**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-K**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

**Forthe fiscal year ended September 30, 2005**

**OR**

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

**Commissionfile number: 333-116590**

----

**MUELLER WATER PRODUCTS, LLC***

(Exact Name of Registrantas Specified in Its Charter)

| **Delaware**                                                                    | ** ** | **3491**                                                   | ** ** | **52-2175259**                           |
|---------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization)                |       | (Primary Standard  Industrial  Classification Code Number) |       | (I.R.S. Employer  Identification Number) |
| **500 West Eldorado Street  Decatur, IL 62522-1808**                            |
| (Address of  Principal Executive Offices)                                       |
| Registrant’s  telephone number: **(217) 423-4471**                    |
| Securities  registered pursuant to Section 12(b) of the Act: **None** |
| Securities  registered pursuant to Section 12(g) of the Act: **None** |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.

x Yes  o No

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K. x

Indicate by check markwhether the registrant is an accelerated filer (as defined in rule 12b-2of the Act).

o Yes  x No

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Act).

o Yes  x No

Aggregatemarket value of Registrant’s voting stock held by non-affiliates at April 2,2005 cannot be determined as there is no market in the Registrant’s shares.None of the Registrant’s voting stock was held by non-affiliates as of December 16,2005. As of December 16, 2005, Mueller Water Products, LLC had131,208,998 shares of Class A common stock and 89,343,699 shares of Class Bcommon stock outstanding.

*                    FormerlyMueller Water Products, Inc.

 

----

**Introductory Note**

In this report, “Mueller Water,” the “Company,” “we,” “us”or “our” refer to Mueller Water Products, LLC and its subsidiaries, exceptwhere the context makes clear that the reference is only to Mueller WaterProducts, LLC itself and is not inclusive of its subsidiaries.

Certain of the titles and logos of our productsreferenced in this annual report are our trademarks. Each trade name, trademarkor servicemark of any other company appearing in this offering circular is theproperty of its holder.

Except as otherwise noted,we present all financial and operating data on a fiscal year and fiscal quarterbasis. Our fiscal year ends on September 30.

**Industry and Market Data**

In this annual report, we rely on and refer toinformation and statistics regarding economic conditions and trends, the flowcontrol product market, and our market share in the sectors of that market inwhich we compete. In particular, we have obtained general industry informationand statistics from the Congressional Budget Office and the U.S. Census Bureau.We believe that these sources of information and estimates are reliable andaccurate, but we have not independently verified them and cannot guaranteetheir accuracy or completeness.

Although some of the companies that compete in ourparticular industry segments are publicly held as of the date of this annualreport, many are not. Accordingly, other than certain market data with respectto fire hydrants, ductile iron pipe, and water valves, no current publiclyavailable information is available with respect to the size of such markets orour relative market strength or competitive position. Our statements about ourrelative market strength and competitive position in this annual report withrespect to other products are based on our management’s belief, internalstudies and our management’s knowledge of industry trends. We cannot guaranteethat this information is accurate or complete.

1

----

**PART I**

**Item 1.**                        Business

**Overview**

Mueller Water Products,LLC is a Delaware limited liability company. Originally organized as a Delawarecorporation in 1999, the Company was converted into a limited liability companyon October 3, 2005 in connection with the acquisition of the Company onthat date by Walter Industries, Inc. (“Walter” or “Walter Industries”). Aspart of that transaction, Walter Industries contributed the operations ofUnited States Pipe and Foundry Company, Inc. (“U.S. Pipe”) to the Company.In Part 1 of this Report, we present current information about ourbusiness and operations that, except as otherwise indicated, includes U.S. Pipeas one of our operating segments. However, information presented as to periodsprior to October 3, 2005, would not include U.S. Pipe unless otherwisenoted.

**Acquisition by Walter Industries**

On October 3, 2005, pursuant to the agreementdated June 17, 2005, Walter Industries, Inc. (“Walter”) acquired allof the outstanding common stock of the Company for a cash payment of $928.6million. Approximately $1.05 billion of the Company’s indebtedness was assumedas part of the acquisition. In conjunction with the acquisition, through aseries of transactions, U.S. Pipe, a wholly-owned subsidiary of Walter, wascontributed by Walter Industries, Inc. to our wholly-owned subsidiary,Mueller Group, LLC (“Group”). U.S. Pipe had net sales of $537.2 million and$431.9 million for the fiscal years ended December 31, 2004 and 2003,respectively. U.S. Pipe’s net sales were $425.5 million for the nine monthsended September 30, 2005. U.S. Pipe had total assets of $504.7 million and$473.4 million at September 30, 2005 and December 31, 2004,respectively.

Walter financed the acquisition of the common stock ofthe Company with a combination of available cash, new debt, and borrowingsunder the 2005 Mueller Credit Agreement, as more fully described in Note 6 toour consolidated financial statements. The purchase price of the Company willbe allocated to the assets acquired and the liabilities assumed based on theirfair values as of the date of acquisition. Under generally accepted accountingprinciples, the assets and liabilities of U.S. Pipe were contributed to theCompany based on their book values as of October 3, 2005.

The financial results forperiods prior to October 3, 2005 reported in management’s discussion andanalysis and the financial statements presented in this report exclude theoperations of U.S. Pipe.

**Our Business**

We are a leading North American manufacturer of abroad range of water infrastructure and flow control products for use in waterdistribution networks, water and wastewater treatment facilities, gasdistribution systems and piping systems. We maintain a large installed base ofproducts in the United States, including, as of September 30, 2005,approximately three million fire hydrants and eight million iron gate valves.We report our operations into two reporting segments, based largely on theproducts they sell and the markets they serve, which are named after our leadbrand in each segment: Mueller and Anvil. Our Mueller segment produces andsells hydrants, valves and related products to the water and gas infrastructuremarkets. Our Anvil segment produces, sources and sells pipe fittings, pipehangers and pipe nipples and a variety of related products to the pipingsystems market. We believe we have the broadest product line of any of ourcompetitors and enjoy strong market positions, leading brand recognition and astrong reputation for quality and service within the markets we serve.

The October 3, 2005 contribution of U.S. Pipesupplements and enhances our product line offerings by producing and sellingductile iron pressure pipe, fittings and related products to the waterinfrastructure market.

2

----

Thecharts below illustrate the balance and diversity of our revenue base by endmarket and product category and identify the approximate percentage of ourrevenues by product category. The charts are presented as of the last day ofour 2005 fiscal year, September 30, 2005 and do not reflect the results ofU.S. Pipe.

| 2005 Revenues By Product Category | ** ** | **2005 Revenues By  End Market Served** |
|-----------------------------------|------------|-----------------------------------------|
| ****                              | ** ** | ****                                    |

 

Sales of our Mueller segment products, which comprisedabout 58% of our sales in 2005, are driven principally by spending on water andwastewater infrastructure upgrade, repair and replacement and new water andwastewater infrastructure (which spending is driven primarily by newresidential construction). Of our Mueller segment sales, we estimate thatapproximately 55% are for new infrastructure, with the remainder for upgrade,repair and replacement. Sales of our Anvil segment products, which comprisedabout 42% of our sales in 2005, are driven principally by spending onnon-residential construction projects.

Our large installed base, broad product range and wellknown brands have led to our strong, long-standing relationships with allof the leading distributors in our industry. We believe that our currentnetwork of independent flow control distributors is the largest suchdistribution network in the United States and Canada. Our combined Mueller,Anvil, and U.S. Pipe sales force of approximately 450 field salesrepresentatives and manufacturer’s representatives works directly withmunicipalities and other end-users as well as with distributors, whichmarket our products to end-users. For most of our Mueller segment products,which are sold through independent distributors, end-users choose the brand orestablish product specifications. We believe our reputation for quality,extensive distributor relationships, installed base and our coordinatedmarketing approach have helped our Mueller segment products to be “specified”as an approved product for use in most major metropolitan areas throughout theUnited States. This specification dynamic and our relationships with end-userselevate the importance of our water and wastewater infrastructure products toour distributors.

Our products are sold to a wide variety of end-users,including municipalities, publicly and privately-owned water andwastewater utilities, gas utilities and construction contractors. We believethat our sales are substantially driven by water infrastructure replacement,repair and upgrades, new water and wastewater infrastructure spending andnon-residential construction. Our diverse end markets, extensive distributorand end-user relationships, acquisition strategy and market leading positionhave contributed to our strong operating margins and sales growth. In 2004 and2005, our Mueller and Anvil segments experienced strong sales growth driven primarilyby a general economic recovery, which has resulted in increased spending bymunicipalities on water infrastructure replacement, repair and upgrades,increased activity in the non-residential construction market and continuedstrength in residential construction.

For the fiscal year ended September 30, 2005, ournet sales were $1,148.9 million, representing an increase of 9.5% over thefiscal year ended September 30, 2004.

U.S. Pipe, contributed tothe Company on October 3, 2005, sells products primarily to water worksdistributors, contractors, municipalities and other governmental agencies. Asubstantial percentage of 

3

----

ductileiron pressure pipe orders result from contracts that are bid by contractors ordirectly issued by municipalities or private utilities. U.S. Pipe’sproducts are primarily used in water infrastructure upgrade, repair andreplacement and new water infrastructure. Net sales of U.S. Pipe for the twelvemonths ended September 30, 2005 were $555.8 million and are not includedin our results.

**Business Strategy**

Our businessstrategy is focused on sustaining our market leadership and competitivedifferentiation, while growing revenues and enhancing profitability. Keyelements of our strategy include:

·       *Capitalize on Attractive Water InfrastructureIndustry.  *Much of the water distribution infrastructure in theUnited States is aging and in need of replacement or updating. Our strategy isto capitalize on expected water infrastructure market growth by continuing tooffer a broad range of leading water and wastewater products, maintaining ourstrong end-user and distributor relationships, and leveraging our specificationposition and large installed base.

·       *Leverage Strong Distributor Channel.  *Ourstrategy is to maximize and continue to form close relationships with thestrongest and fastest growing distributors in the industries we serve andutilize our extensive distributor relationships to increase sales of ourproducts.

·       *Continue to Focus on Operational Excellence.  *Wewill continue to pursue superior product engineering, design and innovationthrough our technologically-advanced manufacturing processes. We employhighly efficient manufacturing methods, such as lost foam casting and automatedDisamatic mold-making, to enhance product quality and reduce costs. We willalso continue to seek opportunities to rationalize our manufacturing facilitiesand use our significant manufacturing expertise to further reduce our coststructure.

·       *Selectively Pursue Strategic Acquisitions.  *Certainsegments of the industry in which we compete are fragmented, which providesattractive acquisition opportunities. We intend to pursue these opportunitiesto complement and expand our product lines, expand our market share, providesubstantial synergy opportunities, and improve our presence in certain under-representedproduct categories and geographies.

·       *Selectively Expand Internationally.  *Weare exploring sales opportunities for our products in selected internationalmarkets including Europe and China, although to date we have not generatedsignificant revenues outside of North America.

·       *Begin to Integrate U.**S. Pipe and AchieveMaximum Operating Efficiencies.  *In fiscal 2006, theintegration of U.S. Pipe into our operations will offer complementary productslines and the potential to achieve manufacturing synergies by closing the U.S.Pipe Chattanooga production facility and integrating it into the MuellerChattanooga and Albertville, Alablama production facilities. Also, we have theopportunity to maximize the operating efficiencies at certain of our existingMueller and Anvil facilities through plant combination and productionefficiency strategies. In addition, we will pursue the integration of U.S. Pipeproducts as complementary product offerings as part of our sales efforts anduse our combined purchasing leverage to reduce raw material and overall productcosts.

**Product Segments**

We believe that we are the broadest full-line supplierof flow control products for water and wastewater infrastructure systems andpiping component systems in the United States and Canada. We have thecapability to manufacture flow control products for water and gas systems,ranging from fire hydrants to 1¤8 inch pipefittings that connect pipes together to 10-foot engineered valves. Ourprincipal 

4

----

products are firehydrants, water and gas valves, and a complete range of pipe fittings,couplings, hangers and nipples. Our products are designed, manufactured andtested in compliance with industry standards.

We sell our productsthrough two operating segments: Mueller, through which we sell our hydrants andvalves and other water and wastewater infrastructure and gas distributionproducts described below under various brand names including *Mueller*, *HenryPratt*, *Hersey* and *James Jones*; and Anvil, through which wesell pipe fittings and couplings, pipe hangers, pipe nipples and relatedproducts under various brand names, including *Anvil,Beck* and *Merit*.

U.S. Pipe, which was contributed to us on October 3,2005, sells ductile iron pipe under the brand name *U.S. Pipe*.It is anticipated that U.S. Pipe will become our third operating segment.

Gross sales amounts are shownin the Mueller Products and Anvil Products sections below and exclude estimatedcash discounts and rebates, which are deducted from net sales for financialreporting purposes.

**Mueller Products**

***Fire Hydrants.******  ***We believe weare one of the largest manufacturers of dry-barrel fire hydrants in the UnitedStates and Canada. New fire hydrant and fire hydrant part sales accounted forapproximately $161 million, $151 million and $125 million of ourtotal sales in 2005, 2004 and 2003, respectively. Fire hydrants are sold fornew water infrastructure development as well as water infrastructure rehabilitationprojects. On October 26, 2005, Walter Industries announced plans to closethe U.S. Pipe Chattanooga, Tennessee plant and transfer the valve and hydrantproduction of that plant to Mueller’s Chattanooga and Albertville, Alabamaplants during our 2006 fiscal year. After October 3, 2005, the Muellersegment will include results from operations from sales of hydrants previouslymanufactured by U.S. Pipe.

Our fire hydrants consist of an above-groundfire hydrant and a below-ground cast iron pipe that connects to a watermain. In our dry-barrel hydrants, the valve connecting the barrel of thehydrant and the water main is located below ground at or below the frost line,which keeps the hydrant “dry” and the water source deep enough to ensure thatthe water does not freeze. We market our dry-barrel fire hydrants with theMueller and U.S. Pipe brand names in the United States and the Mueller andCanada Valve brand names in Canada, and manufacture them in our Albertville,Alabama and Milton, Ontario facilities. We also make a limited number of wetbarrel hydrants, where the valve is placed inside the above-groundhydrant and the barrel contains water in it at all times. Wet barrel hydrantsare made for the California and Hawaii markets and sold under the James Jonesbrand name.

Most municipalities have a limited number of hydrantbrands that are approved for installation within their system due to the needto maintain inventories of spare parts for emergency repairs and the desire toensure a uniform system. We believe that our large installed base of hydrantsthroughout the United States and Canada and our reputation for superior qualityand performance, together with our incumbent specification position, havecontributed to our leading market share. Our large installed base ofapproximately three million hydrants also leads to recurring revenue.

***Water and GasValves and Related Products.******  ***We believe wehave the broadest product line of valves for residential water and gas systemsand that we are one of the largest manufacturers of butterfly valves and watergate valves in the United States and Canada. Water and gas valves and relatedproducts accounted for approximately $473 million, $437 million and $381 millionof our sales in 2005, 2004, and 2003, respectively. Our significant industry-leadingmarket position is the result of our strong brand recognition, superior qualityand specification acceptance. On October 26, 2005, Walter Industriesannounced plans to close the U.S. Pipe Chattanooga, Tennessee plant andtransfer the valve and hydrant production of that plant to Mueller’sChattanooga and Albertville, Alabama plants during our 2006 fiscal year. Theeventual closure of the Chattanooga plant will occur sometime in 2006. Theestimated pre-tax 

5

----

restructuring costsconsisting of the write-off of impaired assets, severance and environmentalcosts are estimated at $37.8 million, of which $21.9 million are non-cash, andare expected to be recorded in the first quarter of 2006. Once the manufacturingof these products is transferred to Mueller, the Mueller segment will includethe results of operations from sales of valves previously manufactured by U.S.Pipe.

All of our valve products are used to controltransmission of potable water, non-potable water or gas. Our product lineincludes butterfly, gate, tapping, check, plug and ball valves. Water valveproducts range in size from 3¤4 inch to10 feet. The smaller iron gate-type valves are produced by ourChattanooga, Tennessee plant and the larger iron butterfly valves are producedby our Henry Pratt subsidiary in Dixon, Illinois. Brass valves are produced inour Decatur, Illinois and El Monte, California plants. Most of these valves areused in water distribution.

We produce small iron valves, meter bars, and linestopper fittings for use in gas systems in our Decatur, Illinois andBrownsville, Texas plants. We also manufacture machines and tools for tapping,drilling, extraction, installation and stopping-off. These machines and toolsare designed to work with our water and gas fittings and valves as anintegrated system. We believe that we are one of the largest manufacturers inthe line stopper fittings and machines sector in the United States and Canada.

***Other Mueller Products.******  ***Our otherMueller products include: pipe repair products, such as repair clamps andcouplings used to repair leaks in water and gas distribution systems; municipalcastings, such as manhole covers and street drain grates; and patterns used bythe foundry and automotive industries. We market these products under theMueller, Mueller Canada, James Jones, and Viking Johnson brand names. Theseproducts accounted for $57 million, $47 million and $45 millionof our sales in 2005, 2004 and 2003, respectively.

**Anvil Products**

***Pipe Fittings andCouplings.******  ***We are one of the largestmanufacturers of threaded and grooved pipe fittings and couplings in the UnitedStates and Canada. Pipe fittings and couplings join two pipes together. Listedbelow are the four primary categories of pipe fittings and couplings that wemanufacture.

*MalleableIron Fittings and Unions.**  *Malleable iron fittings and unions accounted forsales of $66 million, $66 million and $69 million in 2005, 2004,and 2003, respectively. Malleable iron is a cast iron that is heat-treated tomake it stronger, which allows us to use a thinner wall and results in alighter product. Malleable iron is primarily used to join pipe in various gas,plumbing and HVAC applications. We manufacture these products at our Columbia,Pennsylvania foundry.

*CastIron Fittings.**  *Webelieve we are one of the largest manufacturers of cast iron fittings in theUnited States. Cast iron fittings accounted for approximately $33 million,$32 million and $32 million of our sales in 2005, 2004, and 2003,respectively. Cast iron is the most economical threaded fittings material andis typically used in low pressure applications such as sprinkler systems andother fire protection systems. We manufacture cast iron fittings primarily inour Columbia, Pennsylvania foundry. We believe that the substantial majority ofour cast iron product is used in the fire protection industry, with theremainder used in steam and other HVAC applications.

*ThreadedSteel Pipe Couplings.**  *Webelieve we are one of the largest manufacturers of threaded steel pipecouplings in the United States and Canada. Threaded steel pipe couplingsaccounted for sales of $35 million, $33 million and $25 millionin 2005, 2004 and 2003, respectively. Threaded steel pipe couplings are used inthe plumbing and electrical markets to join pipe and conduit and by pipe millsas threaded end protectors. We manufacture steel couplings at our Waynesboro,Pennsylvania and Simcoe, Ontario facilities.

*GroovedProducts.**  *Webelieve we are one of the largest manufacturers of grooved products in theUnited States and Canada. Sales of grooved products were approximately $53 million,$56 million and 

6

----

$52 million in 2005,2004 and 2003, respectively. Unlike typical pipe connections, where pipes areconnected by screwing them into a fitting or welding them together, groovedproducts use a threadless pipe-joining method that does not require welding. Wemanufacture our grooved couplings and fittings under the *Gruvlok* name in our Columbia, Pennsylvaniafoundry. In addition, we purchase privately labeled products to complement ourgrooved product offerings including grooved copper and stainless steelfittings. These additional purchased products complement our offering ofgrooved products and enable us to better serve our customers’ projectrequirements. Purchased products accounted for $17 million, $17 millionand $15 million of grooved product sales in 2005, 2004 and 2003,respectively.

In connection with the August 1999 TycoTransaction, we entered into a five-year agreement that granted Tyco theexclusive right to distribute our Gruvlok products in Europe, Asia and LatinAmerica. That agreement expired in August 2004 and we have begun to engagenew distributors for these products in Europe, which we view as a growthopportunity.

***Pipe Hangers.******  ***We believe weare one of the largest manufacturers of pipe hangers in the United States andCanada. Our annual hanger sales were approximately $45 million, $39 millionand $42 million in 2005, 2004 and 2003, respectively. Pipe hangers providesupport for pipes and are used in sprinkler systems, HVAC applications and inpower and petrochemical plants. We manufacture our standard pipe hangers inHenderson, Tennessee and Columbia, Pennsylvania and we produce special order,or engineered, pipe hangers in North Kingston, Rhode Island. We have retained astrong core engineering staff and believe that we are the leader in technicalcompetency in this sector.

***Pipe Nipples.******  ***We believe weare also one of the largest manufacturers of pipe nipples in the United Statesand Canada. Sales of pipe nipples were approximately $62 million, $53 millionand $46 million in 2005, 2004 and 2003, respectively. The pipe nippleproduct line is a complementary product offering and is packaged (1) withcast iron for the fire protection market, (2) with malleable iron for theindustrial market, (3) with our forged steel product line and (4) asa general plumbing market item.

We produce the majority of our pipe nipple products atBeck Manufacturing’s facilities in Greencastle, Pennsylvania and Santa FeSprings, California. Seamless pipe nipples are produced at our Longview, Texasfacility. Pipe nipples for the Canadian market are manufactured at our Simcoe,Ontario facility.

***Other Piping System Products.******  ***In addition toour key products that we have described above, we sell (1) productssourced outside the United States and Canada through our Star business, whichwe acquired in January 2004, (2) products that we purchase from thirdparties and (3) many other products that we manufacture, including (A) oilfieldproducts, including forged steel pipe fittings, hammer unions, bull plugs andswage nipples which are used to connect pipes in oil and gas applications and (B) electricalproducts, including PVC conduit couplings and elbows used to carry wire andcable in electrical applications. Sales of purchased products by our Anvilsegment were approximately $146 million, $118 million and $86 millionin 2005, 2004 and 2003, respectively, and sales of our other manufacturedproducts were approximately $74 million, $58 million and $54 millionin 2005, 2004 and 2003, respectively.

**U.S. Pipe Products**

U.S. Pipe, which was contributed to us on October 3,2005, manufactures and sells a broad line of ductile iron pressure pipe,fittings and other cast iron products. Founded in 1899 and headquartered inBirmingham, Alabama, it is one of the nation’s largest producers of ductileiron pressure pipe based on industry shipping information provided by theDuctile Iron Pipe Research Association. In the years ended December 31,2004, 2003 and 2002, net sales and revenues amounted to $537.2 million, $431.9 millionand $457.2 million, respectively.

7

----

U.S. Pipe manufactures andmarkets a complete line of ductile iron pipe ranging from 4” to 64” in diameteras well as various metric sizes, in lengths up to 20 feet. Ductile ironpressure pipe is used primarily for drinking (potable) water distribution systems,small water system grids, reinforcing distribution systems (including loopinggrids and supply lines) and is used for major water and waste watertransmission and collection systems.

**Sales,Marketing and Distribution**

*Mueller and AnvilProducts*

Mueller and Anvil sell their products to a widevariety of end-users, including municipalities, publicly and privately ownedwater and wastewater utilities, gas utilities and construction contractors.These products are usually sold to our distributors; distributors then sellthese products to contractors who have won a contract to construct, replace orupgrade a water, wastewater or gas system for an end-user or non-residentialfacility. In some cases, end-users of Mueller’s products, includingmunicipalities and utilities, buy products directly from Mueller, most often aspart of a program to repair, replace or upgrade existing infrastructure. Salesof our Mueller segment products and our Anvil segment’s grooved products areheavily influenced by the specifications in those contracts.

Mueller has a sales force of approximately 250 salesrepresentatives. These representatives call on municipalities, water companiesand other end-users to ensure that Mueller products, or the correspondingquality standards, are specified. In addition, to ensure consistency,municipalities often require that contractors use the same products that havebeen historically used in that municipality.

Most of our Anvil segment products are not specified. Anvil’ssales force of approximately 130 sales representatives largely markets Anvilproducts to distributors. Sales of Anvil products are generally influenced bythe distributors, as customers will buy from a distributors’ availableofferings based on price and quality.

For our Mueller segment, the large installed base,broad product range and well known brands have led to our strong, long-standingrelationships with all of the leading distributors in the industries served byMueller. For most of our Mueller products, which are sold through independentdistributors, end-users choose the brand or establish product specifications.We generally ship our Mueller products, including hydrants and water and gasvalves, directly to distributors carrying these products from our plants.Mueller’s distribution network covers all of the major markets in the UnitedStates and Canada. We typically do not have long-term contracts with ourdistributors, although we have long-term relationships with most of our topdistributors. The three major distributors of Mueller and Anvil productsaccounted, in the aggregate, for approximately 30% of our sales in 2005. Theloss of any one of these distributors could have a material adverse effect onour business. See “Item 7.—Management’s Discussion and Analysis—Risk Factors—Wedepend on a group of major distributors for a significant portion of our sales;any loss of these distributors could reduce our sales and continuingconsolidation could cause price pressure.”

We generally ship ourAnvil segment products, including pipe fittings, couplings, hangers andnipples, from our plants to four regional service centers that we operate inthe United States and we ship products from these distribution centers todistributors carrying these products. Our regional service centers arestrategically located to provide 24-hour delivery to the majority of theAnvil customers. In addition, we operate 22 smaller warehouses throughout theUnited States and Canada and one in Europe to support our Anvil operations. Wehave historically stocked some products manufactured by third parties in thesedistribution centers in order to provide a broader product offering. We reducedthe scope of our offering of Anvil products purchased from third parties, whichare lower margin, in the United States. However, we continue to sell a broadrange of purchased products in Canada. Sales of Anvil products to domesticcustomers, including Canadian customers, accounted for 98% of Anvil’s sales forfiscal year 2005, representing 41% of our overall sales for 2005.

8

----

*U.S. Pipe Products*

U.S. Pipe, whose products are sold primarily to waterworks distributors, contractors, municipalities, private utilities and othergovernmental agencies, was contributed to us on October 3, 2005. Asubstantial percentage of ductile iron pressure pipe orders result fromcontracts that are bid by contractors or directly issued by municipalities orprivate utilities. An increasing portion of ductile iron pressure pipe sales ismade through independent water works distributors. U.S. Pipe maintains numeroussupply depots in leased space throughout the country, which are used as asource of pipe for start-up projects, to support ongoing projects and to aid incompleting projects.

U.S. Pipe has a sales force of approximately 72 salesrepresentatives who sell pipe products throughout the United States. Theorganization is divided into four geographic territories each managed by aregional sales manager. International orders are sold directly by U.S. Pipesales personnel as well as an extensive number of representatives principallyin Central and South America and the Middle East.

During the year ended December 31,2004, approximately 26% of U.S. Pipe’s sales were to one customer. The Companybelieves the loss of this single customer could have a material adverse effecton the results of operations of the Company. See “Item 7.—Management’sDiscussion and Analysis—Risk Factors—We depend on a group of major distributorsfor a significant portion of our sales; any loss of these distributors couldreduce our sales and continuing consolidation could cause price pressure.”

**Backlog**

Our backlog is notsignificant due to our ability to respond adequately to customer requests forproduct shipments. These segments generally manufacture products from rawmaterials in stock and deliver them to customers within approximately two weeksfrom receipt of the order, depending upon customer delivery specifications.

U.S. Pipe, which wascontributed to us on October 3, 2005, has a significant backlog. Duringthe calendar year ended December 31, 2004, U.S. Pipe had a backlog ofpressure pipe, valves and hydrants, fittings and castings of $115 million,compared to $86 million at December 31, 2003. The ductile iron pipebusiness is generally sensitive to economic recession because of its partialdependence on the level of new construction activity and state, municipal andfederal tax revenues to fund water projects. However, certain aspects of U.S.Pipe’s operations have in the past helped to reduce the impact of downturns innew construction. First, U.S. Pipe’s products have experienced a strong levelof demand in the replacement market, in part driven by mandates from the SafeDrinking Water Act. U.S. Pipe believes that growth of the replacement marketwill accelerate as a result of anticipated major expenditures by governmententities, such as the New York, Boston, Washington, D.C., Atlanta andPhiladelphia municipalities, to rehabilitate aging or inadequate water transmissionsystems. U.S. Pipe believes that this represents a significant growthopportunity and that it is well positioned to take advantage of thisopportunity. Second, U.S. Pipe’s Burlington, New Jersey plant is adjacent tothe northeastern market with its significant replacement potential and itsoperations in the south are located in areas of steady economic growth. Thewest coast, served by the Union City, California plant, has a critical shortageof water for many of the large metropolitan areas that will require majortransmission pipelines in the future. Because freight costs for pipe are high,locations close to important markets lower transportation costs, thereby makingU.S. Pipe’s products more competitive.

**Manufacturing**

As of September 30, 2005 we operate 27manufacturing facilities in the United States, Canada and China. Ourmanufacturing operations include foundry, machining, fabrication, assembly,testing and painting operations. We believe that our existing manufacturingcapacity is sufficient for our near-term requirements and we have no currentplans to expand capacity. However, we do have plans to maximize 

9

----

operational efficienciesthroughout all of our plants, and may relocate certain manufacturing operationsto other facilities as part of these plans. These actions may result in futurefacility closures.

We use two castingtechniques, green sand and lost foam. At present, we utilize the lost foamtechnology for hydrants in our Albertville, Alabama facility and for gate valveproduction in our Chattanooga, Tennessee facility. The lost foam process hasseveral advantages over the green sand process for high-volume products,including the need for less manual finishing, lower scrap levels and theability to reuse the sand.

U.S. Pipe, which was contributed to us on October 3,2005, operates 5 manufacturing facilities in the United States, which primarilymanufacture ductile iron pressure pipe. We believe U.S. Pipe’s manufacturingcapacity is sufficient for our near-term requirements and we have no currentplans to expand capacity. However, we do plan to close the U.S. PipeChattanooga manufacturing facility and plan to transfer substantially all ofits production to existing Mueller plants in Chattanooga, TN and Albertville,AL. U.S. Pipe utilizes the DeLavaud centrifugal casting process, which consistsof introducing molten iron into a rapidly turning steel mold and relying on thecentrifugal force to uniformly distribute the iron around the inner surface ofthe mold to produce high-quality ductile iron pressure pipe.

The selection of theappropriate casting method, pattern, core-making equipment, sand and other rawmaterials depends on the final product and its complexity, specifications, andfunction as well as intended production volumes. We will continue to use thegreen sand casting or DeLavaud centrifugal casting processes for products whenwe believe it is the most appropriate process based on the above parameters.

**Raw Materials**

Our products are made from several basic raw materials,including steel scrap, sand, resin, brass ingot, steel pipe, and scrap iron.These materials are readily available and are competitively priced.Historically, we have been able to obtain an adequate supply of raw materialsand do not anticipate any shortage of these materials.

We generally purchase raw materials at spot prices andgenerally do not have the ability to hedge our exposure to price changes. Ourbusiness could be adversely affected by increases in the cost of our rawmaterials, as we may not be able to fully pass these costs on to our customers.An increased worldwide demand for steel scrap, the raw material from which ourthreaded and grooved pipe fittings as well as all iron valves and hydrants aremade, has increased the spot price of steel scrap used by Mueller and Anvilfrom approximately $140 per ton in December 2002 to approximately $320 perton in September 2005. Management estimates that raw materials andpurchased components used in the manufacturing processes of Mueller and Anvilaccounted for 10-17% of the cost of goods sold in 2001 through 2004 andcurrently account for approximately 18% of the cost of goods sold for Muellerand Anvil due to increasing raw material prices.

The spot price of scrap metal used by U.S. Pipe,contributed to us on October 3, 2005, has increased from approximately$109 per ton in December 2002 to approximately $210 per ton in September 2005.Management estimates that scrap metal and ferrous alloys used in the U.S. Pipemanufacturing process accounted for up to 40% of the U.S. Pipe cost tomanufacture ductile iron pipe as of September 30, 2005.

We increased prices to our customers during the 2002to 2005 time period to mitigate the effect of these cost increases. We can giveno assurances that the price of steel scrap will remain at the current pricinglevels or that we will be able to increase prices to our customers to offsetany future cost increases.

10

----

**See “Item7.—Management’s Discussion and Analysis—Risk Factors.”**

**Research and Development**

We have a dedicated team of research and development (“R&D”)professionals, who focus on the development of new products as well as on thesupport, modification and improvement of existing products. Presently, weemploy 33 people including 18 degreed engineers dedicated to R&Dactivities. Our R&D efforts for our Mueller and Anvil segments are operatedout of our facility in Smithfield, Rhode Island. U.S. Pipe, contributed to uson October 3, 2005, operates its R&D activities out of its facility inBessemer, Alabama.

Ideas are generated by manufacturing, marketing orR&D personnel. In order for a project to move beyond the idea stage, allthree disciplines must agree on the suitability of the product and determine anestimated payback. After the approval, it typically takes 6 to 12 monthsto tool, test and start production. The R&D team typically works on variousproducts at one time.

For our Mueller and Anvilsegments, we spent approximately $4.8 million, $4.4 million and$4.7 million on R&D activities in fiscal years 2005, 2004 and 2003,respectively. U.S. Pipe, total R&D expenditures are anticipated to beapproximately $1.4 million for calendar year 2005, and were $1.5 million forboth calendar years 2004 and 2003.

**Patents, Licenses and Trademarks**

We have a significant number of active patents andtrademarks relating to the design of our products. Most of the patents fortechnology underlying our products have been in the public domain for manyyears, and existing third-party patents are not considered, either individuallyor in the aggregate, to be material to our business. However, the pool ofproprietary information, consisting of know-how and trade secrets relating tothe design, manufacture and operations of our products is consideredparticularly important and valuable. We generally own the rights to theproducts that we manufacture and sell and are not dependent in any material wayupon any license or franchise to operate. U.S. Pipe, contributed to us on October 3,2005, has granted numerous trademark licenses around the world with respect toits uniform family of ductile pipe accessories, such as joint restraintsystems.

In connection with theacquisition of Mueller by the DLJ Merchant Banking funds from Tyco in August 1999,we acquired a non-exclusive license to use the Mueller brand name for aperiod of two years, with an option to purchase it in September 2001 andto use the Grinnell name for three years. We exercised the option and purchasedthe Mueller intellectual property in September 2001, the Grinnell licenseexpired in 2002, and we therefore no longer incur related royalty expense.

**Seasonality**

**See “Item7.—Management’s Discussion and Analysis—Effect of Inflation; Seasonality.”**

**Competition**

The domestic and international markets for flowcontrol products are competitive, However, for most of our product offerings,there are only a few competitors. Although many of our competitors are well-establishedcompanies with strong brand recognition, we believe that we maintain a strongcompetitive position for each of our key product offerings. Managementconsiders product quality, service, brand recognition, price, effectiveness ofdistribution and technical support to be primary competitive factors.

11

----

The competitive environment for our Mueller segmentproducts is mature and stable with limited movement in market share over time. Managementbelieves that our Mueller hydrants and valves enjoy strong competitivepositions based largely on their quality and dependability.

The market for Anvil segment products is highlycompetitive, price sensitive and vulnerable to the increased acceptance offoreign products. Anvil products have mechanical and industrial applications,such as HVAC systems, and fire protection applications, such as sprinklersystems. We estimate that 72% of these products are used in mechanicalapplications and the remainder in fire protection systems. While the mechanicalmarket has generally resisted acceptance of foreign products, the fireprotection market has broadly accepted foreign products as a substitute fordomestic piping system products. Fire protection products are sold primarily onprice and are sold at lower prices by foreign manufacturers.

Over the past three years, we have successfullypetitioned the International Trade Commission and the Department of Commerce toimpose anti-dumping duties on certain malleable and non-malleable pipe fittingproducts imported from China. While we believe that these duties will favorablyimpact our business, which is very competitive, there is no assurance that theanti-dumping duties imposed will be sufficient to reverse or retard the importsfrom China.

In January 2004, our Anvil segment acquired theassets of the building and construction division of Star Pipe, Inc., anestablished importer of threaded and grooved pipe fittings produced in Chinaand India. Our acquisition of Star has allowed us to establish a significantpresence in the market for lower cost, foreign produced fire protectionproducts and grow our overall market share.

The ductile iron pressurepipe industry, in which U.S. Pipe operates, is highly competitive, with a smallnumber of manufacturers of ductile iron pressure pipe and fittings. Majorcompetitors of U.S. Pipe include McWane, Inc., Griffin Ductile Iron PipeCompany and American Cast Iron Pipe Company. Additional competition for ductileiron pressure pipe comes from pipe composed of other materials, such aspolyvinylchloride (PVC), high density polyethylene (HDPE), concrete,fiberglass, reinforced plastic and steel. Although ductile iron pressure pipeis typically more expensive than competing forms of pipe, customers chooseductile iron for its quality, longevity, strength, ease of installation andlack of maintenance problems.

**Environmental Matters**

Under the terms of the agreement whereby TycoInternational sold the Company in August 1999 to our prior owners (the “August 1999Tyco Transaction”), Tyco agreed to indemnify the Company and our affiliates forall “Excluded Liabilities”. Excluded Liabilities include, among other things,substantially all liabilities relating to the time prior to the August 1999Tyco Transaction. The indemnity survives indefinitely, is not subject to anydeductibles or caps, and continues with respect to our current operations,other than those operations acquired since the August 1999 TycoTransaction, including the operations of our U.S. Pipe segment. If Tyco everbecomes financially unable to, or otherwise fails to comply with the terms ofthe indemnity, we may be responsible for the Tyco-indemnified obligations. Inaddition, Tyco’s indemnity does not cover environmental liabilities to theextent caused by our company or the operation of our business after the August 1999Tyco Transaction.

We are subject to various laws and regulationsrelating to health, safety and the protection of the environment. These lawsrelate to, among other things, worker health and safety and the use, dischargeand disposal of regulated substances and wastewater generated during ourmanufacturing processes. As a result, we are required to obtain and maintainair, storm water, wastewater and other permits at many of our facilities, andmake certain regular reports to federal, state and local agencies regarding ouroperations. We cannot assure you that we will not incur material fines,penalties, costs or liabilities in connection with such requirements or afailure to comply with them. While we currently incur capital and otherexpenditures to comply with these environmental, health and safety laws, theselaws may become 

12

----

more stringent and ourprocesses may change. Therefore, the amount and timing of such expenditures inthe future may vary substantially from those currently anticipated.

Some environmental laws require investigation andcleanup of environmental contamination at properties we now or previouslyowned, leased or operated. Some of our operations (in particular, operations atour manufacturing facilities) have been conducted at their current locationsfor many years. The processes at these and our other facilities currently andhistorically have involved the storage and use of regulated substances on-siteor in underground storage tanks and the related generation of solid andhazardous waste disposed of off-site or in on-site solid waste landfills.Remediation projects are being undertaken at a handful of our sites by thirdparties who have indemnified us. We may be required to conduct and pay forthese or other remedial activities in the future, and also may be subject toclaims for property damage, personal injury, natural resource damages or otherissues as a result of such matters. See “Item 3.—Legal Proceedings” for furtherdetails.

In addition, we have received notices from thirdparties or governmental agencies of liability or potential liability inconnection with our off-site disposal of solid and hazardous substancesrelating to our current and former operations. While we currently anticipatethat expenditures relating to these sites will not be material, we may receiveadditional notices and the amount and timing of expenditures relating to knownor unknown sites may vary substantially from those currently anticipated.

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, based on currentlyavailable information the total costs are estimated to be approximately $1.3 million.The Company has spent $0.3 million and has accrued $1.0 million as of September 30,2005.

On April 22, 2004, the EPA issued final NationalEmissions Standards for Hazardous Air Pollutants (NESHAP’s) under the federalClean Air Act for iron and steel foundries. The NESHAP for iron and steelfoundries will require reductions in hazardous air pollutant emissions by theindustry. In addition, other NESHAP’s apply to painting operations at our foundries.While we are in the process of analyzing the impact these standards may have onus and our future financial results, we expect we will need to incur additionaland possibly material costs to comply with the regulations with respect toMueller’s Albertville, Alabama and Chattanooga, Tennessee facilities and mayneed to incur additional and possibly material costs with respect to Anvil’sColumbia, Pennsylvania facility. In addition, to comply with the applicablestandard for iron and steel foundries, we anticipate that we will incurapproximately $10 million in capital costs through December 2007 at theU.S. Pipe facilities located in Bessemer, Alabama, North Birmingham, Alabama,Union City, California, and Burlington, New Jersey. See “Item 7.—Management’sDiscussion and Analysis—Risk Factors—We may be adversely affected byenvironmental, health and safety laws and regulations or liabilities,” “Item 7.—Management’sDiscussion and Analysis—Risk Factors—Our brass products contain lead, which maybe replaced in the future” and “Item 7.—Management’s Discussion and Analysis—RiskFactors—Certain of our products may not be in compliance with NSF standards,which could limit the ability of municipalities to buy our products”.

The following itemsrelate solely to U.S. Pipe, which was contributed to us on October 3, 2005:

U.S. Pipe has implemented an Administrative ConsentOrder (“ACO”) for its Burlington, New Jersey plant that was required under theNew Jersey Environmental Cleanup Responsibility Act (now known as theIndustrial Site Recovery Act). The ACO required soil and ground water cleanup.U.S. Pipe has completed, and has received final approval for the soilcleanup required by the ACO. U. S. Pipe is continuing to address groundwater issues at this site. Further remediation could be required. These 

13

----

remediation costs areexpected to be minimal. Long term ground water monitoring will be required toverify natural attenuation. It is not known how long ground water monitoring willbe required. Management does not believe monitoring or further cleanup costs,if any, will have a material adverse effect on the financial condition orresults of operations of the Company and its subsidiaries.

The Federal Comprehensive Environmental Response,Compensation and Liability Act (“CERCLA”), generally imposes liability, whichmay be joint and several and is without regard to fault or the legality ofwaste generation or disposal, on certain classes of persons, including ownersand operators of sites at which hazardous substances are released into theenvironment (or pose a threat of such release), persons that disposed orarranged for the disposal of hazardous substances at such sites, and personswho owned or operated such sites at the time of such disposal. CERCLAauthorizes the EPA, the States and, in some circumstances, private entities totake actions in response to public health or environmental threats and to seekto recover the costs they incur from the same classes of persons. Certain governmentalauthorities can also seek recovery for damages to natural resources.

Currently, U.S. Pipe hasbeen identified as a potentially responsible party (“PRP”) by the EPA underCERCLA with respect to cleanup of hazardous substances at two sites, one inCalifornia and the other relating to U.S. Pipe’s former Anniston, Alabamafacility, to which its wastes allegedly were transported or deposited. U.S.Pipe is among many PRP’s at such sites and a significant number of the PRP’sare substantial companies. An agreement has been reached with the EPA and aConsent Order, signed by U.S. Pipe and the EPA, has been finalizedrespecting the California sites. U.S. Pipe has satisfied its obligations underthe Consent Order at a cost that was not material. Natural resource damageclaims respecting that same site have now also been made by the State ofCalifornia; but U.S. Pipe, as a member of the same group of PRPs, believes ithas adequate first dollar insurance coverage covering the state’s claims. Withrespect to the Anniston, Alabama site, a Consent Order has been negotiated andsigned between the PRP’s and the EPA. The Consent Order remains subject to apublic comment period before it will come into effect. Management estimates theCompany’s and U.S. Pipe’s aggregate share of liability for cleanup under theConsent Order, after allocation among the several PRPs, will be approximately$4.0 million. U.S. Pipe accrued for this liability in 2004, and the accrual wasrecorded in our financial statements as of October 3, 2005. Civillitigation in respect to this site is also on-going.

**Regulatory Matters**

The production andmarketing of our products is subject to the rules and regulations ofvarious federal, state and local agencies, including laws governing ourrelationships with distributors. Regulatory compliance has not had a materialeffect on our results to date. We are not aware of any pending legislation thatis likely to have a material adverse effect on our operations. See “Item 3.—LegalProceedings,” “Item 7.—Management’s Discussion and Analysis—Risk Factors—Ourbrass products contain lead, which may be replaced in the future” and “Item 7.—Management’sDiscussion and Analysis—Risk Factors—Certain of our products may not be incompliance with NSF standards, which could limit the ability of municipalitiesto buy our products”.

**Employees**

Including U.S. Pipe employees, we employ approximately7,100 people, of whom approximately 92% work in the United States. The hourlyemployees at our principal United States manufacturing plants and foundries inAlbertville, AL, Bessemer, AL, North Birmingham, AL, El Monte, CA, Union City,CA, Aurora, IL, Decatur, IL, Dixon, IL, Burlington, NJ, Columbia, PA,Chattanooga, TN, J.B. Smith (in TN and TX), and Henderson, TN are represented byunions, as are the hourly employees at two of our four distribution centers.Our operations in Canada at St. Jerome, Milton, and at Simcoe are alsounionized. In July 2005, workers at our J.B. Smith facility voted toaccept union representation, and a union contract is currently beingnegotiated.

14

----

The contracts with our union employees at our eightlargest manufacturing facilities expire at different times: Chattanooga in September 2006,Decatur in June 2007, Bessemer in October 2007, Union City in December 2007,Burlington and Columbia in April 2008, Albertville in September 2008and North Birmingham in January 2009. The contract with our unionemployees in Simcoe is currently being negotiated. Our contracts with theunions represented at U.S. Pipe’s Chattanooga facility, which is slated forclosure as described elsewhere in this report, are set to expire in April 2006and May 2008. We have concluded effects bargaining with the unionsrepresented at the U.S. Pipe Chattanooga facility with regard to the plantclosure.

Union contracts at other Mueller and Anvil facilitiesexpire as follows: Dixon in March 2006, Aurora in August 2007,Henderson in December 2007, and El Monte in July 2008.

In addition, approximately 125 of our employees arerepresented by various unions at our Anvil facilities located in BritishColumbia, Montreal, Quebec, Bloomington, MN, Bristol, PA, Cincinnati, OH,Taylor, MI and University Park, IL.

We believe that relationswith our employees, including those represented by unions, are good. The lastmajor union strike was in 1989 at the U.S. Pipe Bessemer, Alabama facility. Thestrike lasted six weeks.

**Geographic Information**

Sales of Mueller products to domestic customers, whichinclude Canadian customers, accounted for 99.6% of Mueller’s sales for fiscalyear 2005, representing 58% of our overall sales for 2005. Sales of Anvilproducts to domestic customers, which include Canadian customers, accounted for98% of Anvil’s sales for fiscal year 2005, representing 41% of our overallsales for 2005. Combined sales of Mueller and Anvil to non-domestic customers(customers outside of the United States and Canada) accounted for 1% of ourtotal sales for fiscal 2005. See Note 16 to our Consolidated FinancialStatements.

Sales of U.S. Pipeproducts to customers outside of the United States, principally to customerslocated in Puerto Rico, accounted for approximately 4% of U.S. Pipe’s salesduring calendar year 2004.

**Available Information**

The public may read and copy any materials we file withthe SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580,Washington, DC 20549. The public may obtain information on the operation of thePublic Reference Room by calling the SEC at 1-800-SEC-0330.The SEC maintains an Internet site that contains reports, proxy and informationstatements, and other information regarding issuers that file electronicallywith the SEC at *http://www.sec.gov.*

We also make available free of charge upon request ourannual report on Form 10-K, our quarterly reports on Form 10-Q,our current reports on Form 8-K and amendments to these reportsfiled or furnished pursuant to Section 13(a) or Section 15(d) ofthe Securities Exchange Act of 1934 as soon as reasonably practicable after weelectronically file such material with or furnish it to the SEC. If you wouldlike to receive any such report, please contact Walt Smith at (217) 425-7320.

15

----

**Item 2.**                        Properties

The following chartdescribes our principal properties.

