cost was primarilydue to amortization expense for intangible assets acquired in the secondquarter of 2004, increased sales commissions related to higher sales, andcompensation and benefit costs for additional personnel.

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

Corporate expenses for the three months ended January 1,2005 were $6.7 million as compared to $6.5 million for the three monthsended December 27, 2003. Significant items included in expenses for thefirst quarter of 2005 were: legal fees of $2.3 million related to internalinvestigations (see Note 2), accounting and legal fees of$0.6 million related to SEC filing matters, consulting fees of$0.1 million related to our efforts to become compliant with publiccompany reporting and Sarbanes-Oxley internal control requirements,increased incentive compensation costs of $0.4 million, and increasedsalary and benefit costs of $0.3 million associated with additionalaccounting and legal staffing. These items are offset by a $4.0 millionreduction in amortization expense for the first quarter of 2005 as compared tothe first quarter of 2004 due to an intangible asset becoming fully amortizedduring the fourth quarter of 2004. Corporate expenses consist primarily ofcorporate staff, benefits, legal and facility costs.

*FacilityRationalization, Restructuring and Related Costs.**  *There was $0.1 million of restructuring costsfor the three months ended January 1, 2005 related to severance for amanufacturing facility in Colorado which is ceasing production of a productline. An additional charge of $1.5 million is related primarily to thetermination of operating leases for the building and machinery and will bereflected in the second quarter of fiscal 2005.

*InterestExpense.**  *Interestexpense for the three months ended January 1, 2005 was $21.1 million,or a $7.4 million increase from $13.7 million for the three monthsended December 27, 2003. Interest expense for the three months ended January 1,2005, includes $13.4 million of additional interest expense andamortization of deferred financing fees on $518.0 of net additional debt resultingfrom the Company’s recapitalization in April 2004. In the quarter ended December 27,2003, interest expense included a $7.0 million early redemption penalty,and a write-off of $0.4 million in deferred financing fees related to theearly redemption of $50.0 million of senior subordinated debt in November 2003.Also, gains recorded on interest rate swaps were $1.4 million lower in2005 than in 2004 as more swap agreements expired and were not renewed.

*IncomeTax Expense.**  *Theeffective tax rates for the three months ended January 1, 2005 and for thethree months ended December 27, 2003 were 42.1% and 39.1%, respectively.The higher effective tax rate in the quarter ended January 1, 2005resulted primarily from the nondeductible portion of the interest expenserelated to the senior discount notes issued in the third quarter of 2004.

*SegmentEBITDA.**  *Waterinfrastructure EBITDA for the three months ended January 1, 2005 was$34.8 million, which was $4.2 million or 13.7% higher than the$30.6 million for the three months ended December 27, 2003. Theincreased EBITDA resulted primarily from increased prices, offset by additionalSG&A spending as discussed above.

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

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increasedEBITDA resulted primarily from increased prices and additional Star grossprofit, offset by additional SG&A spending as discussed above.

**Liquidity and Capital Resources**

We are a holding company and have no direct materialoperations. Our only material asset is our ownership of Group, and our onlymaterial liabilities are the notes, our guarantee of the senior credit facilityand our potential obligation to repurchase Dale B. Smith’s equity interest(see Note 7). Our principal source of liquidity has been and is expectedto be dividends from Group and our principal use of cash will be for debtservice beginning in 2009.

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

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

*Debt Service*

As of January 1, 2005 we had: (a) totalindebtedness of approximately $1,043.8 million; and (b) approximately$57.6 million of borrowings available under our senior revolving creditfacility, subject to customary conditions. As of January 1, 2005, Grouphad obtained $22.4 million in letters of credit under the senior revolvingcredit facility, which reduced availability for borrowings thereunder. Oursignificant debt service obligations could have material consequences to oursecurity holders. Our key financial covenants are dependent on attainingcertain levels of EBITDA, as defined in the respective debt arrangements. Themost restrictive covenant in effect at January 1, 2005 related to ourleverage ratio, as defined in the debt arrangements, which requiredapproximately $150 million of EBITDA over the trailing twelve months,based on our net debt outstanding. Our EBITDA, as defined in the agreements,exceeded $200 million over the trailing twelve months ended January 1,2005.

