**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-K**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 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: 333-117473**

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**MUELLER GROUP, LLC***

(Exact Name of Registrantas Specified in Its Charter)

| **Delaware**                                                     | **3491**                                                   | **37-1387813**                           |
|------------------------------------------------------------------|------------------------------------------------------------|------------------------------------------|
| (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 PrincipalExecutive Offices)

Registrant’s telephonenumber: (217) 423-4471

Securities registeredpursuant to Section 12(b) of the Act: **None**

Securities registeredpursuant to Section 12(g) of the Act: **None**

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

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, andwill not be contained, to the best of registrant’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III ofthis Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is anaccelerated filer (as defined in rule 12b-2 of the Act). o Yes   x No

Indicate by check mark whether the registrant is ashell company (as defined in rule 12b-2 of the Act). o Yes   x No

None of theRegistrant’s voting stock was held by non-affiliates as of April 2, 2005.As of December 16, 2005, Mueller Group, Inc. had 100 shares of commonstock outstanding.

*                    FormerlyMueller Group, Inc.

 

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**Introductory Note**

In this report, “Mueller Group,” the “Company,” “we,” “us”or “our” refer to Mueller Group, LLC and its subsidiaries, except wherethe context makes clear that the reference is only to Mueller Group, LLC itselfand 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 thecompanies that compete in our particular market are publicly held as of thedate of this annual report, many are not. Accordingly, other than certainmarket data with respect to fire hydrants 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.

**PART I**

**Item 1. Business**

**Overview**

Mueller Group, LLC isa 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 our parentcompany, Mueller Water Products, LLC on that date by Walter Industries, Inc.(“Walter” or “Walter Industries”). As part of that transaction, WalterIndustries contributed the operations of United States Pipe and Foundry Company, LLC(“U.S. Pipe”) to the Company. In Part 1 of this Report, we present currentinformation about our business and operations that, except as otherwiseindicated, includes U.S. Pipe as one of our operating segments. However,information presented as to periods prior to October 3, 2005, would notinclude U.S. Pipe unless otherwise noted.

**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 our parent company, Mueller Water Products,LLC (“Mueller Water”) for a cash payment of $928.6 million. Approximately $1.05billion of the Company’s indebtedness was assumed as part of the acquisition. Inconjunction with the acquisition, through a series of transactions, U.S. Pipe,a wholly-owned subsidiary of Walter, was contributed by Walter Industries, Inc.to the Company. U.S. Pipe had net sales of $537.2 million and $431.9 millionfor the fiscal years ended December 31, 2004 and 2003, respectively. U.S.Pipe’s net sales were $425.5 million for the 

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nine months ended 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 ofMueller Water 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 and sells hydrants, valves and related products tothe water and gas infrastructure markets. Our Anvil segment produces, sourcesand sells pipe fittings, pipe hangers and pipe nipples and a variety of relatedproducts to the piping systems market. We believe we have the broadest productline of any of our competitors and enjoy strong market positions, leading brandrecognition and a strong reputation for quality and service within the marketswe 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.

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 

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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 all ofthe leading distributors in our industry. We believe that our current networkof independent flow control distributors is the largest such distributionnetwork in the United States and Canada. Our combined Mueller, Anvil, and U.S.Pipe sales force of approximately 450 field sales representatives andmanufacturer’s representatives works directly with municipalities and otherend-users as well as with distributors, which market our products to end-users.For most of our Mueller segment products, which are sold through independentdistributors, end-users choose the brand or establish product specifications. Webelieve our reputation for quality, extensive distributor relationships,installed base and our coordinated marketing approach have helped our Muellersegment products to be “specified” as an approved product for use in most majormetropolitan areas throughout the United States. This specification dynamic andour relationships with end-users elevate the importance of our water andwastewater infrastructure products to our 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 and 2005,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 yearended September 30, 2005, our net sales were $1,148.9 million,representing an increase of 9.5% over the fiscal year ended September 30,2004.

U.S. Pipe, contributed to the Company on October 3,2005, sells products primarily to water works distributors, contractors,municipalities and other governmental agencies. A substantial percentage ofductile iron pressure pipe orders result from contracts that are bid bycontractors or directly issued by municipalities or private utilities. U.S.Pipe’s products are primarily used in waterinfrastructure 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 automated

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Disamatic mold-making, toenhance product quality and reduce costs. We will also continue to seekopportunities to rationalize our manufacturing facilities and use oursignificant manufacturing expertise to further reduce our cost structure.

·       *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.*We areexploring 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 Achieve Maximum Operating Efficiencies.*Infiscal 2006, the integration of U.S. Pipe into our operations will offercomplementary products lines and the potential to achieve manufacturingsynergies by closing the U.S. Pipe Chattanooga production facility andintegrating it into the Mueller Chattanooga and Albertville, Alablamaproduction facilities. Also, we have the opportunity to maximize the operatingefficiencies at certain of our existing Mueller and Anvil facilities throughplant combination and production efficiency strategies. In addition, we willpursue the integration of U.S. Pipe products as complementary product offeringsas part of our sales efforts and use our combined purchasing leverage to reduceraw material and overall product costs.

**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 pipe fittings thatconnect pipes together to 10-foot engineered valves. Our principalproducts are fire hydrants, water and gas valves, and a complete range of pipefittings, couplings, hangers and nipples. Our products are designed,manufactured and tested in compliance with industry standards.

We sell our products through two operating segments:Mueller, through which we sell our hydrants and valves and other water andwastewater infrastructure and gas distribution products described below undervarious brand names including *Mueller*,*Henry Pratt*, *Hersey* and *James Jones*;  andAnvil, through which we sell pipe fittings and couplings, pipe hangers, pipenipples and related products under various brand names, including *Anvil, Beck* and *Merit*.

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

Gross sales amounts are shown in the Mueller Productsand Anvil Products sections below and exclude estimated cash discounts andrebates, which are deducted from net sales for financial reporting purposes.

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**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 infrastructurerehabilitation projects. On October 26, 2005, Walter Industries announcedplans to close the U.S. Pipe Chattanooga, Tennessee plant and transfer thevalve and hydrant production of that plant to Mueller’s Chattanooga andAlbertville, Alabama plants during our 2006 fiscal year. After October 3,2005, the Mueller segment will include results from operations from sales ofhydrants previously manufactured 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 the hydrantand the water main is located below ground at or below the frost line, whichkeeps the hydrant “dry” and the water source deep enough to ensure that thewater does not freeze. We market our dry-barrel fire hydrants with the Muellerand U.S. Pipe brand names in the United States and the Mueller and Canada Valvebrand names in Canada, and manufacture them in our Albertville, Alabama andMilton, Ontario facilities. We also make a limited number of wet barrelhydrants, where the valve is placed inside the above-ground hydrant andthe barrel contains water in it at all times. Wet barrel hydrants are made forthe California and Hawaii markets and sold under the James Jones brand 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 million of our sales in 2005, 2004, and 2003, respectively. Oursignificant industry-leading market position is the result of our strongbrand recognition, superior quality and specification acceptance. On October 26,2005, Walter Industries announced plans to close the U.S. Pipe Chattanooga,Tennessee plant and transfer the valve and hydrant production of that plant toMueller’s Chattanooga and Albertville, Alabama plants during our 2006 fiscalyear. The eventual closure of the Chattanooga plant will occur sometime in 2006.The estimated pre-tax restructuring costs consisting of the write-off ofimpaired assets, severance and environmental costs are estimated at $37.8million, of which $21.9 million are non-cash, and are expected to be recordedin the first quarter of 2006. Once the manufacturing of these products istransferred to Mueller, the Mueller segment will include the results ofoperations 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 to 10 feet. Thesmaller iron gate-type valves are produced by our Chattanooga, Tennessee plantand the larger iron butterfly valves are produced by our Henry Pratt subsidiaryin Dixon, Illinois. Brass valves are produced in our Decatur, Illinois and ElMonte, California plants. Most of these valves are used 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 

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water and gas fittings andvalves as an integrated system. We believe that we are one of the largestmanufacturers in the line stopper fittings and machines sector in the UnitedStates 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 $52 million in 2005, 2004 and 2003,respectively. Unlike typical pipe connections, where pipes are connected byscrewing them into a fitting or welding them together, grooved products use athreadless pipe-joining method that does not require welding. We manufactureour grooved couplings and fittings under the *Gruvlok*name in our Columbia, Pennsylvania foundry. In addition, we purchase privatelylabeled products to complement our grooved product offerings including groovedcopper and stainless steel fittings. These additional purchased productscomplement our offering of grooved products and enable us to better serve ourcustomers’ project requirements. Purchased products accounted for$17 million, $17 million and $15 million of grooved productsales in 2005, 2004 and 2003, respectively.

In connection with the August 1999Tyco Transaction, 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.

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***Pipe Hangers.****  *We believe we are one of thelargest manufacturers of pipe hangers in the United States and Canada. Ourannual hanger sales were approximately $45 million, $39 million and$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 million and $46 million in 2005, 2004 and 2003, respectively. Thepipe nipple product line is a complementary product offering and is packaged(1) with cast iron for the fire protection market, (2) with malleableiron for the industrial market, (3) with our forged steel product line and(4) as a general plumbing market item.

We produce the majority ofour pipe nipple products at Beck Manufacturing’s facilities in Greencastle,Pennsylvania and Santa Fe Springs, California. Seamless pipe nipples areproduced at our Longview, Texas facility. Pipe nipples for the Canadian marketare 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) oilfield products, including forged steel pipe fittings, hammerunions, bull plugs and swage nipples which are used to connect pipes in oil andgas applications and (B) electrical products, including PVC conduitcouplings and elbows used to carry wire and cable in electrical applications.Sales of purchased products by our Anvil segment were approximately$146 million, $118 million and $86 million in 2005, 2004 and2003, respectively, and sales of our other manufactured products wereapproximately $74 million, $58 million and $54 million in 2005,2004 and 2003, respectively.

**U.S. Pipe Products**

U.S. Pipe, which was contributed to us onOctober 3, 2005,  manufactures andsells a broad line of ductile iron pressure pipe, fittings and other cast ironproducts. Founded in 1899 and headquartered in Birmingham, Alabama, it is oneof the nation’s largest producers of ductile iron pressure pipe based onindustry shipping information provided by the Ductile Iron Pipe ResearchAssociation. In the years ended December 31, 2004, 2003 and 2002, netsales and revenues amounted to $537.2 million, $431.9 million and $457.2million, respectively.

U.S. Pipe manufactures and markets a complete lineof ductile iron pipe ranging from 4” to 64” in diameter as well as variousmetric sizes, in lengths up to 20 feet. Ductile iron pressure pipe is usedprimarily for drinking (potable) water distribution systems, small water systemgrids, reinforcing distribution systems (including looping grids and supplylines) and is used for major water and waste water transmission and collectionsystems.

**Sales,Marketing and Distribution**

*Mueller and Anvil Products*

Mueller and Anvil selltheir products to a wide variety of end-users, including municipalities,publicly and privately owned water and wastewater utilities, gas utilities andconstruction contractors. These products are usually sold to our distributors;distributors then sell these products to contractors who have won a contract toconstruct, replace or upgrade a water, wastewater or gas system for an end-useror non-residential facility. In some cases, end-users of Mueller’s products,including municipalities and utilities, buy products directly from Mueller,most often as part of a program to repair, replace or upgrade existing 

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infrastructure.Sales of our Mueller segment products and our Anvil segment’s grooved productsare heavily influenced by the specifications in those contracts.

Mueller has a sales forceof approximately 250 sales representatives. These representatives call onmunicipalities, water companies and other end-users to ensure that Muellerproducts, or the corresponding quality standards, are specified. In addition,to ensure consistency, municipalities often require that contractors use thesame products that have been historically used in that municipality.

Most of  our Anvil segment products are not specified.Anvil’s sales force of approximately 130 sales representatives largely marketsAnvil products to distributors. Sales of Anvil products are generallyinfluenced by the distributors, as customers will buy from a distributors’available offerings based on price and quality.

For our Mueller segment,the large installed base, broad product range and well known brands have led toour strong, long-standing relationships with all of the leading distributors inthe industries served by Mueller. For most of our Mueller products, which aresold through independent distributors, end-users choose the brand or establishproduct specifications. We generally ship our Mueller products, includinghydrants and water and gas valves, directly to distributors carrying theseproducts from our plants. Mueller’s distribution network covers all of themajor markets in the United States and Canada. We typically do not havelong-term contracts with our distributors, although we have long-termrelationships with most of our top distributors. The three major distributorsof Mueller and Anvil products accounted, in the aggregate, for approximately30% of our sales in 2005. The loss of any one of these distributors could havea material adverse effect on our business. See “Item 7.—Management’s Discussionand Analysis—Risk Factors—We depend on a group of major distributors for asignificant portion of our sales; any loss of these distributors could reduceour sales and continuing consolidation 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.

*U.S. Pipe Products*

U.S. Pipe, whose products are sold primarily towater works distributors, contractors, municipalities, private utilities andother governmental 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 72sales representatives 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.

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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 was contributed to us on October 3,2005, has a significant backlog. During the calendar year ended December 31,2004, U.S. Pipe had a backlog of pressure pipe, valves and hydrants, fittingsand castings of $115 million, compared to $86 million at December 31,2003. The ductile iron pipe business is generally sensitive to economicrecession because of its partial dependence on the level of new constructionactivity and state, municipal and federal tax revenues to fund water projects.However, certain aspects of U.S. Pipe’s operations have in the past helped toreduce the impact of downturns in new construction. First, U.S. Pipe’s productshave experienced a strong level of demand in the replacement market, in partdriven by mandates from the Safe Drinking Water Act. U.S. Pipe believes thatgrowth of the replacement market will accelerate as a result of anticipatedmajor expenditures by government entities, such as the New York, Boston,Washington, D.C., Atlanta and Philadelphia municipalities, to rehabilitateaging or inadequate water transmission systems. U.S. Pipe believes that thisrepresents a significant growth opportunity and that it is well positioned totake advantage of this opportunity. Second, U.S. Pipe’s Burlington, New Jerseyplant is adjacent to the northeastern market with its significant replacementpotential and its operations in the south are located in areas of steadyeconomic growth. The west coast, served by the Union City, California plant,has a critical shortage of water for many of the large metropolitan areas thatwill require major transmission pipelines in the future. Because freight costsfor pipe are high, locations close to important markets lower transportationcosts, thereby making U.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 operationalefficiencies throughout all of our plants, and may relocate certainmanufacturing operations to other facilities as part of these plans. Theseactions may result in future facility 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, whichwas contributed to us on October 3, 2005, operates 5 manufacturingfacilities in the United States, which primarily manufacture ductile ironpressure pipe. We believe U.S. Pipe’s manufacturing capacity is sufficient forour near-term requirements and we have no current plans to expand capacity. However,we do plan to close the U.S. Pipe Chattanooga manufacturing facility and planto transfer substantially all of its production to existing Mueller plants inChattanooga, TN and Albertville, 

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AL. U.S. Pipe utilizes theDelavaud centrifugal casting process, which consists of introducing molten ironinto a rapidly turning steel mold and relying on the centrifugal force touniformly distribute the iron around the inner surface of the mold to producehigh-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 rawmaterials, including steel scrap, sand, resin, brass ingot, steel pipe, andscrap 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 metaland ferrous alloys used in the U.S. Pipe manufacturing process accounted for upto 40% of the U.S. Pipe cost to manufacture ductile iron pipe as of September 30,2005.

We increased prices to ourcustomers during the 2002 to 2005 time period to mitigate the effect of thesecost increases. We can give no assurances that the price of steel scrap willremain at the current pricing levels or that we will be able to increase pricesto our customers to offset any future cost increases.

See “Item 7.—Management’sDiscussion 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 

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expendituresare anticipated to be approximately $1.4 million for calendar year 2005, andwere $1.5 million for both 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, eitherindividually or in the aggregate, to be material to our business. However, thepool of proprietary information, consisting of know-how and trade secretsrelating to the design, manufacture and operations of our products isconsidered particularly important and valuable. We generally own the rights tothe products that we manufacture and sell and are not dependent in any materialway upon 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 “Item 7.—Management’sDiscussion 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 arewell-established companies with strong brand recognition, we believe that wemaintain a strong competitive position for each of our key product offerings.Management considers product quality, service, brand recognition, price,effectiveness of distribution and technical support to be primary competitivefactors.

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. 

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Our acquisition of Starhas allowed us to establish a significant presence in the market for lowercost, foreign produced fire protection products and grow our overall marketshare.

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. Major competitorsof U.S. Pipe include McWane, Inc., Griffin Ductile Iron Pipe Company andAmerican Cast Iron Pipe Company. Additional competition for ductile ironpressure 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 1999to our prior owners (the “August 1999 Tyco Transaction”), Tyco agreed toindemnify the Company and our affiliates for all “Excluded Liabilities”.Excluded Liabilities include, among other things, substantially all liabilitiesrelating to the time prior to the August 1999 Tyco Transaction. Theindemnity survives indefinitely, is not subject to any deductibles or caps, andcontinues with respect to our current operations, other than those operationsacquired since the August 1999 Tyco Transaction, including the operationsof our U.S. Pipe segment. If Tyco ever becomes financially unable to, orotherwise fails to comply with the terms of the indemnity, we may beresponsible for the Tyco-indemnified obligations. In addition, Tyco’s indemnitydoes not cover environmental liabilities to the extent caused by our company orthe operation of our business after the August 1999 Tyco 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 more stringent and our processes may change. Therefore, theamount and timing of such expenditures in the future may vary substantiallyfrom 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 and hazardouswaste disposed of off-site or in on-site solid waste landfills. Remediationprojects are being undertaken at a handful of our sites by third parties whohave indemnified us. We may be required to conduct and pay for these or otherremedial activities in the future, and also may be subject to claims forproperty damage, personal injury, natural resource damages or other issues as aresult of such matters. See “Item 3.—Legal Proceedings” for further details.

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.

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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 $1.3million. The Company has spent $0.3 million and has accrued $1.0 million as ofSeptember 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 ourfoundries. While we are in the process of analyzing the impact these standardsmay have on us and our future financial results, we expect we will need toincur additional and possibly material costs to comply with the regulationswith respect to Mueller’s Albertville, Alabama and Chattanooga, Tennesseefacilities and may need to incur additional and possibly material costs withrespect to Anvil’s Columbia, Pennsylvania facility. In addition, to comply withthe applicable standard for iron and steel foundries, we anticipate that wewill incur approximately $10 million in capital costs throughDecember 2007 at the U.S. Pipe facilities located in Bessemer, Alabama,North Birmingham, Alabama, Union City, California, and Burlington, New Jersey.See “Item 7.—Management’s Discussion and Analysis—Risk Factors—We may beadversely affected by environmental, health and safety laws and regulations orliabilities,” “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”.

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 soil cleanuprequired by the ACO. U.S. Pipe is continuing to address ground water issues atthis site. Further remediation could be required. These 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 monitoringwill be required. Management does not believe monitoring or further cleanupcosts, if any, will have a material adverse effect on the financial conditionor results 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. Certaingovernmental authorities can also seek recovery for damages to naturalresources.

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 

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substantialcompanies. An agreement has been reached with the EPA and a Consent Order,signed by U.S. Pipe and the EPA, has been finalized respecting the Californiasites. U.S. Pipe has satisfied its obligations under the Consent Order at acost that was not material. Natural resource damage claims respecting that samesite have now also been made by the State of California; but U.S. Pipe, as amember of the same group of PRPs, believes it has adequate first dollarinsurance coverage covering the state’s claims. With respect to the Anniston,Alabama site, a Consent Order has been negotiated and signed between the PRP’sand the EPA. The Consent Order remains subject to a public comment periodbefore it will come into effect. Management estimates the Company’s and U.S.Pipe’s aggregate share of liability for cleanup under the Consent Order, afterallocation among the several PRPs, will be approximately $4.0 million. U.S. Pipeaccrued for this liability in 2004, and the accrual was recorded in ourfinancial statements as of October 3, 2005. Civil litigation in respect tothis 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 representedby unions, 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.

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.

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**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 15 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 filewith the SEC at the SEC’s Public Reference Room at 100 F Street, NE, 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 availablefree of charge upon request our annual report on Form 10-K, ourquarterly reports on Form 10-Q, our current reports on Form 8-Kand amendments to these reports filed or furnished pursuant to Section 13(a) orSection 15(d) of the Securities Exchange Act of 1934 as soon asreasonably practicable after we electronically file such material with orfurnish it to the SEC. If you would like to receive any such report, pleasecontact Walt Smith at (217) 425-7320.

**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      |                      |       |

 

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**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      |                      |       |
| North 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      |                      |       |

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*                    To be closedin fiscal 2006

**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 our secured notes.

**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 the DLJMerchant Banking funds acquired Mueller in 1999, Tyco International (“Tyco”)sold the Company to its prior owners in August 1999, Tyco agreed toindemnify the CompanyMueller Water and its affiliates for all “ExcludedLiabilities”. Excluded Liabilities include, among other things, substantiallyall liabilities relating to the time prior to the August 1999 Tyco 

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Transaction. The indemnitysurvives indefinitely and is not subject to any deductibles or caps. However,we 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 usc or the operation of our business afterthe August 1999 Tyco Transaction, nor does it cover environmentalliabilities arising with respect to businesses or sites acquired after the August 1999Tyco Transaction, which would include the U.S. Pipe business 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, 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 theselawsuits, either individually or in the aggregate, are material to ourfinancial position or 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 $50,000 monetaryfine and $50,000 towards a supplemental environmental project. Anvil has alsoagreed to perform various investigatory and remedial actions at the foundry andits landfill. While the ultimate investigatory and remedial costs are currentlyunknown, based on currently available information the total costs are estimatedto be approximately $1.3 million. The Company has spent $0.3 million and hasaccrued $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 itemsrelate solely to U.S. Pipe, which was 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. Long termground water monitoring will be required to verify natural attenuation. It isnot known how long ground water monitoring will be required. Management doesnot believe monitoring or further cleanup costs, if any, will 

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have a material adverseeffect on the financial condition or results of operations of the Company andits 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 or arrangedfor the disposal of hazardous substances at such sites, and persons who ownedor operated such sites at the time of such disposal. CERCLA authorizes the EPA,the States and, in some circumstances, private entities to take actions inresponse to public health or environmental threats and to seek to recover thecosts 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 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 on-going.

**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.

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**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.

**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                                                    |       |   | 184.9 |   |   |   | 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                                                    |       |   | 112.9 |   |   |   | 91.2 |   |   |   | 80.3 |   |   |   | 29.7 |   |   |
| Interest expense, net of  interest income(3)                  |       | (70.2                                                    | )          |   | (56.3 | ) |   |   | (35.9 | ) |   |   | (58.3 | ) |   |   | (87.1 | ) |   |
| Other income                                                  |       | —                                                   |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 1.7 |   |   |
| Income (loss) before  income tax expense (benefit)            |       | 102.6                                                    |       |   | 56.6 |   |   |   | 55.3 |   |   |   | 22.0 |   |   |   | (55.7 | ) |   |
| Income tax expense  (benefit)                                 |       | 38.6                                                     |       |   | 17.9 |   |   |   | 22.7 |   |   |   | 10.0 |   |   |   | (20.8 | ) |   |
| Income (loss) before  cumulative effect of accounting change  |       | 64.0                                                     |       |   | 38.7 |   |   |   | 32.6 |   |   |   | 12.0 |   |   |   | (34.9 | ) |   |
| Cumulative effect of  accounting changes, net of tax(6)       |       | —                                                   |       |   | — |   |   |   | — |   |   |   | — |   |   |   | (9.1 | ) |   |
| Net income (loss)                                             |       | $                                                        | 64.0       |   |   | $ | 38.7 |   |   |   | $ | 32.6 |   |   |   | $ | 12.0 |   |   |   | $ | (44.0 | ) |   |
| **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)                                            |       | $                                                        | 481.9      |   |   | $ | 391.2 |   |   |   | $ | 369.1 |   |   |   | $ | 307.7 |   |   |   | $ | 263.1 |   |   |
| Property, plant and  equipment, net                           |       | $                                                        | 168.0      |   |   | $ | 186.8 |   |   |   | $ | 208.0 |   |   |   | $ | 231.9 |   |   |   | $ | 227.9 |   |   |
| Total assets                                                  |       | $                                                        | 1,077.0    |   |   | $ | 983.8 |   |   |   | $ | 957.9 |   |   |   | $ | 934.2 |   |   |   | $ | 933.5 |   |   |
| Total debt                                                    |       | $                                                        | 930.0      |   |   | $ | 932.6 |   |   |   | $ | 575.7 |   |   |   | $ | 581.0 |   |   |   | $ | 587.1 |   |   |
| Total  shareholders’ equity (deficit)                    |       | $                                                        | (58.5      | ) |   | $ | (128.9 | ) |   |   | $ | 109.9 |   |   |   | $ | 81.0 |   |   |   | $ | 89.9 |   |   |

 

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(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 intellectual property in September 2001. Paymentsunder such license prior to the exercise of the purchase option are reflectedas royalty expense in our statement of operations. These royalty expenses werefunded out of restricted cash we placed into escrow in August 1999 inconnection with the August 1999 Tyco Transaction. We classify the acquiredMueller intellectual property as an indefinite-lived asset and therefore recordno 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 endingSeptember 30, 2005, 2004, 2003, 2002, and 2001 and accrued royalties ofzero, zero, zero, $13.5 million, and $29.1 million, in each of the periodsending September 30, 2005, 2004, 2003, 2002, and 2001. Restricted cash wasset aside for the purpose of making royalty payments to Tyco under the terms ofagreements that were fully expired as of September 30, 2002. We haveexcluded these items from the calculation of working capital in order toreflect the availability of unrestricted-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, 2002 and2001.