**Mueller Segment**

| **Location**        | ** ** | ** **                                         | ** ** | **Activity** | ** ** | **Size  (sq. ft.)** | ** ** | **Owned or  Leased** | ** ** |
|---------------------|------------|----------------------------------------------------|------------|--------------|------------|--------------------------|------------|---------------------------|------------|
| Albertville, AL     |       | Foundry,  fabrication, machine shop                |       | 358,000      |       |                     | Leased     |                      |       |
| Aurora, IL          |       | Fabrication,  machine shop                         |       | 146,880      |       |                     | Owned      |                      |       |
| Bethlehem, PA       |       | Fabrication,  machine shop                         |       | 104,000      |       |                     | Leased     |                      |       |
| Brownsville, TX     |       | Machine  shop                                      |       | 48,540       |       |                     | Leased     |                      |       |
| Chattanooga, TN     |       | Foundry,  fabrication, machine shop                |       | 578,164      |       |                     | Owned      |                      |       |
| Cleveland, NC       |       | Machine  shop                                      |       | 190,000      |       |                     | Owned      |                      |       |
| Cleveland, TN       |       | Fabrication,  machine shop                         |       | 70,000       |       |                     | Owned      |                      |       |
| Decatur, IL         |       | Foundry,  fabrication, machine shop,  headquarters |       | 467,044      |       |                     | Owned      |                      |       |
| Dixon, IL           |       | Fabrication,  machine shop                         |       | 146,880      |       |                     | Owned      |                      |       |
| El Monte, CA        |       | Foundry,  fabrication, machine shop                |       | 64,000       |       |                     | Owned      |                      |       |
| Hammond, IN         |       | Fabrication,  machine shop                         |       | 51,160       |       |                     | Owned      |                      |       |
| Jingmen, China      |       | Machine  shop                                      |       | 154,377      |       |                     | Owned      |                      |       |
| Milton, Ontario     |       | Machine  shop                                      |       | 127,000      |       |                     | Leased     |                      |       |
| Modern Pattern,  TN |       | Machine  shop                                      |       | 26,500       |       |                     | Leased     |                      |       |
| Salem, VA           |       | Fabrication                                        |       | 5,250        |       |                     | Leased     |                      |       |
| St. Jerome, Quebec  |       | Foundry, machine shop                              |       | 55,000       |       |                     | Owned      |                      |       |

 

**U.S. Pipe Segment (contributed on October 3, 2005)**

| **Location**      | ** ** | ** **                      | ** ** | **Activity** | ** ** | **Size  (sq. ft.)** | ** ** | **Owned or  Leased** | ** ** |
|-------------------|------------|---------------------------------|------------|--------------|------------|--------------------------|------------|---------------------------|------------|
| Birmingham, AL    |       | Administrative  headquarters    |       | 122,000      |       |                     | Owned      |                      |       |
| Bessemer. AL      |       | Foundry,  machine shop          |       | 648,000      |       |                     | Owned      |                      |       |
| N. Birmingham, AL |       | Foundry,  machine shop          |       | 360,000      |       |                     | Owned      |                      |       |
| Union City, CA    |       | Foundry,  machine shop          |       | 122,000      |       |                     | Owned      |                      |       |
| Burlington, NJ    |       | Foundry,  machine shop          |       | 329,000      |       |                     | Owned      |                      |       |
| Chattanooga, TN*  |       | Foundry, machine shop, assembly |       | 659,000      |       |                     | Owned      |                      |       |

----

*                    Tobe closed in fiscal 2006

16

----

**Anvil Segment**

| **Location**          | ** ** | ** **                                              | ** ** | **Activity** | ** ** | **Size  (sq. ft.)** | ** ** | **Owned or  Leased** | ** ** |
|-----------------------|------------|---------------------------------------------------------|------------|--------------|------------|--------------------------|------------|---------------------------|------------|
| Aurora, OH            |       | Pipe  cutting, machine shop                             |       | 39,650       |       |                     | Leased     |                      |       |
| Columbia, PA          |       | Foundry,  galvanizing, painting, assembly, machine shop |       | 663,000      |       |                     | Owned      |                      |       |
| Greencastle, PA       |       | Bending,  pipe cutting, machine shop                    |       | 132,743      |       |                     | Owned      |                      |       |
| Henderson, TN         |       | Stamping,  fabrication, assembly, machine shop          |       | 236,479      |       |                     | Owned      |                      |       |
| Houston, TX           |       | Machine  shop                                           |       | 45,988       |       |                     | Owned      |                      |       |
| Longview, TX          |       | Assembly,  machine shop                                 |       | 95,650       |       |                     | Owned      |                      |       |
| North Kingstown,  RI  |       | Painting,  fabrication, assembly, machine shop          |       | 121,000      |       |                     | Leased     |                      |       |
| Pottstown, PA         |       | Forming,  fabrication, assembly, machine shop           |       | 46,000       |       |                     | Owned      |                      |       |
| Santa Fe Springs,  CA |       | Pipe  cutting, machine shop                             |       | 37,815       |       |                     | Leased     |                      |       |
| Simcoe, Ontario       |       | Fabrication,  machine shop                              |       | 145,000      |       |                     | Owned      |                      |       |
| Waynesboro, PA        |       | Pipe cutting, machine  shop                             |       | 72,836       |       |                     | Owned      |                      |       |

 

Our leased properties have terms that expire between March 2006and February 2014.

We also operate four leased regional distributioncenters in the United States for our Anvil products. See “Item 1.—Business—Distribution.”The United States centers are located in University Park, Illinois; Sparks,Nevada; Bristol, Pennsylvania and Grand Prairie, Texas and have lease termsthat expire between January 2006 and December 2013. In addition, weoperate 22 smaller warehouses throughout the United States and Canada and onein Europe to support our Anvil operations.

We consider our plants andequipment to be modern and well-maintained and believe our plants will havesufficient capacity to meet our present and future needs. All of our domesticfacilities, leases and leasehold interests are encumbered by liens securing ourobligations under the 2005 Mueller Credit Agreement, and were previouslyencumbered under the 2004 Mueller Credit Facility and the Mueller Group securednotes.

**Item 3.**                        LegalProceedings

We are involved in various legal proceedings whichhave arisen in the normal course of our operations, including the proceedingssummarized below. Other than the litigation described below, we do not believethat any of our outstanding litigation would have a material adverse effect onour business, operations or prospects.

In the Acquisition Agreement pursuant to which TycoInternational (“Tyco”) sold the Company to its prior owners in August 1999,Tyco agreed to indemnify the Company and its affiliates for all “ExcludedLiabilities”. Excluded Liabilities include, among other things, substantiallyall liabilities relating to the time prior to the August 1999 TycoTransaction. The indemnity survives indefinitely and is not subject to anydeductibles or caps. However, we may be responsible for these liabilities inthe event that Tyco ever becomes financially unable to, or otherwise fails tocomply with, the terms of the indemnity. In addition, Tyco’s indemnity does notcover environmental liabilities to the extent caused by us or the operation ofour business after the August 1999 Tyco Transaction, nor does it coverenvironmental liabilities arising with respect to businesses or sites acquiredafter the August 1999 Tyco Transaction, which would include the U.S. Pipebusiness and facilities.

The Company’s subsidiary, James Jones Company, and itsformer parent company are defendants in a false claims lawsuit in which aformer James Jones Company employee is suing on behalf of cities, waterdistricts and municipalities. The employee alleges that the defendants soldallegedly non-conforming public water system parts to various governmententities. The lawsuit seeks consequential damages, 

17

----

penalties and punitivedamages. The Company’s subsidiary, Mueller Co., which had also been named as adefendant, brought a summary judgment motion and was dismissed from thislitigation in January 2004. On September 15, 2004, the trial courtruled against the intervention of approximately 30 municipalities that hadfailed to intervene within the time deadlines previously specified by theCourt. The trial court also ruled that the majority of municipalities that hadpurchased James Jones products from contractors or distributors, were not inprivity with the James Jones Company and were not entitled to punitive damages.Following the Court’s ruling, the water districts and municipalities filed anew action against the James Jones Company, Mueller Co. and Watts (formerparent company of James Jones Company), alleging fraud and intentionalmisrepresentation. This lawsuit is based on the same underlying facts as thefalse claims lawsuit. Any liability associated with these lawsuits is coveredby the Tyco indemnity, and the defense is being paid for and conducted by Tyco.

Some of our subsidiaries have been named as defendantsin a small number of asbestos-related lawsuits. We do not believe these lawsuits,either individually or in the aggregate, are material to our financial positionor results of operations.

On March 31, 2004, our Anvil Internationalsubsidiary entered into a consent order with the Georgia Department of NaturalResources regarding alleged hazardous waste violations at Anvil’s formerfoundry facility in Statesboro, Georgia. Pursuant to the consent order, Anvilhas agreed to pay a settlement amount of $100,000, comprised of a $50,000monetary fine and $50,000 towards a supplemental environmental project. Anvilhas also agreed to perform various investigatory and remedial actions at thefoundry and its landfill. While the ultimate investigatory and remedial costsare currently unknown, based on currently available information the total costsare estimated to be approximately $1.3 million. The Company has spent $0.3million and has accrued $1.0 million as of September 30, 2005.

In November 2005,we reached an agreement in principle to settle the previously reported disputeconcerning the amount of Anvil’s withdrawal liability in respect of theTeamsters Local 11 Pension Fund and the 2003 closure of the Anvil facilityin Kearny, New Jersey. An accrual for the settlement was recognized as of September 30,2005, and is reflected in our financial statements for the year then ended.

The following items relate solely to U.S. Pipe, whichwas contributed to us on October 3, 2005:

U.S. Pipe, contributed to us on October 3, 2005,has implemented an Administrative Consent Order (“ACO”) for its Burlington, NewJersey plant that was required under the New Jersey Environmental CleanupResponsibility Act (now known as the Industrial Site Recovery Act). The ACOrequired soil and ground water cleanup. U.S. Pipe has completed, and hasreceived final approval for the soil cleanup required by the ACO. U. S. Pipe iscontinuing to address ground water issues at this site. Further remediationcould be required. These remediation costs are expected to be minimal. Longterm ground water monitoring will be required to verify natural attenuation. Itis not known how long ground water monitoring will be required. Management doesnot believe monitoring or further cleanup costs, if any, will have a materialadverse effect on the financial condition or results of operations of theCompany and its subsidiaries.

The Federal Comprehensive Environmental Response,Compensation and Liability Act (“CERCLA”), generally imposes liability, whichmay be joint and several and is without regard to fault or the legality ofwaste generation or disposal, on certain classes of persons, including ownersand operators of sites at which hazardous substances are released into theenvironment (or pose a threat of such release), persons that disposed orarranged for the disposal of hazardous substances at such sites, and personswho owned or operated such sites at the time of such disposal. CERCLAauthorizes the EPA, the States and, in some circumstances, private entities totake actions in response to public health or environmental threats and to seekto recover the costs they incur from the same classes of persons. Certaingovernmental authorities can also seek recovery for damages to naturalresources.

18

----

Currently, U.S. Pipe hasbeen identified as a potentially responsible party (“PRP”) by the EPA underCERCLA with respect to cleanup of hazardous substances at two sites, one inCalifornia and the other relating to U.S. Pipe’s former Anniston, Alabamafacility, to which its wastes allegedly were transported or deposited. U.S.Pipe is among many PRP’s at such sites and a significant number of the PRP’sare substantial companies. An agreement has been reached with the EPA and aConsent Order, signed by U.S. Pipe and the EPA, has been finalized respectingthe California sites. U.S. Pipe has satisfied its obligations under the ConsentOrder at a cost that was not material. Natural resource damage claimsrespecting that same site have now also been made by the State of California;but U.S. Pipe, as a member of the same group of PRPs, believes it has adequatefirst dollar insurance coverage covering the state’s claims. With respect tothe Anniston, Alabama site, a Consent Order has been negotiated and signedbetween the PRP’s and the EPA. The Consent Order remains subject to a publiccomment period before it will come into effect. Management estimates theCompany’s and U.S. Pipe’s aggregate share of liability for cleanup under theConsent Order, after allocation among the several PRPs, will be approximately$4.0 million. U.S. Pipe accrued for this liability in 2004, and the accrual wasrecorded in our financial statements as of October 3, 2005. Civillitigation in respect of this site is also ongoing.

**Item 4.**                        Submissionof Matters to a Vote of Security Holders

On July 1, 2005, the Company solicited thewritten consent of holders of our then-outstanding Class A Common Stockand Class B Common stock to approve and authorize the acquisition of theCompany by Walter Industries under the June 17, 2005 agreement and plan ofmerger among Walter Industries, the Company and the other parties thereto andall transactions relating to the acquisition and merger agreement. As of September 30,2005, holders of 99% of our then-outstanding Class A Common Stock and Class BCommon Stock had authorized the Walter Industries acquisition and relatedagreements by submitting executed written consents.

On August 17, 2005, the Company solicited thewritten consent of holders of our then-outstanding Class A Common Stockand Class B  Common Stock to approvethe payment to certain of our employees of severance amounts and transactionbonuses in connection with the change of control of the Company pursuant to theWalter Industries acquisition. Without the approval of at least 75% of theCompany’s shareholders, these change of control payments could have been deemedexcess parachute payments under Section 280G of the Internal Revenue Code.As of September 30, 2005, holders of 88% of our then-outstanding Class ACommon Stock and Class B Common Stock, excluding those holders thatpotentially were entitled to receive change of control payments, had authorizedthe change of control payments to the affected employees.

19

----

**PART II**

**Item 5.**                        Marketfor Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities

There is no establishedpublic trading market for the registrant’s common equity.

20

----

**Item 6.**                        SelectedFinancial Data

Thefollowing table presents our selected historical and other consolidatedfinancial data for each of the five fiscal years in the period ended September 30,2005. Financial data for our U.S. Pipe segment is excluded below because U.S.Pipe was contributed after September 30, 2005. The selected historicalfinancial data for each of the three fiscal years in the period ended September 30,2005 was derived from our audited consolidated financial statements appearingelsewhere in this annual report. The selected historical financial data for thefiscal years 2001 and 2002 were derived from our audited consolidated financialstatements not included in this annual report. Our results of operationsinclude the results for various acquired entities from the date of acquisition.The selected historical consolidated financial data should be read inconjunction with “Item 7.—Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and the consolidated financial statementsand notes thereto included elsewhere in this annual report.

| ** **                                                    | ** ** | **Fiscal Years ended September 30,** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                    | ** ** | **2005**                                                 | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                    | ** ** | ** **                                               | ** ** | **(as restated)(5)** | ** ** | **(as restated)(5)** | ** ** | **(as restated)(5)** | ** ** | **(as restated)(5)** | ** ** |
| ** **                                                    | ** ** | **(dollars in millions)**                      | ** ** |
| **Income  Statement Data:**                                   |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net sales                                                     |       | $                                                        | 1,148.9    |   |   | $ | 1,049.2 |   |   |   | $ | 922.9 |   |   |   | $ | 901.9 |   |   |   | $ | 864.7 |   |   |
| Cost of sales                                                 |       | 802.3                                                    |       |   | 750.5 |   |   |   | 681.8 |   |   |   | 666.0 |   |   |   | 639.9 |   |   |
| Royalty expense(1)                                            |       | —                                                   |       |   | — |   |   |   | — |   |   |   | 13.5 |   |   |   | 29.1 |   |   |
| Gross profit                                                  |       | 346.6                                                    |       |   | 298.7 |   |   |   | 241.1 |   |   |   | 222.4 |   |   |   | 195.7 |   |   |
| Selling, general  and administrative(7)                       |       | 172.1                                                    |       |   | 185.1 |   |   |   | 148.2 |   |   |   | 139.4 |   |   |   | 138.4 |   |   |
| Facility  rationalization, restructuring and related costs(2) |       | 1.7                                                      |       |   | 0.9 |   |   |   | 1.7 |   |   |   | 2.7 |   |   |   | 27.6 |   |   |
| Operating income                                              |       | 172.8                                                    |       |   | 112.7 |   |   |   | 91.2 |   |   |   | 80.3 |   |   |   | 29.7 |   |   |
| Interest expense,  net of interest income(3)                  |       | (89.5                                                    | )          |   | (63.5 | ) |   |   | (35.5 | ) |   |   | (57.9 | ) |   |   | (86.7 | ) |   |
| Other income                                                  |       | —                                                   |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 1.7 |   |   |
| Income (loss)  before income tax expense (benefit)            |       | 83.3                                                     |       |   | 49.2 |   |   |   | 55.7 |   |   |   | 22.4 |   |   |   | (55.3 | ) |   |
| Income tax expense  (benefit)                                 |       | 33.7                                                     |       |   | 16.0 |   |   |   | 22.9 |   |   |   | 10.1 |   |   |   | (20.6 | ) |   |
| Income (loss)  before cumulative effect of accounting change  |       | 49.6                                                     |       |   | 33.2 |   |   |   | 32.8 |   |   |   | 12.3 |   |   |   | (34.7 | ) |   |
| Cumulative effect  of accounting changes, net of tax(6)       |       | —                                                   |       |   | — |   |   |   | — |   |   |   | — |   |   |   | (9.1 | ) |   |
| Net income (loss)                                             |       | $                                                        | 49.6       |   |   | $ | 33.2 |   |   |   | $ | 32.8 |   |   |   | $ | 12.3 |   |   |   | $ | (43.8 | ) |   |
| **Other Data:**                                               |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                 |       | $                                                        | 48.4       |   |   | $ | 64.3 |   |   |   | $ | 66.3 |   |   |   | $ | 62.8 |   |   |   | $ | 65.4 |   |   |
| Capital  expenditures                                         |       | $                                                        | 27.2       |   |   | $ | 22.5 |   |   |   | $ | 20.0 |   |   |   | $ | 31.3 |   |   |   | $ | 51.0 |   |   |
| **Balance sheet data:**                                       |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Working capital(4)                                            |       | $                                                        | 481.6      |   |   | $ | 390.8 |   |   |   | $ | 369.1 |   |   |   | $ | 307.7 |   |   |   | $ | 263.1 |   |   |
| Property, plant  and equipment, net                      |       | $                                                        | 168.0      |   |   | $ | 186.8 |   |   |   | $ | 208.0 |   |   |   | $ | 231.9 |   |   |   | $ | 227.9 |   |   |
| Total assets                                                  |       | $                                                        | 1,086.8    |   |   | $ | 989.2 |   |   |   | $ | 957.4 |   |   |   | $ | 933.9 |   |   |   | $ | 933.3 |   |   |
| Total debt                                                    |       | $                                                        | 1,055.7    |   |   | $ | 1,039.4 |   |   |   | $ | 575.7 |   |   |   | $ | 581.0 |   |   |   | $ | 587.1 |   |   |
| Total shareholders’  equity (deficit)               |       | $                                                        | (176.4     | ) |   | $ | (232.4 | ) |   |   | $ | 106.8 |   |   |   | $ | 78.6 |   |   |   | $ | 87.4 |   |   |

----

(1)          In connection with the August 1999Tyco Transaction, we acquired a non-exclusive license to use the Mueller brandname for a period of two years, with an option to purchase it in September 2001and to use the Grinnell brand name for three years. We exercised the option andpurchased the Mueller 

21

----

intellectual property in September 2001.Payments under such license prior to the exercise of the purchase option arereflected as royalty expense in our statement of operations. These royaltyexpenses were funded out of restricted cash we placed into escrow in August 1999in connection with the August 1999 Tyco Transaction. We classify theacquired Mueller intellectual property as an indefinite-life asset andtherefore record no related amortization expense.

(2)          Facility rationalizationand restructuring includes severance and exit cost charges and non-cashimpairment charges due to the idling and obsolescence of certain assets relatedto (A) the implementation of lost foam technology at our Albertville,Alabama and Chattanooga, Tennessee facilities, (B) the closure of ourStatesboro, Georgia manufacturing facility, (C) the relocation of certainmanufacturing lines to other facilities, and (D) the shutdown of a Muellersegment plant in Colorado that ceased manufacturing operations.

(3)          Interest expense, net ofinterest income, includes the write off of deferred financing fees of$7.0 million for 2004 and $1.6 million for 2002. Interest expense andearly debt repayment costs for 2004 also includes a $7.0 millionprepayment associated with the redemption in November 2003 of our seniorsubordinated notes due 2009. Interest expense, net of interest income, alsoincludes interest rate swap (gains)/losses of $(5.2) million, $(12.5)million, $(13.3) million, $(3.7) million, and $23.5 million for the yearsended September 30, 2005, 2004, 2003, 2002, and 2001,  respectively.

(4)          Working capital equalscurrent assets less current liabilities (excluding restricted cash of zero,zero, zero, $11.6 million, and $32.8 million in each of the periods ending September 30,2005, 2004, 2003, 2002, and 2001 and accrued royalties of zero, zero, zero,$13.5 million, and $29.1 million, in each of the periods ending September 30,2005, 2004, 2003, 2002, and 2001. Restricted cash was set aside for the purposeof making royalty payments to Tyco under the terms of agreements that werefully expired as of September 30, 2002. We have excluded these items fromthe calculation of working capital in order to reflect the availability ofunrestricted-use net assets).

(5)          See Note 2 to ourconsolidated financial statements for discussion of the restatement of total assetsfor fiscal 2004 and the reclassification of depreciation expense from selling,general and administrative to cost of sales for fiscal years 2004, 2003, 2002and 2001.

(6)          Cumulative effect ofaccounting changes, net of tax, include $(2.7) million related to adoptionof SAB 101 pertaining to revenue recognition and $(6.4) millionrelated to accounting for interest rate swaps with the adoption of SFAS 133.

(7)   Selling,general and administrative includes stock compensation charges of zero, $21.2 million,$0.7 million, $1.1 million and $0.5 million for the years endedSeptember 30, 2005, 2004, 2003, 2002 and 2001, respectively.

22

----

**Item 7.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations

*The following discussion should be read in conjunctionwith our consolidated financial statements, including the notes to thosestatements, included elsewhere in this annual report. This discussion containsforward-looking statements which involve risks and uncertainties. Ouractual results may differ significantly from the results discussed in theforward-looking statements. Factors that might cause those differencesinclude, but are not limited to, those discussed below in “Risk Factors.”*

**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 maintain a largeinstalled base of products, including approximately three million fire hydrantsand eight million iron gate valves in the United States. We were formed in1999, by the DLJ Merchant Banking funds for the purpose of acquiring ourbusiness from Tyco International (U.S.) Inc. and its affiliates. On October 3,2005, we were acquired by Walter Industries, Inc. (“Walter Industries” or “Walter”).As part of its acquisition of the Company, Walter Industries, Inc.contributed U.S. Pipe to our wholly-owned subsidiary, Mueller Group.

Our Mueller segment is a leading manufacturer ofhydrants, valves and other products for use in water and gas distributionsystems; and our Anvil segment is a leading manufacturer of fittings, pipe hangersand other products for use in Anvil applications. Our fiscal year ends September 30.The following discussion excludes U.S. Pipe because information is presentedfor the three fiscal years ended September 30, 2005, prior to the WalterIndustries transaction and the related contribution of U.S. Pipe to us.

Our products are sold to a wide variety of end-users,including municipalities, publicly and privately owned water and wastewaterutilities, gas utilities and construction contractors. We believe that oursales are substantially driven by water infrastructure replacement, repair andupgrades, spending on new water infrastructure (which is driven by spending onnew residential construction) and non-residential construction. Even though ourproducts are generally sold through distributors to contractors, for most ofour Mueller products, it is the end-user who either chooses the brand to beused or specifies the qualities that the required product must have, includingapprovals from industry standard-setting bodies. We believe that, becauseof our reputation for quality and our large installed base of products, ourproducts are specified more often than those made by our competitors, whichprovides us with a competitive advantage and helps ensure that our market sharewill remain strong.

Since 1999, we have undertaken various cost savinginitiatives, including a facility consolidation program and various capitalinvestments in new manufacturing processes. We have recently completed acapital improvement plan under which we implemented new low costmanufacturing technologies, including our lost foam casting process andconsolidated certain manufacturing facilities. This has improved the efficiencyof our manufacturing processes and the quality of many of our products.

Our Mueller segment has benefited from the relativelystable residential construction market in the United States in recent years, aswell as new product introductions and, to a lesser extent, acquisitions, partiallyoffset by a slow down in state and local government spending to upgrade, repairand replace water and waste water distribution infrastructure due to budgetaryconstraints resulting from recent adverse economic conditions. In 2005, ourMueller segment experienced strong sales growth driven in part by increasedspending by municipalities on water infrastructure replacement, repair andupgrades as a result of a general economic recovery and, beginning in thesecond fiscal quarter of 2004, price increases across all Mueller productlines.

Overall demand for our Anvil products is primarilydriven by non-residential construction in the United States and Canada. OurAnvil segment competes in the market for piping component products which areprincipally used in mechanical applications, such as HVAC systems, and fireprotection 

23

----

applications, such assprinkler systems. We estimate that approximately 70% of our Anvil products areused in mechanical applications and the remainder in fire protection systems.Our domestically produced Anvil products have been adversely impacted byincreased foreign competition with respect to fire protection products. Theseproducts compete primarily on price and are sold at lower prices by foreignmanufacturers. Although imported products have been accepted in certainapplications, many municipalities, end-users, and contractors require the useof domestically manufactured products in their projects. For example,Pennsylvania requires that all state-funded projects use domestically manufacturedsteel products. In January 2004, we acquired the business and assets ofthe construction division of Star Pipe, Inc. (see Note 4 to ourconsolidated financial statements), an importer of threaded and groovedfittings produced in China and India. Our acquisition of Star has allowed us tobecome a significant participant in the market for lower cost, foreign-producedfire-protection products and grow our overall Anvil products market share. In2005, our Anvil segment benefited from improvements in economic conditions thathave had a positive impact on non-residential construction and from priceincreases that we began implementing in our second fiscal quarter of 2004.Finally, our Anvil product sales have benefited from acquisitions in recentyears.

Other developments,trends and factors that may impact future results include:

·       Priceincreases are planned for Mueller and U.S. Pipe iron and brass productseffective February 2006.

Items relevant to the October 3, 2005 acquisitionof the Company and the contribution of U.S. Pipe to the Company include thefollowing:

·       TheCompany was acquired by Walter Industries, Inc. (“Walter”) on October 3,2005. In conjunction with the acquisition, U.S. Pipe was contributed to theCompany’s wholly-owned subsidiary, Mueller Group, by Walter. The future resultsof U.S. Pipe’s operations will be consolidated with the Company’s results fromthe date of its contribution to us. U.S. Pipe had net sales of $537.2 millionand $431.9 million for the fiscal years ended December 31, 2004 and2003, respectively. U.S. Pipe’s net sales were $425.5 million for the ninemonths ended September 30, 2005. U.S. Pipe had total assets of $504.7million and $473.4 million at September 30, 2005 and December 31,2004, respectively.

·       Inthe period subsequent to September 30, 2005 and simultaneously with Walteracquiring the Company on October 3, 2005, the Company entered into the2005 Mueller Credit Agreement. Proceeds of the 2005 Mueller Credit Agreementwere approximately $1,053.4 million, net of approximately $21.6 million ofunderwriting fees and expenses which will be amortized over the life of theloans. The proceeds were used to refinance the 2004 Mueller Credit Facility, defeaseand redeem our Second Priority Senior Secured Floating Rate Notes, and financethe acquisition of the Company by Walter. During the period subsequent toSeptember 30, 2005, and prior to Walter acquiring the Company onOctober 3, 2005, the Company wrote off $18.4 million of deferred financingfees related to the 2004 Mueller Credit Facility.

·       OnOctober 3, 2005, Mueller Group delivered a notice of redemption withrespect to all of the Second Priority Senior Secured Floating Rate Notes (“securednotes”), providing for the redemption of all such secured notes on November 2,2005. In addition, Mueller Group delivered to Law Debenture Trust Company ofNew York, the trustee for the secured notes, $104.1 million in trust equal tothe principal, premium and interest accruing to the redemption date. During theperiod subsequent to September 30, 2005 and prior to Walter acquiring theCompany on October 3, 2005, Mueller Group wrote off $2.4 million ofdeferred financing fees related to the secured notes.

·       Inthe period subsequent to September 30, 2005 and prior to Walter acquiringthe Company on October 3, 2005, the Company expensed transaction fees ofapproximately $20.1 million and 

24

----

transaction bonuses of$10.0 million. These fees were contingent upon completion of the sale of theCompany to Walter. Non-contingent fees and expenses of approximately $3.1million were expensed during the fiscal year ended September 30, 2005.

·       OnOctober 21, 2005, Walter announced its plan to initiate an initial publicoffering of equity securities and subsequent spin-off of the Company.

·       EffectiveOctober 3, 2005, the Company expects to record purchase accountingadjustments to inventory, property, plant and equipment, intangible assets,goodwill and debt. The adjustment to increase inventory will be approximately$70.2 million, which will be charged to cost of goods sold based on inventoryturnover. The adjustment to increase property, plant and equipment will beapproximately $47.6 million. The adjustment to increase intangible assets willbe approximately $800.1 million, representing trademarks, technology andcustomer relationships. Goodwill will be increased by approximately $654.5million. Debt will be increased by approximately $54.9 million for an increasein fair market value. These adjustments are expected to result in increased costof goods sold expense of approximately $58.4 million and $11.8 million for thequarters ended December 31, 2005 and March 31, 2006, respectively. Quarterlyamortization expense of definite-lived intangible assets is expected toincrease by approximately $6.0 million and quarterly, interest expense is expectedto increase by $5.0 million due to new debt, and fair value adjustmentapplicable to old debt. In addition, the Company will record an expense of $2.5million in the quarter ended December 31, 2005 related to certain otherfinancing costs.

·       OnOctober 26, 2005, Walter announced plans to close the U.S. PipeChattanooga, Tennessee plant and to transfer the valve and hydrant productionof that plant to Mueller’s Chattanooga and Albertville, Alabama plants duringour 2006 fiscal year. The eventual closure of the U.S. Pipe Chattanooga plantwill occur sometime in 2006. The costs associated with the closure that areexpected to be recorded in quarter ended December 31, 2005 are estimatedat $37.8 million consisting of the write-off of impaired assets, severance andenvironmental costs, of which $21.9 million are non-cash.

·       As of September 30, 2005, scrap metal costsfor our U.S. Pipe segment declined 25% from their peak in 2004. Recently scrapcosts have increased and are expected to remain elevated at least through December 2005.

**Forward-Looking Statements.**

This report containscertain statements that may be deemed “forward-looking statements” within themeaning of Section 21E of the Securities Exchange Act of 1934. Allstatements, other than statements of historical fact, that address activities,events or developments that we or our management intends, expects, projects,believes or anticipates will or may occur in the future are forward-lookingstatements. Such statements are based upon certain assumptions and assessmentsmade by our management in light of their experience and their perception ofhistorical trends, current conditions, expected future developments and otherfactors they believe to be appropriate. The forward-looking statements includedin this report are also subject to a number of material risks anduncertainties, including but not limited to economic, competitive, governmentaland technological factors affecting our operations, markets, products, servicesand prices. Such forward-looking statements are not guarantees of futureperformance, and actual results, developments and business decisions may differfrom those envisaged by such forward-looking statements.

**Restatements**

In the course offinalizing the 2005 financial statements, the Company determined that certainitems included in the consolidated financial statements were incorrect inannual and interim periods. As a result of these findings, the Company hasrestated its financial statements in this annual report on Form 10-K.

25

----

See Note2 to the Consolidated Financial Statements. The restatement had no impact on theCompany’s consolidated net income or the consolidated statement of stockholders’deficit for any of the prior periods presented.

**Results of Operations**

***Fiscal Year Ended September 30,2005 As Compared to the Fiscal Year Ended September 30, 2004***

| ** **                                                 | ** ** | **Fiscal Years ended**    | ** ** | ** **                            | ** ** | ** **                  | ** ** |
|------------------------------------------------------------|------------|-------------------------------------|------------|---------------------------------------|------------|-----------------------------|------------|
| ** **                                                 | ** ** | **2005**                            | ** ** | **2004 (Restated)**              | ** ** | **2005 vs. 2004** | ** ** |
| ** **                                                 | ** ** | ** **                          | ** ** | **Percentage  of net  sales(1)** | ** ** | ** **                  | ** ** | **Percentage  of net  sales(1)** | ** ** | **Increase/  (decrease)** | ** ** | **Percentage  increase/  (decrease)** | ** ** |
| ** **                                                 | ** ** | **(dollars in millions)** | ** ** |
| Net sales                                                  |       |                                |       |                                  |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                    |       | $                                   | 663.9      |                                  |       | 57.8                        | %          |   | $ | 618.2 |   |   | 58.9 | % |   |   | $ | 45.7 |   |   |   | 7.4 | % |   |
| Anvil                                                      |       | 485.0                               |       |                                  | 42.2       |                        |       | 431.0 |   |   | 41.1 |   |   |   | 54.0 |   |   |   | 12.5 |   |   |
| Consolidated                                               |       | $                                   | 1,148.9    |                                  |       | 100.0                       |       |   | $ | 1,049.2 |   |   | 100.0 |   |   |   | $ | 99.7 |   |   |   | 9.5 |   |   |
| Gross profit                                               |       |                                |       |                                  |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                    |       | $                                   | 230.6      |                                  |       | 34.7                        |       |   | $ | 203.0 |   |   | 32.8 |   |   |   | $ | 27.6 |   |   |   | 13.6 |   |   |
| Anvil                                                      |       | 122.9                               |       |                                  | 25.3       |                        |       | 102.8 |   |   | 23.9 |   |   |   | 20.1 |   |   |   | 19.6 |   |   |
| Depreciation expense not allocated to segments             |       | (6.9                                | )          |                                  | (0.6       | )                           |       | (7.1 | ) |   | (0.7 | ) |   |   | 0.2 |   |   |   | 2.8 |   |   |
| Consolidated                                               |       | $                                   | 346.6      |                                  |       | 30.2                        |       |   | $ | 298.7 |   |   | 28.5 |   |   |   | $ | 47.9 |   |   |   | 16.0 |   |   |
| Selling, general and administrative                        |       |                                |       |                                  |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                    |       | $                                   | 60.9       |                                  |       | 9.2                         |       |   | $ | 60.6 |   |   | 9.8 |   |   |   | $ | 0.3 |   |   |   | 0.5 |   |   |
| Anvil                                                      |       | 77.9                                |       |                                  | 16.1       |                        |       | 75.0 |   |   | 17.4 |   |   |   | 2.9 |   |   |   | 3.9 |   |   |
| Corporate                                                  |       | 33.3                                |       |                                  | 2.9        |                        |       | 49.5 |   |   | 4.7 |   |   |   | (16.2 | ) |   |   | (32.7 | ) |   |
| Consolidated                                               |       | $                                   | 172.1      |                                  |       | 15.0                        |       |   | $ | 185.1 |   |   | 17.6 |   |   |   | $ | (13.0 | ) |   |   | (7.0 | ) |   |
| Facility rationalization, restructuring and related  costs |       |                                |       |                                  |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                    |       | $                                   | 1.7        |                                  |       | 0.3                         |       |   | $ | — |   |   | — |   |   |   | $ | 1.7 |   |   |   | N/A |   |   |
| Anvil                                                      |       | —                              |       |                                  | —     |                        |       | 0.9 |   |   | 0.2 |   |   |   | (0.9 | ) |   |   | N/A |   |   |
| Consolidated                                               |       | $                                   | 1.7        |                                  |       | 0.1                         |       |   | $ | 0.9 |   |   | 0.1 |   |   |   | $ | 0.8 |   |   |   | 88.9 |   |   |
| Operating Income                                           |       |                                |       |                                  |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                    |       | $                                   | 168.0      |                                  |       | 25.3                        |       |   | $ | 142.4 |   |   | 23.0 |   |   |   | $ | 25.6 |   |   |   | 18.0 |   |   |
| Anvil                                                      |       | 45.0                                |       |                                  | 9.3        |                        |       | 26.9 |   |   | 6.2 |   |   |   | 18.1 |   |   |   | 67.3 |   |   |
| Corporate                                                  |       | (40.2                               | )          |                                  | (3.5       | )                           |       | (56.6 | ) |   | (5.4 | ) |   |   | 16.4 |   |   |   | (29.0 | ) |   |
| Consolidated                                               |       | $                                   | 172.8      |                                  |       | 15.0                        |       |   | $ | 112.7 |   |   | 10.7 |   |   |   | $ | 60.1 |   |   |   | 53.3 |   |   |
| Interest expense,  net of interest income                  |       | $                                   | (89.5      | )                                     |       | (7.8                        | )          |   | $ | (63.5 | ) |   | (6.1 | ) |   |   | $ | (26.0 | ) |   |   | 40.9 |   |   |
| Income before  income tax expense                          |       | 83.3                                |       |                                  | 7.3        |                        |       | 49.2 |   |   | 4.7 |   |   |   | 34.1 |   |   |   | 69.3 |   |   |
| Income tax  expense                                        |       | 33.7                                |       |                                  | 2.9        |                        |       | 16.0 |   |   | 1.5 |   |   |   | 17.7 |   |   |   | 110.6 |   |   |
| Net income                                                 |       | $                                   | 49.6       |                                  |       | 4.3                         |       |   | $ | 33.2 |   |   | 3.2 |   |   |   | $ | 16.4 |   |   |   | 49.4 |   |   |

----

(1)          Percentages are bysegment, if applicable.

26

----

*Net Sales.**  *Consolidated net sales for thefiscal year ended September 30, 2005 were $1,148.9 million, an increase of$99.7 million, or 9.5%, from $1,049.2 million in 2004.

Mueller net sales for the fiscal year ended September 30,2005 were $663.9 million, an increase of $45.7 million, or 7.4% from$618.2 million in 2004. This increase was driven primarily by price increasescombined with the continued strong performance of the residential constructionmarket. The company implemented price increases in February and May of2004, and January 2005.

Anvil net sales for the fiscal year ended September 30,2005 were $485.0 million, an increase of $54.0 million, or 12.5%, from$431.0 million in 2004. The 2004 Star acquisition contributed a$13.5 million increase in 2005 sales compared to 2004. The strength of theCanadian dollar contributed another $9.1 million of additional sales, while thebalance of the increase was driven primarily by price increases.

*GrossProfit.**  *Consolidatedgross profit for the fiscal year ended September 30, 2005 was $346.6million, an increase of $47.9 million, or 16%, from $298.7 million in2004. Gross margin increased to 30.2% in 2005, compared to 28.5% in 2004, whichincludes certain depreciation expense not allocated to segments.

Mueller gross profit for the fiscal year ended September 30,2005 was $230.6 million, an increase of $27.6 million, or 13.6%, from$203.0 million in 2004. Gross margin increased to 34.7% in 2005 comparedto 32.8% in 2004. The increase in gross profit was primarily driven by priceincreases and the continued strong performance of the residential constructionmarket. Partially offsetting the higher prices were higher raw material costs(most notably brass ingot and scrap steel) due to worldwide supply and demandissues. We cannot provide assurances that any future increases in raw materialcosts can be passed to our customers.

Anvil gross profit for the fiscal year ended September 30,2005 was $122.9 million, an increase of $20.1 million, or 19.6% from$102.8 million in 2004. Gross margin increased to 25.3% in 2005 compared to23.9% in 2004. The Star acquisition contributed an increase of$1.4 million, while the remaining increase was primarily driven by priceincreases implemented during fiscal year 2004. These increases were partiallyoffset by increased raw material and other production costs.

*Selling,General & Administrative.**  *Consolidated SG&A for thefiscal year ended September 30, 2005 was $172.1 million, a decrease of$13.0 million, from $185.1 million in 2004. As a percentage of netsales, SG&A improved to 15.0% in 2005 compared to 17.6% in 2004.

Mueller SG&A for the fiscal year ended September 30,2005 was $60.9 million, compared to $60.6 million for the fiscal yearended September 30, 2004. As a percentage of net sales, SG&A improvedto 9.2% in 2005 compared to 9.8% in 2004, as a result of increased sales,partially offset by higher sales commission and other compensation costs,including incentive compensation.

Anvil SG&A for the fiscal year ended September 30,2005 was $77.9 million, an increase of $2.9 million, or 3.9%, from$75.0 million in 2004. As a percentage of net sales, SG&A improved to16.1% in 2005 compared to 17.4% in 2004. This improvement was a result ofincreased sales, a reduction in bad debt expense, and a favorable impact due tothe strength of the Canadian dollar. These improvements were partially offsetby higher compensation expenses and increased supply chain management costsassociated with greater sales of import products.

Corporate expenses for the fiscal year ended September 30,2005 were $33.3 million compared to $49.5 million in 2004, a decreaseof $16.2 million. The decrease was primarily due to a $13.8 millionreduction in amortization expense for 2005 as compared to 2004 as a result ofan intangible asset becoming fully amortized during the fourth quarter of 2004and a $21.2 million reduction in corporatestock compensation charges for 2005 as compared to 2004 primarily related tocharges for employee optionholders made in connection with the recapitalizationof the Company during the third quarter of 

27

----

2004.All options were cancelled at that time. These items were partially offset in 2005by: legal and audit fees of $3.0 million related to an internalinvestigation, professional fees of $1.2 million related to exploringstrategic alternatives for the Company, consulting fees of $3.1 millionrelated to efforts to become compliant with public company reporting andSarbanes-Oxley internal control requirements, $1.4 million related tocompensation payments to current employees and directors to offset additionaltaxes owed by them as a result of the Company’s revaluation of stockcompensation paid to them in 2004, $3.5 million of professional fees related toefforts to sell the Company, increased board of director fees of $0.2 million,increased incentive compensation costs of $2.1 million, increased legal,audit, tax, internal audit and other consulting fees of $1.9 millionassociated with being an SEC registrant for all of 2005 as compared to the lastquarter of 2004, and increased salary, benefit, recruiting and relocation costsof $0.9 million associated with additional accounting and legal staffing.Corporate expenses consist primarily of corporate staff, benefits, legal andprofessional fees and facility costs.

*FacilityRationalization, Restructuring and Related Costs.**  *The Company incurred$1.7 million of restructuring costs for the fiscal year ended September 30,2005, related primarily to severance payments and to the termination ofoperating leases for the building and machinery at a Mueller plant in Coloradothat ceased manufacturing and began outsourcing a product line in February 2005.

The Company also incurred $0.9 million offacility rationalization costs for the fiscal year ended September 30,2004, related primarily to future lease obligations at a closed Anvil facilityin New Jersey and environmental issues at a closed Anvil plant in Georgia.

*InterestExpense, Net of Interest Income.**  *Interest expense, net of interestincome, for the fiscal year ended September 30, 2005 was$89.5 million, or a $26.0 million increase from $63.5 millionfor the fiscal year ended September 30, 2004. Interest expense, net ofinterest income, for the fiscal year ended September 30, 2005 includes$33.8 million of additional interest expense and amortization of deferredfinancing fees on $518.0 million of net additional debt resulting from theCompany’s recapitalization in April 2004. In the fiscal year ended September 30,2004, interest expense included a $6.6 million write-off of term debt deferredfinancing fees related to the April 2004 recapitalization, and a$7.0 million early redemption penalty and a write-off of $0.4 millionin deferred financing fees related to the early redemption of$50.0 million of senior subordinated debt in November 2003. Also,gains recorded in 2005 on interest rate swaps decreased $7.3 millioncompared to 2004 due to the expiration of swap agreements that were notrenewed, and interest income increased $1.1 million compared to 2004 due to ahigher average cash balance during 2005.

*IncomeTax Expense.**  *Incometax expense for the fiscal year ended September 30, 2005 was$33.7 million as compared to $16.0 million in 2004. The effective taxrates for fiscal years 2005 and 2004 were 40.5% and 32.5%, respectively. The2005 rate included the benefit recorded from U.S. export and manufacturingincentives. Also, the 2004 rate included tax expense related to adjustments topermanent items that were not present in 2005. In 2005, the Company made a netdownward adjustment to its tax accruals of approximately $0.3 million due tothe expiration of statutes of limitation. Discrete 2004 events included theconclusion of the federal and certain state tax examinations and the expirationof certain state statutes of limitation which allowed the Company to adjust taxaccruals downward by approximately $6.4 million. Partially offsetting theseitems in the third quarter of 2004 were $2.3 million of charges related to thededuction of Foreign Tax Credits and the effects of other items, includingchanges in the effective rate on prior period deferred tax balances. Both yearsinclude non-deductible interest on our high yield debt obligations.

28

----

***Fiscal Year Ended September 30,2004 As Compared to Fiscal Year Ended September 30, 2003***

| ** **                                                 | ** ** | **Fiscal years ended September 30,** | ** ** | ** **                            | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                 | ** ** | **2004 (Restated)**                                 | ** ** | **2003 (Restated)**              | ** ** | **2004 vs. 2003** | ** ** |
| ** **                                                 | ** ** | ** **                                               | ** ** | **Percentage  of net  sales(1)** | ** ** | ** ** | ** ** | **Percentage  of net  sales(1)** | ** ** | **Increase/  (decrease)** | ** ** | **Percentage  increase/  (decrease)** | ** ** |
| ** **                                                 | ** ** | **(dollars in millions)**                      | ** ** |
| Net sales                                                  |       |                                                     |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller.                                                   |       | $                                                        | 618.2      |                                  |       | 58.9 | % |   | $ | 536.1 |   |   | 58.1 | % |   |   | $ | 82.1 |   |   |   | 15.3 | % |   |
| Anvil                                                      |       | 431.0                                                    |       |                                  | 41.1       |   |   | 386.8 |   |   | 41.9 |   |   |   | 44.2 |   |   |   | 11.4 |   |   |
| Consolidated                                               |       | $                                                        | 1,049.2    |                                  |       | 100.0 |   |   | $ | 922.9 |   |   | 100.0 |   |   |   | $ | 126.3 |   |   |   | 13.7 |   |   |
| Gross profit                                               |       |                                                     |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                    |       | $                                                        | 203.0      |                                  |       | 32.8 |   |   | $ | 164.5 |   |   | 30.7 |   |   |   | $ | 38.5 |   |   |   | 23.4 |   |   |
| Anvil                                                      |       | 102.8                                                    |       |                                  | 23.9       |   |   | 83.9 |   |   | 21.7 |   |   |   | 18.9 |   |   |   | 22.5 |   |   |
| Depreciation expense not allocated to segments             |       | (7.1                                                     | )          |                                  | (0.7       | ) |   | (7.3 | ) |   | (0.8 | ) |   |   | 0.2 |   |   |   | 2.7 |   |   |
| Consolidated                                               |       | $                                                        | 298.7      |                                  |       | 28.5 |   |   | $ | 241.1 |   |   | 26.1 |   |   |   | $ | 57.6 |   |   |   | 23.9 |   |   |
| Selling, general and  administrative                       |       |                                                     |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                    |       | $                                                        | 60.6       |                                  |       | 9.8 |   |   | $ | 49.7 |   |   | 9.3 |   |   |   | $ | 10.9 |   |   |   | 21.9 |   |   |
| Anvil                                                      |       | 75.0                                                     |       |                                  | 17.4       |   |   | 69.4 |   |   | 17.9 |   |   |   | 5.6 |   |   |   | 8.1 |   |   |
| Corporate                                                  |       | 49.5                                                     |       |                                  | 4.7        |   |   | 29.1 |   |   | 3.2 |   |   |   | 20.4 |   |   |   | 70.1 |   |   |
| Consolidated                                               |       | $                                                        | 185.1      |                                  |       | 17.6 |   |   | $ | 148.2 |   |   | 16.1 |   |   |   | $ | 36.9 |   |   |   | 24.9 |   |   |
| Facility  rationalization, restructuring and related costs |       |                                                     |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                    |       | $                                                        | —     |                                  |       | — |   |   | $ | 0.9 |   |   | 0.2 |   |   |   | $ | (0.9 | ) |   |   | (100.0 | ) |   |
| Anvil                                                      |       | 0.9                                                      |       |                                  | 0.2        |   |   | 0.8 |   |   | 0.2 |   |   |   | 0.1 |   |   |   | 12.5 |   |   |
| Consolidated                                               |       | $                                                        | 0.9        |                                  |       | 0.2 |   |   | $ | 1.7 |   |   | 0.2 |   |   |   | $ | (0.8 | ) |   |   | 47.1 |   |   |
| Operating income                                           |       |                                                     |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                    |       | $                                                        | 142.4      |                                  |       | 23.0 |   |   | $ | 113.9 |   |   | 21.2 |   |   |   | $ | 28.5 |   |   |   | 25.0 |   |   |
| Anvil                                                      |       | 26.9                                                     |       |                                  | 6.2        |   |   | 13.7 |   |   | 3.5 |   |   |   | 13.2 |   |   |   | 96.4 |   |   |
| Corporate                                                  |       | (56.6                                                    | )          |                                  | (5.4       | ) |   | (36.4 | ) |   | (3.9 | ) |   |   | (20.2 | ) |   |   | 55.5 |   |   |
| Consolidated                                               |       | $                                                        | 112.7      |                                  |       | 10.7 |   |   | $ | 91.2 |   |   | 9.9 |   |   |   | $ | 21.5 |   |   |   | 23.6 |   |   |
| Interest expense,  net of interest income                  |       | $                                                        | (63.5      | )                                     |       | (6.1 | ) |   | $ | (35.5 | ) |   | (3.8 | ) |   |   | $ | (28.0 | ) |   |   | 78.9 |   |   |
| Income before income tax expense                           |       | 49.2                                                     |       |                                  | 4.7        |   |   | 55.7 |   |   | 6.0 |   |   |   | (6.5 | ) |   |   | (11.7 | ) |   |
| Income tax  expense                                        |       | 16.0                                                     |       |                                  | 1.5        |   |   | 22.9 |   |   | 2.5 |   |   |   | (6.9 | ) |   |   | (30.1 | ) |   |
| Net income                                                 |       | $                                                        | 33.2       |                                  |       | 3.2 | % |   | $ | 32.8 |   |   | 3.6 | % |   |   | $ | 0.4 |   |   |   | 1.2 |   |   |

----

(1)          Percentagesare by segment, if applicable.