As previously announcedand disclosed elsewhere in this document, we have been delayed in filing withthe SEC our (and Mueller Group’s) annual report on Form 10-K for ourfiscal year ended September 30, 2004 and our (and Mueller Group’s)quarterly report on Form 10-Q for our fiscal quarter ended January 1,2005. Although we obtained a waiver under the senior credit facility allowingus until March 31, 2005 to file these reports and with respect to ourrestatement of prior period financial statements, there can be no assurancethat similar waivers will be available in the future.

*CapitalExpenditures*

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

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*Sources of Funds*

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

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

***Historical***

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

*Cashflows from operating activities.**  *Netcash provided by operations was $0.5 million for the first three months of2005, compared to net cash provided of $17.0 million for the first threemonths of 2004. The difference was due primarily to a $25.5 millionincrease in inventories in the first quarter of 2005. Water infrastructureinventories increased $15.3 million during the three months endedJanuary 1, 2005. This was largely due to a planned seasonal inventorybuild. Approximately $5.0 million of the total increase was due primarilyto higher raw material costs. Piping systems inventories increased$12.6 million during the three months ended January 1, 2005. Aplanned inventory build accounted for approximately $6 million of thisincrease, while about $3 million was due to higher raw material and othermanufacturing costs.

*Cashflows used in investing activities.**  *In the first three months of 2005 we had net cashused in investing activities of $4.7 million compared to net cash used inthe first three months of 2004 of $4.5 million. The primary investingactivity in both periods was capital spending.

*Cashflows from financing activities.**  *Cashflows used in financing activities decreased from $50.8 million in thefirst three months of 2004 to $1.0 million in the first three months of2005. This was primarily due to early payment of $50 million ofsubordinated notes due 2009 in the first quarter of 2004.

**Off-Balance Sheet Arrangements**

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

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

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**Contractual Obligations**

Our contractualobligations as of January 1, 2005:

**Payments Due byPeriod**

| **Contractual Obligations**       | ** ** | ** **                          | ** ** | **Less than  1 Year** | ** ** | **1-3 Years** | ** ** | **4-5 Years** | ** ** | **After 5 Years** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|--------------------|------------|--------------------|------------|-----------------------------|------------|-----------|------------|
| ** **                             | ** ** | **(dollars in millions)** | ** ** |
| Long-term debt                         |       |                                |       |                            |       |               |       |               |       |                        |       |      |       |   |   |   |   |   |   |
| Principal on long-term debt            |       |                                | $          | 2.9                             |       |               |       | 5.8                |       |                        |       | 5.8       |       |   |   | 1,025.6 |   |   | 1,040.1 |   |
| Interest on long-term debt(1)          |       |                                | 66.1       |                            |       |               | 131.7      |               |       |                        | 154.2      |      |       |   | 379.3 |   |   | 731.3 |   |
| Capital lease  obligations             |       |                                | 1.0        |                            |       |               | 1.3        |               |       |                        | 0.1        |      |       |   | — |   |   | 2.4 |   |
| Operating leases                       |       |                                | 8.5        |                            |       |               | 11.2       |               |       |                        | 4.2        |      |       |   | 3.5 |   |   | 27.4 |   |
| Unconditional  purchase obligations(2) |       |                                | 13.6       |                            |       |               | —     |               |       |                        | —     |      |       |   | — |   |   | 13.6 |   |
| Other long-term  obligations(3)        |       |                                | —     |                            |       |               | —     |               |       |                        | —     |      |       |   | — |   |   | — |   |
| Total contractual  cash obligations    |       |                                | $          | 92.1                            |       |               |       | 150.0              |       |                        |       | 164.3     |       |   |   | 1,408.4 |   |   | 1,814.8 |   |

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(1)          Interest on the seniorcredit facility and secured notes is calculated using LIBOR of 2.54% and 2.16%repectively, the rates in effect on January 1, 2005. Each increase ordecrease in LIBOR of 0.125% would result in an increase or decrease in annualinterest on the senior credit facility and secured notes of $0.8 million.Because the interest rate under the senior credit facility and secured noteswill be variable, actual payments may differ. Interest does not includepayments that could be required under our interest-rate swap agreements, whichpayments will depend upon movements in interest rates and could varysignificantly. The payments due on the existing interest rate swaps expiring inMay and July 2005 are estimated to be approximately$3.8 million.