(6)          Cumulativeeffect of accounting changes, net of tax, include $(2.7) million related toadoption of 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, $21.2million, $0.7 million, $1.1 million and $0.5 million for the years endedSeptember 30, 2005, 2004, 2003, 2002, and 2001, respectively.

**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.”*

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**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, pipehangers and 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 cost manufacturingtechnologies, including our lost foam casting process and consolidated certainmanufacturing facilities. This has improved the efficiency of our manufacturingprocesses 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,partially offset by a slow down in state and local government spending toupgrade, repair and replace water and waste water distribution infrastructuredue to budgetary constraints resulting from recent adverse economic conditions.In 2005, our Mueller segment experienced strong sales growth driven in part byincreased spending by municipalities on water infrastructure replacement,repair and upgrades as a result of a general economic recovery and, beginningin the second fiscal quarter of 2004, price increases across all Muellerproduct lines.

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 applications, such as sprinkler systems. We estimate thatapproximately 70% of our Anvil products are used in mechanical applications andthe remainder in fire protection systems. Our domestically produced Anvilproducts have been adversely impacted by increased foreign competition withrespect to fire protection products. These products compete primarily on priceand are sold at lower prices by foreign manufacturers. Although importedproducts have been accepted in certain applications, many municipalities,end-users, and contractors require the use of domestically manufacturedproducts in their projects. For example, Pennsylvania requires that all state-fundedprojects use domestically manufactured steel products. In January 2004, weacquired the business and assets of the construction division of Star 

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Pipe, Inc. (seeNote 4 to our consolidated financial statements), an importer of threadedand grooved fittings produced in China and India. Our acquisition of Star hasallowed us to become a significant participant in the market for lower cost,foreign-produced fire-protection products and grow our overall Anvilproducts market share. In 2005, our Anvil segment benefited from improvementsin economic conditions that have had a positive impact on non-residentialconstruction and from price increases that we began implementing in our secondfiscal quarter of 2004. Finally, our Anvil product sales have benefited fromacquisitions in recent years.

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

·       Price increases are plannedfor Mueller and U.S. Pipe iron and brass products effective 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 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.

·       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,defease and redeem our Second Priority Senior Secured Floating Rate Notes, andfinance the acquisition of the Company by Walter. During the period subsequentto September 30, 2005, and prior to Walter acquiring the Company on October 3,2005, the Company wrote off $18.4 million of deferred financing fees related tothe 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 transaction bonuses of $10.0 million. Thesefees were contingent upon completion of the sale of the Company to Walter. Non-contingentfees and expenses of approximately $3.1 million were expensed during the fiscalyear 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 

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increase inventory  will be approximately $70.2 million, whichwill be charged to cost of goods sold based on inventory turnover. Theadjustment to increase property, plant and equipment will be approximately$47.6 million. The adjustment to increase intangible assets will beapproximately $800.1 million, representing trademarks, technology and customerrelationships. Goodwill will be increased by approximately $654.5 million. Debtwill be increased by approximately $18.9 million for an increase in fair marketvalue. These adjustments are expected to result in increased cost of goods soldexpense of approximately $58.4 million and $11.8 million for the quarters endedDecember 31, 2005 and March 31, 2006, respectively. Quarterlyamortization expense of definite-lived intangible assets is expected to increaseby approximately $6.0 million and quarterly, interest expense is expected toincrease by $5.0 million due to new debt and fair value adjustment applicableto old debt. In addition, the Company will record an expense of $2.5 million inthe quarter ended December 31, 2005 related to certain other financingcosts.

·       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 of finalizing the 2005 financialstatements, the Company determined that certain items included in the consolidatedfinancial statements were incorrect in annual and interim periods. As a resultof these findings, the Company has restated its financial statements in thisannual report on Form 10-K. See Note 2 to the Consolidated FinancialStatements. The restatement had no impact on the Company’s consolidated netincome or the consolidated statement of stockholders’ deficit for any of theprior periods presented.

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**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        |                        |       | 49.3 |   |   | 4.7 |   |   |   | (16.0 | ) |   |   | (32.5 | ) |   |
| Consolidated                                               |       | $                                   | 172.1      |                                            |       | 15.0                        |       |   | $ | 184.9 |   |   | 17.6 |   |   |   | $ | (12.8 | ) |   |   | (6.9 | ) |   |
| 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       | )                           |       | (56.4 | ) |   | (5.4 | ) |   |   | 16.2 |   |   |   | (28.7 | ) |   |
| Consolidated                                               |       | $                                   | 172.8      |                                            |       | 15.0                        |       |   | $ | 112.9 |   |   | 10.8 |   |   |   | $ | 59.9 |   |   |   | 53.1 |   |   |
| Interest expense,  net of interest income                  |       | $                                   | (70.2      | )                                               |       | (6.1                        | )          |   | $ | (56.3 | ) |   | (5.4 | ) |   |   | $ | (13.9 | ) |   |   | 24.7 |   |   |
| Income before  income tax expense                          |       | 102.6                               |       |                                            | 8.9        |                        |       | 56.6 |   |   | 5.4 |   |   |   | 46.0 |   |   |   | 81.3 |   |   |
| Income tax  expense                                        |       | 38.6                                |       |                                            | 3.4        |                        |       | 17.9 |   |   | 1.7 |   |   |   | 20.7 |   |   |   | 115.6 |   |   |
| Net income                                                 |       | $                                   | 64.0       |                                            |       | 5.6                         |       |   | $ | 38.7 |   |   | 3.7 |   |   |   | $ | 25.3 |   |   |   | 65.4 |   |   |

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(1)          Percentages are bysegment, if applicable.

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*NetSales.**  *Consolidatednet sales for the fiscal year ended September 30, 2005 were $1,148.9million, an increase of $99.7 million, or 9.5%, from $1,049.2 millionin 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 priceincreases combined with the continued strong performance of the residentialconstruction market. The company implemented price increases in February andMay of 2004, 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 the balance of the increase was driven primarily by price increases.

*GrossProfit.**  *Consolidatedgross profit for the fiscal year ended September 30, 2005 was $346.6 million,an increase of $47.9 million, or 16.0%, from $298.7 million in 2004.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 (mostnotably brass ingot and scrap steel) due to worldwide supply and demand issues.We cannot provide assurances that any future increases in raw material costscan 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 $12.8 million, from $184.9 millionin 2004. As a percentage of net sales, SG&A improved to 15.0% in 2005compared 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 $49.3 million in 2004, a decrease of $16.0million. The decrease was primarily due to a $13.8 million reduction inamortization expense for 2005 as compared to 2004 as a result of an intangibleasset becoming fully amortized during the fourth quarter of 2004 and a $21.2million reduction in corporate stockcompensation charges for 2005 as compared to 2004 primarily related to chargesfor employee optionholders made in connection with the recapitalization of theCompany during the third quarter of 

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2004.All options were cancelled at that time.:These items were partiallyoffset in 2005 by: legal and audit fees of $3.0 million related to aninternal investigation, professional fees of $1.2 million related toexploring strategic alternative for the Company, consulting fees of$3.1 million related to efforts to become compliant with public companyreporting and Sarbanes-Oxley internal control requirements, $1.4 millionrelated to compensation payments to current employees and directors to offsetadditional taxes 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. Corporateexpenses consist primarily of corporate staff, benefits, legal and facilitycosts.

*FacilityRationalization, Restructuring and Related Costs.**  *The Company incurred$1.7 million of restructuring costs for the fiscal year ended September30, 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$70.2 million, or a $13.9 million increase from $56.3 millionfor the fiscal year ended September 30, 2004. Interest expense, net ofinterest income, for the fiscal year ended September 30, 2005 includes$21.9 million of additional interest expense and amortization of deferredfinancing fees on $406.9 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 $1.3 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$38.6 million as compared to $17.9 million in 2004. The effective taxrates for fiscal years 2005 and 2004 were 37.6% and 31.6%, 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 of 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.

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***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                                                  |       | 49.3                                                     |       |                                      | 4.7        |                        |       | 29.1 |   |   | 3.2 |   |   |   | 20.2 |   |   |   | 69.4 |   |   |
| Consolidated                                               |       | $                                                        | 184.9      |                                      |       | 17.6                        |       |   | $ | 148.2 |   |   | 16.1 |   |   |   | $ | 36.7 |   |   |   | 24.8 |   |   |
| Facility rationalization, restructuring and related  costs |       |                                                     |       |                                      |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mueller                                                    |       | $                                                        | —     |                                      |       | —                      |       |   | $ | 0.9 |   |   | 0.2 |   |   |   | $ | (0.9 | ) |   |   | N/A |   |   |
| Anvil                                                      |       | 0.9                                                      |       |                                      | 0.2        |                        |       | 0.8 |   |   | 0.2 |   |   |   | 0.1 |   |   |   | 12.5 |   |   |
| Consolidated                                               |       | $                                                        | 0.9        |                                      |       | $                           | 0.1        |   |   | $ | 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                                                  |       | (56.4                                                    | )          |                                      | (5.4       | )                           |       | (36.4 | ) |   | (3.9 | ) |   |   | (20.0 | ) |   |   | 54.9 |   |   |
| Consolidated                                               |       | $                                                        | 112.9      |                                      |       | 10.8                        |       |   | $ | 91.2 |   |   | 9.9 |   |   |   | $ | 21.7 |   |   |   | 23.8 |   |   |
| Interest expense, net of  interest income                  |       | $                                                        | (56.3      | )                                         |       | (5.4                        | )          |   |  

$(35.9 | ) |   | (3.9 | ) |   |   | $ | (20.4 | ) |   |   | 56.8 |   |   |
| Income before income tax  expense                          |       | 56.6                                                     |       |                                      | 5.4        |                        |       | 55.3 |   |   | 6.0 |   |   |   | 1.3 |   |   |   | 2.4 |   |   |
| Income tax expense                                         |       | 17.9                                                     |       |                                      | 1.7        |                        |       | 22.7 |   |   | 2.5 |   |   |   | (4.8 | ) |   |   | (21.1 | ) |   |
| Net income                                                 |       | $                                                        | 38.7       |                                      |       | 3.7                         |       |   | $ | 32.6 |   |   | 3.5 |   |   |   | $ | 6.1 |   |   |   | 18.7 |   |   |
|                                                            |            |                                                          |            |                                           |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Percentages are bysegment, if applicable.

*Net Sales.**  *Consolidated net sales for thefiscal year ended September 30, 2004 were $1,049.2 million, 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.

Anvil net sales for thefiscal 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 Staracquisition accounted for $17.0 million of the 2004 increase in sales. TheUnited States non-residential construction market experienced increased 

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activitywhich has led to increased sales volume, partially offset by the softening ofpower plant construction. In addition, sales price increases contributedsignificantly to the revenue growth.

*Gross Profit.**  *Consolidated gross profit for thefiscal year ended September 30, 2004 was $298.7 million, an increase of$57.6 million, or 23.9%, from $241.1 million in 2003. Gross marginincreased to 28.5% in 2004 compared to 26.1% in 2003, which includes certaindepreciation expense not allocated to segments.

Mueller gross profit forthe fiscal year ended September 30, 2004 was $203.0 million, an increaseof $38.5 million, or 23.4%, from $164.5 million in 2003. Gross marginincreased from to 32.8% in 2004 from 30.7% in 2003. The increase in grossprofit was primarily driven by increased selling prices and volumes on iron firehydrants, water valves and brass water products and a favorable product mix.Also, the 2003 Milliken Valve acquisition contributed an additional$1.2 million in 2004 and focused efforts to reduce spending and thestrength of the Canadian dollar relative to the United States dollar furtheradded to the increase in gross profits. These improvements were partiallyoffset by increased raw material costs.

Anvil gross profit for thefiscal 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 marginincreased to 23.9% in 2004 compared to 21.7% in 2003. The 2004 Star acquisitioncontributed $2.7 million of gross margin in 2004. The remaining increasewas primarily driven by price increases implemented during fiscal year 2004 andthe strength of the Canadian dollar relative to the United States dollar. Thiswas partially offset by increased raw material costs.

*Selling, General &Administrative.**  *ConsolidatedSG&A for the fiscal year ended September 30, 2004 was $184.9 million,an increase of $36.7 million, from $148.2 million in 2003. As apercentage of net sales, SG&A increased to 17.6% in 2004 compared to 16.1%in 2003.

MuellerSG&A for the fiscal year ended September 30, 2004 was$60.6 million, compared to $49.7 million for the fiscal year ended 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 percentage of net sales wasdriven in part by the 2003 Milliken Valve acquisition, which incurred$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.

AnvilSG&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. Asa percentage of net sales, SG&A decreased to 17.4% compared to 17.9% in2003. The 2004 Star acquisition added $4.0 million to 2004 expense. Theremaining increase was driven by increased compensation expense and sales andwarehousing costs associated with increased sales volume. These increases werepartially offset by continued cost reductions related to our United Statesdistribution network.

Corporateexpenses for the fiscal year ended September 30, 2004 were $49.3 millioncompared to $29.1 million in 2003. Stock compensation charges for thefiscal year ended September 30, 2004 were $21.2 million, an increaseof $20.5 million from 2003. This was due to a $20.9 million charge($12.6 million cash and $8.3 million non-cash) for the vesting andcancellation of options held by employees and shares previously purchased withloans pursuant to the Direct Investment Program that were settled in connectionwith the April 2004 recapitalization. Other significant changes included a$1.6 million increase in incentive compensation in 2004, a $1.0 millionincrease in advisory fees paid to DLJ in 2004, and  $1.5 million of professional servicefees and expenses related to the 2004 recapitalization, partially offset by a$2.4 million decrease as a result of fees that were incurred in 2003 related topotential acquisition and 

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dispositions that were not completed and a $2.2million reduction in amortization expense for 2004 as compared to 2003 as aresult of an intangible asset becoming fully amortized during the fourthquarter of 2004.

*Facility Rationalization,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.

*Interest Expense, Net ofInterest Income.**  *Interestexpense, net of interest income, for the fiscal year ended September 30,2004 was $56.3 million, compared to $35.9 million for 2003. Thisincrease reflects early repayment costs, the write-off of deferred financingfees and additional debt resulting from the completion of a recapitalization ofall outstanding debt. Specifically, in November 2003, $50.0 millionof senior subordinated notes due 2009 were redeemed. As a result, interestexpense for the fiscal year ending September 30, 2004 increased relativeto the prior year due to a $7.0 million prepayment premium and a$0.4 million write-off of deferred financing fees, partially offset by a$6.2 million reduction in interest expense as a result of such redemption.Second, in April 2004, we refinanced our term debt and issued$415 million of new notes. This resulted in an additional write-off ofterm debt deferred financing fees of $6.6 million, $16.8 million ofinterest expense on the new notes and $1.0 million of increasedamortization on a larger balance of deferred financing fees. Interest expensealso increased $0.8 million due to a decrease in interest rate swap gains.These increases were partly offset by a $6.0 million decrease in term debtinterest expense due to lower interest rates.

*Income Tax Expense.**  *Income tax expense for the fiscalyear ended September 30, 2004 was $17.9 million compared to$22.7 million in 2003. The effective tax rates, for fiscal 2004 and 2003were 31.6% and 41.0% respectively. However, 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 millionwrite-off against these deferred tax assets.

**Financial Condition**

Cash and cash equivalentsincreased from $60.5 million at September 30, 2004 to $112.8 million at September 30,2005, reflecting $73.8 million in cash flows provided by operations, $1.5million in cash flows provided by financing activities, and a $2.0 millioneffect of foreign currency exchange rate changes on cash (primarily due toincreased strength 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 trade receivables, were $177.4 million at September 30,2005, an increase of $15.4 million from September 30, 2004. The increasewas attributable to higher sales at both the Mueller and Anvil segments.

Inventorieswere $303.0 million at September 30, 2005, an increase of $42.8 millionfrom September 30, 2004. Mueller inventories increased $25.5million during 2005. Significant contributing factors to the increase includehigher raw material costs of approximately $6.5 million, as well as a planned$5.0 million current year increase over unusually low prior year levels tobetter service current demand. Other contributing factors include $1.1 millionof increased on-hand quantities of raw material due to larger volume purchasesto achieve lower prices, $2.7 million of inventory costs associated with alarge, highly-engineered project scheduled to ship in the first quarter of2006, $2.2 million for a large order of butterfly valves scheduled to ship inthe 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, 

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$12.8 millionis related to ongoing efforts to make available a full line of foreign-sourcedproducts to our North American customers. Another $3 million is related to thestart up of European export efforts.

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

Deferred financing fees,net, were $29.0 million at September 30, 2005, a decrease of $4.8 millionfrom September 30, 2004. This was due to normal amortization of deferredfinancing fees associated with the Company’s various long-term debtinstruments.

Non-current deferredincome tax assets were $10.9 million at September 30, 2005, an increase of$4.4 million from September 30, 2004, primarily related to changes inpensions and fixed assets.

Accrued expenses were$103.0 million at September 30, 2005, an increase of $17.5 millioncompared to September 30, 2004. The increase was primarily due to theaccruals for employee-related incentive costs and federal and state incometaxes.

Long-term debt was $926.2million at September 30, 2005, an decrease of $3.2 million compared to September 30,2004. This increase was primarily due to payments on the Company’s 2004 MuellerCredit Facility.

Accrued pension liabilityincreased $8.5 million to $37.7 million at September 30, 2005. This isprimarily the net result of the use of a lower discount rate and an updatedmortality assumption as of September 30, 2005, partially offset by betterthan assumed investment performance during the year 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**

Our principal sources ofliquidity have been and are expected to be cash flow from operations andborrowings under the 2004 Mueller Credit Facility, or as of October 3,2005, the 2005 Mueller Credit Agreement. Our principal uses of cash will bedebt service requirements as described below, capital expenditures, workingcapital requirements, dividends to our parent company and possibleacquisitions.

*Debt Service*

As of September 30,2005, we had: (a) total consolidated indebtedness of approximately$930.0 million; and (b) approximately $57.6 million ofborrowings available under the revolver portion of the 2004 Mueller CreditFacility, subject to customary conditions. As of September 30, 2005, wehad $22.4 million in letters of credit under the 2004 Mueller CreditFacility, which reduces availability for borrowings thereunder. The significantdebt service obligations under the credit facility and indentures could havematerial consequences to our security holders. See “Item 1.—Business—RiskFactors.” Our key financial covenants are dependent on attaining certain levelsof EBITDA, as defined in the respective debt arrangements. The most restrictivecovenant in effect at September 30, 2005 related to a leverage ratio, asdefined in the 2004 Mueller Credit Facility, which required approximately$150.0 million of EBITDA over the trailing twelve months, based on net debtoutstanding at September 30, 2005. We were in compliance with thiscovenant at September 30, 2005.

*2005 Mueller CreditAgreement.**  *OnOctober 3, 2005, the Company entered into a credit agreement (the “2005Mueller Credit Agreement”) consisting of a $145 million senior securedrevolving credit facility maturing in October 2010 (the “2005 MuellerRevolving Credit Facility”) and a $1,050 million senior secured term loanmaturing in October 2012 (the “2005 Mueller Term Loan”). The 2005 MuellerCredit Agreement is a secured obligation of the Company and substantially allof its wholly-owned domestic 

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subsidiaries,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 2005Mueller Credit Agreement were approximately $1,053.4 million, net ofapproximately $21.6 million of underwriting fees and expenses which will beamortized over the life of the loans. The proceeds were used to retire the 2004Mueller Credit Facility of $512.8 million, the Secured Notes of $100.0 million,and finance the acquisition of the Company by Walter. The Company wrote off$18.4 million of deferred financing fees related to the 2004 Mueller CreditFacility.

The 2005 Mueller CreditAgreement contains customary events of default and covenants, includingcovenants that restrict the ability of Mueller Group and certain of itssubsidiaries to incur certain additional indebtedness, create or permit lienson assets, engage in mergers or consolidations, and certain restrictivefinancial covenants. So long as no default has occurred, the Company is permittedto make cash dividends to Mueller Water Products of up to $7.5 million in anyfiscal year, or $15 million in aggregate over the life of the Credit Agreementand to distribute funds to make regularly scheduled payments when due ofinterest and principal on Mueller Water Products’ notes. If an event of defaultunder the agreement shall occur and be continuing, the commitments under therelated credit agreement may be terminated and the principal amount, togetherwith all accrued unpaid interest and other amounts owed thereunder may bedeclared immediately due and payable.

*Recapitalization:*   OnApril 23, 2004, the Company sold its Second Priority Senior SecuredFloating Rate Notes due 2011 and 10% Senior Subordinated Notes due 2012(collectively referred to as the “Prior Notes”) generating net proceeds ofapproximately $402.3 million. Concurrently with those offerings, the Company amendedand restated its credit facility and borrowed $545.0 million of new term loansthereunder (“2004 Mueller Credit Facility”). The Company used the net proceedsfrom those offerings and the credit facility borrowings to repay all existingloans under its old credit facility together with accrued interest and a 1.0%prepayment premium thereon and paid a dividend to us, which we 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 our common stockholders of approximately $1.43 pershare, or approximately $293.4 million in the aggregate and (3) make apayment to our employee optionholders of the excess of the per share dividendto our common stockholders over the exercise price of their options, orapproximately $5.4 million in the aggregate. The Company retained approximately$10.0 million as cash to be used for general corporate purposes.

On April 29, 2004,Mueller Water issued 143¤4%senior discount notes, with detachable warrants to purchase Mueller Water’scommon stock. The proceeds of the offering were approximately $106.0 million,after deduction of the initial purchasers’ discounts and commissions and otherexpenses of the offering. We used the proceeds to (1) pay an additionaldividend to our common stockholders of approximately $0.48 per share, orapproximately $99.8 million in the aggregate. (2) make a payment to ouremployee optionholders who held options with an exercise price of $1.00 or$1.19 per share of $0.48 per share, and (3) a payment to our employeeoptionholders who held options with an exercise price of $1.50 per share of$0.41 per share, or approximately $7.1 million in the aggregate.

In connection with theRecapitalization, the Company modified certain stock 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. These Actions changed the accounting treatment of these stockawards from fixed to variable accounting. As a result, the Company recognizedstock compensation expense of $18.9 million in the third quarter of 2004.

*2004 Mueller CreditFacility.**  *OnApril 23, 2004, the Company entered into a senior credit facility (the “2004 Mueller Credit Facility”) that included an amortizing term loan maturing April 23,2011 in the initial 

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aggregate principalamount of $545.0 million ($32.2 million of which has since beenrepaid) and an $80.0 million revolving credit facility terminating on April 23,2009. The revolving credit facility and/or the term loan facility were subjectto a potential, although never committed, increase of up to an aggregate of$50.0 million at our request at any time prior to maturity. In addition,although not committed, a sub-facility could have been made available to one ormore of our restricted foreign subsidiaries in an aggregate principal amount ofup to $30.0 million or the foreign currency equivalent thereof if one ormore lending financial institutions agreed to provide them.

Borrowings under the 2004Mueller Credit Facility bore interest based on a margin over, at our option,the base rate or the reserve-adjusted London-interbank offeredrate, or LIBOR. The applicable margin was 2.75% over LIBOR and 1.50% over thebase rate for term loans. The applicable margin under the revolving seniorcredit 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 our ratio of consolidated debt toEBITDA as defined in the 2004 Mueller Credit Facility. At September 30,2005 the applicable margin on the revolving senior credit facility was 2.75%over LIBOR and 1.50% over the base rate. Our obligations under the 2004 MuellerCredit Facility were guaranteed by our parent company and all our existing andfuture domestic restricted subsidiaries and were secured by substantially allof the assets of our company and the subsidiary guarantors, including a pledgeof the capital stock of all our existing and future domestic subsidiaries, apledge of no more than 65.0% of the voting stock of any foreign subsidiary, apledge of all intercompany indebtedness in favor of our company and ourdomestic restricted subsidiaries, and a pledge of our company’s capital stockby our parent company. The 2004 Mueller Credit Facility contained customarycovenants, including covenants that limited our ability to incur debt andliens, pay dividends and make investments and capital expenditures, and eventsof default. The Company was permitted to make payments of up to $2.0 million inany fiscal year to Mueller Water Products to pay overhead expenses of MuellerWater Products. These restrictions expired October 3, 2005 in connectionwith the acquisition by Walter.