*NetSales.**  *Consolidatednet sales for the fiscal year ended September 30, 2004 were $1,049.2million , an increase of $126.3 million, or 13.7%, from$922.9 million in 2003.

Mueller net sales for thefiscal year ended September 30, 2004 were $618.2 million, an increase of$82.1 million, or 15.3% from $536.1 million in 2003. The increase innet sales was primarily driven by volume and pricing growth, particularly iniron fire hydrants, water valve and brass water products. Volume growth wasdriven by the continued strength in the residential construction market,favorable weather conditions in the spring of 2004 and improved generaleconomic conditions. The company implemented price increases in February andMay of 2004. The 2003 Milliken Valve acquisition contributed$3.6 million to the 2004 increase in net sales.

29

----

Anvil net sales for the fiscal year ended September 30,2004 were $431.0 million, an increase of $44.2 million, or 11.4%, from$386.8 million in 2003. The 2004 Star acquisition accounted for$17.0 million of the 2004 increase in sales. The United Statesnon-residential construction market experienced increased activity which hasled to increased sales volume, partially offset by the softening of power plantconstruction. In addition, sales price increases contributed significantly tothe revenue growth.

*GrossProfit.**  *Consolidatedgross profit for the fiscal year ended September 30, 2004 was $298.7million, an increase of $57.6 million, or 23.9%, from $241.1 millionin 2003. Gross margin increased to 28.5% in 2004 compared to 26.1% in 2003,which includes certain depreciation expense not allocated to segments.

Mueller gross profit for the fiscal year ended September 30,2004 was $203.0 million, an increase of $38.5 million, or 23.4%, from$164.5 million in 2003. Gross margin increased from to 32.8% in 2004 from30.7% in 2003. The increase in gross profit was primarily driven by increasedselling prices and volumes on iron fire hydrants, water valves and brass waterproducts and a favorable product mix. Also, the 2003 Milliken Valve acquisitioncontributed an additional $1.2 million in 2004 and focused efforts toreduce spending and the strength of the Canadian dollar relative to the UnitedStates dollar further added to the increase in gross profits. Theseimprovements were partially offset by increased raw material costs.

Anvil gross profit for the fiscal year ended September 30,2004 was $102.8 million, an increase of $18.9 million, or 22.5% from$83.9 million in 2003. Gross margin increased to 23.9 % in 2004 comparedto 21.7% in 2003. The 2004 Star acquisition contributed $2.7 million ofgross margin in 2004. The remaining increase was primarily driven by priceincreases implemented during fiscal year 2004 and the strength of the Canadiandollar relative to the United States dollar. This was partially offset byincreased raw material costs.

*Selling,General & Administrative.**  *Consolidated SG&A for thefiscal year ended September 30, 2004 was $185.1 million, an increaseof $36.9 million, from $148.2 million in 2003. As a percentage of netsales, SG&A increased to 17.6% in 2004 compared to 16.1% in 2003.

Mueller SG&A for the fiscal year ended September 30,2004 was $60.6 million, compared to $49.7 million for the fiscal yearended September 30, 2003. As a percentage of net sales, SG&A was 9.8%in 2004 compared to 9.3% in 2003. This increase in SG&A expense as a percentageof net sales was driven in part by the 2003 Milliken Valve acquisition, whichincurred $0.7 million of expenses. 2004 SG&A expenses increased$1.9 million for amortization expense related to intangibles acquired in2003 and 2004. SG&A expenses in 2004 increased due to costs incurred as aresult of higher sales which lead to higher sales commission and othercompensation costs, including incentive compensation. Other increases inexpense were caused by the addition of sales personnel and a new local salesoffice, increased provisions for doubtful accounts, increased product redesigncosts, and higher year-over-year group medical costs due to an increase inclaims activity.

Anvil SG&A for the fiscal year ended September 30,2004 was $75.0 million, an increase of $5.6 million, or 8.1%, from$69.4 million in 2003. As a percentage of net sales, SG&A decreased to17.4% compared to 17.9% in 2003. The 2004 Star acquisition added$4.0 million to 2004 expense. The remaining increase was driven byincreased compensation expense and sales and warehousing costs associated withincreased sales volume. These increases were partially offset by continued costreductions related to our United States distribution network.

Corporate expenses for the fiscal year ended September 30,2004 were $49.5 million compared to $29.1 million in 2003. Stockcompensation charges for the fiscal year ended September 30, 2004 were$21.2 million, an increase of $20.5 million from 2003. This was dueto a $20.9 million charge ($12.6 million cash and $8.3 millionnon-cash) for the vesting and cancellation of options held by employees andshares previously purchased with loans pursuant to the Direct InvestmentProgram that were settled in 

30

----

connection with the April 2004recapitalization. Other significant changes included a $1.6 million increase inincentive compensation in 2004, a $1.0 million increase in advisory fees paidto DLJ in 2004, and $1.5 million of professional service fees and expensesrelated to the 2004 recapitalization, partially offset by a $2.4 milliondecrease as a result of fees that were incurred in 2003 related to potentialacquisition and dispositions that were not completed and a $2.2 millionreduction in amortization expense for 2004 as compared to 2003 as a result ofan intangible asset becoming fully amortized during the fourth quarter of 2004.

*FacilityRationalization, Restructuring and Related Costs.**  *Mueller facility rationalizationcosts decreased $0.9 million in 2004 compared to 2003, reflecting lowerasset impairment charges. Anvil facility rationalization costs increased$0.1 million in 2004 compared to 2003, reflecting higher facilityconsolidation and cost reduction activity.

*InterestExpense, Net of Interest Income.**  *Interest expense, net of interestincome, for the fiscal year ended September 30, 2004 was$63.5 million, compared to $35.5 million for 2003. This increasereflects early repayment costs, the write-off of deferred financing feesand additional debt resulting from the completion of a recapitalization of alloutstanding debt. Specifically, in November 2003, $50.0 million ofsenior subordinated notes due 2009 were redeemed. As a result, interestexpense, net of interest income, for the fiscal year ending September 30,2004 increased relative to the prior year due to a $7.0 million prepaymentpremium and a $0.4 million write-off of deferred financing fees, partiallyoffset by a $6.2 million reduction in interest expense as a result of suchredemption. Second, in April 2004, we refinanced our term debt and issued$415 million of new notes and $110 million of 14.75% discount notes.This resulted in an additional write-off of term debt deferred financing feesof $6.6 million, $16.8 million of interest expense on the new notes,$6.8 million of accretion on the discount notes and $0.9 million ofincreased amortization on a larger balance of deferred financing fees. Interestexpense also increased $0.8 million due to a decrease in interest rateswap gains. These increases were partly offset by a $6.0 million decreasein term debt interest expense due to lower interest rates.

*Income Tax Expense.**  *Income tax expense for the fiscalyear ended September 30, 2004 was $16.0 million compared to$22.9 million in 2003. The effective tax rates, for fiscal 2004 and 2003were 32.5% and 41.1%, respectively. The non-deductible portion of interestexpense related to the senior discount notes issued in the third quarter servedto increase the 2004 rate. However, discrete 2004 events including theconclusion of the federal tax examination, the conclusion of certain state taxexaminations and expiration of certain state statutes of limitation allowed theCompany to adjust tax accruals by approximately $6.4 million. Theadditional financing related to the Company’s April 2004 recapitalizationwas expected to inhibit the Company’s ability to realize deferred tax assetsrelated to Foreign Tax Credits. Accordingly, the Company took a$1.8 million write-off against these deferred tax assets.

**Financial Condition**

Cash and cash equivalents increased from $60.5 millionat September 30, 2004 to $112.8 million at September 30, 2005,reflecting $73.8 million in cash flows provided by operations, $1.5 million incash flows provided by financing activities, and a $2.0 million effect offoreign currency exchange rate changes on cash (primarily due to increasedstrength of the Canadian dollar versus the U.S. dollar), offset by $25.0million of cash flows used in investing activities. See additional discussionin the Historical Cash Flows section that follows.

Net receivables, consisting principally of tradereceivables, were $177.4 million at September 30, 2005, an increase of$15.4 million from September 30, 2004. The increase was attributable tohigher sales at both the Mueller and Anvil segments.

Inventories were $303.0million at September 30, 2005, an increase of $42.8 million from September 30,2004. Mueller inventories increased $25.5 million during 2005. Significantcontributing 

31

----

factors to the increaseinclude higher raw material costs of approximately $6.5 million, as well as aplanned $5.0 million current year increase over unusually low prior year levelsto better service current demand. Other contributing factors include $1.1million of increased on-hand quantities of raw material due to larger volumepurchases to achieve lower prices, $2.7 million of inventory costs associatedwith a large, highly-engineered project scheduled to ship in the first quarterof 2006, $2.2 million for a large order of butterfly valves scheduled to shipin the first quarter of 2006, and $1.5 million due to higher foreign currencyrates used to translate Canadian-dollar valued inventory balances at September 30,2005 compared to September 30, 2004. Anvil inventories increased $17.3million in 2005. Of this increase, $12.8 million is related to ongoing effortsto make available a full line of foreign-sourced products to our North Americancustomers. Another $3 million is related to the start up of European exportefforts.

Property, plant and equipment was $168.0 million at September 30,2005, a decrease of $18.8 million from September 30, 2004, primarily dueto depreciation expense ($43.5 million), partially offset by additions ($27.2million).

Deferred financing fees, net, were $32.2 million at September 30,2005, a decrease of $5.2 million from September 30, 2004. This was due tonormal amortization of deferred financing fees associated with the Company’svarious long-term debt instruments.

Non-current deferred income tax assets were $17.5million at September 30, 2005, an increase of $9.2 million from September 30,2004, primarily related to changes in pensions and fixed assets.

Accrued expenses were $103.3 million at September 30,2005, an increase of $17.4 million compared to September 30, 2004. Theincrease was primarily due to the accruals for employee-related incentive costsand federal and state income taxes.

Long-term debt was $1,051.9 million at September 30,2005, an increase of $15.7 million compared to September 30, 2004. Thisincrease was primarily due to non-cash accretion on the Company’s 143⁄4% seniordiscount notes.

Accrued pension liability increased $8.5 million to$37.7 million at September 30, 2005. This is primarily the net result ofthe use of a lower discount rate and an updated mortality assumption as of September 30,2005, partially offset by better than assumed investment performance during theyear ending Septebmer 30, 2005.

Other long-termliabilities were $7.8 million at September 30, 2004, comprised of a $4.7million liability related to interest rate swaps, and a $3.1 million taxliability. The interest rate swap position was a $0.5 million asset, reportedin other long-term assets at September 30, 2005, and the tax liabilitydecreased to $1.5 million as of September 30, 2005.

**Liquidityand Capital Resources**

We are a holding company and have no direct materialoperations. Our only material asset is our ownership of our operating entity,Mueller Group, LLC, and our only material liabilities are the seniordiscount notes described below and our guarantee of the 2005 Mueller CreditAgreement. See Note 6 to our Consolidated Financial Statements. Ourprincipal source of liquidity has been and is expected to be dividends fromMueller Group and financing activities, and our principal use of cash will befor debt service beginning in 2009.

The credit facility and its 2005 replacement facility,secured notes and subordinated notes described below are obligations of MuellerGroup and impose limitations on its ability to pay dividends to us. Forexample, the subordinated notes limit the amount of “restricted payments,”including dividends, that Mueller Group can make. Generally, under these notesMueller Group can pay dividends only if its fixed charge coverage ratio (asdefined) is 2.5 to 1 or better and only from an amount equal to 50% of its 

32

----

cumulative net income (asdefined) since January 1, 2004. However, regardless of these restrictions,Mueller Group can pay dividends under these notes of up to $0.5 millionper year to fund payments under the financial advisory agreement described in “Item13.—Certain Relationships and Related Party Transactions”, up to$2.0 million per year for holding company expenses and to fund payments inrespect of taxes made pursuant to tax sharing agreements. The 2004 MuellerCredit Facility in effect at September 30, 2005 generally prohibited “restrictedpayments”, including dividends, by Mueller Group, subject to specificexceptions, including payments for overhead expenses (including advisory feesto DLJ Merchant Banking II, Inc. under the financial advisoryagreement), taxes, the repurchase or redemption of our capital stock held byemployees of Mueller Group (subject to certain conditions and limitations),dividends to fund mandatory payments of interest under certain debt issued byus (so long as there is no default or event of default) and dividends to fundrepurchases or repayments of debt (subject to certain limitations and therebeing no default or event of default). Mueller Group’s ability to generate netincome will depend upon various factors that may be beyond our control.Accordingly, Mueller Group may not generate sufficient cash flow or bepermitted by the terms of its debt to pay dividends or distributions to us inamounts sufficient to allow us to pay cash interest on our outstandingindebtedness or to satisfy our other cash needs. We would then be required tosecure alternate financing, which may not be available on acceptable terms, orat all.

Mueller Group’s principalsources of liquidity have been and are expected to be cash flow from operationsand borrowings under the 2004 Mueller Credit Facility or, as of October 3,2005, the 2005 Mueller Credit Agreement. 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 September 30, 2005, we had: (a) totalconsolidated indebtedness of approximately $1,055.7 million; and (b) approximately$57.6 million of borrowings available under the revolver portion of the 2004Mueller Credit Facility, subject to customary conditions. As of September 30,2005, Mueller Group had $22.4 million in letters of credit under the 2004Mueller Credit Facility, which reduces availability for borrowings thereunder.The significant debt service obligations under the credit facility andindentures could have material consequences to our security holders. See “Item7.—Management’s Discussion and Analysis—Risk Factors.” Our key financialcovenants are dependent on attaining certain levels of EBITDA, as defined inthe respective debt arrangements. The most restrictive covenant in effect at September 30,2005 related to a leverage ratio, as defined in the 2004 Mueller CreditFacility, which required approximately $150.0 million of EBITDA over thetrailing twelve months, based on net debt outstanding at September 30,2005. We were in compliance with this covenant at September 30, 2005.

*2005Mueller Credit Agreement.**  *OnOctober 3, 2005, our wholly-owned subsidiary, Mueller Group, LLC, enteredinto a credit agreement (the “2005 Mueller Credit Agreement”) consisting of a$145 million senior secured revolving credit facility maturing in October 2010(the “2005 Mueller Revolving Credit Facility”) and a $1,050 million seniorsecured term loan maturing in October 2012 (the “2005 Mueller Term Loan”).The 2005 Mueller Credit Agreement is a secured obligation of Mueller Group andsubstantially all of the wholly-owned domestic subsidiaries of Mueller Group,including U.S. Pipe. The 2005 Mueller Term Loan requires quarterly principalpayments of $2.6 million through October 3, 2012, at which point in timethe remaining principal outstanding is due. The commitment fee on the unusedportion of the 2005 Mueller Revolving Credit Facility is 0.50% and the interestrate is a floating rate 2.5% over LIBOR. The 2005 Mueller Term Loan carries afloating interest rate of 2.25% over LIBOR.

Proceeds of the 2005 Mueller Credit Agreement were approximately$1,053.4 million, net of approximately $21.6 million of underwriting fees andexpenses which will be amortized over the life of the loans. The proceeds wereused to retire the 2004 Mueller Credit Facility of $512.8 million, the 

33

----

Secured Notes of$100.0 million, and finance the acquisition of the Company by Walter. MuellerGroup wrote off $18.4 million of deferred financing fees related to the 2004Mueller Credit Facility.

The 2005 Mueller Credit Agreement contains customaryevents of default and covenants, including covenants that restrict the abilityof Mueller Group and certain of its subsidiaries to incur certain additionalindebtedness, create or permit liens on assets, engage in mergers orconsolidations, and certain restrictive financial covenants. So long as nodefault has occurred, Mueller Group is permitted to make cash dividends toMueller Water Products of up to $7.5 million in any fiscal year, or $15 millionin aggregate over the life of the Credit Agreement and to distribute funds to makeregularly scheduled payments when due of interest and principal on MuellerWater Products’ notes. If an event of default under the agreement shall occurand be continuing, the commitments under the related credit agreement may beterminated and the principal amount, together with all accrued unpaid interestand other amounts owed thereunder may be declared immediately due and payable.

*Recapitalization:*   OnApril 23, 2004, Group sold its Second Priority Senior Secured FloatingRate Notes due 2011 and 10% Senior Subordinated Notes due 2012 (collectivelyreferred to as the “Prior Notes”) generating net proceeds of approximately$402.3 million. Concurrently with those offerings, Group amended and restatedits credit facility and borrowed $545.0 million of new term loans thereunder(“2004 Mueller Credit Facility”). Mueller Group used the net proceeds fromthose offerings and the credit facility borrowings to repay all existing loansunder its old credit facility together with accrued interest and a 1.0% prepaymentpremium thereon and paid a dividend to us, which we used to (1) redeem ourpreferred stock (liquidation value $105.5 million at April 23, 2004)together with a 1.0% premium (approximately $1.0 million), (2) pay adividend to our common stockholders of approximately $1.43 per share, orapproximately $293.4 million in the aggregate and (3) make a payment toour employee optionholders of the excess of the per share dividend to ourcommon stockholders over the exercise price of their options, or approximately$5.4 million in the aggregate. Mueller Group retained approximately $10.0million as cash to be used for general corporate purposes.

On April 29, 2004, the Company issued 143¤4%senior discount notes, with detachable warrants to purchase our common stock.The proceeds of the offering were approximately $106.0 million, after deductionof the initial purchasers’ discounts and commissions and other expenses of theoffering. We used the proceeds to (1) pay an additional dividend to ourcommon stockholders of approximately $0.48 per share, or approximately $99.8million in the aggregate, (2) make a payment to our employee optionholderswho held options with an exercise price of $1.00 or $1.19 per share of $0.48per share, and (3) a payment to our employee optionholders who heldoptions with an exercise price of $1.50 per share of $0.41 per share, orapproximately $7.1 million in the aggregate.

In connection with the Recapitalization, the Companymodified certain stock awards to accelerate vesting, allowed net cashsettlement of options and issued shares to option holders with a fair value of$0.43 per share upon completion of the Recapitalization. These actions changedthe accounting treatment of these stock awards from fixed to variableaccounting. As a result, the Company recognized stock compensation expense of$18.9 million in the third quarter of 2004.

*2004Mueller Credit Facility.**  *On April 23, 2004, Mueller Group entered into asenior credit facility (the “2004 Mueller Credit Facility”) that included anamortizing term loan maturing April 23, 2011 in the initial aggregateprincipal amount of $545.0 million ($32.2 million of which has sincebeen repaid) and an $80.0 million revolving credit facility terminating onApril 23, 2009. The revolving credit facility and/or the term loanfacility were subject to a potential, although never committed, increase of upto an aggregate of $50.0 million at our request at any time prior tomaturity. In addition, although not committed, a sub-facility could havebeen made available to one or more of our restricted foreign subsidiaries in anaggregate principal amount of up to $30.0 million or the foreign currencyequivalent thereof if one or more of the lending financial institutions agreedto provide them.

34

----

Borrowings under the 2004 Mueller Credit Facility boreinterest based on a margin over, at Mueller Group’s option, the base rate orthe reserve-adjusted London-interbank offered rate, or LIBOR. The applicablemargin was 2.75% over LIBOR and 1.50% over the base rate for term loans. Theapplicable margin under the revolving facility was a range of 2.25% to 3.25%over LIBOR and a range of 1.00% to 2.00% over the base rate, depending on ourratio of consolidated debt to EBITDA as defined in the 2004 Mueller CreditFacility. At September 30, 2005 the applicable margin on the revolvingfacility was 2.75% over LIBOR and 1.50% over the base rate. Mueller Group’sobligations under the 2004 Mueller Credit Facility were guaranteed by us andall of Mueller Group’s existing and future domestic restricted subsidiaries andwere secured by substantially all of the assets of Mueller Group and thesubsidiary guarantors, including a pledge of the capital stock of all ourexisting and future domestic subsidiaries, a pledge of no more than 65.0% ofthe voting stock of any foreign subsidiary, a pledge of all intercompany indebtednessin favor of Mueller Group and Mueller Group’s domestic restricted subsidiaries,and a pledge of Mueller Group’s capital stock by us. The 2004 Mueller CreditFacility contained customary covenants, including covenants that limitedMueller Group’s ability to incur debt and liens, pay dividends and makeinvestments and capital expenditures, and events of default. Mueller Group waspermitted to make payments of up to $2.0 million in any fiscal year to MuellerWater Products to pay overhead expenses of Mueller Water Products. Thisagreement was terminated on October 3, 2005 as part of the acquisition.

*SeniorDiscount Notes.**  *OnApril 29, 2004, we issued $223 million principal amount of 143⁄4%senior discount notes that will mature in 2014 together with warrants topurchase 24,487,383 shares of our Class A common stock. No cash interestwill accrue on the notes prior to April 15, 2009. The notes had an initialaccreted value of $493.596 per $1,000 principal amount at maturity of notes on April 29,2004. The accreted value of each note will increase from the date of issuanceuntil April 15, 2009, at a rate of 14.75% per annum compoundedsemi-annually such that the accreted value will equal the principal amount atmaturity on April 15, 2009. Thereafter, cash interest on the notes willaccrue and be payable semi-annually in arrears on April 15 and October 15of each year, commencing on October 15, 2009 at a rate of 14.75% perannum. The notes contain customary covenants and events of default, includingcovenants that limit our ability to incur debt, pay dividends and makeinvestments. Generally, the notes only permit us to pay dividends if there isno default or event of default and our fixed charge coverage ratio (as defined)is at least 2.1 to 1, and the maximum amount we may pay cannot exceed 50% ofour cumulative net income (as defined) since January 1, 2004, subject tospecified exceptions. Mueller Group is permitted to make dividends or loans to MullerWater Products of up to $2 million in any fiscal year for costs and expensesincurred by its parent in its capacity as a holding company for servicesrendered on behalf of Mueller Water Products.

Together with the issuance of the senior discountnotes, we issued 223,000 warrants to purchase 24,487,383 shares of Class Acommon stock at $0.01 per share. On October 3, 2005, in connection withthe acquisition of the Company by Walter, the outstanding warrants wereconverted into the right to receive cash upon exercise of the warrants. Thesewarrants were classified as permanent equity in prior periods as the contractsrequired settlement in shares, absent a change in control event, in which casethe warrant automatically become exercisable for the kind and amount ofconsideration provided to shareholders. All funds required for settlement ofwarrants are funded by amounts held in cash in connection with the acquisitionby Walter.

On October 4, 2005,the Company notified the holders of the senior discount notes that a change incontrol had occurred as a result of the Walter Industries acquisition and that,as a result, the holders had a right to cause the Company to repurchase theirsenior discount notes on or before 5:00 p.m., New York City time, on November 4,2005 at a price of 101% of the accreted value of the notes at the time ofchange in control. The change of control offer expired at 5:00 p.m., NewYork City time, on November 6, 2005, 

35

----

with nosenior discount notes being validly tendered and not withdrawn and,accordingly, no senior discount notes were purchased pursuant to the change ofcontrol offer.

*Secured Notes.**  *On April 23, 2004, MuellerGroup issued $100 million principal amount of second priority seniorsecured floating rate notes that would have matured in 2011 and that wereguaranteed by each of Mueller Group’s existing domestic restricted subsidiariesand secured by second priority liens on the assets securing the 2004 MuellerCredit Facility (other than certain subsidiary stock). Interest on the securednotes was payable quarterly in cash at a rate equal to three-month LIBORplus 4.75%.

On October 3, 2005, MuellerGroup delivered a notice of redemption with respect to all of the securednotes, providing for the redemption of all such secured notes on November 2,2005. In addition, Mueller Group delivered to Law Debenture Trust Company ofNew York, the trustee for the secured notes, $104.1 million in trust equal tothe principal, call premium and interest accruing to the redemption date. Also,Mueller Group wrote off $2.4 million of deferred financing fees related to thesecured notes. As a result of Mueller Group having called the secured notes forredemption and having made the payment into trust, as well as having satisfiedcertain other procedural requirements, Mueller Group satisfied and dischargedits obligations with respect to the secured notes and the related indenture.These notes were redeemed for $100 million plus $2.1 million of accruedinterest and $2 million in other costs in accordance with a call provisionwithin the indenture for the secured notes.

*Subordinated Notes.**  *On April 23, 2004, MuellerGroup also issued $315 million principal amount of 10% senior subordinatednotes that will mature in 2012 and that are guaranteed by each of Mueller Group’sexisting domestic restricted subsidiaries. Interest on the subordinated notesis payable semi-annually in cash. The subordinated notes containcustomary covenants and events of default, including covenants that limitMueller Group’s ability to incur debt, pay dividends and make investments.Generally, the notes only permit Mueller Group to pay dividends if there is nodefault or event of default and its fixed charge coverage ratio (as defined) isat least 2.5 to 1, and the maximum amount that may be paid cannot exceed 50% ofcumulative net income (as defined) since January 1, 2004, subject tospecified exceptions. Mueller Group is permitted to make dividends or loans toMueller Water Products of up to $2 million in any fiscal year for costs andexpenses incurred by Mueller Water Products in its capacity as a holdingcompany for services rendered on behalf of Mueller Group.

On October 4, 2005,Mueller Group notified the holders of the subordinated notes that a change incontrol had occurred as a result of the Walter Industries acquisition and that,as a result, the holders had a right to cause Mueller Group to repurchase theirsubordinated notes on or before 5:00 p.m., New York City time, on November 4,2005 at a price of 101% of the principal face amount of such notes. The change ofcontrol offer expired at 5:00 p.m. New York City time, on November 6,2005, with no subordinated notes being validly tendered and not withdrawn and,accordingly, no subordinated notes were purchased pursuant to the change ofcontrol offer.

*Capital Expenditures*

We anticipate that we willinvest approximately $25 million to $35 million on capitalexpenditures at our Mueller and Anvil segments and approximately $30 million atU.S. Pipe in 2006. The 2005 Mueller Credit Agreement restricts capitalexpenditures. Based on current estimates, management believes that the amountof capital expenditures permitted to be made under the senior credit facilitywill be adequate to grow our business according to our business strategy and tomaintain the properties and business of our continuing operations.

*Working Capital*

Working capital totaled$481.6 million at September 30, 2005. Management believes that wewill continue to require working capital consistent with past experience.

36

----

*Sources of Funds*

We anticipate that our operating cash flow, togetherwith borrowings under our credit facility (as of September 30, 2005, the2004 Mueller Credit Facility and from and after October 3, 2005, the 2005Mueller Credit Agreement), will be sufficient to meet our anticipated futureoperating expenses, capital expenditures and debt service obligations as theybecome due for at least the next twelve months. However, our ability to makescheduled payments of principal of, to pay interest on or to refinance ourindebtedness and, to satisfy our other debt obligations will depend upon ourfuture operating performance, which will be affected by general economic,financial, competitive, legislative, regulatory, business and other factorsbeyond our control. See “Item 7.—Management’s Discussion and Analysis—RiskFactors.”

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.

**Statement of CashFlows**

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.**  *Net cash provided by operatingactivities was $73.8 million for 2005, compared to net cash provided of $89.0million for 2004. Significant changes in working capital balances in 2005included a $38.8 million increase ininventories. Mueller inventories increased $25.5 million during 2005. Significantcontributing factors to the increase include higher raw material costs ofapproximately $6.5 million, as well as a planned $5.0 million current yearincrease over unusually low prior year levels to better service current demand.Other contributing factors include $1.1 million of increased on-hand quantitiesof raw material due to larger volume purchases to achieve lower prices, $2.7million of inventory costs associated with a large, highly-engineered projectscheduled to ship in the first quarter of 2006, $2.2 million for a large orderof butterfly valves scheduled to ship in the first quarter of 2006, and $1.5million due to higher foreign currency rates used to translate Canadian-dollarvalued inventory balances at September 30, 2005 compared to September 30,2004. Anvil inventories increased $17.3 million in 2005. Of thisincrease, $12.8 million is related to ongoing efforts to make available a fullline of foreign-sourced products to our North American customers. Another $3million is related to the start up of European export efforts.

Net cash provided by operations was $89.0 millionfor 2004, an increase of $15.2 million compared to 2003. The improvementwas primarily the result of increased earnings before depreciation,amortization and non-cash charges and a decrease in accrued royalty. This waspartially offset by increases in accounts receivable due to higher sales in2004 and increased inventory to meet higher sales demand.

*Cashflows used in investing activities.**  *Net cash used in investingactivities declined $17.3 million to $25.0 million for 2005, from $42.3 millionfor 2004. This decline was principally due to decreased acquisition activity(none in 2005 compared to $19.8 million in 2004). This was partly offset by a$4.7 million increase in capital spending and $2.2 million in proceeds from thesale of property, plant and equipment.

In 2004 we had net cash used in investing activitiesof $42.3 million compared to net cash used in 2003 of $19.6 million.This was primarily due to the decrease in restricted cash of $11.6 millionin 2003 as the 

37

----

final royalty payment wasmade to Tyco. Also, cash paid for acquired companies increased from$11.2 million in 2003 to $19.8 million in 2004, and capitalexpenditures were $2.5 million higher in 2004.

*Cashflows from financing activities.**  *In 2005, $1.5 million of net cash provided by financing activitiesprimarily represented a $4.8 million increase in book overdrafts, partiallyoffset by $3.3 million of payments of the term loan under the 2004 MuellerCredit Facility.

Cash flows used in financingactivities increased from $8.2 million in 2003 to $60.3 million in2004. Excluding the effects of the aforementioned April 2004recapitalization, this was primarily due to early payment of $50 millionof subordinated notes due 2009 and $30.0 million of early payments on the2004 Mueller Credit Facility term debt in August 2004. In 2003, we used$8.2 million in financing activities, primarily payments on the term loanunder the prior credit facility.

**Off-Balance Sheet Arrangements**

We do not have anyrelationships with unconsolidated entities or financial partnerships, such asentities often referred to as structured finance or special purpose entities,which would have been established for the purpose of facilitating off-balancesheet arrangements or other contractually narrow or limited purposes. Inaddition, we do not have any undisclosed borrowings or debt, and we have notentered into any derivative contracts (other than those described in “Item 7A.—Qualitativeand Quantitative Disclosure About Market Risk—Interest Rate Risk and—CurrencyRisk”) or synthetic leases. We are, therefore, not materially exposed to anyfinancing, liquidity, market or credit risk that could arise if we had engagedin such relationships.We utilize letters of credit and surety bonds in theordinary course of business to ensure our performance of contractualobligations. As of September 30, 2005, we had $22.4 million ofletters of credit and $17.9 million of surety bonds outstanding.

**Contractual Obligations**

Our contractual obligationsas of September 30, 2005 are set forth below:

**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(1)         |       | $                                   | 2.9        |                        | $          | 5.8            |       | $              | 5.8        |                    | $          | 1,023.4   |       | $ | 1,037.9 |   |
| Interest on long-term debt(2)          |       | 75.4                                |       | 150.2                       |       | 197.3          |       | 313.0          |       | 735.9                   |       |
| Capital lease  obligations             |       | 0.9                                 |       | 1.2                         |       | 0.1            |       | —         |       | 2.2                     |       |
| Operating leases                       |       | 7.8                                 |       | 9.7                         |       | 2.5            |       | 2.6            |       | 22.6                    |       |
| Unconditional  purchase obligations(3) |       | 12.1                                |       | 0.5                         |       | —         |       | —         |       | 12.6                    |       |
| Total contractual  cash obligations    |       | $                                   | 99.1       |                        | $          | 167.4          |       | $              | 205.7      |                    | $          | 1,339.0   |       | $ | 1,811.2 |   |

----

(1)          Amount shown reflectsface value of the debt, excluding unamortized bond discount. Accretion on thesenior discount notes is included in interest on long-term debt.

(2)          Interest on the 2004Mueller Credit Facility and secured notes is calculated using LIBOR of 4.07%and 3.69%, respectively, the rates applicable under these debt instruments asof September 30, 2005. Each increase or decrease in LIBOR of 0.125% wouldresult in an increase or decrease in annual interest on the 2004 Mueller CreditFacility and secured notes of $0.8 million. Because the interest rateunder the 2004 Mueller Credit Facility and secured notes will be variable,actual payments may differ. Interest does not include payments that could berequired under Mueller Group’s interest-rate 

38

----

swap agreements, whichpayments will depend upon movements in interest rates and could vary significantly.The payments due on the existing interest rate swaps expiring in April andMay 2007 are estimated to be less than $0.1 million, net of LIBORinterest calculated at 4.07% received from counter parties.

(3)          Includes contractualobligations for purchases of raw materials, purchased components and capitalexpenditures.

This table excludes the deferred payment portion ofthe purchase price for Star. The Star purchase price is subject to adjustmentto reflect, among other things, a payment to be made by us to the extent thatthe gross profit of the business exceeds the target gross profit from February 1,2004 to January 31, 2007. Although the maximum amount payable is$23 million, we estimate that the total payment will be approximately $3.0to $6.0 million. This calculation of the potential Star purchase priceadjustment is based on management’s best estimate; however, the actualadjustment may be materially different. No payment was earned for the yearended September 30, 2005.

Our contractual obligations as of October 3, 2005are set forth below:

**Payments Due by Period**

| **Contractual Obligations**       | ** ** | ** **                          | ** ** | **Less  than 1  Year** | ** ** | **1-3  Years** | ** ** | **4-5  Years** | ** ** | **After 5  Years** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|-------------------------------------|------------|-----------------------------|------------|----------------|------------|----------------|------------|-------------------------|------------|-----------|------------|
| ** **                             | ** ** | **(dollars in millions)** | ** ** |
| Long-term debt                         |       |                                |       |                        |       |           |       |           |       |                    |       |
| Principal on long-term debt(1)         |       | $                                   | 10.5       |                        | $          | 21.0           |       | $              | 21.0       |                    | $          | 1,422.6   |       | $ | 1,475.1 |   |
| Interest on long-term debt(4)          |       | 98.1                                |       | 195.1                       |       | 240.3          |       | 406.4          |       | 939.9                   |       |
| Capital lease  obligations             |       | 0.9                                 |       | 1.2                         |       | 0.1            |       | —         |       | 2.2                     |       |
| Operating leases                       |       | 7.8                                 |       | 9.7                         |       | 2.5            |       | 2.6            |       | 22.6                    |       |
| Unconditional  purchase obligations(3) |       | 12.1                                |       | 0.5                         |       | —         |       | —         |       | 12.6                    |       |
| Total contractual  cash obligations    |       | $                                   | 129.4      |                        | $          | 227.5          |       | $              | 263.9      |                    | $          | 1,831.6   |       | $ | 2,452.4 |   |

----

(4)          Intereston the 2005 Mueller Credit Agreement and secured notes is calculated usingLIBOR of 4.07% and 3.69%, respectively, the rates applicable under these debtinstruments as of October 2005. Each increase or decrease in LIBOR of 0.125%would result in an increase or decrease in annual interest on the 2005 MuellerCredit Agreement and secured notes of $0.8 million. Because the interestrate under the 2005 Mueller Credit Agreement and secured notes will bevariable, actual payments may differ. Interest does not include payments thatcould be required under Mueller Group’s interest-rate swap agreements, whichpayments will depend upon movements in interest rates and could varysignificantly. The payments due on the existing interest rate swaps areestimated to be $14.0 million, net of LIBOR interest calculated at 4.07%received from counter parties.

**Effect of Inflation; Seasonality**

We do not believe that inflation (except for scrapsteel, brass ingot and steel pipe) has had a material impact on our financialposition or results of operations.

Our business is dependentupon the construction industry, which is very seasonal due to the impact ofwinter or wet weather conditions. Our net sales and net income havehistorically been lowest, and our working capital needs have been highest, inthe three month periods ending December 31 and March 31, when thenorthern United States and all of Canada generally face weather that restrictssignificant construction activity and we build working capital in anticipationof the peak construction season, during which time our working capital tends tobe reduced.

39

----

**Critical Accounting Policies**

Our significant accountingpolicies are described in Note 3 to our consolidated financial statementsincluded elsewhere in this annual report. While all significant accountingpolicies are important to our consolidated financial statements, some of thesepolicies may be viewed as being critical. Such policies are those that are bothmost important to the portrayal of our financial condition and require our mostdifficult, subjective and complex estimates and assumptions that affect thereported amounts of assets, liabilities, revenues, expenses and relateddisclosure of contingent assets and liabilities. These estimates are based uponour historical experience and on various other assumptions that we believe tobe reasonable under the circumstances. Our actual results may differ from theseestimates under different assumptions or conditions. We believe our mostcritical accounting policies are as follows:

***Pensions***

TheCompany sponsors a number of defined benefit retirement plans. The Companyrecords annual amounts relating to these plans based on calculations specifiedby generally accepted accounting principles, which include various actuarialassumptions including the following:

| ** **                                                           | ** ** | **At September 30,** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                           | ** ** | **2005**                       | ** ** | **2004** | ** ** |
| Weighted-Average  Assumptions used to determine benefit obligations: |       |                           |       |   |   |   |   |   |   |
| Discount rate                                                        |       |                           | 5.2        | % |   |   | 5.8 | % |   |
| Rate of  compensation increase                                       |       |                           | 3.5        | % |   |   | 3.5 | % |   |
| Weighted-Average Assumptions used to determine  net periodic costs:  |       |                           |       |   |   |   |   |   |   |
| Discount rate:                                                       |       |                           | 5.8        | % |   |   | 6.0 | % |   |
| Expected return  on plan assets                                      |       |                           | 7.9        | % |   |   | 7.9 | % |   |
| Rate of compensation  increase                                       |       |                           | 3.5        | % |   |   | 3.5 | % |   |

 

The discount rate used to determine pension expensewas decreased to 5.8% for 2005 from 6.0% used in 2004. The rate of return onplan assets used to determine pension expense is 7.9% for both 2005 and 2004. Thediscount rate is based on a model portfolio of AA-rated bonds with a maturitymatched to the estimated payouts of future pension benefits. The expectedreturn on plan assets is based on the Company’s expectation of the long-termaverage rate of return on assets in the pension funds, which was modeled basedon the current and projected asset mix of the funds and considering thehistorical returns earned on the type of assets in the funds. The Companyreviews its actuarial assumptions on an annual basis and makes modifications tothe assumptions based on current rates and trends when appropriate. As requiredby U.S. GAAP, the effects of the modifications are amortized over futureperiods.

40

----

Assumeddiscount rates, expected return on plan assets and salary increases have asignificant effect on the amounts reported for the pension plans. Aone-percentage-point change in the rate for each of these assumptions wouldhave the following effects: 

| ** **                                              | ** ** | **1-Percentage  Point Increase** | ** ** | **1-Percentage  Point Decrease** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| ** **                                              | ** ** | **(dollars in millions)**   | ** ** |
| Discount rate:                                          |       |                                  |       |                                  |       |   |   |   |   |
| Effect on pension service and interest cost  components |       |                                  | $          | (0.1                                  | )          |   |   | $ | — |   |   |
| Effect on pension benefit obligation                    |       |                                  | $          | (12.4                                 | )          |   |   | $ | 14.0 |   |   |
| Effect on current year pension expense                  |       |                                  | $          | (1.2                                  | )          |   |   | $ | 1.2 |   |   |
| Expected return  on plan assets:                        |       |                                  |       |                                  |       |   |   |   |   |
| Effect on current year pension expense                  |       |                                  | $          | (0.8                                  | )          |   |   | $ | 0.8 |   |   |
| Rate of  compensation increase:                         |       |                                  |       |                                  |       |   |   |   |   |
| Effect on pension service and interest cost  components |       |                                  | —     |                                  |       |   | — |   |   |
| Effect on pension benefit obligation                    |       |                                  | $          | 0.3                                   |       |   |   | $ | (0.3 | ) |   |
| Effect on current  year pension expense                 |       |                                  | $          | 0.1                                   |       |   |   | $ | — |   |   |

 

Among the items affectingour net accrued retirement pension benefits were additional minimum pensionliabilities recognized in 2005, which primarily resulted from a further declinein the average discount rate from 5.8 % to 5.2%. As a result, the net accruedbenefit was increased by $2.8 million and, on a pretax basis, accumulated othercomprehensive earnings (a component of equity) was reduced by a similar amountnet of tax. Based on future plan asset performance and interest rates,additional adjustments to our net accrued benefit and equity may be required.

***Workers’ Compensation***

TheCompany is self-insured for workers’ compensation benefits for work-relatedinjuries. Liabilities, including those related to claims incurred but notreported, are recorded principally using annual valuations based on discountedfuture expected payments and using historical data or combined insuranceindustry data when historical data is limited. The Company is indemnified byTyco for all liabilities that occurred prior to August 16, 1999. Workers’compensation liabilities were as follows:

| ** **                                                           | ** ** | **September 30,**                                   | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                           | ** ** | **    2005    ** | ** ** | **    2004    ** | ** ** |
| ** **                                                           | ** ** | **(dollars in millions)**                      | ** ** |
| Undiscounted  aggregated estimated claims to be paid                 |       |                                                     | $          | 10.2 |   |   |   | $ | 9.5 |   |   |
| Workers’  compensation liability recorded on a discounted basis |       |                                                     | $          | 8.8 |   |   |   | $ | 8.5 |   |   |
| Discount rate                                                        |       |                                                     | 5          | % |   |   | 5 | % |   |

 

A one-percentage-pointincrease in the discount rate on the discounted claims liability would decreasethe liability by $0.2 million, while a one-percentage-point decrease in thediscount rate would increase the liability by $0.2 million.

***Litigation, Investigations and Claims***

The Company is involved inlitigation, investigations, and claims arising out of the normal conduct of itsbusiness, including those relating to commercial transactions, as well asenvironmental, health and safety matters. The Company estimates and accrues itsliabilities resulting from such matters based on a variety of factors,including outstanding legal claims and proposed settlements; assessments byinternal counsel of pending or threatened litigation; and assessments ofpotential environmental liabilities and remediation costs. The Company believesit has adequately accrued for these potential liabilities; however, 

41

----

factsand circumstances may change that could cause the actual liability to exceedthe estimates, or that may require adjustments to the recorded liabilitybalances in the future.

***Revenue Recognition***

The Company recognizesrevenue based on the recognition criteria set forth in the Securities andExchange Commission’s Staff Accounting Bulletin 104 “Revenue Recognition inFinancial Statements”, which is when delivery of product has occurred orservices have been rendered and there is persuasive evidence of a salesarrangement, selling prices are fixed or determinable, and collectibility fromthe customer is reasonably assured. Revenue from the sale of our products isrecognized when title passes upon delivery to the customer. Sales are recordednet of estimated cash discounts and rebates.

***Receivables***

Receivables relate primarily to customers located inNorth America. To reduce credit risk, we perform credit investigations prior toaccepting an order and, when necessary, require letters of credit to insurepayment.

Our estimate foruncollectible accounts receivable is based, in large part, upon judgments andestimates of expected losses and specific identification of problem tradeaccounts. Significantly weaker than aniticpated industry or economic conditionscould impact customers’ ability to pay such that actual losses are greater thanthe amounts provided for in these allowances. Our periodic evaluation of theadequacy of our allowance is based on our analysis of our prior collectionexperience, specific customer creditworthiness and current economic trendswithin the industries we serve. In circumstances where we are aware of a specificcustomer’s inability to meet its financial obligation to us (e.g., bankruptcyfilings or substantial downgrading of credit ratings), we record a specificreserve to reduce the receivable to the amount we reasonably believe will becollected.

***Inventories***

Inventories are recordedat the lower of cost (first-in, first-out) or market value. Additionally, theCompany evaluates its inventory reserves in terms of excess and obsoleteexposures. This evaluation includes such factors as anticipated usage, inventoryturnover, inventory levels and ultimate product sales value. As such, thesefactors may change over time causing the reserve level to adjust accordingly.Inventory cost includes an overhead component that can be affected by levels ofproduction and actual costs incurred. Management periodically evaluates theeffects of production levels and actual costs incurred on the costs capitalizedas part of inventory cost.

***Income Taxes***

Deferred tax liabilities and assets are recognized forthe expected future tax consequences of events that have been included in thefinancial statements or tax returns. Deferred tax liabilities and assets aredetermined based on the differences between the financial statements and thetax basis of assets and liabilities, using tax rates in effect for the years inwhich the differences are expected to reverse. A valuation allowance isprovided to offset any net deferred tax assets if, based upon the availableevidence, it is more likely than not that some or all of the deferred taxassets will not be realized. If we were to reduce our estimates of futuretaxable income, we could be required to record a valuation allowance againstour deferred tax assets.

We have recordedprovisions associated with income tax exposures. Such provisions requiresignificant judgment and are adjusted when events or circumstances occur thatwould require a change in the estimated accrual.

42

----

***Accounting for theImpairment of Long-Lived Assets Including Goodwill and Other Intangibles***

Goodwill and intangible assetsthat have an indefinite life are tested for impairment annually (or morefrequently if events or circumstances indicate possible impairments) using botha discounted cash flow method and a market comparable method. Definite-livedintangible assets are amortized over their respective estimated useful livesand reviewed for impairment annually or more frequently if events orcircumstances indicate possible impairment. Any recognized intangible assetdetermined to have an indefinite useful life will not be amortized, but insteadtested for impairment in accordance with the standard until its life isdetermined to no longer be indefinite. We use an estimate of futureundiscounted net cash flows of the related asset or asset grouping over theremaining life in measuring whether long-lived assets other than goodwill andintangibles are impaired. If impaired, we may need to record impairment chargesto reduce the carrying value of our long-lived assets.