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

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

**Effect of Inflation; Seasonality**

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

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

**Critical Accounting Policies**

Our significant accountingpolicies are described in our audited consolidated financial statements for theyear ended September 30, 2004 as found on Form 10-K (File No. 333-116590).While all significant accounting policies are important to our consolidatedfinancial statements, some of these policies may be 

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viewedas being critical. Such policies are those that are both most important to theportrayal of our financial condition and require our most difficult, subjectiveand complex estimates and assumptions that affect the reported amounts ofassets, liabilities, revenues, expenses and related disclosure of contingentassets and liabilities. These estimates are based upon our historical experienceand on various other assumptions that we believe to be reasonable under thecircumstances. Our actual results may differ from these estimates underdifferent assumptions or conditions.

**RecentlyIssued Accounting Standards**

In December 2004, the Financial Accounting StandardsBoard issued SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123 (R) replaces SFAS No. 123,“Accounting for Stock-Based Compensation,” and supersedes APB Opinion No.25, “Accounting for Stock Issued to Employees.” SFAS No. 123(R) requirescompensation costs related to share-based payment transactions to berecognized in the financial statements over the period that an employeeprovides service in exchange for the award. Public companies are required toadopt the new standard using a modified prospective method and may elect torestate prior periods using the modified retrospective method. Under themodified prospective method, companies are required to record compensation costfor new and modified awards over the related vesting period of such awardsprospectively and record compensation cost prospectively for the unvestedportion, at the date of adoption, of previously issued and outstanding awardsover the remaining vesting period of such awards. No change to prior periodspresented is permitted under the modified prospective method. Under themodified retrospective method, companies record compensation costs for priorperiods retroactively through restatement of such periods using the exact proforma amounts disclosed in the companies’ footnotes. Also, in the period ofadoption and after, companies record compensation based on the modifiedprospective method. SFAS No. 123(R) is effective for periodsbeginning after June 15, 2005. The Company plans to adopt SFAS No. 123(R) inJuly 2005, the beginning of its fourth fiscal quarter and to use themodified prospective method. The adoption of SFAS 123(R) is notexpected to have a material impact on the Company’s financial statements forthe year ended September 30, 2005.

In November 2004, the Financial AccountingStandards Board issued SFAS No. 151, “Inventory Costs.” SFAS No. 151amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” toclarify the accounting for abnormal amounts of idle facility expense, freight,handling costs, and wasted material. This Statement requires that those itemsbe recognized as current-period charges regardless of whether they meetthe criterion of “so abnormal.” In addition, this Statement requires thatallocation of fixed production overheads to the costs of conversion be based onthe normal capacity of the production facilities. SFAS No. 151 iseffective for fiscal years beginning after June 15, 2005. The Companyintends to adopt SFAS No. 151 on October 1, 2005, the beginning ofits 2006 fiscal year. The adoption of SFAS No. 151 is not expected to havea material impact on the Company’s financial statements.

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

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**ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUTMARKET RISK**

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

At January 1, 2005 we had fixed rate debt of$426.4 million and variable rate debt of $617.4 million. The pre-taxearnings and cash flows impact resulting from a 100 basis point increase ininterest rates on variable rate debt, holding other variables constant andexcluding the impact of the hedging agreements described below, would beapproximately $6.2 million per year.

We have entered intointerest rate swap agreements with a notional principal amount of$100.0 million in order to reduce interest rate risks and manage interestexpense. The swap agreements, which mature by July 2005, effectivelyconvert floating rate debt under our credit facility into fixed-rate debt andcarry an average fixed interest rate of 7.52% at January 1, 2005. We planto retain these interest rate swaps and intend to enter into additionalinterest rate swaps or other interest rate hedging instruments to protectagainst interest rate fluctuations on our new floating rate debt.