*Secured Notes.**  *On April 23, 2004, we issued$100 million principal amount of second priority senior secured floatingrate notes that would have matured in 2011 and that were guaranteed by each ofour existing domestic restricted subsidiaries and secured by second priorityliens on the assets securing the 2004 Mueller Credit Facility (other thancertain subsidiary stock). Interest on the secured notes was payable quarterlyin cash at a rate equal to three-month LIBOR plus 4.75%.

On October 3, 2005,we delivered a notice of redemption with respect to all of the secured notes,providing for the redemption of all such secured notes on November 2, 2005.In addition, we delivered to Law Debenture Trust Company of New York, thetrustee for the secured notes, $104.1 million in trust equal to the principal,premium and interest accruing to the redemption date. Also, the Company wroteoff $2.4 million of deferred financing fees related to the secured notes. As aresult of having called the secured notes for redemption and having made thepayment into trust, as well as having satisfied certain other proceduralrequirements, we satisfied and discharged our obligations with respect to thesecured notes and the related indenture. These notes were redeemed for $100million plus $2.1 million of accrued interest and $2 million in other costs inaccordance with a call provision within the indenture for the secured notes.

*Subordinated Notes.**  *On April 23, 2004, we alsoissued $315 million principal amount of 10% senior subordinated notes thatwill mature in 2012 and that are guaranteed by each of our existing domesticrestricted subsidiaries. Interest on the subordinated notes is payablesemi-annually in cash. The subordinated notes contain customary covenants andevents of default, including covenants that limit our ability to incur debt,pay dividends and make investments. Generally, the notes only permit us to paydividends if there is no default or event of default and our fixed chargecoverage ratio (as defined) is at least 2.5 to 1, and the maximumamount we may pay cannot exceed 50% of our cumulative net income (as defined)since January 1, 2004, subject to specified exceptions. The Company ispermitted to make dividends or loans to Mueller Water of up to $2 million inany fiscal year for costs and expenses incurred by Mueller Water in itscapacity as a holding company for services rendered on behalf of the Company.

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On October 4, 2005, the Company notified theholders of the subordinated 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 subordinated notes on orbefore 5:00 p.m., New York City time, on November 4, 2005 at a priceof 101% of the principal face amount of such notes. The change of control offerexpired at 5:00 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.

*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 $481.9 millionat September 30, 2005. Management believes that we will continue torequire working capital consistent with past experience.

*Distributions to our Parent Company*

Our parent company has nomaterial assets other than its ownership of our capital stock and, accordingly,depends upon distributions from us to satisfy its cash needs. Our parentcompany’s principal cash needs will be debt service on its Senior DiscountNotes due 2014. The parent company notes do not require cash interest paymentsuntil 2009 and contain restrictive covenants that will, among other things,limit the ability of Mueller Water Products, LLC (“Mueller Water”) and itssubsidiaries (including us) to incur debt, pay dividends and make investments.Neither we nor any of our subsidiaries guarantee the parent company notes.Mueller Water, however, is a holding company and its ability to pay interest onthe parent company notes will be dependent upon the receipt of dividends fromits subsidiaries. We are currently Mueller Water’s only direct subsidiary.

The terms of our borrowingarrangements significantly restrict our ability to pay dividends to MuellerWater. Generally, under our notes we can pay dividends only if our fixed chargecoverage ratio (as defined) is 2.5 to 1 or better and only from an amount equalto 50% of our cumulative net income (as defined) since January 1, 2004.However, regardless of these restrictions, we can pay dividends under our notesof up to $0.5 million per year to fund payments under the financialadvisory agreement described in “Item 13.—Certain Relationships and RelatedParty Transactions”, up to $2.0 million per year for holding companyexpenses and to fund payments in respect of taxes made pursuant to tax sharingagreements. The  Mueller 2004 CreditFacility in effect at September 30, 2005 generally prohibits us from making“restricted payments”, including dividends, subject to specific exceptions,including payments for overhead expenses (including advisory fees to DLJMerchant Banking II, Inc. under the financial advisory agreement),taxes, the repurchase or redemption of Mueller Water’s capital stock held byour employees (subject to certain conditions and limitations), dividends tofund mandatory payments of interest under certain debt issued by Mueller Water(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). We may not generate sufficient cash flowor be permitted by the terms of our debt instruments to pay dividends ordistributions to Mueller Water in amounts sufficient to allow Mueller Water topay cash interest on its outstanding indebtedness or to satisfy its other cashneeds. Mueller Water would then be required to secure alternate financing,which may not be available on acceptable terms, or at all.

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*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 the2005 Mueller Credit Agreement) will be sufficient to meet our anticipatedfuture operating expenses, capital expenditures and debt service obligations asthey become due for at least the next twelve months. However, our ability tomake scheduled 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 1.—Business—Risk Factors.”

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 Cash Flows***

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 $89.5million for 2004. Significant changes in working capital balances in 2005included a $38.8 million increase in inventories. Mueller inventories increased$25.5 million during 2005. Significant contributing factors to theincrease include higher raw material costs of approximately $6.5 million, aswell as a planned $5.0 million current year increase over unusually low prioryear levels to better service current demand. Other contributing factorsinclude $1.1 million of increased on-hand quantities of raw material due tolarger volume purchases to achieve lower prices, $2.7 million of inventorycosts associated with a large, highly-engineered project scheduled to ship inthe first quarter of 2006, $2.2 million for a large order of butterfly valvesscheduled to ship in the first quarter of 2006, and $1.5 million due to higherforeign currency rates used to translate Canadian-dollar valued inventorybalances at September 30, 2005 compared to September 30, 2004. Anvilinventories increased $17.3 million in 2005. Of this increase, $12.8 million isrelated to ongoing efforts to make available a full line of foreign-sourcedproducts to our North American customers. Another $3 million is related to thestart up of European export efforts.

Net cash provided by operations was $89.5 millionfor 2004, an increase of $15.7 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 inproceeds from the sale 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 

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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.

*Cash flows from financingactivities.**  *In 2005, $1.5 million of net cash providedby financing activities primarily represented a $4.8 million increase inbook overdrafts, partially offset by $3.3 million of payments of the term loanunder the 2004 Mueller Credit Facility.

Cash flows used infinancing activities increased from $8.2 million in 2003 to$60.8 million in 2004. 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 amortization of the termloan under the prior credit facility.

**Off-BalanceSheet 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 ofcredit and surety bonds in the ordinary course of business to ensure ourperformance of contractual obligations. As of September 30, 2005, we had$22.4 million of letters of credit and $17.9 million of surety bondsoutstanding.

**ContractualObligations**

Our contractualobligations as 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           |       |                                | $          | 2.9                             |       |               |       | $                  | 5.8        |                    |       |      | $          | 5.8 |   |   | $ | 913.3 |   | $ | 927.8 |   |
| Interest on long-term  debt(1)         |       |                                | 75.4       |                            |       |               | 150.2      |               |       |                    | 149.3      |      |       | 83.6 |   | 458.5 |   |
| 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(2) |       |                                | 12.1       |                            |       |               | 0.5        |               |       |                    | —     |      |       | — |   | 12.6 |   |
| Total contractual cash obligations     |       |                                | $          | 99.1                            |       |               |       | $                  | 167.4      |                    |       |      | $          | 157.7 |   |   | $ | 999.5 |   | $ | 1,423.7 |   |

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(1)          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 senior credit facilityand secured notes of $0.8 million. Because the interest rate under thesenior credit facility and secured notes will be variable, actual payments maydiffer. Interest does not include payments that could be required under ourinterest-rate swap agreements, which payments will depend upon movements ininterest rates and could vary significantly. The payments due on the existinginterest rate swaps expiring in April and May 2007 are estimated tobe less than $0.1 million, net of LIBOR interest calculated at 4.07%received from counter parties.

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(2)          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 deferred payment to be made by us to theextent that the gross profit of the business exceeds the target gross profitfrom February 1, 2004 to January 31, 2007. Although the maximumamount payable is $23 million, we estimate that the total deferred paymentwill be approximately $3.0 to $6.0 million. This calculation of thepotential Star purchase price adjustment is based on management’s bestestimate; however, the actual adjustment may be materially different. Nodeferred payment was earned for the years ended September 30, 2004 and September 30,2005.

Our contractualobligations as of October 3, 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           |       | $                                   | 10.5       |                        | $          | 21.0           |       | $              | 21.0       |                    | $          | 1,312.5   |       | $ | 1,365.0 |   |
| Interest on long-term  debt(3)         |       | 98.1                                |       | 195.1                       |       | 192.3          |       | 176.9          |       | 662.4                   |       |
| 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(2) |       | 12.1                                |       | 0.5                         |       | —         |       | —         |       | 12.6                    |       |
| Total contractual cash obligations     |       | $                                   | 129.4      |                        | $          | 227.5          |       | $              | 215.9      |                    | $          | 1,492.0   |       | $ | 2,064.8 |   |

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(3)          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 of0.125% would result in an increase or decrease in annual interest on the 2005Mueller Credit Agreement and secured notes of $0.8 million. Because theinterest rate under the 2005 Mueller Credit Agreement and secured notes will bevariable, actual payments may differ. Interest does not include payments thatcould be required under the Company’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.

**Effectof Inflation; Seasonality**

We do not believe thatinflation (except for scrap steel, brass ingot and steel pipe) has had amaterial impact on our financial position 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.

**CriticalAccounting 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 most

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difficult,subjective and complex estimates and assumptions that affect the reportedamounts of assets, liabilities, revenues, expenses and related disclosure ofcontingent assets and liabilities. These estimates are based upon our historicalexperience and on various other assumptions that we believe to be reasonableunder the circumstances. Our actual results may differ from these estimatesunder different assumptions or conditions. We believe our most criticalaccounting 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 actuarial assumptionsincluding 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.

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                                   |       |   |   | — |   |   |

 

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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, facts andcircumstances may change that could cause the actual liability to exceed theestimates, or that may require adjustments to the recorded liability balancesin 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 

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thananiticpated industry or economic conditions could impact customers’ ability topay such that actual losses are greater than the amounts provided for in theseallowances. Our periodic evaluation of the adequacy of our allowance is basedon our analysis of our prior collection experience, specific customercreditworthiness and current economic trends within the industries we serve. Incircumstances where we are aware of a specific customer’s inability to meet itsfinancial obligation to us (e.g., bankruptcy filings or substantial downgradingof credit ratings), we record a specific reserve to reduce the receivable tothe amount we reasonably believe will be collected.

***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,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.

***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.

***Accounting for the Impairment of Long-Lived AssetsIncluding Goodwill and Other Intangibles***

Goodwill and intangibleassets that have an indefinite life are tested for impairment annually (or more frequently if events or circumstancesindicate possible impairments) using both a discounted cash flow method and amarket comparable method. Definite-lived intangible assets are amortizedover their respective estimated useful lives and reviewed for impairmentannually or more frequently if events or circumstances indicate possibleimpairment. Any recognized intangible asset determined to have an indefiniteuseful life will not be amortized, but instead tested for impairment inaccordance with the standard until its life is determined to no longer beindefinite. We use an estimate of future undiscounted net cash flows of therelated asset or asset grouping over the remaining life in measuring whetherlong-lived assets other than goodwill and intangibles are impaired. Ifimpaired, we may need to record impairment charges to reduce the carrying valueof our long-lived assets.

***Stock-Based Compensation***

The Company had two stock-based employee compensationplans, which are more fully described in Note 12. For the fiscal year beginningOctober 1, 2005, the Company will adopt SFAS No. 123(R), “Accountingfor Stock Issued to Employees,” which requires that compensation costs relatedto share-based payment transactions be recognized in the financialstatements over the period that an 

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employee provides servicein exchange 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.

The Company had previously recognized compensationcost for stock-based compensation arrangements under the intrinsic valuemethod of Accounting Principles Board Opinion No. 25, “Accounting forStock Issued to Employees,” which required recognizing compensation equal tothe 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.

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.

***Derivative Instruments and Hedging Activities***

The Company currently uses interest rate swaps asrequired in the credit agreement to reduce the risk of interest ratevolatility. The amount to be paid or received from interest rate swaps ischarged or credited to interest expense over the lives of the interest rateswap agreements. Changes in the fair value of derivatives are recorded eachperiod in earnings or Accumulated Other Comprehensive Income (Loss), dependingon whether a derivative is designated and effective as part of a hedgetransaction and meets the applicable requirements associated with Statement ofFinancial Accounting Standards (SFAS) 133 (see Note 8). Since the adoptionof SFAS No. 133 in  2001, all gainsand losses associated with interest rate swaps have been included in earnings.

For a derivative to qualify as a hedge at inceptionand throughout the hedge period, we must formally document the nature andrelationships between the hedging instruments and hedged items, as well as itsrisk-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.

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 a

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componentof Accumulated Other Comprehensive Income (Loss) until the underlying hedgedtransactions are reported in the Company’s consolidated statement of earnings. Thebalance was not material at September 30, 2005.

**RecentlyIssued Accounting Standards**

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.

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 the AmericanJobs Creation Act (AJCA) that was enacted on October 22, 2004. The AJCAcreated a temporary incentive for United States multinationals to repatriateaccumulated earnings outside the United States by providing an 85 percentdividends received deduction for certain qualifying earnings repatriations ineither fiscal 2005 or in fiscal 2006. As of September 30, 2005, and priorto the acquisition on October 3, 2005, the Company has not provideddeferred taxes on foreign earnings because any taxes on dividends would besubstantially offset by foreign tax credits or because the Company intends toreinvest those earnings indefinitely. Due to the complexity of the repatriationprovision, the Company is still evaluating the effects of this provision on itsplan 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. This impact of theadoption on FIN 47 on the Company’s financial statements has not yet beendetermined.

In June 2005, the FASB issued FASB No. 154, “AccountingChanges and Error Corrections—a replacement of APB Opinion No. 20 and FASBStatement No. 3” (“FAS 154”), which changes the requirements foraccounting for and reporting of a change in accounting principle. FAS 154requires retrospective application to prior periods’ financial statements of avoluntary change in accounting principle unless it is impracticable. FAS 154also requires that a change in method of depreciation, amortization ordepletion for long-lived, nonfinancial assets be accounted for as a change inaccounting estimate that is effected by a change in accounting principle. FAS154 is effective for accounting changes and corrections of errors made infiscal years beginning after December 15, 2005, but does not change thetransition provisions of any existing accounting pronouncements, includingthose that are in a transition phase as of the effective date of FAS 154. Theadoption of FAS 154 will not have a material impact on the Company’s financialcondition or results of operations.

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**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 any statement,other than statements of historical fact, that address activities, events ordevelopments that we or our management intends, expects, projects, believes oranticipates will or may occur in the future. Subject to this caution aboutforward-looking statements, management is presenting these Risk Factors basedon management’s current understanding of the Company’s business, including theU.S. Pipe business, unless otherwise indicated, and historical trends, currentconditions, expected future developments and other factors that managementdeems appropriate. Nothing contained in the following Risk Factors is or shouldbe construed as a guarantee of future performance or of the implication ofcurrent trends, and actual results, developments and business decisions maydiffer from those contemplated or suggested by the 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.**

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, FergusonEnterprises and National Waterworks. Our business relationship with most of ourmajor distributors branches may be terminated at the option of either partyupon zero to 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.

**Ourbusiness will be adversely affected by a downturn in government spendingrelated to infrastructure upgrades, repairs and replacements, or in thecyclical residential or non-residential building markets.**

Our business is primarilydependent upon spending on water and wastewater infrastructure upgrades,repairs and replacement, new water and wastewater infrastructure spending(which is dependent upon residential construction) and spending onnon-residential construction. Spending growth in the infrastructure upgrades,repairs and replacement sector has slowed in recent years as state and localgovernments’ budgets were negatively impacted by the downturn in the economy.We cannot assure you that economic conditions will continue to improve or thatif they do, that state and local governments will address deferredinfrastructure needs. Although the residential building market has experiencedgrowth in recent years, we cannot assure that this growth will continue in thefuture. The residential and non-residential building markets are cyclical, and,historically, down cycles have typically lasted approximately four to sixyears. From 1987 to 1991, total housing starts declined 38.1% from peak totrough. The United States reached a record high in single family housing startsin 2005 and housing starts continue to remain strong. Non-residentialconstruction activity, which declined from 1999 to 2003, showed a modestimprovement in 2004 and even stronger improvement in 2005. We cannot predictwhether conditions will continue to improve. Any significant decline in theresidential or non-residential building markets or 

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governmentalspending on infrastructure could have a material adverse effect on ourfinancial condition and results of operations.

**Ourbrass products contain 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.

**Certainof our products may not be in compliance with NSF standards, which could limitthe ability 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.

**Ourindustry is very competitive and some of our Anvil products are commodities.**

The domestic andinternational markets for flow control products are competitive. While thereare only a few competitors for most of our product offerings, many of them arewell-established companies with strong brand recognition. In particular, ourmalleable iron and cast iron pipe fitting products, which together comprised8.2% of our sales for our 2005 fiscal year, face competition from lessexpensive imports and our pipe nipple and hanger products and our pipe fittingsand couplings products, which together comprised 24.3% of our Anvil segmentsales in 2005, compete on the basis of price and are sold in fragmented marketswith low barriers to entry, allowing less expensive domestic and foreignproducers to gain market share and reduce our margins. Also, competition forductile iron pressure pipe sold by U.S. Pipe comes not only from ductile pipeproduced by a concentrated number of domestic manufacturers, but also from pipecomposed of other materials, such as polyvinylchloride (PVC), high densitypolyethylene (HDPE), concrete, fiberglass, reinforced plastic and steel.

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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.

**Ourresults have been, and may continue to be, adversely impacted by increases inraw material prices.**

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 rawmaterials, as we may not be able to fully pass these costs on to our customers.Management estimates that, for our 2005 fiscal year , raw materials andpurchased components used in our manufacturing processes currently account forapproximately 18% of the Mueller and Anvil cost of goods sold. Management estimatesthat scrap metal and ferrous alloys used in the U.S. Pipe manufacturing processaccounts for up to 40% of the U.S. Pipe cost to manufacture ductile iron pipe.

**Wemay be unsuccessful in identifying or integrating suitable acquisitions, whichcould adversely 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.

**Businesseswe have acquired or will acquire may not perform 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.

**Wehave a significant amount of debt which could adversely affect our financialhealth.**

As of September 30,2005, we had $930.0 million of indebtedness. As of October 3, 2005,to finance the acquisition of the Company by Walter Industries, Inc., ourtotal debt level increased to 

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$1,392.2 million.We may incur significant additional indebtedness from time to time. The levelof our indebtedness could have 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.

**Wewill require a significant amount of cash to service our debt and our abilityto generate cash depends on many factors beyond 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.

**Restrictivecovenants in our debt instruments may adversely affect us.**

Our debt instrumentscontain various covenants that limit our ability to engage in certaintransactions. The 2005 Mueller Credit Agreement also requires the maintenanceof specified financial ratios and the satisfaction of other financial conditiontests. In addition, our debt instruments require us to provide regularfinancial information to our lenders and bondholders. Such requirementsgenerally may be satisfied by our timely filing with the SEC of annual andquarterly reports under the Securities Exchange Act of 1934. Our ability tosatisfy those financial ratios, tests or covenants can be affected by eventsbeyond our control, and we cannot assure you that we will meet those tests. Abreach of any of these covenants could result in a default under our debtinstruments. If an event of default is not remedied after the delivery ofnotice of default and lapse of any relevant grace period, the holders of our seniorsecured and senior subordinated notes would be able to declare these notesimmediately due and payable and the lenders under the 2005 Mueller CreditAgreement would be able to declare an event of default. Upon the occurrence ofan event of default under the 2005 Mueller Credit Agreement, the lenders couldelect to declare all amounts outstanding thereunder to be immediately due andpayable and terminate all commitments to extend further credit. If we wereunable to repay those amounts, the lenders could proceed against the collateralgranted to them to secure the indebtedness under the 2005 Mueller CreditAgreement and the secured notes. We have pledged substantially all of ourassets, other than the assets of our foreign subsidiaries, as security underthe 2005 Mueller Credit Agreement and secured notes. If the lenders under the2005 Mueller Credit Agreement or noteholders of the notes accelerate therepayment of 

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borrowings,we cannot assure you that we will have sufficient assets to repay the 2005Mueller Credit Agreement and our other indebtedness.

**Ourbusiness may be adversely impacted by work stoppages and other laborrelations 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.”

**Wemay be subject to product liability claims that could require us to makesignificant cash payments.**

We would be exposed to product liability claims in theevent that the use of our products results, or is alleged to result, in bodilyinjury and/or property damage. We cannot assure you that we will not experienceany material product liability losses in the future or that we will not incursignificant costs to defend such claims. While we currently have productliability insurance, we cannot assure you that our product liability insurancecoverage will be adequate for any liabilities that may ultimately be incurredor that it will continue to be available on terms acceptable to us. Asuccessful claim brought against us in excess of our available insurancecoverage or a requirement to participate in a product recall may have amaterially adverse effect on our business.

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 various laws and regulationsrelating to the protection of the environment and human health and safety andmust incur capital and other expenditures to comply with these requirements.Failure to comply with any environmental, health or safety requirements couldresult in the assessment of damages, or imposition of penalties, suspension ofproduction, a required upgrade or change to equipment or processes or acessation of operations at one or more of our facilities. Because these lawsare complex, constantly changing and may be applied retroactively, we cannotassure you that these requirements, in particular as they change in the future,will not have a material adverse effect on our business, profitability andresults of operations.

In addition, we will be required to incur costs tocomply with the EPA’s National Emissions Standards for Hazardous Air Pollutants(“NESHAP”) for iron and steel foundries and for our foundries’ painting 

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operations. These costsmay be material. See “—Environmental Matters.” 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 1999 purchaseagreement Tyco International’s August 1999 sale of our business to ourprior owners,, we are indemnified by Tyco for all environmental liabilitiesarising in connection with our business and relating to actions occurring orconditions existing prior to the closing of that transaction, including certainasbestos litigation. See “Item 3.—Legal Proceedings.” The indemnity survivesforever and is not subject to any dollar limits. We however, may be responsiblefor these liabilities in the event that Tyco ever becomes financially unableto, or otherwise fails to comply with, the terms of the indemnity. In addition,Tyco’s indemnity does not cover environmental liabilities to the extent causedby our company or the operation of our business after that transaction, nordoes it cover environmental liabilities arising 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 our environmental compliance and potentialenvironmental liabilities, see “—Environmental Matters” and “Item 3.—LegalProceedings.”

**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 companythat did not file reports with the SEC. As indicated in “Item 9A—Controls andProcedures”, we have reported a material weakness in both 2004 and 2005 relatedto maintaining effective controls over the preparation, review and presentationand disclosure of our consolidated financial statements.

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-Oxley Act of 2002, as well as rules subsequentlyimplemented by the Securities and Exchange Commission and the Public CompanyAccounting Oversight Board, have required changes in the corporate governanceand securities disclosure or compliance practices of public companies over thelast few years. We expect these new rules and regulations to continue toincrease our legal and financial compliance costs, as well as our ongoing auditcosts, and to make legal, accounting and administrative activities moretime-consuming and costly. In 2006, we will need to comply with the internalcontrol reporting requirements of the Act, which will have a significant impacton our compliance cost 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.

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**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.**                 Qualitativeand Quantitative Disclosure About Market Risk

We are exposed to various market risks, which arepotential losses arising from adverse changes in market rates and prices, suchas interest rates and foreign exchange fluctuations. We do not enter intoderivatives or other financial instruments for trading or speculative 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$317.2 million and variable rate debt of $612.8 million. The pre-taxearnings and cash flows impact resulting from a 100 basis point increase ininterest rates on variable rate debt, holding other variables constant andexcluding the impact of the hedging agreements described below, would beapproximately $6.1 million per year.

As of September 30, 2005, we had entered intointerest rate swap agreements with a notional principal amount of$100 million in order to reduce interest rate risks and manage interestexpense. The swap agreements, which mature in April and May 2007,effectively convert floating rate debt under the 2004 Mueller Credit Facilityinto fixed-rate debt and carry an average fixed interest rate of 4.09% atSeptember 30, 2005.