***Stock-BasedCompensation***

The Company had twostock-based employee compensation plans, which are more fully described in Note12. For the fiscal year beginning October 1, 2005, the Company will adoptSFAS No. 123(R), “Accounting for Stock Issued to Employees,” whichrequires that compensation costs related to share-based paymenttransactions be recognized in the financial statements over the period that anemployee provides service in exchange for the award. The Company will use amodified prospective method, under which it will record compensation cost fornew 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. The Company hadno stock options outstanding at September 30, 2005.

The Company has hadpreviously compensation cost for stock-based compensation arrangementsunder the intrinsic value method of Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees,” which required recognizingcompensation equal to the difference, if any, between the fair value of thestock option and the exercise price at the date of the grant. All optionsgranted under the Management Incentive Plan were issued at fair value at thedate of grant. Fair value was determined by a committee of the board ofdirectors of the Company (or the board as a whole, if no committee wasconstituted), which took into account as appropriate recent sales of shares ofthe Company’s common stock, recent valuations of such shares, any discountassociated with the absence of a public market for such shares and such other factorsas the committee (or the board, as the case may have been) deemed relevant orappropriate in its discretion.

Certain employees weregranted options to acquire the Company’s shares. In connection with the April 2004recapitalization, the Company modified these stock option awards to acceleratevesting, allowed net cash settlement of options and issued shares tooptionholders with a fair value of $0.43 per share upon completion of therecapitalization. A portion of the dividend distribution to the Company wasused to make a payment to its employee optionholders of the excess of the pershare dividend to the Company’s common stockholders over the exercise price oftheir options, or approximately $12.6 million in the aggregate, and shareswere issued and the options were cancelled. The option cancellation resulted inan additional charge of approximately $18.9 million ($12.6 millioncash charge and $6.3 million non-cash charge) in the third quarter of2004. Additionally, the Company recorded a non-cash compensation charge ofapproximately $2.3 million related to the loan portion of the sharespurchased pursuant to the Company’s Direct Investment Program. These chargestotalled $21.2 million.

***DerivativeInstruments and Hedging Activities***

The Company currently usesinterest rate swaps as required in the credit agreement to reduce the risk ofinterest rate volatility. The amount to be paid or received from interest rateswaps is charged or credited 

43

----

tointerest expense over the lives of the interest rate swap agreements. Changesin the fair value of derivatives are recorded each period in earnings orAccumulated Other Comprehensive Income (Loss), depending on whether aderivative is designated and effective as part of a hedge transaction and meetsthe applicable requirements associated with Statement of Financial AccountingStandards (SFAS) 133 (see Note 8). Since the adoption of SFAS No. 133in 2001, all gains and losses associated with interest rate swaps have beenincluded in earnings.

For a derivative to qualifyas a hedge at inception and throughout the hedge period, we must formallydocument the nature and relationships between the hedging instruments andhedged items, as well as its risk-management objectives, strategies forundertaking the various hedge transactions and method of assessing hedgeeffectiveness. Any financial instruments qualifying for hedge accounting mustmaintain a specified level of effectiveness between the hedging instrument andthe item being hedged, both at inception and throughout the hedged period.

Additionally, the Companyutilizes forward contracts to mitigate its exposure to changes in foreigncurrency exchange rates from third party and intercompany forecastedtransactions. The primary currency to which the Company is exposed and to whichit hedges the exposure is the Canadian Dollar. The effective portion ofunrealized gains and losses associated with forward contracts are deferred as acomponent of Accumulated Other Comprehensive Income (Loss) until the underlyinghedged transactions are reported in the Company’s consolidated statement ofearnings. The balance was not material at September 30, 2005.

**RecentlyIssued Accounting Standards**

In November 2004, theFinancial Accounting Standards Board issued SFAS No. 151, “InventoryCosts.” SFAS No. 151 amends the guidance in ARB No. 43,Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormalamounts of idle facility expense, freight, handling costs, and wasted material.This Statement requires that those items be recognized as current-periodcharges regardless of whether they meet the criterion of “so abnormal.” Inaddition, this Statement requires that allocation of fixed production overheadsto the costs of conversion be based on the normal capacity of the productionfacilities. SFAS No. 151 is effective for fiscal years beginningafter June 15, 2005. The Company intends to adopt SFAS No. 151on October 1, 2005, the beginning of its 2006 fiscal year. The impact ofthe adoption of SFAS No. 151 on the Company’s financial statementshas not yet been determined.

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 September 30,2005, and prior to the acquisition on October 3, 2005, the Company has notprovided deferred taxes on foreign earnings because any taxes on dividendswould be substantially offset by foreign tax credits or because the Companyintends to reinvest those earnings indefinitely. Due to the complexity of therepatriation provision, the Company is still evaluating the effects of thisprovision on its plan for repatriation of foreign earnings.

In March 2005, theFASB issued FASB Interpretation No. 47, “Accounting for Conditional AssetRetirement Obligations” (“FIN 47”), which is an interpretation of FASBNo. 143, “Accounting for Asset Retirement Obligations” (“FAS 143”). Thisinterpretation clarifies terminology within FAS 143 and requires companies torecognize a liability for the fair value of a conditional asset retirementobligation when incurred if the liability’s fair value can be reasonablyestimated. The impact of the adoption of FIN 47 on the Company’s financialstatements has not yet been determined.

44

----

In June 2005, theFASB issued FASB No. 154, “Accounting Changes and Error Corrections—areplacement of APB Opinion No. 20 and FASB Statement No. 3” (“FAS 154”),which changes the requirements for accounting for and reporting of a change inaccounting principle. FAS 154 requires retrospective application to priorperiods’ financial statements of a voluntary change in accounting principleunless it is impracticable. FAS 154 also requires that a change in method ofdepreciation, amortization or depletion for long-lived, nonfinancial assets beaccounted for as a change in accounting estimate that is effected by a changein accounting principle. FAS 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15,2005, but does not change the transition provisions of any existing accountingpronouncements, including those that are in a transition phase as of theeffective date of FAS 154. The adoption of FAS 154 will not have a materialimpact on the Company’s financial condition or results of operations

**Risk Factors**

**Forward-Looking Statements.**

*The following Risk Factors contain statements that maybe deemed “forward-looking statements” within the meaning of Section 21Eof the Securities Exchange Act of 1934. Forward-looking statements include anystatement, other than statements of historical fact, that address activities,events or developments that we or our management intends, expects, projects,believes or anticipates will or may occur in the future. Subject to thiscaution about forward-looking statements, management is presenting these RiskFactors based on management’s current understanding of the Company’s business,including the U.S. Pipe business, unless otherwise indicated, and historicaltrends, current conditions, expected future developments and other factors thatmanagement deems appropriate. Nothing contained in the following Risk Factorsis or should be construed as a guarantee of future performance or of theimplication of current trends, and actual results, developments and businessdecisions may differ from those contemplated or suggested by the Risk Factors.*

**We depend on agroup of major distributors for a significant portion of our sales; any loss ofthese distributors could reduce our sales and continuing consolidation couldcause price pressure.**

In the fiscal year ended 2005, approximately 38% ofour sales were to our ten largest distributors, and approximately 30% of oursales were to our three largest distributors: Hughes Supply, Ferguson Enterprisesand National Waterworks. Our business relationship with most of our majordistributors branches may be terminated at the option of either party upon zeroto 60 days’ notice.

Our reliance onthese major distributors exposes us to:

·       therisk of changes in the business condition of our major distributors, and

·       therisk that the loss of a major distributor could adversely affect our results ofoperations.

While our relationshipswith our ten largest distributors have been long-lasting, distributors in ourindustry have experienced significant consolidation in recent years, and wecannot assure you that our distributors will not be acquired by otherdistributors who buy products from our competitors. We also cannot assure youthat, as consolidation among distributors continues, distributors will not beable to force us to lower our prices, which would have an adverse impact on ourresults of operations. Moreover, the loss of any of National Waterworks, HughesSupply or Ferguson Enterprises as a distributor could have a material adverseeffect on our results of operations.

**Our business willbe adversely affected by a downturn in government spending related toinfrastructure upgrades, repairs and replacements, or in the cyclicalresidential or non-residential building markets.**

Our business is primarilydependent upon spending on water and wastewater infrastructure upgrades,repairs and replacement, new water and wastewater infrastructure spending(which is dependent upon 

45

----

residentialconstruction) and spending on non-residential construction. Spending growth inthe infrastructure upgrades, repairs and replacement sector has slowed inrecent years as state and local governments’ budgets were negatively impactedby the downturn in the economy. We cannot assure you that economic conditionswill continue to improve or that if they do, that state and local governmentswill address deferred infrastructure needs. Although the residential buildingmarket has experienced growth in recent years, we cannot assure that thisgrowth will continue in the future. The residential and non-residentialbuilding markets are cyclical, and, historically, down cycles have typicallylasted approximately four to six years. From 1987 to 1991, total housing startsdeclined 38.1% from peak to trough. The United States reached a record high insingle family housing starts in 2005 and housing starts continue to remainstrong. Non-residential construction activity, which declined from 1999 to2003, showed a modest improvement in 2004 and even stronger improvement in 2005.We cannot predict whether conditions will continue to improve. Any significantdecline in the residential or non-residential building markets or governmentalspending on infrastructure could have a material adverse effect on ourfinancial condition and results of operations.

**Our brass productscontain lead, which may be replaced in the future.**

Our brass products, whichconstituted approximately 8.4% of our sales in 2005, contain approximately 5.0%lead. Environmental advocacy groups, relying on standards established byCalifornia’s Proposition 65, are seeking to eliminate or reduce the content oflead in some of these products, including water meters and valves, and to limittheir sale in California. Some of our business units have entered intosettlement agreements with these environmental advocacy groups that haverequired them to either modify some of these products or offer substitutes forthem with respect to products sold in California. Modifications of orsubstitutions for our products to meet or conform with regulatory requirementswill require incremental capital spending of up to $8.0 million in thenext two years and will require us to purchase more expensive raw materials,and we may not be able to pass these costs on to our customers. Legislation tosubstantially restrict lead content in water products has been introduced inthe United States Congress. If Congress adopts such legislation or if similarissues are raised in Congress in the future or in other jurisdictions or ifthese or other advocacy groups file suit against us under Proposition 65, ourresults of operations and financial condition could be adversely affected.

**Certain of ourproducts may not be in compliance with NSF standards, which could limit theability of municipalities to buy our products.**

The National SanitaryFoundation (“NSF”) is a non-profit entity that was contracted by theU.S. Environmental Protection Agency (“EPA”) to promulgate standards forthe water industry. NSF has issued NSF 61, which governs the leachingcharacteristics of valves and devices that are part of drinking waterdistribution networks, including certain of our products made from brass. Inrecent years, a growing majority of states have adopted, by statute orregulation, a requirement that water distribution systems utilize products thatcomply with NSF 61 and/or are certified as NSF 61 compliant. We, along withothers in the industry, are engaged in the lengthy process of attempting toobtain certification of NSF 61 compliance for all of our relevant products. Infiscal 2005, our sales of brass products were $100.6 million, or 8.4% ofour sales. Approximately 5,700 of the Mueller segment products we currentlyproduce are made of brass. Approximately 65% of these Mueller segment brassproducts have been certified; and these represent approximately 80% of ourMueller segment brass product sales. In the event that some of our Muellersegment brass products are found not to be in compliance with NSF 61, thoseproducts may not be accepted by various municipalities or we may be forced tomodify non-conforming products with substitute materials which may requireincreased cost, thereby adversely affecting profitability. In addition, if ourcompetitors develop a complete line of NSF 61 compliant brass products beforewe do, we may be placed at a competitive disadvantage which may, in turn,adversely affect profitability.

46

----

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

The domestic and international markets for flowcontrol products are competitive. While there are only a few competitors formost of our product offerings, many of them are well-established companies withstrong brand recognition. In particular, our malleable iron and cast iron pipefitting products, which together comprised 8.2% of our sales for our 2005fiscal year, face competition from less expensive imports and our pipe nippleand hanger products and our pipe fittings and couplings products, whichtogether comprised 24.3% of our Anvil segment sales in 2005, compete on thebasis of price and are sold in fragmented markets with low barriers to entry,allowing less expensive domestic and foreign producers to gain market share andreduce our margins. Also, competition for ductile iron pressure pipe sold byU.S. Pipe comes not only from ductile pipe produced by a concentrated number ofdomestic manufacturers, but also from pipe composed of other materials, such aspolyvinylchloride (PVC), high density polyethylene (HDPE), concrete,fiberglass, reinforced plastic and steel.

In addition, the U.S.Department of Commerce has imposed anti-dumping duties on imported malleableand non-malleable iron fittings from China. We cannot assure you that thesegovernment agencies will continue the current duties on imported malleable andnon-malleable iron fittings. If the duties for respondent companies, whichrange from 7.35% to 14.32% (111.36% for other producers/exporters) formalleable iron fittings and 6.34% to 7.08% (75.5% for otherproducers/exporters) for non-malleable iron fittings, are reduced or completelyeliminated, we may be forced to reduce the prices of some of our products. Anincrease in foreign competition, a decrease in these duties or a strengtheningin the U.S. dollar could have a material adverse effect on our financialcondition and results of operations.

**Our results havebeen, and may continue to be, adversely impacted by increases in raw materialprices.**

Our products are made fromseveral basic raw materials, including sand, resin, brass ingot, steel pipe andscrap steel and iron. We generally purchase raw materials at spot prices andgenerally do not have the ability to hedge our exposure to price changes. Ourbusiness could be adversely affected by increases in the cost of our raw materials,as we may not be able to fully pass these costs on to our customers. Managementestimates that, for our 2005 fiscal year , raw materials and purchasedcomponents used in our manufacturing processes currently account forapproximately 18% of the Mueller and Anvil cost of goods sold. Managementestimates that scrap metal and ferrous alloys used in the U.S. Pipemanufacturing process accounts for up to 40% of the U.S. Pipe cost tomanufacture ductile iron pipe.

**We may beunsuccessful in identifying or integrating suitable acquisitions, which couldadversely affect our growth.**

Our growth strategy isbuilt upon organic growth and on taking advantage of opportunities to acquirecomplementary businesses and services. This strategy depends on theavailability of acquisition candidates with businesses that can be successfullyintegrated into our existing business and that will provide us withcomplementary manufacturing capabilities or products. However, we may be unableto identify targets that will be suitable for acquisition. In addition, if weidentify a suitable acquisition candidate, our ability to successfullyimplement the acquisition will depend on a variety of factors, including ourability to finance the acquisition. Our ability to finance our acquisitions issubject to a number of factors, including the availability of adequate cashfrom operations or of acceptable financing terms and the terms of our debtinstruments. In addition, there are many challenges to integrating acquiredcompanies and businesses in our company, including eliminating redundantoperations, facilities and systems, coordinating management and personnel,retaining key employees, managing different corporate cultures and achievingcost reductions and cross-selling opportunities. We cannot assure youthat we will be able to meet these challenges in the future.

47

----

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

We may be adverselyaffected if businesses we have recently acquired or acquire in the future donot perform as expected. Acquired businesses may perform below expectationsafter the acquisition for various reasons, including legislative or regulatorychanges that affect the areas in which a business specializes, the loss of keycustomers after the acquisition has closed, general economic factors thataffect a business in a direct way and the cultural incompatibility of anacquired management team with us. Any of these factors could adversely affectour results of operations.

**We have a significant amount of debt which couldadversely affect our financial health.**

As of September 30,2005, we had $1,055.7 million of indebtedness. As of October 3, 2005,to finance the acquisition of the Company by Walter Industries, Inc., ourtotal debt level increased to $1,517.9 million. We may incur significantadditional indebtedness from time to time. The level of our indebtedness couldhave important consequences, including:

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

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

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

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

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

**We will require a significant amount of cash toservice our debt and our ability to generate cash depends on many factorsbeyond our control.**

Our ability to pay or torefinance our indebtedness will depend upon our future operating performance,which will be affected by general economic, financial, competitive,legislative, regulatory, business and other factors beyond our control. Wecannot assure you that our business will generate sufficient cash flow fromoperations, that currently anticipated revenue growth and operatingimprovements will be realized or that future borrowings will be available to usin an amount sufficient to enable us to pay our indebtedness, or to fund ourother liquidity needs. If we are unable to meet our debt service obligations orfund our other liquidity needs, we could attempt to restructure or refinanceour indebtedness or seek additional equity capital. We cannot assure you thatwe will be able to accomplish those actions on satisfactory terms, if at all.

**Restrictive covenants in our debt instruments mayadversely affect us.**

Our debt instrumentscontain various covenants that limit our ability to engage in certaintransactions. The 2005 Mueller Credit Agreement of our subsidiary, MuellerGroup, also require the maintenance of specified financial ratios and thesatisfaction of other financial condition tests. In addition, our debtinstruments require us to provide regular financial information to our lendersand bondholders. Such requirements generally may be satisfied by our timelyfiling with the SEC of annual and quarterly reports under the SecuritiesExchange Act of 1934. Our ability to satisfy those financial ratios, tests orcovenants can be affected by events beyond our control, and we cannot assureyou that we will meet those tests. A breach of any of these covenants couldresult in a default under our debt instruments. If an event of default is notremedied after the delivery of notice of default and lapse of any relevantgrace period, the holders of 

48

----

oursenior discount notes and of Mueller Group’s senior subordinated notes would beable to declare these notes immediately due and payable and the lenders underthe 2005 Mueller Credit Agreement would be able to declare all amounts owedunder the 2005 Mueller Credit Agreement due and payable and all commitmentsthereunder terminated. Upon the occurrence of an event of default under the2005 Mueller Credit Agreement, the lenders could elect to declare all amountsoutstanding thereunder to be immediately due and payable and terminate allcommitments to extend further credit. If we were unable to repay those amounts,the lenders could proceed against the collateral granted to them to secure theindebtedness under the 2005 Mueller Credit Agreement. We have pledgedsubstantially all of our assets, other than the assets of our foreignsubsidiaries, as security under the 2005 Mueller Credit Agreement and securednotes. If the lenders under the 2005 Mueller Credit Agreement or noteholders ofthe notes accelerate the repayment of borrowings, we cannot assure you that wewill have sufficient assets to repay the 2005 Mueller Credit Agreement and ourother indebtedness.

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

We are a holding companythat has no operations of our own and derives all of our revenues and cash flowfrom our subsidiaries. The terms of the indentures governing Mueller Group’ssecured notes and subordinated notes and the 2005 Mueller Credit Agreement significantlyrestrict Mueller Group and its subsidiaries from paying dividends and otherwisetransferring assets to us. Furthermore, our subsidiaries are permitted underthe terms of the 2005 Mueller Credit Agreement and other indebtedness to incuradditional indebtedness that may severely restrict or prohibit the making ofdistributions, the payment of dividends or the making of loans by suchsubsidiaries to us. A breach of those covenants would be a default under theapplicable debt instrument that would permit the holders thereof to declare allamounts due thereunder immediately payable. As a result, we may not have accessto our subsidiaries’ cash flow to finance our cash needs.

**Our business may be adversely impacted by work stoppages andother labor relations matters.**

We are subject to a riskof work stoppages and other labor relations matters because our hourlyworkforce is highly unionized. As of September 30, 2005, and includingU.S. Pipe, approximately 83% of our hourly workforce was represented by unions.These employees are represented by locals from approximately six differentunions, including the Glass, Molders, Pottery, Plastics and Allied WorkersInternational Union, which is our largest union. Three of our union contractsare currently being negotiated and all of our significant labor agreements willexpire at various times through March 2010, at which time they must berenegotiated. Work stoppages for an extended period of time could have amaterial adverse effect on our business. Labor costs are a significant elementof the total expenditures involved in our manufacturing process, and anincrease in the costs of labor could therefore have a material adverse effecton our business. In addition, the freight companies who deliver our products toour distributors generally use unionized truck drivers, and we could also beadversely affected if our contractors face work stoppages or increasedlabor costs. For more information about our labor relations, see “—Employees.”

**We may be subject to product liability claims thatcould require us to make significant cash payments.**

We would be exposed toproduct liability claims in the event that the use of our products results, oris alleged to result, in bodily injury and/or property damage. We cannot assureyou that we will not experience any material product liability losses in thefuture or that we will not incur significant costs to defend such claims. Whilewe currently have product liability insurance, we cannot assure you that ourproduct liability insurance coverage will be adequate for any liabilities thatmay ultimately be incurred or that it will continue to be available on termsacceptable to us. A successful claim brought against us in excess of ouravailable insurance coverage or a requirement to participate in a productrecall may have a materially adverse effect on our business.

49

----

Under the terms of the August 1999purchase agreement relating to Tyco International’s August 1999 sale ofour business to our prior owners, we are indemnified by Tyco for allliabilities arising in connection with our business with respect to productsmanufactured or sold prior to the closing of that transaction. See “Item 3.—LegalProceedings.” The indemnity survives forever and is not subject to any dollarlimits. However, we may be responsible for these liabilities in the event thatTyco ever becomes financially unable to, or otherwise fails to comply with, theterms of the indemnity. In addition, Tyco’s indemnity does not cover productliabilities to the extent caused by our products manufactured after thattransaction. For more information about our potential product liabilities, see “Item3.—Legal Proceedings.”

**Wemay be adversely affected by environmental, health and safety laws andregulations or liabilities.**

We are subject to variouslaws and regulations relating to the protection of the environment and humanhealth and safety and must incur capital and other expenditures to comply withthese requirements. Failure to comply with any environmental, health or safetyrequirements could result in the assessment of damages, or imposition ofpenalties, suspension of production, a required upgrade or change to equipmentor processes or a cessation of operations at one or more of our facilities.Because these laws are complex, constantly changing and may be appliedretroactively, we cannot assure you that these requirements, in particular asthey change in the future, will not have a material adverse effect on ourbusiness, profitability and results of operations.

In addition, we will berequired to incur costs to comply with the EPA’s National Emissions Standardsfor Hazardous Air Pollutants (“NESHAP”) for iron and steel foundries and forour foundries’ painting operations. These costs may be material. See “—EnvironmentalMatters.” We may be required to conduct investigations and perform remedialactivities that could require us to incur material costs in the future. Ouroperations involve the use of hazardous substances and the disposal ofhazardous wastes. We may incur costs to manage these substances and wastes andmay be subject to claims for damage for personal injury, property damages ordamage to natural resources.

Under the terms of the August 1999purchase agreement Tyco International’s August 1999 sale of our businessto our prior owners,, we are indemnified by Tyco for all environmentalliabilities arising in connection with our business and relating to actionsoccurring or conditions existing prior to the closing of that transaction,including certain asbestos litigation. See “Item 3.—Legal Proceedings.” Theindemnity survives forever and is not subject to any dollar limits. We however,may be responsible for these liabilities in the event that Tyco ever becomesfinancially unable to, or otherwise fails to comply with, the terms of theindemnity. In addition, Tyco’s indemnity does not cover environmentalliabilities to the extent caused by our company or the operation of ourbusiness after that transaction, nor does it cover environmental liabilitiesarising with respect to businesses, such as the U.S. Pipe operations, or sites,including U.S. Pipe facilities, acquired after August 1999.

Our U.S. Pipe segment hasbeen identified as a potentially responsible party liable under federalenvironmental laws for a portion of the clean-up costs with regard to twosites, one in Alabama and one in California, and is currently subject to anadministrative consent order requiring certain monitoring and clean-up withregard to its Burlington, New Jersey facility. For more information about ourenvironmental compliance and potential environmental liabilities, see “—EnvironmentalMatters” and “Item 3.—Legal Proceedings.”

**Weneed to improve our internal controls to comply with SEC reportingrequirements; public reporting obligations have put significant demands on ourfinancial, operational and management resources.**

Prior to August 2004,we were a private company that did not file reports with the SEC. As indicatedin “Item 9A—Controls and Procedures”, we have reported a material weakness inboth 2004 and 2005 related to maintaining effective controls over thepreparation, review and presentation and disclosure of our consolidatedfinancial statements.

50

----

We are currently takingadditional steps, as described in “Item 9A”, to implement an internal controlstructure and procedures for financial reporting that would allow us to producefinancial statements and related disclosure within the time periods and in theform required under the Exchange Act. Failure to implement remediation plansdescribed in “Item 9A” in future periods could have an adverse effect on us.

**InternalControl reporting and compliance with Securities laws and regulations arelikely to increase our costs.**

The Sarbanes-OxleyAct of 2002, as well as rules subsequently implemented by the Securitiesand Exchange Commission and the Public Company Accounting Oversight Board, haverequired changes in the corporate governance and securities disclosure orcompliance practices of public companies over the last few years. We expectthese new rules and regulations to continue to increase our legal andfinancial compliance costs, as well as our ongoing audit costs, and to makelegal, accounting and administrative activities more time-consuming and costly.In 2006, we will need to comply with the internal control reportingrequirements of the Act, which will have a significant impact on our compliancecost in 2006.

We also expect these rules andregulations to make it more difficult and expensive for us to obtain directorand officer liability insurance, and we may be required to accept reducedcoverage or incur substantially higher costs to obtain coverage. These new rules andregulations could also make it more difficult for us to attract and retainqualified members of our board of directors, particularly to serve on our auditcommittee, and executive officers.

**Wemay not be able to achieve the $25 million to $35 million of synergiesanticipated in connection with our integration of our U.S. Pipe segment at theeconomic levels or in the time periods expected.**

On October 26, 2005,Walter Industries announced plans to close the U.S. Pipe Chattanooga, Tennesseeplant and transfer the valve and hydrant production of that plant to Mueller’sChattanooga and Albertville, Alabama plants by the end of calendar year 2005.The eventual closure of the Chattanooga plant will occur sometime in calendaryear 2006. The estimated pre-tax restructuring costs consisting of thewrite-off of impaired assets, severance and environmental costs are estimatedat $37.8 million, of which $21.9 million are non-cash, and are expected to berecorded in the quarter ended December 31, 2005. We may not be successful in achieving the anticipated levels of savingsin the time frames projected.

**Part 7A.Qualitative and Quantitative Disclosure About Market Risk**

We are exposed to variousmarket risks, which are potential losses arising from adverse changes in marketrates and prices, such as interest rates and foreign exchange fluctuations. Wedo not enter into derivatives or other financial instruments for trading orspeculative purposes.

Our primary financialinstruments are cash and cash equivalents. This includes cash in banks andhighly rated, liquid money market investments and U.S. government securities.We believe that those instruments are not subject to material potentialnear-term losses in future earnings from reasonably possible near-term changesin market rates or prices.

***Interest Rate Risk***

At September 30,2005, we had fixed rate debt of $442.9 million and variable rate debt of$612.8 million. The pre-tax earnings and cash flows impact resulting froma 100 basis point increase in interest rates on variable rate debt, holdingother variables constant and excluding the impact of the hedging agreements describedbelow, would be approximately $6.1 million per year.

As of September 30,2005, we had entered into interest rate swap agreements with a notionalprincipal amount of $100 million in order to reduce interest rate risksand manage interest expense. The swap agreements, which mature in April andMay 2007, effectively convert floating rate debt under the 2004 

51

----

MuellerCredit Facility into fixed-rate debt and carry an average fixed interest rateof 4.09% at September 30, 2005.

On October 3, 2005,Mueller Group entered into the 2005 Mueller Credit Agreement and refinanced the2004 Mueller Credit Facility. On October 27, 2005, Group entered into sixinterest rate hedge transactions with a cumulative notional value of $350million. The swap terms are between one and seven years with five separatecounter-parties. The objective of the hedges is to protect the Company againstrising LIBOR interest rates that would have a negative effect on the Company’scash flows due to changes in interest payments on its 2005 Mueller Term Loan. Thestructure of the hedges are a one-year 4.617% LIBOR swap of $25 million, athree-year 4.740% LIBOR swap of $50 million, a four-year 4.800% LIBOR swap of$50 million, a five-year 4.814% LIBOR swap of $100 million, a six-year 4.915%LIBOR swap of $50 million, and a seven year 4.960% LIBOR swap of $75 million. Theswap agreements call for the Company to make fixed rate payments over the termat each swap’s stated fixed rate and to receive payments based on three monthLIBOR from the counter-parties. These swaps will be settled upon maturity andwill be accounted for as cash flow hedges. As such, changes in the fair valueof these swaps that take place through the date of maturity will be recorded inaccumulated other comprehensive income.

We will consider enteringinto additional interest rate swaps or other interest rate hedging instrumentsto protect against interest rate fluctuations on our floating rate debt.

The 2005 Mueller CreditAgreement requires that at least half of our total long term, non-revolving,debt be fixed for a period beginning no later than January 1, 2006 andending October 3, 2008. This requirement can be met with any combinationof fixed rate debt and rate protection agreements. The Company is currently incompliance with this requirement.

***Currency Risk***

Outside of the UnitedStates, we maintain assets and operations in Canada and, to a much lesserextent, China. The results of operations and financial position of our foreignoperations are principally measured in their respective currency and translatedinto United States dollars. As a result, exposure to foreign currency gains andlosses exists. The reported income of these subsidiaries will be higher orlower depending on a weakening or strengthening of the United States dollaragainst the respective foreign currency. Our subsidiaries and affiliates alsopurchase and sell products and services in various currencies. As a result, wemay be exposed to cost increases relative to the local currencies in themarkets in which we sell. Because a different percentage of our revenues is inforeign currency than our costs, a change in the relative value of the UnitedStates dollar could have a disproportionate impact on our revenues compared toour cost, which could impact our margins.

A portion of our assetsare based in our foreign locations and are translated into United Statesdollars at foreign currency exchange rates in effect as of the end of eachperiod, with the effect of such translation reflected in other comprehensiveincome (loss). Accordingly, our consolidated stockholders’ equity willfluctuate depending upon the weakening or strengthening of the United Statesdollar against the respective foreign currency.

Our strategy formanagement of currency risk relies primarily on conducting our operations in acountry’s respective currency and may, from time to time, involve currencyderivatives, primarily forward foreign exchange contracts, to reduce ourexposure to currency fluctuations. As of September 30, 2005, we had lessthan $0.1 million of foreign exchange contracts outstanding.

***Raw Materials Risk***

Our products are made fromseveral basic raw materials, including sand, resin, brass ingot, steel pipe,and scrap steel and iron, whose prices fluctuate as market supply and demand change.Accordingly, product margins and the level of profitability can fluctuate if weare not able to pass raw material costs on to our customers. Managementestimates for our Mueller and Anvil segements that raw materials 

52

----

accountedfor 10-17% of our cost of goods sold in 2003 through 2004 and accountedfor approximately 18% of our cost of goods sold due to increasing raw materialprices in 2005. Management estimates U.S. Pipe’s scrap metal and ferrous alloysused in the manufacturing process accounted for 40% of the cost to manufactureductile iron pipe as of September 30, 2005. See “Item 1.—Business—RawMaterials” and “Item 7.—Management’s Discussion and Analysis—Risk Factors—Ourresults have been, and may continue to be, adversely impacted by increases inraw materials prices.” Historically, we have been able to obtain an adequatesupply of raw materials and do not anticipate any shortage of these materials.We generally purchase raw materials at spot prices but may, from time to time,enter into commodity derivatives to reduce our exposure to fluctuation in theprice of raw materials. As of September 30, 2005, we had no open contractsto hedge our exposure to price changes of raw materials.

**Item8.**                        FinancialStatements and Supplementary Data

The consolidated financialstatements and supplementary data of Mueller Water Products, LLC are filedas part of this annual report beginning on page F-1 and incorporatedby reference in this Item 8.

**Item9.**                        Changes inand Disagreements with Accountants on Accounting and Financial Disclosure

None

**Item9A.**                Controls andProcedures

***Restatement ofPreviously Issued Consolidated Financial Statements***

As described in Note 2 tothe financial statements, the Company identified errors in the presentation inthe Company’s previously issued consolidated financial statements: (i) theeffect of foreign currency exchange rate changes on cash balances; (ii) losson disposal of property, plant and equipment; (iii) book overdrafts;(iv) the misclassification of deferred income tax assets between thecurrent and non-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 restatement had noaffect on the Company’s consolidated net income or the consolidated statementof stockholders’ deficit for the two fiscal years ended September 30, 2004.

***Evaluation of ourDisclosure Controls and Procedures.***

As of the end of theperiod covered by this report, we evaluated the effectiveness of the design andoperation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the“Exchange Act’’)). This evaluation was done under the supervision and with theparticipation of management, including Dale B. Smith, President and ChiefExecutive Officer(“CEO’’), and Jeffery W. Sprick, Chief Financial Officer (“CFO’’).

Based on this evaluationand because of the material weakness described below, our CEO 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. Notwithstanding this material weakness, ourmanagement has concluded that the financial statements included in this Form 10-Kfairly present in all material respects the Company’s financial position,results of operations and cash flows for the periods presented in conformitywith generally accepted accounting principles.

***Material Weaknessin Internal Control over Financial Reporting***

A material weakness is acontrol deficiency or a combination of control deficiencies that results in morethan a remote likelihood that a material misstatement of the annual or interimconsolidated financial statements will not be prevented or detected.

53

----

As of September 30,2005, the Company did not maintain effective controls over the preparation,review and presentation and disclosure of the Company’s consolidated financialstatements. Specifically, the Company’s controls failed to prevent or detectthe incorrect presentation of the following: (i) cash flows from theeffect of exchange rate changes on cash balances; (ii) cash flows from theloss on disposal of property, plant and equipment; (iii) cash flows andbalance sheet presentation of book overdrafts; (iv) the presentation ofcurrent and non-current deferred income tax assets in the Company’sconsolidated balance sheet; and (v) classification of certain depreciationexpense as selling, general and administrative expense instead of cost of salesin the Company’s consolidated statement of operations. This control deficiencyresulted in the restatement of our annual consolidated financial statements forfiscal 2004 and 2003 and our interim consolidated financial statements for thefirst three quarters of fiscal 2005, all interim periods of fiscal 2004 andaudit adjustments to our 2005 annual consolidated financial statements.Additionally, this control deficiency could result in a misstatement of thepresentation and disclosure of the Company’s consolidated financial statementsthat would result in a material misstatement in the annual or interim financialstatements that would not be prevented or detected. Accordingly, management hasdetermined that this control deficiency constitutes a material weakness.

***Prior Year MaterialWeakness in Internal Control over Financial Reporting***

As of September 30,2004, and all interim periods through June 30, 2005, we reported thefollowing control deficiencies that, in the aggregate, constituted a materialweakness in internal control over preparation, review and presentation anddisclosure of the Company’s consolidated financial statements. Specifically ourcontrol deficiencies included: (i) a lack of personnel with experience infinancial reporting and control procedures necessary for SEC registrants; (ii) alack of sufficient controls to prevent or detect, on a timely basis, unauthorizedjournal entries; (iii) a lack of sufficient controls over informationtechnology data conversion and program changes; (iv) a lack of sufficientcontrols over the development and communication of income tax provisions; (v) alack of effective controls surrounding “whistleblower” hotline complaints andinternal certifications to ensure that issues were communicated on a moretimely basis by management to the audit committee and the independentregistered public accounting firm; (vi) a lack of effective controls overrevenue recognition associated with full truckload shipments not immediatelydispatched by freight carriers; and (vii) a lack of formal controls andprocedures regarding assessment of financial exposures and transactions,including consideration of accounting implications under generally acceptedaccounting principles. These control deficiencies resulted in audit adjustmentsto the consolidated financial statements for the year ended September 30,2004. Additionally, these control deficiencies, in the aggregate, could resultin a misstatement to accounts and disclosures that would result in a materialmisstatement to the annual or interim financial statements that would not beprevented or detected. Accordingly, management determined that these controldeficiencies in the aggregate constituted a material weakness in fiscal 2004.

We reported in our Form 10-Qfor all interim periods in fiscal 2005 that we had taken steps to remediatethis material weakness. We: (i) reassigned our Chief Financial Officer,appointed an Interim Chief Financial Officer and hired additional accountingand finance staff; (ii) introduced increased training for our existingfinancial and accounting and other staff; (iii) retained third-partyconsultants with significant SEC financial reporting experience to provideassistance in complying with SEC reporting requirements; (iv) formed adisclosure committee to supervise the preparation of our Exchange Act Reportsand other public communications; (v) improved our controls over, and begandeveloping written policies and procedures that cover all of our significantaccounting processes, including journal entries, the development andcommunication of income tax provisions, information data conversion issues andprogram changes, revenue recognition and assessing financial exposures; (vi) improvedand centralized our controls over our information technology; and (vii) implementedglobal compliance initiatives under the direction of our Chief ComplianceOfficer. These improvement efforts continued to progress during our fourthquarter ended September 30, 2005. While significant improvements have beenimplemented 

54

----

throughoutthe year, management believes that additional remediation is needed and willrequire changes in personnel, processes and procedures to ensure timely andaccurate financial reporting on a sustainable basis.

***Changes in InternalControl Over Financial Reporting***

There have been no changesin our internal control over financial reporting during the three months ended September 30,2005 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting other than as describedabove.

***Changes in InternalControl Over Financial Reporting Subsequent to September 30, 2005***

Subsequent to September 30,2005, management has taken steps to remediate the material weakness describedabove. These steps include a thorough review, on a quarterly basis, of foreigncurrency translation 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 deferredincome tax items in the balance sheet and cash flow statement, as well asdepreciation in the statement of operations, will be evaluated quarterly. Managementbelieves the additional control procedures designed, when implemented, willfully remediate this material weakness.

Inaddition, subsequent to September 30, 2005, the Company has made thefollowing changes in internal controls to improve financial reporting accuracy:

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

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

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

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

Another significantremedial action underway or planned to commence in fiscal year 2006, notspecifically related to the previously identified material weakness includesthe issuance of a code of conduct to all employees. In fiscal 2006, we will besubject to the Sarbanes-Oxley internal control reporting requirements and in2006 we will be testing key internal controls for all significant businessunits and business processes.

The Company continues toupgrade the knowledge of our finance staff by implementing on-going UnitedStates generally accepted accounting principles training programs, consistingof providing appropriate technical resources to our finance team and trainingon the use of such resources, conducting a series of training sessions forplant controllers, periodic distribution of changes in accounting and reportingstandards, and issuance of Company accounting policies. Additionally, theCompany terminated the prior Chief Compliance Officer and reassigned thoseduties to the Director of Internal Audit.

**Item 9B.**               OtherInformation

None

55

----

**PART III**

**Item 10.**                 Directorsand Executive Officers of the Registrant

Thefollowing table sets forth the name, age and position of each of our executiveofficers and directors.

| **Name**          | ** ** | ** ** | ** ** | **Age**                                                  | ** ** | **Position** |
|-------------------|------------|------------|------------|----------------------------------------------------------|------------|--------------|
| Dale B. Smith     |       | 61         |       | President, Chief  Executive Officer and Director         |
| Jeffery W. Sprick |       | 38         |       | Chief Financial Officer                                  |
| Thomas E. Fish    |       | 51         |       | President, Anvil Segment                                 |
| Victor P. Patrick |       | 47         |       | Vice President, General  Counsel, Secretary and Director |
| Doyce Gaskin      |       | 50         |       | Vice President,  Manufacturing                           |
| Gregory E. Hyland |       | 54         |       | Director                                                 |
| William F. Ohrt   |       | 57         |       | Director                                                 |
| Joseph J. Troy    |       | 42         |       | Director                                                 |

 

**Dale B. Smith****,** 61, *President, Chief ExecutiveOfficer and Director*

Mr. Smith has been President and Chief ExecutiveOfficer of Mueller since August 1999. Prior to that time, Mr. Smithserved as Executive Vice President of Mueller Co. from June 1994 to August 1999,Executive Vice President of Finance for Tyco Europe from 1992 to 1994, Directorof Mergers and Acquisitions for Tyco from 1988 to 1992, Director of Mergers andAcquisitions for Grinnell Corp. from 1986 to 1988, Chief Financial Officer ofLudlow Corp. (a Tyco Company) from 1983 to 1986 and Corporate Controller forGrinnell Corp. from 1981 to 1983. From 1971 to 1981, Mr. Smith wasemployed by Price Waterhouse & Co. as a certified public accountant. Mr. Smithgraduated from Middlebury College with an A.B. in Economics in 1967 andreceived an M.B.A. in Finance and Accounting from the University of Rochesterin 1971.

**Jeffery W. Sprick, **38, *Chief Financial Officer*

Mr. Sprickhas been Chief Financial Officer of Mueller since November 2005. Prior to November 2005,Mr. Sprick served as Senior Vice President and Controller of theWalter Industries, Inc., Mueller’s ultimate parent company. From April 2002to August 2005 Mr. Sprick served as Vice President of CorporateAccounting of Walter Industries. Mr. Sprick was a senior manager ofPricewaterhouseCoopers from 1988 until he joined Walter Industries in 2002.Mr. Sprick holds a bachelor’s degree in business administration from the Universityof Michigan.

**Thomas E. Fish****,** 51, *President, Anvil Segment*

Mr. Fish has been President of our Anvil segmentsince 1999. From January 2005 through November 2005, Mr. Fishserved as Mueller’s Interim Chief Financial Officer. Mr. Fish served asVice President of Manufacturing for Grinnell Corp. from 1996 to 1999, VicePresident of Finance and Administration for Grinnell Corp. from 1992 to 1996,Corporate Controller for Grinnell Corp. from 1984 to 1992 and Director ofInternal Audit for Grinnell Fire Protection Systems from 1982 to 1984. Mr. Fishwas employed by Price Waterhouse & Co. from 1976 to 1982 as acertified public accountant. Mr. Fish graduated from the University ofRhode Island with a B.S. in accounting in 1976.

**Victor P. Patrick****,** 47, *Vice President, GeneralCounsel, Secretary and Director*

Mr. Patrick has been Vice President, GeneralCounsel and Secretary of Mueller since November 2005. Mr. Patrickalso serves as Senior Vice President, General Counsel and Secretary of WalterIndustries, Inc., which positions he has held since 2002. Before joiningWalter Industries, Mr. Patrick was Vice President, Secretary and DeputyGeneral Counsel for Honeywell International Inc. Prior to joining Honeywell, Mr. Patrickwas an associate in the Washington, D.C. and Brussels, Belgium 

56

----

offices of the Cleary,Gottlieb, Stein & Hamilton law firm. Mr. Patrick holds a bachelor’sdegree from Princeton University and a law degree from Harvard Law School.

**Doyce Gaskin****,** 50, *Vice President,Manufacturing*

Mr. Gaskin has been the Vice President,Manufacturing since February, 1999. He served as Plant Manager, Chattanoogafrom 1996 to 1999 and as Manufacturing Manager, Albertville from 1994 to 1996.Prior to that time, Mr. Gaskin held a variety of positions at Mueller’s AlbertvillePlant, including Maintenance & Plant Engineering Manager(3 years), Maintenance Superintendent (8 years) and ProductionSupervisor (8 years). Mr. Gaskin graduated from Snead State with anAssociates Degree in Business Administration / Management in 1988.

**Gregory E. Hyland,** 54, *Director*

Mr. Hyland has served on our Board of Directorssince October 2005. In September 2005, Mr. Hyland was appointedChairman of the Board, President and Chief Executive Officer of WalterIndustries, Inc. Prior to joining Walter Industries, Mr. Hyland wasPresident, U.S. Fleet Management Solutions for Ryder System, Inc. Hepreviously served as President of the Industrial Products Segment of Textron, Inc.Prior to that, he was President of the Engineered Products Group—Flow ControlDivision of Tyco International. Mr. Hyland is a graduate of the Universityof Pittsburgh, where he earned his bachelor’s and master of businessadministration degrees.

**William F. Ohrt,** 57, *Director*

Mr. Ohrt has served on our Board of Directorssince October 2005. Mr. Ohrt has been Executive Vice President andChief Financial Officer of Walter Industries since January 2001. Mr. Ohrtjoined Walter Industries from Dura Automotive Systems, Inc., where heserved as Vice President and Chief Financial Officer. He previously worked atNavistar, ITT Industries and AlliedSignal. A certified public accountant, Mr. Ohrtbegan his career at the Detroit offices of PriceWaterhouseCoopers. He earnedhis bachelor’s degree in accounting from Wayne State University in 1975 and anMBA in finance from the University of Detroit in 1981.

**Joseph J. Troy,** 42, *Director*

Mr. Troy has servedon our Board of Directors since October 2005. Mr. Troy has beenSenior Vice President, Financial Services, of Walter Industries, Inc.since April 2002. In this position, Mr. Troy oversees WalterIndustries’ Financial Services Group, where he is President of Mid-State Homes, Inc.and Chief Executive Officer of Walter Mortgage Company since 2001. He alsooversees Walter Industries’ merger and acquisition activities as well asinvestor relations. Prior to rejoining Walter Industries in November 2000as Senior Vice President and Treasurer, Mr. Troy was Executive VicePresident and Chief Financial Officer of Gold Standard Multimedia, Inc., ahigh-tech provider of pharmaceutical information. From 1998 through 2000, Mr. Troyserved as Walter Industries’ Vice President—Treasurer. Previously, he wasSenior Vice President—Corporate Finance for the Global Finance Division ofNationsBank. Mr. Troy earned his MBA, along with a bachelor’s degree inbusiness administration from Loyola College of Baltimore.

**Audit Committee andAudit Committee Financial Expert**

In November 2005, our Board of Directorsappointed the Audit Committee of the Walter Industries, Inc. Board ofDirectors to serve as our Audit Committee. The primary purpose of the AuditCommittee is to assist the Board in fulfilling its responsibility relating tothe Company’s financial reporting process and systems of internal control. TheAudit Committee is also responsible for determining whether the Company’sfinancial systems and reporting practices are in accordance with applicablerequirements. The Audit Committee also approves services and fees of theindependent auditors. The Audit Committee 

57

----

charter is posted on thecorporate governance section of the Walter Industries website at *www.walterind.com* (the “Walter website”).

The Walter Industries, Inc. Board of Directorsdetermined that all Audit Committee members are financially literate under theNYSE listing standards. Our Board of Directors has accepted and adopted thesedeterminations of the Walter Industries Board. All of the members of the AuditCommittee qualify as audit committee financial experts within the meaning ofthe rules and regulations of the SEC.

The Audit Committee has adopted procedures in itscharter for pre-approving all audit and non-audit services provided by ourindependent auditors. For both types of pre-approval, the Audit Committeeconsiders whether such services are consistent with the SEC’s rules onauditor independence. The Audit Committee also considers whether theindependent auditors are able to provide the most effective services, forreasons such as their familiarity with the Company’s current and past business,accounting systems and internal operations, and whether the services enhancethe Company’s ability to manage or control risks and improve audit quality. TheAudit Committee may delegate pre-approval authority to one or more members ofthe Audit Committee. The Audit Committee periodically monitors the servicesrendered and actual fees paid to the independent auditors to ensure that suchservices are within the parameters approved by the Audit Committee.

The present members of the Audit Committee are Neil A.Springer, Chairman, Jerry W. Kolb, Joseph B. Leonard and Bernard G.Rethore.

From October 1, 2004 through June 1, 2005,our Audit Committee was comprised of two non-management directors who wereappointed by the Board of Directors: Mr. Vincent Sarni and Mr. JosephLucke. Mr. Lucke resigned on June 1, 2005, leaving Mr. Sarni asthe sole member of our Audit Committee through October 2, 2005. Our Boardof Directors has considered the definition of “audit committee financial expert”adopted by the United States Securities and Exchange Commission determined thatMr. Sarni was an audit committee financial expert. Our Board of Directorsalso determined that Mr. Sarni was independent, as defined under Rule 10A-3of the Exchange Act.