**ITEM 4. CONTROLS AND PROCEDURES**

This Item 4 disclosure hasbeen updated from what was originally reported for the quarter ended January 1,2005 to reflect the results of the Company’s evaluation of the effectiveness ofthe design and operation of the Company’s disclosure controls and procedures asof September 30, 2005, which identified a material weakness thateffectively led to the restatement of the previously issued financialstatements for the years ended September 30, 2004 and 2003, the firstthree quarters of fiscal 2005 and all interim periods of fiscal 2004.

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

As described in Note 2 to the financial statements,the Company identified errors in the presentation in the Company’s previouslyissued consolidated financial statements: (i) the effect of foreigncurrency exchange rate changes on cash balances; (ii) disposals ofproperty, plant and equipment; (iii) book cash overdrafts; (iv) themisclassification of deferred income tax assets between the current andnon-current classifications in the balance sheet and (v) themisclassification of depreciation expense. As a result of these errors, theCompany has restated its consolidated financial statements for the years ended September 30,2004 and 2003, the first three quarters of fiscal 2005 and all interim periodsof fiscal 2004.

The 2005 Restatement had no effect on the Company’sconsolidated net income or the Consolidated Statement of Stockholders’ Deficitfor the two fiscal years ended September 30, 2004 and the first three quartersof fiscal 2005 and all interim periods of fiscal 2004, including our quarterended January 1, 2005.

***Evaluation of our Disclosure Controls and Procedures.***

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

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

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

A material weakness is acontrol deficiency or a combination of control deficiencies that results inmore than a remote likelihood that a material misstatement of the annual orinterim consolidated financial statements will not be prevented or detected. Asof January 1, 2005, the Company did not maintain effective controls overthe preparation, review and presentation and disclosure of the Company’sconsolidated financial statements. Specifically, the Company’s controls failedto prevent or detect the incorrect presentation of the following: (i) cashflows from the effect of exchange rate changes on cash balances; (ii) cashflows from the disposals of property, plant and equipment; (iii) cashflows and balance sheet presentation of book cash overdrafts; (iv) thepresentation of current and non-current deferred income tax assets in theCompany’s Consolidated Balance Sheets; and (v) classification of certaindepreciation expense as selling, general and administrative expense instead ofcost of sales in the Company’s Consolidated Statements of Operations. Thiscontrol deficiency resulted in the restatement of our annual consolidatedfinancial statements for fiscal 2004 and 2003 and our interim consolidatedfinancial statements for the first three quarters of fiscal 2005, all interimperiods of fiscal 2004 and audit adjustments to our 2005 annual consolidatedfinancial statements. Additionally, this control deficiency could result in amisstatement of the presentation and disclosure of the Company’s consolidatedfinancial statements that would result in a material misstatement in the annualor interim financial statements that would not be prevented or detected.Accordingly, management has determined that this control deficiency constitutesa material weakness.

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

As of September 30, 2004, and all interim periodsthrough July 2, 2005, including our quarter ended January 1, 2005, wereported the following control deficiencies that, in the aggregate, constituteda material weakness in internal control over preparation, review andpresentation and disclosure of the Company’s consolidated financial statements.Specifically our control deficiencies included: (i) a lack of personnelwith experience in financial reporting and control procedures necessary for SECregistrants; (ii) a lack of sufficient controls to prevent or detect, on atimely basis, unauthorized journal entries; (iii) a lack of sufficientcontrols over information technology data conversion and program changes; (iv) alack of sufficient controls over the development and communication of incometax provisions; (v) a lack of effective controls surrounding “whistleblower”hotline complaints and internal certifications to ensure that issues werecommunicated on a more timely basis by management to the audit committee andthe independent registered public accounting firm; (vi) a lack ofeffective controls over revenue recognition associated with full truckloadshipments not immediately dispatched by freight carriers; and (vii) a lackof formal controls and procedures regarding assessment of financial exposuresand transactions, including consideration of accounting implications undergenerally accepted accounting principles. These control deficiencies resultedin audit adjustments to the consolidated financial statements for the yearended September 30, 2004. Additionally, these control deficiencies, in theaggregate, could result in a misstatement to accounts and disclosures thatwould result in a material misstatement to the annual or 

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interim financialstatements that would not be prevented or detected. Accordingly, managementdetermined that these control deficiencies in the aggregate constituted amaterial weakness.