On October 3, 2005, we entered into the 2005Mueller Credit Agreement and refinanced the 2004 Mueller Credit Facility. OnOctober 27, 2005, we entered into six interest rate hedge transactionswith a cumulative notional value of $350 million. The swap terms are betweenone and seven years with five separate counter-parties. The objective of thehedges is to protect the Company against rising LIBOR interest rates that wouldhave a negative effect on the Company’s cash flows due to changes in interestpayments on its 2005 Mueller Term Loan. The structure of the hedges are aone-year 4.617% LIBOR swap of $25 million, a three-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 aseven year 4.960% LIBOR swap of $75 million. The swap agreements call for theCompany to make fixed rate payments over the term at each swap’s stated fixedrate and to receive payments based on three month LIBOR from thecounter-parties. These swaps will be settled upon maturity and will beaccounted for as cash flow hedges. As such, changes in the fair value of theseswaps that take place through the date of maturity will be recorded inaccumulated other comprehensive income.

We will consider entering into additional interestrate swaps or other interest rate hedging instruments to protect againstinterest rate fluctuations on our floating rate debt.

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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 demandchange. Accordingly, product margins and the level of profitability canfluctuate if we are not able to pass raw material costs on to our customers.Management estimates for our Mueller and Anvil segements that raw materialsaccounted for 10-17% of our cost of goods sold in 2003 through 2004 andaccounted for approximately 18% of our cost of goods sold due to increasing rawmaterial prices in 2005. Management estimates U.S. Pipe’s scrap metal andferrous alloys used in the manufacturing process accounted for 40% of the costto manufacture ductile 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 Group, LLC are filed as part ofthis annual report beginning on page F-1 and incorporated byreference in this Item 8.

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

None

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**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 our Disclosure Controls and Procedures.***

As of the end of the period covered by this report, weevaluated the effectiveness of the design and operation of our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act’’)). Thisevaluation was done under the supervision and with the participation ofmanagement, including Dale B. Smith, President and Chief Executive 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 Weakness in Internal Control over FinancialReporting***

A material weakness is a control deficiency or acombination of control deficiencies that results in more than a remotelikelihood that a material misstatement of the annual or interim consolidatedfinancial statements will not be prevented or detected.

As of September 30,2005, the Company did not maintain effective controls over the preparation, reviewand 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’s consolidated balance sheet;and (v) classification of certain depreciation expense as selling, general andadministrative expense instead of cost of sales in the Company’s consolidatedstatement of operations. This control deficiency resulted in the restatement ofour annual consolidated financial statements for fiscal 2004 and 2003 and ourinterim consolidated financial statements for the first three quarters offiscal 2005, all interim periods of fiscal 2004 and audit adjustments to our2005 annual consolidated financial statements.  Additionally, this control deficiency couldresult in a misstatement of the presentation and disclosure of the Company’sconsolidated financial statements that would result in a material misstatementin the annual or interim financial statements that would not be prevented ordetected. Accordingly, management has determined that this control deficiencyconstitutes a material weakness.

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***Prior Year Material Weakness in Internal Control overFinancial Reporting***

As of September 30, 2004, and all interim periodsthrough June 30, 2005, we reported the following control deficienciesthat, in the aggregate, constituted a material weakness in internal controlover preparation review, and presentation and disclosure of the Company’sconsolidated financial statements. Specifically our control deficienciesincluded: (i) a lack of personnel with experience in financial reportingand control procedures necessary for SEC registrants; (ii) a lack ofsufficient controls to prevent or detect, on a timely basis, unauthorizedjournal entries; (iii) a lack of sufficient controls over information technology data conversion andprogram changes; (iv) a lack of sufficient controls over the developmentand communication of income tax provisions; (v) a lack of effectivecontrols surrounding “whistleblower” hotline complaints and internalcertifications to ensure that issues were communicated on a more timely basisby management to the audit committee and the independent registered publicaccounting firm; (vi) a lack of effective controls over revenuerecognition associated with full truckload shipments not immediately dispatchedby freight carriers; and (vii) a lack of formal controls and proceduresregarding assessment of financial exposures and transactions, includingconsideration of accounting implications under generally accepted accountingprinciples. These control deficiencies resulted in audit adjustments to theconsolidated financial statements for the year ended September 30, 2004. Additionally,these control deficiencies, in the aggregate, could result in a misstatement toaccounts and disclosures that would result in a material misstatement to theannual or interim financial statements that would not be prevented or detected. Accordingly, management determined thatthese control deficiencies in the aggregate constituted a material weakness infiscal 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 throughout the year, management believes that additionalremediation is needed and will require changes in personnel, processes andprocedures to ensure timely and accurate financial reporting on a sustainablebasis.

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

There have been no changesin our internal control over financial reporting during the three months ended 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 Internal Control Over Financial ReportingSubsequent to September 30, 2005***

Subsequent to September 30, 2005, management hastaken steps to remediate the material weakness described above. These stepsinclude a thorough review, on a quarterly basis, of foreign currencytranslation cash flow statement effects, book overdrafts and transactionsrelated to property, plant and equipment and an additional review, on aquarterly basis, of the classification requirements of each component line itemand the individual elements that comprise each line item of the statement ofcash 

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flows, in accordance withStatement of Financial Accounting Standards, No. 95, “Statement of CashFlows.’’ Additionally, the classification of deferred income tax items in thebalance sheet and cash flows statement, as well as depreciation in thestatement of operations, will be evaluated quarterly. Management believes theadditional control procedures designed, when implemented, will fully remediatethis material weakness.

In addition, subsequent to September 30, 2005,the Company has made the following changes in internal controls to improvefinancial reporting accuracy:

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

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

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

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

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

The Company continues toupgrade the knowledge of our finance staff by implementing on-going UnitedStates generally accepted accounting principles training programs, consistingof providing appropriate technical resources to our finance team and trainingon the use of such resources, conducting a series of training sessions forplant controllers, periodic distribution of 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

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**PART III**

**Item 10. Directors and Executive Officers of theRegistrant**

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 Executive Officer and Director

Mr.  Smith hasbeen President and Chief Executive Officer of Mueller since August 1999.Prior to that time, Mr. Smith served as Executive Vice President ofMueller Co. from June 1994 to August 1999, Executive Vice Presidentof Finance for Tyco Europe from 1992 to 1994, Director of Mergers andAcquisitions for Tyco from 1988 to 1992, Director of Mergers and Acquisitionsfor Grinnell Corp. from 1986 to 1988, Chief Financial Officer of Ludlow Corp.(a Tyco Company) from 1983 to 1986 and Corporate Controller for Grinnell Corp.from 1981 to 1983. From 1971 to 1981, Mr. Smith was employed by PriceWaterhouse & 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.  Sprick has been Chief Financial Officer ofMueller since November 2005. Prior to November 2005, Mr. Sprickserved as Senior Vice President and Controller of the Walter Industries, Inc.,Mueller’s ultimate parent company. From April 2002 to August 2005 Mr. Sprickserved as Vice President of Corporate Accounting of Walter Industries. Mr. Sprickwas a senior manager of PricewaterhouseCoopers from 1988 until he joined WalterIndustries in 2002. Mr. Sprick holds a bachelor’s degree in businessadministration from the University of Michigan.

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

Mr.  Fish hasbeen President of our Anvil segment since 1999. From January 2005 through November 2005,Mr. Fish served as the Company’s Interim Chief Financial Officer.Mr. Fish served as Vice President of Manufacturing for Grinnell Corp. from1996 to 1999, Vice President of Finance and Administration for Grinnell Corp.from 1992 to 1996, Corporate Controller for Grinnell Corp. from 1984 to 1992and Director of Internal Audit for Grinnell Fire Protection Systems from 1982to 1984. Mr. Fish was employed by Price Waterhouse & Co. from1976 to 1982 as a certified public accountant. Mr. Fish graduated from theUniversity of Rhode Island with a B.S. in accounting in 1976.

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

Mr.  Patrick hasbeen Vice President, General Counsel and Secretary of Mueller since November 2005.Mr. Patrick also serves as Senior Vice President, General Counsel andSecretary of Walter Industries, Inc., which positions he has held since2002. Before joining Walter Industries, Mr. Patrick was Vice President,Secretary and Deputy General Counsel for Honeywell International Inc. Prior tojoining Honeywell, Mr. Patrick was an associate in the Washington, D.C.and Brussels, Belgium 

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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 hasbeen the Vice President, Manufacturing since February, 1999. He served as PlantManager, Chattanooga from 1996 to 1999 and as Manufacturing Manager,Albertville from 1994 to 1996. Prior to that time, Mr. Gaskin held avariety of positions at Mueller’s Albertville Plant, including Maintenance &Plant Engineering Manager (3 years), Maintenance Superintendent(8 years) and Production Supervisor (8 years). Mr. Gaskingraduated from Snead State with an Associates Degree in BusinessAdministration/Management in 1988.

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

Mr.  Hyland hasserved on our Board of Directors since October 2005. In September 2005,Mr. Hyland was appointed Chairman of the Board, President and ChiefExecutive Officer of Walter Industries, Inc. Prior to joining WalterIndustries, Mr. Hyland was President, U.S. Fleet Management Solutions forRyder System, Inc. He previously served as President of the IndustrialProducts Segment of Textron, Inc.  Prior to that, he was President of theEngineered Products Group—Flow Control Division of Tyco International.Mr. Hyland is a graduate of the University of Pittsburgh, where he earnedhis bachelor’s and master of business administration degrees.

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

Mr.  Ohrt hasserved on our Board of Directors since October 2005. Mr. Ohrt hasbeen Executive Vice President and Chief Financial Officer of Walter Industriessince January 2001. Mr. Ohrt joined Walter Industries from DuraAutomotive Systems, Inc., where he served as Vice President and ChiefFinancial Officer. He previously worked at Navistar, ITT Industries andAlliedSignal. A certified public accountant, Mr. Ohrt began his career atthe Detroit offices of PriceWaterhouseCoopers. He earned his bachelor’s degreein accounting from Wayne State University in 1975 and an MBA in finance fromthe University of Detroit in 1981.

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

Mr.  Troy has served on our Board of Directors since October 2005.Mr. Troy has been Senior Vice President, Financial Services, of WalterIndustries, Inc. since April 2002.   In this position, Mr. Troy overseesWalter Industries’ Financial Services Group, where he is President of Mid-StateHomes, Inc. and Chief Executive Officer of Walter Mortgage Company since2001. He also oversees Walter Industries’ merger and acquisition activities aswell as investor 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.

**AuditCommittee and Audit 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 

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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 ofDirectors has accepted and adopted these determinations of the WalterIndustries Board. All of the members of the Audit Committee qualify as auditcommittee financial experts within the meaning of the rules and regulationsof 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 as the sole member of our Audit Committee through October 2,2005. Our Board of Directors has considered the definition of “audit committeefinancial expert” adopted by the United States Securities and ExchangeCommission determined that Mr. Sarni was an audit committee financialexpert. Our Board of Directors also determined that Mr. Sarni wasindependent, as defined under Rule 10A-3 of the Exchange Act.

During the fiscal yearended September 30, 2005, our Audit Committee was responsible forappointing, setting compensation for and overseeing the work of the independentregistered public accounting firm that audits our books and records. As aresult, the Audit Committee, as a routine matter, pre-approved allservices provided in fiscal year 2005 by the independent registered publicaccounting firm retained 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.

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**Item 11. Executive Compensation**

The following tablesummarizes information concerning the compensation awarded, paid to or earnedby our Chief Executive Officer and our four other most highly compensated executiveofficers who 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  President and Chief Executive Officer                                          |       | 2005       |       | $                            | 379,167    |       | $          | 3,373,920  |       |                            | $410,332   | (3)                                  |       |                                | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                                                                                           |       | 2004       |       | 350,000                      |       | 2,245,320  |       |       |       | (1)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                                                                                           |       | 2003       |       | 350,000                      |       | 1,273,327  |       |       |       | (1)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Thomas E. Fish Interim  Chief Financial Officer and President, Anvil  Segment (2)              |       | 2005       |       | 262,500                      |       | 874,700    |       |       | 112,293    | (3)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                                                                                           |       | 2004       |       | 245,000                      |       | 378,800    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                                                                                           |       | 2003       |       | 245,000                      |       | 158,600    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | 157,500 |   |   |   | — |   |   |   | — |   |   |
| George P. Bukuras  Vice President, Chief Compliance Officer, General Counsel and Secretary (2) |       | 2005       |       | 210,417                      |       | 468,600    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                                                                                           |       | 2004       |       | 200,000                      |       | 311,850    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                                                                                           |       | 2003       |       | 198,333                      |       | 176,851    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Darrell Jean  Vice President, Business Development (2)                                         |       | 2005       |       | 200,000                      |       | 468,600    |       |       | 107,278    | (3)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                                                                                           |       | 2004       |       | 188,333                      |       | 561,330    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                                                                                           |       | 2003       |       | 177,500                      |       | 318,332    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | 157,500 |   |   |   | — |   |   |   | — |   |   |
| Doyce Gaskin  Vice President, Manufacturing, Mueller Segment                                   |       | 2005       |       | 176,667                      |       | 534,927    |       |       | 103,617    | (3)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                                                                                           |       | 2004       |       | 165,000                      |       | 450,847    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                                                                                           |       | 2003       |       | 158,333                      |       | 284,326    |       |       |       | (1)                             |       |                                 | —     |                                |   |   | 157,500 |   |   |   | — |   |   |   | — |   |   |
|                                                                                                |            |            |            |                              |            |            |            |            |            |                                 |            |                                      |            |                                     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          The amount is less than$50,000 and 10.0% of annual compensation for that individual.

(2)          Mr. Fish served asour 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 orsubsidiaries was terminated. Effective November 4, 2005, Mr. Bukuras’semployment by the Company or any of its affiliates or subsidiaries wasterminated.

(3)          Otherannual compensation includes, among other items, compensation payments made tocurrent employees and directors to offset additional taxes owed by them as aresult of the revaluation of compensation paid in Mueller Water stock in 2004as 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.

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**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.

**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 (“Mueller Water”) Management Incentive Planhas been effective since August 31, 2000. The plan provides for the grantof incentive stock options and non-qualified stock options. Upon the completionof the April 2004 recapitalization, Mueller Water cancelled allthen-outstanding stock options, which vested in connection with therecapitalization, and granted shares of Mueller Water common stock subject totransfer restrictions on a one-for-one basis. These shares are vested but willbe subject to restrictions regarding their transferability. No options havebeen granted since the recapitalization, and none are currently expected to begranted.

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

The Mueller Water Products, LLC Direct InvestmentProgram was effective as of August 31, 2000. Each participant was entitledto purchase that number of shares of Mueller Water common stock set forth bythe plan. Pursuant to the plan, one-half of the shares purchased by eachparticipant were purchased through non-recourse loans granted by Mueller Water.In connection with the completion of the April 2004 recapitalization, allsuch participant loans were repaid in full. After our acquisition by the DLJMerchant Banking funds, our named executive officers purchased 6,200,000 sharesof Mueller Water common stock pursuant to the plan, and on February 12,2003, Dale B. Smith purchased an additional 476,244 shares of Mueller Watercommon stock pursuant to the plan. Mueller Water had authorized a maximum of10,000,000 shares of Mueller Water common stock for participants under theplan, all of which have been purchased as of September 30, 2005.

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**EmployeeAgreements and Compensation Arrangements**

***Dale B. Smith.******  ***We haveentered into an executive employment agreement with Mr. Smith, ourPresident and Chief Executive Officer. The following is a description of thematerial 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 poolestablished by our board of directors. Historically, performance has beenmeasured by determining our earnings before interest, taxes, depreciation andamortization (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.

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 Mueller Water (whether it be stock options to purchase shares of commonstock or other equity);

·       theright to sell to us the equity interest described above and all sharespreviously acquired in connection with such equity interest at a price equal tothe fair market value of such equity interest and such shares as of the date ofsale; 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 allremaining payments due to Mr. Smith will be paid within 30 days ofsuch 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. Smithhas agreed not to compete with us during his employment and for 18 monthsafter any termination of his employment. Mr. Smith has also agreed not tosolicit any 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 

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have otherwiseapplied, then Mr. Smith will not be entitled to any of the amounts paid orpayable in respect of the period that the restrictions are not observed orduring which the restrictions are ruled to be unenforceable.

***Thomas E. Fish and Doyce Gaskin.******  ***On June 17, 2005, theCompany entered into an employment agreement with Thomas E. Fish relating tohis employment with the Company, effective January 1, 2005, in thepositions of Interim Chief Financial Officer and President of the Anvil segmentof the Company’s business. In addition, on June 17, 2005, the Companyentered into an employment agreement with Doyce Gaskin relating to hisemployment with the Company, effective June 1, 2005, in the position ofVice President, Manufacturing—Mueller Segment.

The term of employmentunder each employment agreement is one year, commencing on the effective date,and renewing thereafter for successive periods of one year each.

Underhis employment agreement, Mr. Fish’s annual base salary from January 1,2005 through February 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 hisemployment agreement.  Each employmentagreement provides that the covered employee’s base salary shall be reviewed noless frequently than annually by the compensation committee of the board ofdirectors of the Company and shall be increased by an amount that is at leastequal to the greater of: (i) 4% of the employee’s base salary in effectimmediately prior to such adjustment, or (ii) the product of (A) thecost of living increase (as defined in each employment agreement) and (B) theemployee’s base salary in effect immediately prior to such adjustment.

Mr.  Fish is entitled under his employment agreement to receive anannual bonus equivalent to not less than 30% of the bonus pool applicable tocompensate senior executives of the Company’s Anvil segment, and, for thefiscal year ending September 30, 2005, a discretionary bonus of not lessthan $200,000. Mr. Gaskin is entitled under his employment agreement toreceive an annual bonus equivalent to not less than 15% of the bonus poolestablished from time to time by the board of directors based on the annualEBITDA of the Mueller segment operating units set forth in his employment agreement.Each employee also is entitled to participate in the benefit programs availableto Company employees generally, and employees in the class of senior executivesof the Company.

Under each employmentagreement, if the covered employee’s employment is terminated by the Companywithout cause, other than upon his death or disability (as defined in eachemployment agreement), or by the employee for good reason (as defined in eachemployment agreement) the employee will be entitled to receive payment of a severancebenefit in an amount 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 yearimmediately preceding the fiscal year in which termination occurs. In addition,the Company will waive its rights of repurchase with respect to any of theequity securities of the Company then held by the covered employee. The Company’sobligation to make such severance payments is conditioned upon the execution bythe employee of a release of the Company and certain other parties from certaincomplaints, claims, demands, liabilities and rights.  These severance rights supersede and replaceany rights these employees had to severance under any other arrangement oragreement with the Company, including the Company’s Key Employee SeverancePlan.

In the event a coveredemployee’s employment is terminated as a result of his death or disability, heor his heirs or estate, as applicable, will be entitled to receive the employee’sbase salary through the end of the fiscal year in which the termination occurs,reimbursement of expenses incurred prior to such termination and any bonuspayment payable to the employee for the fiscal year in which the terminationoccurs, prorated through the date of termination.

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

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***GeorgeP. Bukuras.******  ***As of February 1, 2003, theCompany entered into an employment agreement with Mr. Bukuras, our formerVice President, General Counsel, Chief Compliance Officer and Secretary. Mr. Bukuraswas terminated as of right and other than for “Cause” effective November 4,2005, on which date he resigned from all positions at the Company and itssubsidiaries. Upon termination Mr. Bukuras executed the release that wasattached to his employment agreement. The following summarizes the severanceterms applicable to Mr. Bukuras pursuant to his employment 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.

***Darrell Jean.******  ***As of February 18,2005, our subsidiary, the Company 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 such termination of employmentoccurs within 12 months following the “change of control” effected by theWalter Industries acquisition.  The plandivides eligible employees into two classes, Class A Employees and Class BEmployees, and provides that for Class A Employees, severance pay willequal 18 months of the eligible employee’s annual base salary, and for Class BEmployees, severance pay will equal 12 months of the eligible employee’sannual base salary, in each case at the salary rate in effect on the effectivedate of the employee’s termination of employment. Payment of severance pay willbe made in equal monthly installments commencing on the first payroll dateafter the effective 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 

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receiving severance pay under the plan, then such paywill cease immediately. The provision of severance pay is conditioned upon theeligible employee’s execution of a release of claims against us in the formprovided 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 committee chairman during theCompany’s internal investigation and subsequent restatement of prior yearearnings.

Mr.  Sarni was also granted options to purchase 50,000 shares of ourcommon stock at an exercise price of $1.00 per share pursuant to the Amendedand Restated Mueller Water Products, LLC Management Incentive Plan. Theseoptions vested in connection with the April 2004 recapitalization and werecancelled and shares subject to transfer restrictions were issued to Mr. Sarni.In 2005, compensation payments were made to all eligible current employees anddirectors to offset additional taxes owed by them as a result of therevaluation of compensation paid in Mueller Water stock in 2004 which, Mr. Sarnireceived $5,154.

**Item 12. Security Ownership of Certain BeneficialOwners and Management**

On October 3, 2005, in connection with theacquisition of the Company by Walter Industries, Inc., all shares of theCompany’s common stock outstanding immediately prior to the transaction,including warrants relating to the Company’s stock, were converted into rightsto receive cash equal to the merger consideration amount specified in theagreement and plan of merger dated June 17, 2005 among the Company, WalterIndustries and others. As of October 3, 2005, the Company was convertedinto a limited liability company under Delaware law, and issued a singlemembership interest, representing 100% of the Company’s outstanding equity as ofOctober 3, 2005, to a wholly-owned subsidiary of Walter Industries, Inc.,whose principal business address is 4211 W. Boy Scout Boulevard, Tampa,Florida  33607.

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Thefollowing table furnishes information, as of December 15, 2005, as to: (i) sharesof 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.common stock beneficially owned by all current directors and executive officersof the Company as a group. Except as indicated below, to the knowledge of theCompany, each person indicated in the following table has sole voting andinvestment power 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*                                                                         |       |       | 0           |                                                                                                                           |       |                                                                        | *          |   |   |
| 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                                               |       |       | [110,130.04 | ]                                                                                                                              |       |                                                                        | *          |   |   |

----

*                    Less than 1%of outstanding Walter Industries, Inc. common stock.

(1)          Inaccordance with the rules of the SEC, beneficial ownership includes votingor investment power with respect to securities and includes shares issuablepursuant to options or conversion rights that are exercisable within60 days of December 15, 2005.

**SecuritiesAuthorized for Issuance Under Equity Compensation Plans**

We had an Amended and Restated Management IncentivePlan under which compensatory stock options representing 15 million sharesof the Company’s common stock, subject to adjustment, were authorized forissuance to employees and directors. We also had a Direct Investment Programunder which certain employees purchased our common stock at a price equal tofair value at the time of the purchase, and we loaned employees up to 50% ofthe total purchase price on a non-recourse basis. As of September 30,2005, there were no options outstanding under the Amended and RestatedManagement Incentive Plan and no shares remaining for purchase under the DirectInvestment Program.  Further, as notedabove, as of October 3, 2005, all equity securities of the Companyoutstanding immediately prior to October 3, 2005 were converted intorights to receive cash under the merger agreement pursuant to which WalterIndustries acquired the Company; and, as of October 3, 2005, WalterIndustries became the owner indirectly of 100% of the Company’s equitysecurities (being a limited liability company interest).

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**Item 13. Certain Relationships and Related PartyTransactions**

**FinancialAdvisory Fees and Agreements**

Throughout the fiscal year ended September 30,2005, substantially all of the outstanding shares of our common stock were heldby the Donaldson, Lufkin & Jenrette (“DLJ”) Merchant Banking funds. Asa result of their stock ownership, the DLJ Merchant Banking funds controlledthe Company and had the power to elect all of the Company’s directors, appointnew management and approve any action requiring the approval of the holders ofcommon stock, including adopting amendments to the Company’s certificate ofincorporation and approving acquisitions or sales of all or substantially allof the Company’s assets. The directors elected by the DLJ Merchant Bankingfunds had the ability to control decisions affecting the Company’s capitalstructure, including the issuance of additional capital stock, theimplementation of stock repurchase programs 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 CreditSuisse $14,788,860, including fees that were contingent on the sale of theCompany and reimbursement of expenses, in connection with the consummation ofthe acquisition of the Company by Walter Industries. In addition, in fiscalyear 2005, we paid Credit Suisse approximately $0.5 million for servicesprovided by Credit Suisse as Administrative Agent under our 2004 Senior CreditFacility. As noted above, the relationships with Credit Suisse under thefinancial advisory agreement and our 2004 Senior Credit Facility wereterminated on October 3, 2005, in connection with the purchase of theCompany 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, theDLJ Merchant Banking Funds owned approximately 88.7% of the then outstandingshares of Company common stock, including shares into which the thenoutstanding warrants for shares of Company common stock were exercisable. Inaddition, as of immediately prior to October 3, 2005, certain of directorsand our named executive beneficially owned shares of the Company’s commonstock.