During the fiscal year endedSeptember 30, 2005, our Audit Committee was responsible for appointing,setting compensation for and overseeing the work of the independent registeredpublic accounting firm that audits our books and records. As a result, theAudit Committee, as a routine matter, pre-approved all services providedin fiscal year 2005 by the independent registered public accounting firmretained to audit our books and records.

**Code of Conduct**

Effective March 29,2005, we adopted a Code of Conduct applicable to our Chief Executive Officerand Chief Financial Officer (who is our principal financial officer andprincipal accounting officer), which is compliant with Item 406 ofRegulation S-K. In November 2005, our Board adopted a new, revisedCode of Conduct. Our revised Code of Conduct is filed as an exhibit to thisannual report.

58

----

**Item11.**                 ExecutiveCompensation

The following table summarizesinformation concerning the compensation awarded, paid to or earned by our ChiefExecutive Officer and our four other most highly compensated executive officerswho were serving as executive officers at the end of fiscal 2005. Theindividuals named in the table will be referred to as our named executiveofficers:

**SummaryCompensation Table**

| ** **                                     | ** ** | ** ** | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                      | ** ** | **Long Term Compensation** | ** ** |                                |
|------------------------------------------------|------------|------------|------------|------------------------------|------------|------------|------------|------------|------------|---------------------------------|------------|--------------------------------------|------------|-------------------------------------|
| ** **                                     | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | **Awards** | ** ** |       |
| **Name and Principal Position** | ** ** | ** ** | ** ** | **Year**                     | ** ** | **Salary** | ** ** | **Bonus**  | ** ** | **Other  Annual  Compensation** | ** ** | **Restricted  Stock  Award(s)**      | ** ** | **Securities  Underlying  Options** | ** ** | **Long Term  Incentive Plan  Payouts** | ** ** | **All Other  Compensation** | ** ** |   |
| Dale B. Smith                                  |       | 2005       |       | $                            | 379,167    |       | $          | 3,373,920  |       |                            | $          | 410,332                              | (3)        |                                |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   |
| President and Chief                            |       | 2004       |       | 350,000                      |       | 2,245,320  |       |       |       | (1)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |   |
| Executive Officer                              |       | 2003       |       | 350,000                      |       | 1,273,327  |       |       |       | (1)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |   |
| Thomas E. Fish                                 |       | 2005       |       | 262,500                      |       | 874,700    |       |       | 112,293    | (3)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |   |
| Interim Chief Financial                        |       | 2004       |       | 245,000                      |       | 378,800    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Officer and President,                         |       | 2003       |       | 245,000                      |       | 158,600    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | 157,500 |   |   |   | — |   |   |   | — |   |   |
| Anvil Segment(2)                               |       |       |       |                         |       |       |       |       |       |                            |       |                                 |       |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| George P. Bukuras                              |       | 2005       |       | 210,417                      |       | 468,600    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Vice President, Chief                          |       | 2004       |       | 200,000                      |       | 311,850    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Compliance Officer,                            |       | 2003       |       | 198,333                      |       | 176,851    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
| General Counsel and                            |       |       |       |                         |       |       |       |       |       |                            |       |                                 |       |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Secretary(2)                                   |       |       |       |                         |       |       |       |       |       |                            |       |                                 |       |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Darrell Jean                                   |       | 2005       |       | 200,000                      |       | 468,600    |       |       | 107,278    | (3)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Vice President,                                |       | 2004       |       | 188,333                      |       | 561,330    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Business Development(2)                        |       | 2003       |       | 177,500                      |       | 318,332    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | 157,500 |   |   |   | — |   |   |   | — |   |   |
| Doyce Gaskin                                   |       | 2005       |       | 176,667                      |       | 534,927    |       |       | 103,617    | (3)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Vice President,                                |       | 2004       |       | 165,000                      |       | 450,847    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Manufacturing Mueller Segment                  |       | 2003       |       | 158,333                      |       | 284,326    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | 157,500 |   |   |   | — |   |   |   | — |   |   |
|                                                |            |            |            |                              |            |            |            |            |            |                                 |            |                                      |            |                                     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

(1)    Theamount is less than $50,000 and 10.0% of annual compensation for thatindividual.

(2)    Mr. Fishserved as our Interim Chief Financial Officer from January 27, 2005 until November 7,2005, and effective March 1, 2005, Mr. Fish’s base salary wasincreased to $275,000. Mr. Jean served as our Chief Financial Officerthrough January 26, 2005. From February 18, 2005 until November 30,2005, Mr. Jean served as our Vice President, Business Development. As of November 30,2005, Mr. Jean’s employment by the Company or any of its affiliates or subsidiarieswas terminated. Effective November 4, 2005, Mr. Bukuras’s employmentby the Company or any of its affiliates or subsidiaries was terminated.

(3)    Other annual compensation includes, among other items,compensation payments made to current employees and directors to offsetadditional taxes owed by them as a result of the revaluation of compensationpaid in Mueller Water stock in 2004 as follows: Mr. Smith, $386,538; Mr. Fish,$98,696; Mr. Jean, $98,696; and Mr. Gaskin, $98,696. The aggregateamount of all other items included is less than $50,000 and 10.0% of annualcompensation for that individual.

**StockOption and Stock Appreciation Rights**

No grants of stock optionsto purchase shares of our common stock or stock appreciation rights were madeto our named executive officers during the fiscal year ended September 30,2005.

**Exercisesand Holdings of Stock Options and Stock Appreciation Rights**

None of our namedexecutive officers held stock options or stock appreciation rights at year-endand none exercised stock options to purchase shares of our common stock orstock appreciation rights during the fiscal year ended September 30, 2005.Our April 2004 recapitalization constituted a “recapitalization” (asdefined under the award agreement) which caused all outstanding options to vestconcurrently with the April 2004 recapitalization. All such options werecancelled and shares subject to transfer restrictions were issued to eachoption holder. See “Item 13.—Certain Relationships and Related PartyTransactions—Proceeds of the April 2004 Recapitalization” for informationabout proceeds of the recapitalization.

59

----

**Long-Term Incentive Plan Awards**

We do not have anylong-term incentive plans.

**Pension Plan**

None of our namedexecutive officers participate in any defined benefit pension plan. Our namedexecutive officers participate in either the Mueller 401(k) plan or theWalter Industries, Inc., 401(k) plan, under which they receivematching company contributions.

**Stock Option and Incentive Plans**

***Amended and Restated Mueller Water Products, LLCManagement Incentive Plan***

The Amended and RestatedMueller Water Products, LLC Management Incentive Plan has been effectivesince August 31, 2000. The plan provides for the grant of incentive stockoptions and non-qualified stock options. Upon the completion of the April 2004recapitalization, we cancelled all then-outstanding stock options, which vestedin connection with the recapitalization, and granted shares of our common stocksubject to transfer restrictions on a one-for-one basis. These shares arevested but will be subject to restrictions regarding their transferability. Nooptions have been granted since the recapitalization, and none are currentlyexpected to be granted.

***Mueller Water Products, LLC Direct InvestmentProgram***

The Mueller WaterProducts, LLC Direct Investment Program was effective as of August 31,2000. Each participant was entitled to purchase that number of shares of ourcommon stock set forth by the plan. Pursuant to the plan, one-half of theshares purchased by each participant were purchased through non-recourseloans granted by us. In connection with the completion of the April 2004recapitalization, all such participant loans were repaid in full. After ouracquisition by the DLJ Merchant Banking funds, our named executive officerspurchased 6,200,000 shares of our common stock pursuant to the plan, and on February 12,2003, Dale B. Smith purchased an additional 476,244 shares of our commonstock pursuant to the plan. We had authorized a maximum of 10,000,000 shares ofour common stock for participants under the plan, all of which have beenpurchased as of September 30, 2005.

**EmployeeAgreements and Compensation Arrangements**

***Dale B. Smith.******  ***Oursubsidiary, Mueller Group, LLC, has entered into an executive employmentagreement with Mr. Smith, our President and Chief Executive Officer. Thefollowing is a description of the material terms of this agreement.

The term of the agreement commenced on August 16,1999 for an initial term of three years thereafter, and it renews on eachanniversary of the commencement date for an additional one-year period, unless Mr. Smith’semployment is terminated earlier in accordance with the agreement.

The agreement provides for an initial base salary of$300,000, as adjusted upward by an amount that at least reflects any cost ofliving increase, as determined by the consumer price index. Pursuant to theagreement, Mr. Smith participates in an annual bonus plan providing for anopportunity of not less than 36.0% of a performance based bonus pool establishedby our board of directors. Historically, performance has been measured bydetermining our earnings before interest, taxes, depreciation and amortization(as described in further detail in Mr. Smith’s agreement); however,performance objectives may be modified by our board of directors. Mr. Smithis also entitled to participate in the employee benefit plans, programs andarrangements as are customarily accorded to our executives.

60

----

The agreementprovides that Mr. Smith’s employment may terminate upon his death or totaldisability, by us with or without cause or by Mr. Smith if he experiencesa constructive termination without cause. If we terminate Mr. Smith’semployment without cause or if he is constructively terminated, then Mr. Smithis entitled to the following:

·       continuedpayment of 18 months’ base salary;

·       continuedpayment of 150.0% of his bonus for the fiscal year most recently ended prior tosuch termination (paid in equal installments during an 18-month periodfollowing such termination of employment);

·       vestingand exercisability with respect to any equity interest that Mr. Smith hasin us (whether it be stock options to purchase shares of common stock or otherequity);

·       theright to sell to us the equity interest described above and all shares previouslyacquired in connection with such equity interest at a price equal to the fairmarket value of such equity interest and such shares as of the date of sale;and

·       continuedparticipation in benefits until the earlier of the 18-month anniversaryof the date of Mr. Smith’s termination of employment or such time as he iseligible to receive comparable benefits from subsequent employment orself-employment.

At any time that Mr. Smith is due any paymentbecause we terminate him without cause or he is constructively terminated, ifthe generic rating of our long-term unsecured debt is suspended, withdrawn orfalls, and such event is not a result of any action taken or omitted to betaken by him during his employment with us, then an amount equal to all remainingpayments due to Mr. Smith will be paid within 30 days of such event.

Under the agreement, Mr. Smith has agreed tomaintain the confidentiality of certain of our information at all times duringhis employment and thereafter, unless he obtains the prior written consent ofour board of directors.

Under the agreement, Mr. Smith has agreed not tocompete with us during his employment and for 18 months after anytermination of his employment. Mr. Smith has also agreed not to solicitany of our employees or agents for or on behalf of any competitor for18 months after any termination of his employment. If Mr. Smithviolates the foregoing non-competition or non-solicitation provisions of hisagreement, or if a court rules that these restrictions are not enforceableat any time at which they would have otherwise applied, then Mr. Smithwill not be entitled to any of the amounts paid or payable in respect of theperiod that the restrictions are not observed or during which the restrictionsare ruled to be unenforceable.

***Thomas E. Fish andDoyce Gaskin.******  ***On June 17,2005, the Company’s wholly-owned subsidiary, Mueller Group, entered into anemployment agreement with Thomas E. Fish relating to his employment withMueller Group, effective January 1, 2005, in the positions of InterimChief Financial Officer and President of the Anvil segment of Mueller Group’sbusiness. In addition, on June 17, 2005, Mueller Group entered into anemployment agreement with Doyce Gaskin relating to his employment with MuellerGroup, effective June 1, 2005, in the position of Vice President,Manufacturing—Mueller Segment.

The term of employment under each employment agreementis one year, commencing on the effective date, and renewing thereafter forsuccessive periods of one year each.

Under his employmentagreement, Mr. Fish’s annual base salary from January 1, 2005 throughFebruary 28, 2005 was $245,000 and from and after March 1, 2005 is$275,000. Mr. Gaskin’s annual base salary is $200,000 under his employmentagreement.  Each employment agreement providesthat the covered employee’s base salary shall be reviewed no less frequentlythan annually by the compensation 

61

----

committeeof the board of directors of the Company and shall be increased by an amountthat is at least equal to the greater of: (i) 4% of the employee’s basesalary in effect immediately prior to such adjustment, or (ii) the productof (A) the cost of living increase (as defined in each employmentagreement) and (B) the employee’s base salary in effect immediately priorto such adjustment.

Mr.  Fish isentitled under his employment agreement to receive an annual bonus equivalentto not less than 30% of the bonus pool applicable to compensate seniorexecutives of Mueller Group’s Anvil segment, and, for the fiscal year ending September 30,2005, a discretionary bonus of not less than $200,000. Mr. Gaskin isentitled under his employment agreement to receive an annual bonus equivalentto not less than 15% of the bonus pool established from time to time by theboard of directors based on the annual EBITDA of the Mueller segment operatingunits set forth in his employment agreement. Each employee also is entitled toparticipate in the benefit programs available to Mueller Group employeesgenerally, and employees in the class of senior executives of Mueller Group.

Under each employment agreement, if the coveredemployee’s employment is terminated by Mueller Group without cause, other thanupon his death or disability (as defined in each employment agreement), or bythe employee for good reason (as defined in each employment agreement) theemployee will be entitled to receive payment of a severance benefit in anamount equal to the sum of (A) 18 months’ base salary, plus (B) 150%of the annual bonus paid or payable to the employee for the fiscal year immediatelypreceding the fiscal year in which termination occurs. In addition, the Companywill waive its rights of repurchase with respect to any of the equitysecurities of the Company then held by the covered employee. Mueller Group’sobligation to make such severance payments is conditioned upon the execution bythe employee of a release of Mueller Group and certain other parties fromcertain complaints, claims, demands, liabilities and rights.  These severance rights supersede and replaceany rights these employees had to severance under any other arrangement oragreement with Mueller Group, including the Mueller Group Key EmployeeSeverance Plan.

In the event a covered employee’s employment isterminated as a result of his death or disability, he or his heirs or estate,as applicable, will be entitled to receive the employee’s base salary throughthe end of the fiscal year in which the termination occurs, reimbursement ofexpenses incurred prior to such termination and any bonus payment payable tothe employee for the fiscal year in which the termination occurs, proratedthrough the date of termination.

Both employees are subject to certain confidentialityand non-competition provisions under the employment agreements.

***GeorgeP. Bukuras.******  ***As of February 1, 2003, oursubsidiary, Mueller Group entered into an employment agreement with Mr. Bukuras,our former Vice President, General Counsel, Chief Compliance Officer andSecretary. Mr. Bukuras was terminated as of right and other than for “Cause”effective November 4, 2005, on which date he resigned from all positionsat the Company and its subsidiaries. Upon termination Mr. Bukuras executedthe release that was attached to his employment agreement. The followingsummarizes the severance terms applicable to Mr. Bukuras pursuant to hisemployment agreement.

Upon terminationother than for “Cause” Mr. Bukuras became entitled to a lump-sum severancepayment, payable no earlier than six (6) months after his termination datein an amount equal to the sum of:

·       18 months’base salary; and

·       150.0%of the bonus paid or payable to him for the fiscal year immediately precedingthe fiscal year in which such termination of employment occurs.

62

----

***Darrell Jean.******  ***As of February 18,2005, our subsidiary, Mueller Group entered into an employment agreement with Mr. Jeanrelating to his employment with us in the position of Vice President, BusinessDevelopment. Mr. Jean previously served as our Chief Financial Officer andwas replaced by Mr. Fish on January 27, 2005. Mr. Jean wasterminated as of right and other than for “Cause” effective November 30,2005, on which date he resigned from all positions at the Company and itssubsidiaries. Upon termination Mr. Jean executed the release that wasattached to his employment agreement. The following summarizes the severanceterms applicable to Mr. Jean pursuant to his employment agreement.

Because Mr. Jean was terminated without cause onor before December 31, 2006, he is entitled to receive payment of aseverance benefit in an amount equal to the greater of: (I) the sum of theunpaid salary and annual bonus through December 31, 2007, the last day ofhis employment agreement term, or (II) the sum of (A) 18 months’salary, plus (B) 150.0% of the annual bonus paid or payable to Mr. Jeanfor the fiscal year immediately preceding the fiscal year in which terminationoccurred. The severance benefit will be paid no sooner than six months afterthe termination date in equal monthly installments. The Company will payseverance based upon the option set forth above as item (II). In the event thatthis yields an amount that is less than the payment that would have been duepursuant to payment option (I) above, the Company will pay the differenceto Mr. Jean on or about December 31, 2007.

***Mueller Group, Inc. Key Employee Severance Plan.******  ***Effective asof March 1, 2003, we implemented a key employee severance plan. Under theplan, an eligible employee will receive severance pay:

·       ifhe or she is terminated by us because of a lack of work, the elimination of hisor her position or any other reason other than for “cause” (as defined in theplan); or

·       ifhe or she resigns as a result of a “constructive termination without cause” (asdefined in the plan),

in either case where suchtermination of employment occurs within 12 months following the “change ofcontrol” effected by the Walter Industries acquisition.  The plan divides eligible employees into twoclasses, Class A Employees and Class B Employees, and provides thatfor Class A Employees, severance pay will equal 18 months of theeligible employee’s annual base salary, and for Class B Employees,severance pay will equal 12 months of the eligible employee’s annual basesalary, in each case at the salary rate in effect on the effective date of theemployee’s termination of employment. Payment of severance pay will be made inequal monthly installments commencing on the first payroll date after theeffective date of an employee’s employment, unless the employee is a “specifiedemployee” and not subject to any exemptions under Internal Revenue Code Section 409A,in which case, payment of severance pay will be made in equal monthlyinstallments commencing at least six months after the employee’s termination ofemployment. Severance pay will generally be reduced by any other severancebenefits, pay in lieu of notice or other similar benefits payable to theeligible employee from or on behalf of us. If we rehire a person receivingseverance pay under the plan, then such pay will cease immediately. Theprovision of severance pay is conditioned upon the eligible employee’sexecution of a release of claims against us in the form provided by us.

Until June 17, 2005,the date on which he entered into an employment agreement with Mueller Group,Thomas E. Fish was an eligible employee under the Mueller Group Key EmployeeSeverance Plan.

**Director Compensation**

For fiscal 2005,none of our directors received compensation for their services except VincentSarni, an independent director. Mr. Sarni received an annual fee of$20,000, payable in equal quarterly installments, and he was reimbursed for allreasonable out-of-pocket expenses incurred in connection with his service as adirector. In 2005 the former board of directors approved an additional one-timefee of $200,000 for Mr. Sarni in recognition of the significant increasein time and effort spent in his role as audit 

63

----

committeechairman during the Company’s internal investigation and subsequent restatementof prior year earnings.

Mr. Sarni was also grantedoptions to purchase 50,000 shares of our common stock at an exercise price of$1.00 per share pursuant to the Amended and Restated Mueller WaterProducts, LLC Management Incentive Plan. These options vested inconnection with the April 2004 recapitalization and were cancelled andshares subject to transfer restrictions were issued to Mr. Sarni. In 2005,compensation payments were made to all eligible current employees and directorsto offset additional taxes owed by them as a result of the revaluation of compensationpaid in Mueller Water stock in 2004 of which Mr. Sarni received $5,154.

**Item12.      Security Ownership of CertainBeneficial Owners and Management**

On October 3, 2005, in connection with the acquisitionof the Company by Walter Industries, Inc., all shares of the Company’s commonstock outstanding immediately prior to the transaction, including warrantsrelating to the Company’s stock, were converted into rights to receive cashequal to the merger consideration amount specified in the agreement and plan ofmerger dated June 17, 2005 among the Company, Walter Industries andothers.  As of October 3, 2005, theCompany was converted into a limited liability company under Delaware law, andissued a single membership interest, representing 100% of the Company’soutstanding equity as of October 3, 2005, to a wholly-owned subsidiary ofWalter Industries, Inc., whose principal business address is 4211 W. Boy ScoutBoulevard, Tampa, Florida  33607.   

Thefollowing table furnishes information, as of December 15, 2005, as to: (i)shares of common stock of our ultimate parent company, Walter Industries, Inc.,that are beneficially owned by each current director, each nominee for directorand each named executive officer of the Company named in the SummaryCompensation Table herein; and (ii) shares of Walter Industries, Inc. commonstock beneficially owned by all current directors and executive officers of theCompany as a group. Except as indicated below, to the knowledge of the Company,each person indicated in the following table has sole voting and investmentpower as to the shares shown.

| **Name of Beneficial Owner**                                                          | ** ** | ** ** | ** ** | **Number of Shares  of Walter Industries, Inc.  Common Stock  Beneficially Owned(1)** | ** ** | **Percent of  Walter Industries  Common Stock   Outstanding** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------|------------|--------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| Gregory E.  Hyland, *Director*                                                                       |       |       | 35,000     |                                                                                                                     |       |                                                                              | *          |   |   |
| William F. Ohrt,*Director*                                                                           |       |       | 40,099.80  |                                                                                                                     |       |                                                                              | *          |   |   |
| Victor P.  Patrick,*Director*                                                                        |       |       | 25,771.32  |                                                                                                                     |       |                                                                              | *          |   |   |
| Joseph J. Troy,*Director*                                                                            |       |       | 39,644.87  |                                                                                                                     |       |                                                                              | *          |   |   |
| Dale B. Smith,*President and Chief Executive Officer  and Director*                                  |       |       | 0          |                                                                                                                     |       |                                                                              | *          |   |   |
| Thomas E. Fish,*President, Anvil Segment and former Interim Chief Financial Officer*                 |       |       | 0          |                                                                                                                     |       |                                                                              | *          |   |   |
| Doyce Gaskin,*Vice President, Manufacturing, Mueller Segment*                                        |       |       | 0          |                                                                                                                     |       |                                                                              | *          |   |   |
| George P.  Bukuras,*former Vice President, Chief Compliance Officer,  General Counsel and Secretary* |       |       | 0          |                                                                                                                     |       |                                                                              | *          |   |   |
| Darrell Jean,*former Vice President, Business Development*                                           |       |       | 0          |                                                                                                                     |       |                                                                              | *          |   |   |
| All directors and named  executive officers as a group                                          |       |       | 145,130.04 |                                                                                                                     |       |                                                                              | *          |   |   |

----

*       Less than1% of outstanding Walter Industries, Inc. common stock.

(1)   In accordance with the rules of the SEC, beneficial ownershipincludes voting or investment power with respect to securities and includesshares issuable pursuant to options or conversion rights that are exercisablewithin 60 days of December 15, 2005. 

64

----

**SecuritiesAuthorized for Issuance Under Equity Compensation Plans**

We had an Amended andRestated Management Incentive Plan under which compensatory stock optionsrepresenting 15 million shares of the Company’s common stock, subject toadjustment, were authorized for issuance to employees and directors. We alsohad a Direct Investment Program under which certain employees purchased ourcommon stock at a price equal to fair value at the time of the purchase, and weloaned employees up to 50% of the total purchase price on a non-recourse basis.As of September 30, 2005, there were no options outstanding under the Amendedand Restated Management Incentive Plan and no shares remaining for purchaseunder the Direct Investment Program.  Further, as noted above, as of October 3, 2005, all equity securities ofthe Company outstanding immediately prior to October 3, 2005 were convertedinto rights to receive cash under the merger agreement pursuant to which WalterIndustries acquired the Company; and, as of October 3, 2005, Walter Industriesbecame the owner indirectly of 100% of the Company’s equity securities (being alimited liability company interest).

**Item 13.**                 CertainRelationships and Related Party Transactions

**FinancialAdvisory Fees and Agreements**

Throughout the fiscal year ended 2005, substantiallyall of the outstanding shares of our common stock were held by the Donaldson,Lufkin & Jenrette (“DLJ”) Merchant Banking funds. As a result of theirstock ownership, the DLJ Merchant Banking funds controlled the Company and hadthe power to elect all of the Company’s directors, appoint new management andapprove any action requiring the approval of the holders of common stock,including adopting amendments to the Company’s certificate of incorporation andapproving acquisitions or sales of all or substantially all of the Company’sassets. The directors elected by the DLJ Merchant Banking funds had the abilityto control decisions affecting the Company’s capital structure, including theissuance of additional capital stock, the implementation of stock repurchaseprograms and the declaration of dividends.

We paid DLJ Merchant Banking II, Inc. an annualadvisory fee of $500,000 in connection with a financial advisory agreement.This agreement terminated on October 3, 2005 in connection with thepurchase of the Company by Walter. Additionally, at September 30, 2004 wehad payable to DLJ Merchant Banking II $1.0 million as a one-timeadvisory fee permitted upon the amendment of our senior credit facility.

Under the DLJ financialadvisory agreement, Credit Suisse First Boston LLC, an affiliate of the DLJMerchant Banking funds (“Credit Suisse”), was entitled to receive fees inconnection with investment banking and financial arranger services provided byCredit Suisse to the Company.   Pursuantto the financial advisory agreement, on October 3, 2005, we paid Credit Suisse$14,788,860, including fees that were contingent on the sale of the Company andreimbursement of expenses, in connection with the consummation of theacquisition of the Company by Walter Industries.  In addition, in fiscal year 2005, we paidCredit Suisse approximately $0.5 million for services provided by Credit Suisseas Administrative Agent under our 2004 Senior Credit Facility.  As noted above, the relationships with CreditSuisse under the financial advisory agreement and our 2004 Senior CreditFacility were terminated on October 3, 2005, in connection with the purchase ofthe Company by Walter Industries and the refinancing of our 2004 Senior CreditFacility on that date.

**Acquisition by Walter Industries**

*Payment of MergerConsideration*

As of immediately prior to October 3, 2005, the DLJMerchant Banking Funds owned approximately 88.7% of the then outstanding sharesof Company common stock, including shares into which the then outstandingwarrants for shares of Company common stock were exercisable.  In addition, as of 

65

----

immediately prior toOctober 3, 2005, certain of directors and our named executive beneficiallyowned shares of the Company’s common stock. 

In connection with the acquisition of the Company byWalter Industries, on October 3, 2005, all of the Company’s outstanding sharesof common stock and warrants were converted into the right to receive cashequal to the merger consideration set forth in the agreement and plan of mergerdated as of June 17, 2005 among the Company, Walter Industries, Inc. andothers.  Under the merger agreement, $25million of the total purchase price was placed into an escrow fund pendingresolution of the purchase price adjustment pursuant to the mergeragreement.  As a result, total mergerconsideration is payable in two installments: the initial installment,calculated based on the acquisition price, net of the escrow amount, theCompany’s debt and other items as provided in the merger agreement, and equalto approximately $3.69 per share, and a subsequent installment, equal to theamount of the escrow fund remaining after the purchase price adjustmentcontemplated by the merger agreement, which would equal approximately $0.10 pershare if the purchase price is not adjusted. As of the date hereof, the purchase price adjustment has not been agreedto and the escrow fund has not been released to fund any purchase priceadjustment or the subsequent installment of merger consideration.  

Thefollowing table lists the shares of Company common stock beneficially ownedprior to October 3, 2005 by our directors who served on our Board of Directorsduring fiscal 2005, our named officers and the DLJ Merchant Banking funds andthe initial installment of merger consideration paid to them upon consummationof the Walter Industries acquisition. Other than Dale B. Smith, none of our current directors beneficiallyowned shares of Company common stock.

| **Name of Beneficial Owner**                                                          | ** ** | ** ** | ** **  | **Shares of Mueller  Water Products  Common Stock Beneficially  Owned Immediately prior to  October 3, 2005** | ** ** | **Initial Merger  Consideration Paid to  Beneficial Owner** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------|-------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| DLJ Merchant  Banking Partners II, L.P. and related investors                                        |       |       | 190,295,733 |                                                                                                                                                            |       |                                                                            | $          | 701,713,264 |   |   |
| Dale B. Smith, *President and Chief Executive Officer  and Director*                                 |       |       | 9,226,244   |                                                                                                                                                            |       |                                                                            | 34,021,666 |   |   |
| Thomas E. Fish,*President, Anvil Segment and former Interim Chief Financial Officer*                 |       |       | 1,457,500   |                                                                                                                                                            |       |                                                                            | 5,269,934  |   |   |
| Doyce Gaskin,*Vice President, Manufacturing, Mueller Segment*                                        |       |       | 1,207,500   |                                                                                                                                                            |       |                                                                            | 4,366,000  |   |   |
| George P.  Bukuras,*former Vice President, Chief Compliance Officer,  General Counsel and Secretary* |       |       | 150,000     |                                                                                                                                                            |       |                                                                            | 542,360    |   |   |
| Darrell Jean,*former Vice President, Business Development*                                           |       |       | 1,357,500   |                                                                                                                                                            |       |                                                                            | 4,908,360  |   |   |
| Vincent Sarni,*former Director*                                                                      |       |       | 50,000      |                                                                                                                                                            |       |                                                                            | 180,787    |   |   |

 

66

----

*Transaction Bonuses*

In connectionwith the acquisition of the Company by Walter Industries, certain namedexecutive officers of the Company were entitled to receive transaction bonusesupon consummation of the acquisition.  InAugust 2005, the transaction bonuses were approved by our Board of Directorsand by disinterested holders of over 75% of the shares of common stock of theCompany then outstanding.  The followingtable lists the transaction bonuses paid to our named executive officers onOctober 3, 2005 upon consummation of the Walter Industries acquisition.

| **Named Executive Officer**                                                                | ** ** | ** ** | ** ** | **Transaction  Bonus Paid** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------|------------|----------------------------------|------------|
| Dale B. Smith,*President and Chief Executive Officer and Director*                                   |       | $          | 3,500,000  |                             |
| Thomas E. Fish,*President, Anvil Segment and former Interim Chief Financial Officer*                 |       | 1,000,000  |       |
| Doyce Gaskin,*Vice President, Manufacturing, Mueller Segment*                                        |       | 750,000    |       |
| George P.  Bukuras,*former Vice President, Chief Compliance Officer,  General Counsel and Secretary* |       | 1,000,000  |       |
| Darrell Jean,*former Vice President, Business Development*                                           |       | 1,500,000  |       |
|                                                                                                      |            |            |            |                                  |            |  |

 

**Investors’Agreement**

We, the DLJ MerchantBanking funds, certain other institutional investors and our managementstockholders had entered into an investors’ agreement that terminated uponconsummation of the acquisition of the Company by Walter Industries, Inc.

**Indebtedness of Management**

Underour Direct Investment Program, certain employees, including the named executiveofficers, were allowed to purchase shares of our common stock at a price equalto the fair value at the time of purchase. Pursuant to the plan, one-half ofthe shares purchased by each participant were purchased through non-recourseloans granted by us. These loans accrued interest at 8.5% per annum, payableupon repayment of the loan. Since October 1, 2002, the following namedexecutive officers received such loans, including accrued interest as of April 15,2004:

| **Name**          | ** ** | ** ** | ** ** | **Largest aggregate amount of loans  outstanding since October 1, 2002** | ** ** |
|-------------------|------------|------------|------------|------------------------------------------------------------------------------------------------------------------|------------|
| Dale B. Smith     |       |       | $          | 3,362,307                                                                                                        |       |   |
| Thomas E. Fish    |       |       | 336,231    |                                                                                                             |       |
| George P. Bukuras |       |       | 33,623     |                                                                                                             |       |
| Darrell Jean      |       |       | 268,985    |                                                                                                             |       |
| Doyce Gaskin      |       |       | 168,115    |                                                                                                             |       |

 

The loans were repaid inconnection with the April 2004 recapitalization. See “Item 11.—ExecutiveCompensation—Stock Option and Incentive Plans—Mueller Water Products, Inc.Direct Investment Program” and “—Proceeds of the April 2004Recapitalization.”

**Proceedsof the April 2004 Recapitalization**

In connection with the April 2004recapitalization, holders of our common stock received $1.91 per share andholders of our then-outstanding options received the excess of the per sharedividend to our common stockholders over the exercise price of their options.As a result, the named executive officers received approximately$18.7 million of the proceeds, including $13.0 million,$1.7 million, $0.2 million, $1.6 million and $1.3 millionfor Messrs. Smith, Fish, Bukuras, Jean and Gaskin, respectively. The namedexecutive officers repaid an aggregate of $3.1 million in principal and$1.1 million in accrued interest as of 

67

----

April 15,2004 for loans made by us to help them purchase our common stock with a portionof the proceeds received by them. See “—Indebtedness of Management.”

**Item 14.**                 PrincipalAccountant Fees and Services

Thefollowing table presents information concerning fees paid toPricewaterhouseCoopers LLP (“PwC”) in each of those years.

| ** **             | ** ** | **2005**                | ** ** | **2004** | ** ** |
|------------------------|------------|-------------------------|------------|----------|------------|
| ** **             | ** ** | **(in thousands)** | ** ** |
| Audit fees(1)          |       | $                       | 2,163.1    |     | $          | 2,238.8 |   |
| Audit-related  fees(2) |       | $                       | 716.3      |     | $          | 121.9 |   |
| Tax fees(3)            |       | $                       | 48.1       |     | $          | 145.8 |   |
| Other(4)               |       | $                       | 54.8       |     | $          | — |   |

----

(1)          These are fees forprofessional services performed by PwC for (1) the annual audit andquarterly reviews of our consolidated financial statements, (2) assistancewith comfort letters related to our securities offerings and (3) consentsfiled in our registration statements.

(2)          These are fees forassurance and related services performed by PwC that are reasonably related tothe performance of the audit or review of our financial statements but notdescribed in item (1) above, primarily attributable to fees related topotential acquisitions and sales that were not completed.

(3)          These are fees forprofessional services performed by PwC with respect to tax compliance, taxadvice and tax planning. This primarily includes tax review services performedin connection with our federal, state and foreign tax returns and tax adviceand assistance regarding statutory, regulatory or administrative developments.

(4)          Theseare fees for professional services performed by PwC with respect to time spentby PwC audit staff during a third party review of audit workpapers inconnection with the sale process of the Company.

**AuditCommittee’s Pre-Approval Policies and Procedures**

For most of fiscal 2005, our Audit Committee wascomposed of two members of the Board of Directors:  Joseph Lucke, who resigned effective June 1,2005, and Vincent Sarni, who was independent. As of November 2005, ourBoard of Directors appointed the Audit Committee of the Walter Industries Boardof Directors to serve as the Audit Committee for the Company and its Mueller Groupsubsidiary.

During fiscal 2005, the Audit Committee wasresponsible for appointing, setting compensation for, and overseeing the workof the independent registered public accounting firm. As a result, the AuditCommittee, as a routine matter, pre-approved all services provided by theindependent registered public accounting firm.

Accordingly, all servicesprovided by PricewaterhouseCoopers LLP in 2004 following the date the Companyand Mueller Group became subject to SEC rules and regulations and in 2005were pre-approved by the Audit Committee as described above. None of suchservices were approved pursuant to the procedures described in Rule 2-01(c)(7)(i)(C) ofRegulation S-X, which waives the general requirement for pre-approval incertain circumstances.

68

----

**PART IV**

**Item15.**                 Exhibits andFinancial Statements

**(a)****          FinancialStatements**

| Report of Independent  Registered Public Accounting Firm                                                                                                            |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Consolidated  Balance Sheets as of September 30, 2005 and 2004                                                                                                 |
| Consolidated  Statements of Operations for the Fiscal years ended September 30, 2005,  2004 and 2003                                                           |
| Consolidated  Statements of Shareholders’ Deficit and Redeemable Preferred and Common Stock  for the Fiscal Years Ended September 30, 2005, 2004 and 2003 |
| Consolidated  Statements of Cash Flows for the Fiscal Years Ended September 30, 2005,  2004 and 2003                                                           |
| Notes to Consolidated Financial Statements                                                                                                                          |

 

**(b)****          Exhibits**

| EXHIBIT NO. | ** ** | ** **                                                                                                                                                                                                                                                                                             | **DOCUMENT** |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|
| 2.1         |       | Agreement and Plan of Merger dated as of June 17,  2005 among Mueller Water Products, Inc., Walter Industries, Inc., JW  MergerCo, Inc. and DLJ Merchant Banking II, Inc., as stockholders’  representative(5)                                                                                    |
| 3.1         |       | Certificate of  Incorporation of Mueller Water Products, Inc. (formerly Hydrant  Acquisition Corp.)(1)                                                                                                                                                                                            |
| 3.1.1       |       | Certificate of Formation  of Mueller Water Products, LLC together with Certificate of Conversion to  Limited Liability Company of Mueller Water Products, Inc.*                                                                                                                                        |
| 3.2         |       | Limited Liability  Company Agreement of Mueller Water Products, LLC*                                                                                                                                                                                                                                   |
| 4.1         |       | Indenture, dated as of  April 29, 2004, between Mueller Water Products, Inc. and Law  Debenture Trust Company of New York for the 14.75% Senior Discount Notes due  2014(1)                                                                                                                  |
| 4.2         |       | Indenture, dated as of  April 23, 2004, among Mueller Group, Inc., the Guarantors party  thereto and Law Debenture Trust Company of New York for the Second Priority  Senior Secured Floating Rate Notes due 2011(1)                                                                         |
| 4.3         |       | Indenture, dated as of  April 23, 2004, among Mueller Group, Inc., the Guarantors party  thereto and Law Debenture Trust Company of New York for the 10% Senior  Subordinated Notes due 2012(1)                                                                                              |
| 4.4         |       | Stockholders Agreement,  dated as of August 16, 1999, among Mueller Water Products, Inc. and  certain other stockholders named therein(1)                                                                                                                                                    |
| 4.5         |       | Amendment No. 1 to  the Stockholders Agreement dated as of May 5, 2000(1)                                                                                                                                                                                                                    |
|        |       | The Company has not  filed certain debt instruments with respect to long-term debt that does  not exceed ten percent of the total assets of the Company and its  subsidiaries on a consolidated basis. The Company hereby agrees to furnish a  copy of such instruments to the Commission upon request |
| 10.1        |       | Amended and Restated  Mueller Water Products, Inc. Management Incentive Plan effective as of  February 10, 2003(1)**                                                                                                                                                                    |
| 10.2        |       | Mueller Water  Products, Inc. Direct Investment Program, effective as of  August 31, 2000(1)**                                                                                                                                                                                               |
| 10.3        |       | 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(1)                                                                                                                        |
| 10.3.1      |       | First Amendment  to the Second Amended and Restated Credit Agreement(2)                                                                                                                                                                                                                                |
|             |            |                                                                                                                                                                                                                                                                                                        |              |  |

69

----

 

| 10.3.2 |   | Waiver dated as  of February 4, 2005 under the Second Amended and Restated Credit  Agreement(3)                                                                                                                                                                                                                                  |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.4   |   | Executive Employment  Agreement, dated August 16, 1999, between Mueller Group, Inc. and  Dale B. Smith(1)**                                                                                                                                                                                                            |
| 10.5   |   | Employment Agreement,  dated February 1, 2003, between Mueller Group, Inc. and George P.  Bukuras(1)**                                                                                                                                                                                                                      |
| 10.6   |   | First Amended and  Restated Mueller Group, Inc. Key Employee Severance Plan, effective as  of March 1, 2003(6)**                                                                                                                                                                                                            |
| 10.7   |   | Financial Advisory  Agreement, dated July 23, 1999, between Hydrant Acquisition Corp.,  Mueller Group, Inc. and Credit Suisse First Boston LLC (as successor to  Donaldson, Lufkin & Jenrette Securities Corporation)(1)                                                                                           |
| 10.7.1 |   | Assignment of  Financial Advisory Agreement, dated April 27, 2004, between Hydrant  Acquisition Corp, Credit Suisse First Boston LLC and DLJ Merchant Banking II,  Inc.(1)                                                                                                                                                            |
| 10.7.2 |   | Amendment to  Financial Advisory Agreement, dated September 23, 2004 between Mueller  Holdings (N.A.), Inc., Mueller Group, Inc. and DLJ Merchant Banking II, Inc.*                                                                                                                                                                   |
| 10.8   |   | Employment  Agreement, dated as of February 18, 2005, between Mueller  Group, Inc. and Darrell Jean(4)**                                                                                                                                                                                                                    |
| 10.9   |   | Employment  Agreement, dated as of June 17, 2005, between Mueller Group, Inc. and Thomas  E. Fish(6)**                                                                                                                                                                                                                                |
| 10.10  |   | Employment  Agreement, dated as of June 17, 2005, between Mueller Group, Inc. and Doyce  Gaskin(6)**                                                                                                                                                                                                                                  |
| 10.11  |   | Credit Agreement  dated as of October 3, 2005 among Mueller Group, LLC, Bank of America, N.A.,  as administrative agent, Morgan Stanley Senior Funding, Inc., as syndication  agent, Caylon New York Branch, Fifth Third Bank and JPMorgan Chase Bank, N.A.,  as co-documentation agents, and the other lenders named therein(7) |
| 14.1   |   | Code of Conduct*                                                                                                                                                                                                                                                                                                                      |
| 21.1   |   | Subsidiaries of  Mueller Water Products, LLC*                                                                                                                                                                                                                                                                                    |
| 31.1   |   | Rule 13a-14(a) Certification  of Chief Executive Officer*                                                                                                                                                                                                                                                                   |
| 31.2   |   | Rule 13a-14(a) Certification  of Chief Financial Officer*                                                                                                                                                                                                                                                                   |
| 32.1   |   | Section 1350  Certification of Chief Executive Officer*                                                                                                                                                                                                                                                                          |
| 32.2   |   | Section 1350  Certification of Chief Financial Officer*                                                                                                                                                                                                                                                                          |

----

(1)          Previouslyfiled on June 17, 2004 as an exhibit to Mueller Water Products, Inc.’sRegistration Statement on Form S-1 (No. 333-116590)

(2)          Previouslyfiled as an exhibit to the Form 8-K of Mueller Group, Inc.filed on August 27, 2004.

(3)          Previouslyfiled as an exhibit to the Form 8-K of Mueller Group, Inc.filed on February 7, 2005.

(4)          Previouslyfiled as an exhibit to the Form 8-K of Mueller Group, Inc.filed on February 24, 2005.

(5)   Previously filed as an exhibit to the Form 8-K of MuellerWater Products, Inc. filed on June 21, 2005.

(6)   Previously filed as an exhibit to the Form 8-K of MuellerGroup, Inc. filed on June 21, 2005.

(7)   Previously filed as an exhibit to the Form 8-K of MuellerWater Products, LLC filed on October 5, 2005.

*                    Filedherewith.

**             Compensatoryplan or arrangement.

70

----

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

Tothe Shareholders and Board of Directors ofMueller Water Products, LLC(formerly Mueller Water Products, Inc.)