We reported in our Form 10-Qfor all interim periods in fiscal 2005 that we had taken steps to remediatethis material weakness. We: (i) reassigned our Chief Financial Officer,appointed an Interim Chief Financial Officer and hired additional accountingand finance staff; (ii) introduced increased training for our existingfinancial and accounting and other staff; (iii) retained third-partyconsultants with significant SEC financial reporting experience to provideassistance in complying with SEC reporting requirements; (iv) formed adisclosure committee to supervise the preparation of our Exchange Act Reportsand other public communications; (v) improved our controls over, and begandeveloping written policies and procedures that cover all of our significantaccounting processes, including journal entries, the development and communicationof income tax provisions, information data conversion issues and programchanges, revenue recognition and assessing financial exposures; (vi) improvedand centralized our controls over our information technology; and (vii) implementedglobal compliance initiatives under the direction of our Chief ComplianceOfficer. These improvement efforts continued to progress during our firstquarter ended January 1, 2005. While significant improvements have beenimplemented throughout the year, management believes that additionalremediation is needed and will require changes in personnel, processes andprocedures to ensure timely and accurate financial reporting on a sustainablebasis.

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

There have been no changesin our internal control over financial reporting during the three months ended January 1,2005 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting other than as describedabove.

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

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

In addition, subsequentto September 30, 2005, the Company has made the following changes ininternal controls to improve financial reporting accuracy:

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

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

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

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

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

The Company continues to upgrade the knowledge of ourfinance staff by implementing on-going United States generally acceptedaccounting principles training programs, consisting of providing appropriatetechnical resources to our finance team and training on the use of suchresources, conducting a series of training sessions for plant controllers,periodic distribution of information regarding changes in accounting andreporting standards, and issuance of Company accounting policy statements.Additionally, the Company terminated the prior Chief Compliance Officer andreassigned those duties to the Director of Internal Audit.

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**PART II OTHER INFORMATION**

**Item 6. Exhibits**

**(a)****          Exhibits**

| 3.1   |   | Certificate of Incorporation of Mueller Holdings  (N.A.), Inc. (formerly Hydrant Acquisition Corp.)(1)                                                                                                                      |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1.1 |   | Amendment to Certificate of Incorporation(2)                                                                                                                                                                                     |
| 3.2   |   | By-Laws of Mueller Holdings (N.A.), Inc.  (formerly Hydrant Acquisition Corp.)(1)                                                                                                                                           |
| 10.1  |   | Waiver dated as of February 4, 2005 under the  Second Amended and Restated Credit Agreement dated as of April 23, 2004  among Mueller Group, Inc., the Guarantors party thereto and the Lenders  party thereto(3) |
| 10.2  |   | Employment Agreement, dated as of February 18,  2005, between Mueller Group, Inc. and Darrell Jean(4)                                                                                                                  |
| 31.1  |   | Certification of Chief Operating Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                       |
| 31.2  |   | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                       |
| 32.1  |   | Certification of Chief Operating Officer pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                                       |
| 32.2  |   | Certification of Chief  Financial Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.*                                                                                                                      |

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(1)          Previously filed as Exhibit 3.1to our Registration Statement on Form S-1 as filed with theSecurities and Exchange Commission (SEC) on June 17, 2004.

(2)          Previously filed as Exhibit 3.1.1to our Annual Report on Form 10-K as filed with the SEC on March 30,2005.

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

(4)          Previouslyfiled as an Exhibit to the Current Report on Form 8-K ofMueller Group, Inc. as filed with the SEC on February 24, 2005.

*                    Filedherewith.

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**SIGNATURES**

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

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

 

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