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.and others. Under the merger agreement, $25 million of the total purchase pricewas placed into an escrow fund pending resolution of the purchase priceadjustment pursuant to the merger agreement. 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, thepurchase price adjustment has not been 

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agreed to and the escrowfund has not been released to fund any purchase price adjustment or thesubsequent 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 ofDirectors during fiscal 2005, our named officers and the DLJ Merchant Bankingfunds and the initial installment of merger consideration paid to them uponconsummation of the Walter Industries acquisition. Other than Dale B. Smith,none of our current directors beneficially owned shares of Company commonstock.

| **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 Officerand 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    |   |   |

 

*Transaction Bonuses*

Inconnection with the acquisition of the Company by Walter Industries, certainnamed executive officers of the Company were entitled to receive transactionbonuses upon consummation of the acquisition. In August 2005, thetransaction bonuses were approved by our Board of Directors and bydisinterested holders of over 75% of the shares of common stock of the Companythen outstanding. The following table lists the transaction bonuses paid to ournamed executive officers on October 3, 2005 upon consummation of theWalter Industries acquisition.

| **Named Executive Officer**                                                               | ** ** | ** ** | ** ** | **Transaction Bonus Paid** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------|------------|--------------------------------------|------------|
| Dale B. Smith,*President and Chief  Executive Officerand 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 Merchant Bankingfunds, certain other institutional investors and our management stockholdershad entered into an investors’ agreement that terminated upon consummation ofthe acquisition of the Company by Walter Industries, Inc.

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**Indebtedness ofManagement**

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 ofApril 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 theApril 2004 recapitalization, holders of our common stock received $1.91per share and holders of our then-outstanding options received the excess ofthe per share dividend to our common stockholders over the exercise price oftheir 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 April 15, 2004 for loans madeby us to help them purchase our common stock with a portion of the proceedsreceived by them. See “—Indebtedness of Management.”

**Item 14. Principal Accountant 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       |     | $          | — |   |

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(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, 

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state and foreign taxreturns and tax advice and assistance regarding statutory, regulatory oradministrative 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 parent,Mueller Water.

During fiscal 2005, the Audit Committee was responsiblefor appointing, setting compensation for, and overseeing the work of theindependent 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 services provided byPricewaterhouseCoopers LLP in 2004 following the date the Company and MuellerGroup became subject to SEC rules and regulations and in 2005 werepre-approved by the Audit Committee as described above. None of such serviceswere 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.

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**PART IV**

**Item 15.      Exhibitsand Financial 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 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(6)                                                                                    |
| 3.1         |       | Certificate of  Incorporation of Mueller Group, Inc.(1)                                                                                                                                                                                                                                                |
| 3.1.1       |       | Certificate of Formation  of Mueller Group, LLC together with Certificate of Conversion to Limited  Liability Company of Mueller Group, Inc.*                                                                                                                                                          |
| 3.2         |       | Limited Liability  Company Agreement of Mueller Group, LLC*                                                                                                                                                                                                                                            |
| 4.1         |       | 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(2)                                                                                   |
| 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 10% Senior Subordinated Notes  due 2012(1)                                                                                                        |
| 4.3         |       | Intercreditor Agreement,  dated as of April 23, 2004, among Mueller Group, Inc., Credit Suisse First  Boston and Law Debenture Trust Company of New York(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(2)                                                                                                                                   |
| 10.3.1      |       | First Amendment to the  Second Amended and Restated Credit Agreement(3)                                                                                                                                                                                                                                |
| 10.3.2      |       | Waiver dated as of  February 4, 2005 under the Second Amended and Restated Credit Agreement(4)                                                                                                                                                                                                    |

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| 10.4   |   | Executive Employment  Agreement, dated August 16, 1999, between Mueller Group, Inc. and  Dale B. Smith(2)**                                                                                                                                                                                                                  |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.5   |   | Employment Agreement,  dated February 1, 2003, between Mueller Group, Inc. and George P. Bukuras(2)**                                                                                                                                                                                                                             |
| 10.6   |   | First Amended and  Restated Mueller Group, Inc. Key Employee Severance Plan, effective as of  March 1, 2003(7)**                                                                                                                                                                                                                  |
| 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)(2)                                                                                                      |
| 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.(2)                                                                                                                                                         |
| 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(5)**                                                                                                                                                                                                                     |
| 10.9   |   | Employment Agreement,  dated as of June 17, 2005, between Mueller Group, Inc. and Thomas E. Fish (7)**                                                                                                                                                                                                                            |
| 10.10  |   | Employment Agreement,  dated as of June 17, 2005, between Mueller Group, Inc. and Doyce Gaskin (7)**                                                                                                                                                                                                                              |
| 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 (8) |
| 14.1   |   | Code of Conduct*                                                                                                                                                                                                                                                                                                                  |
| 21.1   |   | Subsidiaries of Mueller  Group, 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 July 19, 2004 as an exhibit to Mueller Group, Inc.'sRegistration Statement on Form S-4 (No. 333-117473).

(2)   Previouslyfiled as an exhibit to Mueller Water Products, Inc.’s Registration Statement onForm S-1 (No. 333-116590) and incorporated herein by reference.

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

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

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

(6)   Previouslyfiled as an exhibit to the Form 8-K of Mueller Water Products, Inc.filed on June 21, 2005.

68

----

(7)   Previouslyfiled as an exhibit to the Form 8-K of Mueller Group, Inc. filed onJune 21, 2005.

(8)   Previouslyfiled as an exhibit to the Form 8-K of Mueller Group, LLC filed onOctober 5, 2005.

*       Filedherewith.

**    Compensatoryplan or arrangement.

69

----

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Shareholders and Boardof Directors ofMueller Group, LLC(formerly Mueller Group, Inc.)

In our opinion, the accompanying consolidated balancesheets and the related consolidated statements of operations, shareholders’deficit and redeemable preferred stock and of cash flows present fairly, in allmaterial respects, the financial position of Mueller Group, LLC, at September 30,2005 and 2004, and the results of its operations and its cash flows for each ofthe three years in the period ended September 30, 2005, in conformity withaccounting principles generally accepted in the United States of America. Thesefinancial statements 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 to theconsolidated financial statements, the Company has restated its 2004 and 2003consolidated financial statements.

/s/ PRICEWATERHOUSECOOPERS LLP

Chicago, IllinoisDecember 16, 2005

F-1

----

**MUELLERGROUP, LLC (FORMERLY MUELLER GROUP, 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                                         |       |                                | 29.0       |                                     |       |   | 33.8 |   |   |
| Deferred income  taxes                                                |       |                                | 10.9       |                                     |       |   | 6.5 |   |   |
| Other long-term  assets                                               |       |                                | 1.5        |                                     |       |   | 0.8 |   |   |
| Identifiable  intangibles, net                                        |       |                                | 52.4       |                                     |       |   | 55.2 |   |   |
| Goodwill                                                              |       |                                | 163.2      |                                     |       |   | 163.2 |   |   |
| Total assets                                                          |       |                                | $          | 1,077.0                                  |       |   |   | $ | 983.8 |   |   |
| **Liabilities**                                                       | ** ** |                                | ** ** | ** **                               |       |   | ** ** | ** ** |   |
| Accounts payable                                                      |       |                                | $          | 63.3                                     |       |   |   | $ | 57.6 |   |   |
| Current portion  of long-term debt                                    |       |                                | 3.8        |                                     |       |   | 3.2 |   |   |
| Accrued expenses                                                      |       |                                | 103.0      |                                     |       |   | 85.5 |   |   |
| Total current liabilities                                             |       |                                | 170.1      |                                     |       |   | 146.3 |   |   |
| Long-term  debt                                                       |       |                                | 926.2      |                                     |       |   | 929.4 |   |   |
| Accrued pension  liability                                            |       |                                | 37.7       |                                     |       |   | 29.2 |   |   |
| Other long-term  liabilities                                          |       |                                | 1.5        |                                     |       |   | 7.8 |   |   |
| Total liabilities                                                     |       |                                | 1,135.5    |                                     |       |   | 1,112.7 |   |   |
| Commitments and  contingencies (Note 9)                               |       |                                | —     |                                     |       |   | — |   |   |
| **Shareholders’  deficit:**                                      |       |                                |       |                                     |       |   |   |   |   |
| Common  stock—$0.01 par value (100 shares authorized and issued) |       |                                | —     |                                     |       |   | — |   |   |
| Accumulated  deficit                                                  |       |                                | (48.9      | )                                        |       |   | (112.9 | ) |   |
| Accumulated other  comprehensive loss                                 |       |                                | (9.6       | )                                        |       |   | (16.0 | ) |   |
| Total shareholders’ deficit                                      |       |                                | (58.5      | )                                        |       |   | (128.9 | ) |   |
| Total liabilities  and shareholders’ deficit                     |       |                                | $          | 1,077.0                                  |       |   |   | $ | 983.8 |   |   |

 

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

F-2

----

**MUELLERGROUP, LLC (FORMERLY MUELLER GROUP, INC.)CONSOLIDATED STATEMENTS OF OPERATIONS**
|                                                            | ** ** | **Fiscal Years Ended**    | ** ** |
|------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                 | ** ** | **Sept 30, 2005**         | ** ** | **Sept 30, 2004** | ** ** | **Sept 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      |   |   |   | 184.9 |   |   |   | 148.2 |   |   |
| Facility rationalization, restructuring and related  costs |       |                                | 1.7        |   |   |   | 0.9 |   |   |   | 1.7 |   |   |
| Total operating expenses                                   |       |                                | 173.8      |   |   |   | 185.8 |   |   |   | 149.9 |   |   |
| Income from  operations                                    |       |                                | 172.8      |   |   |   | 112.9 |   |   |   | 91.2 |   |   |
| Interest expense,  net of interest income                  |       |                                | (70.2      | ) |   |   | (56.3 | ) |   |   | (35.9 | ) |   |
| Income before income taxes                                 |       |                                | 102.6      |   |   |   | 56.6 |   |   |   | 55.3 |   |   |
| Provision for income  taxes                                |       |                                | 38.6       |   |   |   | 17.9 |   |   |   | 22.7 |   |   |
| Net income                                                 |       |                                | $          | 64.0 |   |   |   | $ | 38.7 |   |   |   | $ | 32.6 |   |   |

 

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

F-3

----

**MUELLERGROUP, LLC (FORMERLY MUELLER GROUP, INC.)CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT ANDREDEEMABLE PREFERRED STOCKFOR THE THREE YEARS ENDED SEPTEMBER 30, 2005**

| ** **                                        | ** ** | **Additional  Paid in  Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Comprehensive  Income (Loss)** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Total** | ** ** | **Redeemable  Preferred  Stock** | ** ** |
|---------------------------------------------------|------------|---------------------------------------|------------|--------------------------|------------|---------------------------------------|------------|---------------------------------------------|------------|-----------|------------|----------------------------------|------------|
| ** **                                        | ** ** | **(dollars in millions)**   | ** ** |
| Balance at September 30, 2002                |       |                                  | 158.1      |                     |       |                                  | (47.5      | )                                           |       |      |       |                             |       |   | (29.6 | ) |   | 81.0 |   |   | 82.4 |   |   |
| Capital contribution from Mueller  Water          |       |                                  | 0.7        |                     |       |                                  | —     |                                        |       |      |       |                             |       |   | — |   |   | 0.7 |   |   | — |   |   |
| Accretion of redeemable preferred stock           |       |                                  | (14.2      | )                        |       |                                  | —     |                                        |       |      |       |                             |       |   | — |   |   | (14.2 | ) |   | 14.2 |   |   |
| Employee stock compensation                       |       |                                  | 0.7        |                     |       |                                  | —     |                                        |       |      |       |                             |       |   | — |   |   | 0.7 |   |   | — |   |   |
| Comprehensive income                              |       |                                  |       |                     |       |                                  |       |                                        |       |      |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                        |       |                                  | —     |                     |       |                                  | 32.6       |                                        |       |      | $          | 32.6                             |       |   |   | — |   |   | 32.6 |   |   | — |   |   |
| Foreign currency  translation  adjustments        |       |                                  | —     |                     |       |                                  | —     |                                        |       |      | 10.4       |                             |       |   | 10.4 |   |   | 10.4 |   |   | — |   |   |
| Increase in additional  minimum pension liability |       |                                  | —     |                     |       |                                  | —     |                                        |       |      | (1.3       | )                                |       |   | (1.3 | ) |   | (1.3 | ) |   | — |   |   |
| Comprehensive income                              |       |                                  |       |                     |       |                                  |       |                                        |       |      | $          | 41.7                             |       |   |   |   |   |   |   |   |   |   |   |   |
| Balance at September 30, 2003                |       |                                  | 145.3      |                     |       |                                  | (14.9      | )                                           |       |      |       |                             |       |   | (20.5 | ) |   | 109.9 |   |   | 96.6 |   |   |
| Accretion of redeemable preferred  stock          |       |                                  | (9.9       | )                        |       |                                  | —     |                                        |       |      |       |                             |       |   | — |   |   | (9.9 | ) |   | 9.9 |   |   |
| Retirement of preferred stock by Mueller Water    |       |                                  | 106.5      |                     |       |                                  | —     |                                        |       |      |       |                             |       |   | — |   |   | 106.5 |   |   | (106.5 | ) |   |
| Dividends paid to Mueller Water                   |       |                                  | (263.1     | )                        |       |                                  | (136.7     | )                                           |       |      | —     |                             |       |   | — |   |   | (399.8 | ) |   |   |   |   |
| Employee stock compensation                       |       |                                  | 21.2       |                     |       |                                  | —     |                                        |       |      |       |                             |       |   | — |   |   | 21.2 |   |   | — |   |   |
| Comprehensive income                              |       |                                  |       |                     |       |                                  |       |                                        |       |      |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                        |       |                                  | —     |                     |       |                                  | 38.7       |                                        |       |      | $          | 38.7                             |       |   |   | — |   |   | 38.7 |   |   | — |   |   |
| Foreign currency translation  adjustments         |       |                                  | —     |                     |       |                                  | —     |                                        |       |      | 4.3        |                             |       |   | 4.3 |   |   | 4.3 |   |   | — |   |   |
| Decrease in additional minimum pension liability  |       |                                  | —     |                     |       |                                  | —     |                                        |       |      | 0.2        |                             |       |   | 0.2 |   |   | 0.2 |   |   | — |   |   |
| Comprehensive income                              |       |                                  |       |                     |       |                                  |       |                                        |       |      | $          | 43.2                             |       |   |   |   |   |   |   |   |   |   |   |   |
| Balance at September 30, 2004                |       |                                  | —     |                     |       |                                  | (112.9     | )                                           |       |      |       |                             |       |   | (16.0 | ) |   | (128.9 | ) |   | — |   |   |
| Comprehensive income                              |       |                                  |       |                     |       |                                  |       |                                        |       |      |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                        |       |                                  | —     |                     |       |                                  | 64.0       |                                        |       |      | $          | 64.0                             |       |   |   | — |   |   | 64.0 |   |   | — |   |   |
| Foreign currency translation  adjustments         |       |                                  | —     |                     |       |                                  | —     |                                        |       |      | 8.1        |                             |       |   | 8.1 |   |   | 8.1 |   |   | — |   |   |
| Increase in additional minimum pension liability  |       |                                  | —     |                     |       |                                  | —     |                                        |       |      | (1.7       | )                                |       |   | (1.7 | ) |   | (1.7 | ) |   | — |   |   |
| Comprehensive income                              |       |                                  |       |                     |       |                                  |       |                                        |       |      | $          | 70.4                             |       |   |   |   |   |   |   |   |   |   |   |   |
| Balance at  September 30, 2005               |       |                                  | $          | —                   |       |                                  |       | $                                           | (48.9      | )         |       |                             |       |   |   |   | $ | (9.6 | ) |   | $ | (58.5 | ) |   | $ | — |   |   |
|                                                   |            |                                       |            |                          |            |                                       |            |                                             |            |           |            |                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

F-4

----

**MUELLERGROUP, LLC (FORMERLY MUELLER GROUP, INC.)CONSOLIDATED STATEMENTS OF CASH FLOWS**

| ** **                                                                                   | ** ** | **Fiscal Years ended**    | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                   | ** ** | **September 30,  2005**        | ** ** | **September 30,  2004  (restated)** | ** ** | **September 30,  2003  (restated)** | ** ** |
| ** **                                                                                   | ** ** | **(dollars in millions)** | ** ** |
| **Operating Activities**                                                                     | ** ** |                                | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Net income                                                                                   |       |                                | $          | 64.0  |   |   |   | $ | 38.7  |   |   |   | $ | 32.6  |   |   |
| Adjustments to reconcile  net income to net cash provided by (used in) operating activities: |       |                                |       |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                                                                 |       |                                | 43.5       |   |   |   | 46.0 |   |   |   | 47.2 |   |   |
| Amortization of intangibles                                                                  |       |                                | 2.8        |   |   |   | 16.0 |   |   |   | 17.1 |   |   |
| Amortization of deferred financing fees                                                      |       |                                | 4.8        |   |   |   | 3.4 |   |   |   | 2.7 |   |   |
| Amortization of tooling                                                                      |       |                                | 2.1        |   |   |   | 2.3 |   |   |   | 2.0 |   |   |
| Write off of deferred financing fees                                                         |       |                                | —     |   |   |   | 7.0 |   |   |   | — |   |   |
| Non-cash stock compensation                                                                  |       |                                | —     |   |   |   | 8.6 |   |   |   | 0.7 |   |   |
| Realized gain on interest rate swaps                                                         |       |                                | (5.2       | ) |   |   | (12.5 | ) |   |   | (13.3 | ) |   |
| Deferred income taxes                                                                        |       |                                | (9.3       | ) |   |   | (3.0 | ) |   |   | 0.3 |   |   |
| 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                                                                             |       |                                | (4.6       | ) |   |   | (1.1 | ) |   |   | (3.5 | ) |   |
| Pension, net                                                                                 |       |                                | 6.6        |   |   |   | (2.7 | ) |   |   | 1.0 |   |   |
| Accounts payable, accrued expenses and other current  liabilities                            |       |                                | 16.6       |   |   |   | 18.5 |   |   |   | 3.5 |   |   |
| Accrued royalty expense                                                                      |       |                                | —     |   |   |   | — |   |   |   | (13.5 | ) |   |
| Other, net                                                                                   |       |                                | (0.4       | ) |   |   | 2.0 |   |   |   | 3.3 |   |   |
| Cash flows provided by operating activities                                                  |       |                                | 73.8       |   |   |   | 89.5 |   |   |   | 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                                                                 |       |                                | —     |   |   |   | 960.0 |   |   |   | — |   |   |
| Retirement of long-term debt                                                                 |       |                                | (3.3       | ) |   |   | (604.6 | ) |   |   | (6.2 | ) |   |
| Payment of deferred financing fees                                                           |       |                                | —     |   |   |   | (32.2 | ) |   |   | — |   |   |
| Dividends paid (excluding amounts paid to optionholders)                                     |       |                                | —     |   |   |   | (387.3 | ) |   |   | — |   |   |
| Contributed capital                                                                          |       |                                | —     |   |   |   | — |   |   |   | 0.7 |   |   |
| Cash flows provided by (used in) financing activities                                        |       |                                | 1.5        |   |   |   | (60.8 | ) |   |   | (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 period                                                                          |       |                                | 60.5       |   |   |   | 73.0 |   |   |   | 25.2 |   |   |
| End of period                                                                                |       |                                | $          | 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 accompanying notes are an integral part of the financial statements.

F-5

----

TheCompany recorded facility rationalization, restructuring and related charges of$1.7 million, $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-6

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**MUELLER GROUP, LLC (FORMERLY MUELLER GROUP, INC.)**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**Note 1. Organization**

Mueller Group, LLC (formerly Mueller Group, Inc.)(“Group” or the “Company”) is a wholly-owned subsidiary of Mueller WaterProducts, LLC (formerly Mueller Water Products, Inc.) (“Mueller Water”).As of September 30, 2005, the Company has two reporting and operatingsegments, Mueller and Anvil. Our Mueller segment (formerly called “Waterinfrastructure”) is a manufacturer of valves, fire hydrants and other relatedproducts utilized in the distribution of water and gas and in water andwastewater treatment facilities. Our Anvil segment segment (formerly called “Pipingsystems”) is a manufacturer of cast iron and malleable iron pipe fittings,ductile iron couplings and fittings, pipe hangers and other related productsfor the plumbing, heating, mechanical, construction retail hardware and otherrelated industries. Both segments have operations in the United States andCanada.

*Fiscal Year End—**The*fiscal year ofthe Company ends on September 30.

**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 our parent company, Mueller WaterProducts, LLC (“Mueller Water”) for a cash payment of $928.6 million. Approximately$1.05 billion of the Company’s indebtedness was assumed as part of theacquisition. In conjunction with the acquisition, through a series oftransactions, U.S. Pipe, a wholly-owned subsidiary of Walter, was contributedby Walter Industries, Inc. to the Company.

Walter financed theacquisition of the common stock of Mueller Water with a combination ofavailable cash, new debt, and borrowings under the 2005 Mueller CreditAgreement, as more fully described in Note 6 to the consolidated financialstatements. The purchase price of the Company will be allocated to Mueller’snet tangible assets and identified intangible assets based on their fair valuesat October 3, 2005. The excess of the purchase price over net tangible andintangible assets will be recorded as goodwill. In accordance with generallyaccepted accounting principles the assets and liabilities of U.S. Pipe werecontributed to the Company based on their book values as of October 3,2005.

**Note 2. Annual 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.

*Effect of exchangerate 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 ofproperty, 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 an adjustmentin determining cash flows provided by operating activities.

F-7

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*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 increased and a liability recorded with respect to suchbook overdrafts by comparable amounts. The change in the book overdraft shouldhave been reflected as a financing activity and has been included in accountspayable in the Consolidated Balance Sheet.

*Current andNon-current deferred income taxes*

In 2004, the Company should have classified certaindeferred income tax assets as current in the balance sheet, based on the natureof the underlying temporary difference, but included such temporary differencesas non-current.

*Misclassificationof depreciation expense—**In*fiscal 2003 and2004 the Company incorrectly classified certain depreciation expense amounts asselling, 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 these findings, the Company hasrestated its annual and interim financial statements. The restatement had noimpact on the Company’s net income or the consolidated statement ofstockholders’ deficit for any of the prior periods presented. Certain itemsincluded in Other, net, in the statement of cash flows in prior periods arealso presented as discrete items in the current year presentation and areincluded in the tables below.

Thefollowing tables set forth the effects of the adjustments discussed above onthe financial statements for the years ended September 30, 2004 and 2003as follows (dollars in millions):

| ** **                                                        | ** ** | **September 30, 2004** | ** ** | **September 30, 2003** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                                        | ** ** | **As**                           | ** ** | **As**                           | ** ** | **As** | ** ** | **As** | ** ** |
| **Statements of Consolidated Cash Flows**     | ** ** | ** **                       | ** ** | **Reported**                     | ** ** | **Restated** | ** ** | **Reported** | ** ** | **Restated** | ** ** |
| **Cash  Flows From Operating Activities:**                        |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| (Gain) loss on  disposal of property, plant and equipment         |       |                             | $          | —                           |       |   |   | $ | 1.6 |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Deferred income  taxes                                            |       |                             | $          | 6.7                              |       |   |   | $ | (3.0 | ) |   |   | $ | 3.8 |   |   |   | $ | 0.3 |   |   |
| Receivables                                                       |       |                             | $          | (23.6                            | )          |   |   | $ | (21.7 | ) |   |   | $ | (6.0 | ) |   |   | $ | (2.4 | ) |   |
| Inventories                                                       |       |                             | $          | (12.5                            | )          |   |   | $ | (9.6 | ) |   |   | $ | (11.1 | ) |   |   | $ | (5.3 | ) |   |
| Prepaid expenses  and other current assets                        |       |                             | $          | (1.2                             | )          |   |   | $ | (1.1 | ) |   |   | $ | (3.8 | ) |   |   | $ | (3.5 | ) |   |
| Accounts payable,  accrued expenses and other current liabilities |       |                             | $          | 19.7                             |       |   |   | $ | 18.5 |   |   |   | $ | 6.0 |   |   |   | $ | 3.5 |   |   |
| Other, net                                                        |       |                             | $          | (7.2                             | )          |   |   | $ | 2.0 |   |   |   | $ | (1.6 | ) |   |   | $ | 3.3 |   |   |
| Cash flows  provided by operating activities                      |       |                             | $          | 84.7                             |       |   |   | $ | 89.5 |   |   |   | $ | 65.2 |   |   |   | $ | 73.8 |   |   |
| **Cash Flows Used In Investing Activities:**                      |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| (Gain) 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                          |       |                             | $          | (64.1                            | )          |   |   | $ | (60.8 | ) |   |   | $ | (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             |       | $                                | 19.3       |   | $ | 6.5 |   |
| Total assets                                     |       | $                                | 978.9      |   | $ | 983.8 |   |
| Accounts payable                                 |       | $                                | 52.7       |   | $ | 57.6 |   |
| Total current  liabilities                       |       | $                                | 141.4      |   | $ | 146.3 |   |
| Total liabilities                                |       | $                                | 1,107.8    |   | $ | 1,112.7 |   |
| Total liabilities and shareholders’ deficit |       | $                                | 978.9      |   | $ | 983.8 |   |

 

**ConsolidatedStatement of Operations**

| ** **                                                                              | ** ** | **For the year ended  September 30, 2004** | ** ** |
|-----------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                                              | ** ** | **As  Reported**                                                    | ** ** | **As  Restated** | ** ** |
| Cost of goods sold                                                                      |       |                                                                | $          | 743.4 |   |   |   | $ | 750.5 |   |   |
| Gross profit                                                                            |       |                                                                | $          | 305.8 |   |   |   | $ | 298.7 |   |   |
| Selling, general and administrative expense, which  includes stock compensation expense |       |                                                                | $          | 192.0 |   |   |   | $ | 184.9 |   |   |

 

| ** **                                                                              | ** ** | **For the year ended  September 30, 2003** | ** ** |
|-----------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                                              | ** ** | **As  Reported**                                                    | ** ** | **As  Restated** | ** ** |
| Cost of goods sold                                                                      |       |                                                                | $          | 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 Accounting Policies**

*Basis of Presentation—**The*consolidatedfinancial statements include the accounts of the Company and all of its subsidiaries.Preparation of financial statements in accordance with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the amounts reported in the consolidatedstatements. Actual results could differ from those estimates. All significantintercompany transactions and balances have been eliminated. Certain priorperiod amounts have been reclassified to conform to the current yearpresentation.