In our opinion, the accompanyingconsolidated balance sheets and the related consolidated statements ofoperations, shareholders’ deficit and redeemable preferred and common stock andof cash flows present fairly, in all material respects, the financial positionof Mueller Water Products, LLC, at September 30, 2005 and 2004, andthe results of its operations and its cash flows for each of the three years inthe period ended September 30, 2005, in conformity with accountingprinciples generally accepted in the United States of America. These financialstatements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits. We conducted our audits of these statements in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

As discussed in Note 2 tothe consolidated financial statements, the Company has restated its 2004 and2003 consolidated financial statements.
| /s/ PRICEWATERHOUSECOOPERS  LLP |   |
|---------------------------------|--------|
| Chicago, Illinois               |
| December 16, 2005          |

 

F-1

----

**MUELLER WATERPRODUCTS, LLC (FORMERLY MUELLER WATER PRODUCTS, INC.)CONSOLIDATED BALANCE SHEETS**

| ** **                                                                                                           | ** ** | **September 30,  2005**        | ** ** | **September 30,  2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|------------------------------|------------|
| ** **                                                                                                           | ** ** | ** **                          | ** ** | **(restated)**               | ** ** |
| ** **                                                                                                           | ** ** | **(dollars in millions)** | ** ** |
| **Assets**                                                                                                           |       |                                |       |                         |       |   |   |   |   |
| Cash and cash  equivalents                                                                                           |       |                                | $          | 112.8                        |       |   |   | $ | 60.5 |   |   |
| Receivables, net                                                                                                     |       |                                | 177.4      |                         |       |   | 162.0 |   |   |
| Inventories                                                                                                          |       |                                | 303.0      |                         |       |   | 260.2 |   |   |
| Income tax  receivable                                                                                               |       |                                | —     |                         |       |   | 4.1 |   |   |
| Deferred income  taxes                                                                                               |       |                                | 27.7       |                         |       |   | 21.8 |   |   |
| Prepaid expenses                                                                                                     |       |                                | 31.1       |                         |       |   | 28.9 |   |   |
| Total current assets                                                                                                 |       |                                | 652.0      |                         |       |   | 537.5 |   |   |
| Property, plant  and equipment, net                                                                                  |       |                                | 168.0      |                         |       |   | 186.8 |   |   |
| Deferred  financing fees, net                                                                                        |       |                                | 32.2       |                         |       |   | 37.4 |   |   |
| Deferred income  taxes                                                                                               |       |                                | 17.5       |                         |       |   | 8.3 |   |   |
| Other long-term  assets                                                                                              |       |                                | 1.5        |                         |       |   | 0.8 |   |   |
| Identifiable  intangibles, net                                                                                       |       |                                | 52.4       |                         |       |   | 55.2 |   |   |
| Goodwill                                                                                                             |       |                                | 163.2      |                         |       |   | 163.2 |   |   |
| Total assets                                                                                                         |       |                                | $          | 1,086.8                      |       |   |   | $ | 989.2 |   |   |
| **Liabilities**                                                                                                      |       |                                |       |                         |       |   |   |   |   |
| Accounts payable                                                                                                     |       |                                | $          | 63.3                         |       |   |   | $ | 57.6 |   |   |
| Current portion  of long-term debt                                                                                   |       |                                | 3.8        |                         |       |   | 3.2 |   |   |
| Accrued expenses  and other liabilities                                                                              |       |                                | 103.3      |                         |       |   | 85.9 |   |   |
| Total current liabilities                                                                                            |       |                                | 170.4      |                         |       |   | 146.7 |   |   |
| Long-term  debt                                                                                                      |       |                                | 1,051.9    |                         |       |   | 1,036.2 |   |   |
| Accrued pension  liability                                                                                           |       |                                | 37.7       |                         |       |   | 29.2 |   |   |
| Other long-term  liabilities                                                                                         |       |                                | 1.5        |                         |       |   | 7.8 |   |   |
| Total liabilities                                                                                                    |       |                                | 1,261.5    |                         |       |   | 1,219.9 |   |   |
| Commitments and  contingencies (Note 9)                                                                         |       |                                | —     |                         |       |   | — |   |   |
| Redeemable common  stock                                                                                             |       |                                | 1.7        |                         |       |   | 1.7 |   |   |
| **Shareholders’ deficit:**                                                                                      |       |                                |       |                         |       |   |   |   |   |
| 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 |   |   |
| Accumulated  deficit                                                                                                 |       |                                | (169.0     | )                            |       |   | (218.6 | ) |   |
| Accumulated other  comprehensive loss                                                                                |       |                                | (9.6       | )                            |       |   | (16.0 | ) |   |
| Total  shareholders’ deficit                                                                                    |       |                                | (176.4     | )                            |       |   | (232.4 | ) |   |
| Total liabilities and  shareholders’ deficit                                                                    |       |                                | $          | 1,086.8                      |       |   |   | $ | 989.2 |   |   |

 

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

F-2

----

**MUELLER WATERPRODUCTS, LLC (FORMERLY MUELLER WATER PRODUCTS, INC.)CONSOLIDATED STATEMENTS OF OPERATIONS**

| ** **                                                 | ** ** | **Fiscal Years Ended**    | ** ** |
|------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                 | ** ** | **September 30, 2005**    | ** ** | **September 30, 2004** | ** ** | **September 30, 2003** | ** ** |
| ** **                                                 | ** ** | ** **                          | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| ** **                                                 | ** ** | **(dollars in millions)** | ** ** |
| Net sales                                                  |       |                                | $          | 1,148.9 |   |   |   | $ | 1,049.2 |   |   |   | $ | 922.9 |   |   |
| Cost of sales                                              |       |                                | 802.3      |   |   |   | 750.5 |   |   |   | 681.8 |   |   |
| Gross profit                                               |       |                                | 346.6      |   |   |   | 298.7 |   |   |   | 241.1 |   |   |
| Operating expenses:                                        |       |                                |       |   |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative                        |       |                                | 172.1      |   |   |   | 185.1 |   |   |   | 148.2 |   |   |
| Facility rationalization, restructuring and related  costs |       |                                | 1.7        |   |   |   | 0.9 |   |   |   | 1.7 |   |   |
| Total operating expenses                                   |       |                                | 173.8      |   |   |   | 186.0 |   |   |   | 149.9 |   |   |
| Income from  operations                                    |       |                                | 172.8      |   |   |   | 112.7 |   |   |   | 91.2 |   |   |
| Interest expense,  net of interest income                  |       |                                | (89.5      | ) |   |   | (63.5 | ) |   |   | (35.5 | ) |   |
| Income before income taxes                                 |       |                                | 83.3       |   |   |   | 49.2 |   |   |   | 55.7 |   |   |
| Provision for  income taxes                                |       |                                | 33.7       |   |   |   | 16.0 |   |   |   | 22.9 |   |   |
| Net income                                                 |       |                                | $          | 49.6 |   |   |   | $ | 33.2 |   |   |   | $ | 32.8 |   |   |

 

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

F-3

----

**MUELLER WATER PRODUCTS, LLC (FORMERLY MUELLER WATERPRODUCTS, INC.)**

**CONSOLIDATEDSTATEMENTS OF SHAREHOLDERS’ DEFICIT AND**REDEEMABLE PREFERRED AND COMMON STOCK

**FOR THE THREE YEARS ENDED SEPTEMBER 30, 2005**

| ** ** | ** ** | ** **                                  | ** ** | ** **     | ** ** | ** **               | ** ** | ** **        | ** ** | **Accumulated**      | ** ** | ** **               | ** ** | ** **         | ** ** | ** **              | ** ** | ** **             | ** ** |
|------------|------------|---------------------------------------------|------------|----------------|------------|--------------------------|------------|-------------------|------------|----------------------|------------|--------------------------|------------|--------------------|------------|-------------------------|------------|------------------------|------------|
| ** ** | ** ** | **Common Stock $0.01 Par Value**            | ** ** | **Additional** | ** ** | ** **               | ** ** | **Comprehensive** | ** ** | **Other**            | ** ** | ** **               | ** ** | ** **         | ** ** | **Redeemable**          | ** ** | **Redeemable**         | ** ** |
| ** ** | ** ** | **Class A  Shares**                    | ** ** | **Amount**     | ** ** | **Class B  Shares** | ** ** | **Amount**        | ** ** | **Paid in  Capital** | ** ** | **Accumulated**  Deficit | ** ** | **Income  (Loss)** | ** ** | **Comprehensive  Loss** | ** ** | **Stockholder  Loans** | ** ** | **Total** | ** ** | **Preferred  Stock** | ** ** | **Common  Stock** | ** ** |
| ** ** | ** ** | **(dollar amounts and shares in millions)** | ** ** |
|            |            |                                             |            |                |            |                          |            |                   |            |                      |            |                          |            |                    |            |                         |            |                        |            |  |  |  |  |  |  |

| Balance at September 30, 2002                   |   |   | 116.0  |   |   |   | $1.1   |   |   |   | 89.3   |   |   |   | $0.9   |   |   |   | $ 155.8                          |   |   |   | $(47.0  | )      |   |   |   |   |   |   | $ (29.6      | )      |   |   | $ (2.6         | )      |   | $   78.6 |   |   | $   82.4                           |   |   |   | $ 2.1 |   |   |
|------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------------------------------------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|-------------------|--------|--------|--------|---------------------|--------|--------|-------------------------|--------|--------|---------------------------------------------------|--------|--------|--------|------------|--------|--------|
| Issuance of common stock                             |   |   | 0.5    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —                                |   |   |   | —  |   |   |   |   |   |   |   | —            |   |   |   | —              |   |   | —                  |   |   | —                                            |   |   |   | 0.7        |   |   |
| Accretion of redeemable preferred stock              |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (14.2                                 | )      |   |   | —  |   |   |   |   |   |   |   | —            |   |   |   | —              |   |   | (14.2                   | )      |   | 14.2                                              |   |   |   | —     |   |   |
| Interest on stockholder loans                        |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —                                |   |   |   | —  |   |   |   |   |   |   |   | —            |   |   |   | (0.2                | )      |   | (0.2                    | )      |   | —                                            |   |   |   | (0.2       | )      |   |
| Employees stock compensation                         |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 0.7                                   |   |   |   | —  |   |   |   |   |   |   |   | —            |   |   |   | —              |   |   | 0.7                     |   |   | —                                            |   |   |   | —     |   |   |
| Comprehensive  income                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |                                  |   |   |   |    |   |   |   |   |   |   |   |              |   |   |   |                |   |   |                    |   |   |                                              |   |   |   |       |   |   |
| Net income                                           |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —                                |   |   |   | 32.8    |   |   |   | $32.8  |   |   |   | —            |   |   |   | —              |   |   | 32.8                    |   |   | —                                            |   |   |   | —     |   |   |
| Foreign currency translation adjustments        |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —                                |   |   |   | —  |   |   |   | 10.4   |   |   |   | 10.4              |   |   |   | —              |   |   | 10.4                    |   |   | —                                            |   |   |   | —     |   |   |
| Increase in additional minimum pension liability     |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —                                |   |   |   | —  |   |   |   | (1.3   | )      |   |   | (1.3              | )      |   |   | —              |   |   | (1.3                    | )      |   | —                                            |   |   |   | —     |   |   |
| Comprehensive income                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |                                  |   |   |   |    |   |   |   | $41.9  |   |   |   |              |   |   |   |                |   |   |                    |   |   |                                              |   |   |   |       |   |   |
| Balance at September 30, 2003                   |   |   | 116.5  |   |   |   | 1.1    |   |   |   | 89.3   |   |   |   | 0.9    |   |   |   | 142.3                                 |   |   |   | (14.2   | )      |   |   | — |   |   |   | (20.5             | )      |   |   | (2.8                | )      |   | 106.8                   |   |   | 96.6                                              |   |   |   | 2.6        |   |   |
| Fair market value of warrants                        |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 10.5                                  |   |   |   | —  |   |   |   |   |   |   |   | —            |   |   |   | —              |   |   | 10.5                    |   |   | —                                            |   |   |   | —     |   |   |
| Accretion of Redeemable preferred stock              |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (9.9                                  | )      |   |   | —  |   |   |   |   |   |   |   | —            |   |   |   | —              |   |   | (9.9                    | )      |   | 9.9                                               |   |   |   | —     |   |   |
| Retirement of preferred stock                        |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —                                |   |   |   | —  |   |   |   |   |   |   |   | —            |   |   |   | —              |   |   | —                  |   |   | (106.5                                            | )      |   |   | —     |   |   |
| Interest on stockholder loans                        |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —                                |   |   |   | —  |   |   |   |   |   |   |   | —            |   |   |   | (0.2                | )      |   | (0.2                    | )      |   | —                                            |   |   |   | (0.2       | )      |   |
| Repayment of shareholder loans,   including interest |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —                                |   |   |   | (6.2    | )      |   |   |   |   |   |   | —            |   |   |   | 3.0                 |   |   | (3.2                    | )      |   | —                                            |   |   |   | 3.2        |   |   |
| Dividends paid                                       |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (162.3                                | )      |   |   | (231.4  | )      |   |   |   |   |   |   | —            |   |   |   | —              |   |   | (393.7                  | )      |   |                                              |   |   |   | (5.5       | )      |   |
| Employee stock compensation                          |   |   | 14.7   |   |   |   | 0.2    |   |   |   | — |   |   |   | — |   |   |   | 21.0                                  |   |   |   | —  |   |   |   |   |   |   |   | —            |   |   |   | —              |   |   | 21.2                    |   |   | —                                            |   |   |   | —     |   |   |
| Increase in redeemable common stock                  |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (1.6                                  | )      |   |   | —  |   |   |   |   |   |   |   | —            |   |   |   | —              |   |   | (1.6                    | )      |   | —                                            |   |   |   | 1.6        |   |   |
| Comprehensive  income                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |                                  |   |   |   |    |   |   |   |   |   |   |   |              |   |   |   |                |   |   |                    |   |   |                                              |   |   |   |       |   |   |
| Net income                                           |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —                                |   |   |   | 33.2    |   |   |   | $33.2  |   |   |   | —            |   |   |   | —              |   |   | 33.2                    |   |   | —                                            |   |   |   | —     |   |   |
| Foreign currency translation adjustments        |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —                                |   |   |   | —  |   |   |   | 4.3    |   |   |   | 4.3               |   |   |   | —              |   |   | 4.3                     |   |   | —                                            |   |   |   | —     |   |   |
| Decrease in additional minimum pension liability     |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —                                |   |   |   | —  |   |   |   | 0.2    |   |   |   | 0.2               |   |   |   | —              |   |   | 0.2                     |   |   | —                                            |   |   |   | —     |   |   |
| Comprehensive income                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |                                  |   |   |   |    |   |   |   | $37.7  |   |   |   |              |   |   |   |                |   |   |                    |   |   |                                              |   |   |   |       |   |   |
| Balance at September 30, 2004                   |   |   | 131.2  |   |   |   | 1.3    |   |   |   | 89.3   |   |   |   | 0.9    |   |   |   | —                                |   |   |   | (218.6  | )      |   |   | — |   |   |   | (16.0             | )      |   |   | —              |   |   | (232.4                  | )      |   | —                                            |   |   |   | 1.7        |   |   |
| Comprehensive  income                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |                                  |   |   |   |    |   |   |   |   |   |   |   |              |   |   |   |                |   |   |                    |   |   |                                              |   |   |   |       |   |   |
| Net income                                           |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —                                |   |   |   | 49.6    |   |   |   | 49.6   |   |   |   | —            |   |   |   | —              |   |   | 49.6                    |   |   | —                                            |   |   |   | —     |   |   |
| Foreign currency translation adjustments        |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —                                |   |   |   | —  |   |   |   | 8.1    |   |   |   | 8.1               |   |   |   | —              |   |   | 8.1                     |   |   | —                                            |   |   |   | —     |   |   |
| Increase in additional minimum pension liability     |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —                                |   |   |   | —  |   |   |   | (1.7   | )      |   |   | (1.7              | )      |   |   | —              |   |   | (1.7                    | )      |   | —                                            |   |   |   | —     |   |   |
| Comprehensive income                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |                                  |   |   |   |    |   |   |   | $56.0  |   |   |   |              |   |   |   |                |   |   |                    |   |   |                                              |   |   |   |       |   |   |
| Balance at  September 30, 2005                  |   |   | 131.2  |   |   |   | $1.3   |   |   |   | 89.3   |   |   |   | $0.9   |   |   |   | $     — |   |   |   | $(169.0 | )      |   |   |   |   |   |   | $  (9.6 | )      |   |   | $  — |   |   | $ (176.4           | )      |   | $       — |   |   |   | $ 1.7 |   |   |

 

The accompanying notes are an integral part of the financialstatements.

F-4

 

----

**MUELLER WATERPRODUCTS, LLC (FORMERLY MUELLER WATER PRODUCTS, INC.)CONSOLIDATED STATEMENTS OF CASH FLOWS**

| ** **                                                                         | ** ** | **Fiscal Years ended**    | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                         | ** ** | **September 30,  2005**        | ** ** | **September 30,  2004** | ** ** | **September 30,  2003** | ** ** |
| ** **                                                                         | ** ** | ** **                          | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| ** **                                                                         | ** ** | **(dollars in millions)** | ** ** |
| **Operating Activities**                                                           |       |                                |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                                         |       |                                | $          | 49.6 |   |   |   | $ | 33.2 |   |   |   | $ | 32.8 |   |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                                |       |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                                                       |       |                                | 43.5       |   |   |   | 46.0 |   |   |   | 47.2 |   |   |
| Amortization of intangibles                                                        |       |                                | 2.8        |   |   |   | 16.0 |   |   |   | 17.1 |   |   |
| Amortization of deferred financing fees                                            |       |                                | 5.2        |   |   |   | 3.6 |   |   |   | 2.7 |   |   |
| Amortization of tooling                                                            |       |                                | 2.1        |   |   |   | 2.3 |   |   |   | 2.0 |   |   |
| Accretion on senior discount notes                                                 |       |                                | 17.8       |   |   |   | 6.8 |   |   |   | — |   |   |
| Amortization of discount on 143⁄4% senior discount  notes                       |       |                                | 1.1        |   |   |   | 0.4 |   |   |   | — |   |   |
| Write off of deferred financing fees                                               |       |                                | —     |   |   |   | 7.0 |   |   |   | — |   |   |
| Non-cash stock compensation                                                        |       |                                | —     |   |   |   | 8.6 |   |   |   | 0.7 |   |   |
| Gain on interest rate swaps                                                        |       |                                | (5.2       | ) |   |   | (12.5 | ) |   |   | (13.3 | ) |   |
| Deferred income taxes                                                              |       |                                | (14.1      | ) |   |   | (5.3 | ) |   |   | 0.5 |   |   |
| Asset impairments                                                                  |       |                                | 0.5        |   |   |   | 0.1 |   |   |   | 1.4 |   |   |
| (Gain) Loss on disposals of property, plant and  equipment                         |       |                                | (0.3       | ) |   |   | 1.6 |   |   |   | — |   |   |
| Changes in assets and  liabilities, net of the effects of acquisitions:            |       |                                |       |   |   |   |   |   |   |   |   |   |   |
| Receivables                                                                        |       |                                | (12.6      | ) |   |   | (21.7 | ) |   |   | (2.4 | ) |   |
| Inventories                                                                        |       |                                | (38.8      | ) |   |   | (9.6 | ) |   |   | (5.3 | ) |   |
| Income tax receivable                                                              |       |                                | 4.1        |   |   |   | (4.1 | ) |   |   | — |   |   |
| Prepaid expenses                                                                   |       |                                | (4.1       | ) |   |   | (1.3 | ) |   |   | (3.5 | ) |   |
| Pension, net                                                                       |       |                                | 6.6        |   |   |   | (2.7 | ) |   |   | 1.0 |   |   |
| Accounts payable and accrued expenses                                              |       |                                | 16.5       |   |   |   | 18.9 |   |   |   | 3.5 |   |   |
| Accrued royalty expense                                                            |       |                                | —     |   |   |   | — |   |   |   | (13.5 | ) |   |
| Other, net                                                                         |       |                                | (0.9       | ) |   |   | 1.7 |   |   |   | 2.9 |   |   |
| Cash flows provided by operating activities                                        |       |                                | 73.8       |   |   |   | 89.0 |   |   |   | 73.8 |   |   |
| **Investing Activities**                                                           |       |                                |       |   |   |   |   |   |   |   |   |   |   |
| Additions to property, plant and equipment                                         |       |                                | (27.2      | ) |   |   | (22.5 | ) |   |   | (20.0 | ) |   |
| Proceeds from sale of property, plant and equipment                                |       |                                | 2.2        |   |   |   | — |   |   |   | — |   |   |
| Acquisition of businesses, net of cash acquired                                    |       |                                | —     |   |   |   | (19.8 | ) |   |   | (11.2 | ) |   |
| Decrease in restricted cash                                                        |       |                                | —     |   |   |   | — |   |   |   | 11.6 |   |   |
| Cash flows used in investing activities                                            |       |                                | (25.0      | ) |   |   | (42.3 | ) |   |   | (19.6 | ) |   |
| **Financing Activities**                                                           |       |                                |       |   |   |   |   |   |   |   |   |   |   |
| Book overdrafts                                                                    |       |                                | 4.8        |   |   |   | 3.3 |   |   |   | (2.7 | ) |   |
| Proceeds from short-term borrowings                                                |       |                                | —     |   |   |   | 9.2 |   |   |   | — |   |   |
| Retirement of short-term debt                                                      |       |                                | —     |   |   |   | (9.2 | ) |   |   | — |   |   |
| Proceeds from long-term debt                                                       |       |                                | —     |   |   |   | 1,070.1 |   |   |   | — |   |   |
| Retirement of long-term debt, including capital  lease obligations                 |       |                                | (3.3       | ) |   |   | (604.6 | ) |   |   | (6.2 | ) |   |
| Redemption of preferred stock                                                      |       |                                | —     |   |   |   | (106.5 | ) |   |   | — |   |   |
| Payment of deferred financing fees                                                 |       |                                | —     |   |   |   | (36.0 | ) |   |   | — |   |   |
| Dividends paid (excluding amounts paid to  optionholders)                          |       |                                | —     |   |   |   | (386.6 | ) |   |   | — |   |   |
| Contributed capital                                                                |       |                                | —     |   |   |   | — |   |   |   | 0.7 |   |   |
| Cash flows used in financing activities                                            |       |                                | 1.5        |   |   |   | (60.3 | ) |   |   | (8.2 | ) |   |
| Effect of exchange rate changes on cash                                            |       |                                | 2.0        |   |   |   | 1.1 |   |   |   | 1.8 |   |   |
| Increase (decrease) in cash and cash equivalents                                   |       |                                | 52.3       |   |   |   | (12.5 | ) |   |   | 47.8 |   |   |
| **Cash and cash equivalents**                                                      |       |                                |       |   |   |   |   |   |   |   |   |   |   |
| Beginning of year                                                                  |       |                                | 60.5       |   |   |   | 73.0 |   |   |   | 25.2 |   |   |
| End of year                                                                        |       |                                | $          | 112.8 |   |   |   | $ | 60.5 |   |   |   | $ | 73.0 |   |   |
| **Supplemental Disclosures**                                                       |       |                                |       |   |   |   |   |   |   |   |   |   |   |
| Interest paid                                                                      |       |                                | $          | 73.5 |   |   |   | $ | 50.4 |   |   |   | $ | 48.1 |   |   |
| Income taxes paid                                                                  |       |                                | $          | 40.6 |   |   |   | $ | 27.4 |   |   |   | $ | 9.0 |   |   |

 

The Companyrecorded facility rationalization, restructuring and related charges of $1.7million, $0.9 million and $1.7 million for the years ended September 30,2005, 2004 and 2003, respectively. A portion of these charges, consisting ofwrite-offs of assets, were non-cash and are reconciled below:

| ** **                                                       | ** ** | **Fiscal Years ended**    | ** ** |
|------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                       | ** ** | **September 30,  2005**        | ** ** | **September 30,  2004** | ** ** | **September 30,  2003** | ** ** |
| ** **                                                       | ** ** | **(dollars in millions)** | ** ** |
| Accrued expenses                                                 |       |                                | $          | 1.2 |   |   |   | $ | 0.4 |   |   |   | $ | 0.3 |   |   |
| Non-cash                                                         |       |                                | 0.5        |   |   |   | 0.5 |   |   |   | 1.4 |   |   |
| Total facility  rationalization, restructuring and related costs |       |                                | $          | 1.7 |   |   |   | $ | 0.9 |   |   |   | $ | 1.7 |   |   |

 

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

F-5

----

**MUELLER WATERPRODUCTS, LLC (FORMERLY MUELLER WATER PRODUCTS, INC.)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**Note 1.   Organization**

Mueller WaterProducts, LLC (formerly Mueller Water Products, Inc.) (“Mueller Water”or “Water” or the “Company”) is the parent company of Mueller Group, LLC(formerly Mueller Group, Inc.) (“Group”). As of September 30, 2005,the Company has two reporting and operating segments, Mueller and Anvil. TheMueller segment (formerly called “Water infrastructure”) is a manufacturer ofvalves, fire hydrants and other related products utilized in the distributionof water and gas and in water and wastewater treatment facilities. The Anvilsegment (formerly called “Piping systems”) is a manufacturer of cast iron andmalleable iron pipe fittings, ductile iron couplings and fittings, pipe hangersand other related products for the plumbing, heating, mechanical, constructionretail hardware and other related industries. Both segments have operations inthe United States and Canada.

*FiscalYear End*—The fiscal year of the Company ends on September 30.

**Acquisitionby Walter Industries**

On October 3, 2005,pursuant to the agreement dated June 17, 2005, Walter Industries, Inc.(“Walter”) acquired all of the outstanding common stock of the Company for acash payment of $928.6 million. Approximately $1.05 billion of the Company’sindebtedness was assumed as part of the acquisition. In conjunction with theacquisition, through a series of transactions, U.S. Pipe, a wholly-ownedsubsidiary of Walter, was contributed by Walter Industries, Inc. to theCompany’s wholly-owned subsidiary, Mueller Group, LLC (“Group”).

Walter financed theacquisition of the common stock of the Company with a combination of availablecash, new debt, and borrowings under the 2005 Mueller Credit Agreement, as morefully described in Note 6 to the consolidated financial statements. Thepurchase price of the Company will be allocated to Mueller’s net tangibleassets and identified intangible assets based on their fair values at October 3,2005. The excess of the purchase price over net tangible and intangible assetswill be recorded as goodwill. In accordance with generally accepted accountingprinciples the assets and liabilities of U.S. Pipe were contributed to theCompany based on their book values as of October 3, 2005.

**Note 2.   AnnualRestatements**

In the course offinalizing the 2005 financial statements, the Company determined that certainitems included in the consolidated financial statements were incorrect inannual and interim periods.

*Effect of exchange rate changes on cash*

In fiscal 2003 and 2004,the Company presented the entire change related to foreign currency translationin the “Effect of exchange rate changes on cash” line item in the Statements ofConsolidated Cash Flows. The portion of cash flow changes related to increasesor decreases in assets and liabilities associated with operating, investing andfinancing activities did not consider the amount of the change related toforeign currency translation.

*Loss on disposal of property, plant and equipment*

In fiscal 2004, theCompany presented loss on disposal of property, plant and equipment as aninvesting activity in error, when it should have been presented as anadjustment in determining cash flows provided by operating activities.

*Book overdrafts*

In fiscal 2003 and 2004,cash accounts in book overdraft positions were netted with cash accounts wherelegal right of offset did not exist. On the balance sheet, cash and cashequivalents should have 

F-6

----

increasedand a liability recorded with respect to such book overdrafts by comparableamounts. The change in the book overdraft should have been reflected as afinancing activity in the consolidated statements of cash flows and has beenincluded in accounts payable in the consolidated balance sheet.

*Current and Non-current deferred income taxes*

In 2004, the Companyshould have classified certain deferred income tax assets as current in thebalance sheet, based on the nature of the underlying temporary difference, butincluded such temporary differences as non-current.

*Misclassification of depreciation expense**—In*fiscal 2003and 2004 the Company incorrectly classified certain depreciation expense amountsas selling, general and administrative expense in the Consolidated Statement ofOperations when it should have been reported as cost of sales. The restatementhad no impact on the Company’s consolidated net income.

As a result of thesefindings, the Company has restated its annual and interim financial statements.The restatement had no impact on the Company’s net income or the consolidatedstatement of stockholders’ deficit for any of the prior periods presented.Certain items included in Other, net, in the statement of cash flows in priorperiods are also presented as discrete items in the current year presentationand are included in the tables below.

F-7

----

The followingtables set forth the effects of the adjustments discussed above on thefinancial statements for the years ended September 30, 2004 and 2003 asfollows (dollars in millions):

| ** **                                                             | ** ** | **September 30, 2004** | ** ** | **September 30, 2003** | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                                             | ** ** | **AS**                           | ** ** | **AS**                           | ** ** | **AS** | ** ** | **AS** | ** ** |
| ** **                                                             | ** ** | **REPORTED**                     | ** ** | **RESTATED**                     | ** ** | **REPORTED** | ** ** | **RESTATED** | ** ** |
| **Statements of   Consolidated Cash Flows**        |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Cash Flows From Operating  Activities:**                             |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Accretion on senior  discount notes                                    |       |                             | $          | —                           |       |   |   | $ | 6.8 |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Amortization of discount  on 143¤4%  senior discount notes   |       |                             | $          | —                           |       |   |   | $ | 0.4 |   |   |   | $ | — |   |   |   | $ | — |   |   |
| (Gain) Loss on disposal  of property, plant and equipment         |       |                             | $          | —                           |       |   |   | $ | 1.6 |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Deferred income taxes                                                  |       |                             | $          | 4.4                              |       |   |   | $ | (5.3 | ) |   |   | $ | 4.0 |   |   |   | $ | 0.5 |   |   |
| Receivables                                                            |       |                             | $          | (23.6                            | )          |   |   | $ | (21.7 | ) |   |   | $ | (6.0 | ) |   |   | $ | (2.4 | ) |   |
| Inventories                                                            |       |                             | $          | (12.5                            | )          |   |   | $ | (9.6 | ) |   |   | $ | (11.1 | ) |   |   | $ | (5.3 | ) |   |
| Prepaid expenses and  other current assets                             |       |                             | $          | (1.4                             | )          |   |   | $ | (1.3 | ) |   |   | $ | (3.8 | ) |   |   | $ | (3.5 | ) |   |
| Accounts payable, accrued  expenses and other current liabilities |       |                             | $          | 20.1                             |       |   |   | $ | 18.9 |   |   |   | $ | 6.0 |   |   |   | $ | 3.5 |   |   |
| Pension, net                                                           |       |                             | $          | (2.6                             | )          |   |   | $ | (2.7 | ) |   |   | $ | 1.0 |   |   |   | $ | 1.0 |   |   |
| Other, net                                                             |       |                             | $          | (0.4                             | )          |   |   | $ | 1.7 |   |   |   | $ | (2.0 | ) |   |   | $ | 2.9 |   |   |
| Cash flows provided by  operating activities                           |       |                             | $          | 84.2                             |       |   |   | $ | 89.0 |   |   |   | $ | 65.2 |   |   |   | $ | 73.8 |   |   |
| **Cash Flows Used In Investing  Activities:**                          |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss on disposal of  property, plant and equipment                     |       |                             | $          | 1.6                              |       |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Cash flows used in  investing activities                               |       |                             | $          | (40.7                            | )          |   |   | $ | (42.3 | ) |   |   | $ | (19.6 | ) |   |   | $ | (19.6 | ) |   |
| **Cash Flows Used In Financing  Activities:**                          |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Book overdrafts                                                        |       |                             | $          | —                           |       |   |   | $ | 3.3 |   |   |   | $ | — |   |   |   | $ | (2.7 | ) |   |
| Cash flows used in  financing activities                               |       |                             | $          | (63.6                            | )          |   |   | $ | (60.3 | ) |   |   | $ | (5.5 | ) |   |   | $ | (8.2 | ) |   |
| **Effect of exchange rate changes  on cash**                           |       |                             | $          | 4.3                              |       |   |   | $ | 1.1 |   |   |   | $ | 10.4 |   |   |   | $ | 1.8 |   |   |
| **Increase (decrease) in cash and  cash equivalents**                  |       |                             | $          | (15.8                            | )          |   |   | $ | (12.5 | ) |   |   | $ | 50.5 |   |   |   | $ | 47.8 |   |   |
| **Cash and cash equivalents—Beginning  of period**                |       |                             | $          | 71.4                             |       |   |   | $ | 73.0 |   |   |   | $ | 20.9 |   |   |   | $ | 25.2 |   |   |
| **Cash and cash equivalents—End of period**                       |       |                             | $          | 55.6                             |       |   |   | $ | 60.5 |   |   |   | $ | 71.4 |   |   |   | $ | 73.0 |   |   |

 

F-8

----

 

| ** **                                        | ** ** | **September 30, 2004** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|
| ** **                                        | ** ** | **AS**                           | ** ** | **AS** | ** ** |
| ** **                                        | ** ** | **REPORTED**                     | ** ** | **RESTATED** | ** ** |
| **Consolidated Balance Sheets**                   |       |                             |       |   |   |   |   |   |   |
| Cash and cash  equivalents                        |       |                             | $          | 55.6 |   |   |   | $ | 60.5 |   |   |
| Deferred income  tax—current                 |       |                             | $          | 9.0 |   |   |   | $ | 21.8 |   |   |
| Current assets                                    |       |                             | $          | 519.8 |   |   |   | $ | 537.5 |   |   |
| Deferred income  tax—non-current             |       |                             | $          | 21.1 |   |   |   | $ | 8.3 |   |   |
| Total assets                                      |       |                             | $          | 984.3 |   |   |   | $ | 989.2 |   |   |
| Accounts payable                                  |       |                             | $          | 52.7 |   |   |   | $ | 57.6 |   |   |
| Total current  liabilities                        |       |                             | $          | 141.8 |   |   |   | $ | 146.7 |   |   |
| Total liabilities                                 |       |                             | $          | 1,215.0 |   |   |   | $ | 1,219.9 |   |   |
| Total liabilities and  shareholders’ deficit |       |                             | $          | 984.3 |   |   |   | $ | 989.2 |   |   |

 

**Consolidated Statement of Operations**

| ** **                                                                              | ** ** | **For the year ended September 30, 2004** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                                                                              | ** ** | **  AS REPORTED  **                            | ** ** | **  AS RESTATED  ** | ** ** |
| Cost of sales                                                                           |       |                                                                    | $          | 743.4 |   |   |   | $ | 750.5 |   |   |
| Gross profit                                                                            |       |                                                                    | $          | 305.8 |   |   |   | $ | 298.7 |   |   |
| Selling, general  and administrative expense, which includes stock compensation expense |       |                                                                    | $          | 192.2 |   |   |   | $ | 185.1 |   |   |

 

| ** **                                                                              | ** ** | **For the year ended September 30, 2003** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                                                                              | ** ** | **  AS REPORTED  **                            | ** ** | **  AS RESTATED  ** | ** ** |
| Cost of sales                                                                           |       |                                                                    | $          | 674.5 |   |   |   | $ | 681.8 |   |   |
| Gross profit                                                                            |       |                                                                    | $          | 248.4 |   |   |   | $ | 241.1 |   |   |
| Selling, general  and administrative expense, which includes stock compensation expense |       |                                                                    | $          | 155.5 |   |   |   | $ | 148.2 |   |   |

 

**Note3.**   Summary of Significant AccountingPolicies

*Basis ofPresentation*—The consolidated financial statements includethe accounts of the Company and all of its subsidiaries. Preparation offinancial statements in accordance with accounting principles generally acceptedin the United States of America requires management to make estimates andassumptions that affect the amounts reported in the consolidated statements. Actualresults could differ from those estimates. All significant intercompanytransactions and balances have been eliminated. Certain prior period amountshave been reclassified to conform to the current year presentation.

*Revenue Recognition*—The Company recognizes revenuebased on the recognition criteria set forth in the Securities and Exchange Commission’sStaff Accounting Bulletin 104 “Revenue Recognition in Financial Statements”,which is when delivery of product has occurred or services have been renderedand there is persuasive evidence of a sales arrangement, selling prices arefixed or determinable, and collectibility from the customer is reasonablyassured. Revenue from the sale of our products is recognized when title passesupon delivery to the customer. Sales are recorded net of estimated cashdiscounts and rebates.

*Shippingand Handling*—Costs to ship products to customers are includedin cost of sales in the Consolidated Statements of Operations. Amounts billedto customers, if any, to cover shipping and handling costs are included in netsales.

F-9

----

*CustomerRebates*—Customer rebates are applied against net sales at thetime the sales are recorded based on estimates with respect to the deductionsto be taken.

*Cashand Cash Equivalents*—The Company considers all highly liquidinvestments with original maturities of ninety days or less, when purchased, tobe cash equivalents. Outstanding checks are netted against cash when there is asufficient balance of cash available in the Company’s accounts at the bank tocover the outstanding amount and the right of offset exists. Where there is noright of offset against cash balances, outstanding checks are classified alongwith accounts payable. At September 30, 2005 and 2004 the Company had bookoverdraft positions of $9.7 million and $4.9 million, respectively, recorded inaccounts payable.

*RestrictedCash*—The Company was required to use the restricted cash tomake annual royalty payments to Tyco, the Company’s owner prior to August 1999,under the Grinnell License Agreement which expired as of September 30,2002. The last payment was made in December 2002.

*Receivables*—Receivablesrelate primarily to amounts due from customers located in North America. Toreduce credit risk, credit investigations are performed prior to accepting anorder and, when necessary, letters of credit are required to ensure payment.

The estimated allowancefor doubtful accounts receivable is based, in large part, upon judgments andestimates of expected losses and specific identification of problem tradeaccounts. Significantly weaker than aniticpated industry or economic conditionscould impact customers’ ability to pay such that actual losses may be greaterthan the amounts provided for in these allowances. The periodic evaluation ofthe adequacy of the allowance for doubtful accounts is based on an analysis ofprior collection experience, specific customer creditworthiness and currenteconomic trends within the industries served. In circumstances where specificcustomer’s inability to meet its financial obligation is known to the Company(e.g., bankruptcy filings or substantial downgrading of credit ratings), aspecific allowance is recorded the Company records a specific reserve to reducethe receivable to the amount the Company reasonably believes will be collected.

Thefollowing table summarizes information concerning the Company’s allowance fordoubtful accounts:

| ** **                    | ** ** | **2005**                            | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------|------------|-------------------------------------|------------|----------|------------|----------|------------|
| ** **                    | ** ** | **(dollars in millions)** | ** ** |
| Balance at beginning of year  |       | $                                   | 5.1        |     | $          | 4.9      |       | $ | 4.2 |   |
| Charged to costs and expenses |       | 0.5                                 |       | 2.2      |       | 1.6      |       |
| Write-offs and recoveries     |       | (0.6                                | )          | (2.0     | )          | (0.9     | )          |
| Balance at end of  year       |       | $                                   | 5.0        |     | $          | 5.1      |       | $ | 4.9 |   |

 

*Inventories*—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. Inventory cost includes an overhead component that can be affectedby levels of production and actual costs incurred. Management periodicallyevaluates the effects of production levels and actual costs incurred on thecosts capitalized as part of inventory cost.

F-10

----

Thefollowing table summarizes information concerning the Company’s inventoryvaluation reserves:

| ** **                       | ** ** | **2005**                            | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------|------------|-------------------------------------|------------|----------|------------|----------|------------|
| ** **                       | ** ** | **(dollars in millions)** | ** ** |
| Balance at beginning of year     |       | $                                   | 16.7       |     | $          | 14.7     |       | $ | 13.4 |   |
| Charged to costs and expenses    |       | 6.4                                 |       | 3.8      |       | 3.1      |       |
| Write-offs and deductions        |       | (4.0                                | )          | (1.9     | )          | (1.9     | )          |
| Currency translation adjustments |       | 0.2                                 |       | 0.1      |       | 0.1      |       |
| Balance at end of  year          |       | $                                   | 19.3       |     | $          | 16.7     |       | $ | 14.7 |   |

 

*Property, Plantand Equipment*—Property,plant and equipment are recorded at cost less accumulated depreciation andamortization. Maintenance and repair expenditures are charged to expense whenincurred. Direct internal and external costs to implement computer systems andsoftware are capitalized as incurred. Capitalized costs of computer systems andsoftware are amortized beginning when site installations or module developmentis complete and ready for its intended use. The straight-line method ofdepreciation and amortization is used over the estimated useful lives of therelated assets as follows:

| Buildings and related improvements                         |   | 5 to 40 years |   |
|------------------------------------------------------------|--------|---------------|--------|
| Leasehold improvements                                     |   | 3 to 20 years |   |
| Other plant, machinery, equipment, furniture and  fixtures |   | 2 to 15 years |   |
| Computer systems  and software                             |   | 3 years       |   |

 

Gains and losses arisingon the disposal of property, plant and equipment are included in theaccompanying statements of operations.

*EnvironmentalExpenditures*—The Company capitalizes environmentalexpenditures that increase the life or efficiency of property or that reducesor prevents environmental contamination. The Company accrues for environmentalexpenses resulting from existing conditions that relate to past operations whenthe costs are probable and reasonably estimable. The Company is indemnified byTyco for all environmental liabilities associated with the Mueller and Anvilbusiness as it existed as of August 16, 1999, whether known or not.

In 2002, the Companyincurred costs of $2.1 million associated with increasing the capacity ofan existing landfill operated by the Company. The portion of the costs thatextended the capacity of the landfill of $1.7 million was capitalized,with remaining costs expensed. This capitalized asset is being depreciated over10 years. The Company operates another landfill site and has not incurredcosts to increase the capacity through 2005. If the Company decides to increasethe capacity of the site in the future, the portion of the cost that extendsthe capacity of the landfill will be capitalized, with any remaining costexpensed.

*Accountingfor the Impairment of Long-Lived Assets*—Long-lived assets arereviewed for impairment whenever events or changes in circumstances indicatethat the book value of the asset may not be recoverable. The Companyperiodically evaluates whether  eventsand circumstances have occurred that indicate possible impairment. The Companyuses an estimate of the future undiscounted net cash flows of the related assetor asset grouping over the remaining life in measuring whether the assets arerecoverable.

*Goodwill,Intangible Assets and Other Assets*—Goodwill and intangibleassets that have an indefinite life are tested for impairment annually (or morefrequently if events or circumstances indicate possible impairments) using botha discounted cash flow method and a market comparable method. As of October 1,2001, September 30, 2002, 2003, 2004, and 2005, no impairment wasindicated. Definite-lived intangible assets are amortized over theirrespective estimated useful lives and reviewed for impairment 

F-11

----

annuallyor more frequently if events or circumstances indicate possible impairment. Anyrecognized intangible asset determined to have an indefinite useful life willnot be amortized, but instead tested for impairment in accordance with thestandard until its life is determined to no longer be indefinite. The Companyuses an estimate of future undiscounted net cash flows of the related asset orasset grouping over the remaining life in measuring whether the assets arerecoverable.

Identifiableintangible assets consist of the following as of September 30:

| ** **                              | ** ** | **2005**                            | ** ** | **2004**                      | ** ** |
|-----------------------------------------|------------|-------------------------------------|------------|-------------------------------|------------|
| ** **                              | ** ** | **Gross  Carrying  Amount**         | ** ** | **Accumulated  Amortization** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
| ** **                              | ** ** | **(dollars in millions)** | ** ** |
| **Definite-lived  intangible assets**   |       |                                |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Non compete agreements                  |       |                                | $          | 84.7                          |       |   |   | $ | 82.9 |   |   |   | $ | 84.7 |   |   |   | $ | 82.0 |   |   |
| Patents                                 |       |                                | 0.5        |                          |       |   | 0.1 |   |   |   | 0.5 |   |   |   | 0.1 |   |   |
| Design and engineering drawing rights   |       |                                | 7.3        |                          |       |   | 2.1 |   |   |   | 7.3 |   |   |   | 1.2 |   |   |
| Customer relationships                  |       |                                | 4.0        |                          |       |   | 1.7 |   |   |   | 4.0 |   |   |   | 0.7 |   |   |
|                                    |       |                                | 96.5       |                          |       |   | 86.8 |   |   |   | 96.5 |   |   |   | 84.0 |   |   |
| **Indefinite lived intangible  assets** |       |                                |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Tradenames                              |       |                                | 42.7       |                          |       |   | — |   |   |   | 42.7 |   |   |   | — |   |   |
|                                    |       |                                | $          | 139.2                         |       |   |   | $ | 86.8 |   |   |   | $ | 139.2 |   |   |   | $ | 84.0 |   |   |

 

Amortization of definitelived intangible assets was $2.8 million, $16.0 million, and$17.1 million for the years ended September 30, 2005, 2004 and 2003,respectively. The $13.2 million decrease in amortization expense for 2005 ascompared to 2004 is primarily due to a $13.8 million reduction due to anon-compete agreement with Tyco that was fully amortized in 2004. Estimatedamortization expense for the years ending September 30, 2006, 2007, 2008,2009 and 2010 is $2.6 million, $1.6 million, $1.4 million,$0.9 million and $0.7 million, respectively.

*Warranty Costs*—The Company accrues for theestimated cost of product warranties at the time of sale based on historicalexperience. Adjustments to obligations for warranties are made as changes inthe obligations become reasonably estimable. The following table summarizesinformation concerning product warranty accruals:

| ** **                           | ** ** | **   2005   ** | ** ** | **   2004   ** | ** ** |
|--------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                           | ** ** | **(dollars in millions)**          | ** ** |
| Accrued balance at beginning of year |       |                                         | $          | 1.6                                          |       |   |   | $ | 0.9 |   |   |
| Warranty expense                     |       |                                         | 1.6        |                                         |       |   | 5.2 |   |   |
| Settlement of warranty claims        |       |                                         | (1.6       | )                                            |       |   | (4.5 | ) |   |
| Balance at end of  year              |       |                                         | $          | 1.6                                          |       |   |   | $ | 1.6 |   |   |

 

*DeferredFinancing Fees*—Deferred costs of debt financing included inother non-current assets are amortized over the life of the related loanagreements, which range from one to eight years. Such costs are reassessed whenamendments occur, in accordance with Emerging Issues Task Force (EITF) 96-19,“Debtors Accounting for a Modification or Exchange of Debt Instruments.”

*IncomeTaxes*—Deferred tax liabilities and assets are recognized forthe expected future tax consequences of events that have been included in thefinancial statements or tax returns. Deferred tax liabilities and assets aredetermined based on the differences between the financial statements and thetax 

F-12

----

basis ofassets and liabilities, using tax rates in effect for the years in which thedifferences are expected to reverse. A valuation allowance is provided tooffset any net deferred tax assets if, based upon the available evidence, it ismore likely than not that some or all of the deferred tax assets will not berealized.

*Tooling*—Prepaidexpenses include maintenance and tooling inventory costs. Perishable tools andmaintenance items are expensed when put into service. More durable items areamortized over their estimated useful lives, ranging from 4 to 10 years.

*Researchand Development*—Research and development expenditures areexpensed when incurred.

*Advertising*—Advertisingcosts are expensed when incurred.

*Translationof Foreign Currency*—Assets and liabilities of the Company’sbusinesses operating outside of the United States of America which account in afunctional currency other than U.S. dollars are translated into U.S. dollarsusing year-end exchange rates. Revenues and expenses are translated at theaverage exchange rates effective during the year. Foreign currency translation gainsand losses are included as a separate component of stockholders’ equity. Gainsand losses resulting from foreign currency transactions, the amounts of whichare not material, are included in cost of sales.

*DerivativeInstruments and Hedging Activities*—The Company currently usesinterest rate swaps as required in the credit agreement to reduce the risk ofinterest rate volatility. The amount to be paid or received from interest rateswaps is charged or credited to interest expense over the lives of the interestrate swap agreements. Changes in the fair value of derivatives are recordedeach period in earnings or Accumulated Other Comprehensive Income (Loss),depending on whether a derivative is designated and effective as part of ahedge transaction and meets the applicable requirements associated withStatement of Financial Accounting Standards (SFAS) No. 133 (seeNote 8). Since the adoption of SFAS No. 133 in  2001, all gains and losses associated withinterest rate swaps have been included in earnings.

Additionally, the Companyutilizes forward contracts to mitigate its exposure to changes in foreigncurrency exchange rates from third party and intercompany forecastedtransactions. The primary currency to which the Company is exposed and to whichit hedges the exposure is the Canadian Dollar. The effective portion ofunrealized gains and losses associated with forward contracts are deferred as acomponent of Accumulated Other Comprehensive Income (Loss) until the underlyinghedged transactions are reported in the Company’s consolidated statement of operations.The balance was not material at September 30, 2005.

*Workers’Compensation*—The Company is self-insured for workers’compensation benefits for work-related injuries. Liabilities, including thoserelated to claims incurred but not reported, are recorded principally usingannual valuations based on discounted future expected payments and usinghistorical data or combined insurance industry data when historical data islimited. The Company is indemnified by Tyco for all liabilities associated withthe Mueller business that occurred prior to August 16, 1999. Workers’compensation liabilities were as follows:

| ** **                                                            | ** ** | **September 30,**                       | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                            | ** ** | **   2005   ** | ** ** | **   2004   ** | ** ** |
| ** **                                                            | ** ** | **(dollars in millions)**          | ** ** |
| Undiscounted aggregated estimated claims to be paid                   |       |                                         | $          | 10.2 |   |   |   | $ | 9.5 |   |   |
| Workers’ compensation liability recorded on a  discounted  basis |       |                                         | $          | 8.8 |   |   |   | $ | 8.5 |   |   |
| Discount rate                                                         |       |                                         | 5          | % |   |   | 5 | % |   |

 

A one-percentage-pointincrease in the discount rate on the discounted claims liability would decreasethe liability by $0.2 million at September 30, 2005, while aone-percentage-point decrease in the discount rate would increase the liabilityby $0.2 million at September 30, 2005.

F-13

----

*StockBased Compensation*—The Company had two stock-based employeecompensation plans, which are more fully described in Note 12. For the fiscalyear beginning October 1, 2005, the Company will adopt SFAS No. 123(R),“Accounting for Stock Issued to Employees,” which requires that compensationcosts related to share-based payment transactions be recognized in thefinancial statements over the period that an employee provides service inexchange for the award. The Company will use a modified prospective method,under which it will record compensation cost for new and modified awards overthe related vesting period of such awards prospectively and record compensationcost prospectively for the unvested portion, at the date of adoption, ofpreviously issued and outstanding awards over the remaining vesting period ofsuch awards. No change to prior periods presented is permitted under themodified prospective method. The Company had no stock options outstanding at September 30,2005 and, therefore, does not expect the adoption of SFAS No. 123(R) tohave a material effect.

The Company has recognizedcompensation cost for stock-based compensation arrangements under theintrinsic value method of Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees,” which required recognizing compensation equalto the difference, if any, between the fair value of the stock option and theexercise price at the date of the grant. All options granted under theManagement Incentive Plan were issued at fair value at the date of grant. Fairvalue was determined by a committee of the board of directors of the Company(or the board as a whole, if no committee was constituted), which took intoaccount as appropriate recent sales of shares of the Company’s common stock,recent valuations of such shares, any discount associated with the absence of apublic market for such shares and such other factors as the committee (or theboard, as the case may have been) deemed relevant or appropriate in itsdiscretion.

Thefollowing table illustrates the effect on net income and earnings per share ifthe Company had applied the fair value recognition provisions of SFAS No. 123,“Accounting for Stock Based Compensation,” as amended by SFAS No. 148 “Accountingfor Stock Based Compensation—Transition and Disclosure,” to stock basedemployee compensation.

| ** **                                                                                                                                   | ** ** | **2005**                            | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|----------|------------|----------|------------|
| ** **                                                                                                                                   | ** ** | **(dollars in millions)** | ** ** |
| Net income, as reported                                                                                                                      |       | $                                   | 49.6       |     | $          | 33.2     |       | $ | 32.8 |   |
| Deduct: Total stock based employee compensation  expense determined under fair value base method for all awards, net of tax  related effects |       | —                              |       | (0.2     | )          | (0.2     | )          |
| Pro forma net  income                                                                                                                        |       | $                                   | 49.6       |     | $          | 33.0     |       | $ | 32.6 |   |

 

In connection with theApril 2004 Recapitalization, which is more fully described in Note 6,the Company modified these stock awards to accelerate vesting, allowed for net cashsettlement of options and issued shares to option holders with a fair value of$0.43 per share upon completion of the recapitalization. These actions changedthe accounting treatment of these stock awards from fixed to variableaccounting. As a result, the Company recognized stock compensation expense of$18.9 million in the third quarter of 2004.