*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.

*Shipping and Handling—**Costs***to ship products to customers are included in cost of salesin the Consolidated Statements of Operations. Amounts billed to customers, ifany, to cover shipping and handling costs are included in net sales.

*CustomerRebates—**Customer***rebatesare applied against net sales at the time the sales are recorded based onestimates with respect to the deductions to be taken.

F-9

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*Cash and Cash Equivalents—**The*Company considersall highly liquid investments with original maturities of ninety days or less,when purchased, to be cash equivalents. Outstanding checks are netted againstcash when there is a sufficient balance of cash available in the Company’saccounts at the bank to cover the outstanding amount and the right of offsetexists. Where there is no right of offset against cash balances, outstandingchecks are classified along with accounts payable. At September 30, 2005and 2004 the Company had book overdraft positions of $9.7 million and $4.9million, respectively, recorded in accounts payable.

*Restricted Cash—**The* Company wasrequired to use the restricted cash to make annual royalty payments to Tyco,the Company’s owner prior to August 1999, under the Grinnell LicenseAgreement which expired as of September 30, 2002. The last payment wasmade in December 2002.

*Receivables—**Receivables*relateprimarily to amounts due from customers located in North America. To reducecredit risk, credit investigations are performed prior to accepting an orderand, 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 knownto 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—**Inventories*arerecorded 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.

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 |   |

 

F-10

----

*Property, Plant andEquipment—**Property,***plantand 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 arising on the disposal of property,plant and equipment are included in the accompanying statements of operations.

*EnvironmentalExpenditures—**The***Companycapitalizes environmental expenditures that increase the life or efficiency ofproperty or that reduces or prevents environmental contamination. The Companyaccrues for environmental expenses resulting from existing conditions thatrelate to past operations when the costs are probable and reasonably estimable.The Company is indemnified by Tyco for all environmental liabilities associatedwith the Mueller and Anvil business as it existed as of August 16, 1999,whether known or not.

In 2002, the Company incurred costs of$2.1 million associated with increasing the capacity of an existing landfilloperated by the Company. The portion of the costs that extended the capacity ofthe landfill of $1.7 million was capitalized, with remaining costsexpensed. This capitalized asset is being depreciated over 10 years. TheCompany operates another landfill site and has not incurred costs to increasethe capacity through 2005. If the Company decides to increase the capacity ofthe site in the future, the portion of the cost that extends the capacity ofthe landfill will be capitalized, with any remaining cost expensed.

*Accountingfor the Impairment of Long-Lived Assets—**Long-lived***assets are reviewed for impairment whenever events orchanges in circumstances indicate that the book value of the asset may not berecoverable. The Company periodically evaluates whether  events and circumstances have occurred thatindicate possible impairment. The Company uses an estimate of the futureundiscounted net cash flows of the related asset or asset grouping over theremaining life in measuring whether the assets are recoverable.

*Goodwill,Intangible Assets and Other Assets—**Goodwill***and intangible assets that have an indefinite life aretested for impairment annually (or more frequently if events or circumstancesindicate possible impairments) using both a discounted cash flow method and amarket comparable method. As of October 1, 2001, September 30, 2002,2003, 2004, and 2005, no impairment was indicated. 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. The Company uses an estimate of futureundiscounted net cash flows of the related asset or asset grouping over theremaining life in measuring whether the assets are recoverable.

F-11

----

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 definite lived intangible assets was$2.8 million, $16.0 million, and $17.1 million for the yearsended September 30, 2005, 2004 and 2003, respectively. The $13.2 milliondecrease in amortization expense for 2005 as compared to 2004 is primarily dueto a $13.8 million reduction due to a non-compete agreement with Tyco thatwas fully amortized in 2004. Estimated amortization expense for the yearsending 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 the estimated cost of product warrantiesat the time of sale based on historical experience. Adjustments to obligationsfor warranties are made as changes in the obligations become reasonablyestimable. The following table summarizes information concerning productwarranty 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 financingincluded in other non-current assets are amortized over the life of the relatedloan agreements, which range from one to eight years. Such costs are reassessedwhen amendments occur, in accordance with Emerging Issues Task Force (EITF) 96-19,“Debtors Accounting for a Modification or Exchange of Debt Instruments.”

*IncomeTaxes—**Deferred***taxliabilities and assets are recognized for the expected future tax consequencesof events that have been included in the financial statements or tax returns.Deferred tax liabilities and assets are determined based on the differencesbetween the financial statements and the tax basis of assets and liabilities,using tax rates in effect for the years in which the differences are expectedto reverse. A valuation allowance is provided to offset any net deferred taxassets if, based upon the available evidence, it is more likely than not thatsome or all of the deferred tax assets will not be realized.

*Tooling—**Prepaid***expenses include maintenance and tooling inventory costs.Perishable tools and maintenance items are expensed when put into service. Moredurable items are amortized over their estimated useful lives, ranging from 4to 10 years.

*Researchand Development—**Research***anddevelopment expenditures are expensed when incurred.

*Advertising—**Advertising***costs are expensed when incurred.

F-12

----

*Translation of ForeignCurrency—**Assets***andliabilities of the Company’s businesses operating outside of the United Statesof America which account in a functional currency other than U.S. dollars aretranslated into U.S. dollars using year-end exchange rates. Revenues andexpenses are translated at the average exchange rates effective during theyear. Foreign currency translation gains and losses are included as a separatecomponent of stockholders’ equity. Gains and losses resulting from foreigncurrency transactions, the amounts of which are not material, are included incost of sales.

*Derivative Instruments andHedging Activities—**The***Companycurrently uses interest rate swaps as required in the credit agreement toreduce the risk of interest rate volatility. The amount to be paid or receivedfrom interest rate swaps is charged or credited to interest expense over thelives of the interest rate swap agreements. Changes in the fair value ofderivatives are recorded each period in earnings or Accumulated OtherComprehensive Income (Loss), depending on whether a derivative is designatedand effective as part of a hedge transaction and meets the applicablerequirements associated with Statement of Financial Accounting Standards (SFAS)No. 133 (see Note 8). Since the adoption of SFAS No. 133 in 2001, allgains and losses associated with interest rate swaps have been included inearnings.

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 benefitsfor work-related injuries. Liabilities, including those related to claimsincurred but not reported, are recorded principally using annual valuationsbased on discounted future expected payments and using historical data orcombined insurance industry data when historical data is limited. The Companyis indemnified by Tyco for all liabilities associated with the Mueller businessthat occurred prior to August 16, 1999. Workers’ compensation liabilitieswere 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.

*Stock Based Compensation—**The***Company had two stock-based employee compensation plans,which are more fully described in Note 12. For the fiscal year beginning October 1,2005, the Company will adopt SFAS No. 123(R), “Accounting for Stock Issuedto Employees,” which requires that compensation costs related to share-basedpayment transactions be recognized in the financial statements over the periodthat an employee provides service in exchange for the award. The Company willuse a modified prospective method, under which it will record compensation costfor new and modified awards over the related vesting period of such awardsprospectively and record compensation cost prospectively for the unvestedportion, at the date of adoption, of previously issued and outstanding awardsover the remaining vesting period of such awards. No change to prior periodspresented is permitted under the modified prospective method. The Company hadno stock options outstanding at September 30, 2005 and, therefore, doesnot expect the adoption of SFAS No. 123(R) to have a material effect.

F-13

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The Company has recognized compensation cost for stock-basedcompensation arrangements under the intrinsic value method of AccountingPrinciples Board Opinion No. 25, “Accounting for Stock Issued toEmployees,” which required recognizing compensation equal to the difference, ifany, between the fair value of the stock option and the exercise price at thedate of the grant. All options granted under the Management Incentive Plan wereissued at fair value at the date of grant. Fair value was determined by acommittee of the board of directors of the Company (or the board as a whole, ifno committee was constituted), which took into account as appropriate recentsales of shares of the Company’s common stock, recent valuations of suchshares, any discount associated with the absence of a public market for suchshares and such other factors as the committee (or the board, as the case mayhave been) deemed relevant or appropriate in its discretion.

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                                                                                                                     |       | $                                   | 64.0  |     |       | $        | 38.7  |   |   | $ | 32.6  |   |
| 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                                                                                                                         |       | $                                   | 64.0  |     |       | $        | 38.5  |   |   | $ | 32.4  |   |

 

In connection with the April 2004 Recapitalization,which is more fully described in Note 6, the Company modified these stockawards to accelerate vesting, allowed for net cash settlement of options andissued shares to optionholders with a fair value of $0.43 per share uponcompletion of the recapitalization. These actions changed the accountingtreatment of these stock awards from fixed to variable accounting. As a result,the Company recognized stock compensation expense of $18.9 million in the thirdquarter 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, certainemployees were allowed to purchase a specific number of shares of the Companyand borrow up to 50% of the total purchase price on a non-recourse basis. Inconnection with the April 2004 recapitalization, the Company forgave all loansoutstanding under this program. For those shares subject to such loans,variable plan accounting applied, resulting in a non-cash compensation chargeof $2.3 million.

**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.

**Fiscal Year 2004 Acquisitions**

*StarPipe, Inc.—**Effective***January 15,2004, the Company acquired certain assets of Star Pipe, Inc. (“Star”), aleading distributor of foreign-sourced cast and grooved fittings andcouplings, for $17.0 million in cash. The Star acquisition provides an entryinto the foreign-sourced product marketplace.

F-14

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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 theacquisition, the Company agreed to a future payment to be made to the seller tothe extent that the gross profit of the acquired business exceeds a targetedgross profit. The maximum potential payment amount is $23 million.Management currently estimates the payment could total approximately $3 to$6 million for the payment period that began February 1, 2004 andends January 31, 2007. The payment amount indicated above is based onmanagement’s best estimate, but the actual adjustment could be materiallydifferent. The liability for such payment will be recorded at the end of eachpayment period as earned, in accordance with the purchase agreement. No paymentwas earned for the years ended September 30, 2005 or September 30,2004.

The intangible assetsacquired include trademarks, customer relationships and a non-compete agreementwith the former owners. These intangibles are being amortized over theirestimated useful lives of ten years, three years and five years, respectively.

*Modern Molded Products—**Effective***January 15, 2004, the Company acquired certain assetsof Modern Molded Products (“Modern Molded”) for $2.8 million in cash. The purchaseof the assets and technology of Modern Molded allows the company to internallyproduce parts that were previously purchased and to reduce spending as well asto increase product supply line predictability.

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.

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:

| ** ** | ** ** | **(unaudited)**                     | ** **    |
|------------|------------|-------------------------------------|---------------|
| ** ** | ** ** | **2004**                            | ** **    | **2003** | ** ** |
| ** ** | ** ** | **(dollars in millions)** | ** **    |
| Net Sales  |       | $                                   | 1,056.8  |   | $ | 942.9  |   |
| Net income |       | $                                   | 39.0     |   | $ | 33.5  |   |

 

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.

F-15

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**Fiscal Year 2003 Acquisitions**

*JingmenPratt—**Effective***March 18,2003, the Company acquired certain net assets of Jingmen Pratt (“Jingmen”formerly “LS Industries”), a supplier of manufactured butterfly valves forapproximately $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  |   |   |

 

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.

F-16

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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 |       |                                | $          | 33.1  |   |   |

 

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. Income Taxes**

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                                                  |       | $                                                       | 35.9  |   |   | $ | 19.8  |   |   | $ | 19.3  |   |
| Adjustments to  reconcile to the Company’s income tax provisions:                            |       |                                                    |       |   |   |   |   |   |   |
| U.S. state income  tax provision, net                                                             |       | 3.3                                                     |       |   | 1.7 |   |   | 2.0 |   |
| Foreign rate  differential                                                                        |       | (0.2                                                    | )          |   | (0.1 | ) |   | 0.6 |   |
| Nondeductible  charges                                                                            |       | 0.3                                                     |       |   | 0.4 |   |   | 0.3 |   |
| 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)                                                                                       |       | 0.6                                                     |       |   | 0.9 |   |   | 0.5 |   |
| Provision for  income taxes                                                                       |       | 38.6                                                    |       |   | 17.9 |   |   | 22.7 |   |
| Deferred  provision (benefit) for income taxes                                                    |       | (9.3                                                    | )          |   | (3.0 | ) |   | 0.3 |   |
| Current provision for  income taxes                                                               |       | $                                                       | 47.9  |   |   | $ | 20.9  |   |   | $ | 22.4  |   |

 

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 millionand $6.3 million, respectively, for each of the periods above.

F-17

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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                          |       |                                | 12.7       |   |   | 10.9 |   |
| 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 |   |
|                                                       |       |                                | 59.0       |   |   | 56.8 |   |
| State net  operating loss carryforward valuation allowance |       |                                | (0.8       | ) |   | (1.8 | ) |
|                                                       |       |                                | 58.2       |   |   | 55.0 |   |
| **Deferred tax liabilities**                               |       |                                |       |   |   |   |   |
| Property, plant  and equipment                             |       |                                | (13.0      | ) |   | (17.8 | ) |
| Unrealized gain  on derivatives                            |       |                                | (0.2       | ) |   | — |   |
| Pensions                                                   |       |                                | (3.4       | ) |   | (5.2 | ) |
| Other                                                      |       |                                | (3.0       | ) |   | (3.7 | ) |
|                                                       |       |                                | (19.6      | ) |   | (26.7 | ) |
| Net deferred income tax  assets                            |       |                                | $          | 38.6  |   |   | $ | 28.3  |   |

 

As of September 30, 2005, the Company had $0.8 millionof state net operating loss carryforwards, due to expire in 2016 and 2021through 2023, for which there is currently a full valuation allowance. Thedecrease in valuation allowance from the prior year is due to the utilizationof state net operating loss carryforwards related to Anvil International, Inc.

Undistributed earnings ofthe Company’s foreign subsidiary amounted to approximately $80.2 millionand $64.0 million at September 30, 2005 and 2004, respectively. TheAmerican Jobs Creation Act (“AJCA”) which was enacted on October 22, 2004created a temporary incentive for US multinationals to repatriate accumulatedearnings outside the United States by providing an 85 percent dividendsreceived deduction for certain dividends from controlled foreign corporations.The Company may elect to apply this provision to 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.

F-18

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**Note6. Borrowing Arrangements**

*Long-Term Debt—**Long-term***debt consists 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 |   |
| Capital lease  obligations                          |       |                                | 2.2        |   |   | 2.6 |   |
|                                                |       |                                | 930.0      |   |   | 932.6 |   |
| Less current portion                                |       |                                | (3.8       | ) |   | (3.2 | ) |
|                                                |       |                                | $          | 926.2  |   |   | $ | 929.4  |   |

 

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 |   |
| Capital lease  obligations            |       |                                | 0.9        |           |       |           | 1.2        |                    |       |      | 0.1        |   |   | — |   | 2.2 |   |
| Total debt maturities                 |       |                                | $          | 3.8       |       |           |       | $                       | 7.0   |      |       |   | $ | 5.9  |   |   | $ | 913.3  |   | $ | 930.0  |   |

 

*Recapitalization**:*   On April 23,2004, the Company sold its Second Priority Senior Secured Floating Rate Notesdue 2011 and 10% Senior Subordinated Notes due 2012 (collectively referred toas the “Prior Notes”) generating net proceeds of approximately $402.3 million.Concurrently with those offerings, the Company amended and restated its creditfacility and borrowed $545.0 million of new term loans thereunder (“2004Mueller Credit Facility”). The Company 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 Mueller Water, which was used to (1)redeem its preferred stock (liquidation value $105.5 million at April 23, 2004)together with a 1.0% premium (approximately $1.0 million), (2) pay a dividendto common stockholders of approximately $1.43 per share, or approximately$293.4 million in the aggregate and (3) make a payment to employeeoptionholders of the excess of the per share dividend to common stockholdersover the exercise price of their options, or approximately $5.4 million in theaggregate. The Company retained approximately $10.0 million as cash to be usedfor general corporate purposes.

On April 29, 2004, MuellerWater issued 143¤4%senior discount notes, with detachable warrants to purchase Mueller Water’scommon stock. The proceeds of the offering were approximately $106.0 million,after deduction of the initial purchasers’ discounts and commissions and otherexpenses of the offering. The proceeds were used 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 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 optionholders 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. The following is a description ofour outstanding debt.

F-19

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*2004Mueller Credit Facility:*   The Company enteredinto a senior credit facility, which includes a $545 million amortizingsenior credit facility term loan ($32.2 million of which has since beenrepaid) maturing seven years after closing and an $80.0 million revolvingcredit facility that will terminate five years after closing. The revolvingcredit facility and/or the term loan facility are subject to a potential,although uncommitted, increase of up to an aggregate of $50.0 million atthe Company’s request at any time prior to maturity. In addition, althoughuncommitted, a foreign currency sub-facility may be made available to one ormore of the Company’s restricted foreign subsidiaries in an aggregate principalamount of up to the U.S. dollar equivalent of $30.0 million. This increaseand the additional foreign currency sub-facility will only be available if oneor more financial institutions agree to provide them. The Company had noborrowings under the revolving credit facility at September 30, 2005.

Borrowings 2004 Mueller Credit Facility bore interestbased on a margin over, at the Company’s option, the base rate or LIBOR. Theapplicable margin was 2.75% over LIBOR and 1.50% over the base rate for term loans.The applicable margin under the revolving senior credit facility was a range of2.25% to 3.25% over LIBOR and a range of 1.00% to 2.00% over the base rate,depending on our ratio of consolidated debt to EBITDA as defined in the seniorcredit facility. At September 30, 2005 the applicable margin on therevolving senior credit facility was 2.75% over LIBOR and 1.50% over the baserate. The Company’s obligations under the senior credit facility are guaranteedby Mueller Water and all of the Company’s existing or future domesticrestricted subsidiaries and is secured by substantially all of the assets ofthe Company and its subsidiary guarantors, including a pledge of the capitalstock of all of the Company’s existing and future domestic subsidiaries, a pledgeof no more than 65.0% of the voting stock of any of the Company’s foreignsubsidiaries, a pledge of all intercompany indebtedness in favor of the Companyand its domestic restricted subsidiaries, and a pledge of its capital stock byMueller Water. The 2004 Mueller Credit Facility contained customary covenants,including covenants that limit the Company’s ability to incur debt and liens,pay dividends and make investments and capital expenditures, and events ofdefault. Mueller Group was permitted to make payments of up to $2.0 millionin any fiscal year to Mueller Water Products to pay overhead expenses ofMueller Water Products. These restrictions expired October 3, 2005 inconnection with the acquisition by Walter.

*2005Mueller Credit Agreement.**  *On October 3, 2005, the Company 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 the Company 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 ofunderwriting fees and expenses which will be amortized over the life of theloans. The proceeds were used to refinance the prior Group credit facility andfinance the acquisition of the Company by Walter. Subsequent to September 30,2005 and prior to the acquisition by Walter on October 3, 2005, Groupwrote off $18.4 million of deferred financing fees related to the 2004 MuellerCredit Facility.

The 2005 Mueller Credit Agreement contains customaryevents of default and covenants, including covenants that restrict the abilityof the Company and certain of its subsidiaries to incur certain additionalindebtedness, create or permit liens on assets, engage in mergers or consolidations,and certain restrictive financial covenants. So long as no default hasoccurred, Mueller Group is permitted to make cash dividends to Mueller WaterProducts of up to $7.5 million in any fiscal year, or $15 million in aggregate 

F-20

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over the life of theCredit Agreement and to distribute funds to make regularly scheduled paymentswhen due of interest and principal on Mueller Water Products' notes. If anevent of default under the agreement shall occur and be continuing, thecommitments under the related credit agreement may be terminated and theprincipal amount, together with all accrued unpaid interest and other amountsowed thereunder, may be declared immediately due and payable.

*SecondPriority Senior Secured Floating Rate Notes:*   TheCompany issued $100 million of such notes. Interest on the secured notesis payable at a rate equal to the three-month reserve-adjustedLondon-interbank offered rate, or LIBOR, which is reset quarterly, plus4.75% on February 1, May 1, August 1 and November 1 of eachyear, beginning on August 1, 2004. The interest rate for the interestperiod beginning August 1, 2005 is 8.44% per annum. The secured notesmature in 2011 and are guaranteed by each of the existing domestic restrictedsubsidiaries and secured by second-priority liens on the assets securingthe senior credit facility (other than certain subsidiary stock and assets ofWater). The secured notes contain customary covenants and events of default,including covenants that limit the Company’s ability to incur debt, paydividends and make investments and also include a maintenance covenant limitingthe Company’s senior total leverage as a multiple of EBITDA, as defined in theindenture.

On October 3, 2005, the Company delivered anotice of redemption with respect to all of the secured notes, providing forthe redemption of all such secured notes on November 2, 2005. In addition,the Company delivered to Law Debenture Trust Company of New York, the trusteefor the secured notes, $104.1 million in trust equal to the principal, premiumand interest accruing to the redemption date. Subsequent to September 30,2005 and prior to the acquisition by Walter on October 3, 2005. MuellerGroup wrote off $2.4 million of deferred financing fees related to the securednotes. As a result of having called the secured notes for redemption and havingmade the payment into trust, as well as having satisfied certain otherprocedural requirements, the Company satisfied and discharged its obligationswith respect to the secured notes and the related indenture.

*10%Senior Subordinated Notes:*   The Company issued$315 million of such notes. Interest on the subordinated notes is payableat an annual rate of 10% on May 1 and November 1 of each year,beginning on November 1, 2004. The subordinated notes mature in 2012 andare guaranteed by each of the Company’s existing domestic restrictedsubsidiaries. The subordinated notes contain customary covenants and events ofdefault, including covenants that limit the Company’s ability to incur debt,pay dividends and make investments. Generally, the notes only permit us to paydividends if there is no default or event of default and our fixed charge ratio(as defined) is at least 2.5 to 1, and the maximum amount we may paycannot exceed 50% of our cumulative net income (as defined) sinceJanuary 1, 2004, subject to specified exceptions. The Company is permittedto make dividends or loans to Mueller Water of up to $2 million in any fiscalyear for costs and expenses incurred by Mueller Water in its capacity as aholding company for services rendered on behalf of the Company.

On October 4, 2005, the Company notified theholders of the subordinated 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 subordinated notes on orbefore 5:00 p.m., New York City time, on November 4, 2005 at a priceof 101% of the principal face amount of such notes. The change of control offerexpired at 5:00 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.

*CapitalLeases**—*TheCompany leases automobiles under capital lease arrangements that expire overthe next four years.

F-21

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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 |   |   |

 

**InterestRate Swap**—TheCompany has entered into interest rate swap agreements in order to reduceinterest rate risks and manage interest expense. As of September 30, 2005,a notional principal amount of $100 million in swap agreements is stilloutstanding and scheduled to mature in 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 agreementseffectively convert floating-rate debt into fixed-rate debt and carry anaverage fixed interest rate of 4.09% at September 30, 2005. Interestdifferentials to be paid or received because of swap agreements are reflectedas an adjustment to interest expense over the related debt period. For thefiscal years ended September 30, 2005, 2004 and 2003 Group recorded gainson interest rate swaps of $5.2 million, $12.5 million, and $13.3 million,respectively. While Group is exposed to credit loss on its interest rate swapsin the event of non-performance by the counterparties to such swaps, managementbelieves such nonperformance is unlikely to occur given the financial resourcesof the counterparties.