Additionally, the Companyallowed certain employees to participate in the Company’s Direct InvestmentProgram. Under this program, which is more fully described in Note 13,certain employees were allowed to purchase a specific number of shares of theCompany and borrow up to 50% of the total purchase price on a non-recoursebasis. For those shares subject to such loans, variable plan accountingapplied, resulting in a non-cash compensation charge of $2.3 million.

F-14

----

**Note 4.   Acquisitions**

The following acquisitionshave been accounted for in accordance with SFAS No. 141 and the operatingresults have been included in the Company’s consolidated results since the dateof acquisition.

**FiscalYear 2004 Acquisitions**

*Star Pipe, Inc.*—EffectiveJanuary 15, 2004, the Company acquired certain assets of Star Pipe, Inc.(“Star”), a leading distributor of foreign-sourced cast and groovedfittings and couplings, for $17.0 million in cash. The Star acquisitionprovides an entry into the foreign-sourced product marketplace.

Thefollowing presents the estimated fair values of the assets and liabilitiesacquired as of January 15, 2004:

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

 

As part of the acquisition, the Company agreed to afuture payment to be made to the seller to the extent that the gross profit ofthe acquired business exceeds a targeted gross profit. The maximum potentialpayment amount is $23 million. Management currently estimates the paymentcould total approximately $3 to $6 million for the payment period thatbegan February 1, 2004 and ends January 31, 2007. The payment amountindicated above is based on management’s best estimate, but the actualadjustment could be materially different. The liability for such payment willbe recorded at the end of each payment period, as earned, in accordance withthe purchase agreement. No payment was earned for the years endedSeptember 30, 2005 or September 30, 2004.

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

*Modern Molded Products—**Effective January 15, 2004, theCompany acquired certain assets of Modern Molded Products (“Modern Molded”) for$2.8 million in cash. The purchase of the assets and technology of ModernMolded allows the company to internally produce parts that were previouslypurchased and to reduce spending as well as to increase product supply linepredictability.*

Thefollowing presents the estimated fair values of the assets and liabilitiesacquired as of January 15, 2004:

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

 

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

F-15

----

Thefollowing unaudited pro forma summary presents the consolidated results ofoperations for the fiscal years ended September 30, 2003 and September 30,2004 as if the acquisitions of Star and Modern Molded had occurred as of October 1,2003:

| ** ** | ** ** | **2004**                            | ** ** | **2003** | ** ** |
|------------|------------|-------------------------------------|------------|----------|------------|
| ** ** | ** ** | **(dollars in millions)** | ** ** |
| ** ** | ** ** | **(unaudited)**                     | ** ** |
| Net Sales  |       | $                                   | 1,056.8    |     | $          | 942.9 |   |
| Net income |       | $                                   | 33.5       |     | $          | 33.7 |   |

 

The unaudited consolidated pro forma information isnot necessarily indicative of the combined results that would have occurred hadthe acquisitions occurred on that date, nor is it indicative of the resultsthat may occur in the future.

**Fiscal Year 2003 Acquisitions**

*JingmenPratt**—Effective*March 18, 2003, theCompany acquired certain net assets of Jingmen Pratt (“Jingmen” formerly “LSIndustries”), a supplier of manufactured butterfly valves for approximately$1.9 million in cash, net of cash acquired.

Thefollowing presents the estimated fair values of the assets acquired andliabilities assumed as of March 18, 2003:

| ** **                     | ** ** | **(dollars  in millions)** | ** ** |
|--------------------------------|------------|---------------------------------|------------|
| Current assets                 |       |                            | $          | 1.4 |   |   |
| Property, plant  and equipment |       |                            | 0.8        |   |   |
| Intangible assets              |       |                            |       |   |   |
| Noncompete agreements          |       |                            | 0.6        |   |   |
| Goodwill                       |       |                            | 0.1        |   |   |
| Total assets                   |       |                            | 2.9        |   |   |
| Current  liabilities           |       |                            | 1.0        |   |   |
| Net assets  acquired           |       |                            | $          | 1.9 |   |   |

 

The non-compete agreement is being amortized over thethree-year life of the agreement.

*MillikenValve Corp**.—Effective***January 24,2003, the Company acquired net certain assets of Milliken Valve Corp. (“Milliken”),a manufacturer of plug valves for approximately $7.5 million in cash, netof cash acquired.

Thefollowing presents the estimated fair values of the assets acquired andliabilities assumed as of January 24, 2003.

| ** **                     | ** ** | **(dollars  in millions)** | ** ** |
|--------------------------------|------------|---------------------------------|------------|
| Current assets                 |       |                            | $          | 4.6 |   |   |
| Property, plant  and equipment |       |                            | 0.8        |   |   |
| Intangible assets              |       |                            |       |   |   |
| Trademarks                     |       |                            | 1.9        |   |   |
| Customer relationships         |       |                            | 2.0        |   |   |
| Noncompete agreements          |       |                            | 0.1        |   |   |
| Total intangible assets        |       |                            | 4.0        |   |   |
| Total assets                   |       |                            | 9.4        |   |   |
| Current  liabilities           |       |                            | 1.9        |   |   |
| Net assets acquired            |       |                            | $          | 7.5 |   |   |

 

F-16

----

In accordance with the appraisals done at theacquisition date, the trademarks are being amortized over 15 years and thecustomer relationships will be amortized over 10 years. The non-competeagreement is being amortized over the five-year life of the agreement.

*SpecialtySteel Corporation—**Effective***October 10,2002, the Company acquired certain assets of Specialty Steel Corporation (“SpecialtySteel”), a machine shop for large products for approximately $1.8 millionin cash, net of cash acquired.

The purchase price of $1.8 million was allocatedentirely to the fair value of the property, plant and equipment acquired fromSpecialty Steel.

Thefollowing unaudited pro forma summary presents the consolidated results ofoperations for the year ended September 30, 2003 as if the acquisitions ofSpecialty Steel, Milliken and Jingmen had occurred at the beginning of fiscal2003:

| ** ** | ** ** | **2003**                        | ** ** |
|------------|------------|---------------------------------|------------|
| ** ** | ** ** | **(dollars  in millions)** | ** ** |
| ** ** | ** ** | **(Unaudited)**                 | ** ** |
| Net sales  |       |                            | $          | 925.9 |   |   |
| Net income |       |                            | $          | 33.3 |   |   |

 

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

**Note 5.   IncomeTaxes**

The Company’s income tax provision (benefit) wascomputed in accordance with SFAS No. 109 and is based on current taxrates. The Company’s foreign income tax provision relates to Canadian federaland provincial income taxes.

Theprovision (benefit) for income taxes and the reconciliation between the UnitedStates federal income taxes at the statutory rate on consolidated income (loss)before taxes and the Company’s income tax provision (benefit) are as follows.

| ** **                                                                                             | ** ** | **Fiscal year ended September 30,**  | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                                             | ** ** | **    2005    ** | ** ** | **   2004   ** | ** ** | **   2003   ** | ** ** |
| ** **                                                                                             | ** ** | **(dollars in millions)**                      | ** ** |
| U.S. federal  income taxes at the statutory rate                                                       |       |                                                     | $          | 29.2 |   |   |   | $ | 17.2 |   |   |   | $ | 19.5 |   |   |
| Adjustments to reconcile  to the Company’s income tax provisions:                                 |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |
| U.S. state income  tax provision, net                                                                  |       |                                                     | 2.8        |   |   |   | 1.6 |   |   |   | 2.0 |   |   |
| Foreign rate  differential                                                                             |       |                                                     | (0.2       | ) |   |   | (0.1 | ) |   |   | 0.6 |   |   |
| Nondeductible  charges                                                                                 |       |                                                     | 0.3        |   |   |   | 0.4 |   |   |   | 0.3 |   |   |
| Nondeductible  interest on high yield debt obligation                                                  |       |                                                     | 2.4        |   |   |   | 0.9 |   |   |   | — |   |   |
| U.S. export and  manufacturing incentives                                                              |       |                                                     | (0.8       | ) |   |   | — |   |   |   | — |   |   |
| Research and  development credit                                                                       |       |                                                     | (0.2       | ) |   |   | (0.2 | ) |   |   | — |   |   |
| Tax accrual  adjustments for conclusion of examinations and expiration of certain  state statutes |       |                                                     | (0.3       | ) |   |   | (6.4 | ) |   |   | — |   |   |
| Reduction of  Foreign Tax Credits                                                                      |       |                                                     | —     |   |   |   | 1.8 |   |   |   | — |   |   |
| Other (net)                                                                                            |       |                                                     | 0.5        |   |   |   | 0.8 |   |   |   | 0.5 |   |   |
| Provision for  income taxes                                                                            |       |                                                     | 33.7       |   |   |   | 16.0 |   |   |   | 22.9 |   |   |
| Deferred  provision (benefit) for income taxes                                                         |       |                                                     | (14.1      | ) |   |   | (5.3 | ) |   |   | 0.5 |   |   |
| Current provision for  income taxes                                                                    |       |                                                     | $          | 47.8 |   |   |   | $ | 21.3 |   |   |   | $ | 22.4 |   |   |

 

F-17

----

The provisions for the fiscal years ended September 30,2005, 2004 and 2003 included $6.8 million, $4.4 million and$2.5 million, respectively, for foreign income taxes. The foreigncomponent of income before income taxes was $19.9 million,$14.0 million and $6.3 million, respectively, for each of the periodsabove.

Thedeferred income tax balance sheet accounts result from temporary differencesbetween the amount of assets and liabilities recognized for financial reportingand tax purposes. The components of the net deferred income tax asset are asfollows:

| ** **                                                 | ** ** | **September 30,**                       | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                 | ** ** | **   2005   ** | ** ** | **   2004   ** | ** ** |
| ** **                                                 | ** ** | **(dollars in millions)**          | ** ** |
| **Deferred  tax assets**                                   |       |                                         |       |   |   |   |   |   |   |
| Inventories                                                |       |                                         | $          | 15.1 |   |   |   | $ | 10.1 |   |   |
| Identifiable  intangibles                                  |       |                                         | 12.5       |   |   |   | 15.4 |   |   |
| Accrued  liabilities and reserves                          |       |                                         | 19.2       |   |   |   | 12.7 |   |   |
| Unrealized loss  on derivatives                            |       |                                         | —     |   |   |   | 1.8 |   |   |
| State net  operating loss carryforwards                    |       |                                         | 0.8        |   |   |   | 1.8 |   |   |
| Accumulated other  comprehensive loss:                     |       |                                         |       |   |   |   |   |   |   |
| Additional  minimum pension liability                      |       |                                         | 17.9       |   |   |   | 16.8 |   |   |
|                                                       |       |                                         | 65.5       |   |   |   | 58.6 |   |   |
| State net  operating loss carryforward valuation allowance |       |                                         | (0.8       | ) |   |   | (1.8 | ) |   |
|                                                       |       |                                         | 64.7       |   |   |   | 56.8 |   |   |
| **Deferred  tax liabilities**                              |       |                                         |       |   |   |   |   |   |   |
| Property, plant  and equipment                             |       |                                         | (13.0      | ) |   |   | (17.8 | ) |   |
| Unrealized gain  on derivatives                            |       |                                         | (0.2       | ) |   |   | — |   |   |
| Pensions                                                   |       |                                         | (3.4       | ) |   |   | (5.2 | ) |   |
| Other                                                      |       |                                         | (2.9       | ) |   |   | (3.7 | ) |   |
|                                                       |       |                                         | (19.5      | ) |   |   | (26.7 | ) |   |
| Net deferred income tax  assets                            |       |                                         | $          | 45.2 |   |   |   | $ | 30.1 |   |   |

 

As of September 30, 2005, the Company had$0.8 million of state net operating loss carryforwards, due to expire in2016 and 2021 through 2023, for which there is currently a full valuationallowance. The decrease in valuation allowance from the prior year is due tothe utilization of state net operating loss carryforwards related to AnvilInternational, Inc.

Undistributed earnings of the Company’s foreignsubsidiary amounted to approximately $80.2 million and $64.0 millionat September 30, 2005 and 2004, respectively. The American Jobs CreationAct (“AJCA”) which was enacted on October 22, 2004 created a temporaryincentive for US multinationals to repatriate accumulated earnings outside theUnited States by providing an 85 percent dividends received deduction forcertain dividends from controlled foreign corporations. The Company may electto apply this provision to qualifying earnings repatriations in either fiscal2005 or in fiscal 2006. As of September 30, 2005, and prior to theacquisition on October 3, 2005, the Company has not provided deferredtaxes on foreign earnings because any taxes on dividends would be substantiallyoffset by foreign tax credits or because the Company intends to reinvest thoseearnings indefinitely. Due to the complexity of the repatriation provision, theCompany is still evaluating the effects of this provision on its plan forrepatriation of foreign earnings.

F-18

----

**Note 6.   Borrowing Arrangements**

*Long-Term Debt**—Long-term*debtconsists of the following obligations:

| ** **                                          | ** ** | **September 30,**              | ** ** |
|-----------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                          | ** ** | **2005**                            | ** ** | **2004** | ** ** |
| ** **                                          | ** ** | **(dollars in millions)** | ** ** |
| Senior credit  facility term loans                  |       | $                                   | 512.8      |   | $ | 515.0 |   |
| Second priority  senior secured floating rate notes |       | 100.0                               |       | 100.0 |   |
| 10% senior  subordinated notes                      |       | 315.0                               |       | 315.0 |   |
| 143¤4  senior discount notes(1)                |       | 125.7                               |       | 106.8 |   |
| Capital lease  obligations                          |       | 2.2                                 |       | 2.6 |   |
|                                                |       | 1,055.7                             |       | 1,039.4 |   |
| Less current  portion                               |       | (3.8                                | )          | (3.2 | ) |
|                                                |       | $                                   | 1,051.9    |   | $ | 1,036.2 |   |

----

(1)          Theaccreted value of the notes was reduced by $9.0 million (net of $1.5million of amortization) and $10.1 (net of $0.4 million of amortization) at September 30,2005 and September 30, 2004, respectively, to reflect the fair marketvalue assigned to the warrants sold as units with the notes. The fair marketvalue assigned to the warrants was credited to additional paid-in capital.

Aschedule of debt maturities as of September 30, 2005 is as follows:

| ** **                            | ** ** | **Less than  1 year**     | ** ** | **1-3  years** | ** ** | **4-5  years** | ** ** | **After  5 years** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|-------------------------------------|------------|----------------|------------|----------------|------------|-------------------------|------------|-----------|------------|
| ** **                            | ** ** | **(dollars in millions)** | ** ** |
| Senior credit  facility term loans    |       |                                | $          | 2.9            |       |           |       | $                       | 5.8        |      |       |   | $ | 5.8 |   |   | $ | 498.3 |   | $ | 512.8 |   |
| Second Priority  Senior Secured Notes |       |                                | —     |           |       |           | —     |                    |       |      | —     |   |   | 100.0 |   | 100.0 |   |
| 10% Senior  Subordinated Notes        |       |                                | —     |           |       |           | —     |                    |       |      | —     |   |   | 315.0 |   | 315.0 |   |
| 143¤4%  Senior Discount Notes    |       |                                | —     |           |       |           | —     |                    |       |      | —     |   |   | 125.7 |   | 125.7 |   |
| Capital lease  obligations            |       |                                | 0.9        |           |       |           | 1.2        |                    |       |      | 0.1        |   |   | — |   | 2.2 |   |
| Total debt maturities                 |       |                                | $          | 3.8            |       |           |       | $                       | 7.0        |      |       |   | $ | 5.9 |   |   | $ | 1,039.0 |   | $ | 1,055.7 |   |

 

*Recapitalization:*   On April 23,2004, Group sold its Second Priority Senior Secured Floating Rate Notes due2011 and 10% Senior Subordinated Notes due 2012 (collectively referred to asthe “Prior Notes”) generating net proceeds of approximately $402.3 million.Concurrently with those offerings, Group amended and restated its creditfacility and borrowed $545.0 million of new term loans thereunder (“2004Mueller Credit Facility”). Mueller Group used the net proceeds from thoseofferings and the credit facility borrowings to repay all existing loans underits old credit facility together with accrued interest and a 1.0% prepaymentpremium thereon and paid a dividend to the Company, which was used to(1) redeem our preferred stock (liquidation value $105.5 million atApril 23, 2004) together with a 1.0% premium (approximately $1.0 million),(2) pay a dividend to common stockholders of approximately $1.43 pershare, or approximately $293.4 million in the aggregate and (3) makea payment to employee optionholders of the excess of the per share dividend to commonstockholders over the exercise price of their options, or approximately $5.4 millionin the aggregate. Mueller Group retained approximately $10.0 million ascash to be used for general corporate purposes.

On April 29, 2004, the Company issued 143¤4%senior discount notes, with detachable warrants to purchase our common stock.The proceeds of the offering were approximately $106.0 million, afterdeduction of the initial purchasers’ discounts and commissions and otherexpenses of the offering. We used the proceeds to (1) pay an additionaldividend to common stockholders of approximately $0.48 per share, orapproximately $99.8 million in the aggregate, (2) make a payment to employeeoptionholders who held options with an exercise price of $1.00 or $1.19 pershare of $0.48 per share, and (3) a payment to 

F-19

----

employee optionholders whoheld options with an exercise price of $1.50 per share of $0.41 per share, orapproximately $7.1 million in the aggregate.

In connection with the Recapitalization, the Companymodified certain stock awards to accelerate vesting, allowed net cashsettlement of options and issued shares to option holders with a fair value of$0.43 per share upon completion of the Recapitalization. These actions changedthe accounting treatment of these stock awards from fixed to variableaccounting. As a result, the Company recognized stock compensation expense of$18.9 million in the third quarter of 2004.

*2004 Mueller Credit Facility:*   Groupentered into the 2004 Mueller Credit Facility, which includes a$545 million amortizing senior credit facility term loan($32.2 million of which has already been repaid) maturing seven yearsafter closing and an $80.0 million revolving credit facility that willterminate five years after closing. The revolving credit facility and/or theterm loan facility are subject to a potential, although uncommitted, increaseof up to an aggregate of $50.0 million at Group’s request at any timeprior to maturity. In addition, although uncommitted, a foreign currencysub-facility may be made available to one or more of Group’s restricted foreignsubsidiaries in an aggregate principal amount of up to the U.S. dollarequivalent of $30.0 million. This increase and the additional foreigncurrency sub-facility will only be available if one or more financialinstitutions agree to provide them. Group had no borrowings under the revolvingcredit facility at September 30, 2005.

Borrowings under the 2004 Mueller Credit Facility boreinterest based on a margin over, at Group’s option, the base rate or LIBOR. Theapplicable margin was 2.75% over LIBOR and 1.50% over the base rate for termloans. The applicable margin under the revolving senior credit facility was arange of 2.25% to 3.25% over LIBOR and a range of 1.00% to 2.00% over the baserate, depending on Group’s ratio of consolidated debt to EBITDA as defined inthe senior credit facility. At September 30, 2005 the applicable margin onthe revolving senior credit facility was 2.75% over LIBOR and 1.50% over thebase rate. Group’s obligations under the senior credit facility are guaranteedby Water and all of Group’s existing or future domestic restricted subsidiariesand is secured by substantially all of the assets of Group and its subsidiaryguarantors, including a pledge of the capital stock of all Group’s existing andfuture domestic subsidiaries, a pledge of no more than 65.0% of the votingstock of any of Group’s foreign subsidiaries, a pledge of all intercompanyindebtedness in favor of Group and its domestic restricted subsidiaries, and apledge of Group’s capital stock by Water. The 2004 Mueller Credit Facilitycontained customary covenants, including covenants that limit Group’s abilityto incur debt and liens, pay dividends and make investments and capitalexpenditures, and events of default. Mueller Group was permitted to makepayments of up to $2.0 million in any fiscal year to Mueller Water Products topay overhead expenses of Mueller Water Products. This agreement was terminatedon October 3, 2005 as part of the acquisition.

*2005 Mueller Credit Agreement:**  *On October 3, 2005, Group entered into acredit agreement (the “2005 Mueller Credit Agreement”) consisting of a $145million senior secured revolving credit facility maturing in October 2010(the “2005 Mueller Revolving Credit Facility”) and a $1,050 million seniorsecured term loan maturing in October 2012 (the “2005 Mueller Term Loan”).The 2005 Mueller Credit Agreement is a secured obligation of Group andsubstantially all of its wholly-owned domestic subsidiaries, including U.S.Pipe. The 2005 Mueller Term Loan requires quarterly principal payments of $2.6million through October 3, 2012, at which point in time the remainingprincipal outstanding is due. The commitment fee on the unused portion of the2005 Mueller Revolving Credit Facility is 0.50% and the interest rate is afloating rate 2.5% over LIBOR. The 2005 Mueller Term Loan carries a floatinginterest rate of 2.25% over LIBOR.

Proceeds of the 2005 Mueller Credit Agreement wereapproximately $1,053.4 million, net of approximately $21.6 million of underwritingfees and expenses which will be amortized over the life of the loans. Theproceeds were used to refinance the prior Group credit facility and finance theacquisition of the Company by Walter. Subsequent to September 30, 2005 andprior to the acquisition by Walter on 

F-20

----

October 3, 2005,Group wrote off $18.4 million of deferred financing fees related to the 2004Mueller Credit Facility.

The 2005 Mueller Credit Agreement contains customaryevents of default and covenants, including covenants that restrict the abilityof Group and certain of its subsidiaries to incur certain additionalindebtedness, create or permit liens on assets, engage in mergers orconsolidations, and certain restrictive financial covenants. So long as nodefault has occurred, Mueller Group is permitted to make cash dividends toMueller Water Products of up to $7.5 million in any fiscal year, or $15 millionin aggregate over the life of the Credit Agreement and to distribute funds tomake regularly scheduled payments when due of interest and principal on MuellerWater Products’ notes. If an event of default under the agreement shall occurand be continuing, the commitments under the related credit agreement may beterminated and the principal amount, together with all accrued unpaid interestand other amounts owed thereunder, may be declared immediately due and payable.

*Second Priority Senior Secured Floating Rate Notes:*   Groupissued $100 million of such notes with interest payable at a rate equal tothe three-month reserve-adjusted LIBOR, which is reset quarterly,plus 4.75%. The interest rate for the interest period beginning August 1,2005 is 8.44% per annum. The secured notes mature in 2011 and are guaranteed byeach of the existing domestic restricted subsidiaries and secured by second-priorityliens on the assets securing the senior credit facility (other than certainsubsidiary stock and assets of Water). The secured notes contain customarycovenants and events of default, including covenants that limit Group’s abilityto incur debt, pay dividends and make investments and also include amaintenance covenant limiting Group’s senior total leverage as a multiple ofEBITDA, as defined in the indenture.

On October 3, 2005, Group delivered a notice ofredemption with respect to all of the secured notes, providing for theredemption of all such secured notes on November 2, 2005. In addition, Groupdelivered to the trustee for the secured notes, $104.1 million in trust equalto the principal, premium and interest accruing to the redemption date. Subsequentto September 30, 2005 and prior to the acquisition by Walter on October 3,2005, Group wrote off $2.4 million of deferred financing fees related to thesecured notes. As a result of Group having called the secured notes forredemption and having made the payment into trust, as well as having satisfiedcertain other procedural requirements, Group satisfied and discharged itsobligations with respect to the secured notes and the related indenture.

*10% Senior Subordinated Notes:*   Intereston the subordinated notes is payable at an annual rate of 10%. The subordinatednotes mature in 2012 and are guaranteed by each of Group’s existing domesticrestricted subsidiaries. The subordinated notes contain customary covenants andevents of default, including covenants that limit Group’s ability to incurdebt, pay dividends and make investments. Mueller Group is permitted to makedividends or loans to Mueller Water Products of up to $2 million in any fiscalyear for costs and expenses incurred by Mueller Water Products in its capacityas a holding company for services rendered on behalf of Mueller Group. Generally,the notes only permit Mueller Group to pay dividends if there is no default orevent of default and its fixed charge coverage ratio (as defined) is at least2.5 to 1, and the maximum amount that may be paid cannot exceed 50% of ourcumulative net income (as defined) since January 1, 2004, subject tospecified exceptions.

On October 4, 2005, Group notified the holders ofthe subordinated notes that a change in control had occurred as a result of theWalter Industries acquisition and that, as a result, the holders had a right tocause Group to repurchase their subordinated notes on or before 5:00 p.m.,New York City time, on November 4, 2005 at a price of 101% of theprincipal face amount of such notes. The change of control offer expired at5:00 p.m. New York City time, on November 6, 2005, with nosubordinated notes being validly tendered and not withdrawn and, accordingly,no subordinated notes were purchased pursuant to the change of control offer.

F-21

----

*14**3**¤**4% SeniorDiscount Notes:*   On April 29, 2004, the Companyissued 223,000 units, each consisting of $1,000 principal amount at maturity of143¤4%Senior Discount Notes due 2014 and one warrant to purchase 109.80889 shares of Class Acommon stock of the Company at $0.01 per share. The notes are senior unsecuredobligations and are effectively subordinated to all of its existing and futuresecured debt and to all indebtedness and other liabilities of its subsidiaries,including Group.

On October 3, 2005, in connection with theacquisition of the Company by Walter, the outstanding warrants were convertedinto the right to receive cash upon exercise of the warrants. These warrantswere classified as permanent equity in prior periods as the contracts requiredsettlement in shares, absent a change in control event, in which case thewarrant automatically become exercisable for the kind and amount ofconsideration provided to shareholders.  All funds required for settlement of warrantsare funded by amounts held in cash in connection with the acquisition byWalter.

On October 4, 2005, the Company notified theholders of the senior discount notes that a change in control had occurred as aresult of the Walter Industries acquisition and that, as a result, the holdershad a right to cause the Company to repurchase their senior discount notes onor before 5:00 p.m., New York City time, on November 4, 2005 at aprice of 101% of the accreted value of the notes at the time of change incontrol. The change of control offer expired at 5:00 p.m., New York Citytime, on November 6, 2005, with no senior discount notes being validlytendered and not withdrawn and, accordingly, no senior discount notes werepurchased pursuant to the change of control offer.

*Capital Leases**—The*Company leasesautomobiles under capital lease arrangements that expire over the next fouryears.

Futureminimum lease payments under scheduled capital leases that have initial orremaining non-cancelable terms in excess of one year are as follows:

| ** **                        | ** ** | **(dollars  in millions)** | ** ** |
|-----------------------------------|------------|---------------------------------|------------|
| Fiscal 2006                       |       |                            | $          | 1.1 |   |   |
| Fiscal 2007                       |       |                            | 0.9        |   |   |
| Fiscal 2008                       |       |                            | 0.5        |   |   |
| Fiscal 2009                       |       |                            | 0.1        |   |   |
| Total minimum lease payments      |       |                            | 2.6        |   |   |
| Amount  representing interest     |       |                            | (0.4       | ) |   |
| Obligations under  capital leases |       |                            | 2.2        |   |   |
| Obligations due  within one year  |       |                            | (0.9       | ) |   |
| Long term obligations             |       |                            | $          | 1.3 |   |   |

 

**Interest Rate Swaps****—Group**has enteredinto interest rate swap agreements in order to reduce interest rate risks andmanage interest expense. As of September 30, 2005, a notional principalamount of $100 million in swap agreements is still outstanding andscheduled to mature between April 2007 and May 2007. At September 30,2005, the fair value of interest rate swaps was an asset of $0.5 million. At September 30,2004 and 2003, the fair value of interest rate swaps was a liability of $4.7 million,and $17.2 million, respectively. The swap agreements effectively convertfloating-rate debt into fixed-rate debt and carry an average fixed interestrate of 4.09% at September 30, 2005. Interest differentials to be paid orreceived because of swap agreements are reflected as an adjustment to interestexpense over the related debt period. For the fiscal years ended September 30,2005, 2004 and 2003 Group recorded gains on interest rate swaps of $5.2million, $12.5 million, and $13.3 million, respectively. While Group is exposedto credit loss on its interest rate swaps in the event of non-performance bythe counterparties to such swaps, management believes such nonperformance isunlikely to occur given the financial resources of the counterparties.

F-22

----

On October 27, 2005, Group entered into sixinterest rate hedge transactions with a cumulative notional value of $350million. These hedges are described in Note 8 and principally comply withcovenants contained in the 2005 Mueller Credit Agreement.

**Distributions to Water****—Water** has nomaterial assets other than its ownership of Group’s capital stock andaccordingly depends upon distributions from Group to satisfy its cash needs.The Company’s principal cash needs will be debt service on its Senior DiscountNotes due 2014. These notes do not require cash interest payments until 2009and contain restrictive covenants that will, among other things, limit theability of the Company and its subsidiaries (including Group) to incur debt,pay dividends and make investments. Neither Group nor any of its subsidiariesguarantee these notes. The Company, however, is a holding company and itsability to pay interest on the notes will be dependent upon the receipt ofdividends from its subsidiaries. Group is Water’s only direct subsidiary.However, the terms of Group’s borrowing arrangements significantly restrict itsability to pay dividends to Water.

**Fair Value of Debt****—Based**on the levelof interest rates prevailing at September 30, 2005, the fair value of theCompany’s fixed-rate debt exceeded its carrying value by approximately $54.9million. Unrealized gains or losses on debt do not result in the realization orexpenditure of cash and generally are not recognized for financial reportingpurposes unless the debt is retired prior to its maturity.

**Note7.   Redeemable Preferred and Common Stock**

*Redeemable Preferred Stock**.—In* connection withits formation in 1999, the Company issued two million shares of 16% SeniorExchangeable Preferred Stock, due August 15, 2010, par value $0.01 pershare (“preferred stock”). The preferred stock provided for dividends at a rateof 16% per annum, which dividends would accrue or be payable in cash, at theCompany’s option until August 2006. The liquidation value was $25 pershare plus the dividend accretion since issuance.

The accretion of dividends of $9.9 million forthe fiscal year ended September 30, 2004 was accounted for as a non-cashcharge to additional paid-in capital and reduced the net income available tocommon shareholders. As described in Note 6, the preferred stock wasredeemed by the Company on April 23, 2004.

*Redeemable Common Stock**—Group* has enteredinto an employment agreement with Dale Smith, Group’s President and ChiefExecutive Officer, which, in certain circumstances, gives Mr. Smith theright to sell to the Company, at a price equal to the fair market value of hisequity interests as of the date of such sale or purchase, his shares of theCompany’s common stock. The Company had 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, 2005 and September 30,2004, Mr. Smith owned approximately 9.2 million Class A commonshares, respectively.

On October 3, 2005,Walter Industries acquired 100% of the outstanding common stock of the Company,including all of the common shares held by Mr. Smith.

**Note8.   Derivative Instruments**

All derivative financial instruments are recorded onthe consolidated balance sheets at their fair value as either assets orliabilities. Changes in the fair value of derivatives are recorded each periodin earnings or Accumulated Other Comprehensive Income (Loss), depending onwhether or not a derivative is designated and effective as part of a hedgetransaction and, if it is, the type of hedge transaction. Any gains and losseson derivative instruments that are reported in Accumulated Other ComprehensiveIncome (Loss) are included in earnings in the periods in which earnings areaffected by the hedged item. All gains or losses associated with interest rateswaps have been included in earnings and not Accumulated Other Comprehensive Income(Loss).

F-23

----

For a derivative to qualify as a hedge at inceptionand throughout the hedge period, the Company must formally document the natureand relationships between the hedging instruments and hedged items, as well asits risk-management objectives, strategies for undertaking the various hedgetransactions and method of assessing hedge effectiveness. Any financialinstruments qualifying for hedge accounting must maintain a specified level ofeffectiveness between the hedging instrument and the item being hedged, both atinception and throughout the hedged period.

*Interest Rate Swaps**—At* September 30,2005, the fair value of interest rate swaps was an asset of $0.5 million. At September 30,2004 and 2003, the fair value of interest rate swaps was a liability of$4.7 million, and $17.2 million, respectively.

On October 27, 2005,Group entered into six interest rate hedge transactions with a cumulativenotional value of $350 million. The swap terms are between one and seven yearswith five separate counter-parties. The objective of the hedges is to protectthe Company against rising LIBOR interest rates that would have a negativeeffect on the Company’s cash flows due to changes in interest payments on its2005 Mueller Term Loan. The structure of the hedges are a one-year 4.617% LIBORswap of $25 million, a three-year 4.740% LIBOR swap of $50 million, a four-year4.800% LIBOR swap of $50 million, a five-year 4.814% LIBOR swap of $100million, a six-year 4.915% LIBOR swap of $50 million, and a seven year 4.960%LIBOR swap of $75 million. The swap agreements call for the Company to makefixed rate payments over the term at each swap’s stated fixed rate and toreceive payments based on three month LIBOR from the counter-parties. Theseswaps will be settled upon maturity and will be accounted for as cash flowhedges. As such, changes in the fair value of these swaps that take placethrough the date of maturity will be recorded in accumulated othercomprehensive income. These hedges principally comply with covenants containedin the 2005 Mueller Credit Agreement.

**Note9.   Commitments and Contingencies**

TheCompany occupies certain facilities under leases that expire at various datesthrough the year 2013. Rental expense under these leases and leases forequipment was $9.1 million, $9.3 million and $9.3 million forthe fiscal years ended September 30, 2005, 2004, and 2003, respectively.At September 30, 2005, the aggregate minimum lease payment obligations of$22.6 million under noncancelable operating leases were as follows:

| **Fiscal year** | ** ** | ** ** | ** ** | **(dollars  in millions)** | ** ** |
|----------------------|------------|------------|------------|---------------------------------|------------|
| 2006                 |       |       | $          | 7.8                             |       |   |
| 2007                 |       |       | 5.8        |                            |       |
| 2008                 |       |       | 3.9        |                            |       |
| 2009                 |       |       | 1.4        |                            |       |
| 2010                 |       |       | 1.1        |                            |       |
| Thereafter           |       |       | 2.6        |                            |       |
|                 |       |       | $          | 22.6                            |       |   |

 

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

The Company has contractual obligations for purchasesof raw materials, purchased components and capital expenditures totaling$12.6 million, of which $12.1 million is expected to be paid in thenext twelve months.

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 products manufactured or sold by the Muellerbusiness prior to the August 1999 Tyco Transaction, and environmentalclaims relating to property owned by the Mueller business in 

F-24

----

August 1999 andbefore, arising out of events occurring prior to that date, are subject toindemnification by Tyco, based on the provisions of the August 1999 TycoTransaction.

Certain of the products sold contain lead.Environmental advocacy groups, relying on standards established by California’sProposition 65, are seeking to eliminate or reduce the content of lead in someCompany products offered for sale in California. In certain cases, the Companyhas entered into settlement agreements with these environmental advocacy groupsto modify our products or offer substitutes. Further, similar issues may beraised by other advocacy groups in other jurisdictions under legislationsimilar to Proposition 65.

Over the next two to three years, the Company expectsto incur between $2.0 million and $6.0 million of capital costs at its steeland iron foundries to comply with the United States Environmental ProtectionAgency’s National Emissions Standards for Hazardous Air Pollutants which wereissued April 22, 2004. The Company is in the process of performing ananalysis to assess the impact of these standards on the financial results ofthe Company.

F-25

----

The Company’s subsidiary,James Jones Company, and Tyco, its former parent company, are defendants in afalse claims lawsuit in which a former James Jones Company employee is suing onbehalf of cities, water districts and municipalities. The employee alleges thatthe defendants sold allegedly non-conforming public water system parts tovarious government entities. The lawsuit seeks consequential damages, penaltiesand punitive damages. The Company’s subsidiary, Mueller Co., which had alsobeen named as a defendant, brought a summary judgment motion and was dismissedfrom this litigation in January 2004. Any liability associated with thelawsuit is covered by an indemnification from Tyco.

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, based on currentlyavailable information the total costs are estimated to be approximately $1.3 million.The Company has spent $0.3 million and has accrued $1.0 million as of September 30,2005.

In November 2005, the Company reached anagreement in principle to settle the previously reported dispute concerning theamount of Anvil’s withdrawal liability in respect of the TeamstersLocal 11 Pension Fund and the 2003 closure of the Anvil facility inKearny, New Jersey. An accrual for the settlement was recognized as of September 30,2005 and is reflected in the financial statements for the year then ended.

As part of the Star acquisition (see Note 4), Anvilhas agreed 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 payment amount is $23 million. Management currentlyestimates the payment could total approximately $3 to $6 million for thepayment period that began February 1, 2004 and ends January 31, 2007.The payment amount indicated above is based on management’s best estimate, butthe actual adjustment could be materially different. The liability for suchpayment will be recorded at the end of each payment period, in accordance withthe purchase agreement. No payment was earned for the years ended September 30,2005 or September 30, 2004.

The Company has entered into employment agreementswith Dale Smith, Thomas Fish and Doyce Gaskin. In addition, benefit plans havebeen adopted that provide for severance and other payments when certain eventsoccur, such as a change in control. These employment agreements and plansrequire payments under the circumstances set forth therein.

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.

**Note 10.   Retirement Plans**

*Defined Benefit Pension Plans—**The* Company has anumber of non-contributory and contributory defined benefit retirement planscovering certain United States and non-United States employees of the Companyand its subsidiaries. Contributions are based on the projected unit creditmethod of calculation and are charged to the statements of operations on asystematic basis over the expected average remaining service lives of currentemployees. The Company’s funding policy is to make annual contributions to theextent such contributions are tax deductible as actuarially determined. Thebenefits under the defined benefit plans are based on years of service andcompensation.

F-25

----

Thefollowing table presents the changes in the projected benefit obligations:

| ** **                                       | ** ** | **Fiscal year ended  September 30,** | ** ** |
|--------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                       | ** ** | **2005**                                            | ** ** | **2004** | ** ** |
| ** **                                       | ** ** | **(dollars in millions)**                 | ** ** |
| Benefit  obligation at beginning of the period   |       | $                                                   | 110.1      |   | $ | 104.6 |   |
| Service cost                                     |       | 3.3                                                 |       | 2.1 |   |
| Interest cost                                    |       | 6.1                                                 |       | 6.1 |   |
| Actuarial losses                                 |       | 9.0                                                 |       | 2.3 |   |
| Benefits paid                                    |       | (6.6                                                | )          | (6.1 | ) |
| Plan amendments                                  |       | 0.3                                                 |       | 0.4 |   |
| Employee contributions                           |       | 0.2                                                 |       | 0.1 |   |
| Currency translation adjustment                  |       | 1.0                                                 |       | 0.6 |   |
| Net increase for  the period                     |       | 13.3                                                |       | 5.5 |   |
| Projected benefit  obligation, end of the period |       | $                                                   | 123.4      |   | $ | 110.1 |   |

 

Thefollowing table presents the changes in fair value of plan assets:

| ** **                                          | ** ** | **Fiscal year ended  September 30,** | ** ** |
|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                          | ** ** | **  2005  **                    | ** ** | **  2004  ** | ** ** |
| ** **                                          | ** ** | **(dollars in millions)**                 | ** ** |
| Fair value of  plan assets at beginning of period   |       |                                                | $          | 79.2 |   |   |   | $ | 71.6 |   |   |
| Actual return on  plan assets                       |       |                                                | 8.9        |   |   |   | 5.5 |   |   |
| Employer  contributions                             |       |                                                | 0.5        |   |   |   | 7.3 |   |   |
| Benefits paid                                       |       |                                                | (6.6       | ) |   |   | (6.1 | ) |   |
| Employee  contributions                             |       |                                                | 0.2        |   |   |   | 0.1 |   |   |
| Currency  translation adjustment                    |       |                                                | 1.1        |   |   |   | 0.8 |   |   |
| Net increase for  the period                        |       |                                                | 4.1        |   |   |   | 7.6 |   |   |
| Fair value of plan  assets at the end of the period |       |                                                | $          | 83.3 |   |   |   | $ | 79.2 |   |   |

 

Informationfor the pension plans with an accumulated benefit obligation in excess of planassets:

| ** **                      | ** ** | **September 30,**              | ** ** |
|---------------------------------|------------|-------------------------------------|------------|
| ** **                      | ** ** | **2005**                            | ** ** | **2004** | ** ** |
| ** **                      | ** ** | **(dollars in millions)** | ** ** |
| Projected benefit  obligation   |       | $                                   | 114.0      |   | $ | 102.6 |   |
| Accumulated  benefit obligation |       | $                                   | 114.0      |   | $ | 102.6 |   |
| Fair value of plan  assets      |       | $                                   | 72.0       |   | $ | 69.3 |   |

 

Thefollowing is a reconciliation of the funded status of the plans:

| ** **                       | ** ** | **Fiscal year ended  September 30,** | ** ** |
|----------------------------------|------------|-----------------------------------------------------|------------|
| ** **                       | ** ** | **   2005   **        | ** ** | **   2004   ** | ** ** |
| ** **                       | ** ** | **(dollars in millions)**                 | ** ** |
| Funded status                    |       |                                                | $          | (40.1 | ) |   |   | $ | (30.9 | ) |   |
| Unrecognized  prior service cost |       |                                                | 1.4        |   |   |   | 1.2 |   |   |
| Unrecognized net  actuarial loss |       |                                                | 47.9       |   |   |   | 44.4 |   |   |
| Net amount recognized            |       |                                                | $          | 9.2 |   |   |   | $ | 14.7 |   |   |

 

F-26

----

Amountsrecognized in the Consolidated Balance Sheets consist of:

| ** **                                                                                                                                                   | ** ** | **Fiscal year ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                                                                   | ** ** | **   2005   **        | ** ** | **   2004   ** | ** ** |
| ** **                                                                                                                                                   | ** ** | **(dollars in millions)**                 | ** ** |
| Accrued pension  liability (net of prepaid pension asset of $4.2 million and $4.1 million  at September 30, 2005 and 2004, respectively) |       |                                                | $          | (37.7 | ) |   |   | $ | (29.2 | ) |   |
| Pension  intangible                                                                                                                                          |       |                                                | 1.0        |   |   |   | 0.8 |   |   |
| Additional  minimum pension liability (pretax)                                                                                                               |       |                                                | 45.9       |   |   |   | 43.1 |   |   |
| Net amount recognized                                                                                                                                        |       |                                                | $          | 9.2 |   |   |   | $ | 14.7 |   |   |

 

Thefollowing table presents the components of net periodic benefit cost:

| ** **                          | ** ** | **Fiscal year ended  September 30,** | ** ** |
|-------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                          | ** ** | **2005**                                            | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                          | ** ** | **(dollars in millions)**                 | ** ** |
| Service cost                        |       | $                                                   | 3.3        |   | $ | 2.1 |   | $ | 2.0 |   |
| Interest cost                       |       | 6.1                                                 |       | 6.1 |   | 6.1 |   |
| Expected return  on plan assets     |       | (5.9                                                | )          | (5.3 | ) | (4.6 | ) |
| Amortization of  prior service cost |       | 0.1                                                 |       | 0.1 |   | 0.1 |   |
| Other                               |       | 0.1                                                 |       | 0.1 |   | — |   |
| Amortization of  net actuarial loss |       | 2.7                                                 |       | 2.7 |   | 2.5 |   |
| Net periodic benefit  cost          |       | $                                                   | 6.4        |   | $ | 5.8 |   | $ | 6.1 |   |

 

| ** **                                                                                                    | ** ** | **At September 30,**      | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                                    | ** ** | **  2005  **    | ** ** | **  2004  ** | ** ** |
| ** **                                                                                                    | ** ** | **(dollars in millions)** | ** ** |
| Other  comprehensive income attributable to the change in additional minimum  liability recognition (pre-tax) |       |                                | $          | 2.8 |   |   |   | $ | (1.0 | ) |   |
|                                                                                                               |            |                                     |            |  |  |  |  |  |  |  |  |

 

| ** **                                                                                              | ** ** | **At September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                              | ** ** | **2005**                       | ** ** | **2004** | ** ** |
| Weighted-Average  Assumptions used to determine projected benefit obligations as of end of  fiscal year |       |                           |       |   |   |   |   |   |   |
| Discount rate:                                                                                          |       |                           | 5.2        | % |   |   | 5.8 | % |   |
| Rate of compensation  increase:                                                                         |       |                           | 3.5        | % |   |   | 3.5 | % |   |

 

| ** **                                                                | ** ** | **Fiscal Year ended  September 30,** | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                | ** ** | **2005**                                            | ** ** | **2004** | ** ** | **2003** | ** ** |
| Weighted-Average  Assumptions used to determine net periodic benefit cost |       |                                                |       |   |   |   |   |   |   |   |   |   |   |
| Discount rate:                                                            |       |                                                | 5.8        | % |   |   | 6.0 | % |   |   | 6.0 | % |   |
| Rate of  compensation increase:                                           |       |                                                | 3.5        | % |   |   | 3.5 | % |   |   | 5.0 | % |   |
| Expected long-term  return on plan assets:                                |       |                                                | 7.9        | % |   |   | 7.9 | % |   |   | 7.9 | % |   |

 

The discount rate is based on published rates forhigh-quality fixed-income investments that produce cash flows that approximatethe timing and amount of expected future benefit payments. To develop theexpected long-term rate of return on assets assumption, the Companyconsidered the historical returns and the future expectations for returns foreach asset class, as well as the target allocation of the pension portfolio,over a 20-year time horizon based on the facts and circumstances thatexist as of the measurement date. The Company also reflected historical andexpected future returns associated with its 

F-27

----

active management ofcertain asset classes in recognition of the potential to outperform the broadermarket.

Thecompany’s pension plans’ weighted-average asset allocations at September 30,2005, and 2004, by asset category, are as follows:

| ** **        | ** ** | **At September 30,** | ** ** |
|-------------------|------------|--------------------------------|------------|
| ** **        | ** ** | **2005**                       | ** ** | **2004** | ** ** |
| Equity Securities |       | 65.0                           | %          | 62.4 | % |
| Debt Securities   |       | 33.3                           | %          | 36.7 | % |
| Other             |       | 1.7                            | %          | 0.9 | % |
| Total             |       | 100.0                          | %          | 100.0 | % |

 

The target asset allocations for the plans are 45% forlarge cap domestic equities (range of 35%-50%), 5% for small cap domesticequities (range of 0% to 10%), 10% for international equities (range of 5% to15%), and 40% for domestic fixed income (range of 35% to 45%). The assets ofthe company’s plans are well diversified and managed with the goal ofmaximizing the plans’ real return within an acceptable level of risk. The assetallocation is designed to minimize the plans’ volatility of returns through theuse of a 40% allocation to fixed income securities. To offset the lower overallexpected returns from fixed income securities; the target equity component isweighted at 60% and includes both small cap and international equities. Thesmall cap equity allocation has a higher overall expected return than large capequities. International equities are considered a diversifier for the plans, asthe current expected return of international equities is not significantlydifferent than for domestic equities.

The Company reviews asset allocation each quarter todetermine if the asset class allocations for each asset class fall within theapproximate target ranges. If assets fall outside the ranges, rebalancing isaccomplished through cash flows and/or transfer of assets between assetclasses.

The Company is required to contribute$0.5 million to its pension plans in 2006, and it may make furtherdiscretionary payments.

Thefollowing benefit payments, which reflect expected future service, are expectedto be paid:

| **Fiscal Year** | ** ** | ** ** | ** ** | **(dollars in millions)** | ** ** |
|----------------------|------------|------------|------------|-------------------------------------|------------|
| 2006                 |       |       | $          | 6.5                                 |       |   |
| 2007                 |       |       | $          | 6.6                                 |       |   |
| 2008                 |       |       | $          | 6.7                                 |       |   |
| 2009                 |       |       | $          | 6.8                                 |       |   |
| 2010                 |       |       | $          | 6.9                                 |       |   |
| 2011 to 2015         |       |       | $          | 35.9                                |       |   |

 

Of the total plan obligations at September 30,2005, 2004 and 2003, 91% relate to United States plans, and 9% relate tonon-United States plans.

*Defined ContributionRetirement Plan—**Certain* United States employees ofthe Company and its subsidiaries participate in a defined contribution 401(k) matchingplan. Pension expense for the defined contribution plan is computed as apercentage of participants’ compensation and was $5.6 million,$5.4 million and $5.9 million for the fiscal years ended September 30,2005, 2004 and 2003, respectively.

F-28

----

**Note11.   Supplementary Balance Sheet Information**

Selectedsupplementary balance sheet information is presented below:

| ** **                                  | ** ** | **September 30,**              | ** ** |
|---------------------------------------------|------------|-------------------------------------|------------|
| ** **                                  | ** ** | **2005**                            | ** ** | **2004** | ** ** |
| ** **                                  | ** ** | **(dollars in millions)** | ** ** |
| **Inventories**                             |       |                                |       |   |   |
| Purchased  materials and manufactured parts |       | $                                   | 33.5       |   | $ | 41.1 |   |
| Work in process                             |       | 90.6                                |       | 67.3 |   |
| Finished goods                              |       | 178.9                               |       | 151.8 |   |
|                                        |       | $                                   | 303.0      |   | $ | 260.2 |   |
| **Property,  plant and equipment**          |       |                                |       |   |   |
| Land                                        |       | $                                   | 9.2        |   | $ | 9.6 |   |
| Buildings                                   |       | 63.0                                |       | 58.6 |   |
| Machinery and  equipment                    |       | 300.0                               |       | 286.6 |   |
| Other                                       |       | 14.9                                |       | 15.4 |   |
| Accumulated  depreciation                   |       | (219.1                              | )          | (183.4 | ) |
|                                        |       | $                                   | 168.0      |   | $ | 186.8 |   |
| **Accrued  expenses and other liabilities** |       |                                |       |   |   |
| Vacations and  holidays                     |       | $                                   | 9.7        |   | $ | 9.1 |   |
| Workers  compensation                       |       | 8.8                                 |       | 8.5 |   |
| Accrued interest                            |       | 15.2                                |       | 16.6 |   |
| Accrued payroll  and bonus                  |       | 20.0                                |       | 14.7 |   |
| Accrued sales  commissions                  |       | 3.8                                 |       | 4.0 |   |
| Accrued cash  discounts and rebates         |       | 15.8                                |       | 14.4 |   |
| Accrued federal  and state income taxes     |       | 4.7                                 |       | 0.5 |   |
| Accrued other  taxes                        |       | 4.1                                 |       | 4.6 |   |
| Accrued medical  claims                     |       | 4.0                                 |       | 3.6 |   |
| Other                                       |       | 17.2                                |       | 9.9 |   |
|                                        |       | $                                   | 103.3      |   | $ | 85.9 |   |

 

F-29

----

**Note12.   Supplementary Income Statement Information**

Selectedsupplementary income statement information is presented below.

| ** **                                         | ** ** | **Fiscal year ended  September 30,** | ** ** |
|----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                         | ** ** | **2005**                                            | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                         | ** ** | **(dollars in millions)**                 | ** ** |
| Included in  selling, general and administrative:  |       |                                                |       |   |   |   |   |
| Research and  development                          |       | $                                                   | 4.8        |   | $ | 4.4 |   | $ | 4.7 |   |
| Advertising                                        |       | $                                                   | 2.1        |   | $ | 2.3 |   | $ | 1.6 |   |
| Interest expense, net of interest income:          |       |                                                |       |   |   |   |   |
| Contractual  interest expense                      |       | $                                                   | 91.2       |   | $ | 59.0 |   | $ | 47.0 |   |
| Deferred  financing fee amortization               |       | 5.2                                                 |       | 3.6 |   | 2.7 |   |
| Senior  subordinated debt early redemption penalty |       | —                                              |       | 7.0 |   | — |   |
| Write off of  deferred financing fees              |       | —                                              |       | 7.0 |   | — |   |
| Interest rate  swap gains                          |       | (5.2                                                | )          | (12.5 | ) | (13.3 | ) |
| Interest expense                                   |       | 91.2                                                |       | 64.1 |   | 36.4 |   |
| Interest income                                    |       | (1.7                                                | )          | (0.6 | ) | (0.9 | ) |
| Total interest expense,  net of interest income    |       | $                                                   | 89.5       |   | $ | 63.5 |   | $ | 35.5 |   |

 

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

| ** **                                   | ** ** | **Fiscal year ended  September 30,** | ** ** |
|----------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                   | ** ** | **2005**                                            | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                   | ** ** | **(dollars in millions)**                 | ** ** |
| Net income                                   |       | $                                                   | 49.6       |   | $ | 33.2 |   | $ | 32.8 |   |
| Less preferred  share accretion              |       | —                                              |       | (9.9 | ) | (14.2 | ) |
| Net income available to  common shareholders |       | $                                                   | 49.6       |   | $ | 23.3 |   | $ | 18.6 |   |

 

**Note 13.   Stock Plans**

Effective August 31, 2000, the Companyimplemented a Management Incentive Plan and a Direct Investment Program. Thesestock plans were created with the purpose of attracting, retaining andmotivating key employees of the Company and its subsidiaries. In conjunctionwith the acquisition of the Company by Walter Industries on October 3,2005, these plans have been terminated. Company employees will be eligible toparticipate in the various Walter programs.

*DirectInvestment Program—**Under*the Direct InvestmentProgram, certain employees were allowed to purchase a specific number of sharesof class A common stock of the Company at a price equal to fair value at thetime of the purchase. Under the plan, the Company loaned the employee up to 50%of the total purchase price on a non-recourse basis and all shares purchasedwere pledged as collateral. The Company was authorized to grant 10 millionshares under the plan and issued approximately 9.5 million shares at apurchase price of $1.00 per share as of September 30, 2000 and anadditional 0.5 million shares at a purchase price of $1.50 per share as ofSeptember 30, 2003. The Company recorded non-cash compensation expense of$2.3 million for the fiscal year ended September 30, 2004, related tothe loan portion of the shares purchased pursuant to the Direct InvestmentProgram.

During fiscal 2003, the Company’s Chief ExecutiveOfficer purchased 476,244 shares of class A common stock at $1.50 per shareunder the Direct Investment Program for approximately $0.7 million.

F-30

----

In connection with the recapitalization completed inApril 2004, all outstanding employee loans were repaid in full by theemployees. The Company recorded a non-cash compensation charge of approximately$2.3 million related to the loan portion of the shares purchased pursuantto the Direct Investment Program. There were no remaining shares available forpurchase as of September 30, 2005.

*Management Incentive Plan—Under*the Management Incentive Plan, the Company was authorized to grant stockoptions to key individuals of the Company and its subsidiaries to acquire 15million shares of class A common stock. The options were to be granted atpurchase prices equal to the fair value of the common shares on the dates ofgrant. According to the terms of the Plan, the options would become fullyvested and exercisable on the eighth anniversary of the date of grant, providedthat the individual was in the employment of the Company at all times duringthe vesting period, and would expire after ten years.

As all options granted had an exercise price equal tothe fair value at the date of grant, no compensation expense was required to berecognized prior to the recapitalization discussed in Note 6.

In connection with the recapitalization, the Companymodified these stock option awards to accelerate vesting, allowed for net cashsettlement of options and issued shares to optionholders with a fair value of$0.43 per share upon completion of a recapitalization. The Company made apayment to its employee optionholders of the excess of the per share dividendto its common stockholders over the exercise price of their options, orapproximately $12.6 million in the aggregate, and the shares were issuedand the options were cancelled. The option buyout resulted in an additionalcharge of approximately $18.9 million ($12.6 million cash charge and$6.3 million non-cash charge) upon completion of the recapitalization inthe quarter ended June 26, 2004.

Informationwith respect to stock option activity under the Company’s plan is as follows:

| ** **                                                                          | ** ** | **Number of  Common  Shares** | ** ** | **Option Price  Per Share** | ** **    | **Weighted  Average  Exercise  Price** | ** ** |
|-------------------------------------------------------------------------------------|------------|------------------------------------|------------|---------------------------------------|---------------|----------------------------------------|------------|
| Options  outstanding at September 30, 2002                                     |       | 13,231,975                         |       | $                                     | 1.00 to $1.19 |                                   |       | $ | 1.01 |   |   |
| Granted                                                                             |       | 1,700,000                          |       | 1.50                                  |          |                                   | 1.50       |   |   |
| Cancelled                                                                           |       | (203,550                           | )          | 1.00                                  |          |                                   | 1.00       |   |   |
| Options  outstanding at September 30, 2003                                     |       | 14,728,425                         |       | $                                     | 1.00 to $1.50 |                                   |       | $ | 1.06 |   |   |
| Granted                                                                             |       | —                             |       |                                  |          |                                   |       |   |   |
| Options cancelled upon recapitalization and issuance  of Class A common shares |       | (14,728,425                        | )          |                                  |          |                                   |       |   |   |
| Options outstanding at  September 30, 2004                                     |       | —                             |       |                                  |          |                                   |       |   |   |

 

In addition, the Company granted options to certainmembers of the Board of Directors under this plan. There were 166,250 optionsgranted to members of the Board of Directors outstanding as of September 30,2003.

There were no optionsgranted or outstanding on September 30, 2005.

F-31

----

**Note14.   Facility Rationalization, Restructuring and Related Costs**

*2005*—Duringfiscal 2005, the Company recorded accrued costs of $1.7 million, relatedprimarily to severance payments and to the termination of operating leases forthe building and machinery at a Mueller plant in Colorado that ceasedmanufacturing operations. As of September 30, 2005, all employees havebeen severed and $0.3 million of lease termination accrual is remaining to besettled.

*2004*—During fiscal2004, the Company recorded $0.9 million, related to asset impairments,environmental issues at a closed facility in Statesboro, Georgia (seeNote 9) and lease expense at a closed and vacated facility.

*2003*—Duringfiscal 2003, the Company continued its efforts to reduce operating costs. TheCompany incurred $0.3 million of costs related to relocation ofmanufacturing production to another facility. Additionally, after reviewing itsfacility utilization and associated assets, the Company recorded a charge of$1.4 million related to asset impairments.

**Note 15.   Related Parties**

As of September 30, 2005, substantially all ofthe outstanding shares of the Company’s common stock were held by theDonaldson, Lufkin & Jenrette (“DLJ”) Merchant Banking funds. As aresult of their stock ownership, the DLJ Merchant Banking funds controlled theCompany and had the power to elect all of the Company’s directors, appoint newmanagement and approve any action requiring the approval of the holders ofcommon stock, including adopting amendments to the Company’s certificate of incorporationand approving acquisitions or sales of all or substantially all of the Company’sassets. The directors elected by the DLJ Merchant Banking funds had the abilityto control decisions affecting the Company’s capital structure, including theissuance of additional capital stock, the implementation of stock repurchaseprograms and the declaration of dividends.

DLJ Merchant Banking II, Inc. was paid an annualadvisory fee of $500,000 in connection with a financial advisory agreement.This agreement terminated on October 3, 2005 in conjunction with thepurchase of the Company by Walter. Additionally, at September 30, 2004,the Company had a $1.0 million payable to DLJ Merchant Banking II as a one-timeadvisory fee permitted upon the amendment of the senior credit facility.

Credit Suisse First BostonLLC, an affiliate of the DLJ Merchant Banking funds, had received customaryfees and reimbursement of expenses in connection with the arrangement andsyndication of the senior credit facility and as a lender and agent thereunder.Credit Suisse First Boston LLC was also one of the initial purchasers of theCompany’s 143⁄4% Senior Discount Notes in the April 2004 recapitalization.The aggregate amount of all fees payable to entities affiliated with CreditSuisse First Boston LLC in connection with these advisory services andfinancing arrangements (including those fees mentioned above) was approximately$0.9 million, $27.2 million and $0.5 million in 2003, 2004 and2005. This relationship terminated on October 3, 2005, in connection withthe purchase of the Company by Walter.

**Note16.   Common Stock Warrants and Restrictions**

Together with the issuance in April 2004 of the143¤4%Senior Discount Notes due 2014, the Company issued 223,000 warrants to purchase24,487,383 shares of Class common stock at $0.01 per share. Upon theexercise of the warrants, the Company will receive $0.2 million in cash.

On October 3, 2005, in connection with theacquisition of the Company by Walter, the outstanding warrants were convertedinto the right to receive cash upon exercise of the warrants. These warrantswere classified as permanent equity in prior periods as the contracts requiredsettlement in shares, absent a change in control event, in which case thewarrant automatically become exercisable for the kind and 

F-32

----

amount of considerationprovided to shareholders. All funds required for settlement of warrants arefunded by amounts held in escrow in connection with the acquisition by Walter.

On October 4, 2005,the Company notified the holders of the senior discount notes that a change incontrol had occurred as a result of the Walter Industries acquisition and that,as a result, the holders had a right to cause the Company to repurchase theirsenior discount notes on or before 5:00 p.m., New York City time, on November 4,2005 at a price of 101% of the accreted value of the notes at the time ofchange in control. The change of control offer expired at 5:00 p.m., NewYork City time, on November 6, 2005, with no senior discount notes beingvalidly tendered and not withdrawn and, accordingly, no senior discount noteswere purchased pursuant to the change of control offer.

**Note 17.   Segment Information**

As of September 30, 2005, the Company’soperations consisted of two operating segments: Mueller and Anvil. Thesesegments are organized around differences in products and are consistent withhow the operating entities are managed, how resources are allocated, and howinformation is used by the chief operating decision maker. The Mueller segmentis a manufacturer of valves, fire hydrants and other related products utilizedin the distribution of water and gas and in water and wastewater treatmentfacilities. The Anvil segment is a manufacturer of cast iron and malleable ironpipe fittings, ductile iron couplings and fittings, pipe hangers and otherrelated products for the plumbing, heating, mechanical, construction retailhardware and other related industries. Both segments have operations in theUnited States and Canada.

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 directly attributable to segment operations andintersegment eliminations, which we designate as Corporate in the segmentpresentation, and is before interest expense, net, and income taxes. Corporateexpenses include costs related to financial and administrative matters,treasury, risk management, human resources, legal counsel, and tax functions.Corporate assets include items recorded at the date of the Company’s inceptionin 1999 related to purchase accounting valuation adjustments associated withproperty, plant and equipment and non-compete agreements with the predecessorparent company, as well as intangibles associated with intellectual property.These assets and any related depreciation or amortization expense have not beenpushed down to our segments and are maintained as Corporate items. Therefore,segment earnings are not reflective of results on a stand-alone basis.

F-33

----

Segmentassets consist primarily of accounts receivable, inventories, property, plantand equipment, net, goodwill, and identifiable intangibles, net. Summarizedfinancial information for our segments follows:

| ** **                              | ** ** | **Fiscal year ended September 30,** | ** ** |
|-----------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                              | ** ** | **2005**                                                | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                              | ** ** | **(dollars in millions)**                     | ** ** |
| Net sales:                              |       |                                                    |       |   |   |   |   |
| Mueller                                 |       | $                                                       | 663.9      |   | $ | 618.2 |   | $ | 536.1 |   |
| Anvil                                   |       | 485.0                                                   |       | 431.0 |   | 386.8 |   |
| Consolidated                            |       | $                                                       | 1,148.9    |   | $ | 1,049.2 |   | $ | 922.9 |   |
| Intersegment  sales:                    |       |                                                    |       |   |   |   |   |
| Mueller                                 |       | $                                                       | 13.9       |   | $ | 14.1 |   | $ | 13.4 |   |
| Anvil                                   |       | 0.8                                                     |       | 0.7 |   | 0.4 |   |
| Consolidated                            |       | $                                                       | 14.7       |   | $ | 14.8 |   | $ | 13.8 |   |
| Operating income  (expense):            |       |                                                    |       |   |   |   |   |
| Mueller                                 |       | $                                                       | 168.0      |   | $ | 142.4 |   | $ | 113.9 |   |
| Anvil                                   |       | 45.0                                                    |       | 26.9 |   | 13.7 |   |
| Corporate expense(1)                    |       | (40.2                                                   | )          | (56.6 | ) | (36.4 | ) |
| Consolidated operating income           |       | $                                                       | 172.8      |   | $ | 112.7 |   | $ | 91.2 |   |
| Depreciation and  amortization expense: |       |                                                    |       |   |   |   |   |
| Mueller                                 |       | $                                                       | 21.8       |   | $ | 24.0 |   | $ | 24.2 |   |
| Anvil                                   |       | 17.3                                                    |       | 17.3 |   | 16.7 |   |
| Corporate                               |       | 9.3                                                     |       | 23.0 |   | 25.4 |   |
| Consolidated                            |       | $                                                       | 48.4       |   | $ | 64.3 |   | $ | 66.3 |   |
| Fixed asset  impairment charges:        |       |                                                    |       |   |   |   |   |
| Mueller                                 |       | $                                                       | —     |   | $ | — |   | $ | 0.9 |   |
| Anvil                                   |       | 0.5                                                     |       | $ | 0.1 |   | 0.5 |   |
| Corporate                               |       | —                                                  |       | — |   | — |   |
| Consolidated                            |       | $                                                       | 0.5        |   | $ | 0.1 |   | $ | 1.4 |   |
| Capital  expenditures:                  |       |                                                    |       |   |   |   |   |
| Mueller                                 |       | $                                                       | 17.2       |   | $ | 11.3 |   | $ | 11.5 |   |
| Anvil                                   |       | 9.7                                                     |       | 11.2 |   | 8.5 |   |
| Corporate                               |       | 0.3                                                     |       | — |   | — |   |
| Consolidated                            |       | $                                                       | 27.2       |   | $ | 22.5 |   | $ | 20.0 |   |

----

(1)   Includescertain expenses not allocated to segments.

F-34

----

 

| ** **                 | ** ** | **Fiscal year ended September 30,**                                                              | ** ** |
|----------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|
| ** **                 | ** ** | **         2005         ** | ** ** | **         2004           (restated)** | ** ** |
| ** **                 | ** ** | **(dollars in millions)**                                                                                  | ** ** |
| Total assets:              |       |                                                                                                                 |       |   |   |   |   |   |   |
| Mueller                    |       |                                                                                                                 | $          | 516.6 |   |   |   | $ | 500.0 |   |   |
| Anvil                      |       |                                                                                                                 | 303.6      |   |   |   | 307.9 |   |   |
| Corporate                  |       |                                                                                                                 | 266.6      |   |   |   | 181.3 |   |   |
| Consolidated               |       |                                                                                                                 | $          | 1,086.8 |   |   |   | $ | 989.2 |   |   |
| Goodwill:                  |       |                                                                                                                 |       |   |   |   |   |   |   |
| Mueller                    |       |                                                                                                                 | $          | 149.1 |   |   |   | $ | 149.1 |   |   |
| Anvil                      |       |                                                                                                                 | 14.1       |   |   |   | 14.1 |   |   |
| Consolidated               |       |                                                                                                                 | $          | 163.2 |   |   |   | $ | 163.2 |   |   |
| Identifiable  intangibles: |       |                                                                                                                 |       |   |   |   |   |   |   |
| Mueller                    |       |                                                                                                                 | $          | 4.4 |   |   |   | $ | 5.3 |   |   |
| Anvil                      |       |                                                                                                                 | 5.3        |   |   |   | 7.2 |   |   |
| Corporate                  |       |                                                                                                                 | 42.7       |   |   |   | 42.7 |   |   |
| Consolidated               |       |                                                                                                                 | $          | 52.4 |   |   |   | $ | 55.2 |   |   |

 

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 fiscal years endedSeptember 30, 2005, 2004 and 2003:

| ** **                           | ** ** | **Fiscal year ended September 30,** | ** ** |
|--------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                           | ** ** | **2005**                                                | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                           | ** ** | **(dollars in millions)**                     | ** ** |
| Net sales:                           |       |                                                    |       |   |   |   |   |
| United States                        |       | $                                                       | 935.1      |   | $ | 873.2 |   | $ | 779.1 |   |
| Canada                               |       | 201.9                                                   |       | 166.5 |   | 128.1 |   |
| Other Countries                      |       | 11.9                                                    |       | 9.5 |   | 15.7 |   |
|                                 |       | $                                                       | 1,148.9    |   | $ | 1,049.2 |   | $ | 922.9 |   |
| Property, plant  and equipment, net: |       |                                                    |       |   |   |   |   |
| United States                        |       | $                                                       | 152.8      |   | $ | 173.7 |   |   |   |
| Canada                               |       | 12.6                                                    |       | 11.7 |   |   |   |
| Other Countries                      |       | 2.6                                                     |       | 1.4 |   |   |   |
|                                 |       | $                                                       | 168.0      |   | $ | 186.8 |   |   |   |

 

For the year ended September 30,2005, sales to three distributors comprised approximately 30% of the Company’stotal net sales.

**Note18.   New Accounting Pronouncements**

In November 2004, the Financial AccountingStandards Board issued SFAS No. 151, “Inventory Costs.” SFAS No. 151amends the guidance in ARB No. 43, Chapter 4, “InventoryPricing,” to clarify the accounting for abnormal amounts of idle facilityexpense, freight, handling costs, and wasted material. This Statement requiresthat those items be recognized as current-period charges regardless ofwhether they meet the criterion of “so abnormal.” In addition, this Statementrequires that allocation of fixed production overheads to the costs ofconversion be based on the normal capacity of the production facilities.SFAS No. 151 is effective for fiscal years beginning after June 15,2005. The Company intends to adopt SFAS No. 151 on October 1,2005, the beginning of its 2006 fiscal year. The impact of the adoption ofSFAS No. 151 on the Company’s financial statements has not yet beendetermined.

F-35

----

FASB Staff Position(FSP) No. FAS 109-1 and 109-2 were issued in December 2004,providing guidance on foreign earnings repatriation and qualified productionactivities of the American Jobs Creation Act (AJCA) that was enacted on October 22,2004. The AJCA created a temporary incentive for United States multinationalsto repatriate 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 September 30,2005, and prior to the acquisition on October 3, 2005, the Company has notprovided deferred taxes on foreign earnings because any taxes on dividendswould be substantially offset by foreign tax credits or because the Companyintends to reinvest those earnings indefinitely. Due to the complexity of therepatriation provision, the Company is still evaluating the effects of thisprovision on its plan for repatriation of foreign earnings.

In March 2005, the FASB issued FASBInterpretation No. 47, “Accounting for Conditional Asset RetirementObligations” (“FIN 47”), which is an interpretation of FASB No. 143, “Accountingfor Asset Retirement Obligations” (“FAS 143”). This interpretation clarifiesterminology within FAS 143 and requires companies to recognize a liability forthe fair value of a conditional asset retirement obligation when incurred ifthe liability’s fair value can be reasonably estimated. The impact of theadoption of FIN 47 on the Company’s financial statements has not yet beendetermined.

In June 2005, theFASB issued FASB No. 154, “Accounting Changes and Error Corrections—areplacement of APB Opinion No. 20 and FASB Statement No. 3” (“FAS 154”),which changes the requirements for accounting for and reporting of a change inaccounting principle. FAS 154 requires retrospective application to priorperiods’ financial statements of a voluntary change in accounting principleunless it is impracticable. FAS 154 also requires that a change in method ofdepreciation, amortization or depletion for long-lived, nonfinancial assets beaccounted for as a change in accounting estimate that is effected by a changein accounting principle. FAS 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15,2005, but does not change the transition provisions of any existing accountingpronouncements, including those that are in a transition phase as of theeffective date of FAS 154. The adoption of FAS 154 will not have a materialimpact on the Company’s financial condition or results of operations.

**Note 19.   Interim Restatements**

The Company restated prior annual periods as discussedin Note 2. The interim financial statements for the periods noted below havebeen restated for cash flow statement errors related to foreign currencytranslation and book overdrafts, the misclassification of deferred income taxassets between current and non-current classifications in the balance sheet andthe misclassification of depreciation expense between selling, general andadministrative expense and cost of sales as described in Note 2. Therestatements had no impact on the Company’s consolidated net income or theconsolidated statement of stockholders’ deficit for any of the prior interimperiods presented, and resulted in increasing cash and cash equivalents with anoffsetting increase in book overdraft in the consolidated balance sheet in theprior interim periods.

F-36

----

Thefollowing tables set forth the effects of the adjustments discussed above on the financialstatements for each of the periods shown below (dollars in millions):

| ** **                                                        | ** ** | **Three months ended** | ** ** | **Three months ended** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                                        | ** ** | **December 27, 2003**  | ** ** | **January 1, 2005**    | ** ** |
| ** **                                                        | ** ** | **as**                           | ** ** | **as**                           | ** ** | **as** | ** ** | **as** | ** ** |
| **Statements of Consolidated Cash Flows**     | ** ** | ** **                       | ** ** | **reported**                     | ** ** | **restated** | ** ** | **reported** | ** ** | **restated** | ** ** |
| ** **                                                        | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)** | ** ** | **(Unaudited)** | ** ** |
| **Cash Flows From Operating  Activities:**                        |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| (Gain) loss on disposal of property, plant and  equipment         |       |                             | $          | —                           |       |   |   | $ | 0.1 |   |   |   | $ | — |   |   |   | $ | 0.1 |   |   |
| Deferred income taxes                                             |       |                             | $          | 0.8                              |       |   |   | $ | 0.8 |   |   |   | $ | (0.4 | ) |   |   | $ | (0.5 | ) |   |
| Receivables                                                       |       |                             | $          | 17.6                             |       |   |   | $ | 18.3 |   |   |   | $ | 20.7 |   |   |   | $ | 22.2 |   |   |
| Inventories                                                       |       |                             | $          | (3.7                             | )          |   |   | $ | (2.5 | ) |   |   | $ | (27.9 | ) |   |   | $ | (25.5 | ) |   |
| Prepaid expenses and other current assets                         |       |                             | $          | 0.2                              |       |   |   | $ | 0.3 |   |   |   | $ | (0.7 | ) |   |   | $ | (0.6 | ) |   |
| Accounts payable, accrued expenses and other current  liabilities |       |                             | $          | (18.8                            | )          |   |   | $ | (19.3 | ) |   |   | $ | (20.0 | ) |   |   | $ | (20.9 | ) |   |
| Other, net                                                        |       |                             | $          | (0.2                             | )          |   |   | $ | (0.1 | ) |   |   | $ | 4.2 |   |   |   | $ | (0.3 | ) |   |
| Cash flows provided by operating activities                       |       |                             | $          | 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 |   |   |   | $ | — |   |   |
| Cash flows used in investing activities                           |       |                             | $          | (4.4                             | )          |   |   | $ | (4.5 | ) |   |   | $ | (4.6 | ) |   |   | $ | (4.7 | ) |   |
| **Cash  Flows Used In Financing Activities:**                     |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Book overdrafts                                                   |       |                             | $          | —                           |       |   |   | $ | 0.3 |   |   |   | $ | — |   |   |   | $ | (0.7 | ) |   |
| Cash flows used in financing activities                           |       |                             | $          | (51.1                            | )          |   |   | $ | (50.8 | ) |   |   | $ | (0.3 | ) |   |   | $ | (1.0 | ) |   |
| **Effect of exchange rate changes on cash**                       |       |                             | $          | 2.1                              |       |   |   | $ | 0.5 |   |   |   | $ | 4.0 |   |   |   | $ | 0.9 |   |   |
| **Increase (decrease) in cash and cash equivalents**              |       |                             | $          | (38.1                            | )          |   |   | $ | (37.8 | ) |   |   | $ | (3.6 | ) |   |   | $ | (4.3 | ) |   |
| **Cash  and cash equivalents—Beginning of period**           |       |                             | $          | 71.4                             |       |   |   | $ | 73.0 |   |   |   | $ | 55.6 |   |   |   | $ | 60.5 |   |   |
| **Cash and cash equivalents—End  of period**                 |       |                             | $          | 33.3                             |       |   |   | $ | 35.2 |   |   |   | $ | 52.0 |   |   |   | $ | 56.2 |   |   |
|                                                                   |            |                                  |            |                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-37

----

 

| ** **                                                        | ** ** | **Six months ended** | ** ** | **Six months ended** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                                                        | ** ** | **March 27, 2004**   | ** ** | **April 2, 2005**    | ** ** |
| ** **                                                        | ** ** | **as**                         | ** ** | **as**                         | ** ** | **as** | ** ** | **as** | ** ** |
| **Statements of Consolidated Cash Flows**     | ** ** | ** **                     | ** ** | **reported**                   | ** ** | **restated** | ** ** | **reported** | ** ** | **restated** | ** ** |
| ** **                                                        | ** ** | **(Unaudited)**                | ** ** | **(Unaudited)**                | ** ** | **(Unaudited)** | ** ** | **(Unaudited)** | ** ** |
| **Cash Flows From Operating  Activities:**                        |       |                           |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| All other adjustments                                             |       |                           | $          | 2.3                            |       |   |   | $ | 2.3 |   |   |   | $ | (0.1 | ) |   |   | $ | (0.2 | ) |   |
| Receivables                                                       |       |                           | $          | (14.5                          | )          |   |   | $ | (14.0 | ) |   |   | $ | (1.7 | ) |   |   | $ | (0.6 | ) |   |
| Inventories                                                       |       |                           | $(16.3     | )                              |       |   | $(15.4 | ) |   |   | $(43.8 | ) |   |   | $ | (42.1 | ) |   |
| Accounts payable, accrued expenses and other current  liabilities |       |                           | $          | (7.9                           | )          |   |   | $ | (8.3 | ) |   |   | $ | (3.1 | ) |   |   | $ | (3.8 | ) |   |
| Other, net                                                        |       |                           | $          | 3.5                            |       |   |   | $ | 3.4 |   |   |   | $ | 13.2 |   |   |   | $ | 14.0 |   |   |
| Cash flows provided by operating activities                       |       |                           | $          | 9.3                            |       |   |   | $ | 10.2 |   |   |   | $ | 2.9 |   |   |   | $ | 5.7 |   |   |
| **Cash  Flows Used In Financing Activities:**                     |       |                           |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Book overdrafts                                                   |       |                           | $          | —                         |       |   |   | $ | 5.9 |   |   |   | $ | — |   |   |   | $ | 4.9 |   |   |
| Cash flows used in financing activities                           |       |                           | $          | (43.4                          | )          |   |   | $ | (37.5 | ) |   |   | $ | (1.2 | ) |   |   | $ | 3.7 |   |   |
| **Effect of exchange rate changes on cash**                       |       |                           | $          | 1.3                            |       |   |   | $ | 0.4 |   |   |   | $ | 3.4 |   |   |   | $ | 0.6 |   |   |
| **Increase (decrease) in cash and cash equivalents**              |       |                           | $          | (63.6                          | )          |   |   | $ | (57.7 | ) |   |   | $ | (8.5 | ) |   |   | $ | (3.6 | ) |   |
| **Cash  and cash equivalents—Beginning of period**           |       |                           | $          | 71.4                           |       |   |   | $ | 73.0 |   |   |   | $ | 55.6 |   |   |   | $ | 60.5 |   |   |
| **Cash and cash equivalents—End  of period**                 |       |                           | $          | 7.8                            |       |   |   | $ | 15.3 |   |   |   | $ | 47.1 |   |   |   | $ | 56.9 |   |   |
|                                                                   |            |                                |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                                                        | ** ** | **Nine months ended** | ** ** | **Nine months ended** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                                        | ** ** | **June 26, 2004**     | ** ** | **July 2, 2005**      | ** ** |
| ** **                                                        | ** ** | **as**                          | ** ** | **as**                          | ** ** | **as** | ** ** | **as** | ** ** |
| **Statements of Consolidated Cash Flows**     | ** ** | ** **                      | ** ** | **reported**                    | ** ** | **restated** | ** ** | **reported** | ** ** | **restated** | ** ** |
| ** **                                                        | ** ** | **(Unaudited)**                 | ** ** | **(Unaudited)**                 | ** ** | **(Unaudited)** | ** ** | **(Unaudited)** | ** ** |
| **Cash Flows From Operating  Activities:**                        |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Receivables                                                       |       |                            | $          | (16.7                           | )          |   |   | $ | (16.8 | ) |   |   | $ | 1.1 |   |   |   | $ | 1.6 |   |   |
| Inventories                                                       |       |                            | $          | (9.1                            | )          |   |   | $ | (9.2 | ) |   |   | $ | (49.5 | ) |   |   | $ | (48.8 | ) |   |
| Accounts payable, accrued expenses and other current  liabilities |       |                            | $          | (3.7                            | )          |   |   | $ | (3.7 | ) |   |   | $ | (4.8 | ) |   |   | $ | (5.2 | ) |   |
| Other, net                                                        |       |                            | $          | 8.7                             |       |   |   | $ | 9.1 |   |   |   | $ | 9.6 |   |   |   | $ | 10.7 |   |   |
| Cash flows provided by operating activities                       |       |                            | $          | 50.8                            |       |   |   | $ | 51.0 |   |   |   | $ | 31.2 |   |   |   | $ | 33.1 |   |   |
| **Cash  Flows Used In Financing Activities:**                     |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Book overdrafts                                                   |       |                            | $          | —                          |       |   |   | $ | 7.9 |   |   |   | $ | — |   |   |   | $ | 3.6 |   |   |
| Cash flows used in financing activities                           |       |                            | $          | (61.9                           | )          |   |   | $ | (54.0 | ) |   |   | $ | (2.4 | ) |   |   | $ | 1.2 |   |   |
| **Effect of exchange rate changes on cash**                       |       |                            | $          | 0.2                             |       |   |   | $ | — |   |   |   | $ | 2.2 |   |   |   | $ | 0.3 |   |   |
| **Increase (decrease) in cash and cash equivalents**              |       |                            | $          | (48.1                           | )          |   |   | $ | (40.2 | ) |   |   | $ | 10.2 |   |   |   | $ | 13.8 |   |   |
| **Cash  and cash equivalents—Beginning of period**           |       |                            | $          | 71.4                            |       |   |   | $ | 73.0 |   |   |   | $ | 55.6 |   |   |   | $ | 60.5 |   |   |
| **Cash and cash equivalents—End  of period**                 |       |                            | $          | 23.3                            |       |   |   | $ | 32.8 |   |   |   | $ | 65.8 |   |   |   | $ | 74.3 |   |   |
|                                                                   |            |                                 |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-38

----

 

| ** **                                        | ** ** | **January 1, 2005** | ** ** | **April 2, 2005** | ** ** | **July 2, 2005** | ** ** |
|---------------------------------------------------|------------|-------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                                        | ** ** | **as**                        | ** ** | **as**                      | ** ** | **as**                     | ** ** | **as** | ** ** | **as** | ** ** | **as** | ** ** |
| ** **                                        | ** ** | **reported**                  | ** ** | **restated**                | ** ** | **reported**               | ** ** | **restated** | ** ** | **reported** | ** ** | **restated** | ** ** |
| ** **                                        | ** ** | **(Unaudited)**               | ** ** | **(Unaudited)**             | ** ** | **(Unaudited)**            | ** ** | **(Unaudited)** | ** ** | **(Unaudited)** | ** ** | **(Unaudited)** | ** ** |
| **Consolidated  Balance Sheets**                  |       |                          |       |                        |       |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                         |       |                          | $          | 52.0                        |       |                       |       | $ | 56.2 |   |   |   | $ | 47.1 |   |   |   | $ | 56.9 |   |   |   | $ | 65.8 |   |   |   | $ | 74.3 |   |   |
| Deferred income  taxes—current               |       |                          | $          | 9.0                         |       |                       |       | $ | 22.5 |   |   |   | $ | 9.9 |   |   |   | $ | 23.5 |   |   |   | $ | 10.1 |   |   |   | $ | 23.9 |   |   |
| Current assets                                    |       |                          | $          | 521.9                       |       |                       |       | $ | 539.6 |   |   |   | $ | 556.0 |   |   |   | $ | 579.4 |   |   |   | $ | 573.5 |   |   |   | $ | 595.8 |   |   |
| Deferred income  taxes—non-current           |       |                          | $          | 21.5                        |       |                       |       | $ | 8.0 |   |   |   | $ | 23.2 |   |   |   | $ | 9.6 |   |   |   | $ | 28.6 |   |   |   | $ | 14.8 |   |   |
| Total assets                                      |       |                          | $          | 978.7                       |       |                       |       | 982.9 |   |   |   | $ | 1,008.9 |   |   |   | $ | 1,018.7 |   |   |   | $ | 1,026.2 |   |   |   | $ | 1,034.7 |   |   |
| Accounts payable                                  |       |                          | $          | 47.7                        |       |                       |       | $ | 51.9 |   |   |   | $ | 51.2 |   |   |   | $ | 61.0 |   |   |   | $ | 50.2 |   |   |   | $ | 58.7 |   |   |
| Total current liabilities                         |       |                          | $          | 122.5                       |       |                       |       | $ | 126.7 |   |   |   | $ | 139.4 |   |   |   | $ | 149.2 |   |   |   | $ | 137.7 |   |   |   | $ | 146.2 |   |   |
| Total  liabilities                                |       |                          | $          | 1,198.7                     |       |                       |       | $ | 1,202.9 |   |   |   | $ | 1,220.3 |   |   |   | $ | 1,230.1 |   |   |   | $ | 1,222.8 |   |   |   | $ | 1,231.3 |   |   |
| Total liabilities  and shareholders’ deficit |       |                          | $          | 978.7                       |       |                       |       | $ | 982.9 |   |   |   | $ | 1,008.9 |   |   |   | $ | 1,018.7 |   |   |   | $ | 1,026.2 |   |   |   | $ | 1,034.7 |   |   |

 

**Consolidated Statement of Operations**

| ** **                                                                         | ** ** | **Three months ended** | ** ** | **Three months ended** | ** ** | **Three months  nded** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|---------------------------------------|------------|
| ** **                                                                         | ** ** | **December 27, 2003**  | ** ** | **March 27, 2004**     | ** ** | **June 26, 2004**           | ** ** |
| ** **                                                                         | ** ** | **as**                           | ** ** | **as**                           | ** ** | **as**                                | ** ** | **as** | ** ** | **as** | ** ** | **as** | ** ** |
| ** **                                                                         | ** ** | **reported**                     | ** ** | **restated**                     | ** ** | **reported**                          | ** ** | **restated** | ** ** | **reported** | ** ** | **restated** | ** ** |
| ** **                                                                         | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)**                       | ** ** |
| Cost of sales                                                                      |       |                             | $          | 161.5                            |       |                                  |       | $ | 163.3 |   |   |   | $ | 169.7 |   |   |   | $ | 171.4 |   |   |   | $ | 204.5 |   |   |   | $ | 206.3 |   |   |   |
| Gross profit                                                                       |       |                             | $          | 58.7                             |       |                                  |       | $ | 56.9 |   |   |   | $ | 66.6 |   |   |   | $ | 64.9 |   |   |   | $ | 84.6 |   |   |   | $ | 82.8 |   |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       |                             | $          | 38.8                             |       |                                  |       | $ | 37.0 |   |   |   | $ | 40.1 |   |   |   | $ | 38.4 |   |   |   | $ | 67.7 |   |   |   | $ | 65.9 |   |   |   |

 

| ** **                                                                         | ** ** | **Three month  ended** | ** ** | **Three months ended** | ** ** | **Three months ended** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **January 1, 2005**         | ** ** | **April 2, 2005**      | ** ** | **July 2, 2005**       | ** ** |
| ** **                                                                         | ** ** | **as**                                | ** ** | **as**                           | ** ** | **as**                           | ** ** | **as** | ** ** | **as** | ** ** | **as** | ** ** |
| ** **                                                                         | ** ** | **reported**                          | ** ** | **restated**                     | ** ** | **reported**                     | ** ** | **restated** | ** ** | **reported** | ** ** | **restated** | ** ** |
| ** **                                                                         | ** ** | **(Unaudited)**                       | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)**                  | ** ** |
| Cost of sales                                                                      |       |                                  | $          | 180.2                            |       |                             |       | $ | 181.9 |   |   |   | $ | 197.3 |   |   |   | $ | 199.0 |   |   |   | $ | 200.2 |   |   |   | $ | 202.1 |   |   |
| Gross profit                                                                       |       |                                  | $          | 75.9                             |       |                             |       | $ | 74.2 |   |   |   | $ | 87.9 |   |   |   | $ | 86.2 |   |   |   | $ | 96.7 |   |   |   | $ | 94.8 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       |                                  | $          | 43.6                             |       |                             |       | $ | 41.9 |   |   |   | $ | 47.7 |   |   |   | $ | 46.0 |   |   |   | $ | 47.8 |   |   |   | $ | 45.9 |   |   |

 

| ** **                                                                         | ** ** | **Six months ended  March 27, 2004** | ** ** | **Six months ended  April , 2005** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **as  reported**                                         | ** ** | **as  restated**                                       | ** ** | **as  reported** | ** ** | **as  restated** | ** ** |
| ** **                                                                         | ** ** | **(Unaudited)**                                          | ** ** | **(Unaudited)**                                        | ** ** |
| Cost of sales                                                                      |       |                                                     | $          | 331.2                                                  |       |   |   | $ | 334.7 |   |   |   | $ | 377.5 |   |   |   | $ | 380.9 |   |   |
| Gross profit                                                                       |       |                                                     | $          | 125.3                                                  |       |   |   | $ | 121.8 |   |   |   | $ | 163.8 |   |   |   | $ | 160.4 |   |   |
| Selling, general  and administrative expense, including stock compensation expense |       |                                                     | $          | 78.9                                                   |       |   |   | $ | 75.4 |   |   |   | $ | 91.3 |   |   |   | $ | 87.9 |   |   |

 

| ** **                                                                         | ** ** | **Nine months ended  June 26, 2004** | ** ** | **Nine months ended  July 2, 2005** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **as  reported**                                         | ** ** | **as  restated**                                        | ** ** | **as  reported** | ** ** | **as  restated** | ** ** |
| ** **                                                                         | ** ** | **(Unaudited)**                                          | ** ** | **(Unaudited)**                                         | ** ** |
| Cost of sales                                                                      |       |                                                     | $          | 535.7                                                   |       |   |   | $ | 541.0 |   |   |   | $ | 577.7 |   |   |   | $ | 583.0 |   |   |
| Gross profit                                                                       |       |                                                     | $          | 209.9                                                   |       |   |   | $ | 204.6 |   |   |   | $ | 260.5 |   |   |   | $ | 255.2 |   |   |
| Selling, general and  administrative expense, including stock compensation expense |       |                                                     | $          | 146.6                                                   |       |   |   | $ | 141.3 |   |   |   | $ | 139.1 |   |   |   | $ | 133.8 |   |   |

 

F-39

----

**Note 20.   SubsequentEvents**

On October 3, 2005, Walter acquired the Company,as discussed in Note 1. In conjunction with the acquisition, the Companyentered into the 2005 Mueller Credit Agreement, as discussed in Note 6. Proceedsof the 2005 Mueller Credit Agreement were approximately $1,053.4 million, netof approximately $21.6 million of underwriting fees and expenses which will beamortized over the life of the loans. The proceeds were used to refinance theprior credit facility, defease and redeem our Second Priority Senior SecuredFloating Rate Notes, and finance the acquisition of the Company by Walter. Subsequentto September 30, 2005 and prior to the Walter acquisition on October 3,2005, the Company wrote off $18.4 million of deferred financing fees related tothe 2004 Mueller Credit Facility.

On October 3, 2005, Mueller Group delivered anotice of redemption with respect to all of the Second Priority Senior SecuredFloating Rate Notes (“secured notes”), providing for the redemption of all suchsecured notes on November 2, 2005, as discussed in Note 6. In addition,Mueller Group delivered to Law Debenture Trust Company of New York, the trusteefor the secured notes, $104.1 million in trust equal to the principal, callpremium and interest accruing to the redemption date. Subsequent to September 30,2005 and prior to the Walter acquisition on October 3, 2005, Mueller Groupwrote off $2.4 million of deferred financing fees related to the secured notes.

In the period subsequent to September 30, 2005and prior to Walter acquiring the Company on October 3, 2005, the Companyexpensed transaction fees of approximately $20.1 million to Credit Suisse FirstBoston LLC, an affiliate of the DLJ Merchant Banking Funds, and transactionbonuses of $10.0 million. These fees were contingent upon closing theacquisition. Non-contingent fees and expenses of approximately $3.5 millionwere expensed during the fiscal year ended September 30, 2005.

On October 3, 2005, in connection with theacquisition of the Company by Walter, the outstanding warrants were convertedinto the right to receive cash upon exercise of the warrants, as discussed inNote 16. These warrants were classified as permanent equity in priorperiods as the contracts required settlement in shares, absent a change incontrol event, in which case the warrant automatically become exercisable forthe kind and amount of consideration provided to shareholders. Upon theexercise of the warrants, the Company will receive $0.2 million in cash.As of December 12, 2005, 193,435 warrants had been exercised for cash.Total cash to be paid for such exercise of all warrants is approximately$90.5 million.

On October 4, 2005, the Company notified theholders of the 10% Senior Subordinated Notes and the 143¤4%Senior Discount Notes that a change in control had occurred as a result of theWalter Industries acquisition and that, as a result, the holders had a right tocause the Company to repurchase their notes, as discussed in Note 6.

On October 21, 2005, Walter announced its plan toinitiate an initial public offering of equity securities and subsequentspin-off of the Company.

On October 26, 2005, Walter announced plans toclose the Company’sits U.S. Pipe Chattanooga, Tennessee plant and transfer thevalve and hydrant production of that plant to the Company’s MuellerChattanooga, Tennessee and Albertville, Alabama plants by December 31,2005. The eventual closure of the U.S. Pipe Chattanooga plant will occursometime in 2006. The estimated pre-tax restructuring costs consisting of thewrite-off of impaired assets and severance and environmental costs areestimated at $37.8 million, of which $21.9 million are non-cash, and areexpected to be recorded in the quarter ending December 31, 2005.

On October 27, 2005, Group entered into sixinterest rate hedge transactions totaling $350 million. These interest ratehedges are discussed in more detail in Note 8.

F-40

----

**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the Registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.

Date: December 19,2005

|        | MUELLER WATER PRODUCTS, LLC |
|--------|-----------------------------|
|   | By:                         | /s/ JEFFERY W. SPRICK |
|   |                        | Name: Jeffery W. Sprick |
|   |                        | Title: *Chief Financial Officer* |

 

Pursuantto the requirements of the Securities Act of 1934, this report has been signedby the following persons on behalf of the registrant and in the capacities andon the dates indicated.

| ** **             | **Signature** | ** **                                       | ** ** |                         | **Title** | ** ** | ** ** |  | **Date** | ** ** |
|------------------------|---------------|--------------------------------------------------|------------|-------------------------|-----------|------------|------------|--|----------|------------|
| /s/ DALE B. SMITH      |          | President, Chief  Executive Officer and Director |       | December 19, 2005  |
| Dale B. Smith          |          |                                             |       |                    |
| /s/ JEFFERY W. SPRICK  |          | Chief Financial  Officer                         |       | December 19,  2005 |
| Jeffery W. Sprick      |          |                                             |       |                    |
| /s/ GREGORY E. HYLAND  |          | Director                                         |       | December 19,  2005 |
| Gregory E. Hyland      |          |                                             |       |                    |
| /s/ WILLIAM F. OHRT    |          | Director                                         |       | December 19,  2005 |
| William F. Ohrt        |          |                                             |       |                    |
| /s/ JOSEPH J. TROY     |          | Director                                         |       | December 19,  2005 |
| Joseph J. Troy         |          |                                             |       |                    |
| /s/ VICTOR P.  PATRICK |          | Director                                         |       | December 19, 2005  |
| Victor P. Patrick      |          |                                             |       |                    |

 

----