On October 27, 2005, the Company 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.

**Distributionsto Water**—MuellerWater has no material assets other than its ownership of the Company’s capitalstock and accordingly depends upon distributions from the Company to satisfyits cash needs. Mueller Water’s principal cash needs will be debt service onits Senior Discount Notes due 2014. These notes do not require cash interestpayments until 2009 and contain restrictive covenants that will, among otherthings, limit the ability of Mueller Water and its subsidiaries (including theCompany) to incur debt, pay dividends and make investments. Neither the Companynor any of its subsidiaries guarantee these notes. Mueller Water, however, is aholding company and its ability to pay interest on the notes will be dependentupon the receipt of dividends from its subsidiaries. The Company is MuellerWater’s only direct subsidiary. However, the terms of the Company’s borrowingarrangements significantly restrict its ability to pay dividends to MuellerWater.

**Fair Value of Debt**—Basedon the level of interest rates prevailing at September 30, 2005, the fairvalue of the Company’s fixed-rate debt exceeded its carrying value byapproximately $18.9 million. Unrealized gains or losses on debt do not resultin the realization or expenditure of cash and generally are not recognized forfinancial reporting purposes unless the debt is retired prior to its maturity.

**Note 7. Redeemable Preferred Stock**

*PushDown Accounting of Redeemable Preferred Stock**—*Mueller Water used a portion of thedividend paid by the Company from the proceeds of the Company’s offering ofSecond Priority Senior Secured 

F-22

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Floating Rate Notes due2011 and Senior Subordinated Notes due 2012 in April 2004 to redeemMueller Water’s preferred stock described below in full. As a result, theCompany has determined that the effect of using the proceeds of its currentdebt offering to retire Mueller Water’s mandatorily redeemable preferred stockrequired the Company to retroactively “push down” the redeemable preferred stockand reflect it as an obligation in the Company’s September 30, 2003balance sheet in compliance with the provisions of Staff AccountingBulletin 54 (Topic 5-J).

*RedeemablePreferred Stock**—*Inconnection with the Company’s formation in 1999, Mueller Water issued twomillion shares of 16% Senior Exchangeable Preferred Stock, due August 15,2010, par value $0.01 per share (“preferred stock”). The preferred stockprovided for dividends at a rate of 16% per annum, which dividends would accrueor be payable in cash, at Mueller Water’s option until August 2006. Theliquidation value was the sum of $25 per share plus the dividend accretionsince issuance.

The accretion of dividendsof $9.9 million for the fiscal year ended September 30, 2004 wasaccounted for as a non-cash transaction. The accretion reduces the net incomeavailable to common shareholders. As described in Note 6, the preferredstock was redeemed by Mueller Water on April 23, 2004.

**Note 8. 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 a derivative is designated and effective as part of a hedge transactionand, if it is, the type of hedge transaction. Any gains and losses onderivative 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 ComprehensiveIncome (Loss).

For a derivative to qualify as a hedge at inception andthroughout the hedge period, the Company must formally document the nature andrelationships between the hedging instruments and hedged items, as well as itsrisk-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.

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

On October 27, 2005,the Company 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. It isanticipated that these swaps will be settled upon maturity and will beaccounted for as cash flow hedges. As such, changes in the fair value of theseswaps that take place through the date of maturity will be recorded inaccumulated other comprehensive income. These hedges principally comply withcovenants contained in the 2005 Mueller Credit Agreement.

F-23

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**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 of rawmaterials, purchased components and capital expenditures totalling$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 August 1999and before, 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.

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

F-24

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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 $1.0million 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**

*DefinedBenefit Pension Plans**—*TheCompany has a number of non-contributory and contributory defined benefitretirement plans covering certain United States and non-United States employeesof the Company and its subsidiaries. Contributions are based on the projected unitcredit method of calculation and are charged to the statements of operations ona systematic 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 |   |

 

F-26

----

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 |   |

 

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                                                                                                                                |       | $                                                   | 0.9        |   | $ | 0.8 |   |
| Additional  minimum pension liability (pretax)                                                                                                     |       | $                                                   | 46.0       |   | $ | 43.1 |   |
| Net amount recognized                                                                                                                              |       | $                                                   | 9.2        |   | $ | 14.7 |   |

 

F-27

----

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 |   |
| Contribution to Defined  Contribution Retirement Plan from Defined Benefit Pension Plans |       | 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 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 Company consideredthe historical returns and the future expectations for returns for each assetclass, as well as the target allocation of the pension portfolio, over a 20-yeartime horizon based on the facts and circumstances that exist as of themeasurement date. The Company also reflected historical and expected futurereturns associated with its active management of certain asset classes inrecognition of the potential to outperform the broader market.

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 | % |

 

F-28

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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. The smallcap 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**—*CertainUnited States employees of the Company and its subsidiaries participate in adefined contribution 401(k) matching plan. Pension expense for the definedcontribution plan is computed as a percentage of participants’ compensation andwas $5.6 million, $5.4 million and $5.9 million for the fiscalyears ended September 30, 2005, 2004 and 2003, respectively.

F-29

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**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     |       | 4.4                                 |       | 0.5 |   |
| Accrued other  taxes                        |       | 4.1                                 |       | 4.2 |   |
| Accrued medical  claims                     |       | 4.0                                 |       | 3.6 |   |
| Other                                       |       | 17.2                                |       | 9.9 |   |
|                                        |       | $                                   | 103.0      |   | $ | 85.5 |   |

 

F-30

----

**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                                             |       | $                                                   | 72.3       |   | $ | 51.8 |   | $ | 47.0 |   |
| Deferred  financing fee amortization                                      |       | 4.8                                                 |       | 3.4 |   | 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                                                          |       | 71.9                                                |       | 56.7 |   | 36.4 |   |
| Interest income                                                           |       | (1.7                                                | )          | (0.4 | ) | (0.5 | ) |
| Total interest expense,  net of interest income                           |       | $                                                   | 70.2       |   | $ | 56.3 |   | $ | 35.9 |   |

 

Areconciliation of net income available to the common shareholder is as follows:

| ** **                                             | ** ** | **Fiscal year ended  September 30,** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                             | ** ** | **2005**                                            | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                             | ** ** | **(dollars in millions)**                 | ** ** |
| Net income                                             |       | $                                                   | 64.0       |   | $ | 38.7 |   | $ | 32.6 |   |
| Less preferred  share accretion                        |       | —                                              |       | (9.9 | ) | (14.2 | ) |
| Net income (loss)  available to the common shareholder |       | $                                                   | 64.0       |   | $ | 28.8 |   | $ | 18.4 |   |

 

**Note 13. Stock Plans**

Effective August 31, 2000, Mueller Waterimplemented its Management Incentive Plan and its Direct Investment Program.These stock plans were created with the purpose of attracting, retaining andmotivating key employees of Mueller Water and its subsidiaries (including theCompany). In conjunction with the acquisition of Mueller Water by WalterIndustries on October 3, 2005, these plans have been terminated. The Companywill be eligible to participate in the various Walter programs.

*DirectInvestment Program**—*Underthe Direct Investment Program, certain employees were allowed to purchase aspecific number of shares of Mueller Water, at a price equal to fair value atthe time of the purchase. Under the plan, Mueller Water loaned the employee upto 50% of the total purchase price on a non-recourse basis. However, all sharesof the plan were pledged as collateral. Mueller Water was authorized to grant10 million shares under the plan and issued approximately 9.5 millionshares at a purchase price of $1.00 per share as of September 30, 2000 andan additional 0.5 million shares at a purchase price of $1.50 per share asof September 30, 2003. The Company recorded non-cash compensation expenseof $2.3 million for the fiscal year ended September 30, 2004, relatedto the 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

In connection with the recapitalization completed in April 2004,all outstanding employee loans were repaid in full by the employees. TheCompany recorded a non-cash compensation charge of approximately 

F-31

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$2.3 million relatedto the loan portion of the shares purchased pursuant to the Direct InvestmentProgram. There were no remaining shares available for purchase as of September 30,2005.

*ManagementIncentive Plan**—*Underthe Management Incentive Plan, Mueller Water was authorized to grant stockoptions to key individuals of the Company and its subsidiaries. The optionswere granted to purchase common shares of Mueller Water at prices equal to thefair value of the common shares on the date the options are granted. Accordingto the Plan, the options would become fully vested and exercisable on theeighth anniversary of the date of grant, provided that the individual was inthe employment of the Company at all times during the vesting period. Theagreement provides for accelerated vesting if certain milestones were achieved.The options would have expired on the tenth anniversary of the grant date.

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 refinancing discussed in Note 6.

In connection with the April 2004 Recapitalization,which is more fully described in Note 6, the Company modified these stockawards to accelerate vesting, allowed for net cash settlement of options andissued shares to option holders with a fair value of $0.43 per share uponcompletion of the recapitalization. These actions changed the accountingtreatment of these stock awards from fixed to variable accounting. As a result,the Company recognized stock compensation expense of $18.9 million in the thirdquarter of 2004.

Informationwith respect to stock option activity under Mueller Water’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, Mueller Water 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.

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

*2005**—*During fiscal 2005, the Company recorded$1.7 million, related primarily to severance payments and to thetermination of operating leases for the building and machinery at a Muellersegment plant in Colorado that ceased manufacturing operations. As of September 30,2005, all employees have been severed and $0.3 million of lease terminationaccrual is remaining to be settled.

*2004**—*During fiscal 2004, the Company recorded$0.9 million, related to asset impairments, environmental issues at aclosed facility in Statesboro, Georgia (see Note 9) and lease expense at aclosed and vacated facility.

F-32

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*2003*—During fiscal 2003, theCompany continued its efforts to reduce operating costs. The Company incurred$0.3 million of costs related to relocation of manufacturing production toanother facility. Additionally, after reviewing its facility utilization andassociated assets, the Company recorded a charge of $1.4 million relatedto 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 ofincorporation and approving acquisitions or sales of all or substantially allof the Company’s assets. The directors elected by the DLJ Merchant Banking fundshad the ability to control decisions affecting the Company’s capital structure,including the issuance of additional capital stock, the implementation of stockrepurchase programs 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 aggregateamount of all fees payable to entities affiliated with Credit Suisse FirstBoston LLC in connection with these advisory services and financingarrangements (including those fees mentioned above) was approximately $0.9 million,$27.2 million and $0.5 million in 2003, 2004 and 2005. Thisrelationship terminated on October 3, 2005, in connection with thepurchase of the Company by Walter.

**Note 16. 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. Corporateassets include items recorded at the date of the Company’s inception in 1999related to purchase accounting valuation adjustments associated with property,plant and equipment and non-compete agreements with the predecessor parent 

F-33

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company, as well asintangibles associated with intellectual property. These assets and any relateddepreciation or amortization expense have not been pushed down to our segmentsand are maintained as Corporate items. Therefore, segment earnings are notreflective of results on a stand-alone basis.

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 segment                         |       | $                                                       | 663.9      |   | $ | 618.2 |   | $ | 536.1 |   |
| Anvil segment                           |       | 485.0                                                   |       | 431.0 |   | 386.8 |   |
| Consolidated                            |       | $                                                       | 1,148.9    |   | $ | 1,049.2 |   | $ | 922.9 |   |
| Intersegment  sales:                    |       |                                                    |       |   |   |   |   |
| Mueller segment                         |       | $                                                       | 13.9       |   | $ | 14.1 |   | $ | 13.4 |   |
| Anvil segment                           |       | 0.8                                                     |       | 0.7 |   | 0.4 |   |
| Consolidated                            |       | $                                                       | 14.7       |   | $ | 14.8 |   | $ | 13.8 |   |
| Operating income  (expense):            |       |                                                    |       |   |   |   |   |
| Mueller segment                         |       | $                                                       | 168.0      |   | $ | 142.4 |   | $ | 113.9 |   |
| Anvil segment                           |       | 45.0                                                    |       | 26.9 |   | 13.7 |   |
| Corporate expense(1)                    |       | (40.2                                                   | )          | (56.4 | ) | (36.4 | ) |
| Consolidated                            |       | $                                                       | 172.8      |   | $ | 112.9 |   | $ | 91.2 |   |
| Depreciation and  amortization expense: |       |                                                    |       |   |   |   |   |
| Mueller segment                         |       | $                                                       | 21.8       |   | $ | 24.0 |   | $ | 24.2 |   |
| Anvil segment                           |       | 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 segment                         |       | $                                                       | —     |   | $ | — |   | $ | 0.9 |   |
| Anvil segment                           |       | 0.5                                                     |       | 0.1 |   | 0.5 |   |
| Corporate                               |       | —                                                  |       | — |   | — |   |
| Consolidated                            |       | $                                                       | 0.5        |   | $ | 0.1 |   | $ | 1.4 |   |
| Capital expenditures:                   |       |                                                    |       |   |   |   |   |
| Mueller segment                         |       | $                                                       | 17.2       |   | $ | 11.3 |   | $ | 11.5 |   |
| Anvil segment                           |       | 9.7                                                     |       | 11.2 |   | 8.5 |   |
| Corporate                               |       | 0.3                                                     |       | — |   | — |   |
| Consolidated                            |       | $                                                       | 27.2       |   | $ | 22.5 |   | $ | 20.0 |   |

----

(1)    Includes certain expenses notallocated to segments.

F-34

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| ** **                 | ** ** | **Fiscal year ended  September 30,** | ** ** |
|----------------------------|------------|-----------------------------------------------------|------------|
| ** **                 | ** ** | **2005**                                            | ** ** | **2004  (restated)** | ** ** |
| ** **                 | ** ** | **(dollars in millions)**                 | ** ** |
| Total assets:              |       |                                                |       |   |   |   |   |
| Mueller segment            |       | $                                                   | 516.6      |   |   | $ | 500.0 |   |   |
| Anvil segment              |       | 303.6                                               |       |   | 307.9 |   |   |
| Corporate                  |       | 256.8                                               |       |   | 175.9 |   |   |
| Consolidated               |       | $1,077.0                                            |       |   | $ | 983.8 |   |   |
| Goodwill:                  |       |                                                |       |   |   |   |   |
| Mueller segment            |       | $                                                   | 149.1      |   |   | $ | 149.1 |   |   |
| Anvil segment              |       | 14.1                                                |       |   | 14.1 |   |   |
| Consolidated               |       | $                                                   | 163.2      |   |   | $ | 163.2 |   |   |
| Identifiable  intangibles: |       |                                                |       |   |   |   |   |
| Mueller segment            |       | $                                                   | 4.4        |   |   | $ | 5.3 |   |   |
| Anvil segment              |       | 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.

**Note17. 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 

F-35

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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, 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 18. 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 interim periodspresented, 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

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The following tables set forth the effects of theadjustments discussedabove on the financial statements for each of the periods shown below (dollarsin millions):

**Statementsof Consolidated Cash Flows**

| ** **                                                        | ** ** | **Three months ended  December 27, 2003** | ** ** | **Three months ended  January 1, 2005** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                        | ** ** | **as  reported**                                              | ** ** | **as  restated**                                            | ** ** | **as  reported** | ** ** | **as  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 |   |   |   | $ | 0.7 |   |   |   | $ | 0.6 |   |   |
| 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 | ) |   |   | $ | (21.7 | ) |   |   | $ | (22.6 | ) |   |
| Other, net                                                        |       |                                                          | $          | (0.1                                                        | )          |   |   | $ | — |   |   |   | $ | (0.4 | ) |   |   | $ | (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

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**Statementsof Consolidated Cash Flows**

| ** **                                                        | ** ** | **Six months ended  March 27, 2004** | ** ** | **Six months ended  April 2, 2005** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                        | ** ** | **as  reported**                                         | ** ** | **as  restated**                                        | ** ** | **as  reported** | ** ** | **as  restated** | ** ** |
| ** **                                                        | ** ** | **(Unaudited)**                                          | ** ** | **(Unaudited)**                                         | ** ** | **(Unaudited)** | ** ** | **(Unaudited)** | ** ** |
| **Cash Flows From Operating  Activities:**                        |       |                                                     |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| All other adjustments                                             |       |                                                     | $          | 2.2                                                     |       |   |   | $ | 2.2 |   |   |   | $ | 1.9 |   |   |   | $ | 1.8 |   |   |
| 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 | ) |   |   | $ | (2.7 | ) |   |   | $ | (3.4 | ) |   |
| Other, net                                                        |       |                                                     | $          | 3.7                                                     |       |   |   | $ | 3.6 |   |   |   | $ | 4.4 |   |   |   | $ | 5.2 |   |   |
| 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 |   |   |

 

**Statementsof Consolidated Cash Flows**

| ** **                                                        | ** ** | **Nine months ended  June 26, 2004** | ** ** | **Nine months ended  July 2, 2005** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                        | ** ** | **as  reported**                                         | ** ** | **as  restated**                                        | ** ** | **as  reported** | ** ** | **as  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 |       |                                                     | $          | 4.8                                                     |       |   |   | $ | 4.8 |   |   |   | $ | (4.4 | ) |   |   | $ | (4.8 | ) |   |
| Other, net                                                        |       |                                                     | $          | 1.1                                                     |       |   |   | $ | 1.5 |   |   |   | $ | 9.8 |   |   |   | $ | 10.9 |   |   |
| Cash flows provided by operating activities                       |       |                                                     | $          | 51.4                                                    |       |   |   | $ | 51.6 |   |   |   | $ | 31.2 |   |   |   | $ | 33.1 |   |   |
| **Cash  Flows Used In Financing Activities:**                     |       |                                                     |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Book overdrafts                                                   |       |                                                     | $          | —                                                  |       |   |   | $ | 7.9 |   |   |   | $ | — |   |   |   | $ | 3.6 |   |   |
| Cash flows used in financing activities                           |       |                                                     | $          | (62.5                                                   | )          |   |   | $ | (54.6 | ) |   |   | $ | (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  reported**              | ** ** | **as  restated**            | ** ** | **as  reported**           | ** ** | **as  restated** | ** ** | **as  reported** | ** ** | **as  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                                   |       |                          | $          | 519.8                       |       |                       |       | $ | 537.5 |   |   |   | $ | 555.6 |   |   |   | $ | 579.0 |   |   |   | $ | 573.3 |   |   |   | $ | 595.6 |   |   |
| Deferred income taxes—non-current           |       |                          | $          | 18.6                        |       |                       |       | $ | 5.1 |   |   |   | $ | 19.2 |   |   |   | $ | 5.6 |   |   |   | $ | 23.2 |   |   |   | $ | 9.4 |   |   |
| Total assets                                     |       |                          | $          | 970.2                       |       |                       |       | $ | 974.4 |   |   |   | $ | 1,001.1 |   |   |   | $ | 1,010.9 |   |   |   | $ | 1,017.3 |   |   |   | $ | 1,025.8 |   |   |
| Accounts payable                                 |       |                          | $          | 47.7                        |       |                       |       | $ | 51.9 |   |   |   | $ | 51.2 |   |   |   | $ | 61.0 |   |   |   | $ | 50.2 |   |   |   | $ | 58.7 |   |   |
| Total current  liabilities                       |       |                          | $          | 120.4                       |       |                       |       | $ | 124.6 |   |   |   | $ | 139.4 |   |   |   | $ | 149.2 |   |   |   | $ | 137.7 |   |   |   | $ | 146.2 |   |   |
| Total liabilities                                |       |                          | $          | 1,085.2                     |       |                       |       | $ | 1,089.4 |   |   |   | $ | 1,104.3 |   |   |   | $ | 1,114.1 |   |   |   | $ | 1,101.9 |   |   |   | $ | 1,110.4 |   |   |
| Total liabilities and shareholders’ deficit |       |                          | $          | 970.2                       |       |                       |       | $ | 974.4 |   |   |   | $ | 1,001.1 |   |   |   | $ | 1,010.9 |   |   |   | $ | 1,017.3 |   |   |   | $ | 1,025.8 |   |   |

 

**Consolidated Statement of Operations**

| ** **                                                                         | ** ** | **Three months ended  December 27, 2003** | ** ** | **Three months ended  March 27, 2004** | ** ** | **Three months ended  June 26, 2004** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **as  reported**                                              | ** ** | **as  restated**                                           | ** ** | **as  reported**                                          | ** ** | **as  restated** | ** ** | **as  reported** | ** ** | **as  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 |   |   |   | $ | 67.6 |   |   |   | $ | 65.8 |   |   |

 

| ** **                                                                         | ** ** | **Three months ended  January 1, 2005** | ** ** | **Three months ended  April 2, 2005** | ** ** | **Three months ended  July 2, 2005** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|-----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **as  reported**                                            | ** ** | **as  restated**                                          | ** ** | **as  reported**                                         | ** ** | **restated** | ** ** | **as  reported** | ** ** | **as  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 |       |                                                        | $          | 43.5                                                      |       |                                                     |       | $ | 41.8 |   |   |   | $ | 47.8 |   |   |   | $ | 46.1 |   |   |   | $ | 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 |       |                                                     | $          | 146.5                                                   |       |   |   | $ | 141.2 |   |   |   | $ | 139.1 |   |   |   | $ | 133.8 |   |   |

 

F-39

----

**Note 19. Subsequent Events**

On October 3, 2005, Walter acquired our parentcompany, Mueller Water, as discussed in Note 1. In conjunction with theacquisition, the Company entered into 2005 Mueller Credit Agreement, asdiscussed in Note 6. Proceeds of the 2005 Mueller Credit Agreement wereapproximately $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 prior credit facility and financethe acquisition of The Company by Walter. Subsequent to September 30, 2005and prior to the Walter acquisition on October 1, 2005, the Company wroteoff $18.4 million of deferred financing fees related to the 2004 Mueller CreditFacility.

On October 3, 2005, the Company 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,the Company delivered to Law Debenture Trust Company of New York, the trusteefor the secured notes, $104.1 million in trust equal to the principal, premiumand 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 4, 2005, the Company notified theholders of the 10% Senior Subordinated Notes that a change in control hadoccurred as a result of the Walter Industries acquisition and that, as aresult, the holders had a right to cause 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,the Company entered into six interest rate hedge transactions totaling $350million. These interest rate hedges are discussed in more detail in Note 8.

**Note 20.Consolidating Guarantor and Non-Guarantor Financial Information**

The following tables setforth the consolidating statements of operations and cash flows for each of theperiods ended September 30, 2003, 2004 and 2005 and the consolidatingbalance sheets as of September 30, 2004 and September 30, 2005. Thefollowing information is included as a result of the guarantee by certain ofthe Company’s wholly owned U.S. subsidiaries (“Guarantor Companies”) of thesecond priority senior secured notes and senior subordinated notes issued bythe Company. None of the Company’s other subsidiaries guarantee the debt. Eachof the guarantees is joint and several and full and unconditional. “MuellerGroup, Inc.” (“Issuer”) includes the consolidated financial results ofMueller Group, Inc. with all of its wholly-owned subsidiariesaccounted for under the equity method.

F-40

----

**ConsolidatingStatement of OperationsFor the Year Ended September 30, 2003**

| ** **                                                 | ** ** | **Issuer** | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminating** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|------------|------------|-----------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------|------------|
| ** **                                                 | ** ** | ** ** | ** ** | **(restated)**              | ** ** | ** **                   | ** ** | ** **                     | ** ** | **(restated)**   | ** ** |
| Net sales                                                  |       | $          | —     |                        |       | $                            | 763.9      |                           |       |             | $          | 159.0 |   |   |   | $ | — |   |   |   | $ | 922.9 |   |   |
| Cost of sales                                              |       | —     |       |                        | 548.7      |                         |       |                           | 133.1      |             |       |   | — |   |   |   | 681.8 |   |   |
| Royalty expense                                            |       | —     |       |                        | (1.6       | )                            |       |                           | 1.6        |             |       |   | — |   |   |   | — |   |   |
| Gross profit                                               |       | —     |       |                        | 216.8      |                         |       |                           | 24.3       |             |       |   | — |   |   |   | 241.1 |   |   |
| Selling, general  and administrative                       |       | 3.1        |       |                        | 128.0      |                         |       |                           | 17.1       |             |       |   | — |   |   |   | 148.2 |   |   |
| Facility  rationalization, restructuring and related costs |       | —     |       |                        | 1.7        |                         |       |                           | —     |             |       |   | — |   |   |   | 1.7 |   |   |
| Operating income  (loss)                                   |       | (3.1       | )          |                        | 87.1       |                         |       |                           | 7.2        |             |       |   | — |   |   |   | 91.2 |   |   |
| Interest expense,  net of interest income                  |       | (35.9      | )          |                        | 2.7        |                         |       |                           | (2.7       | )                |       |   | — |   |   |   | (35.9 | ) |   |
| Income (loss)  before income tax expense (benefit)         |       | (39.0      | )          |                        | 89.8       |                         |       |                           | 4.5        |             |       |   | — |   |   |   | 55.3 |   |   |
| Income tax  expense (benefit)                              |       | (16.0      | )          |                        | 36.9       |                         |       |                           | 1.8        |             |       |   | — |   |   |   | 22.7 |   |   |
| Equity income  from subsidiaries                           |       | 55.6       |       |                        | 2.7        |                         |       |                           | —     |             |       |   | (58.3 | ) |   |   | — |   |   |
| Net income                                                 |       | $          | 32.6       |                        |       | $                            | 55.6       |                           |       |             | $          | 2.7 |   |   |   | $ | (58.3 | ) |   |   | $ | 32.6 |   |   |

 

**ConsolidatingStatement of OperationsFor the Year Ended September 30, 2004**

| ** **                                                 | ** ** | **Issuer** | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminating** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|------------|------------|-----------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------|------------|
| ** **                                                 | ** ** | ** ** | ** ** | **(restated)**              | ** ** | ** **                   | ** ** | ** **                     | ** ** | **(restated)**   | ** ** |
| Net sales                                                  |       | $          | —     |                        |       | $                            | 859.6      |                           |       |             | $          | 189.6 |   |   |   | $ | — |   |   |   | $ | 1,049.2 |   |   |
| Cost of sales                                              |       | —     |       |                        | 600.5      |                         |       |                           | 150.0      |             |       |   | — |   |   |   | 750.5 |   |   |
| Royalty expense                                            |       | —     |       |                        | (2.0       | )                            |       |                           | 2.0        |             |       |   | — |   |   |   | — |   |   |
| Gross profit                                               |       | —     |       |                        | 261.1      |                         |       |                           | 37.6       |             |       |   | — |   |   |   | 298.7 |   |   |
| Selling, general  and administrative                       |       | 3.3        |       |                        | 161.6      |                         |       |                           | 20.0       |             |       |   | — |   |   |   | 184.9 |   |   |
| Facility  rationalization, restructuring and related costs |       | —     |       |                        | 0.9        |                         |       |                           | —     |             |       |   | — |   |   |   | 0.9 |   |   |
| Operating income  (loss)                                   |       | (3.3       | )          |                        | 98.6       |                         |       |                           | 17.6       |             |       |   | — |   |   |   | 112.9 |   |   |
| Interest expense,  net of interest income                  |       | (56.2      | )          |                        | 3.0        |                         |       |                           | (3.1       | )                |       |   | — |   |   |   | (56.3 | ) |   |
| Income (loss)  before income taxes                         |       | (59.5      | )          |                        | 101.6      |                         |       |                           | 14.5       |             |       |   | — |   |   |   | 56.6 |   |   |
| Income tax  expense (benefit)                              |       | (20.5      | )          |                        | 34.0       |                         |       |                           | 4.4        |             |       |   | — |   |   |   | 17.9 |   |   |
| Equity income  from subsidiaries                           |       | 77.7       |       |                        | 10.1       |                         |       |                           | —     |             |       |   | (87.8 | ) |   |   | — |   |   |
| Net income                                                 |       | $          | 38.7       |                        |       | $                            | 77.7       |                           |       |             | $          | 10.1 |   |   |   | $ | (87.8 | ) |   |   | $ | 38.7 |   |   |

 

F-41

----

**ConsolidatingStatement of OperationsFor the Year Ended September 30, 2005**

| ** **                                                 | ** ** | **Issuer** | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminating** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|------------|------------|-----------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------|------------|
| Net sales                                                  |       | $          | —     |                        |       | $                            | 911.5      |                           |       |             | $          | 237.4 |   |   |   | $ | — |   |   |   | $ | 1,148.9 |   |   |
| Cost of sales                                              |       | —     |       |                        | 613.4      |                         |       |                           | 188.9      |             |       |   | — |   |   |   | 802.3 |   |   |
| Gross profit                                               |       | —     |       |                        | 298.1      |                         |       |                           | 48.5       |             |       |   | — |   |   |   | 346.6 |   |   |
| Selling, general  and administrative                       |       | 8.3        |       |                        | 134.9      |                         |       |                           | 28.9       |             |       |   | — |   |   |   | 172.1 |   |   |
| Facility  rationalization, restructuring and related costs |       | —     |       |                        | 1.7        |                         |       |                           | —     |             |       |   | — |   |   |   | 1.7 |   |   |
| Operating income  (loss)                                   |       | (8.3       | )          |                        | 161.5      |                         |       |                           | 19.6       |             |       |   | — |   |   |   | 172.8 |   |   |
| Interest expense,  net of interest income                  |       | (70.4      | )          |                        | (0.2       | )                            |       |                           | 0.4        |             |       |   | — |   |   |   | (70.2 | ) |   |
| Income (loss)  before income taxes                         |       | (78.7      | )          |                        | 161.3      |                         |       |                           | 20.0       |             |       |   | — |   |   |   | 102.6 |   |   |
| Income tax  expense (benefit)                              |       | (30.7      | )          |                        | 62.5       |                         |       |                           | 6.8        |             |       |   | — |   |   |   | 38.6 |   |   |
| Equity income  from subsidiaries                           |       | 112.0      |       |                        | 13.2       |                         |       |                           | —     |             |       |   | (125.2 | ) |   |   | — |   |   |
| Net income                                                 |       | $          | 64.0       |                        |       | $                            | 112.0      |                           |       |             | $          | 13.2 |   |   |   | $ | (125.2 | ) |   |   | $ | 64.0 |   |   |

 

F-42

----

**ConsolidatedBalance SheetSeptember 30, 2004**

| ** **                                                 | ** ** | **Issuer**     | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|----------------|------------|-----------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **(restated)** | ** ** | **(restated)**              | ** ** | ** **                   | ** ** | ** **                      | ** ** | **(restated)**   | ** ** |
| **Assets**                                                 |       |           |       |                        |       |                         |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                                 |       | $              | 49.8       |                        |       | $                            | (7.9       | )                               |       |             | $          | 18.6 |   |   |   | $ | — |   |   |   | $ | 60.5 |   |   |
| Receivables, net                                           |       | —         |       |                        | 134.5      |                         |       |                            | 27.5       |             |       |   | — |   |   |   | 162.0 |   |   |
| Inventories                                                |       | —         |       |                        | 211.9      |                         |       |                            | 48.3       |             |       |   | — |   |   |   | 260.2 |   |   |
| Income tax  receivable                                     |       | 6.5            |       |                        | 0.1        |                         |       |                            | (2.5       | )                |       |   | — |   |   |   | 4.1 |   |   |
| Deferred income  taxes                                     |       | —         |       |                        | 21.8       |                         |       |                            | —     |             |       |   | — |   |   |   | 21.8 |   |   |
| Prepaid expenses                                           |       | —         |       |                        | 26.8       |                         |       |                            | 2.1        |             |       |   | — |   |   |   | 28.9 |   |   |
| Total current  assets                                      |       | 56.3           |       |                        | 387.2      |                         |       |                            | 94.0       |             |       |   | — |   |   |   | 537.5 |   |   |
| Property, plant  and equipment, net                        |       | 0.7            |       |                        | 173.3      |                         |       |                            | 12.8       |             |       |   | — |   |   |   | 186.8 |   |   |
| Deferred  financing fees, net                              |       | 33.8           |       |                        | —     |                         |       |                            | —     |             |       |   | — |   |   |   | 33.8 |   |   |
| Deferred income  taxes                                     |       | (3.0           | )          |                        | 10.0       |                         |       |                            | (0.5       | )                |       |   | — |   |   |   | 6.5 |   |   |
| Other long-term  assets                                    |       | —         |       |                        | 0.8        |                         |       |                            | —     |             |       |   | — |   |   |   | 0.8 |   |   |
| Identifiable  intangibles, net                             |       | —         |       |                        | 55.2       |                         |       |                            | —     |             |       |   | — |   |   |   | 55.2 |   |   |
| Goodwill                                                   |       | —         |       |                        | 163.1      |                         |       |                            | 0.1        |             |       |   | — |   |   |   | 163.2 |   |   |
| Investment in  subsidiaries                                |       | 981.3          |       |                        | 26.1       |                         |       |                            | —     |             |       |   | (1,007.4 | ) |   |   | — |   |   |
| Total assets                                               |       | $              | 1,069.1    |                        |       | $                            | 815.7      |                            |       |             | $          | 106.4 |   |   |   | $ | (1,007.4 | ) |   |   | $ | 983.8 |   |   |
| **Liabilities**                                            |       |           |       |                        |       |                         |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Accounts payable                                           |       | $              | 7.2        |                        |       | $                            | 38.4       |                            |       |             | $          | 12.0 |   |   |   | $ | — |   |   |   | $ | 57.6 |   |   |
| Current portion  of long-term debt                         |       | 2.2            |       |                        | 1.0        |                         |       |                            | —     |             |       |   | — |   |   |   | 3.2 |   |   |
| Accrued expenses                                           |       | 17.6           |       |                        | 61.9       |                         |       |                            | 6.0        |             |       |   | — |   |   |   | 85.5 |   |   |
| Total current  liabilities                                 |       | 27.0           |       |                        | 101.3      |                         |       |                            | 18.0       |             |       |   | — |   |   |   | 146.3 |   |   |
| Intercompany  accounts                                     |       | 236.9          |       |                        | (297.8     | )                            |       |                            | 60.9       |             |       |   | — |   |   |   | — |   |   |
| Long-term  debt                                            |       | 927.9          |       |                        | 1.5        |                         |       |                            | —     |             |       |   | — |   |   |   | 929.4 |   |   |
| Accrued pension  liability                                 |       | —         |       |                        | 29.4       |                         |       |                            | (0.2       | )                |       |   | — |   |   |   | 29.2 |   |   |
| Other long-term  liabilities                               |       | 6.2            |       |                        | —     |                         |       |                            | 1.6        |             |       |   | — |   |   |   | 7.8 |   |   |
| Total liabilities                                          |       | 1,198.0        |       |                        | (165.6     | )                            |       |                            | 80.3       |             |       |   | — |   |   |   | 1,112.7 |   |   |
| **Shareholders’  equity**                             |       |           |       |                        |       |                         |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Total  shareholders’ equity (deficit)                 |       | (128.9         | )          |                        | 981.3      |                         |       |                            | 26.1       |             |       |   | (1,007.4 | ) |   |   | (128.9 | ) |   |
| Total liabilities and  shareholders’ equity (deficit) |       | $              | 1,069.1    |                        |       | $                            | 815.7      |                            |       |             | $          | 106.4 |   |   |   | $ | (1,007.4 | ) |   |   | $ | 983.8 |   |   |

 

F-43

----

**ConsolidatingBalance SheetSeptember 30, 2005**

| ** **                                                 | ** ** | **Issuer** | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|------------|------------|-----------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
| **Assets**                                                 |       |       |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                                 |       | $          | 94.5       |                        |       | $                              | (11.4      | )                               |       |             | $          | 29.7 |   |   |   | $ | — |   |   |   | $ | 112.8 |   |   |
| Receivables, net                                           |       | —     |       |                        | 143.6      |                           |       |                            | 33.8       |             |       |   | — |   |   |   | 177.4 |   |   |
| Inventories                                                |       | —     |       |                        | 247.1      |                           |       |                            | 55.9       |             |       |   | — |   |   |   | 303.0 |   |   |
| Deferred income  taxes                                     |       | —     |       |                        | 27.7       |                           |       |                            | —     |             |       |   | — |   |   |   | 27.7 |   |   |
| Prepaid expenses                                           |       | —     |       |                        | 28.7       |                           |       |                            | 2.4        |             |       |   | — |   |   |   | 31.1 |   |   |
| Total current  assets                                      |       | 94.5       |       |                        | 435.7      |                           |       |                            | 121.8      |             |       |   | — |   |   |   | 652.0 |   |   |
| Property, plant  and equipment, net                        |       | —     |       |                        | 153.9      |                           |       |                            | 14.1       |             |       |   | — |   |   |   | 168.0 |   |   |
| Deferred  financing fees, net                              |       | 29.0       |       |                        | —     |                           |       |                            | —     |             |       |   | — |   |   |   | 29.0 |   |   |
| Deferred income  taxes                                     |       | (4.1       | )          |                        | 15.6       |                           |       |                            | (0.6       | )                |       |   | — |   |   |   | 10.9 |   |   |
| Other long-term  assets                                    |       | 0.5        |       |                        | 1.0        |                           |       |                            | —     |             |       |   | — |   |   |   | 1.5 |   |   |
| Identifiable  intangibles, net                             |       | —     |       |                        | 52.4       |                           |       |                            | —     |             |       |   | — |   |   |   | 52.4 |   |   |
| Goodwill                                                   |       | —     |       |                        | 163.2      |                           |       |                            | —     |             |       |   | — |   |   |   | 163.2 |   |   |
| Investment in  subsidiaires                                |       | 1,190.1    |       |                        | 42.4       |                           |       |                            | —     |             |       |   | (1,232.5 | ) |   |   | — |   |   |
| Total assets                                               |       | $          | 1,310.0    |                        |       | $                              | 864.2      |                            |       |             | $          | 135.3 |   |   |   | $ | (1,232.5 | ) |   |   | $ | 1,077.0 |   |   |
| **Liabilities**                                            | ** ** | ** ** | ** ** |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Accounts payable                                           |       | $          | 10.0       |                        |       | $                              | 37.2       |                            |       |             | $          | 16.1 |   |   |   | $ | — |   |   |   | $ | 63.3 |   |   |
| Current portion  of long-term debt                         |       | 2.8        |       |                        | 1.0        |                           |       |                            | —     |             |       |   | — |   |   |   | 3.8 |   |   |
| Accrued expenses                                           |       | 18.3       |       |                        | 74.6       |                           |       |                            | 10.1       |             |       |   | — |   |   |   | 103.0 |   |   |
| Total current  liabilities                                 |       | 31.1       |       |                        | 112.8      |                           |       |                            | 26.2       |             |       |   | — |   |   |   | 170.1 |   |   |
| Intercompany  accounts                                     |       | 410.9      |       |                        | (478.1     | )                              |       |                            | 67.2       |             |       |   | — |   |   |   | — |   |   |
| Long-term  debt                                            |       | 925.0      |       |                        | 1.2        |                           |       |                            | —     |             |       |   | — |   |   |   | 926.2 |   |   |
| Accrued pension  liability                                 |       | —     |       |                        | —     |                           |       |                            | —     |             |       |   | — |   |   |   | 37.7 |   |   |
| Other long-term  liabilities                               |       | 1.5        |       |                        | 38.2       |                           |       |                            | (0.5       | )                |       |   | — |   |   |   | 1.5 |   |   |
| Total liabilities                                          |       | 1,368.5    |       |                        | (325.9     | )                              |       |                            | 92.9       |             |       |   | — |   |   |   | 1,135.5 |   |   |
| **Shareholders’  equity**                             | ** ** | ** ** | ** ** |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Total  shareholders’ equity (deficit)                 |       | (58.5      | )          |                        | 1,190.1    |                           |       |                            | 42.4       |             |       |   | (1,232.5 | ) |   |   | (58.5 | ) |   |
| Total liabilities and  shareholders’ equity (deficit) |       | $          | 1,310.0    |                        |       | $                              | 864.2      |                            |       |             | $          | 135.3 |   |   |   | $ | (1,232.5 | ) |   |   | $ | 1,077.0 |   |   |

 

F-44

----

**ConsolidatingStatement of Cash FlowsFor the Fiscal Year Ended September 30, 2003**

| ** **                                           | ** ** | **Issuer**     | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|----------------|------------|-----------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                           | ** ** | **(restated)** | ** ** | **(restated)**              | ** ** | **(restated)**                 | ** ** | ** **                      | ** ** | **(restated)**   | ** ** |
| Net cash provided  by (used in) operating activities |       |           | $          | (26.1                       | )          |                           |       | $                               | 89.2       |             |       |   | $ | 10.7 |   |   |   | — |   |   |   | $ | 73.8 |   |   |
| **Cash  flows from investing activities**            | ** ** | ** **     | ** ** |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Capital  expenditures                                |       |           | —     |                        |       |                           | (18.0      | )                               |       |             | (2.0       | ) |   |   | — |   |   |   | (20.0 | ) |   |
| Acquisition of  businesses                           |       |           | —     |                        |       |                           | (9.3       | )                               |       |             | (1.9       | ) |   |   | — |   |   |   | (11.2 | ) |   |
| Decrease in  restricted cash                         |       |           | 11.6       |                        |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | 11.6 |   |   |
| Net cash provided  by (used in) investing activities |       |           | 11.6       |                        |       |                           | (27.3      | )                               |       |             | (3.9       | ) |   |   | — |   |   |   | (19.6 | ) |   |
| **Cash  flows from financing activities**            | ** ** | ** **     | ** ** |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Book overdrafts                                      |       |           | (2.7       | )                           |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | (2.7 | ) |   |
| Intercompany  change                                 |       |           | 57.8       |                        |       |                           | (59.1      | )                               |       |             | 1.3        |   |   |   | — |   |   |   | — |   |   |
| Retirement of  long-term debt                        |       |           | (5.3       | )                           |       |                           | (0.9       | )                               |       |             | —     |   |   |   | — |   |   |   | (6.2 | ) |   |
| Contributed  capital                                 |       |           | 0.7        |                        |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | 0.7 |   |   |
| Net cash provided  by (used in) financing activities |       |           | 50.5       |                        |       |                           | (60.0      | )                               |       |             | 1.3        |   |   |   | — |   |   |   | (8.2 | ) |   |
| Effect of  exchange rate changes on cash             |       |           | —     |                        |       |                           | —     |                            |       |             | 1.8        |   |   |   | — |   |   |   | 1.8 |   |   |
| Increase in cash                                     |       |           | 36.0       |                        |       |                           | 1.9        |                            |       |             | 9.9        |   |   |   | — |   |   |   | 47.8 |   |   |
| **Cash  and cash equivalents**                       | ** ** | ** **     | ** ** |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Beginning of  period                                 |       |           | 18.9       |                        |       |                           | (0.3       | )                               |       |             | 6.6        |   |   |   | — |   |   |   | 25.2 |   |   |
| End of period                                        |       |           | $          | 54.9                        |       |                           |       | $                               | 1.6        |             |       |   | $ | 16.5 |   |   |   | — |   |   |   | $ | 73.0 |   |   |

 

F-45

----

**ConsolidatingStatement of Cash FlowsFor the Fiscal Year Ended September 30, 2004**

| ** **                                           | ** ** | **Issuer**     | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|----------------|------------|-----------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                           | ** ** | **(restated)** | ** ** | **(restated)**              | ** ** | **(restated)**                 | ** ** | ** **                      | ** ** | **(restated)**   | ** ** |
| Net cash provided  by (used in) operating activities |       |           | $          | (18.4                       | )          |                           |       | $                               | 103.2      |             |       |   | $ | 4.7 |   |   |   | — |   |   |   | $ | 89.5 |   |   |
| **Cash flows from investing activities**             | ** ** |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Capital  expenditures                                |       |           | —     |                        |       |                           | (21.5      | )                               |       |             | (1.0       | ) |   |   | — |   |   |   | (22.5 | ) |   |
| Acquisition of  businesses                           |       |           | —     |                        |       |                           | (19.8      | )                               |       |             | —     |   |   |   | — |   |   |   | (19.8 | ) |   |
| Net cash used in  investing activities               |       |           | —     |                        |       |                           | (41.3      | )                               |       |             | (1.0       | ) |   |   | — |   |   |   | (42.3 | ) |   |
| **Cash flows from financing activities**             | ** ** |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Book overdrafts                                      |       |           | 3.3        |                        |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | 3.3 |   |   |
| Intercompany  change                                 |       |           | 72.9       |                        |       |                           | (70.2      | )                               |       |             | (2.7       | ) |   |   | — |   |   |   | — |   |   |
| Proceeds from  short-term borrowings                 |       |           | 9.2        |                        |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | 9.2 |   |   |
| Payment of  short-term borrowings                    |       |           | (9.2       | )                           |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | (9.2 | ) |   |
| Proceeds from  long-term debt                        |       |           | 960.0      |                        |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | 960.0 |   |   |
| Retirement of  long-term debt                        |       |           | (603.4     | )                           |       |                           | (1.2       | )                               |       |             | —     |   |   |   | — |   |   |   | (604.6 | ) |   |
| Payment of  deferred financing fees                  |       |           | (32.2      | )                           |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | (32.2 | ) |   |
| Dividends paid                                       |       |           | (387.3     | )                           |       |                           | —     |                            |       |             | —     |   |   |   | — |   |   |   | (387.3 | ) |   |
| Net cash provided  by (used in) financing activities |       |           | 13.3       |                        |       |                           | (71.4      | )                               |       |             | (2.7       | ) |   |   | — |   |   |   | (60.8 | ) |   |
| Effect of  exchange rate changes on cash             |       |           | —     |                        |       |                           | —     |                            |       |             | 1.1        |   |   |   | — |   |   |   | 1.1 |   |   |
| Increase  (decrease) in cash                         |       |           | (5.1       | )                           |       |                           | (9.5       | )                               |       |             | 2.1        |   |   |   | — |   |   |   | (12.5 | ) |   |
| **Cash and cash equivalents**                        | ** ** |           |       |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Beginning of  period                                 |       |           | 54.9       |                        |       |                           | 1.6        |                            |       |             | 16.5       |   |   |   | — |   |   |   | 73.0 |   |   |
| End of period                                        |       |           | $          | 49.8                        |       |                           |       | $                               | (7.9       | )                |       |   | $ | 18.6 |   |   |   | — |   |   |   | $ | 60.5 |   |   |

 

F-46

----

**ConsolidatingStatement of Cash FlowsFor the Fiscal Year Ended September 30, 2005**

| ** **                                           | ** ** | **Issuer** | ** ** | **Guarantor  Companies(1)** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|------------|------------|-----------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
| Net cash provided  by (used in) operating activities |       | $          | (42.6      | )                           |       | $                              | 103.8      |                            |       |             | $          | 12.6 |   |   |   | — |   |   |   | $ | 73.8 |   |   |
| **Cash  flows from investing activities**            | ** ** | ** ** | ** ** |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Capital  expenditures                                |       | —     |       |                        | (24.0      | )                              |       |                            | (3.2       | )                |       |   | — |   |   |   | (27.2 | ) |   |
| Proceeds from  sale of property, plant and equipment |       | —     |       |                        | 2.2        |                           |       |                            | —     |             |       |   | — |   |   |   | 2.2 |   |   |
| Net cash used in  investing activities               |       | —     |       |                        | (21.8      | )                              |       |                            | (3.2       | )                |       |   | — |   |   |   | (25.0 | ) |   |
| **Cash  flows from financing activities**            | ** ** | ** ** | ** ** |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Book overdrafts                                      |       | 4.8        |       |                        | —     |                           |       |                            | —     |             |       |   | — |   |   |   | 4.8 |   |   |
| Intercompany  change                                 |       | 84.7       |       |                        | (84.4      | )                              |       |                            | (0.3       | )                |       |   | — |   |   |   | — |   |   |
| Retirement of  long-term debt,                       |       | (2.2       | )          |                        | (1.1       | )                              |       |                            | —     |             |       |   | — |   |   |   | (3.3 | ) |   |
| Net cash provided  by (used in) financing activities |       | 87.3       |       |                        | (85.5      | )                              |       |                            | (0.3       | )                |       |   | — |   |   |   | 1.5 |   |   |
| Effect of  exchange rate changes on cash             |       | —     |       |                        | —     |                           |       |                            | 8.1        |             |       |   | — |   |   |   | 2.0 |   |   |
| Increase  (decrease) in cash                         |       | 44.7       |       |                        | (3.5       | )                              |       |                            | 11.1       |             |       |   | — |   |   |   | 52.3 |   |   |
| **Cash  and cash equivalents**                       | ** ** | ** ** | ** ** |                        |       |                           |       |                            |       |             |       |   |   |   |   |   |   |   |   |
| Beginning of period                                  |       | 49.8       |       |                        | (7.9       | )                              |       |                            | 18.6       |             |       |   | — |   |   |   | 60.5 |   |   |
| End of period                                        |       | $          | 94.5       |                        |       | $                              | (11.4      | )                               |       |             | $          | 29.7 |   |   |   | — |   |   |   | $ | 112.8 |   |   |

----

(1)          Guarantorsinclude the accounts of the following direct and indirect subsidiaries ofMueller Group, LLC:

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

 

 

F-47

----

**SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

Date: December 19,2005

|        |   | MUELLER GROUP, 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 |       | December 19,  2005 |      |
| Dale B. Smith          |          | and Director                        |       |                    |      |
| /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      |          |                                |       |                    |      |

 

 

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